Further to the company announcement on Tadawul website dated 27 of June 2015 Mobily would to announcement the English version for the announcement (Further to the company announcement on Tadawul website dated 9 of June 2015, Etihad Etisalat company (Mobily) received a summary of the preliminary report containing the specialized teams observations which assigned by the CMA. The Board of Directors has carefully considered the observations made by the specialized team and cooperate with the CMA to the best interests of Mobily shareholders and ensure the continued sustainability of the business.
The findings of the study will be as follows:
The specialized team report identified certain concerns with the set up and operation of Fibre To The Home (FTTH) contracts and Brand Reseller contracts such that the specialized team concluded that the legal form of these contracts needs the Company to reconsider its accounting approach to such contracts.
The Board has carried out a review of its accounting policies for these two types of contract. This approach would be closer to that outlined in IFRS 15 (this converged international accounting standard will improve the financial reporting of revenue. This Standard will be mandatory for reporting periods beginning on or after 1 January 2017) whilst still maintaining compliance with existing SOCPA standards. This would require the company to allocate revenue from multi component contracts in proportion to the fair value of the underlying service or products provided and, for both types of contracts, would have the effect of deferring revenue to be recognized at later periods. In line with requests from the specialized team assigned by the CMA, the Board has decided to adopt this new accounting policy as of 31 December 2014. Mobily will therefore reissue the 2014 annual financial statements (including restated 2013 corresponding figures) reflecting this change in accounting policy.
The report also highlighted concerns over the companys practice of depreciating fixed assets. Mobily has a large and complex fixed asset base which is being assessed and updated regularly. As part of its system of internal controls, the Company does not permit capitalization of fixed assets and entry on the fixed assets database until internal confirmations are received that the particular item is placed in service. Delays in capitalization occurred in addition to the delays of starting the depreciation. The Company had previously depreciated the cost of the asset over the remaining useful life starting from the date of capitalization rather than to make a one off adjustment to catch up on depreciation from the date of capitalization. The Board has decided to adjust the prior period depreciation charge to reflect the depreciation in the appropriate periods from the date of capitalization of the assets.
The effect of the above changes in accounting policy and practice on the 2014 financial statement is to increase the loss for the year ended December 31 2014 by approximately SAR 830 million to SAR 1,745 million and reduce shareholders equity as of that date by approximately SAR 2,400 million to SAR 17,022 million.
The effect of the above changes in accounting policy and practice on the Q1 2015 financial statements is to decrease the loss for the quarter ended March 31 2015 by approximately SAR 207 million to SAR 8 million net profit.
The revised 2014 financial statements and Q1 2015 financial statements will be reissued before announcement of Q2 2015 financial statements. The Company will call for the Annual General Meeting after obtaining the required approval.
In a matter unrelated to the specialized team review referred to above, and In line with the Companys conservative policy for bad debt, the Board of Directors has decided to increase provisions by SAR 800 million related to Zain account receivables. The impact of this will be recognized in Q2 2015.
The Board has every confidence in the outcome of the specialized team assigned by the CMA comprehensive and professional investigation. In addition to the precautions applied during Q4 2014 and Q1 2015, the Board of Directors is confident that Mobily is on the right track to go back to normal operations)
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