Industry Updates

Zain Group, a leading mobile innovator with operations in eight markets across the Middle East and Africa, announces its consolidated financial results for the six months to 30 June 2018. Zain served 47.4 million customers at the end of the period, reflecting a 5% increase year-on-year (Y-o-Y).

In 2018, Zain applied the new IFRS 9 and IFRS 15 accounting standards that negatively impacted the company’s key financial indicators, particularly EBITDA.

Group Key Performance Indicators (KD and USD) for first six months (H1) of 2018

For the first six months of 2018 (H1), the Group’s consolidated revenues remained stable at KD 503 million (USD 1.67 billion). The Group’s consolidated EBITDA for the period reached KD 169 million (USD 563 million), down 20% Y-o-Y in KD terms, reflecting an EBITDA margin of 34%. Consolidated net income increased 5% Y-o-Y to reach KD 86.4 million (USD 287 million). Earnings per share for the half-year stood at 20 Fils (USD 0.07).

For H1 2018, foreign currency translation impact, predominantly due to the 40% currency devaluation in Sudan from an average of 15.8 (SDG / USD), in H1 2017 to 26.5 in H1 2018 cost the company USD 94 million in revenue, USD 36 million in EBITDA and USD 9 million in net income.

Excluding this currency translation impact, Y-o-Y revenues would have grown by 6% for H1 2018.

Group Key Performance Indicators (KD and USD) for the second quarter (Q2) of 2018

In second quarter of 2018 (Q2), Zain Group recorded consolidated revenues of KD 244 million (USD 811 million), down 6% in KD terms, compared to the same period in the previous year. EBITDA for the quarter reached KD 85 million (USD 282 million), down 19% Y-o-Y in KD terms, reflecting an EBITDA margin of 35%. Net income for the quarter amounted to KD 46 million (USD 150 million), up 3% Y-o-Y in KD terms, reflecting earnings per share of 11 Fils (USD 0.03).

For Q2 2018, foreign currency translation impact, predominantly due to the 43% currency devaluation in Sudan, cost the company USD 52 million in revenue, USD 19 million in EBITDA and USD 4 million in net income.

Excluding the above-mentioned currency translation impact, Y-o-Y revenues would have remained stable and net income would have grown by 6% for Q2, 2018.

Key Operational Notes for H1 2018

1. Launch and expansion of high-speed 4G LTE networks across key markets coupled with numerous data monetization initiatives saw Zain Group data revenues (excluding SMS and VAS) grow 10% Y-o-Y, to represent 27% of the Group’s consolidated revenues
2. The application of IFRS 15 standards significantly impacted EBITDA predominantly due to two main factors. 1. The Cost of Sales (COS) related to handsets that could no longer be amortized, and 2. The company’s investment in attracting Enterprise (B2B) customers
3. Significant currency devaluation impact in Sudan continues to negatively affect Zain Group’s financial results. Nevertheless, Zain Sudan continues to perform exceptionally well in local currency terms
4. Zain Kuwait and Zain Iraq both recorded customer and net income growth, with loss of customer base in Zain KSA and Zain Jordan affecting their key financial indicators
5. Following the company-wide agreement entered into at the 2018 MWC Barcelona between Zain Group and DOCOMO Digital, Zain Kuwait launched its unique gaming platform www.zain.games/kw offering its customers access to over 1,000 top quality and branded games compatible with iOS, Android and Windows operating systems.
6. Zain Kuwait trialed 5G technology in several locations, an early initiative for its customers. The operator will continue developing and expanding the 5G network gradually across Kuwait in readiness for 5G devices that will available, expected during 2019.
7. At the MWC Shanghai 2018, Zain Group joined other leading mobile operators committing to adopt and implement the GSMA IoT Security Guidelines of best practice and recommendations for the security of the entire Internet of Things (IoT) ecosystem.

Commenting on the results, Chairman of the Board of Directors of Zain Group, Mr. Ahmed Al Tahous said, “The company’s performance in the first half of the year has been pleasing given the numerous operational and forex challenges we face in several key markets. The Board is working closely with management in implementing wide-ranging programs to improve operational efficiency and cost optimization, to consistently deliver strong operational results.”

The Chairman continued, “We are also focused on maintaining our leadership position in most of our markets and future-proofing the business by seeking new value-creating opportunities as well as maximizing our state of the art networks by offering innovative digital services to meet the ever-growing demand for high-speed data connectivity.”

Mr. Bader Nasser Al-Kharafi, Zain Vice-Chairman and Group CEO commented, "In addition to the consolidated 5% net income growth and 5% customer growth, the first six-months of 2018 produced numerous positive developments such as the operational progress being achieved in Kuwait, Iraq and Sudan as well as the robust growth in our data monetization, Enterprise (B2B), and smart city initiatives especially in our key 4G markets of Kuwait, Saudi Arabia, Bahrain and Jordan.”

