Mobile Telecommunications Company K.S.C.P. (OOREDOO.KW) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Zain Group Second Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Nishit Lakhotia, Head of Research.

Greetings, ladies and gentlemen. This is Nishit Lakhotia from SICO Bank, and I would like to welcome you all to Zain Group's Second Quarter 2025 Results Conference Call. It is my pleasure to host Zain Group's senior management today on the call. Now without further delay, I will hand over the call to Mr. Mohammad Abdal, Zain Group's Chief Corporate Affairs and Communication Officer. Thank you.

Thank you, Nishit, and welcome, everyone, to Zain Group's Q2 2025 Earnings Conference Call. I'm joined today with Mohammed Shereef, our Group Head of Finance; and Aram Dehyan, Group IR Director. In a moment, we will take you through the IR presentation, which was posted earlier today on our website. And after that, we're happy to answer any questions you may have. During the call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on the current expectations and assumptions that are subject to risks and uncertainties. Please refer to our detailed cautionary statement found in Slide #2. With that, I will now turn the call over to Mohammed Shereef.

Thank you, Mohammad. Ladies and gentlemen, good afternoon, and welcome to Zain Group Q2 '25 Earnings Call. We are pleased to report that Zain Group had a remarkable H1 '25, surpassing market expectations and our guidance. We had an exceptional performance across key financial and operational metrics, reflecting the disciplined execution of our strategy 4WARD-Progress with Purpose, and the resilience of our business model. The momentum we have built in recent quarters will drive our success across all verticals of business, leading to sustained growth, enhanced profitability and value creation to stakeholders as we enter to the second half of the year. Our continuous focus on digital transformation, customer-centric innovation and prudent proactive decisions are driving sustained high-quality growth. Zain today is stronger, faster and better equipped for the future than ever before. Yesterday, our Board declared an interim dividend of 10 fils per share for the first 6 months of 2025, marking the fifth consecutive year of interim distributions. This forms part of the minimum 35 fils committed dividend per share till 2028, reflecting the strength of our balance sheet and confidence in the continued success execution of our strategy. The dividend will be paid on 3rd September 2025. We would like to highlight the strong recovery in Sudan during H1 '25, underpinned by the effective execution of our resilient strategy and ongoing nationwide network restoration efforts. The commissioning of a new data center in Port Sudan, along with the reactivation of sites in Khartoum and other key regions significantly enhanced operational performance. This led to excellent performance for Zain Sudan that we will discuss later in this call. Moving to our exceptional financial performance. Group customer base expanded 7% to reach 50.9 million. This was highly driven by the successful network restoration in Sudan and accelerated network expansion in Iraq. For H1 '25, revenue grew 14% year-over-year to reach KWD 1.1 billion, USD 3.5 million. EBITDA grew by 10% year-over-year to reach KWD 356 million, USD 1.2 billion, reflecting an EBITDA margin of 33%. Net income for the first 6 months soared 49% year-over-year, reaching KWD 121 million, USD 395 million. Data revenue for H1 '25 reached USD 1.3 billion, up 8% year-over-year, representing 37% of consolidated revenue. For Q2 '25, group revenue grew 13% to reach KWD 541 million, USD 1.8 billion, driven by comprehensive growth across our footprint. Consolidated EBITDA reached KWD 186 million, USD 606 million, translating to a healthy EBITDA margin of 34%. Net income soared an exceptional 40% to reach KWD 73 million, USD 237 million, reflecting earnings per share of 17 fils equivalent to $0.05. Net income for Q2 '25 includes a onetime gain of KWD 15 million, USD 50 million, representing our share of settlement of legal dispute between INWI and Maroc Telecom. Zain Group owns 15.5% stake in INWI via Zain/Alajial, a joint venture of the group. Strategic growth momentum. Our forward strategy is delivering across all metrics. Despite intense competition in our home market of Kuwait, the operation continued to deliver strong performance and remains our most profitable operation. Our core operations across key markets delivered strong performance, achieving exceptional revenue and net income growth. Sudan posted a 101% increase in net income for H1 '25. Saudi Arabia grew 28%, whereas Iraq recorded a 23% growth in H1 '25. Our substantial investment in 5G infrastructure have been pivotal in driving strong 5G-related revenue growth across