BUSINESS OPERATIONS

The Group’s flagship, Mobile Telecommunications Company (Zain) was founded in Kuwait in 1983, as the first telecom operator to launch a commercial GSM service in the region in 1994. Listed on the Boursa Kuwait in 1985 and incorporating all the Group’s operations and assets across all markets, the company’s market capitalization stood at USD 8.6 billion as of 31 December 2019.

MARKET SHARE

Operationally, Zain Kuwait remains the most profitable company within the Group and maintains its market lead in terms of both value share and customer base, serving 2.8 million customers, reflecting a 7% annual growth. Its market leadership on all key financial indicators is highlighted by its revenue representing 39% of the total market revenue and 59% of the industry’s net income.

For 2019, revenue grew by 1% YoY, to reach KD 333 million (USD 1.1 billion), which would have been 7% higher if not for the one-off additional enterprise revenue of the MEW project and bulk sales that were realized in 2018 amounting to KD 20 million.

Operational efficiency and cost optimization, and the KD 9.8 million benefit of adopting the new accounting standard IFRS 16 - ‘Leases’, resulted in EBITDA increasing 10% to KD 126 million (USD 417 million). Net income increased by 1% (YoY) to KD 83 million (USD 273 million) including a benefit of KD 5.9 million from IFRS 16.

Zain Kuwait was the first operator in the GCC to commercially launch 5G services in June 2019, investing USD 210 million (19% of its revenue) in CAPEX during 2019, providing connectivity nationwide via 2,511 network sites. This supported the 7% growth in data revenue that represented 37% of total revenue for the year.

The operator launched numerous digital initiatives, including the expansion of 25 smart branches with biometric processes and upgrades on its interactive zBot chat digital channel on WhatsApp, reducing customer waiting times by 90%.

On the groupwide API platform, Zain Kuwait launched Zain Kids, a safe and fun digital space for children and launched ‘PlayVOD’, offering a rich library of over 3,000 movies and TV series.

Moreover, Zain was the first telco in Kuwait to receive M&O Data Center Certification from Uptime Institute recognizing the high international standards of its data center. Also, it became the first managed services partner for Cisco in Kuwait on Hosted Collaboration Services as well as partnering with Microsoft as a reseller of Azure cloud solutions; and achieved Gold Partnership status with Dell-EMC.

Notably, Zain Kuwait in partnership with Boubyan Bank, announced plans for the first digital platform for Islamic banking services, one of the first digital alliances between a telecom entity and a bank.

In a pioneering initiative announced in February 2020, Zain Kuwait completed the sale and leaseback of the passive physical infrastructure of its 1,620 mobile tower portfolio to IHS Holding Limited for USD 130 million (KD 40 million). The operator expects to book approximately USD 43 million gain from the realization of the sale of its towers.

Zain Saudi Arabia launched commercial operations in the Kingdom of Saudi Arabia on 26 August 2008, a year after it was awarded its mobile license. The Group holds a 37% equity stake in the operation, while the remaining shareholding is held by a Saudi consortium that owns 21%, and 42% is free floating on the Tadawul Stock Exchange (ZAIN Saudi Arabia, 7030). The company’s market capitalization stood at approximately USD 1.8 billion as of 31 December, 2019, reflecting a price of SAR 11.7 per share.

2019 was a record year for Zain Saudi Arabia, attaining its highest ever financial results as well as cementing its position as the Group’s largest revenue contributor, representing 41% of Group consolidated revenue.

Revenue for the year amounted to USD 2.2 billion, an increase of 11% YoY while EBITDA jumped by 27% to USD 1 billion, reflecting a healthy EBITDA margin of 46% on account of top line growth and IFRS 16 benefit of USD 142 million. Net income was the best-ever since inception, reaching USD 130 million compared to USD 89 million last year. The benefit from IFRS 16 on net income was only USD 11 million.

