Zain Group, a leading mobile telecom innovator in eight markets across the Middle East and Africa, announces its consolidated financial results for the year 2016, and fourth quarter ended 31 December, 2016. Zain served 47 million customers at the end of 2016, reflecting a 3% increase year-on-year (Y-o-Y).
Group Key Performance Indicators (KD and USD) for the Full-Year 2016
|Total Active Customers||47 million up 3% on 2015|
|Consolidated Revenues||KD 1.1 billion – (USD 3.6 billion)|
|EBITDA||KD 512 million – (USD 1.7 billion)|
|Net Income||KD 157 million – (USD 519 million)|
|EPS||40 Fils – USD 0.13|
For the full-year 2016, Zain Group generated consolidated revenues of KD 1.1 billion (USD 3.6 billion), down 4% Y-o-Y, while consolidated EBITDA for the period grew by 3% Y-oY and reached KD 512 million (USD 1.7 billion), reflecting a healthy EBITDA margin of 47%. Consolidated net income reached KD 157 million (USD 519 million), up 2% and reflecting Earnings Per Share of 40 Fils (USD 0.13).
For the full-year 2016, foreign currency translation impact, predominantly due to the 60% currency devaluation in Sudan from 6.4 to 15.9 (SDG / USD) in the beginning of November 2016, cost the company USD 92 million in revenue, USD 38 million in EBITDA and USD 44 million in net income.
The Board of Directors of Zain Group recommended a cash dividend of 35 Fils per share subject to the Annual General Assembly and regulatory approvals.
Group Key Performance Indicators (KD and USD) for the 4th Quarter 2016
|Consolidated Revenues||KD 261 million – (USD 860 million)|
|EBITDA||KD 122 million – (USD 400 million)|
|Net Income||KD 32 million – (USD 106 million)|
|EPS||8 Fils – USD 0.03|
For the fourth quarter of 2016, Zain Group recorded consolidated revenues of KD 261 million (USD 860 million), a decline of 8% on the same period of the previous year (Q-o-Q). EBITDA for the quarter reached KD 122 million (USD 400 million), reflecting a healthy EBITDA margin of 47%. Net income for the quarter reached KD 32 million (USD 106 million), reflecting Earnings Per Share of 8 Fils (USD 0.03).
Specifically, for the fourth quarter of 2016, currency translation impact cost the company USD 83 million in revenue, USD 33 million in EBITDA and USD 42 million in net income, again predominantly due to Sudan currency devaluation from 6.4 to 15.9 (SDG / USD), a 60% decrease.
Key Operational Notes for 12 months ended 31 December, 2016:
- Substantial investments in 3G and 4G LTE network expansion and upgrades continue to pay off as Group data revenues (excluding SMS and VAS) increase 6% during 2016, representing 23% of the Group’s consolidated revenues.
- The 60% currency devaluation impact in Sudan in the beginning of November 2016 affected both Zain Group’s full-year and Q4 2016 financial results.
- In December 2016, Zain Iraq entered into a negotiated settlement with the country’s Finance Ministry for USD 93 million related to an imposition of a capital gains tax on its acquisition of Iraqna in 2007. This resulted in the lifting of restrictions on the trading of Zain Iraq’s shares, access to the company’s bank deposits and also waived penalties and interest on taxes.
- The continued political instability in Iraq during 2016 saw the operator endure frequent temporary network interruptions and associated higher network operational costs. These unavoidable occurrences coupled with heightened levels of price competition and a 20% sales tax on mobile services hit spending on mobile services. All these factors contributed to a negative impact on Zain Iraq’s and consequently Zain Group’s overall key financial metrics.
- In Saudi Arabia, through a Royal Order on October 1, 2016, Zain received an extension of its telecommunications license by 15 Hijri years, effectively extending the license term from 25 Hijri years to 40 Hijri years in total (to expire on 18th January 2047). The impact of this extension for the company was the immediate reduction of its license fee amortization, which amounts to approximately SAR 433 million (USD115 million) per annum, in effect reducing Zain KSA’s net losses by the same amount.
- Heavy investment in 3G & 4G network expansion upgrades across operations saw CAPEX spend for the year amount to USD 635 million (excluding Saudi Arabia), reflecting 18% of Group revenues.
Commenting on the results, the Chairman of the Board of Directors of Zain Group, Mr. Asaad Al Banwan said, “The Board is pleased to record relatively stable financial results; an achievement by the management given the many socio-economic challenges facing all our operations. The currency issue in Sudan in the last quarter of 2016 had an adverse impact on the results, as did the settlement of cumbersome litigation in Iraq that resulted in a payment of USD 93 million. Nevertheless, we draw confidence from both the freeing of our cash deposits in Iraq and the favorable gesture by the Saudi leadership in extending our license in the Kingdom by an additional 15 years, which had a positive impact on the operation’s financials and growth strategy.”
