1. Corporate information During the year 2000, an agreement was concluded between Drex Technology S.A and Orascom Telecom Holding SAEEgypt to establish Syriatel Mobile Telecom (hereinafter called the Company or Syriatel ) as operator of cellular telephone network in Syria. The Company was established after signing the BOT agreement (BuildOperateTransfer) on 12 February 2001 between Drex Technology SA and Orascom Telecom Holding SAEEgypt, as one party, and the Syrian Telecommunication Establishment STE as another party, to build a cellular communication network GSM. The Company underwent two phases: the trial project phase and the permanent project phase. During the trail project phase, the Company built and operated the cellular communication network at its own expenses without any charge to the STE. Furthermore, it was agreed that all revenues would belong to the STE up to the end of the trial project phase. 13 February 2001 was the date at which the trial project ended. 14 February 2001 was the date at which the permanent project commenced. The Company obtained its commencement order from the STE on 29 June 2002. During the last quarter of 2001, the Company s registration procedures were completed, and the Company was registered as a Joint Stock Company under No.5141 and its headquarters are located in the rural area of Damascus suburbs DariaSyrian Arab Republic. The Company s main objectives are to build cellular services project, market, import and export telecommunication equipment and SIM cards, electronic circuities and perform all related services and activities, obtain rights, royalties and licenses to achieve the Company s objectives. The Company s period is 20 years starting from 18 November 2001 renewable by a resolution by the General Assembly. According to the provisions of the BOT contract, the project will be transferred to the STE at the end of the investment period of 15 years from the commencement order date and is renewable for 3 more years based on the operator s request a year before the end of the contract expiry date. The provisions of the above mentioned BOT contract also stipulates for revenue sharing with STE during the term of the contract as follows: First three years 30% Second three years 40% Remaining years 50% Years of extension 60% The consolidated financial statements for the year ended were authorised for issue in accordance with a resolution of the Board of Directors on 1 April 2013. 7
2. Basis of preparation and accounting policies. 2.1 Basis of preparation The consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in Syrian Pounds () which is the functional currency of the Company and its subsidiaries. The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). 2.2 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries listed below. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continues to be consolidated until the date that such control ceases. The control occurred when the company has the power of controlling the financial and operational polices of the subsidiary to get benefits of its operations. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. All intragroup balances, income and expenses, gains and losses and dividends resulting from intragroup transactions are eliminated in full on consolidation. Noncontrolling interests represents the portion of profit or loss and net assets that were not held by the Company, directly or indirectly, and were presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the parent shareholders equity. The consolidated financial statements comprise the financial statements of the Company and its following subsidiaries: Name Country of origin Activities Direct and indirect ownership interest Syriatel service and consulting S.A. Syriatel management (LTD) Syria Syria Trading, manufacturing, consulting and service activities 99 95.9 Trading, industrial, consulting, and services activities %100 %100 2.3 Changes in significant accounting policies The accounting policies used in preparing the consolidated financial statements are consistent with those used in the previous financial year. The Company has adopted the following new and amended IFRS and IFRIC interpretations that are effective 1 January. The adoption of these standards and interpretations did not have any impact on the financial position or performance of the Company. IFRS 7 Financial Instruments: Disclosures Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Company s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about the Company s continuing involvement in derecognized assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July. 8
