Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.

Dr. Mahmoud Ahmed Abdulrahman

Chairman

Dear Shareholder,

I am delighted to present Kuwait Telecommunications Company’s ( stc) Annual Report for the year ended 31 December 2020. This report demonstrates stc’s outstanding performance during an unprecedented period due to the COVID-19 crisis and the disruption it has caused to our daily life. Not to mention the considerable damage which inflicted many sectors due to the global fears from the uncertainty and the near-absence of future prospects in this regard. This report also addresses the company’s strategy, which has been highly streamlined and has significantly assisted the local community to adapt to the new digital age. Whereby, stc succeeded in providing its customers with the most innovative business solutions in collaboration with its specialized arm, solutions by stc. Despite the negative impact of the COVID-19 crisis on the global financial markets in various industries, stc was able to achieve financial and operational achievements that meet the aspirations of the company’s shareholders, recording a net profit of KD 32.1 million.As economic uncertainty and financial pressures worsened, stc took it upon itself to launch a wide range of products that meet customers’ demands in that period. As a result, stc has strengthened its position in the market as a leader in the digital and latest technological advances arena driven by the growing demand for the digital services in Kuwait and all over the world. Seizing opportunities, developing plans and innovative solutions in addition to providing innovative services to customers have been amongst the strategic foundations of stc since its inception in 2008. Hence, stc is keen to lead and enable the digitization process in the region leveraging the synergies resulting from the company’s integration with solutions by stc.

The Telecommunications Market and COVID-19

The Kuwaiti telecommunications market has shown flexibility in addressing economic challenges and risks through playing a key role in helping the community and meeting its needs. Throughout the pandemic’s outbreak in 2020 up until today, stc has been using the latest global technologies in addition to doing its utmost to provide innovative digital services aimed at meeting the community’s various needs during closure periods, curfews and beyond. With the advent and increased usage of digital platforms, mobile service providers have rushed to offer 5G backed products and services to mitigate the negative effects of the COVID-19 crisis on the Kuwaiti society. Thus, in response to the challenges and changes in the demand for digital communication services, stc has undertaken several initiatives aimed at facilitating remote working in addition to enabling online education as well as many digital and technical services targeting the B2B and B2C sectors. Through combining the latest technologies that distinguish us and the recent urgent need for digitization, stc has expanded its range of products, services and designs to keep pace with the rapid developments in telecommunications, technology and digitization services on a global level.

Creating Shareholders Value

At stc, we focus on creating shareholders value by establishing long-term growth from sustainable profits in addition to increasing total returns that are in the best interests of the company’s shareholders. With the support of the company’s business continuity plans, stc has been firmly keen to adhere to the corporate goals and values while monitoring developments and finding solutions, as well as enhancing the enthusiasm of the working teams in an effort to make a positive impact not only on employees and customers, but also on the community as a whole. Over the past years, stc’s performance has been evident through its operational efficiency, financial stability and the strength of its products, in addition to its distinctive and well-established brand in the telecommunications sector.

This has, in turn, enabled stc to succeed in expanding its footprint in the telecom industry and attract a large number of investors. Since the onset of the crisis, stc has been at the forefront in providing innovative and integrated digital solutions based on the latest technological developments for its customers, individuals and corporates. We have been able to achieve good results throughout the pandemic through adopting a flexible operating model, in addition to being flexible in implementing the company’s digital transformation strategy. stc also provided advanced technical solutions in line with the government’s expectations and social distancing plan. In order to win the trust of our valued shareholders, we follow a career path that elevates the best global practices to show our ability to deliver good results in both revenues and net profit, also to enhance our operational efficiency. Despite the 2020 crisis, stc managed to achieve a total revenue of KD 283.2 mn, where EBITDA reached KD 73.4 mn with an EBITDA margin of 26%. As a result, stc recorded a net profit of KD 32.1 mn. On the other hand, shareholders’ equity increased by 3.2% at the end of 2020, reaching a book value of 445 fils per share. The Board of Directors has recommended distributing cash dividends of 60 fils per share representing 60% of the share nominal value for the year ended 2020, subject to the approval of the Ordinary General Assembly of the company. This decision was based on stc’s confidence in its sustainability, strong financial position and ongoing cash flow generation during economic downturns.