During 2019, Zain Saudi Arabia invested USD 512 million (23% of revenue) on CAPEX (Fiber-to-the-Home and 5G rollout), and spectrum and license fees, providing connectivity through 9,726 network sites. CAPEX was instrumental in data revenue generation, representing 43% of total revenue and monthly ARPU increasing 9% Y-o-Y from USD 18 to USD 20 for the last year, indicative of the success of the operator’s focus on post-paid lines and data monetization initiatives.

The company’s strong performance and solid cash flow generation led to early voluntary repayments towards the senior Murabaha financing agreement amounting to SAR 1.425 billion, which saved USD 20 million in finance costs for the year. For the first time ever, Zain made a USD 200 million payment in 2019, linked to the interest payable towards a shareholder loan from the Group.

Zain has been providing mobile services in Iraq since December 2003. After securing a 15-year license in August 2007, the company acquired Iraqna’s network, becoming the largest mobile operator in the country. Zain Group subsequently increased its ownership in the Iraq entity from 30% to 76% and maintains management control.

Market Share

Given the competitive landscape and economic and political issues in Zain stronghold regions in Iraq, Zain’s top line performance was down 5% to USD 1.08 billion. EBITDA increased by 10% to USD 465 million due to transformation initiatives, as well as a USD 34 million benefit on the adoption of IFRS 16. Net income increased by 28% to USD 63 million, though a negative impact of USD 1.6 million was recorded on to the bottom line due to the adoption of IFRS 16.

Zain Iraq’s focus on customer experience, service expansion across the country, and cost transformation, combined with the growth of data and digital revenue were the key drivers of Zain’s sound performance in 2019.

The operator invested USD 133 million (12% of revenue) in CAPEX during the year, expanding and upgrading its network to support the increase in data demand. This connectivity was supported through 4,807 network sites. Zain Iraq team is focusing heavily on the enterprise (B2B) segment as this is proving to be an extremely profitable growth area in both service and data revenue, with the operator also launching a large-scale electricity smart meter project.

Retention and customer loyalty initiatives also resulted in the company serving 15.7 million customers.

Zain aims to acquire 4G spectrum in Iraq during 2020, which will further support growth. Moreover, the country’s regulatory body extended the operator’s 2G and 3G license for a further five years commencing from August 2022, which will contribute to the operator’s future positive financial performance.

During 2019, Zain Iraq became the first operator in the Middle East to introduce a purchase solution via Facebook on smartphones, which was an instant success for the operator. Zain Iraq has 6 million social media fans on the Facebook. The operator also partnered with DOCOMO Digital, a prominent mobile commerce enabler, to launch Zain Games “GamEmpire”, a unique all-you-can-play a bundle of native and HTML5 games streamed over the web directly on smartphones or tablet devices, offering customers access to hundreds of top-quality games.

Zain Cash collaborated with UNHCR and IrisGuard to introduce the world’s first disbursement of cash to refugees in Iraq with IrisGuard EyePay’s technology. Currently over 120,000 vulnerable families in Iraq and approximately 30,000 refugees in the country receive cash support via UNHCR.

Improving customer experience, Zain Iraq launched a new digital interface for its smart services, through the Facebook Messenger platform, interacting and responding to customer enquiries while informing them of the latest offers and services or facilitating direct communication with a customer service officer.

In February 2006, Zain acquired 61% stake in Mobitel, Sudan’s first mobile operator, in a deal valued at USD 1.33 billion. Mobitel was rebranded to Zain in September 2007 and subsequently renewed its license for a period of 20 years. With a leading customer market share of 49% as of 31 December, 2019, Zain Sudan was able to further improve its market position by reporting customer growth of 9% Y-o-Y to reach 15.9 million at the end of the year. The operator is the largest contributor to Zain Group’s customer base, representing 32% of the Group’s total.

Market Share

With the political situation in Sudan witnessing more signs of stability after forming a civilian-led government for a transitional period of three years, Zain is performing exceptionally well in local currency terms.

For the full-year 2019, the operator continued to perform exceptionally well in local currency SDG terms, but the significant 30% currency devaluation in Sudan during 2019 affected both the Group’s and the operation’s financial results in USD terms. Revenue grew by 43% Y-o-Y to reach SDG 13.9 billion (USD 304 million, down 4% in USD terms). EBITDA increased by 52% to reach SDG 5.6 billion (USD 122 million, up 1% in USD terms), while net income increased 87% to reach SDG 2.3 billion (USD 49 million, up 11% in USD terms). This net income growth is impressive, given that there was an increase in the corporate tax rate from 5% to 7%, which impacted net income.