2. Basis of preparation and accounting policies (continued) 2.3 Changes in accounting policies (continued) IAS 12 Income Taxes (Amendment) Deferred Taxes: Recovery of Underlying Assets. IFRS 1 First Time Adoption of International Financial Reporting Standards (Amendment) Severe Hyperinflation and Removal of Fixed Dates for FirstTime Adopters IFRS 7 Financial Instruments: Disclosures (Amendments). 2.4 Standards issued but not yet effective Following are the new or amended standards and interpretations which have been issued but not yet effective for the year ended : IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities Amendments to IFRS 7. These amendments require the Company to disclose information about rights to setoff and related arrangements and become effective for annual periods beginning on or after 1 January 2013. The Company s management does not expect any material impact on the Company s financial position or performance from the application of this standard. IFRS 9 Financial Instruments: Amended Classification and Measurement The effective date was moved to 1 January 2015 based on the amendments issued in December. The Company is currently evaluating the impact of the application of this standard; the effect depends on the assets owned on the application date so it is not possible to determine the effect of the application of this standard now. IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements. The Company s management does not expect any material impact on the Company s financial position or performance from the application of this standard. This standard becomes effective for annual periods on or after 1 January 2013. IFRS 11 Joint Arrangements The Company s management does not expect any material impact on the Company s financial position or performance from the application of this standard. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 includes all the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. The Company s management does not expect any material impact on the Company s financial position or performance from the application of this standard. This standard becomes effective for annual periods beginning on or after 1 January 2013. IAS 1 Presentation of Financial Statements The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). The amendment becomes effective for annual periods beginning on or after 1 July. IAS 19 Employee Benefits (Revised) The IASB has issued numerous amendments to IAS 19. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 28 Investments in Associates and Joint Ventures (as revised in ) The revised standard becomes effective for annual periods beginning on or after 1 January 2013. IAS 32 Offsetting Financial Assets and Liabilities Amendments to IAS 32 The revised standard becomes effective for annual periods beginning on or after 1 January 2014. 9
2. Basis of preparation and accounting policies (continued) 2.4 Standards issued but not yet effective (continued) Annual Improvements issued in May : The following improvements do not have a significant impact on the Company: IFRS1 Firsttime Adoption of International Financial Reporting Standards. IAS 1 Presentation of Financial Statements. IAS 16 Property, Plant and Equipment. IAS 32 Financial Instruments: Presentation. IAS 34 Interim Financial Reporting. 2.5 Significant accounting judgments, estimates and assumptions The preparation of the Company s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Going concern The Company s management has made an assessment of the Company s ability to continue as a going concern. Despite the current unrest that the Syrian Arab Republic is experiencing and the uncertain future outcomes of these events, the Company s management is satisfied that the Company has the recourses to continue its operations for the foreseeable future. The consolidated financial statements were prepared on a going concern basis. Impairment of nonfinancial assets The Company assesses at each reporting date whether there is an indication that a nonfinancial asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset s recoverable amount. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Useful lives of property and equipment The management determines the estimated useful lives of its property and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset, physical wear and tear, technical or commercial obsolescence. The management reviews, on a yearly basis, the useful lives of property and equipment. Future depreciation charges would be adjusted where management believes the useful lives differ from previous estimates. Impairment of inventories Inventories are held at the lower of cost and net realizable value. When inventories become old or obsolete, an estimate is made of their net realizable value. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision is applied according to the inventory type and the degree of aging or obsolescence, based on anticipated selling prices. Differences in the actual amounts realized in the future and the amounts expected are recorded in the consolidated statement of comprehensive income. 10