These results reflect stc’s ability to overcome unprecedented challenges represented by the current global pandemic. Furthermore, the results demonstrated the quality of the company’s strategy and the dedication of each of the Board of Directors, the executive management and its employees. At stc, we are committed to enhancing the quality of our products, services, customer relationships and operational efficiency in order to maintain our market position during difficult times and economic uncertainties in addition to the ongoing societal changes.

Corporate Governance

stc is committed to adhering to the corporate governance rules and regulations issued by the Capital Markets Authority in the State of Kuwait which aims to uphold transparency, protect shareholders value and improve company’s operating environment. In conjunction with all the recent changes imposed by the regulatory bodies with regards to the Annual General Meeting and the disclosures of the financial implications of COVID-19 outbreak, stc ensured applying all laws and regulations that conform to its values and the professional foundations that guide our work to better serve the interests of our shareholders. The corporate governance report in a later chapter of this report outlines our framework in further details.

Corporate Social Responsibility

stc deals highly professionally with its customers, employees, shareholders, and the local community as a whole, who, in turn, contribute to our company’s success. Through contributing to the Kuwaiti society, stc aims to leave a positive footprint to be felt by the future generations.

As a matter of our concern for the social responsibility towards our local community, stc ensured its presence to lend a helping hand and support throughout COVID-19 outbreak in order to alleviate the negative consequences of the current crisis on the Kuwaiti community. In this regard, stc has contributed to many initiatives and activities in support of the preventive measures adopted by the government to mitigate the harsh negative effects of the COVID-19 crisis on the Kuwaiti society. Consequently, the company has collaborated with various entities to support a number of groups and sectors across Kuwait including, health, sports, education and entrepreneurship. In addition, stc has also worked alongside with some governmental agencies and medical companies to prevent the infectious diseases in addition to undertaking several preventive measures in accordance with the health guidelines and instructions issued by the Ministry of Health.

As part of its corporate social responsibility initiatives, stc has also adopted the highest safety standards and instilled the culture of performance among its staff to continue providing high quality services while protecting its customers and employees. During 2020, stc has heavily invested in its human capital through conducting virtual training courses throughout the lockdown period and thereafter. Up until this moment, stc has been keen to ensure employees’ safety, as it was amongst the first companies in Kuwait to adopt the remote working criteria while keeping the working teams engaged through conducting virtual conferences and sending them feedback surveys on a continuous basis.

In compliance with the instructions imposed by the Kuwaiti government with regards to COVID-19 pandemic, it is worth highlighting stc’s internal campaign “Don’t Compromise” that was initiated to raise awareness among the employees following their return to work from the full lockdown, in order to ensure their safety as the company’s first priority. Furthermore, the CSR section of this report is dedicated to include the company’s efforts in these different areas.

Appreciation

On behalf of the Board of Directors, I would like to thank His Highness, the Amir Sheikh Nawaf Al Ahmed Al Jaber Al Sabah, H.H. the Crown Prince Sheikh Meshaal Al Ahmed Al Jaber Al Sabah, H.H. the Prime Minister Sheikh Sabah Al Khalid Al Sabah and his distinguished government for their continued support to the telecommunications sector, which puts our precious country on the map of the advanced and developed countries in the field of telecommunications.

would also like to express my thanks and gratitude to all stc family members for their significant efforts, dedication and great sacrifices during 2020 in light of the challenges we have witnessed. Moreover, I would like to shed light on their continued enthusiasm and dedication in making stc a fascinating and successful company at times when the global economy has been greatly affected. I particularly thank our loyal customers for their continued trust in stc, which motivates us to provide the best services with the highest possible quality. Our sincere appreciation to our valued shareholders for their continued support and for placing their trust in us. We strongly believe that this commitment has been instrumental in enabling stc to continue on its successful journey of growth over the past years.