Kuwait, Saudi Arabia, Bahrain and Jordan. Meanwhile, continued 4G expansion in Iraq and Sudan is supporting solid revenue momentum in these markets. Today, Zain proudly holds the largest 5G network presence across the MENA region. Notably, Zain Kuwait and KSA have recently launched 5G advanced services, further enhancing digital innovation in their respective markets. Looking ahead, we anticipate sustained 5G-driven revenue growth in these markets over the coming years. Our strategic growth verticals ZOI, ZainTech and our Fintech initiatives continued to make a substantial contribution to the group's top line, increasingly establishing themselves as core pillars of our overall performance. These verticals are scaling at pace, collectively generating USD 353 million in revenue during H1 '25 and now represent around 10% of the total group revenue. ZOI delivered exceptional performance with H1 revenue surging 324% year-over-year, the highest growth among our verticals. Notably, ZOI has been ranked among the Top 20 Global ASN, Autonomous System Number by Kentik, firmly placing Zain as one of the global leaders in wholesale connectivity. Our strategic subsea investments continue to provide full operational independence and act as a vital enabler of the digital transformation, particularly supporting emerging cloud and IoT deployments in the region. ZainTech, ZainTech achieved an impressive revenue growth of 94% year-over-year. This is driven by enterprise wins, coupled with strong demand across cloud, cybersecurity and managed services. The dynamic cooperation with the Zain OpCos continues to be highly effective in securing major government and enterprise contracts. This led to 11% growth in group-wide enterprise revenue for H1 '25. Fintech revenue grew 28% year-over-year, supported by a 46% increase in transaction volumes. Our newly launched Bede platform in Sudan is gaining traction, now facilitating transfers, top-ups, merchant payments and cash operations. The service has already attracted 648,000 registered users and completed over 2 million transactions to date. Meanwhile, Bede Bahrain continues to expand its microfinance offering and Tamam in Saudi Arabia is maintaining strong momentum, achieving a 27% growth in revenue year-over-year with significant growth in its loan portfolio. Digital services revenue, including the Dizlee API platform, grew 7% year-over-year despite the regulatory challenges in certain markets. This growth reinforces our position as a regional API enabler while continuing to provide customers with engaging content and gaming entertainment offerings. CapEx. Total CapEx for the first half of the year reached USD 397 million, representing 11% of revenue. These investments were strategically directed towards priority markets to support network expansions and digital infrastructure initiatives. Debt and liquidity profile. The group continues to generate healthy free cash flow, which reached USD 525 million in the first half of 2025, representing 15% of the revenue. Our total available liquidity stands at a solid USD 2.4 billion. Net debt-to-EBITDA currently sits at approximately 2.2x with a net debt-to-equity ratio 0.78x, reflecting a healthy and well-managed capital structure. Full year guidance. Looking ahead, we remain highly optimistic about the remainder of 2025. Building on the strong momentum from our first half performance, we expect to deliver sustained double-digit revenue growth in the range of 10% to 15%, driven by continued strength in our core telecom operations and accelerating contributions from our growth verticals. Importantly, we are revising our full year normalized net income growth guidance upward to 20% to 25% compared to our previous guidance of 14% to 18% provided last quarter. These projections reflect our continued operational discipline and successful monetization of our strategic growth verticals. Our investment priorities remain clearly aligned with our strategic goals. We anticipate our CapEx to revenue ratio to remain in the range of 15% to 17% as we continue to allocate capital towards network modernization, digital infrastructure development and scaling our high-growth verticals. Above all, our utmost priority to deliver sustainable, high-quality returns to our shareholders, a commitment we have consistently upheld over the years. Moving to OpCos. Let's go to Zain Kuwait. Zain Kuwait maintained its market leadership with a customer base of 2.6 million. Q2 '25 revenue reached KWD 94 million, USD 306 million, while EBITDA reached KWD 34 million, USD 111 million, delivering a strong EBITDA margin of 36%. Net income stood at KWD 23 million, USD 74 million, while H1 net income stood at KWD 41 million, USD 132 million. Data revenue for H1 grew 2% year-over-year, now contributing 36% of the total revenue. Zain Kuwait continues to lead the market