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Wednesday , March 3 2021

Zain holds AGM, reviews 2015 financial results – CEO outlines operational challenges and future strategic direction of Group

Al Banwan with Gegenheimer, Badr Al Kharafi and Matta during the General Assembly Meeting
Al Banwan with Gegenheimer, Badr Al Kharafi and Matta during the General Assembly Meeting

KUWAIT CITY, March 23: On behalf of my fellow members of the Board of Directors, it gives me great pleasure to welcome our honorable shareholders to the annual general assembly and review the financial results of Zain Group’s operations for the year ending 31 December, 2015. I will also look to highlight a number of important accomplishments that were achieved during the course of the year.

Mobile telecom services witnessed a number of positive developments in the region during 2015; where customer growth rates were positive and continued demand for mobile broadband services and corresponding smartphone boom persisted. This was coupled with the expansion of the digital economy, though at a macro-economic level, the Middle East region suffered the negative impact from the sharp decline in oil prices, as well as the threat of escalating political tensions and social unrest.

Zain Group was not immune to these political tensions, and the resulting security risks, which in turn influenced the region’s social conditions, and factors such as human displacement in several of our markets impeded Zain’s operational progress.

Based on these challenges, Zain Group reviewed its operating procedures, and adapted them accordingly in order to maintain its leading market position in most of our markets growing the customer base by 3% in 2015 to reach 45.6 million.

Today, the telecom industry is facing higher operational costs. As a consequence of this, profit levels are under increasing pressure, driven primarily by the need to invest further in networks and applications, as well as maintaining physical security of infrastructure. Therefore, the traditional core telecom business is facing real challenges, with Zain Group investing heavily in future-proofing its networks. In 2015 the company invested USD 797 million (excluding Zain Saudi Arabia) in CAPEX, reflecting Zain’s increasing commitment to improving the customer experience.

Amidst the relatively high penetration rates and fierce competitive nature of the region’s telecom market, Zain Group has continued to adopt its strategy, which is based on creating a sustainable digital telecom company that caters to the needs of both individuals and the business sector alike. The Group has already achieved substantial progress in its strategic goals, also investing in digital applications and partnering with successful third parties to ensure high quality delivery of its traditional services; further helping the company become one of the most effective service providers in the region.

One of our main goals is to become a leading mobile service provider with respect to operational efficiency. This has led Zain Group to concentrate on initiatives relating to its OPEX and CAPEX optimization. These initiatives have helped the Group maintain healthy financial results, as the management focused on operational alignment and cost optimization efforts. Zain has proactively reduced the costs related to international connectivity and network maintenance, among other things.

Our major financial indicators at Zain Group were impacted by the political and security challenges in the region, as well as extremes in currency exchange rate fluctuations and intense price competition across our footprint. Performance was further affected by an erosion and a sharp decline in traditional revenue due to the presence of OTT messaging and VoIP players capturing a large part of the market. Notably, additional amortization on both Zain Iraq’s 3G license fee and Zain Jordan’s additional 3G and newly acquired 4G spectrum license fees impacted the bottom line by USD 52 million.

Accordingly, Zain Group’s net income amounted to KD 154 million (USD 513 million) for the fiscal year 2015; with earnings per share amounting to 40 fils. The Group achieved consolidated net profit of KD 1.14 billion (USD 3.78 billion) compared to consolidated net profit of KD 1.21 billion(USD 4.27 billion) in 2014.

Zain’s earnings before interest, taxes, depreciation and amortization (EBITDA) reached KD 499 million (USD 1.66 billion), down from KD 507 million (USD 1.78 billion) a year earlier.

Our operational performance for this challenging fiscal year was characterized by Zain’s ability to address the difficulties it faced competently, as the company managed to reinforce both its competitive positions in data related services. Data revenues (excluding SMS and value added services) witnessed a 15% growth rate in 2015, ending the period representing 20% of total revenues.

Focusing on our customers’ needs represented a top priority for the Group’s operations as each operating company catered to the needs and aspirations of its respective customer bases. This was achieved by offering customers flexible, bundled options in addition to providing them with state-of-the-art telecom technologies. Accordingly, Zain’s operations in Saudi Arabia, Sudan, Jordan and Bahrain saw significant operational gains in 2015.

Zain Group’s flagship operation in Kuwait continues to maintain its leadership position in terms of market share and revenues having grown its customer base by 9% during the year to serve 2.9 million customers. The healthy EBITDA margin of 49% for the year reflects the efficiency drive implemented by the operation, with Zain Kuwait’s nationwide 4G LTE network which saw data revenues grow 8% for the year.

Zain’s operation in Iraq maintained its leading market position in 2015, serving 11.1 million customers, despite very difficult social circumstances. For example, there has been widespread relocation and displacement of civilians across the country and portions of the operator’s network suffered from service outages. The introduction of a 20% sales tax on mobile services and many other items in the country had a drastic impact on consumption habits of the people, with telecom revenues being affected. Nevertheless, the operation’s efficiency drive saw its EBITDA margin increase to 39%, and with the launch of 3.9G services at the beginning of the year, data related revenue grew by 34%.