Eng. Maziad Bin Nasser Al Harbi

Chief Executive Officer

Dear Shareholders,

2020 was a remarkable year for Kuwait Telecommunications Company (stc) despite the unprecedented crisis witnessed by different sectors in Kuwait and around the globe. The global crisis has led to a radical shift in the quality of services and the strategy of current as well as future businesses due to the rapid spread of COVID-19 and the imposed restrictions on movements which negatively impacted most businesses and economic activities, and has in turn, led to a complete shift from the traditional working systems towards digitization of businesses of all kinds. In addition, the digitalization process assisted businesses to continue operating remotely resulting in more data usages and a significant reliance on the capabilities of telecommunications companies with regards to offering digital services and solutions to the consumer and enterprise customers. It is worth noting that such services would provide flexibility for business continuity, working from home and studying in addition to an access to all medical, financial, entertainment, retail and other basic services.

Recovery Strategy

In response to the unforeseeable events, the company formed a specialized team at the onset of the pandemic to deal with the crisis through developing a business continuity plan and adopting new initiatives to face the challenges and adhere to the national measures imposed to combat the virus’s outbreak. The specialized team has requested detailed business continuity plans to be developed by all the sectors at stc in addition to their request of monitoring the logistical work required to ensure the continuity of the company’s business and services provided to its customers. These plans are likely to reduce the negative economic impact of the crises on stc while ensuring the safety of its employees and customers.

The company also took important steps at the onset of the crises to ensure stc’s continuity of providing full services to all its customers during the full and partial lockdown periods. Furthermore, the steps taken shall also ensure the implementation of working from home and return to work plans, in addition to enhancing the digital transformation strategy and enriching the customer experience.

stc was keen to protect its financial position and its shareholder’s rights by extensively managing its cash flows and monitoring collections, while activating the cost optimization program to support the company’s profit margins for the year 2020.

In 2020, stc relied heavily on its infrastructure, being the most powerful in the region in terms of mobile services, through 5G networks which is the cornerstone of our expansion plan throughout the current crises. stc counts on the 5G network to keep pace with the needed developments of all private sectors and government agencies necessary to invest in the digital transformation process in order to meet the needs of consumers and enterprises capitalizing on the 5G, the latest technologies and digital services. Thus, stc offers a wide range of services including entertainment and the digital services in addition to its concern for meeting the growing demand for fixed and wide mobile broadband services at high speeds and huge capacity. stc also ensures meeting all business requirements related to online institutional and educational interaction with the highest possible quality and efficiency. stc has also proved its ability to overcome the challenges and potential risks in addition to keeping up with business operations and opening its doors to serve its customers in the current circumstances. Moreover, stc was placed in the forefront within the private sectors as a result of the great efforts and dedication of its staff, who have demonstrated their determination to face the health risks associated with COVID-19. As a result, stc was able to continue providing its services with the same quality standards despite the increasing demand and the shift towards digital platforms to communicate and deliver its products to the customers.

Capturing Business Opportunities

2020 opened the door for stc to undertake several initiatives aimed at developing the scope of work and sharing expertise in order to support the digital transformation process and provide the best services, products as well as solutions that meet the growing demand for the enterprise services. Thus, stc leverages on the parent company’s (stc Group) expertise and capabilities in the area of digitization in addition to the advanced technology services captured from the successful integration project with our subsidiary, solutions by stc. This has enabled stc to switch from providing traditional services to offering digital, cloud, Internet of Things (IoT), data, as well as cyber security and advanced IT solutions and services. It is worth noting that our digital services are designed to target all the private and governmental sectors through designing packages of integrated and services. with the highest possible technical and operational efficiency. Consequently, stc has worked hard to capture business opportunities achieving an outstanding growth in its operations that target enterprises and governmental entities.

The Negative Impacts on the Consumer Sector

On the other hand, COVID-19 crisis has had a negative impact on the telecommunications sector, specifically some activities targeting the consumer services, which were greatly affected by the full lockdown in the country and the interruption of air traffic in most countries around the world. Thus, sales of roaming packages almost entirely dropped due to the suspension of flights and the reluctance to travel during 2020, in addition to the decline in device sales and its accessories resulting from the full closure of shopping malls and retail sales. Furthermore, the decline in the production process of mobile devices and ICT equipment due to COVID-19 effects on the producing and suppling countries have negatively impacted stc’s revenue. Not to mention the suspension of import and export activities which also contributed to the decline in the company’s revenue stream during 2020. However, stc’s strategy has demonstrated its flexibility to adapt with the difficult reality of the company’s operational performance through meeting all the services needed by the consumer as well as the private and public sectors, with the highest possible efficiency.

