Mobile services

Zain Profits Hit by Iraqi Unrest, Forex

Political unrest in Iraq and Sudan has weighed heavily on the 2014 performance of Kuwait's Zain, with currency weakness also taking its toll.

Net income slumped by more than 10%, to US$685 million, compared with 2013, while revenues fell by around 2%, to $4.3 billion.

In a statement, the operator -- Kuwait's biggest -- blamed instability in Iraq and South Sudan for many of its recent problems, noting that millions of people had been displaced during fighting and that "network interruptions" had sharply driven up its operational costs.

Regulatory moves also resulted in the loss of customers in both markets, with Iraqi authorities changing the definition of active subscribers and Sudanese ones introducing a new registration policy.

Zain Group 's overall number of customers fell from 46.1 million in 2013 to 44.3 million last year.

Table 1: Zain's Main Metrics

2013 2014 YoY change
Revenues ($M) 4,400 4,300 -2.27%
EBITDA ($M) 1,900 1,800 -5.26%
EBITDA margin 43.18% 41.86% -1.32 percentage points
Net income ($M) 765 685 -10.46%
Customers (M) 46.1 44.3 -3.90%
Source: Zain

Iraq and Sudan represented Zain's two biggest markets in 2013, accounting for nearly 60% of its entire customer base, while Iraq was also the largest market on the basis of revenues, generating more than 40% of total sales.

Even so, Zain insisted that 2014 profits would have been "relatively stable" were it not for the appreciation of the US dollar against the Kuwaiti dinar, along with foreign currency revaluation losses in Iraq and Sudan.

These appeared to cost Zain around $152 million in net income in 2014, up from $88 million in 2013.

Despite feeling pressure on the bottom line, the operator continued to funnel more funds into capital expenditure, which rose by 4%, to $730 million, compared with 2013, and from 16% to 17% of revenues over the same period.

Most of that investment went on the rollout of 3G and 4G services, which were a relative bright spot for Zain last year. Across the entire group, revenues from data services grew by 13%, compared with 2013, and accounted for 16% of total sales.

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Zain clearly sees plenty of room for growth in this area in Iraq and Sudan, where data services generated just 3% and 4% of revenues respectively in 2013. While deploying networks in Iraq is bound to be difficult in the current circumstances, Zain agreed to pay Iraq's regulator $307 million for new 3G airwaves in November 2014 and said the first 3G call over its network had been made on New Year's Eve.

"The year proved to be especially challenging and it is disappointing to report declining financial results for the full year considering the sound operational progress and transformation we have undertaken across all our markets," said Zain CEO Scott Gegenheimer in a company statement.

Zain claims the number one spot on the basis of customer numbers in all of its operating markets bar Saudi Arabia, where it lags both state-backed incumbent Saudi Telecom Co. (STC) and Etihad Etisalat Co. (Mobily) , owned by Etisalat of the United Arab Emirates.

In recent years, however, the operator has come under pressure in its domestic market of Kuwait, losing share to both Wataniya Telecom , majority owned by Qatar's Ooredoo (formerly Qatar Telecom, aka Qtel), and Viva, in which STC holds a 26% stake.

Encouragingly, Zain managed to grow its Kuwaiti customer base by 6% in 2014, to 2.7 million subscribers, and increase its revenues by 2%, to $1.2 billion.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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