ZAIN HOMEPAGE

BOARD OF DIRECTORS

BOARD OF DIRECTORS
MESSAGE

2018 AT A GLANCE

KEY MILESTONES

VICE CHAIRMAN & GROUP
CEO STATEMENT

GROUP KEY PERFORMANCE
INDICATORS

OPERATIONS OVERVIEW

A YEAR IN REVIEW

THE WORLD OF ZAIN

OPERATIONS SNAPSHOT

REGULATORY LANDSCAPE

OUR STRATEGY

TOGETHER WE ARE ZAIN

TECHNOLOGY

ZAIN DRONE

COMMERCIAL

CORPORATE
SUSTAINABILITY

ANNUAL CORPORATE
GOVERNANCE REPORT

CONSOLIDATED ANNUAL
FINANCIAL STATEMENTS
AND INDEPENDENT
AUDITOR'S REPORT

Table of Contents

العربية

BOARD OF
DIRECTORS
MESSAGE

The Board of Directors would like to welcome you to the annual meeting of the esteemed General Assembly, in which we review the results and operations of the Group and its subsidiaries for the financial year ended 31 December 2018.

Zain continued to achieve positive results and drive its operations to further growth in 2018, despite operational challenges being faced by the regional telecom sector including competition, regulatory and socio-economic factors. The Group has been able to enhance its competitive position thanks to its transformation programs, which are turning the company into an efficient digital lifestyle provider.

FOCUS ON DIGITAL INNOVATION

Today, Zain Group is one of the leading telecommunications companies in the region, focusing on investing in digital services and adopting business models that exceed the expectations and aspirations of its customer base. This strategic approach has helped the company evolve its operations, successfully opening up new revenue streams in digital services, with the aim of establishing a powerhouse for digital transformation in the Middle East.

In line with this goal, Zain has intensified its efforts to enter into strategic partnerships and alliances with global entities to enhance the attractiveness and quality of its products and services. The firm has worked diligently to provide improved and reliable quality communications services, focusing on the operational efficiency of its entities and enhancing its cost optimization and capital expenditure plans. At the same time, Zain is on track to become the first operator to launch commercial 5G networks in several its markets.

The telecommunications industry has become a core component of the social and economic fabric of society. The Group strives to take advantage of the essential nature of communications and one of the key pillars of the Group's strategy is the development of data services plans that support growth. This growth is set to be achieved by building a comprehensive platform that enables customers to enjoy a truly digital lifestyle, while providing a world-class communications experience.

Despite the challenges faced by certain operations within the Group, which varied from political, economic and security factors, Zain continued to invest heavily in its network infrastructure including fiber as well as acquiring spectrum in key markets.

STRONG FINANCIAL PERFORMANCE

2018 witnessed a significant transformation of Zain Group in terms of operational and investment plans, with strong growth in all its financial indicators. This growth was underpinned by the successful implementation of the turnaround strategy in Saudi Arabia which has driven the operation to profitability, coupled with the beneficial regulatory changes and consolidation of Zain Saudi Arabia into Zain Group.

Both Zain Kuwait and Zain Iraq also enjoyed a strong year, with the growth of data revenues and the tremendous development in the enterprise and business sector, all having gained traction.

For the full-year 2018, Zain Group generated consolidated revenue of KD 1.3 billion (USD 4.4 billion), an impressive 28% Y-o-Y growth, while consolidated EBITDA for the period increased by 25% Y-o-Y to reach KD 519 million (USD 1.7 billion), reflecting an EBITDA margin of 39%. Consolidated net income reached KD 197 million (USD 649 million), up 23% and reflecting Earnings Per Share of 45 fils (USD 0.15).

The customer base grew by 5% to 49 million in 2018, while the Group's investments in the upgrade and expansion of its networks increased Group data revenues by 71% for the full-year 2018, representing 33% of the Group’s total revenues.

For the full-year, foreign currency translation impact, predominantly due to the 47% currency devaluation in Sudan from an average of 16.9 to 31.9 (SDG / USD), deprived the company USD 216 million in revenue, USD 79 million in EBITDA and USD 27 million in net income.