2. Basis of preparation and accounting policies (continued) 2.5 Significant accounting judgments, estimates and assumptions (continued) Impairment of accounts receivable An estimate of the collectible amount of accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but are past due, are assessed collectively and a provision is applied according to the length of time past due. Differences between the amounts actually collected and the amounts expected in the future are recorded in the consolidated statement of comprehensive income. Taxes The company s management estimates the income tax in accordance with the applicable laws, including the estimation of net exposure that may arise from each taxable item, and assesses the temporary differences resulting from the different accouting for some elements of the financial statements in accordance with the International Financial Reporting Standards and for tax purposes. Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Provision for project handover The Company s management estimates a yearly provision for project handover in the consolidated statement of comprehensive income by using the reversed sumofyears method, where the provision for recent years is greater than that of early years. The provision would be recorded in full by the year 2017. Based on management estimates and assumptions during the third quarter of, the Company changed the method of estimating a provision of project handover by using the sumofyears method instead of reversed sumofyears method where the provision taken in recent years is less than the provision taken in the first years. Accordingly, the accumulation period of the provision has been adjusted from year 2017 to year. Other Provisions The Company's management estimates provisions for claims clearance with the STE and for employees related expenses. During, the Company's management estimated a provision on the total amounts from networking of international incoming and outgoing calls to the mobile network according to the STE claim that might result from the settlement with the STE in the future. 11
2. Basis of preparation and accounting policies (continued) 2.6 Summary of significant accounting policies Foreign currencies Transactions in foreign currencies are initially recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of comprehensive income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Provision for project handover The Company s management estimates a yearly provision for project handover in the consolidated statement of comprehensive income by using the reversed sumofyears method, where the provision for recent years is greater than that of early years. The provision would be recorded in full by the year 2017. Based on management estimates and assumptions during the third quarter of, the Company changed the method of estimating a provision of project handover by using the sumofyears method instead of reversed sumofyears method where the provision taken in recent years is less than the provision taken in the first years. At the end of, a provision of USD 50,000,000 was recorded. Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property and equipment and borrowing cost of longterm construction projects, if the recognition criteria are met. When significant parts of property and equipment are required to be replaced at intervals, the Company recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the consolidated statement of comprehensive income as incurred. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows: Computers and office equipments 4 Years Vehicles 5 Years Furniture and Fixtures 10 Years The assets residual values, useful life, and methods of depreciation are reviewed at each financial year end, and adjusted prospectively as appropriate. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. Investment in associates The Company s investment in its associate is accounted for using the equity method. An associate is an entity in which the Company has significant influence. Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post acquisition changes in the Company s share of net assets of the associate. The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. After application of the equity method, the Company determines whether it is necessary to recognise an additional impairment loss on the Company s investment in its associates. The Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the consolidated statement of comprehensive income. 12
2. Basis of preparation and accounting policies (continued) 2.6 Summary of significant accounting policies (continued) Intangible assets Intangible assets include the value of frequency license, software licenses and the right to use the network. Frequency license is amortized over 15 years which is the term of the BOT contract while software licenses and the right to use the network are amortized over 5 years. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial yearend. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of comprehensive income and presented with other expense components of similar nature. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually either individually or at the cash generating unit level. The assessment of the indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable at each financial reporting date. