Zain Group Chairman Asaad Al-Banwan

KUWAIT: Zain Group, a leading mobile telecom innovator in eight markets across the Middle East and Africa, announces its consolidated financial results for the nine-month and third-quarter periods ended 30 September 2016. The company ended the period serving 45.8 million customers.

For the first nine months of 2016, Zain Group generated consolidated revenues of KD 826 million ($ 2.7 billion), down 3 percent year-on-year (Y-o-Y) in KD terms, while consolidated EBITDA for the period reached KD 390 million ($1.3 billion), up 5 percent Y-o-Y, reflecting a healthy EBITDA margin of 47.2 percent. Consolidated net income reached KD 124 million ($413 million), reflecting a 5 percent Y-o-Y increase. Earnings Per Share amounted to KD 0.032 ($0.11) for the nine-month period.

The Group incurred foreign currency variance losses amounting to $96 million for the first nine-month period of 2016 predominantly accounted for by operations in Iraq and Sudan. This reflects a $27 million increase from the same period in 2015.

For the third-quarter of 2016, Zain Group recorded consolidated revenues of KD 275 million ($911 million), down 6 percent Y-o-Y in KD terms. EBITDA for the quarter reached KD 135 million ($448 million), an increase of 3 percent Y-o-Y in KD terms, reflecting a 49.2 percent EBITDA margin. Net income for the period amounted to KD 43 million ($141 million), reflecting 12 percent Y-o-Y increase. Earnings Per Share for the quarter reached KD 0.011 ($0.04).

For the third quarter of 2016, the Group incurred foreign currency variance losses amounting to $39 million, reflecting a $12 million increase from same period in 2015.

Key operational notes

1. Group data revenues (excluding SMS and VAS) witnessed a healthy 7 percent growth for the first nine months of 2016, representing 22 percent of the Group's total revenues.

2. The continued civil instability in Iraq and implementation of a 20 percent sales tax on mobile services, as well as wide-ranging tax increases on other sectors in the country are affecting spending on mobile services, impacting Zain Iraq's operational results and consequently the Group's overall key financial metrics.

3. On October 1, 2016, Zain Saudi Arabia received formal notification from the Kingdom's authorities extending its mobile operating license for an additional 15 years, which means the operator's license will now expire in January 2047. Zain Saudi Arabia was also issued a Unified Telecommunication License, which allows the company to provide all telecommunications services, including fixed services. The license extension will reduce the annual amortization charge by SAR 433 million ($115 million) starting from the date of the extension, reducing the company's net losses by the same amount. The positive financial impact of this will take effect in Q4 2016 reporting and beyond.

Commenting on the results, the Chairman of the Board of Directors of Zain Group Asaad Al-Banwan noted, "It is pleasing to report growth in several key financial metrics for the third-quarter and nine-month periods of 2016 given the company's exposure to conflict zones and currency fluctuations, which continue to impact the growth potential of our business. We are committed to continually upgrading our networks to offer our customers a better mobile experience and to maintaining our leadership position in our key markets."

Concerning Zain Saudi Arabia being granted an extended, unified license, Al-Banwan said, "I would like to thank the Custodian of the Two Holy Mosques and the Kingdom of Saudi Arabia's telecommunications regulator, CITC and other government authorities for granting these concessions which are in line with the Kingdom's Vision 2030. This will enhance the competitiveness of the telecom sector and support the future prosperity of Zain Saudi Arabia for the benefit of all stakeholders."

Zain Group CEO, Scott Gegenheimer stated, "The implementation of several data monetization and cost optimization initiatives continues to bolster our financial performance as we remain steadfast in our strategy and commitment to delivering an affordable and compelling digital lifestyle experience to our customers. We draw confidence from the growth in data revenues for the nine-month period that now accounts for 22 percent of overall service revenues and we will continue to foster and develop this area of the business."

