Bader Nasser Al Kharafi
New dividend policy of minimum 33 fils for 3 years reflects confidence of future growth
Transforming operations to extract value from the Fourth Industrial Revolution
Sustainability, Gender Diversity and Inclusion initiatives core to the business
Launch of many innovative digital initiatives in B2B and consumer segment
Strategic investment in 5G services and network expansion paying off
As we continually rollout and implement different elements of the digital strategy, we are seeing new opportunities to diversify revenues, increase shareholders’ value while simultaneously generating sustainable growth for our operating communities.
It is a profound pleasure to address you considering the exceptional operational and financial year we achieved in 2019. Across activities and geographies, Zain Group excelled substantially, leveraging the talent of its progressive workforce and seeking opportunities in new lucrative areas. These include appealing digital services offered through our state-of-the-art 4G and 5G platforms and the development of enterprise and cloud solutions serving the government and business sectors in order to drive revenues and margins.
In rapidly changing ecosystems defined by the Fourth Industrial Revolution and a greater demand for accountability, the need to evolve the organization to extract maximum value while implementing a more responsive approach to the environment and specifically climate change is highly relevant to Zain. Across our footprint, more than 7,200 dedicated and talented Zainers continue to strive to provide customers Meaningful Connectivity through a relevant range of services to help the communities we serve lead better lives.
New 3-year dividend policy
A first by any corporate entity in Kuwait, the Board of Directors have recommended a new cash dividend policy committing the company to a minimum 33 fils for three years inclusive of 2019. This recommendation is a result of the impressive operational performance attained by the Group in recent years and confidence in the future potential of our digital growth strategy in seeking new business verticals. We expect to reap healthy rewards from our investments in 5G, Fiber and network upgrades across key markets that support the ever-increasing demand for mobile and fixed broadband services by individuals and enterprises alike.
Investing for growth
Throughout 2019, Zain Group invested over USD 1 billion in CAPEX, predominantly in expansion of Fiber-to-the-Home (FTTH) infrastructure; spectrum fees; 4G upgrades and new network sites across its markets, as well as 5G rollouts in Kuwait and Saudi Arabia.
In addition to supporting our digital transformation aspirations, this huge investment is paying off as reflected by the 36% annual growth in the Group consolidated data revenue that reached USD 2 billion, representing 36% of the Group’s revenue for 2019.
Our adoption of new accounting standard IFRS 16 – ‘Leases’ from the beginning of 2019 resulted in a benefit to EBITDA of KD 73 million (USD 241 million), and an increase in net income of KD 7 million (USD 23 million) for the full-year 2019
Digital strategy gains momentum
Our digital strategy is taking shape, centered on evolving our core telecom business to maximize value and building on our many strengths to selectively invest in growth verticals beyond standard mobile services that support our vision of becoming a leading ICT and digital lifestyle provider that makes the world a better place.
Committed to creating the region’s digital future, we are seeking verticals that fall within four categories:
- Disruptive, whereby these digital business models show signs of success at a global level but are yet to be established regionally
- Scaled, whereby new opportunities can exist as standalone cores and can be scaled regionally across our footprint and beyond.
- Ecosystem, whereby we seek complementarities between selected business models to propel growth and complying with the UN Sustainable Developments Goals
- Capability Leverage, aiming to use existing differentiating capabilities to obtain a competitive advantage and accelerate growth
As we continually rollout and implement different elements of the digital strategy, we are seeing new opportunities to diversify revenues, increase shareholders’ value while simultaneously generating sustainable growth for our operating communities. This is proving successful as evidenced by our strong financial performance and various achievements.
Moreover, we are setting up structures and entering into key partnerships in the FINTECH and e-Health arena, and opening our APIs across key markets to offer appealing entertainment and gaming services, so as to reap the lucrative opportunities in the digital space. We will continue to foster this lucrative and customer appealing platform that provides customers access to multiple mobile-led services. Zain Kuwait, Bahrain, Iraq, Jordan, and Saudi Arabia are benefitting from new revenue streams from this cloud service, with Omantel recently joining the platform.
All operations witness healthy and sustainable growth
The Group financial performance across all operations, especially the robust profit growth in Saudi Arabia, Iraq and Sudan, and the commendable performance by our highly profitable Kuwait operation, topped off an incredible operational year and that gives us enormous confidence going into 2020 and beyond.