Positioning stc among the best companies in Kuwait and the region within one of the most operationally and financially defensive sectors, affected by the global economic crisis of COVID-19, gives us great impetus to move forward in expanding stc’s business and achieve the best operational and financial results.

Financial Performance of 2020

Despite COVID-19’s repercussions and the strong competition in the Kuwaiti telecommunications market, stc has managed to achieve good financial results that meet the anticipation of our shareholders during unstable and unprecedented circumstances. Whereby, stc’s revenue reached KD 283.2 million by the end of 2020, compared to KD 293.7 million in the previous year. This decline is attributed to the full and partial lockdown that was imposed in Kuwait due to COVID-19 pandemic, which, in turn, resulted in a decline in the consumer sector’s revenue. Furthermore, the significant near-total drop in the company’s revenue from the roaming services, due to the suspension of flights and closure of airports of most countries around the globe, was also translated into the decline in stc’s total revenue. In addition, stc’s social contribution that we are proud of through providing its customers with unlimited free local calls for all mobile networks, in addition to a 5GB internet package per day from 22 March to 20 April 2020, in collaboration with the Communications and Information Technology Regulatory Authority (CITRA) in support of the Kuwaiti community during COVID-19 crisis. On the other hand, sales of the enterprise sector witnessed a growth in its volume as a result of the current need and the growing demand for digital and IT services.

On the other hand, EBITDA reached KD 73.4 million in 2020 with an EBITDA margin of 26% during 2020. Consequently, stc’s net profit recorded KD 32.1 million (earnings per share of 64 fils) with a profit margin of 11%. The company also structured its capital and operational expenditures, particularly after the negative effects of the current economic crisis to ensure liquidity of cash flows under the current conditions. Furthermore, the company achieved these results despite COVID-19’s global economic challenges, during which stc was able to achieve good revenue levels in addition to enhancing its operational efficiency to create an added value for its customers and better returns for its shareholders. stc’s financial results throughout 2020 also reflected its competitiveness and strengthened its position as the second largest telecommunications company in terms of its market share of revenue in the Kuwait telecommunications sector with a market share of approx. 35%. Moreover, stc’s customer base reached 1.9 million customers at the end of 2020.

stc’s Future Plans

Following the negative effects of COVID-19’s economic crisis, all the local and regional enterprises have sought the urgent need for the digital transformation, which has become one of the most important pillars of the strategic plans for many local and international institutions and corporates. Through its AHEAD strategy, stc’s future plans focused on enriching customer experience, gaining market leadership and being a pioneer through improving the company’s capabilities as well as providing an effective model based on its digital platforms. Furthermore, AHEAD strategy also focused on instilling the culture of performance within the company. stc also seeks to enter into strategic partnerships to provide the basic infrastructure necessary to develop stc’s ICT portfolio. Additionally, stc is always keen to provide integrated working teams, innovate in its services and products, and explore more smart investments in order to achieve the best results. In light of market challenges resulting from the highly competitive prices, stc aims to focus on the value and quality of its products and services. Hence, one of stc’s most important future aspirations is to provide its customers, individuals and enterprises, with products and services that are beyond the traditional mobile services. It also strives to attract opportunities related to providing enterprise services and transforming the technical capabilities, in addition to empowering those capabilities renewably, leveraging from stc group’s expertise and capabilities in the digital transformation area. stc also capitalizes on the advanced technical services provided by solutions by stc which operates in Kuwait and is fully owned by stc. Accordingly, stc currently focuses on providing a wide range of services and solutions based on its strong infrastructure and its innovative 5G network to provide an excellent experience to its customers in various areas to facilitate digital transformation in Kuwait. It is worth noting that such services and digital solutions are specifically designed to help stc’s customers to cope with the repercussions of the current crisis that is likely to continue throughout 2021.

