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

Hello, and welcome, everyone, to Zain Group's Third Quarter 2025 Earnings Call. It is my pleasure to welcome the senior management of Zain Group today. And we will have a session to ask question and answer as well. [Operator Instructions] With that, I will hand over the call to Mohammad Abdal. Please go ahead.

Thank you, Marie, and welcome, everyone, to Zain's Group Q3 2025 Earnings Conference Call. I'm joined today with Ossama Matta, our Group CFO; with Mohammed Shereef, Group Head of Finance; Kamil Hilali, Head of Treasury; 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 the 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'll now turn the call to Ossama Matta.

Thank you, Mohammad. Please, if you don't hear me well, raise your hand or mention it. Good afternoon, ladies and gentlemen, and thank you for joining us today. I am pleased to share another quarter of impressive performance following a remarkable first half that exceeded market expectations and our own guidance. This third quarter of 2025 demonstrates sustained momentum with all KPIs continuing on an upward trajectory. This success is not an isolated event, but the result of strategic focus and sustained performance over time. Our talented teams across all the board have driven our forward progress with purpose strategy with the precision and urgency, delivering exceptional results across the board. We witnessed exceptional growth across all KPIs in our major markets, resulting in 16 years of record high revenues, notably in Iraq. The network expansion of additional 942 sites is delivering strong returns, boosting our customer base by over 1 million customers and driving impressive revenue growth. In KSA, we expanded our 5G advanced services to additional 21 cities and now serving 90 cities in the Kingdom. In Kuwait, we rolled out 5G advanced services, and it is key to the operation by maintaining its market leadership. And in Jordan, the ongoing nationwide rollout of 5G and FTTH services is driving data and revenue growth over there. In Sudan, we are exceptionally pleased with the recovery and continuing the momentum. The stabilization of operations in Hortum marked a pivotal turning point of our business, enabling robust restoration of commercial activities and return of approximately 7 million customers to the network. Today, our group-wide customer base stands at 51.3 million customers, representing a growth of 9% year-on-year, driven by network restoration in Sudan and continuing -- and continued network expansion in Iraq. Looking at our forward strategic pillars that are driving our outstanding results across all key matrices. ZOI, ZainTECH, and our Zain Fintech services are making significant contributions to group revenue, reflecting the strong execution of our digital growth strategy. These verticals continue to scale rapidly, collectively generating $562 million in the first 9 months of 2025, a remarkable 98% growth compared to last year. And now such verticals represent around 10% of Zain total revenues. ZOI delivered an outstanding performance with 9-month revenue soaring at 172% year-on-year, making it the fastest-growing vertical in our portfolio. Our strategic investments in subsea infrastructure continue to reinforce operational independence and serve as a vital enabler of digital transformation, supporting the region's expanding cloud and IoT ecosystems. ZOI is rapidly emerging as the leading wholesale carrier in the region, driving connectivity and innovation across our markets. ZainTECH achieved impressive revenue growth of 74% year-on-year, driven by major enterprise wins and strong demand across cloud, cybersecurity, and managed services. The dynamic collaboration with Zain OpCos continues to prove highly effective in securing major government and enterprise contracts, resulting in 9% enterprise revenue growth in the 9 months of 2025. I would like to highlight 2 recent milestones for ZainTECH that will further drive value and further advance AI adoption across the region. The first one is the launch of Azure ExpressRoute in Java, which is an AI-powered chatbot on the Microsoft marketplace. And the second one is securing one of Microsoft's first regional OpenAI partnerships with an entity part of BIF in KSA. Our fintech vertical delivered