stc- Annual Report 2019

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc" and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to "stc". positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stc forward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stc family and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stc has implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc" and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to "stc". positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stcforward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stc family and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stc has implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc" and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to "stc". positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stc forward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stc family and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stchas implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc" and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to "stc". positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stcforward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stc family and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stc has implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc"and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to “stc” positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stcforward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stc family and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stc has implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc" and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to “stc” positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stc forward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stc family and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stchas implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

It is such a great pleasure to present Kuwait Telecommunications Company’s (stc) Annual Report for the year ended 31 December 2019. This report summarizes stc’s 2019 performance and highlighted activities characterized by the excellent financial and operational outcomes, achieving a net profit of KD 43.6 million. The outstanding results of stc were yielded despite the intense competition in the telecommunications market and the key challenges.

This year, stc has succeeded in implementing integrated strategies in line with the increase in demand and aspirations of our customers. We are so proud of the journey stc is following to foster its position as a leader in the Kuwaiti Telecom Industry. stc has also insured developing innovative plans, offering creative services and solutions that deeply meet market’s needs and customers’ expectations in addition to applying the latest global technology in all its products and services.

The Telecommunications Market

In line with the rapid developments in telecom, technology and digitalization on a global level, stc has continued to benefit from Kuwait’s high penetration rate, which has also provided a number of challenges. With the advent and increased usage of VoIP technology, despite the higher data usage, mobile service providers have had to expand their product range and design to create alternative revenue streams.

Creating Shareholders Value

In stc, we work hard to support and expand company’s activities in addition to working in the field of integrated telecommunications and advanced technical solutions with the aim of encouraging further investments in our company. By following the suitable path, we look forward to demonstrate to our shareholders that their trust is well placed. stc has shown its ability to achieve a good growth in both revenues and EBITDA while enhancing its operational efficiency in order to create value and deliver reliable returns to its shareholders.

In 2019, stc witnessed a 2% growth in revenues reaching KD 293.7 million, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 28%. As a result, stc recorded a net profit of KD 43.6 million. On the other hand, shareholders’ equity increased by 12% at the end of 2019, reaching a book value of 431 fils per share. The Board of Directors has recommended distributing cash dividends of 50 fils per share among the shareholders representing 50% of the share nominal value for the year ended 2019, subject to the approval of the Ordinary General Assembly of the company.

The results we have achieved during 2019 reflect the company’s strategy and the quality and dedication of the Board of Directors, the executive management and our employees. stcremains committed to further enhance the quality of its customer service and operational efficiency.

Corporate Governance

stc is committed to adhere to the rules and regulations of corporate governance issued by the Capital Markets Authority of the State of Kuwait and aimed to uphold transparency, protect shareholder value and improve company’s working environment. stc also ensures applying all the laws and regulations that comply with our values and the professional foundations that drive our work to better serve the interests of our shareholders and employees. The corporate governance report in a later chapter outlines our framework in further details.

Corporate Social Responsibility

In addition to enhancing our commercial operations and market share, stc has a long-standing commitment to support the corporate social responsibility and contribute to our local community. We are consistently involved in a number of initiative and activities that benefit various groups across Kuwaiti society, including, health, sports, education and entrepreneurship. Furthermore, this report will include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I wish to thank His Highness, the Amir Sheikh Sabah Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and the government of the State of Kuwait for their continued support for the telecom sector; enabling Kuwait to hold an outstanding position in the telecom industry on a global level. I would also like to thank all the stc family for their significant efforts, enthusiasm and dedication in making this company successful and in reaching the honorable milestones. We are inspired by our customers’ confidence, which motivates us to provide the best services with the highest possible quality, as I would like to thank them for their continued trust in stc. All the gratitude to our shareholders for their continued support and confidence in stc. This commitment has enabled stc to continue on its journey of growth success over the past eleven years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2019 was a remarkable year with an exceptional number of achievements of Kuwait Telecommunications Company (stc). We have successfully launched our new brand "stc" and the 5G services commercially nationwide in addition to acquiring 100% of the share capital of Qualitynet General Trading and Contracting Company - the leading internet service provider in Kuwait. Moreover, we are planning in the coming decade to create new opportunities, enable the digital transformation and launch our 2020 developed strategy, supported by our parent company, stc Group. We have since consolidated our strong position in the Kuwaiti telecom market, notwithstanding the strong competition embodied by the ongoing stream of a wide range of new products at competitive prices. We are proud to have achieved a growth in our revenue to maintain our market share, which result in retaining our position as the second-largest telecoms operator in the local market.