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of comprehensive income when the asset is derecognized. The impairment losses are recognized in the consolidated statement of comprehensive income. Service concession intangible assets: IFRIC 12 Service Concession Arrangements deals primarily with publictoprivate sector concession arrangements. For the delivery of public services, IFRIC 12 applies only to concession agreements where the use of the infrastructure is controlled by the grantor. This is considered to be the case when: The grantor controls or regulates the public service, i.e. it controls or regulates the services to be provided with the infrastructure covered by the concession, who they must be provided for and at what price; The grantor controls through ownership, beneficial entitlement or otherwise any significant residual interest in the infrastructure at the end of the arrangement. According to IFRIC 12, when the operator builds infrastructure (startup capital expenditures) in exchange for the right to charge users of the public service, revenues from construction services should be accounted for in accordance with IAS 11Construction Contracts and the right to charge users of the public service should be treated as an exchange of assets and accounted for in accordance with IAS 38 Intangible Assets. 13
2. Basis of preparation and accounting policies (continued) 2.6 Summary of significant accounting policies (continued) Service concession intangible assets (continued) As a consequence: Assets received for free from the grantor are not recognized in the statement of financial position. Startup investments are recorded as follows: the fair value of work represents the acquisition cost of an intangible asset, which is recorded when the infrastructure is built. In the case of Syriatel, as no distinction is made between compensation for building and compensation for operating the infrastructure when determining customer network access charges, and since there are no external benchmarks that could be used to determine the respective fair value of these two items, revenues recognized during the construction phase are limited to the amount of the costs incurred. The concession intangible assets are amortized on a straightline basis over the remaining life of the concession. If the concession is renewed in advance of its original expiry date, the intangible asset continues to be amortized according to the original plan based on its carrying amount at the concession renewal date. Amortization charges are recorded in operating income, under Other direct costs. Inventories Inventories are valued at the lower of cost and net realizable value. Costs are those expenses incurred in bringing each inventory item to its present location and condition including purchase cost on a weighted average basis, custom duties and freight in charges. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Provisions Provisions are recognized when the Company has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and able to be reliably measured. Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents consist of cash on hand, bank balances, and shortterm deposits with an original maturity of three months or less, net of outstanding bank overdrafts. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duties. The following specific recognition criteria must also be met before revenue is recognized: Rendering of service Revenue from postpaid lines upfront connection fees is recognized at point of sale while revenue from prepaid lines upfront connection fees is recognized when the customer makes the first call. Revenue from telecommunication services is recognized when earned. Unbilled revenue from the billing cycles dating to the end of each month is determined based on traffic and is accrued at the end of each month. Revenue from sale of prepaid airtime cards and prepaid airtime is recognized based on traffic. Interest income Revenue is recognized as the interest accrues using the effective interest rate. 14
2. Basis of preparation and accounting policies (continued) 2.6 Summary of significant accounting policies (continued) Revenue recognition (continued) Construction revenues According to IFRIC 12, when the operator builds infrastructure (startup capital expenditures) in exchange for the right to charge users of the public service, revenues from construction services should be accounted for in accordance with IAS 11Construction Contracts and the right to charge users of the public service should be treated as an exchange of assets and accounted for in accordance with IAS 38 Intangible Assets. In the case of Syriatel, as no distinction is made between compensation for building and compensation for operating the infrastructure when determining customer network access charges, and since there are no external benchmarks that could be used to determine the respective fair value of these two items, revenues recognized during the construction phase are limited