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Top officials of Zain seen at the general meeting
Zain posts KD 216 mn net profit in 2013 Group’s total revenue amounts to KD 1.24 bn; customer base rises 8% y/y

Following is the message of Zain Group Chairman Asaad Ahmad Al Banwan and Group CEO Scott Gegenheimer statement during the company’s ordinary general meeting.

Dear Shareholders,
During the course of 2013, Zain Group undertook and completed a number of milestone achievements, building on the pillars that have made this company such a formidable one across the Middle East and Africa.
The Board of Directors is fully aware of the many challenges and evolution of the telecommunications industry and is dealing with it in such an astute and flexible manner.  We have closely aligned with management in transforming the operating model of all the Zain operations in order to face increased levels of competition. We are also implementing many operational initiatives aimed at extracting more synergies between our operations and optimizing efficiency in order to increase shareholder’s value.
We invested significantly in our infrastructure, launching state-of-the-art networks as well as focusing on the rollout of new products and services to maintain the support and loyalty of our customer base. Our investment in capital expenditure (CAPEX) was up 10% year-on-year in 2013, reflecting Zain’s commitment to innovation and quality of service.

We have made no secret about the geo-political challenges we have faced in some of our markets of operation, though the Zain spirit ensures we continue to offer the best operational service possible and look forward to a time when tensions in those markets will abate. Across our entire footprint, although strong competition is the nature of our industry, I remain proud that we have been able to maintain and enhance our leadership position with respect to customer numbers in many of the markets we operate in, despite the heightened attention from our competitors.

This was a momentous year for the company, not least as it represented the 30th year of its operation, having begun as a single-country operator in 1983, and expanding to the eight territories and 46.1 million customers at the end of 2013.
With that growth and development, has come the weighty responsibility to provide our customers with the best services possible, as well as to look for ways to improve their overall quality of living, and our activities reflect that.
Throughout its history, Zain has understood the importance the telecom sector plays in the development of societies and economies, and we have always been willing to play our role in nation-building, both in our home market of Kuwait as well as in all our other markets of operation.


In recent years, we have seen the rise of mobile broadband demand and services, and Zain has been at the center of responding to this demand, and in fact accelerating it. The company’s digital traffic and revenues, for example, continued to advance strongly in 2013, recording a healthy 25% growth rate.
I would like to express my overall satisfaction with our 2013 key financial indicators in the past year, which reflect progress in a number of important areas despite the range of challenges the Group continues to face in its markets. Circumstances such as foreign exchange volatility are beyond our control, and though they did have a significant negative impact on our financial results for 2013, the underlying businesses are making good progress in local currency terms. Total consolidated revenue for the fiscal year ended Dec 31, 2013 amounted to KD 1.24 billion ($4.4 billion), which was in the range of our estimates.

Net profit for the year amounted to KD 216 million ($764 million) or 56 fils per share, while earnings before interest, tax and depreciation (EBITDA) came in at KD 538 million ($1.9 billion). The Group’s customer base rose to 46.1 million, up 8% year-on-year, translating to a net increase of approximately 9,500 customers per day.
The company’s overall twelve-month financial results were substantially affected by currency translation impact, effectively slashing revenues by $419 million and EBITDA by $181 million. Without the effects of this currency translation impact, the company’s consolidated revenues would have grown 5% year-on-year with an EBITDA growth of 2%. With regard to net income, if not due to both a foreign currency translation impact of $92 million and an exceptional increase of $57 million loss from ‘foreign currency revaluation’ for the twelve-month period, net income would have grown by 1%.

In Kuwait, the cornerstone of Zain Group, the operation continued to perform well in 2013, with customer growth of 12% to reach 2.5 million, reflecting a leading market share of 39%.
In Iraq, the operation continued to show its potential with its customer base growing 16% to reach 15.9 million, reflecting a 49% leading market position. We continued to make progress towards the initial public offering (IPO) of our operation in Iraq, as required by our license, and are looking forward to the prospect of more Iraqi people being able to own part of this thriving operator.
Zain Sudan remained the leading operator in the market with revenues and EBITDA up 18% year-on-year. The operator continued to excel in local SDG currency terms, though the steep 35% devaluation in the currency against the $during 2013 had an enormous effect on the Group’s overall results.

In Saudi Arabia, the customer base grew by 13% to reach 8.5 million in 2013, and the operator is currently focused on expanding its network as well as undergoing a significant restructuring and transformation in many areas.
Looking ahead, we are positive about our prospects for 2014, and will look to continue to build on the work we have undertaken in 2013. We shall continue to invest in our infrastructure and innovations, ensuring our customers receive the services they aspire for in a market-leading fashion. Mobile broadband will remain a key growth area for us, and we shall continue to invest in this area to ensure we maximize the opportunities which lie therein.