The Board of Directors of Zain Group at its meeting held on 13 February 2019 recommended a cash dividend of 30 fils per share, reflecting a total distribution of KD 130 million. Furthermore, the Board recommended the distribution of directors' remuneration for the total of KD 420,000 for the financial year ended December 31, 2018. Both recommendations are subject to the Annual General Assembly and regulatory approvals.

BOARD OF DIRECTORS MESSAGE

OPERATIONAL GROWTH AND EFFICIENCY

The year 2018 witnessed positive developments in the Group's operations across the region, where Zain Kuwait maintained its leadership position by focusing on innovation and digital platform development through the implementation of a full range of data centric initiatives. The company was also the first to launch integrated 5G in key locations in Kuwait.

In addition, last year witnessed a qualitative shift in the operations of Zain Saudi Arabia, which turned its operations into profitability. The company's annual financial results achieved positive growth rates thanks to the momentum in data services, network development and expansion projects, and the effective management of operational costs.

There were many positive factors that helped Zain Saudi Arabia achieve these historical results, including the signing of a number of comprehensive settlement agreements with government institutions. The company is currently looking at the sale and lease-back of towers in strategic locations across the Kingdom, which is expected to create greater value for shareholders.

Zain Iraq recorded strong growth in 2018 due to the stability of some newly liberated geographical areas. The company is expected to continue to grow further in the coming years. The devaluation of the local currency in Sudan during 2018 impacted results in US dollar terms. However, the company continued to improve its performance dramatically in terms of local SDG currency.

Zain Jordan continues to lead the telecom sector in the Kingdom, but intense competition has impacted its business growth. Zain Bahrain remains focused on improving its network's operational efficiency and adopting an innovationbased business strategy, which has seen the operation reporting healthy net income growth.

CORPORATE GOVERNANCE & COMPLIANCE

Zain Group has been proactive with regard to its corporate governance obligations, which take into account the regulations issued by Kuwait’s Capital Markets Authority and other regulations in markets in which the Group operates. Zain is committed to the rules of transparency and the foundations of responsible management, improving the supervisory role of the Board of Directors on executive management, and on important transactions to ensure the protection of shareholders' rights.

The commitment to the Group’s Code of Conduct is the responsibility of every employee across all Zain entities, and through these values and principles, the Group looks to have a positive impact on the telecommunications sector, and across the communities in which it operates. Zain will continue to operate in a transparent manner and champion the principles of good corporate governance.

HUMAN TALENT & GENDER DIVERSITY

Zain Group relies on the strength of its diverse team of cultures and skills. Such a team helps to better understand and meet customer needs, which is a key aspect of enhancing lifestyle aspirations. Zain has invested heavily in talent recognition programs that seek to identify high potential employees based on their ability, vision and participation levels.

The Board of Directors believes that promoting gender diversity and inclusion in the workplace creates a highly competitive differentiation and stimulates strong strategic ambitions that have the potential to unleash enormous growth opportunities in the digital arena while boosting productivity. The Group has achieved outstanding success in its program on gender diversity and inclusivity, raising women's representation in leadership positions and adapting new Human Resources policies to support working mothers.

SUSTAINABILITY & SOCIAL
INNOVATION

Zain maintains its sustainability agenda by working towards key performance indicators to develop a more systematic and measurable approach to relevant activities in its markets.

When it comes to comprehensive and sustainable growth, Zain Group has adapted its programs and has led a series of meaningful change initiatives, implementing innovative initiatives geared to participate actively in the Fourth Industrial Revolution and promote social innovation.

APPRECIATION

We would like to take this opportunity to express our sincere appreciation for the confidence given to us by our shareholders, and our valued customers. We would also like to extend our deep gratitude to the executive management team at Zain Group and all employees for their outstanding efforts, which have contributed to the positive growth in 2018.

On behalf of all members of the Board of Directors and the executive management, as well as all employees of the Group, we would like to offer our deepest gratitude and appreciation to His Highness the Amir of Kuwait, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah; His Highness the Crown Prince, Sheikh Nawaf Al-Ahmad Al-Jaber Al- Sabah; His Highness the Prime Minister Sheikh Jaber Al-Mubarak Al-Sabah; and to the esteemed members of our Government for their continued support of Kuwait’s national organizations and institutions.