OPERATIONS
SNAPSHOT

Operationally, Zain Kuwait remains the most profitable company in the Group, as it continues to maintain its market lead in both value share and customers, now serving 2.6 million customers.

Zain Kuwait’s market leadership and efficiency are reflected in its performance in 2018 where revenue represented 38% of total market revenues, and net income represented 56% of the total net income in the telecom market in Kuwait.

2018 was a challenging year for Zain Kuwait, witnessing intense price competition in the market. However, the operation managed to maintain its revenue at KD 331 million (USD 1.1 billion) for the year despite a USD 34 million impact due to IFRS 15. Net income increased by 2% year-on-year (Y-o-Y) to reach KD 82 million (USD 272 million).

Unfortunately, EBITDA for the period came in lower by 9%, mainly due to significant decrease in gross margin due to the low margin of enterprise projects and handset bulk sales. For Q4 2018, Zain Kuwait reported USD 72 million in net profit, an impressive 21% increase Y-o-Y as a result of cost optimization and growth in B2B initiatives.

To meet the ever-growing demand for data, Zain Kuwait invested USD 100 million in CAPEX during 2018, which allowed it to focus on innovation aimed at growing its digital platforms and implementing an entire range of data monetization initiatives. The benefits of such investment and focus are reflected in data revenues that grew by 10% Y-o-Y and now represent 35% of total service revenues.

During the year, Zain Kuwait launched ground-breaking technologies and services that include 5G trials and the launch of high-speed BEAM, which delivers speeds that match fiber optics at up to 40 Mbps. Zain is the first telco to offer this revolutionary technology in Kuwait. Furthermore, the operator launched eSIM services, allowing customers to add up to 10 individual numbers on one device. The company also introduced Zain Games in partnership with DoCoMo Digital to offer over 1000 popular games. Zain introduced the zBot interactive customer care solution; Amazon Prime award-winning movies and TV content; and Zain Drone as a service for use by government and enterprise sectors.

Celebrating a decade of commercial operation in the Kingdom, Zain KSA recorded its best-ever full- year results since inception in 2018, reflecting record growth levels and the successful implementation of the operator’s turnaround strategy.

Revenue for the year came in at an all-time high of USD 2 billion, an increase of 3% Y-o-Y, mainly due to higher postpaid and B2B revenues and handset sales revenue. EBITDA for the year jumped by 20% reflecting a healthy EBITDA margin of 40%. Net income for the year was the best-ever since inception, reaching USD 89 million compared to just USD 3 million in 2017, mainly attributable to the positive EBITDA performance and benefits from regulatory agreements. Overall ARPU for the operator stood at USD 17.

Another highlight of the year was the positive impact of the new agreement with the Kingdom’s regulatory authorities to consolidate and reduce the annual royalty fee for commercial service from 15% to 10% of net revenue, retrospectively from January 1, 2018. This development is not a one-off benefit, as Zain KSA will continue to gain from this by approximately SAR 300 million per year.

Zain KSA also settled disputed amounts related to the payment of annual royalty fees to the CITC for the nine-year period between 2009 and 2017, under certain conditions. This deal is expected to have a financial benefit on the operator amounting to SAR 1.7 billion (USD 453 million) over three years. In 2018 alone, this benefit amounted to SAR 316 million.

During Q4 2018, the company made a second early voluntary payment towards its Murabaha financing agreement amounting SAR 525 million, following a SAR 600 million voluntary payment in September 2018, for a total of SAR 1.125 billion repayment since the refinancing of the agreement in June 2018. These early payments reflect the company’s solid cashflow generation ability and efficient cash management.

The quality and competitiveness of Zain’s network was enhanced by circa USD 512 million investment in capital expenditure in 2018. Impressively, data revenue (excluding SMS & VAS) represented 51% of total revenue, as Zain KSA continues to expand its state-of-the-art 4G LTE network, which currently covers 93% of the population via 9,315 network sites.

Zain KSA has experienced an incredible year placing the company in a much stronger fiscal position that is set to sonly strengthen further.