The Role of Governmental and Regulatory Entities in Supporting the Telecom Sector

In light of the current circumstances and present developments, the importance of the role that the governmental and regulatory entities can play to make a paradigm shift in the communications and IT sector in Kuwait, with an aim to upgrade the digital services so that they match best services available globally, depending on the telecommunication companies’ private sector’s capabilities. Government’s support for implementing the digital transformation in Kuwait is essential to enable the Kuwaiti telecommunications sector to keep pace with its global counterparts. Whereby, regional governments as well as those of different countries have begun to realize the importance of digital transformation and are working on applying it to execute the business of private companies, governmental entities as well as commercial, health and educational activities. The State of Kuwait also possesses all the geographical credentials that gives the country a distinctive feature to be a corridor and a hub for international cables to connect the countries of the region and the world. This is CITRA’s vision of transforming Kuwait into a regional data storage and processing center, in addition to the privately owned infrastructure of telecommunications companies, aimed at making Kuwait a leader and exporter of information technology in the region. Accordingly, this is likely to reinforce the “Kuwait 2035” vision for transforming Kuwait into a financial and commercial center. I would also like to commend CITRA’s positive and regulatory role, which has been supportive in making the Kuwaiti telecommunications sector take its leading regional and global position.

Human Capital Development

Throughout 2020, stc was keen to invest in its human capital and develop the capabilities of its employees to enable them to adapt to all the circumstances that we have witnessed. In particular, this has helped stc’s employees to better implement the remote working business plan as efficiently as possible and without any impact on the company’s administrative and operational activities, in line with the company’s strategy to meet the future challenges. Therefore, our investment in the workforce is one of the key elements of stc’s action plan, as we are committed to supporting the Kuwaiti employment replacement program “Kuwaitization” as one of the main pillars of our human resources strategy. Whereby, the Kuwaiti employees at stc reached 64% of company’s total employees by the end of 2020. We always strive to enhance and raise the efficiency and capacity of the company’s human resources through providing training courses and disseminating knowledge in the working environment to encourage our employees to achieve their goals and improve their expertise.

Appreciation and Gratitude

In conclusion, I am pleased to express my gratitude and thank our valued customers for their loyalty and confidence in stc, which has enabled us to achieve these results despite the difficult times we faced due to the COVID-19 crisis. Furthermore, I would like to thank the Board of Directors, Executive Management, stc family members and partners for their contributions in achieving this remarkable operational performance through their outstanding teamwork. I would also like to shed the light on their contributions to the company’s success during these difficult and unprecedented times through their cooperation, enthusiasm, dedication and continued support. This, in turn, has paid off with the fact that stc is now at the forefront of the most innovative digital communications services providers. Through your support and our productivity in implementing the company’s new strategy, transformation plan and investment activities, we are confident that stc will be able to move forward in achieving its future goals.

Mr. Mohammed Bin AbdulMohsen Al Assaf

Chief Financial Officer

Overview

Despite the economic distortions caused by COVID-19’s current global crisis, stc was able to maintain satisfying cash flows driven by the company’s continuous investments in its key areas. stc’s strong financial and solvency positions supported the company to respond quickly and build up countercyclical buffers to support to the emergency contingency plans arising from external shocks. While working remotely under exceptional circumstances, stc defined its core areas and the required future strength capabilities necessary to execute its operations, administrative activities as well as desired financial results.
stc ensured providing convergent offerings on a continuous basis in addition to implementing its updated strategy that was designed to cope with the latest developments associated with the COVID-19 crisis. While the current crisis has exposed the weakness of the digital infrastructure of most companies, particularly mediumsized firms, to cope with the related repercussions, stc demonstrated its ability to provide a wide range of digital, cloud and IT services through which it can reach the best secure business process with the highest possible technical and operational efficiency. This has, in turn, enabled stc to maintain its financial and operational flexibility throughout the general abnormal market and economic conditions.
stc succeeded in capturing the opportunities created by the current crisis driven by the increasing demand for business solutions and digital services through increasing its investments in data services backed by the 5G network. Consequently, stc viewed this event as a valuable opportunity to increase its cost efficiency while investing in growth opportunities through the implementation of strategic cost management initiatives and expanding its digitization efforts. Despite the stiff competition among digital services and solutions providers, stc was able to capitalize on the new opportunities raised from the growing and wide demand on digital services through utilizing its flexible operating model. Additionally, stc has successfully reaped the benefits of the new digital economy capitalizing on its prior achievements over the past years with regards to adopting the digital transformation strategy and offering integrated technical solutions to its customers, individuals and enterprises, representing new areas of sustainable growth.

