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Zain Group CEO releases statement on company's growth
March 23, 2016, 5:37 pm
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Scott Gegenheimer reviews Zain 2015 results, operational challenges and the future strategic direction. 

Customer base reached 45.6 million at the end of 2015, reflecting a 3% increase y-o-y.

For the full-year 2015, zain group generated consolidated revenues of KD 1.14 billion (USD 3.78 billion), down 6% y-o-y, while consolidated ebitda for the period reached kd 499 million (usd 1.66 billion), reflecting a healthy ebitda margin of 44%. Consolidated net income reached kd 154 million (usd 513 million), down 21% reflecting an eps of 40 fils (usd 0.13).

The company’s overall twelve-month financial results were affected by currency translation impacts mainly due to the appreciation of the usd against the kd, which cost the company usd 218 million on revenue, usd 95 million on ebitda and usd 30 million on net income for the year 2015.

The continued instability in iraq during 2015 coupled with heightened levels of price competition and implementation of a new 20% sales tax on mobile services as well as wide-ranging tax increases on other sectors in iraq that impacted spending on mobile services, all contributed to a negative effect on zain iraq’s financial metrics. This consequently affected zain group’s overall key financial metrics (24% decline in revenues recorded at zain iraq and a 52% decline in net income at the operation).

Additional amortization on both zain iraq’s 3g licence fee and zain jordan’s additional 3g and newly acquired 4g spectrum licence fees impacted the bottom line by usd 52 million.

Bahrain, jordan, saudi arabia and sudan operations all reflect robust growth for the year, with zain kuwait’s performance impacted by intense price competition despite customer growth.

Heavy investment in 3g & 4g network expansion upgrades across operations saw capex spend for 
the year amount to usd 797 million (excluding saudi arabia), reflecting 21% of group revenues.

Network investments coupled with data monetization initiatives continue to pay off as group data revenues (excluding sms and vas) surged by an impressive 15% during 2015, representing 20% of the group’s consolidated revenues.

 

Introduction

Zain Group continues to operate in the midst of highly complex and dynamic environment in a number of markets, and the company’s adaptability to rapid and often drastic changes in socio-political and economic conditions is what defines it as a successful, sustainable entity.

During the course of 2015 the Middle East and North Africa region witnessed the destabilization and mass migration of huge populations of people. The global economy also came under sustained pressure as economic output in key markets such as China slowed, and the price for commodities, primarily oil-based ones, decreased dramatically, driving local governments to seek alternative income sources including additional telecom taxes and fees.

Local currencies in most countries across emerging markets weakened in comparison to the US dollar, making imports more expensive, and driving up inflation forecasts. It is unfortunate that these factors outside of our control have impacted overall performance for the year considering the sound operational progress and transformation we have undertaken across all our markets.

Despite these macro-economic developments, Zain Group maintained a steady course in 2015, committed to our strategy that will take advantage of our competencies, including our people, brand, impressive customer experience, cutting edge innovations and geographic coverage. We shall also continue on the path towards implementing operational efficiency initiatives, looking to develop new business areas and becoming a diversified and innovative digital lifestyle operator.

How would you describe Zain Group’s performance in 2015?

I would describe Zain Group as being on a journey to solidify business fundamentals whilst focusing on creating future revenue streams, and that 2015 was another significant step in that direction. As you might note, in 2014 Zain outlined its focused five-year strategy to create a strong and sustainable platform for growth against a backdrop of higher mobile penetration, increasing competition, unique externalities, challenging operational performance, and accelerating adoption of over-the-top (OTT) solutions. Our five-year strategy has the vision of building a sustainable digital communications company serving consumers and enterprises with a rich lifestyle experience and during 2015 we focused on strategy execution across all of our strategic pillars.

Might you give some insight into the main pillars of the five-year transformational strategy at Zain?

Zain’s strategy is premised on six transformational initiatives:

Customer Experience – Putting the customer at the heart of everything we do and allowing customers to feel a connection to Zain.

Operational Effectiveness – Enhancing the bottom line through operational efficiency initiatives, looking to run our business differently and enabling additional group-wide synergy benefits.

Value Management – Establishing the building blocks to create more value, focusing in particular on data monetization and keeping our core products relevant to our customers.

B2B – Leading the ICT market in the Middle East, delivering a world class enterprise service, transforming Zain from being a consumer centric mobile operator to a full telecom operator providing enterprise services.

Digital Frontier and Innovation – Become a regional trendsetter in the digital space, focusing on identifying additional verticals for Zain in the digital value chain.

Talent Development - Inspiring employees to achieve excellence through engagement, and transforming our workforce to be future ready with required new skills and competencies.

These initiatives are more relevant today – given the way global and regional markets are evolving and the impact major trends are having on the ICT industry. In particular, Zain is focused on sustaining value in its core business of voice, messaging and mobile broadband, as well as exploiting fully new revenue streams in the lucrative, but regionally-fragmented B2B segment. In addition, Zain is seeking 
to build scale in the emerging regional digital landscape covering areas such as e-Commerce, digital content, mobile advertising and gaming, smart cities and mobile application development. Zain is enhancing its competitive positioning by expanding its role in the value chain of new business areas beyond connectivity.