The Group CEO added, “Despite the sound operational progress and transformation we have undertaken across all our markets, it is unfortunate that several factors outside our control, namely the deteriorating currency issue in Sudan and the application of the new IFRS accounting standards, have impacted several performance indicators.”

Furthermore, Al-Kharafi said, “Our strategic transformation into a digital lifestyle operator continues to make headway and it is pleasing to report data revenue growth of 10%, which now represents 27% of our total revenues. We will continue fostering new value accretive areas to unlock the many lucrative opportunities that exist in the digital arena, in a bid to drive the business forward. We expect continued growth in all facets of our operations in the second half of the year.”

Al Kharafi concluded by commenting on Zain Group’s recent disclosure regarding Zain Saudi Arabia, whereby Zain KSA will be treated as a subsidiary of Zain Group and its financial results will be consolidated with the results of Zain Group starting from the third quarter of 2018. He said, “The impact of this consolidation will strengthen the Group's financial indicators on various levels, except for the net income, since Zain Group's ownership in Zain KSA will not change.”

Operational review of key markets for the six months ended 30 June 2018

Kuwait: Maintaining its market leadership, Zain Kuwait saw its customer base increase to serve 2.8 million customers, reflecting a 7% annual growth. It remains the Group’s most profitable operation with revenues for the first six-months of 2018 up 5% reaching KD 174 million (USD 579 million), EBITDA amounting to KD 54 million (USD 180 million) and net income increased 2% to reach KD 39 million (USD 130 million). Zain Kuwait’s EBITDA margin stood at 31% at the end of H1 2018, (36% EBITDA margin for Q2 2018) with data revenues (excluding SMS & VAS) accounting for 32% of total revenues, growing 6% Y-o-Y.

Iraq: Zain Iraq performed exceptionally well in H1 2018 when compared to H1 2017 with revenues reaching USD 558 million, a 7% increase Y-o-Y and EBITDA reached USD 194 million, up 8% reflecting an EBITDA margin of 35%. The operation reported a net profit of USD 18 million, up 66% on the USD 11 million profit recorded for H1 2017. The expansion of 3.9G services across the country and restoration of sites in the West and North of the country, combined with numerous customer acquisition initiatives, especially in core regions, resulted in an impressive addition of 1.9 million customers (15% increase) to reach 14.7 million. Also contributing to the operation’s financial revival was the significant growth of data revenues, robust growth in the Enterprise (B2B) segment and the revamping of its call centers significantly improving customer service.

Sudan: A substantial 40% currency devaluation in Sudan from an average of 15.8 (SDG / USD) to 26.5 affected the operation’s financial results in USD terms for H1 2018. Nevertheless, in local currency (SDG) terms, the operator continues to perform remarkably well as revenues grew by 31% Y-o-Y to reach SDG 4.4 billion (USD 168 million, down 21% in USD terms). EBITDA increased by 38% to reach SDG 1.8 billion (USD 67 million, down 17% in USD terms) and net income increased by 26% to SDG 688 million (USD 27 million, down 21% in USD terms). Data revenues (excluding SMS and VAS) accounted for 17% of total revenues and grew 52% in SDG terms. The operation saw its customer base expand 8% to reach 13.9 million.

Saudi Arabia: The operator recorded a loss of USD 31 million in H1 2018, compared to net profit of USD 14 million in H1 2017. Revenues for the period were down by 7%, reaching USD 942 million. EBITDA reached USD 316 million in H1 2018 with EBITDA margin stable at 34%. Compared with the first quarter of 2018, Zain Saudi Arabia reported a 10% increase in revenues, with EBITDA growth amounting to 8% in Q2 2018. The company achieved a 25% increase in operating profit quarter-on-quarter in Q2 and a 3% growth in gross profit. Zain Saudi Arabia also managed to reduce its net losses by 51% in Q2 compared to the previous quarter. The operator’s total customer base stood at 8.4 million at the end of June 2018. Data revenues (excluding SMS and VAS) represent 53% of total revenues.

Jordan: Zain Jordan saw its customer serve 3.7 million at the end of June 2018, maintaining its market leading position despite intense price competition. Y-o-Y revenues were stable at USD 241 million, with EBITDA down 17% to reach USD 96 million, reflecting a 40% EBITDA margin. Net income decreased 25% to USD 36 million in H1 2018. With the continual expansion of 4G services across the country, data revenues (excluding SMS & VAS) represented 38% of total revenues.

Bahrain: Zain Bahrain generated revenues of USD 87 million for the first six months of 2018, generating an EBITDA of USD 20 million, reflecting an EBITDA margin of 23%. Net income amounted to USD 6 million, reflecting a 60% increase Y-o-Y. Data revenues (excluding SMS & VAS) represent 45% of overall revenues.

Source: Zain Press Release