Zain Reports 23% Annual Increase to 41 mil. Subscribers in Sub-Saharan Africa

Zain has reported a 24% increase in consolidated revenues to US$4.014 billion in the six months ending 31 June 2009 and a 27% increase in gross profit to US$2.93 billion, but only a 4% increase in net profit to US$534 million. This decrease in net profit was largely attributable to foreign-exchange fluctuations. The operator's financial statements show that "the financial crisis was evident from the currency translation impact on revenues in the African markets during the first half of 2009, notably Nigeria where the weakening of the naira had a US$160-million negative impact on reported dollar figures".

Zain’s African operations account for 59% of the group’s total: the Middle East region saw a 63% annual growth rate and Sub-Saharan Africa saw a 23% growth rate. While Zain’s 16 operations in Sub-Saharan Africa reported a 23% annual increase in subscribers to 41.027 million from 33.301 million in June 2008, the region only saw a net increase of just 9,000 subscribers in the last six months from 41.018 million in December 2008. Although most operators continued to see strong subscriber growth—particularly Malawi (66%), Niger (58%), Tanzania (57%) and Chad (56%)—Nigeria and Kenya reported a net decrease of 3.212 million (Nigeria 2.551 million and Kenya 661,000) due primarily to an adjustment to the definition of "active" subscribers in Nigeria.

Commenting on the results, Zain Group Chief Executive Officer (CEO) Dr Saad Al Barrak said that with “the burden of a US$108.8-million currency exchange loss for H1 2009, [but with] improving currency stability in many of our African operations, we expect even better results in the second half of 2009”. Al Barrak added, “Despite a challenging environment imposed by the global economic crisis, foreign-currency fluctuations and the competitive markets in which we operate, not to mention the vast investments in network expansion, the Group was still able to achieve impressive and realistic levels of revenues and profitability for the first six months of 2009.”

As a result of an adjustment in active subscribers, Zain Nigeria saw its market share decrease from 32% in June 2008 to 25% in June 2009. Zain had previously overtaken Globacom to become Nigeria’s second-largest operator behind MTN, but, according to the regulator, the Nigerian Communications Commission, Glo had reached 15.905 million active subscribers by June 2009, giving it a 27% market share and putting Zain back into third place.

Besides the adjustment in active subscribers, Zain Nigeria also says that it faced intensified competition when implementing its ‘Drive11’ restructuring programme. The operator says that it has adopted and applied its ‘Drive11’ initiatives through revamping distribution models, customer care, network optimisation and cost optimisation initiatives. Zain awarded a five-year contract to Ericsson in June 2009 under which Ericsson will be responsible for the network operations, field operations and third-party vendor management of Zain's GSM/W-CDMA networks and business support systems. As part of the agreement, about 450 employees will be transferred from Zain to Ericsson under their existing terms and conditions of service. On 7 May 2009, Zain said that it would reduce its headcount in Nigeria by one-third, cutting 300 jobs out of 2,000 and outsourcing 450, according to Reuters. In December 2008, Zain said that it had been able to sustain its market position in Nigeria despite strong competition from the launch of Etisalat in October 2008. Meanwhile, Zain also faced market leader MTN's launch of the ‘One World’ seamless roaming service, similar to the ‘One Network’, and in March Zain said that as its competitors embarked on boosting their network distribution, Zain Nigeria’s market share was affected by 4 percentage points compared to the first quarter of 2008.

Outlook and Implications

Zain looks set to pave the way for the arrival of a major investor, having scheduled an EGM for today (31 August) when amendments will be made to shareholder limitation rules, which currently prevent a single shareholder from holding a stake greater than 2%. Earlier this month, Zain confirmed that it was in talks with three international operators to sell all or part of its African operations (see Sub-Saharan Africa: 17 August 2009: Zain in Fresh Talks to Spin Off African Assets—Report). Rumours had been circulating about the possible sale of Zain's operations in sub-Saharan African (minus Morocco and Sudan) ever since French giant Vivendi called off talks to buy a majority stake in the African business in July (see Sub-Saharan Africa: 21 July 2009: Vivendi Suspends Talks with Zain over Acquisition of Majority Stake in African Operations). “We have received expression[s] of interest from several parties/other operators to acquire Zain operations in Africa,” said Al Barrak, adding that “the Board of Directors of Zain has been discussing such matters and will consider any proposals that may be submitted”.