Zain Saudi Arabia's 2018 profit soars to record on royalty deal

Agreement in December slashes annual royalty fees paid by Saudi telcos by 5%

The Saudi affiliate of Kuwait-based telco Zain Group reported a profit rise for the full year 2018. Salah Malkawi for The National

The Saudi unit of Kuwait-based telecoms operator Zain Group reported record profit for 2018 thanks to an agreement signed in December between the kingdom's telcos and the government to reduce annual royalty fees by 5 per cent.

Zain Saudi's full-year net profit rose to 332 million riyals (Dh326m) from 12m riyals a year earlier, it said on Sunday in a filing to Tadawul, where its shares are traded. It did not provide fourth quarter results. Analysts polled by Bloomberg had anticipated an average loss of 47.4m riyals for the full year.

“The financial impact of applying unified annual royalty fees in the first nine months of 2018 resulted in a decrease of fees payable and provisioned for an amount totalling 220m riyals ($59m),” Zain Saudi Arabia said on Sunday in a filing to Tadawul, where its shares are traded. It didn't provide fourth quarter results.

The royalty reduction “is set to positively impact the company’s financial results going forward”, the statement added.

Saudi Arabia's three telcom companies signed a deal with the Ministry of Finance, Ministry of Telecommunications and Information Technology and the Communications and Information Technology Commission in December, under which annual royalty for commercial services will drop retroactively to 10 per cent from 15 per cent of net revenues as of January 1, 2018. The deal will also settle outstanding disputes between telcos and the government, and set a new mechanism for the calculation of service and licence royalties.

Full-year revenue rose 3 per cent to 7.53 billion riyals – above the average analysts' estimate of 7.35bn – attributed to increasing demand for Zain’s products and services.

“Without the decrease of interconnection rates [in the kingdom last year], revenues would have grown 5 per cent for the full year,” the company said.

There was a total 404m riyal drop in the cost of revenues in 2018, mainly due to the decrease in annual royalty fees.

Zain said in its filing on Sunday that its own disputed amounts owed to the CITC would be settled on the condition that the company invests further in expanding its telecoms infrastructure, and other conditions, over the next three years. The financial impact of this settlement is expected to reach 1.7bn riyals.

Zain said it maintained a subscribers base of 8 million in 2018 and data revenue was up 51 per cent compared with 2017.

“Zain Saudi Arabia has experienced an incredible year placing the company in a much stronger fiscal position that will only get better,” said Bader Al Kharafi, group chief executive of Zain Group, and vice chairman of Zain KSA.