Kuwait and Iraq operations perform strongly in quarter: Bader Al-Kharafi
KUWAIT: 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 31 March 2018. Zain served 46.9 million customers at the end of the period, reflecting a 2 percent increase year-on-year (Y-o-Y).
For financial reporting purposes for the first three-month period of 2018, Zain applied the new IFRS 9 and IFRS 15 accounting standards that negatively impacted Zain’s key financial indicators, particularly EBITDA.
Zain Group generated consolidated revenues of KD 259 million ($864 million) for the first quarter of 2018, up 5 percent compared to the same period in the previous year. EBITDA for the quarter reached KD 84 million ($281 million), down 21 percent Y-o-Y, reflecting an EBITDA margin of 32.5 percent. Net income for the quarter reached KD 41 million ($137 million), up 7 percent Y-o-Y reflecting Earnings Per Share of 9 Fils ($0.03).
For Q1, 2018, foreign currency translation impact, predominantly due to the 38 percent currency devaluation in Sudan from an average of 15.5 in Q1, 2017 to 24.9 in Q1, 2018 (SDG / USD), cost the company $38 million in revenue, $16 million in EBITDA and $7 million in net income. Excluding the currency translation impact, Y-o-Y revenues would have grown by 9 percent.
Key Operational Notes for three months ended 31 March, 2018:
1. The company held its General Assembly Meeting (AGM) on 28 March, and approved the distribution of a cash dividend of 35 fils ($0.11) per share for the 2017 financial year.
2. Group data revenues (excluding SMS and VAS) increased 10 percent Y-o-Y, representing 26 percent of the Group’s consolidated revenues.
3. The application of IFRS 15 standards significantly impacted EBITDA predominantly due to two main factors, one, the Cost of Sales (COS) related to handsets that could no longer be amortized, and two, the company’s investment in attracting Enterprise (B2B) customers.
4. Zain Kuwait and Zain Iraq record strong growth, while significant currency devaluation in Sudan, and loss of customers and other factors in Saudi Arabia impact overall performance
5. During the quarter, Zain entered numerous agreements with world-leading entities to support its digital lifestyle aspirations. These included with Google’s Apigee to launch the Zain Group Application Program Interface (API) Platform, that will see the operator exposing its APIs, thereby helping to remove a significant barrier to developing potential digital partnerships from across the globe. Another agreement was a strategic partnership with Apigate, a subsidiary of Axiata Digital, to procure and provide API services via Zain’s API Hub for its operating companies and end users.
6. Zain Group and its operations also entered Memorandum of Understandings (MoU) with leading technology solutions provider Ericsson, Huawei and Nokia and other entities in areas of developing 5G roadmaps as well as in rollout exciting and compelling innovative solutions to enrich the enterprise (B2B) market and exploit the vast opportunities in cloud services, gaming, digital content and e-commerce, all key and lucrative growth areas.
Commenting on the results, the newly appointed Chairman of the Board of Directors of Zain Group, Ahmed Al-Tahous said, “It is a great honor to have been appointed Chairman of Zain Group, a company with a rich history that has created substantial returns for all shareholders as well as extensive positive socio-economic benefit for the countries we operate in over the years.”
The Chairman continued, “The encouraging first quarter 2018 results were achieved as a result of the transformation strategy implemented several years ago by the company to focus on innovative programs to improve the efficiency of the operations as well diversifying income sources primarily from digital related areas. The Board is working closely with management in further fostering these value accretive areas as well as seeking new opportunities in driving the business forward.”
Vice-Chairman and Group CEO, Bader Al-Kharafi said, “Management’s transformational and digitization efforts are resulting in sound operational progress across several of our key markets as reflected in our robust results for the first quarter, highlighted by the improving performance in our home market of Kuwait and similarly in Iraq, as well as in the strong growth of data revenues. If it were not for unavoidable externalities such as the prolonged currency issue in Sudan and various adverse factors in Saudi Arabia, as well as the application of the new IFRS accounting standards, the Q1, 2018 results would have been even more impressive.”