in 5G advanced adoption, maintaining largest 5G customer base and the highest 5G revenue share in the country. This reinforces its position as Kuwait's premier digital hub across the consumer, enterprise and government segments. On the commercial front, Zain Plus continued its strong momentum with sales up 28% during H1 '25, driven by the increased customer engagement and higher adoption rates. Moving to Zain KSA. Zain KSA continued its strong growth trajectory in Q2 '25 with revenue rising 4% year-over-year to USD 708 million. EBITDA increased by 9% to reach USD 227 million, delivering a solid EBITDA margin of 32%. Net income for the quarter grew 21% to USD 34 million, while H1 '25 net income soared 28% to USD 59 million. The nationwide rollout of Zain KSA 5G advanced network continued to drive digital adoption. Data revenue for H1 '25 grew 4% year-over-year and now represents 40% of the total revenue. The active customer base reached 8.3 million, supported by robust expansion of the -- expansion in the enterprise segment and the growing popularity of our fully digital sub-brand, Yaqoot’. Notably, Yaqoot’ became the first operator in Saudi Arabia to enable eSIM activation for tourists via Absher platform, a market-first innovation launched in April 2025. Zain KSA's fintech arm, Tamam continued its rapid scale up, providing instant seamless micro loans. It set new records in both the number and total value of loans disbursed, significantly advancing financial inclusion across the Kingdom. It is also worth highlighting that Zain KSA declared a cash dividend of SAR 0.5 per share for the third consecutive year, resulting in Zain Group receiving a net of USD 42 million as dividend from Zain KSA. Moving to Zain Iraq. Zain Iraq delivered another strong quarter, reflecting the positive impact of its revenue diversification, strategy, strategic investments and commercial agility. Revenue for Q2 increased 19% year-over-year to USD 313 million, driven by revenue diversification through Zain Iraq and affiliated companies, continued network expansions, commercial focus as well as strong operational execution. EBITDA reached USD 116 million with a healthy margin of 37%, while net income for the quarter reached USD 40 million. H1 '25 net income grew 23% to reach USD 66 million. Customer base expanded 10% year-over-year to 20.9 million, reinforcing Zain Iraq's leadership position in the market. On the commercial front, our recent product launches sustained their momentum in the market. We also maintained our strong network deployment push with significant expansion in all key population centers, further enhancing our coverage, capacity and customer experience. Zain Sudan. Zain Sudan reported exceptional performance during Q2 '25, reflecting strong recovery, as I mentioned earlier. Revenue for the quarter surged 87% year-over-year to reach USD 133 million, while EBITDA more than doubled, up 114% to USD 74 million, delivering a robust EBITDA margin of 56%. Q2 net income rose 76% year-over-year to USD 59 million, while H1 '25 net income soared 101% year-over-year to reach USD 112 million. Customer base grew 17% year-over-year to reach 11.8 million, driven by steady improvements in subscriber activity as additional network services were restored. Data revenue for the first half surged 89%, now representing 30% of total revenue, highlighting strong demand for connectivity. On the fintech front, Zain Sudan took a significant step in its digital evolution by launching its first digital offerings on the Bede platform in partnership with Visa, as already mentioned. Zain Jordan. Zain Jordan delivered a solid performance this quarter, driven by ongoing nationwide rollout of 5G and FTTH services. Revenue grew 8% year-over-year to reach USD 148 million, while EBITDA increased 3% to USD 58 million, maintaining a strong EBITDA margin of 39%. Net income for Q2 reached 19% year-over-year to USD 21 million, reflecting operational efficiency and expanding service adoption. H1 '25 net income grew 14% to reach USD 39 million. The operations customer base grew 5% year-over-year to reach 4.2 million, reinforcing its market leadership position. Data revenue soared 12% in H1 '25 and now represents 54% of total revenue, reflecting the ongoing shift towards digital adoption and strong demand for high-speed connectivity. Finally, Zain Bahrain. Zain Bahrain delivered a decent performance in Q2 '25, generating USD 54 million in revenue, a 7% increase year-over-year. EBITDA reached USD 15 million, reflecting an EBITDA margin of 28%. Net income for Q2 increased 1% to reach USD 3.6 million, while H1 net income grew 5% year-over-year to reach USD 6.7 million. Data revenue for H1 grew 5%, now accounting for 45% of the total revenue, reflecting a steady demand for digital services. With that, I will hand over to Mohammad Abdal for Q&A.