The Chairman continued, “We have invested significantly in 3G / 4G network expansion upgrades across all our markets in order to improve the mobile experience for our customers. Our investments in capital expenditure reached USD 635 million (excluding Zain Saudi Arabia), which represents 18% of our revenues, reflecting Zain’s commitment to innovation and quality of service. I remain proud that we have been able to maintain our leadership position in the majority of the markets we operate in, testament to our valued brand reputation and attention to customer service. The Board is working closely with the executive management in driving the business forward and we shall continue managing the highly volatile environments we face in an efficient and effective manner.”
Zain Group CEO, Scott Gegenheimer said, “Considering the sound operational progress and transformation we have undertaken across all our markets, it’s unfortunate that exceptional circumstances such as the currency issue in Sudan and the tax settlements in Iraq affected our financial performance, as it would have otherwise been very positive. Nevertheless, we are pleased with the progress of our cost optimization initiatives have had in driving efficiency, resulting in an impressive 47% EBITDA margin for the year.”
Gegenheimer continued, “We are delighted by the success of our data monetization and Enterprise (B2B) initiatives across our operations, both of which are fast-growing and profitable business areas. During 2016 in key operations, we built-up dedicated B2B business units and premium B2B care models, installed state-of-the-art IoT/M2M platforms as well as developing new service propositions for Small Medium Enterprises and small home offices, leading to high-double digit sales growth. We are excited by the enormous potential that B2B offers and will continue to invest in and develop this strategic area of the business.”
The CEO concluded, “Our strategic investment in smart city solutions are starting to reap benefits and we expect exponential growth in this lucrative key area. We are committed to our strategy that will leverage our strengths, including our people, brand, customer experience, cutting edge technology innovations, and geographic coverage in our bid to become a diversified and innovative digital lifestyle operator.”
Operational review of key markets for the 12 months ended 31 December, 2016:
Kuwait: Maintaining its market leadership, the flagship operation of Zain Group saw its customer base grow 1% to serve 2.95 million in a very challenging year that saw intense price competition impact its financial performance for the year. Revenues remained stable at KD 322 million (USD 1.1 billion), EBITDA amounted to KD 160 million (USD 531 million) and net income came in at KD 90 million (USD 298 million). Zain Kuwait’s healthy EBITDA margin of 50% for the year reflects the efficiency drive implemented by the operation, with Zain Kuwait’s nationwide 4G LTE network seeing data revenues (excluding SMS & VAS) form 36% of total revenues.
Iraq: The exceptional circumstances facing the operation plus the negotiated settlement of USD 93 million saw Zain Iraq’s financial performance severely affected, with revenues for the full-year reaching USD 1.1 billion, a decrease of 11% Y-o-Y, with EBITDA reaching USD 394 million, down 18%, with a net loss of USD 5 million, down 104% Y-o-Y. EBITDA margin stood at 36%, and with the launch of 3.9G services at the beginning of the year, data related revenue formed 9% of total revenues, reflecting an annual growth of 21%.
Sudan: In local currency (SDG) terms, the operator continues to perform well, as revenues grew by 15% Y-o-Y to reach SDG 5.2 billion (USD 709 million, down 1% in USD terms) for the full-year 2016. EBITDA increased by 4% to reach SDG 2.1 billion (USD 290 million, down 7% in USD terms) while net income decreased 62% to reach SDG 398 million (USD 91 million, down 44% in USD terms). Data revenues (excluding SMS and VAS) formed 13% of total revenues, with an impressive annual growth of 42% (23% in USD terms).
Saudi Arabia: The cost optimization and efficiency drives of the third operator in the Kingdom are taking effect, resulting in a 10% increase in EBITDA to reach USD 479 million, reflecting an EBITDA margin of 25%. For the full-year 2016, the operator recorded a 2% Y-o-Y increase in revenues to reach USD 1.9 billion, with net losses relatively stable to reach USD 261 million. The introduction of the biometric identification requirement during the year adversely affected the total customer base by 10% which stood at 10.7 million customers at the end of 2016. Impressively, the operator witnessed a 36% rise in data revenues (excluding SMS & VAS) Y-o-Y, which represents 33% of total revenues.
Jordan: Despite the intensification of price competition, Zain Jordan managed to increase its customer base by 5% Y-o-Y, serving 4.3 million customers, and maintaining its lead in the market. Y-o-Y revenues increased 5% to reach USD 483 million, with EBITDA reaching USD 240 million, with a healthy EBITDA margin of 50%. Net income reached USD 105 million. With the launch of 4G services, data revenues (excluding SMS & VAS) represented 34% of total revenues, growing by 23% Y-o-Y.
Bahrain: During 2016, Zain Bahrain generated revenues of USD 175 million, down 9% Y-o-Y. EBITDA for the period reached USD 66 million, down 12%, reflecting an EBITDA margin of 38%. Net income amounted to USD 11 million, reflecting a 17% decrease. The operation’s focus on new attractive packages coupled with a totally revamped 4G network in Zain Bahrain, saw a 22% increase in the customer base to reach 971,000 with data revenues (excluding SMS & VAS) increasing 11%, representing 41% of overall revenues.