Zain Sudan continued to achieve positive results in 2015, as all its major financial indicators pointed to very impressive growth rates both in US dollars and in local SDG currency, serving 11.9 million customers. Data related revenues grew an impressive 91% in USD terms in Sudan and with the expected granting of a 4G license in 2016, we expect further growth in this area.

Similarly, Zain Saudi Arabia’s financial results witnessed marked improvement as the operation continues to implement its transformation plan. The operator successfully reduced its net loss for 2015 by 23% to reach USD 259 million, serving 11.9 million customers, with data related revenues growing an impressive 58%.

Zain Jordan continued to maintain its leadership position in one of the most competitive telecom ecosystems in the Middle East. In 2015, the company managed to grow its customer base by 6% year-on-year to serve 4.1 million, with the launch of 4G services early in the year contributing to 18% growth in data revenues.

Furthermore, Zain Bahrain’s annual fiscal results were encouraging as they reflected a healthy EBITDA margin of 39%. The totally revamped 4G network in which Zain Bahrain has invested in excess of USD 134 million over the last two years resulting in data revenues increase by 11%.

Appreciation

In conclusion, I would like to express my genuine appreciation for the trust given to us by our shareholders, who have always given us support throughout our journey. Let me also extend my sincere thanks and appreciation to my fellow Board members and the executive management team for the commendable efforts they exerted in the face of considerable challenges.

On behalf of all my fellow members of the Board of Directors and the executive management, as well as all employees of the Group, I would like to offer our deepest gratitude and appreciation to His Highness the Amir of Kuwait, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah; His Highness the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al- Sabah; His Highness  the Prime Minister Sheikh Jaber Al-Mubarak Al-Sabah; and to the esteemed members of our Government for their  continued support of Kuwait’s national organizations  and institutions.

CEO Statement

Zain Group continues to operate in the midst of highly complex and dynamic environment in a number of markets, and the company’s adaptability to rapid and often drastic changes in socio-political and economic conditions is what defines it as a successful, sustainable entity.

During the course of 2015 the Middle East and North Africa region witnessed the destabilization and mass migration of huge populations of people. The global economy also came under sustained pressure as economic output in key markets such as China slowed, and the price for commodities, primarily oil-based ones, decreased dramatically, driving local governments to seek alternative income sources including additional telecom taxes and fees.

Local currencies in most countries across emerging markets weakened in comparison to the US dollar, making imports more expensive, and driving up inflation forecasts. It is unfortunate that these factors outside of our control have impacted overall performance for the year considering the sound operational progress and transformation we have undertaken across all our markets.

Despite these macro-economic developments, Zain Group maintained a steady course in 2015, committed to our strategy that will take advantage of our competencies, including our people, brand, impressive customer experience, cutting edge innovations and geographic coverage. We shall also continue on the path towards implementing operational efficiency initiatives, looking to develop new business areas and becoming a diversified and innovative digital lifestyle operator.

Question: How would you describe Zain Group’s performance in 2015?

Answer: I would describe Zain Group as being on a journey to solidify business fundamentals whilst focusing on creating future revenue streams, and that 2015 was another significant step in that direction. As you might note, in 2014 Zain outlined its focused five-year strategy to create a strong and sustainable platform for growth against a backdrop of higher mobile penetration, increasing competition, unique externalities, challenging operational performance, and accelerating adoption of over-the-top (OTT) solutions. Our five-year strategy has the vision of building a sustainable digital communications company serving consumers and enterprises with a rich lifestyle experience and during 2015 we focused on strategy execution across all of our strategic pillars.

Q: Might you give some insight into the main pillars of the five-year transformational strategy at Zain?

A: Zain’s strategy is premised on six transformational initiatives:

Customer Experience – Putting the customer at the heart of everything we do and allowing customers to feel a connection to Zain.

n Operational Effectiveness – Enhancing the bottom line through operational efficiency initiatives, looking to run our business differently and enabling additional group-wide synergy benefits.

n Value Management – Establishing the building blocks to create more value, focusing in particular on data monetization and keeping our core products relevant to our customers.

n B2B – Leading the ICT market in the Middle East, delivering a world class enterprise service, transforming Zain from being a consumer centric mobile operator to a full telecom operator providing enterprise services.

n Digital Frontier and Innovation – Become a regional trendsetter in the digital space, focusing on identifying additional verticals for Zain in the digital value chain.

n Talent Development – Inspiring employees to achieve excellence through engagement, and transforming our workforce to be future ready with required new skills and competencies.

These initiatives are more relevant today – given the way global and regional markets are evolving and the impact major trends are having on the ICT industry. In particular, Zain is focused on sustaining value in its core business of voice, messaging and mobile broadband, as well as exploiting fully new revenue streams in the lucrative, but regionally-fragmented B2B segment. In addition, Zain is seeking to build scale in the emerging regional digital landscape covering areas such as e-Commerce, digital content, mobile advertising and gaming, smart cities and mobile application development. Zain is enhancing its competitive positioning by expanding its role in the value chain of new business areas beyond connectivity.