Thank you, Mohammed. Please, operator, we'll now move to the Q&A session.

[Operator Instructions] We are now going to proceed with our first question, and the questions come from the line of Thando Skosana from UBS.

This is Thando from UBS. Congratulations on your results. I'm going to ask two questions, but I might be sneaky and ask a third one. Just the first one, apologies if you've mentioned this at the start of the conference call. But just in terms of Iraq, it's quite impressive growth there in Q2, particularly versus your peer. And it seems like, yes, your growth is much higher than what your peers are seeing. So I'm just curious as to whether you're picking up share from Korek? Or is there anything that you're seeing within the market just in terms of demand for services there. So that will be my first question there. The second question is just more on EBITDA margins. And I do appreciate that you don't guide on EBITDA margins. But just if you could directionally help us think about the margins that you expect for 2025 and then also beyond 2025, where you see your margins? And what are some of those key drivers that will get you there? And then whilst you're on that EBITDA margin front, if you could talk about your main OpCos. So I'm thinking here, Kuwait, Iraq and then also perhaps Sudan, which is in a recovery phase, if you could just talk about near-term EBITDA margins and what are your expectations there? Because I believe Iraq is still not where it once used to be in the 40s percent and then just the third question is just on M&A, whether you're seeing any potential in terms of M&A in the market? And where is your interest around there? And then -- or is your focus going to be likely to reduce your leverage?

Yes. So regarding the Iraq stuff, your first question, the answer is the strong product portfolio what we have. We have a very strong product portfolio, which is more tailored, sticky and relevant to Iraqi consumers, offering better value and personalization across segments. Now the reason for this one, the accelerated network expansion. Our rapid network expansion is delivering meaningful improvements in coverage, speed and reliability, translating into higher customer satisfaction and usage. The second one is the digital leadership, what we have there. We are the only fully digital operator in the country. Our digital app has become a central engagement platforms offering everything from top-ups to financial services, enabling deeper customer relationship and market reach. Then the specialized products and services, what we are offering, this is another factor. Through our various entities, we offer specialized products and the services, including B2B products and services that are tailored for the Iraqi market. Just recently, our affiliate in Iraq has recently signed 40-plus new contracts expected to start in H1 '25, in the end. Then the macroeconomic tailwind also another factor because Iraq's improving economy, especially stabilization of the currency and overall economic recovery is supportive for stronger consumer demand. Overall, we believe Zain Iraq is positioned to outperform even if others are taking a more cautious view. I hope I answered for Iraq. And then -- okay, and then your question was why the EBITDA margin is low in Iraq, I'll tell you. As already I mentioned, Iraq is doing very well, and we expect excellent results from Iraq. EBITDA margin for Iraq is within similar range. However, comparing across the different quarters may not be -- may not provide an accurate picture due to seasonality impact of Ziara, Ramadan, et cetera, which impacts revenue and margins. Furthermore, we are focusing on increasing our market share, rolled out more than 600 new sites in H1 '25. As a result, we have increased our subscriber market share to 52%. This led to an increase in OpEx, marketing and dealer commission costs, which has impacted EBITDA margins in the short term. EBITDA margin was also impacted by growth in trading revenue, which is in its early phases and therefore, also low margin. These all short term and strategic play for future growth. Also, the same -- the EBITDA and net income up 3% at same level due to voucher booked last year and cleaning up of some balance sheet last year. So that was one of the reasons that last year was high net income. This year, there is no cleanup, nothing. This is the reason. What's the second question? For example, Kuwait. Kuwait, we have service revenue up by 2% due to excellent performance, B2B up by 13% and digital 14%. Trading revenue is down 1% due to bulk sales in last year. H1 EBITDA is lower by 3% due to lower voucher. Again, it's the same thing, lower voucher and rebates from suppliers compared to last year. So last year, I had -- this year, I had KWD 1.2 million benefit, while last year, it was KWD 6.3 million benefit. What else?