On behalf of the Board of Directors, I would also like to take this opportunity to express our appreciation for the trust bestowed on us by our customers, shareholders, staff, and all other stakeholders in running this formidable company. I would also like to express my personal appreciation to my brothers on the Board of Directors and to the Executive Management team, for their outstanding efforts over the time.
In conclusion, I would like to extend my sincere gratitude and appreciation to His Highness the Amir, Sheikh Sabah Al-Ahmad Al-Jaber Al -Sabah, His Highness the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, and His Highness the Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah. May Allah the Almighty perpetuate the blessings upon our leaders.

CEO Statement
You joined Zain Group in December 2012, in the 12 months since you joined what were the most significant developments?
During my first year as Zain Group CEO, the company celebrated its 30th anniversary, which offered me the ideal opportunity to both reflect on the past successes which enabled us to cross the 46 million customer’s mark, and also to think about the future challenges.
 

To name a few,
* In a number of our markets the penetration is high, resulting in limited growth potential from traditional revenue streams
* Currency fluctuations which continue to impact our consolidated results
* Increased competition from new entrants and ‘Over the Top’ players leading to revenue pressures
* The need to maintain high levels of network quality and to complete our LTE rollouts
 

To face these challenges, together with my management team, we established four strategic pillars that will set the focus for the Group going forward:
1. Customer Experience: Placing the customer at the heart of everything we do; strengthening our attractiveness, brand and the loyalty we generate.
2. Operational Effectiveness: Work smarter, extract synergies and value from our investments.
3. Business Growth: Grow through mergers and acquisitions; strategic partnerships, and monetize data and enterprise offerings.
4. People Development: Enhance capabilities and grow talent through career development such as rotation of jobs regionally, prudent recruitment, training programs and creating platforms to store and share best practices and knowledge.

What do you believe were some of the key operational highlights within the group in 2013?
The remarkable growth in data traffic resulted in a 25% increase in data revenues, with data now representing 14% of all Zain Group’s service revenues. This growth reinforces our decision to make substantial investments in network expansions, 3G upgrades and rolling out 4G LTE services in recent years.

Looking ahead, we see promising growth opportunities in mobile broadband, and we are enhancing our infrastructure in order to secure this growth.
We accelerated our investment in CAPEX by 10% year-on-year to reach $668 million or 15% of revenues, (excluding Zain Saudi Arabia’s CAPEX which totaled $245 million). Similar investment levels will continue for the foreseeable future in order to provide our customers with the best networks and digital experiences across our operations.
To further support the data explosion expected in the years to come, Zain Group joined a GCC-based telecom consortium, Middle East-Europe Terrestrial System- “MEETS,” to build a high-bandwidth regional transmission cable system for the region that will enable Zain’s operations in Bahrain, Kuwait and Saudi Arabia to roll-out higher quality voice and data services. We expect other operations to connect to the cable in the near future.

Throughout 2013, Zain also benefited from its non-equity Partner Market agreement with Vodafone Group. Under this agreement Vodafone supports Zain’s operations in Kuwait, Saudi Arabia, Bahrain, Jordan and Iraq to allow our customers to enjoy exclusive and innovative services, benefiting from Vodafone’s global footprint. Internally within Zain, we also gain access to best practice and enhanced economies of scale. One such example of these benefits is Vodafone Passport, which was introduced in Saudi Arabia in 2013, and offers customers preferential roaming rates across many countries. The service is set to be expanded to include other Zain markets during 2014. As part of this agreement, in April, Zain gained access to the Vodafone McLaren Mercedes racing team in the Bahrain motor race, which saw two of its cars branded Zain and was viewed by a global audience.
With respect to the individual markets in which you operate, were three other specific highlights you would like to comment you?

Kuwait
In our cornerstone market, the success of Zain Kuwait’s nationwide 4G LTE network saw data revenues grow 21% and contribute 29% of total revenues during the year. The operator also undertook field trials of state-of-the-art LTE-Advanced services during the year, to further cement its technological leadership.
The introduction of Mobile Number Portability mid-way through the year had a neutral effect on the operation’s overall performance, and reflected the strength and appeal of our brand and services.

Iraq
We substantially increased CAPEX as the operation upgraded its network to Single-RAN, allowing it to offer 3G services promptly and efficiently once spectrum is granted (expected in 2014). The operation also expanded the network to the more affluent Northern Iraq region. This expansion directly contributed to the substantial 16% customer growth.
The operator also undertook a major milestone with the establishment of a Joint Stock Company (JSC) in Iraq to facilitate its license conditions as it prepares to IPO. The newly established company, ‘Al-Khatem Telecom Company ‘went on to hold its first Annual General Meeting, electing its Board of Directors and appointing its Chairman and Managing Director.
Zain Iraq was also the recipient of two prestigious accolades during the course of the year; the first being named the Telecom Operator of the Year at the 2013 Arabian Business Achievement Awards, and the second being designated as the Middle East Operator of the Year at the annual CommsMEA Awards.