another strong performance with revenue up by 57% year-over-year, driven by a strong 106% increase in transaction volumes led by Taman in KSA and Zain Cash in Iraq, and in Jordan. Our newly launched BD platform is gaining traction in Sudan, further supported by strategic MOU with Visa to issue BD prepaid cards. In Saudi Arabia, Tamam continues to build momentum, delivering a 23% year-over-year revenue increase on the back of an expanding loan portfolio. Looking ahead, we are excited about the growth opportunity of Zain Cash in Iraq and Jordan, with the growth expected to accelerate in the coming months. On the digital services, this business delivered 5% growth in revenue year-over-year. This performance was driven by continued expansion of the Disney API platform, which now hosts over 272 services from more than 46 partners across gaming, entertainment, advertising, and API integrations. This growth, despite regulatory challenges in certain markets, further strengthens our position as a leading regional API enabler. All of the above has led to this exceptional financial performance. We delivered very strong financial results for the first 9 months of 2025. Revenue is up 15% year-over-year, reaching a 16-year high of KWD 1.7 billion, equivalent to KWD 5.4 billion. EBITDA grew by 9% year-over-year to reach KWD 552 million, which is equivalent to $1.8 billion with an EBITDA margin of 33%. And net income for the period so at 31% year-over-year, reaching KWD 178 million or $581 million. Data revenue continued to be a key growth driver, reaching $2 billion, up 11% year-on-year and now representing 37% of consolidated group revenue. In line with our ongoing commitment to our shareholders' returns, we distributed an interim dividend of KWD 0.10 per share on September 3, amounting to KWD 43.3 million, which is equivalent to $141 million. Due to the robust results of the first 9 months of 2025, that saw earnings per share reach an exceptional 41 per share. The Board of Directors has declared a second interim cash dividend of 25 fils per share for profits achieved for the period ending September 30, 2025. This second interim dividend comes in addition to the earlier interim dividend of 10 fils for the first half of 2025. With these 2 distributions, Zain Group has fulfilled its obligations related to the dividend distribution policy. Furthermore, as part of our ongoing commitment to transparency and financial compliance, the Board is evaluating the adoption of IAS 29 before the end of this year. IAS 29 is related to the hyperinflation accounting, specifically for Sudan operation. Initial assessments indicate that implementing this standard is not expected to materially affect shareholders' equity and could have a positive impact on our 2025 results. However, we will confirm this once the full assessment and implementation process is complete. If you look at the CapEx, total CapEx for the 9 months of 2025 reached $699 million. This represents approximately 13% of revenues. These investments were strategically focused on our priority markets, supporting network expansion, digital infrastructure enhancements, and the continued evolution of our technology platforms. On the debt side and liquidity profile, the group continues to generate strong free cash flow, reaching $832 million for the first 9 months of 2025, and this represents approximately 15% of revenues. Our total available liquidity remains robust at $3.2 billion. Our net debt to EBITDA stands at approximately 2.2x, while the net debt-to-equity ratio is 0.77x, reflecting a healthy and well-managed capital structure. Beyond the financials, I am pleased to highlight that our MSCI ESG rating was upgraded from BBB to A. And for the guidance of 2025, as we reflect on an exceptional third quarter, I am pleased to reaffirm that we are on track to meet our full year 2025 guidance, targeting double-digit revenue growth of 10% to 15% and normalized net income growth of 20% to 25%. The CapEx intensity ratio is progressing as planned with strategic investments directed towards network modernization, digital infrastructure, and scaling our core growth pillars. Throughout this journey, we continue to uphold our commitment to delivering sustainable, high-quality returns to our shareholders. With that, I will hand over to Mohammed Shereef for the operations.