Great. I think the last one was just on M&A.

Okay. Regarding the M&A, as you've heard, the management announced earlier, and you saw in the news, and we delivered the message in Q1 as well. The Zain Group Vice Chairman, CEO and the executive management showed their interest in Syria, and they visited the country and met with the official parties over there, the leadership, and they discussed the opportunity to take a part of the development of Syria going forward, whether it comes on the mobile or it comes on the ZainTech areas or the ZOI area. So we are interested, and we are waiting for the official, for the regulators to announce such announcement so we can go for the next level. And the other country we showed also interest in Lebanon. We also showed interest in Lebanon as well to go back as we used to have before in the management. So other than that, we are still business as usual, and we're continuing discussion with them, but nothing official yet.

[Operator Instructions] We are now going to proceed with our next question. And the question come from the line of Madhvendra Singh from HSBC.

Congrats on great set of results. I have three quick ones, hopefully. The first question is on your one-off from Maroc, Morocco. So wondering do you expect any cash flow as well to the group from this? Do you expect any cash upstream or dividend at all from this? Or this is just an accounting entry? So that's the first one. Then second question is on -- just a follow-up actually on Thando's question about the margins in Iraq. You were running at mid-40s and now you are at 37%. So wondering whether the 37% is the one we need to look forward to or this is a temporary drop and you expect it to recover back to mid-40s. And then the final question is on regulatory environment. I wonder whether there is anything to highlight there? Any spectrum auctions or new licenses to be issued in any of your markets? You talked about Syria. Is it going to be a new license? Or is it going to be a transfer of existing assets other operators were running before? So if you could talk about what are we talking about Syria specifically, but generally other regulatory developments as well?

Regarding your first question of INWI cash flow, you said that the cash flow is in INWI. See, the original court order amount was $600 million has been reduced. There was a court case between Maroc Telecom and INWI. It was a $600 million claim in the beginning. What happened is they discussed each other and they reduced the $200 million in the settlement between INWI and Maroc Telecom. As a part of the settlement, INWI and Maroc Telecom will join efforts to create 2 critical infrastructure platform in Morocco. Number one is the TowerCo targeting deployment of 2,000 sites over the next 3 years. Number two is the FiberCo with the ambition to reach 1 million homes initially, scaling to 3 million within 5 years. As a result of this settlement, Zain Group has booked $50 million gain in Q2 '25 financials. The cash flow, it depends. It may -- so far, it is not. But once we -- once they declare the dividend from INWI, yes, we may get this one. But mainly the growth, you can see the huge growth between these two initiatives. You asked about Syria, whether it is new or it is acquisition. As of now, there is nothing concrete. We just went there and studied. There is nothing official. We'll come to know in due course if there is anything there, we will inform you. Margins in Iraq, as I told you, you asked whether it is a onetime. Yes. As I told you, we were expanding like in Iraq because when you do more expansion and this thing, first time, you have to give a little bit the cost we have to incur. And then going forward, of course, we will monetize all those things. So it is a short term, this margin now. It will improve definitely the market.

And if you can just talk about the general regulatory environment, any license or spectrum renewals upcoming in any of the markets?

Regulator is -- according to my knowledge, there is nothing so far. There was a discussion about Iraq fourth entrant, but it's too much if you have a fourth entrant coming, but I don't think that it will come. We are saying that it will not work, the fourth entrant. It will kill the market completely. So there is no talk now.

We are now going to proceed with our next question. And the questions come from the line of Varuna Kumar from SICO. We have no further questions on the phone line. So I'll hand back to you for any webcast questions that you may have. Thank you.