The expansion of 4G and 3G services to key cities across the country combined with data marketing initiatives saw data revenues (excluding SMS and VAS) grow by an impressive 41%, representing 18% of total revenues in SDG terms. This is impressive when considering the internet outages experienced in Sudan during June and July 2019.

Zain Sudan spent USD 51 million in CAPEX or 17% of its revenue, expanding its 4G LTE network across the country and by the end of 2019 the operator’s mobile network covered 90% of the population via 2,691 network sites.

During the year, the operator launched an initiative to rollout 4G LTE hotspots across key regions as well as introducing cloud gaming services that resulted in impressive take-up by customers and revenues

In 1994, Zain Jordan revolutionized the telecom sector in the Kingdom by becoming the first operator to introduce mobile services (as Fastlink). In 2003, the operator notched up another first by joining Zain Group’s Middle East portfolio, and despite intense competition in this liberalized market, the operator was the first to launch 4G services. Zain Jordan has maintained its status as the country’s leading mobile entity from inception.

Market Share

Celebrating its 25th anniversary of operation in 2019, Zain Jordan remains the market leader, serving 3.6 million customers. Revenue for the year was stable at USD 496 million despite the new regulated lower interconnection rates effective 1 January, 2019, which saw the rate fall from 11.6 fils to 8.4 fils. EBITDA increased 14% YoY to reach USD 221 million, which included an IFRS 16 benefit of USD 14 million and reflected an improved EBITDA margin of 45%. Net income reached USD 77 million, up 5% YoY with IFRS 16 having no material impact on the bottom line.

CAPEX in Jordan amounted to USD 51 million in 2019, reflecting 10% of the company’s revenue. Most of this investment was directed towards the nuclear grade Tier 3 Data Center - The Bunker – which offers co-location, cloud, virtual private data center and business continuity services. CAPEX was also spent on FTTH expansion and 4G network sites, which reached 2,950 sites. This, and related digital offerings including a concerted focus on B2B services, saw data revenue grow by 8% YoY to represent 41% of total revenue.

Efficiency is important to Zain Jordan and one of its key focuses is on electricity and the use of solar power as an alternative. The operator also made progress in its rollout plan to expand Zain Fiber services tailored to various monthly subscription packages. Zain Fiber provides premium quality and stable internet access speeds of up to 1 GB per second with fiber revenue more than doubling during the year.

The operator also introduced attractive GSM and mobile broadband post-paid packages that saw impressive growth, as did the new roaming offer Take your local bundle, which saw healthy revenues derived from both incoming and outgoing roamers.

From a digital perspective, Zain Jordan introduced a revamped website with a new eShop that has seen impressive usage and revenue growth. It also offered eSim and focused on adding new features and promoting usage of its customer app, which witnessed a 70% increase in monthly visitors, and a doubling of revenues.

The operator’s unique Zain Cash offering is proving popular as it provides nationwide mobile coverage. Given the country’s high unbanked population, mobile money and digital payment methods continue to witness tremendous growth.

Zain Bahrain began commercial operations in the Kingdom in December 2003 as MTC Vodafone until its rebranding to Zain in 2007. With its pioneering efforts in rolling out the latest technologies, Zain has played a key role in placing Bahrain on the global telecom map. Zain Bahrain is listed on the Bahrain Bourse (ZAINBH) with a market capitalization of approximately USD 107.4 million (share price BD 0.110) as of 31 December, 2019.

Celebrating its 16th year of operation in the Kingdom, Zain Bahrain’s successful focus is on operational efficiency and the delivery of state-of-the-art technology.

Zain Bahrain generated revenue of USD 167 million in 2019, down 5% YoY. EBITDA for the period amounted to USD 56 million, up 35% YoY, reflecting an EBITDA margin of 33%. Net income amounted to USD 14 million, reflecting a 2% increase YoY. The operation recently revamped its 4G network and is set to launch 5G in the first half of 2020. Data revenue represented 47% of overall revenue, up 5% on last year.

