Zain Group reports 2% net profit growth for 2017; Fourth-Quarter 2017 net profit up 16%

• Board of Directors recommend cash dividend of 35 Fils per share, reflecting a total distribution of KD 151.4 million, a 11% increase on the amount distributed for 2016
• Consolidated revenues reach USD 3.4 billion, EBITDA amounts to USD 1.4 billion (40% margin) and net profit of USD 527 million for full-year 2017
• Data revenues increase 3%, representing 25% of total Group revenues
• Currency translation impact in Sudan affects Group 2017 net profit by USD 82 million
• Zain Saudi Arabia records annual net profit for first time since inception
• Zain Iraq returns to profit as customer base rises 16%
• Sale of passive tower network in Kuwait will support investments in infrastructure and modern technologies

Kuwait – 8 February, 2018

Zain Group, a leading mobile telecom innovator in eight markets across the Middle East and Africa, announces its consolidated financial results for the full-year 2017, and fourth-quarter ended 31 December, 2017. Zain now serves 46.6 million customers, reflecting a 1% decrease year-on-year (Y-o-Y).

Group Key Performance Indicators (KD and USD) for the Full-Year 2017

For the full-year 2017, Zain Group generated consolidated revenues of KD 1.03 billion (USD 3.4 billion), down 5% Y-o-Y, while consolidated EBITDA for the period decreased by 19% Y-o-Y to reach KD 414 million (USD 1.37 billion), reflecting an EBITDA margin of 40%. Consolidated net income reached KD 160 million (USD 527 million), up 2% and reflecting Earnings Per Share of 39 Fils (USD 0.13).

For 2017, foreign currency translation impact, predominantly due to the 53% currency devaluation in Sudan from an average of 8.0 to 16.9 (SDG / USD), cost the company USD 494 million in revenue, USD 213 million in EBITDA and USD 82 million in net income. Excluding the above-mentioned currency translation impact, Y-o-Y revenues would have grown by 8% and net income growth would be 17%.

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. Despite financial challenges, this dividend comes on the back of the sale of 425,711,648 treasury shares, which will result in a 11% increase of the total value distributed for 2016 from KD 136.5 million to KD 151.4 million for 2017.

Group Key Performance Indicators (KD and USD) for the 4^th Quarter 2017

For the fourth quarter of 2017, Zain Group recorded consolidated revenues of KD 262 million (USD 868 million), a similar level to the same period in 2016. EBITDA for the quarter reached KD 98 million (USD 326 million), reflecting an EBITDA margin of 38%. Net income for the period reached KD 37 million (USD 124 million), reflecting a 16% increase, and representing Earnings Per Share of 9 Fils (USD 0.03).

Specifically, for the fourth quarter of 2017, currency translation impact cost the company USD 54 million in revenue, USD 20 million in EBITDA and USD 6 million in net income, again predominantly due to Sudan currency devaluation from 12.8 to 18.3 (SDG / USD), a 30% decrease.

Key Operational Notes for 12 months ended 31 December, 2017:

1. Group data revenues (excluding SMS and VAS) increased by 3% during 2017, representing 25% of the Group’s consolidated revenues.
2. The currency devaluation impact in Sudan affected both Zain Group’s full-year and Q4 2017 financial results as highlighted above.
3. Other notable highlights for 2017 include the SAR 1 billion (USD 264 million) net income turnaround witnessed by Zain Saudi Arabia; robust customer growth of 16% and return to profitability in Zain Iraq; as well as Sudan continuing to perform exceptionally well in local currency terms.

Commenting on the results, the Chairman of the Board of Directors of Zain Group, Mr. Mohannad Al-Kharafi said, “The company’s performance during 2017 and especially the last quarter of the year is very pleasing given the various operational, regulatory, social and forex challenges we face across our footprint. It is our focus to maintain market leadership and grow the business further by exerting all our efforts on innovation, and customer service, while at the same driving efficiencies which allow us to consistently deliver strong operational results. The Board is working closely with management to evaluate value-creating opportunities in the ICT sector, while ensuring all strategic partnerships and investments are geared towards maximizing shareholder value.”

