Zain Group's results impacted by devaluation of SDG

  • EBITDA margin stands at 43.4%, customers served total 46.1 million
  • Data revenues continue to grow, represent 25% of total Group revenues
  • Significant currency devaluation in Sudan, continued social unrest in several markets and intense competition in Iraq and Kuwait impacts results
  • Excluding currency translation impact, net income would have grown by 27%
  • The success of Zain Saudi Arabia’s turnaround program highlights the quarter

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 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 (USD 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 (USD 352 million), down 13% Y-o-Y, reflecting an EBITDA margin of 43.4%. Net income for the quarter reached KD 38 million (USD 125 million), up 3% Y-o-Y reflecting Earnings Per Share of 10 Fils (USD 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 USD 148 million in revenue, USD 68 million in EBITDA and USD 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 31 March, 2017:

  1. The company held its Ordinary General Assembly on 12 March, and after approving the distribution of a cash dividend of 35 fils (USD 0.11) per share for the financial year ended 31 December, 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.

Operational review of key markets for the three months ended 31 March, 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 (USD 261 million), EBITDA amounted to KD 31 million (USD 101 million) and net income came in at KD 16.2 million (USD 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 USD 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 USD 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 (USD 107 million, down 43% in USD terms) for Q1, 2017. EBITDA increased by 22% to reach SDG 594 million (USD 38 million, down 49% in USD terms), reflecting an EBITDA margin of 36% while net income increased by 32% to reach SDG 258 million (USD 17 million, down 45% in USD 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, (USD 12 million), compared to net losses of SAR 250 million (USD 67 million) in Q1, 2016 and SAR 135 million (USD 36 million) losses in Q4, 2016. Revenues grew by 10% in Q1, 2017 reaching SAR 1,919 million (USD 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 (USD 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 USD 119 million, with EBITDA increasing 5% to reach USD 58 million, reflecting an EBITDA margin of 49%. Net income was stable at USD 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 USD 50 million. EBITDA for the period reached USD 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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