During 2019, stc was the first company in the Middle East to invest in building its most advanced 5G network covering 100% of Kuwait’s populated areas by the end of 2019. In addition, stc is considered as the first company in the Middle East to achieve this percentage of coverage in the populated areas. Furthermore, stc has focused on enhancing company’s customers’ experience by fulfilling their needs and reaching their expectations, which underpinned our operational performance and quality of service. In addition, stc aspires to provide the latest digital solutions as well as high-end products and services to its customers. stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for “Kuwait 2035”, in positioning Kuwait as a major financial and commercial hub in the region.

Financial Results

Despite the intense competition in the Kuwaiti telecom market, stc recorded growth of 2% in revenues during 2019 reaching KD 293.7 million, compared to KD 287.9 million reported in 2018, while EBITDA grew by 6% to reach KD 82.4 million with an EBITDA margin of 82%. The sustained growth in revenues is attributed to the quality of our services, our service delivery and the diversity of promotions and packages offered by the company across all segments. Furthermore, stc's net profit for the year-ended 2019 reached KD 43.6 million (earnings per share of 87 Fils). Meanwhile, shareholder's equity increased by 12% to reach KD 215.4 million in 2019, compared to KD 192 million in 2018.

Operational Achievements

Driven by the challenging competitive environment in Kuwait Telecom Market, witnessed in 2019, our first priority was to define stc's core areas, increase our investments in those areas and build a digital transformation strategy that will enable us to further strengthen stc's position in the Telecom industry. Investing in our core areas is vital for stc's success and driving company’s future growth.

As highlighted in this report and in line with stc's 2019-transformation plan, we have made several investments including the acquisition of Qualitynet General Trading and Contracting Company, launching the 5G services commercially nationwide and extending stc's commercial presence across Kuwait to 93 branches. These investments are believed to support stc in developing a convergent offering, enabling the digital society and empowering us to be closer to our clients by fulfilling their growing demand for our products and services. Most importantly, changing company’s brand name to "stc". positions us among the most valuable brands in the Middle East. As stc strives to underpin its classification as one of the market leaders in innovation, stc will continue investing in its core areas as well as building strategic partnerships in the near future in order to support the new digital transformation strategy and to be pioneered in offering the digital services to individual and enterprise customers.

Strategic Transformation

Our investments in 2019 have strengthened stc's market position and created a platform to elaborate company’s new phase of growth. As a result, stc has focused on implementing its 2019 strategy by introducing new strategic pillars with the aim for stc to gain market leadership. stc's focus on customer experience, leading market growth, delivering an efficient operating model and instilling a performance culture within the organization, illustrates the strategic transformation, which will assist the company in offering better services and creating value for its customers.

Being the leader of the 5G rollout in Kuwait and one of the top telecommunication brands in the 5G coverage worldwide, stc's future strategic plan will be the focus on such services to maximize the operational revenues and create more strategic partnerships to drive stc forward to a leading role in convergent offerings.

In 2020, stc intends to create new opportunities and enable digital transformation in line with the company’s new strategy, as stc seeks, after obtaining the necessary approvals from the regulators, to launch Fintech digital financial services in the near future in the Kuwaiti market. We also rely on the expertise of the parent company “stc Group” in this area, which has a wide range of these services, including, but not limited to, stc pay.

Rebranding “VIVA” to “stc”

In line with stc Group’s new strategy, with regard to digital transformation and enriching customers’ experience through offering a pool of innovative solutions and services, stc has announced changing its brand name from “VIVA” to “stc” as of 19 December 2019. The rebranding comes with the intention to have a unified brand amongst the group companies in the Kingdom of Saudi Arabia, the State of Kuwait and the Kingdom of Bahrain in order to reflect the Groups’ subsidiaries plans in creating new opportunities in addition to enabling the digital transformation through implementing the stc Group’s 2020 new digital transformation strategy.