Thank you, Ossama, and good afternoon, everyone. Moving to the OpCos. Let's go to Zain Kuwait. The operation maintained its market leadership with a customer base of 2.6 million. Revenue for the first 9 months of 2025 reached KWD 286 million, USD 932 million, while EBITDA reached KWD 100 million, USD 326 million, delivering an EBITDA margin of 35%. Net income for the 9-month period stood at KWD 60 million, USD 196 million. For the first 9 months, data revenue grew 4% year-over-year, now accounting for 36% of total revenue. Zain Kuwait further reinforced its leadership in 5G advanced adoption, boosting the largest 5G customer base and the highest 5G revenue share in the country. These achievements strengthen Zain Kuwait's position as Kuwait's leading digital hub, serving customer B2C, enterprise B2B, and government B2G segments with innovation, reliability, and distinction. Going to Zain KSA, the operation continued its strong growth trajectory. Revenue for the first 9 months of 2025 increased 6% year-on-year to USD 2.2 billion, while EBITDA grew 5% to USD 673 million, maintaining an EBITDA margin of 31%. Net income so 16% year-on-year to USD 99 million, reflecting sustained operational excellence and commercial strength. Zain KSA's nationwide rollout of its cutting-edge 5G advanced network continues to accelerate digital adoption across the Kingdom. Data revenue grew 4% year-on-year, now representing 40% of total revenue. This is driven by strong enterprise growth and the rising popularity of our fully digital sub-brand, Yaqoot, which has fueled an active customer base of 8.6 million. We expanded our 5G coverage to 21 additional cities, bringing the total to 90 cities nationwide and achieving 67% 5G coverage. Zain KSA became the first operator in Saudi Arabia to secure Samsung certification for 5G stand-alone and voice over new radio, PONR, reinforcing our technological leadership. Our innovative approach was further recognized on the global stage with the 5G Monetization Foundry Excellence Award from GSMA, underscoring Zain KSA's pivotal role in shaping the region's digital future. Zain Iraq. Zain Iraq has continued to deliver robust performance this year, reaffirming the company's strategic direction and ongoing investments. Revenues for Q3 grew 20% year-on-year to reach USD 342 million, driven by strong commercial momentum and diversification across Zain Iraq subsidiaries, NextGen, and Horizon, supported by the continued network expansion and operational efficiencies. For the first 9 months of 2025, revenue stood at USD 942 million, up 18% compared to the same period in 2024. Zain Iraq's customer base increased 5% year-on-year to reach 20.4 million, maintaining its market-leading position. EBITDA for the quarter increased by 7% to USD 129 million, maintaining a healthy 38% margin, while net profit surged by 19% year-on-year to USD 47 million. Year-to-date, net profit grew by 21%, reaching USD 113 million. Zain Sudan. Turning to Zain Sudan. The operation delivered an exceptional performance with recovery gaining strong momentum following the stabilization of Khartoum, a key milestone that enabled the robust restoration of commercial activities and accelerated business recovery. Revenue for the first 9 months of 2025 surged 113% year-on-year to USD 383 million, while EBITDA rose 215% to USD 217 million, achieving an impressive EBITDA margin of 57%. Net income rose 92% year-on-year to USD 171 million, reflecting the strength of our operational turnaround. Throughout 2025, we successfully restored around 680 sites, bringing total active sites to 1,966 while at the same time, upgrading 315 sites to 4G, further enhancing network capacity and coverage. The customer base expanded 39% year-on-year to 12.2 million, driven by the restoration of the network services. Data revenue more than doubled, rising 114% year-on-year, now representing 50% of total revenue. On the Fintech front, our BD platform continues to gain traction, reaching 735,000 registered users and processing more than 80,000 transactions alongside a strategic MOU signed with Visa to issue BD prepaid cards, further reinforcing our commitment to advancing Sudan's digital and financial inclusion ecosystem. Zain Jordan, marking 3 decades of remarkable achievements, contributions, and relentless innovation, Zain Jordan proudly celebrates its 30th anniversary as a pioneer in the region's digital transformation journey. During the first 9 months of 2025, the operation delivered a solid performance, supported by the ongoing nationwide rollout of 5G and FTTH services. Revenue grew 7% year-on-year to USD 441 million, while EBITDA increased 2% to USD 170 million, maintaining a healthy EBITDA margin of 39%. Net income rose 7% year-on-year to USD 59 million, reflecting continued operational efficiency and expanding service adoption. The customer base grew 1% to 4.3 million, reinforcing Zain Jordan's market leadership position. Data revenue surged 14% year-on-year, now representing 54% of total revenue, reflecting the ongoing shift towards digital adoption and strong demand for high-speed connectivity. Finally, Zain Bahrain. Zain Bahrain delivered solid results for the first 9 months of 2025 with revenue growing 6% year-on-year to reach USD 161 million. EBITDA stood at USD 45 million, while net income increased 3% to USD 11.1 million. Data revenue grew 5% year-on-year and now represents 46% of total revenue. With that, I will hand over to Mohammad Abdal for Q&A.