Gegenheimer continued, "We are working closely with the Board of Directors and the management team of all our operations in dealing with the many challenges we face, which are impacting our financial performance on several fronts. These essentially relate to the ongoing civil instability and sales tax increases in Iraq; the intense price competition in Kuwait; the biometric registration requirement in Saudi Arabia; and the currency issues in both Sudan and Iraq. We are optimistic that these issues will gradually subside and are confident that the strategies we have in place to tackle them will be effective."

Gegenheimer concluded, "We are grateful and pleased with the license concessions that Zain Saudi Arabia received, which will allow us to invest more in network upgrades and expansion as we roll out to meet the ever increasing demand for telecommunications across the Kingdom."

Operational review of key markets for the nine months ended 30 September, 2016 Kuwait: Maintaining its market leadership, Zain Group's flagship operation saw its customer base serve 2.9 million in a very challenging nine-month period that witnessed intense price competition impact its financial performance for the period. Revenues reached KD 242 million ($803 million), EBITDA amounted to KD 118 million ($393 million) and net income came in at KD 65 million ($215 million). Data revenues (excluding SMS & VAS) formed 36 percent of the operation's total revenues. Zain Kuwait remains the most efficient mobile operator within the Group and one of the most efficient in the region with an enviable 49 percent EBITDA margin.

Iraq: The exceptional socio-economic circumstances facing Zain Iraq saw the operation's financial performance hampered, with revenues for the period reaching $804 million and EBITDA reaching $284 million. Net income amounted to $29 million, with the EBITDA margin standing at 35.3 percent. Data-related revenues formed 9 percent of overall revenues for the first nine-months of 2016 and customers served totalled 11.8 million, a 3 percent increase Y-o-Y.

Sudan: In local currency (SDG) terms, the operator's revenues grew by 10 percent Y-o-Y to reach SDG 3.7 billion ($577 million, up 8 percent in USD terms) for the first nine months of 2016. EBITDA increased by 14 percent to reach SDG 1.6 billion ($244 million, up 12 percent in USD terms), while net income decreased 10 percent to SDG 646 million ($100 million, down 11 percent in USD terms). Data revenues (excluding SMS and VAS) formed 13 percent of total revenues, with an impressive annual growth rate of 44 percent (42 percent in USD terms). The operation saw its customer base expand 8 percent to reach 12.5 million.

Saudi Arabia: The operation served 10.5 million customers at the end of September 2016, a 11 percent decline Y-o-Y due to the biometric registration required by the country's telecom regulatory authority. Revenues were relatively stable for the nine-month period at $1.4 billion, while EBITDA grew 7 percent to reach $348 million and net losses amounted to $225 million for the period. Zain Saudi Arabia's EBITDA margin reached 24.7 percent. Impressively, the operator witnessed a 37 percent Y-o-Y rise in data revenues (excluding SMS & VAS), representing 31 percent of total revenues as the company invested heavily and expanded its modern 4G LTE network.

Jordan: Zain Jordan continues to perform well on multiple levels, maintaining its market leading position reflected by growing its customer base by 2 percent Y-o-Y, to now serve 4.2 million customers. Y-o-Y revenues increased 6 percent to reach $363 million, with EBITDA up by 18 percent to reach $179 million, reflecting an impressive 49 percent EBITDA margin. Net income increased 11 percent to reach $79 million. With the launch of 4G services, data revenues (excluding SMS & VAS) represented 33 percent of total revenues, up by 24 percent Y-o-Y.

Bahrain: Zain Bahrain saw its customer base increase 19 percent to reach 969,000 and generated revenues of $132 million for the nine-month period, down 8 percent Y-o-Y. EBITDA for the period reached $49 million, down 11 percent, reflecting an EBITDA margin of 37 percent. Net income amounted to $8 million, reflecting an 11 percent decrease. Data revenues (excluding SMS & VAS) increased 8 percent Y-o-Y, representing 39 percent of overall revenues.