Concrete financial performance throughout an unprecedented crisis

The uncertain global financial market environment and the volatility of business operations during the lockdown period have made it challenging for most companies from different sectors to keep their financial wheels turning throughout that period. However, stc was able to maintain both its strong financial position and performance during 2020 which were reflected in achieving good levels in its revenue, EBITDA, EBITDA margin and net profit.

Throughout the current crisis, stc reported consolidated financial results for the year ended 2020 that satisfy the anticipation of its shareholders. Driven by the high demand on data services and digital platforms especially from the enterprise segment, stc’s revenues reached KD 283.2 million at the year ended 31 December 2020. The exceptional efforts of the company’s working teams significantly contributed in driving stc’s business efficiency and its efforts to offset the negative impacts of COVID-19 pandemic is demonstrated by its good EBITDA results reaching KD 73.4 million with an EBITDA margin of 26%. Thus, the net income reached KD 32.1 million (earnings per share 64 fils) with a net profit margin of 11%.

stc has dramatically expanded its offerings related to the 5G network backed products and services, building on its previous as well as ongoing investments in this area. Hence, the company’s total capex spending reached KD 26.2 million over the year, representing 9% of stc’s total revenue in 2020, compared to KD 58.5 million representing 20% of stc’s total revenues in 2019. On the other hand, stc’s total assets reached KD 374.2 million. In addition, the company’s total shareholders’ equity grew by 3.2% reaching KD 222.2 million, with a book value of 445 Kuwaiti fils per share. It is worth highlighting that one of stc’s competitive advantage is having a strong solvency position among its peers in the MENA region, where the debt to equity ratio reached 0.05x by the end of 2020, which is considered low compared to the industry average.

Financial strategy

Throughout this year, stc succeeded by acting proactively in providing a wide range of innovative products and services valued using an adequate pricing mechanism which supports the needs of the local community. This has also helped stc to maintain satisfactory levels of profitability margins enabling the company to gain a competitive advantage and maintain its leadership position in the Kuwaiti telecommunications market. As we carry out this historic astonishing work and exceptional continuous efforts of the company’s working teams throughout the unusual period, stc strives to provide products and services that exceed customers’ expectations during not only critical situations but also all the way through relaxed economic and market conditions.

During the financial year 2020, stc directed its financial resources to achieve the company’s vision, mission and values by investing in its people, technologies, operational processes and internal capabilities. The company also contributed in a number of initiatives in collaboration with the governmental bodies aimed at alleviating the negative consequences of COVID-19 pandemic on the local community. Furthermore, stc remained focused on building its financial strategy based on smart investments and cost optimization frameworks aligned with the company’s corporate strategy of enabling the digital transformation while catering to customers’ needs and developing structured frameworks to streamline its costs. This will, in turn, help the company to achieve its operational and financial objectives.

Remote working didn’t hold stc back from measuring its financial performance against the targeted KPIs, through the post-implementation analysis mechanism that was initiated in 2019. Hence, at stc, we are proud to be one of the few companies that succeeded in controlling the negative impacts of COVID-19 crisis while enhancing its operational efficiency during such an unprecedented event.

Moving Forward

As our acquisition to solutions by stc has enabled stc to deliver better value to its customers and shareholders despite the stressful economic conditions, we are keen to seek similar strategic potential valuecreating digital opportunities in the near future. With an aim to sustain our leadership position in the Kuwaiti telecom market, stc will hold onto investing in its human capital, internal processes and the latest advanced technologies as a means of uplifting the company’s efficiency and strengthening its core activities.

From a future perspective, stc is keen to ensure putting its disbursements on the right direction by investing more on digital platforms, creating strategic partnerships with digital providers and spending on its R&D function to provide the best-in-class services to its customers, individuals and enterprises.