On behalf of my fellow members of the Board of Directors, it gives me great pleasure to welcome our honorable shareholders to the annual general assembly and review the financial results of Zain Group's operations for the year ending 31 December, 2015. I will also look to highlight a number of important accomplishments that were achieved during the course of the year.
Mobile telecom services witnessed a number of positive developments in the region during 2015; where customer growth rates were positive and continued demand for mobile broadband services and corresponding smartphone boom persisted. This was coupled with the expansion of the digital economy, though at a macro-economic level, the Middle East region suffered the negative impact from the sharp decline in oil prices, as well as the threat of escalating political tensions and social unrest.
Zain Group was not immune to these political tensions, and the resulting security risks, which in turn influenced the region's social conditions, and factors such as human displacement in several of our markets impeded Zain's operational progress. Based on these challenges, Zain Group reviewed its operating procedures, and adapted them accordingly in order to maintain its leading market position in most of our markets growing the customer base by 3% in 2015 to reach 45.6 million.
Creating a sustainable digital company
Today, the telecom industry is facing higher operational costs. As a consequence of this, profit levels are under increasing pressure, driven primarily by the need to invest further in networks and applications, as well as maintaining physical security of infrastructure. Therefore, the traditional core telecom business is facing real challenges, with Zain Group investing heavily in future-proofing its networks. In 2015 the company invested USD 797 million (excluding ZainSaudi Arabia) in CAPEX, reflecting Zain's increasing commitment to improving the customer experience.
Amidst the relatively high penetration rates and fierce competitive nature of the region's telecom market, Zain Group has continued to adopt its strategy, which is based on creating a sustainable digital telecom company that caters to the needs of both individuals and the business sector alike. The Grouphas already achieved substantial progress in its strategic goals, also investing in digital applications and partnering with successful third parties to ensure high quality delivery of its traditional services; further helping the company become one of the most effective service providers in the region.
One of our main goals is to become a leading mobile service provider with respect to operational efficiency. This has led Zain Group to concentrate on initiatives relating to its OPEX and CAPEX optimization. These initiatives have helped the Group maintain healthy financial results, as the management focused on operational alignment and cost optimization efforts. Zain has proactively reduced the costs related to international connectivity and network maintenance, among other things.
Financial indicators
Our major financial indicators at Zain Group were impacted by the political and security challenges in the region, as well as extremes in currency exchange rate fluctuations and intense price competition across our footprint. Performance was further affected by an erosion and a sharp decline in traditional revenue due to the presence of OTT messaging and VoIP players capturing a large part of the market. Notably, additional amortization on both Zain Iraq's 3G license fee and Zain Jordan's additional 3G and newly acquired 4G spectrum license fees impacted the bottom line by USD 52 million.
Accordingly, Zain Group's net income amounted to KD 154 million (USD 513 million) for the fiscal year 2015; with earnings per share amounting to 40 fils. The Group achieved consolidated net profit of KD 1.14 billion (USD 3.78 billion) compared to consolidated net profit of KD 1.21 billion (USD 4.27 billion) in 2014. Zain's earnings before interest, taxes, depreciation and amortization (EBITDA) reached KD 499 million (USD 1.66 billion), down from KD 507 million (USD 1.78 billion) a year earlier.
Our operational performance for this challenging fiscal year was characterized by Zain's ability to address the difficulties it faced competently, as the company managed to reinforce both its competitive positions in data related services. Data revenues (excluding SMS and value added services) witnessed a 15% growth rate in 2015, ending the period representing 20%of total revenues.
Operation's performance
Focusing on our customers' needs represented a top priority for the Group's operations as each operating company catered to the needs and aspirations of its respective customer bases.This was achieved by offering customers flexible, bundled options in addition to providing them with state-of-the-art telecom technologies. Accordingly, Zain's operations in Saudi Arabia, Sudan, Jordan and Bahrain saw significant operational gains in 2015.
Zain Group's flagship operation in Kuwait continues to maintain its leadership position in terms of market share and revenues having grown its customer base by 9% during the year to serve 2.9 million customers. The healthy EBITDA margin of 49% for the year reflects the efficiency drive implemented by the operation, with Zain Kuwait's nationwide 4G LTE network which saw data revenues grow 8% for the year.