to the amount of the costs incurred. Accounts receivable Accounts receivable are stated at original invoice value less any provision for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full or partial amount is no longer probable. Bad debts are written off when there is no probability of recovery. Carrying amount is reduced through use of an allowance account. Impairment of financial assets The Company assesses at each reporting date, whether there is any objective evidence that a financial asset or group of financial asset is impaired. The value of the asset or group of financial assets is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (loss event). This event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence include indications that the borrower or group of borrowers are experiencing significant financial difficulty or a high probability of bankruptcy or financial reorganization, where data indicates that there is a measurable decrease in the estimated future cash flows, such as deferred payments or economic conditions associated with payment stalling. Financial assets carried at amortized cost For financial assets carried at amortized cost, the Company first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). If the amount of impairment loss is changed, in a subsequent period whether increase or decrease, and the change can be linked objectively to a specific event occurring after the recognition of the impairment, the impairment loss that has been previously recognized will be reversed. 15
2. Basis of preparation and accounting policies (continued) 2.6 Summary of significant accounting policies (continued) Accounts payable and accruals Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass through arrangement; or The Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Where continuing involvement takes the form of a written and/or purchase option (including a cash settled option or similar provision) on the transferred asset, the extent of the Company s continuing involvement is the amount of the transferred asset that the Company may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the Company s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income. 16
2. Basis of preparation and accounting policies (continued) 2.6 Summary of significant accounting policies (continued) Taxation Taxation is provided in accordance with Syrian fiscal regulations. Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the date of the consolidated statement of financial position. Deferred income tax is provided using the liability method on all temporary differences at the date of the statement of financial position. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on laws that have been enacted at the date of the consolidated statement of financial position. Dividends on ordinary shares Dividends on ordinary shares are recognized as liability and deducted from equity when they are approved by the Company s shareholders. 17
3. Segment information For management purposes, the Company is organised into business units based on their products and services and has three reportable operating segments as follows: Postpaid services Prepaid services 3G, internet services and others Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Significantly, all of the sales and profit of the Company are earned in the Syrian Arab Republic from the below business segments. Postpaid services Prepaid services 3G, internet service and Others Unallocated Total Revenues 11,808,494,426 42,991,325,960 2,006,745,354 56,806,565,740 Discounts ( 151,719,196) ( 7,765,107) ( 5,517,673) (165,001,976) STE share of revenues ( 5,529,682,245) ( 20,565,536,972) ( 994,997,703) (27,090,216,920) Operating expenses ( 3,117,243,305) ( 9,525,415,732) ( 797,774,077) (13,440,433,114) Gross profit 3,009,849,680 12,892,608,149 208,455,901 16,110,913,730 Marketing and selling expenses ( 185,306,735) ( 1,358,110,051) ( 20,277,733) (1,563,694,519) Administrative expenses ( 1,341,243,051) ( 3,700,195,490) ( 235,380,617) (5,276,819,158) Depreciation ( 107,652,484) ( 319,054,628) ( 14,882,289) (441,589,401) Other revenues (expenses) net ( 200,828,171) ( 884,945,365) ( 1,710,044) (1,087,483,580) Operating profit 1,174,819,239 6,630,302,615 ( 63,794,782) 7,741,327,072 Interest income 2,057,004,024 2,057,004,024 Share of profit of an associate 2,779,933 2,779,933 Profit before tax 1,174,819,239 6,630,302,615 ( 63,794,782) 2,059,783,957 9,801,111,029 Income tax (2,253,776,374) (2,253,776,374) Profit for the year 1,174,819,239 6,630,302,615 ( 63,794,782) (193,992,417) 7,547,334,655 Capital expenditure 4,843,785,630 Depreciation, amortization and impairment 4,447,283,547 18