Operator, we can move to the Q&A session. And can you repeat the instruction for it as well, please?

[Operator Instructions]. Thando, you can unmute the line.

First of all, congratulations on the results. I'll have 3 questions, please. The first one is just on dividend and dividend payout ratio. If management could just help us understand how they look at that payout ratio? Because when I look at consensus, it seems like they're below that 70% mark. Historically, Zain Group has done between 70% to 80% payout ratio. So just expectation for the full year, free cash flow is also improving for the company. Yes, some detail there would be very helpful for the remainder of the year, please. My second question is just on Iraq, please. If you could just talk more about the margin development, there. I appreciate you are spending to take some market share. But as we go now into Q4 and then 2026, what should we sort of expect in terms of margins there, because the business has been growing quite well over the last couple of quarters? And then just last one on Sudan. We are 1 month into Q4. Just wondered if you could share any color there in terms of that recovery and the situation in Sudan, please?

Yes. On the dividends, the payout ratio, as you said, exactly every year, we go between 70% to 80%, depending on different factors: one, investments, free cash flows that we have in mind, company future investments. All of this, we consider before we go to the Board, and the Board basically pushes for or suggests a dividend to the shareholders' meeting. Now for this year, we are excited about the results. And the company, as I mentioned, that we are -- has committed before in distributing a minimum of 35 per share. This is annually. We managed to fulfill this commitment to the shareholders within 9 months, which is amazing because of these results. What we are having also is the application of IAS 29, and it will be applied towards the end of the year. Now between now and end of the year, the company will continue to perform. We will continue to assess developments during Q4 and make decisions regarding any future distribution of dividends. This is in relation to the dividend question. Regarding Iraq, you rightly said that margins are stressed a little bit in Iraq because of many things happening in the market. One of them is the expansion that we are doing. Another one is grab market share because of the disconnection of the third operator, which is if you look at the growth, which is approximately 20% for the quarter, 10.9% of it comes from the core business. And out of this 10.9%, approximately 3.5% is due to the disconnection of the third operator. And the remaining increase in revenues comes from the other businesses, which is Horizon and NextGen. Now to capture market share, you have to push for your SIM cards, you have to pay more commission. That's why we have seen the commission doubled in the market in Iraq. And we also pushed more for products like KAFU and UDI. And of course, Ziyarah during this period, which is a religious thing, helped us a lot also on the revenue side. Now going forward, definitely, we have to -- and also, if you look at the structure of the revenues of Iraq, we have introduced also some equipment sales, whether it's -- we are now considered as the Samsung dealer in Iraq under NextGen. This is a subsidiary, which is fully consolidated in Zain Iraq. And the margin of that is approximately 1%. So this is a new business that we are pushing for with a very low margin. Going forward, definitely, we're going to tighten up the belt a little bit in Iraq. But now there is an opportunity, and we need to exploit that. For Sudan, we continue to perform very well. A lot of people are coming back to liberated areas. Nevertheless, Khartoum, the capital, is still a difficult place to live in. No infrastructure, no schools available there, even the sewage network is not there. So it's not easy. It will require some time to become more inhibitable. However, we are managing to provide our services to all of the Sudanese population. The only areas where we have a difficulty in providing services is the Darfur area. Approximately in the west side of Sudan, we have close to 1,000 sites that are still off air. So -- but I do believe that any single day that we move on in Sudan, it's positive to the operation. I hope I answered your questions.

So next question is from [ Baruna ].

I have a follow-up on one of the previous questions regarding the dividends, as well as the hyperinflation accounting. Just want to understand in terms of hyperinflation accounting going back when it came to South Sudan, because -- I think because of their balance sheet structure, they had net monetary liabilities. You benefited from the hyperinflation accounting, if I recall correct, correct me if I'm wrong. That then -- I mean, how is Sudan's balance sheet is looking? Do they have net monetary assets or liabilities? If you can clarify that? Secondly, on dividends, you mentioned that you will continue to assess depending on how -- post the application of IAS 29. What I want to understand is that your minimum dividend of 35, is that still under consideration? Or are you talking about any additional dividend, which could be reconsidered because of the inflation accounting impact?

