Zain net income rises 3% to KD 38mn in Q1 – Group generates revenues of KD 247 mn; serves 46.1 million customers, up 1.4% y/y

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KUWAIT CITY, May 2: Zain Group, a leading mobile telecom innovator in eight markets across the Middle East and Africa, announces its consolidated financial results for the first quarter (Q1) ending March 31, 2017. Zain served 46.1 million customers at the end of the period, reflecting a 1.4% increase year-on-year (Y-o-Y).

Zain Group generated consolidated revenues of KD 247 million ($810 million) for the first quarter of 2017, down 11% compared to the same period in the previous year (Y-o-Y). EBITDA for the quarter reached KD 107 million ($352 million), down 13% Y-o-Y, reflecting an EBITDA margin of 43.4%. Net income for the quarter reached KD 38 million ($125 million), up 3% Y-o-Y reflecting Earnings Per Share of 10 Fils ($0.03).

For Q1, 2017, foreign currency translation impact, predominantly due to the 59% currency devaluation in Sudan from 6.4 in Q1, 2016 to 15.6 (SDG/USD), cost the company $148 million in revenue, $68 million in EBITDA and $32 million in net income.

Excluding the above-mentioned currency translation impact, Y-o-Y revenues would have grown by 4%, EBITDA by 3% and net income by 27%.

Key Operational Notes for three months ended March 31, 2017:

1. The company held its Ordinary General Assembly on 12 March, and after approving the distribution of a cash dividend of 35 fils ($0.11) per share for the financial year ended Dec 31, 2016, the meeting saw the election of the Group Board of Directors for the next three years. The new Board appointed Mohannad Mohammad Abdulmohsen Al-Kharafi as Chairman and Bader Nasser Al-Kharafi as Vice-Chairman and Group CEO.
2. Group data revenues (excluding SMS and VAS) increased 4% Y-o-Y, representing 25% of the Group’s consolidated revenues.
3. The significant currency devaluation impact in Sudan in the beginning of November 2016 affected Zain Group’s Q1, 2017 financial results.
4. Intense price competition in Kuwait coupled with additional operational costs in network expansion and upgrades severely impacted the operation and consequently Zain Group’s overall financial metrics.
5. The continual social unrest in Iraq, coupled with intense price competition affected all key financial indicators.
6. Similarly, social unrest and currency devaluation impacted Zain South Sudan results.
7. During the quarter, Zain entered numerous agreements with world-leading entities to support its digital lifestyle aspirations. These included the creation of a joint venture with iflix, the world’s leading entertainment service for emerging markets, to bring unlimited video-on-demand services to the MENA region; with Amazon Web Services Partner Network to provide resilient cloud solutions to organizations in the Middle East; and joining the ‘Telecom Infra Project’ to develop next-generation telecom infrastructure in an initiative co-founded by Facebook, Intel, Nokia and others in 2016. Zain also entered into a joint venture with YOYO, one of the most innovative digital start-ups in Turkey, to bring an exciting car sharing club model initially to Bahrain, and later expand across the Zain regional footprint and the MENA region; and also entered a Memorandum of Understanding (MoU) with Myca Health Inc, an innovative Canadian-based leader in the development of unique proprietary software for scalable IT web based platforms.

Commenting on the results, the Chairman of the Board of Directors of Zain Group, Mr. Mohannad Al-Kharafi said, “It is an honor to have been appointed Chairman of Zain Group, a pioneering company that has placed Kuwait on the world telecom map and created enormous returns for its shareholders over the years. The new Board is fully committed to building on the solid foundation established by the previous Board members and to work closely with executive management in overcoming the many socio-economic challenges we face in several key markets. There is a concerted focus to ensure all strategic partnerships and investments are geared towards maximizing shareholder value and driving the business forward.”

Vice-Chairman and Group CEO, Bader Al-Kharafi said, “Our transformation efforts are resulting in sound operational progress across several of our key markets. We are focused on managing unavoidable externalities as much as possible given the impact they are having on our overall key financial indicators, particularly the highly changeable environments we face with regard to the currency issues in Sudan, the continued social unrest in Iraq, and the intense price competition in both our home market of Kuwait and Iraq. We remain optimistic of the improving socio-economic conditions across all our markets.”

Al-Kharafi continued, “We are pleased with the turnaround and improved performance of Zain Saudi Arabia, which recorded its first ever net profit for the quarter and we will continue to grow this key market as the cost optimization program and network upgrades take effect. Sudan continues to grow due to the rollout of 4G services and the subsequent uptake of data services. We also anticipate improved performances in Iraq, where several tax and litigation issues have been resolved and the new leadership there can now focus on driving the business. Jordan continues to perform well maintaining its market leadership on all levels.”