Kuwait
Our flagship Kuwait operation maintained its market leadership, with its customer base growing 7% during the course of a highly productive year that saw Zain Kuwait invest USD 209 million representing 19% of its revenue in CAPEX during 2019. As the first operator to launch commercial 5G services in the country in June 2019, Zain Kuwait triumphantly rolled out numerous innovative digital services to enterprises and individual customers, attaining the largest market share of 5G customers in Kuwait.
The team meticulously prepared for the launch of 5G and rolled out commercial services immediately upon the availability of 5G smartphones and compatible mobile broadband routers. The benefits of such investment and focus are reflected in the data revenue that grew by 7% and now represents 37% of total revenue.
Zain Kuwait also made substantial progress in its digital transformation in line with the country’s 2035 Vision, launching numerous applications and operational efficiency initiatives.
In a pioneering initiative, we announced on 12 February 2020 that Zain Kuwait completed the sale and leaseback of the passive physical infrastructure of its 1,620 mobile tower portfolio for USD 130 million (KD 40 million) to IHS Holding Limited. The transaction is the first sale and leaseback of telecom towers in the Middle East region by a licensed mobile operator and sets the scene for further similar deals across our footprint and beyond by other operators.
Saudi Arabia
The impressive performance of Zain Saudi Arabia over the year was no doubt the highlight of the year for the Group, with the operator recording its highest ever financial results since its establishment. The rollout of the largest commercial 5G network in the region combined with expansion of Fiber to the Home services and the launch of numerous data monetization initiatives were instrumental to its successful turnaround. The operator made significant CAPEX investments of USD 512 million, representing 23% of its revenues during the year, aimed at perpetuating the successful digital transformation process underway in the Kingdom. Data revenues represented 43% of total revenues and it was pleasing to see the ARPU increase from USD 18 to USD 20 during 2019.
Serving 7.6 million customers, we are proud of our position as a major contributor to Saudi Arabia’s ICT sector; a position earned by both the local and Group management teams working closely together in driving constant innovation and qualitative initiatives aimed at bolstering performance. Zain Saudi Arabia’s focus on developing Saudi nationals and its productive relationship with the Ministry of Communications and Information Technology, and the Communications and Information Technology Commission, emphasize the company’s dedication to supporting the targets of the Kingdom’s Vision 2030.
Iraq
Continuing its upward trajectory, and against a backdrop of a highly competitive landscape and economic and political challenges, Zain Iraq delivered stable revenues and doubledigit increases in both EBITDA and net profit. The company’s focus on customer experience, services expansion across the country and cost transformation, combined with growth of data and digital revenue, were key drivers of this impressive performance. Retention and customer loyalty initiatives also resulted in the company serving 15.7 million customers.
In December 2019, Zain Iraq received a formal letter from the Iraq authorities advising that the operator’s 2G and 3G license will be extended for five years commencing August 2022, subject to a final negotiation of pricing. Moreover, discussions are ongoing regarding the granting of 4G spectrum, and we are hopeful and ready to rollout 4G services to the Iraqi community, bolstering its socioeconomic development.
Sudan
Despite the country’s many socio-economic issues during 2019 including currency devaluation, Zain Sudan continued to perform well in local currency SDG terms, with data revenue forming 18% of total revenue in 2019, representing an impressive annual growth of 41% in SDG terms. We are constantly seeking new options to preserve the value of our funds there through investment into assets. The operation serves the largest customer base in the Group with 15.9 million customers, growing 9% over the year, making it the largest within the Group. It was very pleasing to see Zain Sudan report net profit growth in USD terms during 2019, and we are hopeful that the currency stabilizes so we continue reporting growth in USD terms.
Jordan
The operation in Jordan is maintaining its market leadership serving 3.6 million customers with stable revenues and improved net income that grew 5% during 2019. Zain Jordan invested USD 43 million in CAPEX during 2019 predominantly on its nuclear grade data center, named ‘The Bunker’ as well as 4G and Fiber to the Home expansion. These combined with data monetization offerings including B2B services, saw data revenue grow 8% and represent 41% of total revenue. The operator is undergoing many transformation initiatives and planning for its rollout of 5G commercial services, once the spectrum is attained.