The Board of Directors of Zain Bahrain recommended distributing annual dividends to shareholders representing 6% of the company’s paid up capital, equivalent to 6 fils per share.

The operator invested USD 53 million in CAPEX, representing 32% of its revenues. Much of this investment was channeled towards expanding the company’s 4G LTE network and preparing itself for the imminent commercial launch of 5G. The operator currently provides connectivity through a network of 597 sites. The operator’s focus on rolling out appealing, innovative digital services that provide greater value to enterprise (B2B) and individual customers saw data revenue (excluding SMS & VAS) increase 5% to represent 47% of overall revenue.

The operator’s digital transformation witnessed multiple initiatives that enhanced the customer mobile experience as well as increased revenue. This includes the rollout of smart branch self-service machines to increase customer adoption of digital self-care channels with new services including sales and SIM replacements.

Zain Bahrain’s launch of zBot chat service in both Arabic and English resulted in a 68% reduction in resolution times with digital related interactions reaching 94%.

The revamp of the ringback tone service and launch of Zain Games, a mobile gaming platform on the groupwide API platform, resulted in healthy revenue as did device promotions on Zain Bahrain’s eShop platform, which contributed to total device sales.

The operator also launched post-paid tactical promotions offering additional data usage that reduced churn and attracted new customers, as did its rollout of home broadband 4G LTE packages. In the fourth quarter of 2019, Zain Bahrain offered commercial Fiber to the home services.

During 2020, with the imminent launch of 5G services, Zain Bahrain aims to focus on growing its B2B revenue, targeting government and enterprises as well as increasing its service offerings to 5G-hungry consumers as compatible devices become more readily available

In June 2004, Zain Group was awarded a four-year management contract to operate one of Lebanon’s two GSM networks. This concession has been extended regularly since. The operation is branded touch, and Zain Group management has worked closely with the country’s Ministry of Telecommunications and high-caliber local talent to develop the operation and maintain its market leadership with a 54% customer share as of the end of 2019.

Market Share

Lebanon’s socio-economic issues, which arose mid-October 2019, have halted numerous initiatives that were underway at touch, as per the directive of the Ministry. Zain has also been given a notice to continue managing the network until 31 March 2020.

Nevertheless, during 2019, touch continued its digital transformation journey, implementing converged billing and transforming business operations across different departments including IT, commercial and corporate management, which saw the company’s contact center upgraded with the latest technologies resulting in a 100% increase in e-chat traffic. Furthermore, there was a significant increase in the number of transactions and revenues across all touch’s digital channels, reducing outsourcing fees at both the contact and service centers.

The operator launched numerous innovative bundles that included content and entertainment offerings and B2B offers and promotions as well as WhatsApp local and roaming data bundles. touch’s focus also centered on rolling out value creating services in the B2B segment to government and enterprises.

The year saw touch heavily involved in initiatives related to the local startup entrepreneurial ecosystem through its ‘touch Innovation Program’, which completed cycles two and three for the aspiring entrepreneurs. Similarly, touch partnered with the MIT Enterprise Forum Pan Arab Startup Competition to provide mentoring and logistic support for the 2018 /2019 period with the final ceremony held in Beirut in April.

touch’s focus on improving network coverage and service availability saw it modernize the network, adding and relocating 3G and 4G sectors, deploying new sites, upgrading microwave links, redistributing mobile sites and building microwave rings, as well as kicking-off a power modernization project. The operator also enhanced customer experience through 3G and 4G RAN, cluster optimization, including traffic balancing with new features. Moreover, touch launched LTE roaming and undertook 5G trials to ready itself for commercial rollout, when approved by the Ministry.

By the end of 2019, touch counted 2.3 million customers representing a 54% market share with over 86% being prepaid. This accounts for 5% of Zain Group’s total customer base. With 1,366 network sites, the operator covers all the populated areas of Lebanon with 3G and 4G services.