3. Segment information (continued) Postpaid services Prepaid services 3G, internet service and Others Unallocated Total Revenues 14,559,166,217 39,857,688,781 948,382,389 55,365,237,387 Discounts (132,802,381) (22,213,956) (17,194,000) (172,210,337) STE share of revenues (6,847,404,846) (18,995,611,732) (430,686,108) (26,273,702,686) Operating expenses ( 4,080,427,258) ( 8,518,141,548) ( 935,131,670) (13,533,700,476) Gross profit 3,498,531,732 12,321,721,545 ( 434,629,389) 15,385,623,888 Marketing and selling expenses (255,128,710) (1,256,526,651) (14,087,174) (1,525,742,535) Administrative expenses (1,387,536,507) (3,006,650,968) (74,254,856) (4,468,442,331) Depreciation (101,808,196) (206,965,626) (5,836,019) (314,609,841) Other revenues (expenses) net ( 283,846,534) ( 812,931,375) 11,214,422 (1,085,563,487) Operating profit 1,470,211,785 7,038,646,925 ( 517,593,016) 7,991,265,694 Interest income 1,120,041,445 1,120,041,445 Share of loss of an associate (2,013,260) (2,013,260) Profit before tax 1,470,211,785 7,038,646,925 ( 517,593,016) 1,118,028,185 9,109,293,879 Income tax (1,644,652,141) (1,644,652,141) Profit for the year 1,470,211,785 7,038,646,925 ( 517,593,016) (526,623,956) 7,464,641,738 Capital expenditure 5,521,009,326 Depreciation, amortization and impairment 5,372,144,343 The revenue generated from the internet service I is not subject to STE's revenue share. The unallocated expenses are distributed based on the segment contribution in the overall revenues and the actual expenses which related directly to a specified segment are allocated directly to their corresponding segment. 19
4. Net revenues Postpaid revenues Prepaid revenues 3G and internet revenues Discounts 11,808,494,426 42,991,325,960 2,006,745,354 (165,001,976) 56,641,563,764 14,559,166,217 39,857,688,781 948,382,389 (172,210,337) 55,193,027,050 5. Other direct costs Amortization of intangible assets (note 12) Impairment of intangible assets (note 12) Provision of international incoming calls Interconnectivity (note 23) Infrastructure and other expenses Rental and insurance expenses Maintenance Interconnect expenses with other networks Support, SIM voucher and charging voucher expenses 3,862,104,494 143,589,652 2,864,223,162 1,854,792,007 879,360,781 856,452,500 530,211,720 69,773,039 11,060,507,355 3,994,627,089 1,062,907,413 1,592,363,667 1,707,292,153 849,588,919 1,292,622,435 462,147,496 80,091,605 11,041,640,777 Impairment loss of 143,589,652 at (: 1,062,907,413) represent the write down of certain assets classified under the right to use the network to bring it down to its recoverable amount. This has been recognised in the consolidated statement of comprehensive income under Other direct cost. The recoverable amount is based on value in use and is determined at the level of the cash generating unit. 6. Marketing and selling expenses Dealers, agents commissions Advertising expenses Other 1,090,663,645 411,344,715 61,686,159 1,563,694,519 1,007,226,269 465,945,993 52,570,273 1,525,742,535 20
7. Administrative expenses Management fees (note 29) Salaries and bonuses Employee benefits provision (note 23) Travel and accommodation Rents and utilities Consulting and professional fees Provision for doubtful debts (note 18) Provision for slow moving inventories (note 16) Security and cleaning services Stationary and printing materials Bank charges and guarantee fees Maintenance Governmental fees Training expense Insurance expense Donations Other 1,982,454,732 1,172,594,479 321,239,239 130,186,646 330,575,221 125,365,334 387,538,339 241,930,815 24,690,384 19,899,759 34,684,296 53,574,838 43,474,722 33,582,524 56,097,397 3,487,519 315,442,914 5,276,819,158 1,935,007,243 1,044,762,134 135,131,751 324,036,005 65,160,986 393,935,808 60,766,766 32,333,799 17,919,691 28,479,766 43,649,433 47,317,796 12,349,580 38,299,941 3,280,569 286,011,063 4,468,442,331 8. Other revenues (expenses) net Net profit on foreign currencies exchange Collection of disputed expenses Other expenses Net profit from sale of modems Provision for project handover (note 22) Clearing provision (note 23) Network concession arrangement revenues Network concession arrangement costs 645,331,543 (92,096,495) 38,396,728 (1,679,115,356) 3,504,147,331 (3,504,147,331) (1,087,483,580) 646,868,876 3,000,000 (212,973,812) 32,708,610 (1,411,890,894) (143,276,267) 4,592,065,382 (4,592,065,382) (1,085,563,487) 21
9. Income tax Income tax expense is calculated at 14% for the year ended. The movement of income tax provision is as follows: Balance at 1 January 1,662,899,757 1,701,621,832 Income tax expense for the current year 1,902,154,395 1,632,663,378 Income tax expense for prior period 351,621,979 11,988,763 Income tax paid during the year (2,067,025,022) (1,683,374,216) Balance at 31 December 1,849,651,109 1,662,899,757 The reconciliation between the taxable profit and the income tax is detailed as follows: Accounting profit before tax 9,801,111,029 9,109,293,879 Consolidation adjustments 2,581,493,600 1,895,904,007 Taxable profit 12,382,604,629 11,005,197,886 Income tax rate % 14 % 14 Income tax expense for the current year 1,733,564,648 1,540,727,704 Add: Interest income tax 168,589,747 91,935,674 Income tax expense as per consolidated statement of comprehensive income 1,902,154,395 1,632,663,378 The tax returns were filed for the years 2001 to 2006 (inclusive) at the specified dates, and the payment of the assessed income tax was settled as per these tax returns which are still being reviewed by the Finance Directorate (note 30 commitments and contingencies). Tax data has also been provided for the years 2007 to (inclusive) according to the specified dates, and tax provisions were paid as set in these data which is still under review by the tax departments. 