Yes. For Sudan, yes, you actually mentioned correctly in South Sudan, there was a benefit because of the structure of the balance sheet. In Sudan, as if you recall that in 2023, 2024, we did a lot of impairment to the assets because of the war that happened and because of our inability to access our sites or HQ. So, there was a lot of impairment that happened during '23 and 2024. So, this has reduced the value of the assets in Sudan. Now if you look at applying IAS 29, we still haven't completed the analysis yet. But our first indication of the analysis, we expect by applying IAS 29 to have a positive impact on the shareholders' equity at year-end. And if there are any losses, any losses that might arise from previous years by applying this standard, you have a lot in the equity that you can benefit from in terms of reserves or share premium. And this is in accordance with the laws and regulations of Kuwait. So, the total of shareholders' equity will increase. And the components of the shareholders' equity, this is based on our initial indication, might change a little bit by benefiting from all these reserves in the equity. If you look at 2025 financial year, you will have a positive impact to the bottom line by applying [indiscernible]. The dividend question. As I mentioned, the reason we call it a minimum of 35% because it's a minimum. Now, between now and year-end, as I mentioned, on the performance of the company, the application of IAS 29, we will definitely assess and get back to you, our Board will get back to its shareholders and decide on any future dividends.

And so just to clarify that, so minimum dividend is not something which is at risk because of the application of -- I'm talking about not 2025, 2026, and 2027.

No, your minimum dividend is already fulfilled.

Yes, I'm saying because based on your dividend policy, your future dividends in '26 and '27.

I don't think there will be an impact. Based on our first analysis of the budget of 2026, we see that there is no issue committing to additional 35 next year. But you need to take into consideration application of IAS 29, and as it is unpredictable, it becomes very difficult to predict the profitability of Sudan. But based on our initial assessment, it looks fine.

We have a couple of questions on the Q&A box. [Operator Instructions]. There's a question on Iraq operation. Any update on the 5G network operations?

We have seen a lot of activities on social media, whether it's from the Minister of Telecommunication or from the Head of the Parliament, Head of the Telecommunication Committee of the Parliament, a lot back and forth regarding the fourth operator and 5G. We see that there is a possibility that this will be delayed because of a lot of arguments that is being used against the way they are pushing for the fourth operator. From our point of view, having an exclusivity for 5G to the fourth operator doesn't make any sense. Even for 1 year or 2 years, it does not make any sense. But what we have done is basically we are ready in terms of network-wise to provide the 5G services once this license is being granted to all. So, we prepared ourselves ready to attack the market with 5G services once they grant it to all. With the regulator now what's going on, I believe this will take some time. And especially, don't forget that there are elections to the parliament happening very soon now in 11th of November or 12th of November. You will have elections, and you will have changes in terms of ministers and what have you. So, all of this, we need to take into consideration, okay?

Then a few more questions from [ Ruman ]. He's asking working capital cycle continues to expand. What is driving this? And at what point do you expect this to reverse? That's the first question. And then there's another follow-up on dividends. When looking at funding dividends, which countries do you feel contribute the most at this stage? And how do you see that evolving? And then final question is on any update on expanding into other regional markets, countries?