Bahrain
Zain Bahrain is undergoing many transformation initiatives preparing itself for the imminent rollout of 5G commercial services in the first half of this year. Cost optimization and other initiatives saw the operator substantially improve its EBITDA margin and net income increased during 2019. Data revenue represented 47% of overall revenue. We have restructured top management and appointed a new CEO that will focus on taking the operation to the next phase of growth.
Lebanon
We have been managing the ‘touch’ operation in Lebanon since 2004 on behalf of the Telecom Ministry, taking the operation to new heights in terms of network capabilities, efficiency and rolling out appealing data monetization services. We are committed to supporting the development of the country’s mobile sector and hopeful that our management agreement continues for the foreseeable future. Should privatization occur, we are definitely interested in bidding and believe we will be the front runner, given our successful history of managing it for the last 15 years.
5G and Regulatory
To ensure the success of our strategy, we have been very active in the regulatory arena in regard to spectrum acquisition and in seeking support from regulators and other government authorities. During 2019, we acquired or renewed over 600 MHz of the frequency spectrum across markets in various bands at an acquisition commitment price of nearly USD 300 million. In Kuwait and Saudi Arabia, the allocation of these spectrum bands has facilitated the launch of 5G services as is the case with Bahrain that will soon launch 5G. On this point, I would like to point out that we were the first operator in the region to offer 5G roaming between Kuwait and Saudi Arabia back in November.
The successful mid -2019 launch of 5G in Kuwait, which I spoke of earlier, and which was soon followed by Saudi Arabia in the region’s largest commercial rollout, is a clear indicator of Zain’s passion for this technology and its ability to provide customers a superior mobile experience. The company is mobilizing resources to capitalize on the enormous prospects that 5G technology provides, creating vast opportunities in the value chain proposition in numerous industries, especially with regard to enterprise (B2B) services to government and businesses of all sizes. We believe 5G will push the telecom sector to a new and exciting phase of growth.
Zain Drone
We are finding meaningful traction in our ambitions to be a leading entity providing drone-powered solutions. Launched in late 2018 in Kuwait, during 2019 we launched Zain Drone Saudi Arabia, marking the first step to expanding Zain Drone’s presence across our regional footprint. We have successfully managed to educate the market about the magnitude of benefits the usage of drones can drive, particularly with respect to asset digitization, operational efficiency, data accuracy and cost cutting while using advanced analytics to help governments and private businesses alike.
Supporting our aspirations, Zain Drone formed various alliances and signed agreements with industry leaders to bolster its position and as part of our efforts to strive for excellence, Zain Drone attained ISO 9001:2015 certification. This significant achievement makes Zain Drone the first drone services provider in the region to receive the internationally recognized accreditation.
Sustainability, Diversity & Inclusion
A core part of the strategy is the creation of positive socio-economic impacts across the region, which begin within the company. Priorities within our sustainability efforts include, but are not limited to, contributing to the socio-economic development of our operating countries; aligning to climate change targets and developing our employees, all of which ultimately leads to a more successful and profitable organization.
In our world, digital and technological advancements offer endless opportunities to not only address negative impacts but create positive ones. Through digitization, our wide range of services, and reach, we aim to unlock the many opportunities that the Sustainable Development Goals (SDGs) offer, as sustainability is an intrinsic part of our DNA. Most recently, for example, Zain became a member of the Climate Disclosure Project (CDP), thus paving the way to a structured reduction of our environmental footprint.
Zain’s Diversity and Inclusion (D&I) initiatives are among the most compelling and comprehensive of any organization in the region. The work that Zain currently does within the organization to foster understanding and offer great life and work opportunities to all employees is truly inspiring.
Initiatives that fall under our D&I focus, to name just a few, include Gender Diversity (Women Empowerment); our aim for Zain to become Disability Inclusive by 2022 (WE ABLE); becoming a signatory to the International Labor Organization (ILO) Global Business and Disability Network Charter; Reverse Mentoring and our Generation Z graduate program (ZY); and our internal innovation program (ZAINIAC).
These D&I-based programs have all become central to Zain’s development as an organization, with their overwhelming success seeing Zain operations immediately enjoy many direct benefits as well as being appreciated by our own people and external stakeholders alike.
On a final note, on behalf of the executive management team, I would like to express my deep, personal gratitude to the Zain workforce, the Board of Directors, and the government agencies and bodies we cooperate with to deliver the experience we do at such a high level. I believe we can look ahead with confidence as we continue to make considerable progress and help uplift the societies we serve along the way.