Jun 19 2013
In This Article
Zain Kuwait
– Confident that in the years ahead the group will continue to deliver value for shareholders
– Focus on data revenue growth, improving customer experience, operational excellence and synergies, human resources and new business areas
–
Zain
targeting data related strategic partnerships and acquisitions
At the end of May 2013, Scott Gegenheimer completed his first six months as
Zain
Group CEO and recently held a conference call with 30 global banking and telecom analyst to discuss
Zain
‘s issues and focus going forward.
Expectations for him to turn the Middle East player around are high, and the company’s operational results for the first three months of the year clearly identify areas that require Gegenheimer’s attention. The Group CEO is aware of the many different challenges across several operations that is necessary to raise
Zain
up to its former glory.
Zain
Group reported a decline in its first-quarter net profit to end-March, attributable to steep devaluation in the Sudanese pound as the main contributing factors for the fall. Sudan accounted for nearly a third of
Zain
‘s customer base and a fifth of group revenue in 2012, but the country faced a number of economic challenges following South Sudan’s succession in 2011.
Zain
noted that the devaluation of the Sudanese pound against the dollar, by 53 per cent in the 12 months to end-March, predominantly reduced group revenue by US$179 million, EBITDA by US$76 million, and net profit by US$44 million.
Group revenue for the quarter reached KWD299 million (US $1.06 billion), while the operator added 1.386 million subscribers in Q1, 13, and 3.9 million over the past 12 months and
Zain
reported 44.1 million active subscribers as of end-March.
Despite several key performance indicators showing signs of being under pressure, it is clear that Scott Gegenheimer’s arrival at
Zain
Group last December has brought with it an acknowledgement that work needs to be done, and more importantly, a resolve on the part of the company’s executive management to work at turning things around in an active and determined fashion.
One example of Gegenheimer’s impact on the operator’s outlook is that for the first time in numerous years, the
Zain
Group’s management opened itself up to scrutiny from the analyst community by hosting a conference call and offering more details and insight into the company’s strategic direction. This included referencing a number of problem areas and discussing what plans are afoot to resolve them.
“I’m genuinely enthusiastic to be at the helm of such a great company,” Gegenheimer said to the 30 international analysts that dialled in before identifying what he believes to be some of
Zain
Group’s strategic assets including its regional footprint; its market leading positions in six out of the eight markets in which it operates; and the company’s willingness to use technology as a tool to work more efficiently and to deliver cutting-edge products and services to end-users.
Gegenheimer says
Zain
is now executing strategies that will address the challenges that it faces. “Having had an opportunity to assess the businesses, I have reshaped the strategy of the group to focus on several key areas, including customer experience, operational excellence and synergies, human resources, and new business areas,” Gegenheimer said.
The main aim of Gegenheimer’s strategy is to stem the company’s decline in revenue and profitability, and like operators the world over, look to new services and delivery systems to drive incremental income. Interestingly for a business in which size and scale is an important success factor, Gegenheimer has chosen not to focus on subscriber acquisition and subscriber growth as one of the company’s driving priorities.
“From a group perspective, we have not really focused specifically on the growth of the customer base as we want to be careful about flooding the market with SIM cards and multiple SIM cards,” Gegenheimer said.” We don’t particularly want to give a forecast for that [customer growth] because it is not one of the KPIs that we want to drive the market with, as we are more focused on value,” he added.
Mobile broadband is a definite area of interest to Gegenheimer and
Zain
, and with commercial LTE deployments in Saudi Arabia, Kuwait, and Bahrain, the company is staking its claim to being one of the leading regional innovators.
Zain
Group’s data revenues increased 14 per cent year-on-year during the first quarter with data now accounting for 12 per cent of overall service revenue, without the inclusion of value added services and SMS revenues included. With these other non-voice services included, data would account for 21 per cent of
Zain
‘s overall service revenue as at the end of March.
“We expect data revenue growth to continue, in line with industry trends worldwide” said Gegenheimer also noting, “that the percentage growth in data revenues is all the more significant and promising for
Zain
when one considers that a large number of the Group’s customers do not yet have smartphones and are located in rural areas across several countries that are vast in their geographies.”
“We will make strategic acquisitions and partnerships in computer-based industries this year to exploit rising demand for data and help offset falling conventional call and sms income, this will bolster our value and customer experience proposition,” added Gegenheimer.
On a country-level, there is work to be done across much of
Zain
Group’s footprint. In its home market of Kuwait where the company is celebrating 30th anniversary, competition is squeezing the operator’s margins, and generating incremental revenues from the subscriber base is proving challenging, yet Gegenheimer is optimistic.
Revenues in
Zain’s Kuwait
operation were slightly down in Q1 13, Gegenheimer attributed this decline mainly to the cannibalisation of voice revenues due to the increased use of VoIP and over-the-top solutions, as well as the heightened level of competition in the market. Nevertheless, with a $39 ARPU, Kuwait remains
Zain
‘s and one of the region’s most lucrative markets.
