Zain Saudi swings to profit in Q1 on rising product demand

Higher sales drive a 24 per cent increase in revenue in the first quarter of the year

Zain Saudi reported stronger earnings for the first quarter of 2019 than the previous year. AFP

The Saudi unit of Kuwait-based telecoms operator Zain Group posted a net profit of 129 million Saudi riyals (Dh126m) in the first quarter of 2019 versus a loss of 77m riyals a year ago, as revenues rose on higher demand for its product and services.

The net profit missed the average estimate of 191.3m riyals of three analysts polled by Bloomberg.

Net revenue for the quarter rose 24 per cent to 2.09 billion riyals compared with 1.69bn riyals in the corresponding period of 2018, Zain Saudi said in a filing to the Tadawul stock exchange, where its shares are traded, on Wednesday. This beat the average analyst estimate of 1.95bn riyals, according to Bloomberg.

The 24 per cent revenue rise was due to an increase in demand for the company’s products and services, which led to gross profit growing by 363m riyals, as well as a fall in royalty fees paid to the kingdom’s Communications and Information Technology Commission (CITC) to 10 per cent from 15 per cent, and the release of certain provisions from the settlement signed with the Saudi government last year.

Saudi Arabia’s three telecom companies signed a deal with the Ministry of Finance, Ministry of Telecommunications and Information Technology and the CITC 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 also settles outstanding disputes between telcos and the government, and set a new mechanism for the calculation of service and licence royalties.

In January, Zain Saudi reported record net profit for 2018, to 332m riyals from 12m riyals a year earlier, as a result of the government deal. Analysts polled by Bloomberg had anticipated an average loss of 47.4m riyals for the full year.

The company’s stock has climbed 33 per cent since the start of the year, according to Bloomberg.

In its filing on Wednesday, Zain Saudi noted that a 21m riyals decrease in operating and administrative expenses is due to “the reclassification of leases from operating expenses to depreciation and finance cost” – for a total amount of 124m riyals – following the adoption of the new International Financial Reporting Standards 16 accounting rules from January 1, 2019.