It should be noted that due to an event in July 2018 Zain KSA began to be treated as a subsidiary of Zain Group, starting from Q3 2018.

For the full-year 2018, the operator performed exceptionally well and reported a solid set of financial KPIs, recording an impressive growth of 70% in net income.

The operator’s customer base grew by 9% Y-o-Y to reach 16 million, representing 33% of the Group’s total customer base. Zain Iraq represents the largest Group operation by customer base. The restoration of sites in the north and west of the country, combined with numerous customer acquisition initiatives, especially in core regions, resulted in an impressive net addition of 1.3 million customers during the year.

For the full-year 2018, revenue increased by 3% with EBITDA up 11% Y-o-Y, mainly attributable to the healthy data growth as a result of continued customer acquisition efforts; the launch of new products and services; and a key focus on the enterprise (B2B) segment. Heavy investment in upgrades and expansion of the network, especially across the north, was also a factor.

Another highlight of the year was the fact that major financial institutions continued to show confidence in Zain Iraq, with the IFC agreeing to provide a financing package worth USD 269 million. The debt package includes USD 100 million from the IFC’s own account, and a further USD 169 million in mobilization. The financing helped Zain Iraq enhance its capacity and the quality of its 3.9G network across the country.

Zain Iraq is also actively working at increasing its geographical presence, coverage and capacity. It invested USD 111 million in CAPEX in 2018, mainly in network expansion in the northern region of the country. The operator counted 4,646 sites across Iraq at the end of the year, with population coverage of 99%.

The Zain Iraq management team is working very closely with Zain Group to ensure the operation fulfills its enormous potential. Given the improving socio-economic condition across the country, all stakeholders are confident of Zain Iraq’s future prosperity.

With a leading customer market share of 48% as of 31 December 2018, Zain Sudan was able to further improve its market position by reporting Y-o-Y customer growth of 8% to reach 14.6 million at the end of the year. Zain Sudan is the second largest contributor to Zain Group’s customer base, representing 30% of the Group’s total.

The operator performed exceptionally well in local currency terms in 2018, but the significant 47% currency devaluation in Sudan affected the operation’s financial results in USD terms. This had a knock-on effect on Group results.

For the full-year 2018, in local currency (SDG) terms, Zain Sudan’s revenue grew by 37% Y-o-Y (down 24% in USD terms). EBITDA increased by 29% (down 27% in USD terms) and net income increased by 11% (down 31% in USD terms).

Data revenues accounted for 18% of total revenues and grew 56% in SDG terms.

The devaluation of the SDG in Sudan keeps worsening and continues to impact the operator’s performance. The Central Bank of Sudan decided to set its daily currency exchange rate using a newly-formed body of bankers and exchange bureaus, effective from October 7, 2018. This resulted in the official exchange rate being set at 1 USD = 47.5 SDG. The official exchange rate prior to this intervention was 1 USD = 28.3 SDG as of February 2018.

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 56%, representing 18% of total revenues. Zain Sudan is continuously expanding its 4G LTE network across the country and by the end of 2018 the operator’s mobile network covered 90% of the population through 2,576 network sites.

During 2018, Zain Jordan maintained its market leadership of 36%, serving 3.7 million customers, which represents 8% of Zain Group's total customer base at the end of 2018.

Revenue for the year was stable at USD 494 million, while EBITDA and net income both decreased by 14% and 19% respectively. The drop was mainly due to the higher interconnection costs because of the free off-net calls, resulting in a decrease in gross margins as well as the increase in OPEX mainly due to higher utilities and regulatory charges. EBITDA margin for the year remained healthy at 39% with data revenue representing 38% of total revenue.

The economic conditions in Jordan have seen the government increase pressure on the telecom industry by the introduction of new taxes that impose an increase of 3% income tax on telecom operators, 2% to individual and 1% as a “solidarity tax” common to all companies. Zain has carried out an extensive action plan to raise awareness of the negative impact of such an increase. The plan includes appealing to the concerned regulatory and government parties. Furthermore, Zain Jordan is exploring ways to further reduce costs, with a special focus on electricity and the use of solar power as an alternative.