“Clearly Kuwait is a very competitive and challenging market for us. We have been undertaking a number of measures to improve results here,” Gegenheimer said. With number portability just being introduced, the state of the art nationwide LTE network and many other marketing activities being rolled out, Gegenheimer believes
Zain Kuwait
will show growth in the years ahead.
Saudi Arabia continues to be a loss making entity, though losses are narrowing year-on-year. What investors will be most pleased to learn about with respect to
Zain
Group’s exposure to
Zain
Saudi Arabia, is that the group does not expect to inject any more cash into the operator beyond what it had already committed to in last year’s capital restructuring arrangement.
Zain
Group management is also confident a settlement is imminent between
Zain
Saudi Arabia and creditor banks over a Murabaha loan which is set to be restructured. Recently
Zain
Saudi Arabia signed an agreement with Saudi Arabia’s Ministry of Finance agreeing to postpone payments of the government’s entitlements due from the Company for the next seven years. These payments are estimated to add up to SR 800 million per year, representing a total amount of SR 5.6 billion for the entire period. Since the announcement of this deal, the
Zain
Saudi Arabia share price has risen over 15%.
Re
Zain
‘s operations in Sudan, there is limited proactive action that
Zain
can take with respect to the macro-economic and political issues adversely affecting its operations in Sudan. The significant depreciation of the Sudanese pound against the dollar has adversely affected the country operations as well as denting the group’s metrics, and Gegenheimer is hopeful that a measure of stability will return to the region soon, allowing for more predictable performances from both Sudan and South Sudan.
The shortage of foreign currency in Sudan has resulted in unpredictable remittances of cash from the local operations, another area of concern that is beyond the group’s immediate influence. In local SDG currency terms, Sudan performed surprisingly well with revenues growing by 25% year-on-year and net income by 57%.
Initial public offerings are also on the horizon for
Zain
‘s operating companies in Iraq and Bahrain. The requirement to list in Iraq, and in the process comply with its licence conditions, has loomed since the latter part of 2011, and finally seems to have kicked into high gear. The goal is to float 25 per cent of
Zain
Iraq before year-end or by the first quarter of 2014 at the latest, which in turn is expected to generate in excess of US$ 1 billion which proceeds Gegenheimer said will be used for capital expenditure, acquisitions /partnerships and general corporate purposes.
Zain
also awaits the licensing of 3G spectrum in Iraq, and given the emphasis the company places on driving new revenue streams through mobile data applications, is keen to have 3G networks operational as soon as possible. The company has recently spent heavily in expanding its network in the northern regions of Iraq and expects healthy customer and revenue growth from this investment.
In preparation for its own listing,
Zain
Iraq is undergoing the final stages of forming the requisite joint stock company, with the company initially in possession of the operating licence having been an offshore entity, which has now been brought onshore.
With respect to Bahrain, the regulatory requirement is for
Zain
to float 15 per cent of the issued share capital of the business prior to listing prior to listing or 13.04% post offering, and the operator expects to accomplish this before the end of the year.
Notably, global operator Vodafone has a small equity stake in Bahrain and the offer structure of the IPO has not yet been finalised according to Gegenheimer.
In late 2012,
Zain
entered into a non-equity partnership agreement with Vodafone for its operations Bahrain, Iraq, Jordan, Kuwait and Saudi Arabia whereby
Zain
will have access to Vodafone’s devices and services in its home markets and become the preferred partner of Vodafone in respect of the agreed areas of cooperation.
Zain
and Vodafone will work together to provide customers with enhanced network coverage, harmonised roaming rates across multiple countries with greater cost efficiencies and
Zain
will be able to use the Vodafone brand.
Benefits of the Vodafone agreement are immediately evident as recently
Zain
Saudi Arabia launched an international roaming service through Vodafone’s Passport program, the Group announced it is piloting the ‘joyn’ Rich Communications Services initiative formulated by the GSM Association. The service will allow the company to compete more effectively against OTT players by providing customers access to leading-edge technology and services in a shorter period of time. The
Zain
brand was also exposed to a global motor racing audience as the Vodafone Mercedes McLaren cars and team were branded
Zain
during the recent Bahrain Grand Prix.
“I am confident that in the years ahead the group will continue to deliver value for our shareholders,” Gegenheimer predicted.
In Kuwait for example,
Zain
intends to push actively into the small and medium size business sector, believing this to be a prime area for growth. The expectation is that other segments and niches across its areas of operation shall continue to be tapped and developed, with
Zain
expected to articulate a Group-wide corporate strategy in the coming months.
About
Zain
Group:
Zain
is a leading telecommunications operator across the Middle East and North Africa providing mobile voice and data services to over 44.1 million active customers as of 31 March, 2013. With a commercial presence in 8 countries,
Zain
operates in the following countries: Bahrain, Iraq, Jordan, Kuwait, Saudi Arabia, Sudan and South Sudan. In Lebanon, the company manages ‘touch’ on behalf of the government. In Morocco,
Zain
has a 15.5% stake in Wana Telecom, now branded ‘INWI’, through a joint venture.
Zain
is listed on the Kuwait Stock Exchange (stock ticker: ZAIN).
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© Press Release 2013
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