Kharafi added, “The data monetization, Enterprise (B2B) and smart city initiatives implemented in Kuwait, Saudi Arabia and across other key operations are growing at impressive rates and we will continue to develop the required infrastructure and invest resources to further benefit from these lucrative and strategic business areas.”
The Vice-Chairman and Group CEO concluded, “Although we operate in many markets with diverse levels of socio-economic challenges and technological maturity, we are committed to our digital lifestyle strategy and leveraging our state-of-art networks. We remain focused on enhancing shareholder value and actively seeking lucrative opportunities in the digital space as well as ensuring the mobile experience for our customers is second to none.”
Operational review of key markets for the three months ended 31 March, 2018
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 improving financial performance for the quarter. Revenues generated for the quarter increased 21 percent reaching KD 96 million ($320 million), and net income increased 16 percent to reach KD 19 million ($63 million). Zain Kuwait’s EBITDA amounted to KD 26 million ($87 million), a 15 percent decrease with EBITDA margin standing at 27 percent for the quarter. Data revenues (excluding SMS and VAS) grew by 4 percent Y-o-Y representing 29 percent of total revenues.
Iraq: Zain Iraq performed exceptionally well in Q1, 2018 when compared to the corresponding 3-month period with revenues reaching $275 million, a 9 percent increase Y-o-Y and EBITDA reached $96 million, up 12 percent reflecting an EBITDA margin of 35 percent. The operation reported a net profit of $8 million, substantially up on the $283,000 profit recorded for Q1, 2017. The expansion of 3.9G services across the country and restoration of sites in the West and North, combined with numerous customer acquisition initiatives, especially in core regions, resulted in impressive addition of 2.2 million customers (18 percent increase) to reach 14.5 million. Also contributing to the operation’s financial revival was the significant growth of data revenues, robust growth in enterprise (B2B) segment, and the revamping of its call centers significantly improving customer service.
Sudan: In local currency (SDG) terms, the operator continues to perform well, as revenues grew by 26 percent Y-o-Y to reach SDG 2.1 billion ($85 million, down 20 percent in $terms) for Q1, 2018. EBITDA increased by 35 percent to reach SDG 802 million ($33 million, down 14 percent in $terms), reflecting an EBITDA margin of 38 percent while net income increased by 18 percent to reach SDG 305 million ($14 million, down 17 percent in $terms). Data revenues (excluding SMS and VAS) formed 16 percent of total revenues, with an impressive annual growth of 41 percent in SDG terms. Zain Sudan now serves 13.8 million customers.
Saudi Arabia: Zain Saudi Arabia performance for the quarter was affected by a 17 percent Y-o-Y (1.7 million) reduction of its customer base due to exodus of expat community, bio-metric measures and a two-sim policy for expats. In addition, the increase in depreciation and amortization due to acquiring spectrum and additional property equipment and one-off charges in Q1 2018 relating to the absorption of VAT customer related fees negatively impacted the operation. The company reported quarterly net losses of SAR 77 million ($21 million) compared to a SAR 45 million ($12 million) net profit in Q1, 2017.
Revenues decreased by 12 percent in Q1, 2018 reaching SAR 1.686 billion ($450 million). The company recorded a 14 percent decrease in EBITDA to reach SAR 571 million ($152 million) in Q1 2018, resulting in an EBITDA margin of 34 percent. Impressively, data revenues (excluding SMS and VAS) represents 55 percent of total revenues.
Jordan: Zain Jordan serves a customer base of 3.8 million customers as at Q1, 2018, maintaining its lead in the market. Y-o-Y revenues were stable at $119 million, with EBITDA decreasing 18 percent to reach $48 million, reflecting an EBITDA margin of 40 percent. Net income reached $18 million. With the continual expansion of 4G services across the country, data revenues (excluding SMS and VAS) grew by 5 percent Y-o-Y which now represents 39 percent of total revenues.
Bahrain: During Q1, 2018, Zain Bahrain generated revenues of $44 million. EBITDA for the period reached $10 million, reflecting an EBITDA margin of 22 percent while net income increased 120 percent to reach $2.9 million. The operation’s focus on new, attractive packages coupled with a totally revamped 4G network saw the customer base served reach 650,000, with data revenues (excluding SMS and VAS) representing 45 percent of overall revenues.