This brand has been launched with a new spirit and shape that reflect the digital transformation and enhance the stance of the company by implementing stc's future strategy. Moreover, the positioning of stc among the 50 best companies in the world providing digital solutions is an added value for us as we count on the expertise and great capabilities that the parent company maintains in this field, which will be positively and significantly reflected on both customer categories, individuals and enterprises.

Human Capital

stc is keen to have the skills and competencies required to achieve its strategy and to overcome future challenges. Thus, investing in our human capital is a core element of stc's business plan as our commitment to the government’s Kuwaitization program remains one of the main pillars of our strategy. stc achieved a 65% of our workforce being comprised of Kuwaiti nationals at the end of 2019. At stc, we constantly endeavor to develop and extend the capacity and capabilities of our human resources through conducting training programs and spreading the knowledge to encourage our people to achieve their goals and enrich their experience.

Gratitude

Last but not least, I would like to thank our valued customers for their loyalty and trust in stc. Furthermore, I would acknowledge the Board of Directors, Executive Committee, members of stcfamily and our partners for their contribution to the brilliance and success of stc and its continued leadership in the Kuwaiti telecom market. stc's success during 2019 was the result of the team work at stc that aimed to consolidate the significant progress towards growing and strengthening the business. stc is now at the forefront of offering the most innovative telecom and digital services. At stc, we are also keen to achieve our objectives through our efficient leadership and productivity of implementing the new strategy, transformation plan and investment activities.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

stc has successfully navigated a challenging macroeconomic environment, delivering solid results for the year ended 2019, in line with company’s expectations. During the past years, the increased competition between mobile service providers drove tariffs down, while the use of voiceover IP (VoIP) technology has had a major impact on the erosion of margins collected on traditional voice packages. Thus, the dominance of data and the need to monetize is now more critical than ever, and this year, we have worked on tackling these challenges through investing in our core business areas and delivering on our competitive strategy.

Efficiency and financial performance

Despite the competitive conditions that faced the Telecom market and squeezed the financial margins, we were able to protect and improve company’s EBITDA in 2019. stc reported excellent financial results, generating revenues of KD 293.7 million, an increase of 2% in comparison with last year, while EBITDA for the year grew by 6%, compared to last year reaching, KD 82.4 million. Our focus on driving business efficiency is reflected by our strong EBITDA margin of 28% while net income reached KD 43.6 million (EPS 87 fils) with a net profit margin of 15%.

Our ability to steer an increasingly challenging operating environment is an evidence of the capability of the business to leverage new opportunities. We aim to deliver on our strategy to create a world-class digital leader providing innovative services and platforms to our customers as well as enabling the digital transformation, benefitting from new growth opportunities, in addition to investing in assets which yield positive results and increase the operational efficiency.

Our investment in 5G service resulted in increasing the total CAPEX spending of KD 58.5 million over the year, representing 20% of stc's revenues during 2019, compared to KD 31.1 million representing 11% of stc's total revenues during 2018. On the other hand, stc's total assets increased in 2019 to reach KD 391 million with a growth rate of 28%. In addition, company’s total equity grew by 12 % reaching KD 215.4 million, with a book value of 431 Kuwaiti fils per share. In addition, the company has a strong solvency position, which is the best amongst other telecommunication companies in the Middle East, where the debt to equity ratio reached 0.09x only by the end of 2019, below the industry average. It is worth mentioning that stc's financial results for the year ended 31 December 2019 are the first consolidated financial results for the company after the acquisition of Qualitynet on 6 May 2019, including the financial results for Qualitynet for the period from 7 May 2019 to 31 December 2019.

Financial strategy

This year, we worked hard to reach stc's financial goals and enhance company growth. Our overall strategic objectives were to boost stc's revenue market share, while maintaining high levels of EBITDA and net profit.

We pride ourselves on being a forward-looking business, and much of our activity over the past 12 months has been focused on ensuring that stc is equipped to continue on its journey of growth. We built frameworks for a smart investment by setting up a team to develop this proposition and tools for analysis.

We also created a post-implementation analysis mechanism to measure the performance of this new program against our KPIs in line with our vision to refine this framework in 2020 and beyond. Starting 2019, stc has implemented the IFRS 16’s modified approach which aided the company in reaching good implementation results in compliance with the international financial reporting standards.