Regarding Zain’s home market of Kuwait, Al-Kharafi noted, “We are working closely with the management team in overcoming the intense price competition that has impacted value for all operators, by offering a new range of services that we are confident will drive growth. We are investing heavily in expanding and upgrading our network in Kuwait that will further enhance the mobile experience of our customers.”

Al-Kharafi added, “The data monetization, Enterprise (B2B) and smart city initiatives implemented across our operations are profitable business areas that are growing at impressive rates and we will continue to invest resources to foster these areas. We are also focused on further innovation in digital services and plan to build on the many partnerships we have recently entered into and we will continue to seek and collaborate with innovative technology players across the globe.”

The Vice-Chairman and Group CEO concluded, “Zain currently enjoys a strong presence geographically, with a balanced range of markets that are at different stages of growth and continues to be a market leader in five of its eight operations. We are committed to our strategy to leverage our strengths, including our talented people, brand, customer experience, cutting edge technology innovations, and geographic coverage in our bid to become a leading diversified and innovative digital lifestyle operator.”

Operational review of key markets for the three months ended March 31, 2017

Kuwait: Maintaining its market leadership, the flagship operation of Zain Group saw its customer base serve 2.8 million in a very challenging period that saw intense price competition coupled with additional operational costs in network expansion and upgrades impact its financial performance for the quarter. Revenues generated for the quarter reached KD 79.5 million ($261 million), EBITDA amounted to KD 31 million ($101 million) and net income came in at KD 16.2 million ($53 million). Zain Kuwait’s EBITDA margin stood at 39% for the quarter, with Zain Kuwait’s nationwide 4G LTE network seeing data revenues (excluding SMS and VAS) form 34% of total revenues.

Iraq: Despite the initiation of intense price competition in the market during Q1, 2017, coupled with continuing social unrest, Zain Iraq managed to achieve $253 million revenues due to impressive growth in data usage and numerous customer acquisition initiatives in the northern regions of the country. The operation’s efficiency drive saw EBITDA reach $86 million, reflecting a 34% margin. Zain Iraq leads the market serving 12.3 million customers.

Sudan: In local currency (SDG) terms, the operator continues to perform well, as revenues grew by 38% Y-o-Y to reach SDG 1.7 billion ($107 million, down 43% in $terms) for Q1, 2017. EBITDA increased by 22% to reach SDG 594 million ($38 million, down 49% in $terms), reflecting an EBITDA margin of 36% while net income increased by 32% to reach SDG 258 million ($17 million, down 45% in $terms). Data revenues (excluding SMS and VAS) formed 14% of total revenues, with an impressive annual growth of 66% in SDG terms. Zain Sudan now serves 13 million customers.

Saudi Arabia: The turnaround and cost optimization program combined with investment in network are bolstering all key financial indicators with the operator recording its first-ever quarterly net profit of SAR 45 million, ($12 million), compared to net losses of SAR 250 million ($67 million) in Q1, 2016 and SAR 135 million ($36 million) losses in Q4, 2016. Revenues grew by 10% in Q1, 2017 reaching SAR 1,919 million ($530 million). This also represented a 7% increase in revenues from Q4, 2016.

The company recorded a significant 49% increase in EBITDA to reach SAR 665 million ($177 million) in Q1 2017, up from SAR 445 million in Q1, 2016, and a 36% increase from Q4 2016. EBITDA margin rose to 33% for Q1 2017, up from 25% in Q1, 2016, and 26% in Q4, 2016. The introduction of the biometric identification requirement during the year adversely affected the total customer base by 13%, which stood at 10 million customers at the end of quarter. Impressively, the operator witnessed a 46% rise in data revenues (excluding SMS and VAS) Y-o-Y, which represents 51% of total revenues.

Jordan: Despite the intensification of price competition, Zain Jordan managed to increase its customer base by 6% Y-o-Y, serving 4.3 million customers, and maintaining its lead in the market. Y-o-Y revenues increased 2% to reach $119 million, with EBITDA increasing 5% to reach $58 million, reflecting an EBITDA margin of 49%. Net income was stable at $24 million. With the continual expansion of 4G services across the country, data revenues (excluding SMS and VAS) grew by 17% Y-o-Y which now represents 36% of total revenues.

Bahrain: During Q1, 2017, Zain Bahrain generated revenues of $50 million. EBITDA for the period reached $15 million, reflecting an EBITDA margin of 30%. The operation’s focus on new, attractive packages coupled with a totally revamped 4G network saw a 5% increase in the customer base to reach 845,000, with data revenues (excluding SMS and VAS) increasing 33%, representing 43% of overall revenues.

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