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Zain gains subscribers, records Shs 7bn net loss

By Joseph Were

It has not been a wonderful world at Zain Uganda according to its official third quarter financial statements.

The telecom giant recorded a net loss of US$ 3.6 million (approx. Shs7 billion) over the three months’ period ending September 30 on top of a 27 percent drop in revenues, declining market share and dwindling Average Revenue per User (ARPU).

Zain’s revenue performance was mainly attributed to destructive competition activities, price wars and the launch of a new mobile operator. However on the upside, the Shilling gained tremendous strength against the US dollar in Q3 as a result of foreign exchange inflows from offshore investors, thus easing the pressure on Net Income, the statement said.

Revenues dropped from US$ 104.6 million over the same period last year to US76.4 million, ARPU from US$ 7 per month to US$4, while market share slid one percentage point to 37% for the period ending September 30, 2009.

However, Zain Uganda’s subscriber base continued to grow, swelling an impressive 20% from 1,865,000 to 2, 243,000 over the period.

Globally, Zain said third-quarter profit dropped 53 percent. It blamed currency fluctuations and increased financing costs for its network expansion.

Net profit declined to US$ 677.1 million from US$ 878.1 million, Zain said in a statement. Currency changes, especially in Africa, reduced profit by US$130 million.

Market share according to Zain

Zain’s dismal performance comes as Kharafi Group, Zain’s second-largest shareholder, prepares to sell control of the company.

Kharafi signed an accord in September to dispose of a 46 percent stake, valued at US$13.7 billion, to India’s Vavasi Group and Malaysian billionaire Syed Mokhtar Al- Bukhary. Zain remains Kuwait’s biggest phone company, according to Bloomberg news.

Consolidated Revenues grew by 24 percent to US$ 6,168 million from US$ 5,374.7 million or 18 cents a share.

‘The global economic crisis, unfavorable foreign currency fluctuations, particularly in many of our African operations coupled with reduced interest income and investment income plus higher financing costs, have had a significant impact on the company’s overall profit,’ Chief Executive Officer Saad al- Barrak said in an e-mailed statement to Bloomberg News.

‘Adding to these challenges are the associated ‘start-up’ capital and operational expenditures in two large and promising operations that were launched in the last 12 months, namely Saudi Arabia and Ghana, as well as increased fixed costs charges as a result of network expansion in many of our markets,’ the CEO said.

Al-Barrak said Oct. 5 that Zain forecast 30 percent growth in earnings before interest, taxes, depreciation and amortization this year. Zain’s Ebitda rose 37 percent to US$2,623.9 million in the first nine months, the company said.

On Sept. 16, Kharafi invited smaller holders to sell their shares so it could gather enough stock for a majority stake.

Shareholders participating in the stake sale agreed to sell 46 percent, Kharafi said in September. Two Zain investors filed four lawsuits challenging the possible stake sale, their lawyer said later.

Zain halted talks to sell its African operations at the request of potential buyers of the stake, al-Barrak said October 5. Zain had been in talks with three potential buyers, he said.

Vivendi SA, owner of phone companies SFR and Maroc Telecom, said in July it halted talks with Zain about buying a majority stake in the Kuwaiti company’s African phone assets. Zain values the assets at about US$10 billion, three people familiar with the plans said in June. Al-Barrak has declined to disclose how much Zain’s African assets are worth.

Zain operates in 22 African countries with more than 67 million subscribers. Most were former Celtel operations that were rebranded as Zain after being acquired in March 2005 for US$3.4 billion.


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