10. Basic earnings per share attributable to equity holders Basic earnings per share attributable to equity holders of the parent is calculated through dividing the net profit for the year attributable to shareholders of the parent by the weighted average number of shares outstanding during the year as follows: Net profit for the year attributable to shareholders of the Parent () Weighted average number of shares outstanding during the year 7,547,314,239 134,000,000 7,464,620,825 134,000,000 Basic earnings per share () 56.32 55.71 Diluted earnings per share have the same figure as the basic earnings per share since the Company has not issued any instruments which would have an impact on earnings per share when exercised. 22
11. Property and equipment The movement of property and equipment during the year ended is as follows: Computer and office fixture Vehicles Furniture and fixtures Other Total Cost: At 1 January 3,223,649,666 261,568,550 138,558,608 46,724,536 3,670,501,360 Additions 821,344,170 51,972,986 5,167,760 370,040 878,854,956 Disposals (82,905,964) (37,582,807) (1,846,842) (122,335,613) At 3,962,087,872 275,958,729 141,879,526 47,094,576 4,427,020,703 Depreciation: At 1 January 2,413,227,346 230,404,256 67,029,480 2,710,661,082 Depreciation charge for the year 410,772,089 17,534,506 13,282,806 441,589,401 Disposals (81,596,524) (37,582,807) (1,495,062) (120,674,393) At 2,742,402,911 210,355,955 78,817,224 3,031,576,090 Net book value: At 1,219,684,961 65,602,774 63,062,302 47,094,576 1,395,444,613 23
11. Property and equipment (continued) The movement of property and equipment during the year ended 31 December is as follows: Computer and office fixture Vehicles Furniture and fixtures Other Total Cost: At 1 January 2,663,152,295 271,630,518 117,204,268 41,800,000 3,093,787,081 Additions 661,535,241 17,013,138 29,223,865 9,924,536 717,696,780 Disposals (101,037,870) (27,075,106) (7,869,525) (5,000,000) (140,982,501) At 31 December 3,223,649,666 261,568,550 138,558,608 46,724,536 3,670,501,360 Depreciation: At 1 January 2,219,716,506 246,564,117 60,541,559 2,526,822,182 Depreciation charge for the year 291,227,788 10,915,245 12,466,808 314,609,841 Disposals (97,716,948) (27,075,106) (5,978,887) (130,770,941) At 31 December 2,413,227,346 230,404,256 67,029,480 2,710,661,082 Net book value: At 31 December 810,422,320 31,164,294 71,529,128 46,724,536 959,840,278 24
12. Intangible assets The movement of intangible assets during the year ended is as follows: Cost: At 1 January Additions Disposals At Right to use the network 43,511,682,739 3,504,147,331 (926,859,121) 46,088,970,949 Frequency license 1,503,000,000 1,400,000 1,504,400,000 Software license 874,642,416 147,658,761 1,022,301,177 Total 45,889,325,155 3,653,206,092 (926,859,121) 48,615,672,126 Amortization and impairment: At 1 January Amortization (note 5) Impairment (note 5) Disposals 34,165,295,119 3,546,665,817 143,589,652 (839,172,091) 714,221,475 144,972,667 494,296,507 170,466,010 35,373,813,101 3,862,104,494 143,589,652 (839,172,091) At 37,016,378,497 859,194,142 664,762,517 38,540,335,156 Net book value: At 9,072,592,452 645,205,858 357,538,660 10,075,336,970 25
12. Intangible assets (continued) The movement of intangible assets during the year ended 31 December is as follows: Right to use the network Frequency license Software license Total Cost: At 1 January 39,663,323,688 1,502,000,000 546,353,887 41,711,677,575 Additions 4,592,065,382 1,000,000 328,288,529 4,921,353,911 Disposals (743,706,331) (743,706,331) At 31 December 43,511,682,739 1,503,000,000 874,642,416 45,889,325,155 Amortization and impairment: At 1 January 29,929,415,718 569,652,105 326,259,488 30,825,327,311 Amortization (note 5) 3,682,020,700 144,569,370 168,037,019 3,994,627,089 Impairment (note 5) 1,062,907,413 1,062,907,413 Disposals (509,048,712) (509,048,712) At 31 December 34,165,295,119 714,221,475 494,296,507 35,373,813,101 Net book value: At 31 December 9,346,387,620 788,778,525 380,345,909 10,515,512,054 26
