Zain Reports Increased EBITDA of US$1.77 bil., Customer Numbers Rise by 37% Y/Y

According to Zain's press release, it announced revenues of 1.16 billion dinars (US$4.014 billion), up 24.1% year-on-year (y/y). EBITDA was 512.2 million dinars up, 46.3% y/y, and net income was 154.5 million (US$533.5 million) up 4.4% y/y. Once again the operator continued to add new customers, bringing its group total to 69.5 million customers, up 37% y/y. CEO of Zain Group, Saad al-Barrak, commented on the results stating: ''The nature and growth of the H1 2009 net income result is all the more impressive when one takes into account that in H1 2008 we had an extraordinary gain of 26.6 million dinars (US$99 million) from the successful Zambia IPO, as well as the burden of a 31.3 million dinars (US$08.8 million) currency exchange loss for H1 2009. Both are an indication that operational net income growth is much higher than 4.4%. With improving currency stability in many of our African operations, we expect even better results in the second half of 2009." Zain now has commercial operations in 24 Middle Eastern and African countries; although the sector has faced tough economic conditions in the last year, prudent investment in under-priced African assets has enabled it to reap the growth benefits of the emerging markets especially in Sub-Saharan Africa.

Currently the operator is on a mission to expand its operations and seek new mobile licence opportunities in new markets. It is currently in the process of completing a deal in Iran where it is likely to take over the third 3G mobile licence in the country which was originally awarded to Etisalat (see Iran: 12 May 2009: Iran Strips Etisalat of Mobile Licence and Awards to Zain). Further to the merger agreement signed on 18 May between Zain Jordan and Paltel Group and the formal approval of the Paltel extraordinary general assembly, Paltel became the twenty-fourth country to join Zain's global footprint and was consolidated within Zain's second-quarter 2009 results. Abdel Malik al-Jaber has been appointed CEO of the Zain's Levant region and the company expects to rebrand the Palestinian operation to Zain during the third quarter of 2009. ''The combination of both Zain Jordan and Paltel will produce a business group which will generate over US$1 billion of revenues, US$450 million in EBITDA, and US$300 million in net income in 2009 alone," said Barrak.

Barrak announced an initiative called "Drive 2011" to push the company towards its 2011 target of being a top-10 global mobile telecommunications operator. The new strategy will place emphasis on customer-facing services and commercial activities while centralising or outsourcing some back-office/non-core functions to strategic partners. The Zain group will also align its head office and operations structures in accordance with the new operating model. This will result in Zain reducing its current 15,500-strong global workforce by 2,000—a 13% reduction across the board. Zain operations in Iraq, Jordan, Kenya, Kuwait, Malawi, and Sierra Leone have already begun this process. Zain is among the largest operators in the MENA region and has coverage of 23 countries, serving 63.5 million active customers as at 31 December 2008.

Outlook and Implications

Zain has made an impressive start to the year and is expected to continue at the same rate in the near future; most of its African operations are still in their early phases of expansion and show strong signs of reaping rewards.

• Zain Strategy: Zain has traditionally invested in markets with high populations and low penetration rates—typically emerging markets. Zain’s other Middle Eastern markets typically have very high mobile penetrations, mostly over 100%, but the Iranian mobile licence will offer significant diversity to its Middle Eastern investments. Zain also recently announced a new initiative, called ''Drive 2011'', which is aimed at helping the operator reach its long-term objective of becoming a top-10 global mobile operator (see Middle East and North Africa: 5 May 2009: Zain Restructures Global Operations Through Launch of "Drive 2011" Initiative). Drive 2011 will advance Zain's operating margin by 5% in 12 months by improving operating efficiencies in managed outsourcing, centralisation, and leveraging capabilities. Additionally, 13—15% of jobs will be shed across the group. ''We expect 'Drive2011' to improve Zain's operating margin by 5% within 12 months and provide the company the necessary thrust to capture the future growth potential of the markets in which we operate,'' said Barrak.
• One Network: The operator is seeking to expand coverage of the "One Network" service to eventually ensure that all the countries in which it operates are linked to it. The One Network offers customers in any country on the Zain network local rate call charges while roaming and the ability to top up pre-paid credit on the network. In the Middle East, Bahrain, Jordan, Iraq, Kuwait, Saudi Arabia, and Sudan are included in the service, while in East Africa Kenya, Tanzania, and Uganda will all benefit. By the end of 2009, all other African ''One Network'' countries will join and benefit from this data service, at which time cross-continent connectivity will be implemented.
• Expansion Plans: Within the Middle East, Zain is already in the lucrative Gulf cooperation Council (GCC) states and underdeveloped markets such as Iraq, a Network management service in Lebanon, and near to completing a 3G mobile licence in Iran. Although these less-developed markets pose many operational problems, customer growth rates are significantly higher than the rest of its operations. Although a full break down of second-half operational results have not been released, at the end of the first quarter of this year, Zain increased its subscriber base primarily through its African operations, in particular, Nigeria (55%), Malawi (94%), and Madagascar (117%)—as well as solid growth in Bahrain (53%) and Sudan (34%). In Nigeria, now the largest market in Sub-Saharan Africa, Zain overtook Globacom during the year to become the second-largest operator. It also launched services in Ghana on 15 December 2008, reporting 270,000 subscribers by the end of the month (see Ghana: 17 December 2008: Zain Launches GSM Network in Ghana).