Zain's operation in Iraq maintained its leading market position in 2015, serving 11.1 million customers, despite very difficult social circumstances. For example, there has been widespread relocation and displacement of civilians across the country and portions of the operator's network suffered from service outages. The introduction of a 20% sales tax on mobile services and many other items in the country had a drastic impact on consumption habits of the people, with telecom revenues being affected. Nevertheless, the operation's efficiency drive saw its EBITDA margin increase to 39%, and with the launch of 3.9G services at the beginning of the year, data related revenue grew by 34%.
Zain Sudan continued to achieve positive results in 2015, as all its major financial indicators pointed to very impressive growth rates both in US dollars and in local SDG currency, serving 11.9 million customers. Data related revenues grew an impressive 91% in USD terms in Sudan and with the expected granting of a 4G license in 2016, we expect further growth in this area.
Similarly, Zain Saudi Arabia's financial results witnessed marked improvement as the operation continues to implement its transformation plan. The operator successfully reduced its net loss for 2015 by 23% to reach USD 259 million, serving 11.9 million customers, with data related revenues growing an impressive58%.
Zain Jordan continued to maintain its leadership position in one of the most competitive telecom ecosystems in the Middle East. In 2015, the company managed to grow its customer base by 6% year-on-year to serve 4.1 million, with the launch of 4G services early in the year contributing to 18% growth in data revenues. Furthermore, Zain Bahrain's annual fiscal results were encouraging as they reflected a healthy EBITDA margin of 39%. The totally revamped 4G network in which Zain Bahrain has invested in excess of USD 134 million over the last two years resulting in data revenues increase by 11%.
Corporate governance
The success of Zain Group in achieving its goals rests in the company's ability to understand the nature of the environment and deal with the challenges in which it operates, while aiming to achieve profitable growth. Given its forward-looking nature, Zain was one of the first companies in Kuwait to embrace new reporting regulations issued by the Kuwait Capital Markets Authority, which oversees and defends the interest of all stakeholders and Zain will continue to operate in a transparent manner and champion the principles of good corporate governance.
The commitment to the company's Code of Conduct is the responsibility of every employee in the Zain Group, and through these values and principles, the company looks to make a positive impact on the telecommunications sector, and in the communities in which it operates.
Corporate sustainability
2015 was an important year for Group corporate sustainability and social responsibility initiatives, and it was unfortunate that conflicts in the region continue to affect so many lives and businesses. In early 2015 the Group became a Strategic Partner Associate at the World Economic Forum as we see our contribution and related participation fundamental towards the region's growth.
Across our operations, we launched several initiatives that focused on capacity-building skills in order to address societal deficits and supporting the communities we serve. We also published our annual sustainability report, which highlighted the role the ICT sector can and does play in helping create knowledge-based economies, reflecting our key role in supporting the socio-economic development of the region we operate in.
Our people
Zain's ambition is to inspire its employees to achieve excellence through active engagement and motivation. The Group is intention encouraging all its employees to embrace and support every aspect of the strategy through engagement and key initiatives to substantiate 'Talent Development'; which is one of Zain Group's core strategic pillars.
Zain's people are critical to the success of the organization and under the theme TOGETHER, the company put in place a meaningful framework by which people could relate to the organization and make sense of the employment dynamic.
We realize that the company's vision alone will not build its future. Employees are central to the success of delivering on the strategy, and during the year Zain launched its first ever employee value proposition initiative, known as 'The Promise', which looks to 'Build the Best Zain Team Together'.
Furthermore, Zain has built a central learning and development hub that is set to build capacity and ensure our people utilize value adding development opportunities, with the focus being to link the learning and development activities directly to the strategic objectives and core competencies of the organization.
Appreciation
In conclusion, I would like to express my genuine appreciation for the trust given to us by our shareholders, who have always given us support throughout our journey. Let me also extend my sincere thanks and appreciation to my fellow Board members and the executive management team for the commendable efforts they exerted in the face of considerable challenges.
On behalf of all my fellow members of the Board of Directors and the executive management, as well as all employees of the Group, I 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.
© Kuwait Times 2016