Working capital cycle, I believe it is related to the receivables, mainly on the KSA side, where we can see that more receivables are building up. This is in relation to the B2B as well as the nature of the business in Saudi. And when you compare Zain vis-a-vis the other companies in Saudi in relation to any government projects, you see that the collectability is a little bit delayed. So that's why your receivable builds up. Will this reverse? We are working on enhancing this significantly in Saudi. Across the rest of the operations, I don't see an issue. Sometimes you end up having a major development in the network by paying advanced payments on the CapEx, and this is built part of the working capital, but this gets consumed in the coming years. The dividend funding, I believe, the best operation still is Kuwait providing the largest portion of funding dividends. And it is definitely followed by Iraq and Georgian. We are vis-a-vis Sudan, it is contributing very well to the net income. And we are basically collecting our dues from Sudan using international roaming agreements. And if you look at our free cash flow, it's very healthy as a group. So all of this, I believe, is supporting. And your last question was on the M&A, yes, we are, of course, looking at Syria. Syria is very interesting to us. We visited Syria several times. We have teams over there now working with the Ministry of Telecommunication whether on the SilkLink, which is the network in Syria, or on an operator, which is the second operator in Syria. Once we assess and we see there is value to our shareholders, definitely, we will be very aggressive because geographically, it fits very nicely with Zain. But it's all subject to the returns that we can get to our shareholders.

A couple of questions again, one on bank borrowings have increased. So what's the reason behind that? This is a question from [ Fahad ]. It has gone to SAR 1.5 billion from QAR 845 million. So if you could clarify that. The second question is from my side. Very interesting to see the inflationary accounting being applied in Sudan, because your comments imply that one of the problems you have had from Sudan at the group level was your accumulated FX losses, basically in the shareholder equity. Do you think this is something which can solve that issue at least partially? So if you could comment there.

So I will start with the second one. The second one, applying IAS 29, and this is part of the assessment that we are working on, that we haven't concluded yet. Basically, the standard allows you to have 2 options. One is reduction of the FCTR. And then this reduction also has to be triggered in one of the equity items, which might be the retained earnings. The other option is an increase on FCTR and increase of retained earnings based on the assessment, and we are still looking at it and for future sustainability and better for the company, we believe the option where you reduce FCTR is better for the future of the company. And this is what we assess. And by looking at the initial assessment, we believe there will be a major reduction on the FCTR by applying IAS 29. But as I mentioned, the other components of the shareholders' equity will also be affected. Net-net, you will not have a decrease in shareholders' equity total. You might have a slight increase. On the funding and the reason it has increased, we are investing in different verticals, whether it's in ZOI, whether it's ZainTECH, we are funding all of this. And now we are also preparing for TASC. There was also in Saudi a reclassification of CITC loan before it was considered as a payable. Now we refinanced it through one of the banks in Saudi. So it has increased the borrowing in the balance sheet. And also at the group level, there is an increase of loans to fund the investment, plus the timing of the dividends that we're going to pay.

And final question, probably on any update on the TASC transaction, where we are on that? And any update on the payments you're expecting to make for the equalization of your stake there?

Yes. Now TASC, we announced recently that there was a change in management of TASC. The reason of this change is due to the fact that we were not moving on the Signal project. Signal project is us and Ooredoo. There are some questions raised by the regulator vis-a-vis the founders of TASC. So this is why they trust Zain. They trust Ooredoo, and they want the management to be from Zain and Ooredoo. So that's why we changed the management of TASC, even though the previous management, as Iyad and the team, they did a great job in reaching where we are now. So now the focus will be closing quickly as soon as possible, Qatar, Ooredoo Qatar added to TASC. And we have reacquired, if you remember last year, IHS in Kuwait, and this will be also added to the pool. So I believe the first year or 2026, we will be closing first half of year Qatar and Kuwait, and also Iraq and Tunis. So, looking at these assets or portfolio, we need to relook at how much we're going to pay if there is any, honestly, okay?

Understood. Thank you very much, Ossama. Thank you very much to the entire team. Any closing remarks before we close?

It's an amazing year. Every year, we prove that despite we have difficulties in different environments, we managed to get the best out of it. And this is happening now in Sudan as well as in Iraq. Management is focused. We have a new strategy in place, addressing different revenue streams. And we hope by end of this year, our results will be as impressive as now. And any development, we will definitely get back to you on the application of IAS 29 and its impact. From a revenue growth, we continue to give you guidance of a growth of 15% on the EBITDA or on the net income, approximately 25% and CapEx will continue to be between 15% to 17%. And thank you.

Thank you very much. With that, we close the call. Thank you, everyone, for attending. Thanks.