Looking ahead

In the coming year, we will seek to enhance our core business areas in order to augment the value and service quality we offer in addition to enhancing our market share. We will also place a clear focus on the value-creating digital opportunities to protect stc from any potential effect on its competitive market position.

Furthermore, our main objective will be creating more opportunities as well as working with IoT businesses to capitalize on the wider potentials offered by the local market. We also aim to further strengthen our operations through digitization, providing the best-in-class services to our customers, individuals and enterprises.

	stc wins Sharjah Gulf Top 10 Business Award 2018
	Acquisition of Qualitynet
	Launches 5G services in June 2019
	stc and Huawei sign MOU to develop 5G services
	Launches the new brand "stc"

	Best Network Development Award at 5G MENA
	stc Reap Three Accolades at ME Call Centre Awards
	Leading for Investor Relations in Kuwait 2018 - third in the MEA
	Won "Advertising Creativity Award" at Arab Media Forum

	Won "VIP Customer Service" Award
	Won "the speedtest 2017" award by Ookla company
	Excellence in Governance Award
	Won "best telecom operator" from Telecom World Middle East
	5G Innovator of the Year Awards

	Best Telecom Company by Arabian Business
	Member of (ITU )
	Leading Corporate for IR
	Business Innovation in Risk Management

	Partnership with Real Madrid
	Listing on KSE
	Retained earnings turned to be positive
	Ranked 2^nd in terms of revenue and subscriber market share

	The first in Kuwait to introduce the all-new (VoLTE) technology
	stc branches network reached a total of 70 across Kuwait
	First to introduce the LTE Advanced

	Completes nationwide 4G LTE Coverage and awarded Best LTE deployment in the Middle East
	Number portability and stc acquires majority of ported numbers between operators

	stc launches Elite Program for loyal, VIP and high value customers
	stc turns into profitability during the fourth year of operation
	stc starts deployment of 4G LTE network

	First to introduce Apple iPhone
	Strategic partnership with Manchester United
	First to introduce newest HSPA+ (42.2 Mbps) Broadband network

	Expands retail network and launches joint promotions with retailers
	stc wins Comms MEA Best Telecom Finance Deal

	stc introduces high speed Mobile Broadband in Kuwait
	stc launches innovative prepaid offerings and acquire 500K customers in one year

	Launches commercially
	stc abolishes incoming calls fees and other operators follow
	First operator in the world to have all IP network

Key Financial Indicators

Subscribers (million)

Revenues (KD million)

EBITDA (KD million)

EBITDA margin (%)

Net Profit Margin (%)

Shareholder’s Equity (KD million)

Cash Dividends (fils)*

EPS (fils)*

Company Profile

Vision, Mission & Values

Our Vision

Our Mission

Our Values

Dynamism

Devotion

Drive

2019 Awards

Top 10

Strategic Award

Deal of the year

Kuwait Creativity Awards 2019

Oprational Highlights

KD 29.4 million Acquisition of Qualitynet

Key Milestones

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Statements

Dr. Mahmoud Ahmed Abdulrahman

Dear Shareholder,

The Telecommunications Market

Creating Shareholders Value

Corporate Governance

Corporate Social Responsibility

Appreciation

Eng. Maziad Bin Nasser Al Harbi

Dear Shareholders,

Financial Results

Operational Achievements

Strategic Transformation

Rebranding “VIVA” to “stc”

Human Capital

Gratitude

Mr. Mohammed Bin AbdulMohsen Al Assaf

Overview

Efficiency and financial performance

Financial strategy

Looking ahead

Dr. Mahmoud Ahmed Abdulrahman

Dear Shareholder,

The Telecommunications Market

Creating Shareholders Value

Corporate Governance

Corporate Social Responsibility

Appreciation

Eng. Maziad Bin Nasser Al Harbi

Dear Shareholders,

Financial Results

Operational Achievements

Strategic Transformation

Rebranding “VIVA” to “stc”

Human Capital

Gratitude

Mr. Mohammed Bin AbdulMohsen Al Assaf

Overview

Efficiency and financial performance

Financial strategy

Looking ahead

Dr. Mahmoud Ahmed Abdulrahman

Dear Shareholder,