Sudan
A favorable telecom tax law was introduced in mid-June that saw a 2.5% levy on operators’ revenues for a period of three years replacing the 30% corporate income tax. This is set to enhance Zain Sudan’s financial position for the coming three years, partially compensating for the losses incurred due to currency issues.
The operator continues to expand its network adding more network sites to meet the ever growing demand for wireless services. We are hopeful that the continual currency devaluation of the local SDG will abate once the country’s social and economic issues settle.

Saudi Arabia
Our Saudi Arabia operation is currently undergoing a significant restructuring and transformation in many areas under the direction of a new CEO appointed in September 2013.
A number of positive financial events occurred during the year, namely a government-approved seven-year deferment of annual dues, as well as the renewal of two major loans, $600 million for three years and the refinancing of a $2.3 billion Murabaha facility for five years, both at favorable terms.
LTE-Cat.4 services were launched during the year, enabling customers to enjoy data speeds of up to 150 Mbps, making Zain the first operator in the region to provide this technology commercially.
Additionally, to enhance operational network efficiency, the operator entered into a three-year outsourced managed services agreement for all its radio sites.
For the year, the operator witnessed impressive customer growth of 13% and data revenue growth of 73%.

Jordan
Our operation in Jordan underwent heavy CAPEX due to swapping out of the network as well as the introduction of Fiber-To-The-Home and Ethernet-To-The-Home technologies; strengthening its position in the broadband segment.
A special tax was imposed on the telecom sector with the rate on mobile services doubling from 12% to 24% and the mobile handsets tax rate doubling from 8% to 16%. In our view, these taxes have effectively acted as an impediment to the sustained growth of the telecom sector in the country on the short-term.

Bahrain
Zain Bahrain introduced 4G LTE commercially in April, which resulted in an almost instantaneous increase in the amount of data usage on our networks in the country, and resulted in a 20% annual increase in data revenues that contributed to the 25% increase in the operator’s customer base during the year.
Additionally, the operation entered into a four-year managed services agreement to oversee the day-to-day operations of its network and enhance its customer support services. Also of note was the renewal of Zain Bahrain’s mobile service license for a further 15 years, until 2028.
South Sudan
Zain South Sudan remains the market leader in this new born nation. Our focus there is on expanding the network, which saw 83 new radio sites built during the course of the year to reach just over 300 sites. We are also hopeful that recent events in the country will be resolved. All Zain’s key financial indicators witnessed healthy growth in the country.

Lebanon
In Lebanon, we continue to manage the network in close cooperation with the country’s Telecom Ministry, having had the management agreement regularly extended at three-month intervals. We are also hopeful of attaining a long-term agreement in the near future.
‘Customer Experience’ is being viewed as a main differentiator Among mobile operators today in maintaining and attracting customers. What is Zain’s position in this area?
Providing an experience which caters to customer’s needs is vital to Zain’s sustainability in an increasingly competitive industry. Our customers want an overall better experience than they can receive elsewhere.


Customer Experience is one of the four strategic initiatives we introduced in 2013 and thus, a key focus area for Zain Group. It is something that I am personally paying a lot of attention to.
Customers are the reason why organizations exist and therefore placing them at the heart of everything we do is pivotal to our ongoing success. This translates to having a stronger view in terms of how our customers interact with us from a multi-channel perspective and ensuring that each and every interaction is effortless and represents our brand. Being cognizant of future technologies and therefore future customer needs, requires us getting the basics right today, so we can better serve these needs in the future. It’s important that each of our markets focus on existing platforms and processes to better drive simplicity, making it easier for our frontline staff to serve, while at the same time making seamless self-service transactions available.


What Are Your Prospects
For 2014 And Beyond?
I believe Zain has a strong brand, which is synonymous with great products and services, and the company is recognized as being interested in the well-being of people in the region. We employ some of the best people in the business and utilize state-of-the-art technology. We are a major innovator in areas such as mobile commerce and mobile content and we also benefit from having a portfolio of operations from which we can drive synergies, share experiences, and improve economies of scale.
Final Comment
I wish to extend my appreciation to the Board of Directors, shareholders, our valued customers and all other stakeholders for their unwavering support during my first year as the Group CEO. I also sincerely thank my 6,600 colleagues for making Zain the wonderful telecom company it is today.

 




 

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