Q: What strides were taken during the course of the year to bring Zain closer to its five-year strategy, and do you believe you are on track to meeting your timeline?

A: During the course of the year Zain made significant progress in achieving its vision, having identified internally that it cannot do everything it wants to do in the digital space alone, so a big proponent is finding and cooperating with value-creating partnerships.

The strategic collaboration with NeXgen Group, a leading smart city advisory and consulting services provider based in the UAE is an example of such. This cooperation enables Zain to advise governments and mega real estate developers facilitating the deployment of smart city solutions across the region. The two companies have recognized the value the other brings in this respect and plans are afoot to solidify the relationship even further.

We also invested in three venture capital funds – MEVP, Wamda and Earlybird – that are focused on early-stage and growth-stage digital opportunities in Central and Eastern Europe, Turkey, the Middle East, and Africa.

Earlier in 2015, we announced the expansion of our existing Partner Market Agreement with Vodafone, to deliver M2M services to enterprise and government sectors across the region, with our operations in Kuwait, Bahrain, Jordan and Saudi Arabia at the forefront of this initiative.

More recently, Zain has tied up with leading technology and content companies including UBER and global games developer, Zeptolab, in order to bring to market a number of popular applications, in many cases under some pretty unique and pioneering circumstances. Our efforts appear to be resonating as our agreement with UBER was recognised by global research company Ovum, as its most innovative service for November 2015, from a selection of 82 innovative services launched by network providers around the world.

Q: How important is tailoring the user experience to your customers’ needs to Zain?

A: Customer Experience is one of the buzz words in the service industry and everyone is talking about how important the customer is. However at Zain we believe that customer experience is driven by our actions, not our words. It’s critical to make sure that we listen to our customers’ feedback and act accordingly while running our business.

We take it very seriously at Zain, and during the course of 2015 we further enhanced customer experience across all touch points in the customer journey by utilizing customer feedback, developing a thorough understanding of customer needs, and by linking frontline performance with rewards to drive relevance, simplification, and optimization in all customer interactions. Across our footprint, the Group continued to roll-out its Voice of the Customer (VoC) platform to provide real-time monitoring and analytics of customer feedback.

Zain has standardized Transactional net promoter score (TNPS), Customer Effort Score (CES) and Customer Satisfaction (CSAT) metrics across all markets and now utilizes a broad range of KPIs to assess the effectiveness of channels and make sure we haven’t missed important customer feedback.

The “Voice of the Customer Day” program, which enables senior executives to take on the role of front-line agents in retail shops and contact centers helps to develop a first-hand understanding of customer pain-points, and has further helped to institutionalize customer experience management across the Group.

Q: How do you expect digital developments in the telco space to advance in 2016, and what will Zain Group’s approach to such be?

A: Zain Group will continue along its path of identifying opportunities in the digital space, and partnering with strong and innovative digital service players.

Overall, Zain is focusing on the future verticals, be that e-Commerce, education, next generation TV services or digital advertising. Our goal is to utilize our unique regional presence and common brand to push development of the digital economy and our role in the business environment of the future.

We will also focus on aligning our network investments to ensure we continue to lead our markets and enable future revenue streams. We believe the richness of content being delivered over mobile devices will continue to increase and drive even more applications to come to market, with commensurate investment in infrastructure required to support such.

Q: Might you touch on what value management relates to at Zain, given this area is a key strategic pillar?

A: With respect to value management, Zain is the market leader in most of its markets, both in terms of value share and market share. Our objective is to sustain our leadership position and to counter market erosion threats from OTT players and aggressive competition from operators present in our markets. Zain utilizes its business intelligence platforms to build a strong customer value management framework premised on well-defined customer segments in each of its markets. Data monetization is another key area for the company and initiatives are underway to implement data centric pricing across our footprint.

Q: Can you also elaborate on Talent development as another strategic pillar:

A: As for talent management, we believe the best employers successfully align their people practices with company strategy and create a high performing environment. During the course of the year we introduced initiatives focused on improving employee engagement and empowerment, as well as learning and development programs to adapt to and encourage employee regional mobility. New technologies and digital services require our workforce competencies to stay at leading levels and we are investing accordingly. Furthermore, as a testament to the strength of the management of the company and focus on succession planning, several key management positions were filled with internal resources, such as the appointment of Zain Group stalwart Mrs Eaman Al Roudhan, who was promoted to become the CEO of Zain Kuwait.

Q: What are Zain’s aspirations for the current period and the year ahead?

A: In 2016, we are set to continue strategic executions reinforced by employee engagement, empowerment and leverage our leading technology, presence and strong brand. Going forward Zain Group and its operating entities are looking to remain vigilant and agile to market opportunities. We are all well aware that the telco industry is changing rapidly, and as one of the leading service providers in the region, we believe it is imperative for us to embrace these changes and be forward-looking in our approach. These are exciting times for all stakeholders in the ICT value chain, traditional as well as new, and opportunities abound for the creation of significant value for all participants should they be agile enough to grasp them.

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