Zain Vice-Chairman and Group CEO, Bader Al-Kharafi said, “The ongoing implementation of our digital lifestyle strategy combined with substantial investment in network technology upgrades and cost optimization initiatives is proving successful as we recorded growth in several key financial metrics across many of our key markets for the full-year and fourth-quarter of 2017. One main factor outside of our control, notably the Sudan currency devaluation issue, has materially impacted our overall results, affecting our net profit by USD 82 million, otherwise our 2017 profit would have increased by 17%.”

“Notable positive highlights for the year include the SAR 1 billion (USD 264 million) net profit turnaround in Saudi Arabia where the transformation program is taking full effect resulting in the operation recording its first ever annual net profit. We also returned to profitability in Iraq where socio-economic conditions are gradually improving, and we are proactively taking grasp of the many opportunities in this promising market.”

Furthermore, the Group CEO noted, “Across our operations, Zain continues to focus on data monetization, smart city and Enterprise (B2B) initiatives, which are all fast-growing and profitable business areas. Our landmark agreements with Amazon Web Services and Microsoft Azure allows Zain to connect corporations directly and seamlessly to business enhancing cloud solutions. In addition, we are investing in other opportune growth digital initiatives such as Zain Cash mobile money services in Iraq and Jordan, iflix video-on-demand streaming services and are also exploring mobile education and health services.”

Al-Kharafi reiterated the strategic importance of the agreement that was penciled in October 2017 to divest the tower infrastructure in Kuwait (for USD 165 million), which will be replicated in other markets as, “it will unlock value from our fixed infrastructure, and can be more efficiently deployed in new technologies and higher yielding investments, as well as enabling management to focus on core business opportunities and enhancing the customer mobile experience.”

Similarly, Al-Kharafi noted the value-enhancing benefits of selling the company’s treasury shares representing 9.84% of Zain’s fully paid up and issued share capital for USD 846 million to Omantel in August 2017, as “reducing the company’s debt levels and enhancing financial flexibility as we continue to seek opportunities in the digital space as well as investing in the upgrade of our modern networks. The deal set the course for future co-operation with Omantel, in which the two companies will explore mutually beneficial synergies and business enhancing opportunities in the digital arena across the region.”

With regard to the ever-increasing use of data by mobile customers across the region and how such behavior will affect Zain and other operators across the region, Al-Kharafi noted that, “Explosive data growth in several of our key markets, at a compound annual growth rate (CAGR) of over 50% over the last two years, is creating a gigabit society, with users consuming up to 18 GB of data per month on average. Critical factors such as higher smart device penetration, greater numbers of LTE and LTE-A subscribers, generous data plan offerings at lower prices, increased take-up of video and audio content streaming, social media and the use of personal and enterprise cloud and backup services are fuelling higher demand for data and faster speeds.”

Al-Kharafi added, “This data growth necessitates the use of more spectrum and more sites to expand radio access networks and the use of fibre connectivity (new fibre licences or acceleration of national broadband network deployment) for backhaul. With the impending growth in Machine to Machine (M2M) and the Internet of Things (IoT), the requirements for new numbers and short codes will also increase significantly. Operators will need to continue to invest to acquire increasingly scarce resources – frequency licences, fibre licences and numbering blocks – to cater for growth.”

The Vice-Chairman and Group CEO concluded, “The Board and executive management have confidence in our transformation objectives to unlock the many lucrative opportunities in the connected society and becoming a digital lifestyle operator. We all look forward to 2018 with optimism as we grow the business and create more value for all stakeholders.”

Operational review of key markets for the 12 months ended 31 December, 2017:

Kuwait: Maintaining its market leadership, the flagship operation of Zain Group saw its customer base serve 2.7 million in a very challenging year that witnessed the impact of intense price competition on its financial performance for the year. Revenues reached KD 331 million (USD 1.1 billion), EBITDA amounted to KD 127 million (USD 418 million) and net income came in at KD 80 million (USD 265 million). Zain Kuwait reported an EBITDA margin of 38% for the year with data revenues (excluding SMS & VAS) forming 32% of total revenues.