Yes. Thank you. I can take some questions from the webcast for the management. So Varuna has asked a couple of questions on the webcast as well, so I can take that from him. So first question from Varuna is, can we expect current run rate of revenue generation for ZOI to be sustainable in the short to medium term? And then he also had a question. I think we've addressed this a bit on the margin, but if management wants to add to it. Why are EBITDA margins shrinking in main markets of Kuwait and Iraq? And what is the expectation of EBITDA margin in Sudan going forward?

Yes. Regarding the ZOI, yes, ZOI started operations during early '24, significantly contributing to our revenue uplift for Zain Group. Revenue 324% increase year-over-year driven by large capacity deals, higher voice volumes and expanding global partnerships. ZOI is positioned to become the leading ultra-regional edge data center provider in MEA with infrastructure expansions, building subsea and terrestrial networks and plans for niche of data centers across Saudi, Kuwait, Jordan and Iraq. The second one was you are asking about Kuwait, one second. Kuwait, I think I already mentioned about Kuwait. The trading revenue, the bulk sale was -- last year, there was a bulk sale. And this year, that bulk sale is not there. That's the reason, the revenue, you can see a little bit down. That's the reason. And the EBITDA also, the last time there was -- I mentioned already in the call, last time there was vouchers and rebate from suppliers, which is not there in this year. That's the reason it shows like that.

And he's also asking about Iraq and Sudan.

Sudan, I will tell you, Sudan, it's a very impressive. What's happening in Sudan is, I think Sudan is performing great, as mentioned in the call. We are in the process of restoring sites in Sudan. We have already 1,800 sites currently on air with 1,200 not on air. So we are trying to increase as much as we can. As you see, the H1 '25, fantastic all around with exceptional performance, revenue up 97%, EBITDA 192%, net income, 101%. Again, this all depends upon the situations in the country and the currency. What else, Iraq, I think I already mentioned about Iraq. If you see the -- because the questions what they were doing and this short term, that this one, but if you see H1 revenue, it's a 16% increase, EBITDA 6% and net income 23% in Iraq.

And Varuna, I had this question on the outlook for EBITDA margin on Sudan. And there was one more question from Ziad Akram that regarding -- it seems that there is more uptick on the prices in Sudan. So were there a lot of price increases done in second quarter? And should we expect similar increases to carry forward into the second half of this year for Sudan?

Okay. Sudan, I'll answer first Sudan. Sudan, the prices increase is automatic versus the exchange rate. So exchange rate, in fact, it was 2,140 per dollar. Now in July, it is 2,400 per dollar. So there is an increase in the exchange rate. So definitely, when there is an exchange rate increase, of course, the revenue will increase. It will uplift. The price will uplift. But to compensate the translation impact, that's what they are doing this. Sudan, it depends upon the situations in Sudan. So far, it's very good. The team in Sudan is very capable of doing everything with these situations also. So inshallah, Sudan will be a very good result we'll be providing.

And one more clarification from Ziad is whether do you need any regulatory approval for price increases in Sudan or that's a market dependent.

No, no, no need of approval for pricing. It's automatic. It's automatic. As per the license, we can increase the price. Whenever there is a devaluation of the currency, we don't need to get an approval or anything. Immediately, they will increase the price. This is by license.

Okay. And another question from Faisal Al Hashmi on Sudan itself is, can you update us on the status of upstreaming cash from Sudan? And how much do you expect to upstream for this year?

For Sudan, I think we upstreamed so far, if I'm not mistaken, just a second, -- around $32 million, we already -- we did it. No, no, sorry, sorry, it was 24 -- around $15 million. So far, we upstreamed $15 million, and we are planning to do maybe another same in the next quarter.

So this is $15 million?

Yes. As of now, $15 million in this year, yes.

Okay. The next question is from Faisal Hassan. He's got a couple of questions. What is the expected ARPUs and the growth in your key markets, Iraq and Sudan for next year as well as any guidance on EBITDA margin? I think you've addressed the EBITDA margin part. So maybe just on the ARPU.

ARPU in which market you said?

Iraq and Sudan.