13. Assets to be deployed Assets to be deployed represent assets that were purchased mainly from foreign suppliers and their ownership has been transferred to the Company during the year. However, custom clearance procedures were not finalized by the end of the year. 14. Cash margins Cash margins represents restricted cash against a letter of guarantee issued in favour of the Syrian Telecommunication Establishment in the amount of USD 18,000,000 in accordance with the BOT contract. 15. Investment in associate The Company has a 24% interest in Syrian German Telecommunication Company, a limited liability Company registered in the Syrian Arab Republic under No.5707 dated 3 April 2003. The Syrian German Telecommication Company is involved in the assembling, manufacturing and selling of telecom terminals ISDN and all types of wireless local loop devices WLL. The following is a summary of the financial information of the Syrian German Telecommunication Company: Financial position: Assets 239,633,637 224,817,796 Liabilities (110,197,550) (106,964,765) Equity 129,436,087 117,853,031 Company s share of the associate s equity (24%) 31,064,661 28,284,728 Revenue and profit (loss): Revenue 404,763,175 445,845,179 Net profit (loss) 50,462,901 (23,867,063) 12,111,096 (5,728,095) Company s share of the associate s net profit (loss) (24%) Prior years adjustments (9,331,163) 3,714,835 Company s net share of the associate s net profit (loss) (24%) 2,779,933 (2,013,260) 27
16. Inventory Spare parts SIM /Prepaid SIM /Postpaid 3G Modems Vouchers Goodsintransit Stationary and other Less: Provision for slow moving inventories 988,583,691 32,303,578 11,988,591 45,252,112 283,401 72,061,936 88,234,073 1,238,707,382 (511,841,395) 726,865,987 665,305,955 18,522,443 5,484,869 66,572,946 1,695,805 16,378,020 87,077,565 861,037,603 (269,910,580) 591,127,023 The movement of provision for slow moving inventories is as follows: Balance at 1 January Charge for the year (note 7) Balance at 31 December 269,910,580 241,930,815 511,841,395 209,143,814 60,766,766 269,910,580 17. Other current assets Prepaid rents Advance payments Prepaid advertisement Prepaid maintenance cost Accrued interest income Due from related parties Prepaid insurance premium Prepaid expenses Microwave Links Other 377,048,990 3,287,783,911 89,394,002 2,501,208 354,366,995 91,638,416 9,007,862 44,756,042 989,245,294 5,245,742,720 672,624,006 1,789,010,544 107,322,935 12,716,624 348,224,192 148,214,386 5,113,959 29,668,756 807,079,862 3,919,975,264 28
18. Accounts receivable Due from customers partners Less: Provision for doubtful debts * 2,458,274,286 (1,361,063,629) 1,097,210,657 2,354,906,027 (910,379,848) 1,444,526,179 Due from roaming Less: Provision for doubtful debts ** 161,516,642 (142,554,714) 18,961,928 228,542,457 (205,700,156) 22,842,301 Due from related parties Due from distributors Other 140,733,645 78,750,119 237,108,066 1,572,764,415 157,691,404 77,588,873 67,153,189 1,769,801,946 * The Company s policy is to provide 100% of total customers balances outstanding for more than 90 days. ** The Company s policy is to provide 100% of total roaming balances outstanding for more than 90 days. The movement in the provision for doubtful debts is as follows: Balance at 1 January Charge for the year (note 7) Balance at 31 December The aging analysis of accounts receivable is as follows: 1,116,080,004 387,538,339 1,503,618,343 722,144,196 393,935,808 1,116,080,004 Undue and not impaired 000 352,258 < 30 days 000 579,736 Past due but not impaired 30 60 60 90 90 120 Days days days 000 101,036 000 64,181 000 Total 000 1,097,211 533,138 753,098 99,169 59,121 1,444,526 29
19. Cash and Banks deposits Cash on hand and Cheques Under collections Cash at Banks 563,650,890 31,222,179,090 31,785,829,980 643,990,589 25,618,380,259 26,262,370,848 For the purposes of the statement of cash flows, cash and cash equivalents comprise the following: Cash on hand and at Banks Short term deposits (with maturities of 3 months or less) 10,136,502,960 15,719,461,020 25,855,963,980 4,948,301,949 15,127,393,419 20,075,695,368 20. Paidin capital In a meeting held on 9 June, the General Assembly decided to increase the Company's capital from 1,675,000,000 to 3,350,000,000 by transferring part of the accumulated retained earnings to capital. The Syrian Commission of Financial Markets and Securities approved the increase of 67,000,000 shares with a par value of 25 per share by resolution number 90/M issued on 24 July. It has been decided that the mentioned shares be distributed as share dividends to the shareholders who are registered as the Company's shareholders at the end of 7 th of August (i.e. the end of the 15th day as of the mentioned approval date), each according to his ownership percentage. Accordingly, the total number of shares of the Company increased to 134,000,000 with a par value of 25 per share, and a total value of 3,350,000,000 as at 31 December and 31 December. 21. Reserves Statuary reserve According to Companies law, 10% of the net profit should be transferred to the statutory reserve. The Company may discontinue such annual transfer when the total reserve balance equals 25 % of the issued share capital. However, the Company may continue the transfer to the reserve till it reaches 100% of the Company s share capital subject to the approval of the General Assembly. Statuary reserve for this year equals to 25% of the Company s share capital. Statuary reserve is used by the Board of Directors to ensure the minimum profit distribution specified by the bylaw during the years where profits are not enough to secure this limit, or in exceptional and unexpected circumstances. 30