Iraq: Despite the challenging yet improving socio-economic circumstances facing the operation, Zain Iraq performed exceptionally well when compared to the previous year. Revenues grew consecutively on a quarter-on-quarter basis, with full-year revenues reaching USD 1.1 billion, a 2% increase Y-o-Y and EBITDA reached USD 382 million, down 3%. The operation reported a net profit of USD 29 million, up 657% Y-o-Y compared to a loss of USD 5 million in the previous year, with EBITDA margin standing at 35%. The expansion of 3.9G services across the country and restoration of sites in the West and North, combined with numerous customer acquisition and retention initiatives, especially in core regions, resulted in impressive addition of two million customers (16% increase) to reach 14.7 million. Also contributing to the operation’s financial revival was the significant growth of data revenues, strong growth in the corporate segment, increase in voice revenues through the launch of numerous segmented offers, and the improvement of customer experience and customer services. The strength of the Zeyara holy season was also a factor as Zain Iraq heavily promoted connections and exclusive deals with roaming its partners. Cost optimization was also a key focus in major items such as repair and maintenance.

Sudan: In local currency SDG terms, the operator continues to perform exceptionally well, as revenues grew by 36% Y-o-Y to reach SDG 7.1 billion (USD 419 million, down 41% in USD terms) for the full-year 2017. EBITDA increased by 37% to reach SDG 2.8 billion (USD 166 million, down 43% in USD terms) while net income increased 173% to reach SDG 1.1 billion (USD 65 million, down 29% in USD terms). Data revenues (excluding SMS and VAS) formed 16% of total revenues, with an impressive annual growth of 58%.

Saudi Arabia: Zain Saudi Arabia reported its first ever full-year net profit, amounting to SAR 12 million (USD 3.1 million) for 2017. This is a milestone achievement for the company, which commenced commercial operations in August 2008 and this net profit amount reflects a SAR 1 billion (USD 264 million) turnaround on the prior year. Total revenues of SAR 7.53 billion (USD 2 billion) were achieved reflecting a 6% Y-o-Y increase despite a significant decline in international revenues primarily due to the impact of VoIP and a lower number of prepaid customers. The company’s efficiency drive resulted in a 40% increase in EBITDA to reach SAR 2.5 billion (USD 671 million), reflecting an EBITDA margin of 33%. The introduction of the biometric identification requirement over the past year, capping the number of prepaid SIMs to two for each unique identity saw the operator’s total customer base shrink by 23%, to stand at 8.2 million at the end of December 2017. Impressively, the operator witnessed a 30% rise in data revenues (excluding SMS and VAS) Y-o-Y, representing 50% of total revenues.

Jordan: Although maintaining market leadership, the intensification of price competition resulted in Zain Jordan customer base shrinking by 8% Y-o-Y, to serve 3.9 million customers at the end of the year. Y-o-Y revenues increased 3% to reach USD 497 million, with EBITDA amounting to USD 226 million, with a healthy EBITDA margin of 45%. Net income reached USD 90 million, down 15%. With the launch of 4G services, data revenues (excluding SMS & VAS) represented 37% of total revenues, up 12% Y-o-Y.

Bahrain: During 2017, Zain Bahrain generated revenues of USD 198 million, up 13% Y-o-Y. EBITDA for the period reached USD 58 million, down 11%, reflecting an EBITDA margin of 30%. Net income amounted to USD 11 million, reflecting a 1% increase. The operation’s completely revamped 4G network served a customer base of 678,000 with data revenues (excluding SMS & VAS) increasing 23%, representing 44% of overall revenues.

About Zain Group

Zain is a leading telecommunications operator across the Middle East and Africa providing mobile voice and data services to over 46.6 million active customers as of 31 December, 2017. With a commercial presence in 8 countries, Zain operates in: Kuwait, Bahrain, Iraq, Jordan, Saudi Arabia, Sudan and South Sudan. In Lebanon, the Group manages ‘touch’ on behalf of the government. In Morocco, Zain has a 15.5% stake in ‘INWI’, through a joint venture. Zain is listed on the Kuwait Stock Exchange (stock ticker: ZAIN). We recommend the Investor Community download the “Zain Group Investor Relations” Mobile App. For more please email [email protected] or visit: www.zain.com; www.facebook.com/zain; www.twitter.com/zain; www.youtube.com/zain; www.instagram.com/zaingroup; www.linkedin.com/company/zain