What strides were taken during the course of the year to bring Zain closer to its five-year strategy, and do you believe you are on track to meeting 
your timeline?

During the course of the year Zain made significant progress in achieving its vision, having identified internally that it cannot do everything it wants to do in the digital space alone, so a big proponent is finding and cooperating with value-creating partnerships.

The strategic collaboration with NeXgen Group, a leading smart city advisory and consulting services provider based in the UAE is an example of such. This cooperation enables Zain to advise governments and mega real estate developers facilitating the deployment of smart city solutions across the region. The two companies have recognized the value the other brings in this respect and plans are afoot to solidify the relationship even further.

We also invested in three venture capital funds – MEVP, Wamda and Earlybird - that are focused on early-stage and growth-stage digital opportunities in Central and Eastern Europe, Turkey, the Middle East, and Africa.

Earlier in 2015, we announced the expansion of our existing Partner Market Agreement with Vodafone, to deliver M2M services to enterprise and government sectors across the region, with our operations in Kuwait, Bahrain, Jordan 
and Saudi Arabia at the forefront of this initiative.

More recently, Zain has tied up with leading technology and content companies including UBER and global games developer, Zeptolab, in order to bring to market a number of popular applications, in many cases under some pretty unique and pioneering circumstances. Our efforts appear to be resonating as our agreement with UBER was recognised by global research company Ovum, as its most innovative service for November 2015, from a selection of 82 innovative services launched by network providers around the world.

How important is tailoring the user experience to your customers’ needs to Zain?

Customer Experience is one of the buzz words in the service industry and everyone is talking about how important 
the customer is. However at Zain we believe that customer experience is driven by our actions, not our words. It’s critical to make sure that we listen to our customers’ feedback and act accordingly while running our business.

We take it very seriously at Zain, and during the course of 2015 we further enhanced customer experience across all touch points in the customer journey by utilizing customer feedback, developing a thorough understanding of customer needs, and by linking frontline performance with rewards to drive relevance, simplification, and optimization in all customer interactions. Across our footprint, the Group continued to roll-out its Voice of the Customer (VoC) platform to provide real-time monitoring and analytics 
of customer feedback.

Zain has standardized Transactional net promoter score (TNPS), Customer Effort Score (CES) and Customer Satisfaction (CSAT) metrics across all markets and now utilizes a broad range of KPIs to assess the effectiveness of channels and make sure 
we haven’t missed important customer feedback.

The “Voice of the Customer Day” program, which enables senior executives to take on the role of front-line agents in retail shops and contact centers helps to develop a first-hand understanding of customer pain-points, and has further helped to institutionalize customer experience management across the Group.

How do you expect digital developments in the telco space to advance in 2016, and what will Zain Group’s approach to such be?

Zain Group will continue along its path of identifying opportunities in the digital space, and partnering with strong and innovative digital service players.

Overall, Zain is focusing on the future verticals, be that e-Commerce, education, next generation TV services or digital advertising. Our goal is to utilize our unique regional presence and common brand to push development of the digital economy and our role in the business environment of the future.

We will also focus on aligning our network investments to ensure we continue to lead our markets and enable future revenue streams. We believe the richness of content being delivered over mobile devices will continue to increase and drive even more applications to come to market, with commensurate investment in infrastructure required to support such. 

Might you touch on what value management relates to at Zain, given this area is a key strategic pillar?

With respect to value management, Zain is the market leader in most of its markets, both in terms of value share and market share. Our objective is to sustain our leadership position and to counter market erosion threats from OTT players and aggressive competition from operators present in our markets. Zain utilizes its business intelligence platforms to build a strong customer value management framework premised on well-defined customer segments in each of its markets. Data monetization is another key area for the company and initiatives are underway to implement data centric pricing across our footprint.

Can you also elaborate on Talent development as another strategic pillar:

As for talent management, we believe the best employers successfully align their people practices with company strategy and create a high performing environment. During the course of the year we introduced initiatives focused 
on improving employee engagement and empowerment, 
as well as learning and development programs to adapt 
to and encourage employee regional mobility. New technologies and digital services require our workforce competencies to stay at leading levels and we are investing accordingly. Furthermore, as a testament to the strength of the management of the company and focus on succession planning, several key management positions were filled with internal resources, such as the appointment of Zain Group stalwart Mrs. Eaman Al Roudhan, who was promoted to become the CEO of Zain Kuwait.

What are Zain’s aspirations for the current period and the year ahead?

In 2016, we are set to continue strategic executions reinforced by employee engagement, empowerment and leverage our leading technology, presence and strong brand. Going forward Zain Group and its operating entities are looking 
to remain vigilant and agile to market opportunities. We are all well aware that the telco industry is changing rapidly, and as one of the leading service providers in the region, we believe it is imperative for us to embrace these changes and be forward-looking in our approach. These are exciting times for all stakeholders in the ICT value chain, traditional as well as new, and opportunities abound for the creation of significant value for all participants should they be agile enough to grasp them.

 

 

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