The operator made progress in its rollout plan to expand Zain Fiber services tailored to various monthly subscription packages. Zain Fiber is driven by FTTH (Fiber-to-the-Home) technology, providing premium quality and stable internet access with speeds that reach 1 GB per second. The operator is also working towards linking its varying product portfolio together to maximize value for customers, where all communication and awareness campaigns can be accessed at Zain shops across the Kingdom.

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

Celebrating its 15th year of operation in the Kingdom, Zain Bahrain’s successful focus is on operational efficiency and the delivery of state-of-the-art technology, which was evident by the profit increase recorded by the operator.

The team also focused on the offer of appealing innovative digital services that provide greater value to enterprise (B2B) and individual customers.

During 2018, Zain Bahrain reported a net profit of USD 14 million reflecting a 20% Y-o-Y increase. Revenues amounted to USD 176 million, down 10% Y-o-Y. EBITDA for the period reached USD 41 million, down 30%, reflecting an EBITDA margin of 23%.

The operation’s completely revamped 4G network served a customer base of 668,000 with data revenues (excluding SMS & VAS) representing 45% of overall revenues.

During the year, Zain Bahrain achieved a 20% expansion of its network, improving the indoor and outdoor connectivity experience for users. During the year, the operator was recognized as the network with the highest fixed wireless broadband download speeds in the Kingdom for two consecutive quarters by the Telecommunication Regulatory Authority.

Other highlights include the launch of zBot, an all-new interactive digital channel for smart customer service, making Zain Bahrain the first telecom operator to launch this innovative solution in the Kingdom. The operator also transformed its mobile app from being service-oriented to becoming a complete end-to-end eShop, offering customers the opportunity to buy services online anywhere, anytime.

Zain Bahrain also introduced e-signature for customers, enabling them to sign documents digitally through all Zain retail and indirect sales channels, as well as introducing a new electronic SIM (eSIM).

Catering for increased demand for high-speed and reliable connectivity solutions of business customers, Zain Bahrain joined the 'Middle East – Europe Terrestrial System' (MEETS), an international cable system that provides state-of-theart high bandwidth regional connectivity solutions.

Focused on digital innovation, the year saw touch heavily involved in numerous initiatives related to the local startup entrepreneurial ecosystem. The operator launched the touch Innovation Program (TIP) in partnership with Arabnet to support 12 startups in Lebanon through mentorship, workshops and introductions. touch also partnered with Antwork, a networking hub, to power its first co-working space at the touch Lab in downtown Beirut. touch Lab now functions as a workspace catering to the independent worker, drawing freelancers, entrepreneurs, creatives, nomad workers and mobile employees.

touch also partnered with the Seedstars MENA Regional Summit, which was held for the first time ever in Beirut. The aim of the event is to bridge the gap between ecosystems and connect regional stakeholders to promote entrepreneurship and technology in emerging markets.

Similarly, touch partnered with AUB to launch the Startup Award, which targets fourth-year engineering students with innovative projects. The company also partnered with the 12th edition of the MIT Enterprise Forum Arab Startup Competition.

To improve customer experience and accessibility, touch opened two new service centers in regional areas and numerous new POPs. The operator’s focus on e-payments witnessed a 40% increase in revenues and number of transactions, with its e-chat service seeing a substantial number of customers using it.

Notably, touch performed the first commercial 5G trial in the country with the demonstration achieving throughput speeds of approximately 1.5 Gbps, running at 100 times faster than current 4G LTE networks. The groundbreaking trial formed part of touch’s progressive 5G implementation, which has seen the telco investing in the necessary infrastructure with the view to deploying live 5G sites in 2019.

At the end of 2018, touch counted 2.4 million customers representing a 54% market share with over 86% being prepaid. This accounts for 5% of Zain Group's total customer base. With 1,334 network sites, the operator covers all the populated areas of Lebanon with 3G and 4G services.