Oman Telecommunications Company SAOG (OTEL) Earnings Call Transcript & Summary

Greetings, ladies and gentlemen. This is Aisha Balushi, and I welcome you all to our H1 2025 results presentation. It's my pleasure today to host you all on behalf of Omantel's senior finance management team. Today, joining us Mr. Ghassan Hashar, Chief Financial Officer; and Mr. Sudhakar, General Manager Financial Control; and Mr. Wahbi Al-Riyami, General Manager Treasury; and also Mr. Dharminder, Chief Strategist to CFO. By now, you should have received the investor presentation alongside with the Chairman report and the consolidated financial statements, which also have been posted on the IR app. During this call, we will make forward-looking statements on current assumptions such as statements were only applicable as of the date of the presentation and the company assumes no obligation to update on these. [Operator Instructions] Now I will hand over to Mr. Ghassan to walk us through of the key highlights of this quarter. Over to you, Mr. Ghassan.

Thank you, Aisha. Welcome, everyone, to our earnings call for the first half of the year. I just wanted to highlight at the beginning that Omantel's Group continued to deliver a resilient financial performance for the first half of the year. And of course, the main highlights that I would like to shed light on is, of course, and as Omantel, we continue through our journey and our new strategy to set Omantel as being the national technology powerhouse of the country. And of course, another important development was, as you are aware and as disclosed to the market early this month, the decision, of course, on the reduced mobile service royalty from 12% to 10%. We'll give you more details on that in the presentation. And last, of course, we are proud of our partnership with the tax authority on signing the e-invoicing agreement, which, of course, is to develop the national e-invoice platform, enhancing tax governance and operational efficiency. I will let Aisha now walk us through the financial performance slides, and then we will open the floor for any questions. Aisha?

Thank you, Mr. Ghassan. Now looking at Oman's domestic outlook, looking at the economic landscape, which we see a story of resilience and steady recovery underpinned by the Vision 2040. One of the most important key highlights, which are related to the credit rating upgrade, Moody's credit rating has upgraded Oman from Ba1 to Baa3 with a stable outlook, reflecting stronger fundamentals. What's next on the credit ratings? We also expect that Fitch will follow suit with an upgrade in Q3 given it already has Oman on a positive outlook with a third investment grade rating with workful investment-grade consensus from all major global rating agencies and would further solidify the investor confidence, especially among those with the most risk sensitive. And also one of the key highlights on income tax, Oman has introduced the income tax, which will be effective from January 1, 2028. Oman will impose 5% personal income tax on natural persons whose net income exceeds OMR 42,000, approximately around USD 109,000. Our gross income including all cash and in-kind receipts, subject to deductions and exemptions as outlined in Royal Decree No. 56/2025. Now moving to Omantel's sustainability. As of this quarter, we do not have any major updates to share with the investors. But however, to those who haven't yet seen the Omantel's sustainability report on 2024, it is available on our website, and you can directly scan the QR code that is shown to you on the screen to see the latest key developments from sustainability perspective and how do we demonstrate our sustainability initiatives and how we place sustainability in our corporate strategy. Moving to the next slide, where Omantel has firmly established itself not just as a leading telecom operator, but also as a technology player across 8 markets. We serve over 54.6 million customers across 8 MENA countries, generating more than OMR 4.2 billion in revenue in the first half. Also, our leadership is reinforced by a number of first where we are the only and the first GCC operator to run subsea cables in Europe and the first operator to host MVNOs in the MENA region. Also, Omantel global reach has been powered by our extensive network infrastructure with having more than 100 international interconnections with all major operators and more than 40 hyperscalers and content providers within our own network and being one of the most connected operators to subsea cables in the Middle East with more than 20 subsea cables system worldwide connecting the West to East. Now moving to Omantel's journey of growth and innovation reflects our transformation from traditional telco into a diversified technology group. We began disrupting our telco model beyond voice and SMS and Internet and expanding into new business verticals such as generative AI and marketplace and cloud and Space. And we have been able to transform through our also strategic partnerships with global partners to build a robust infrastructure that supports the goals of Vision 2040 for the digital transformation. Now moving to the strategy slide. Year 2024 has been a very different year for Omantel as we have concluded our shift gear strategy. And building upon our shift gear strategy, we have introduced our new vision, which is important to the future, which is building on the strategic verticals that we have in shift gear strategy to move beyond traditional telecom service and position ourselves as a regional technology hub. And the new vision is anchored on 4 pillars, which is the enabler of sustainable Oman and innovation orchestrator and leader in AI and building the ecosystem of the future. Omantel's vision of strength is to build a robust digital infrastructure and bring the future technologies to Oman to achieve the ambitions of the 2040 Vision, which puts us as, let's say, the favorite partner to the government when it comes to achieving the digital transformation projects. Moving to the domestic key developments in H1 2025, which was underpinned of strategic alliances and key developments from regulatory as well the key partnerships that has taken place in H1 is the research and development partnership with FiberHome. We have launched a joint research and development center, which successfully trialing 50GPON technology, which is 10x faster fiber driven -- that will drive the next-generation intelligent network solutions that support AI and smart cities and the digital economy, marking a major milestone in Omantel Innovation Lab -- sorry, Omantel's Innovation road map. And also Omantel and du switched on Oman Emirates Gateway subsea, Omantel and du have fully activated the 275-kilometer Oman Emirates Gateway submarine cable directly linking strategic data center in Oman and UAE. Moving to the key developments. As you can see that we have -- we are setting a stage for a national ICT entity, which we will be launching very soon to solidify and unify all the ICT capability to drive the digital innovation and provide the next-generation technologies that we will have more update on in the upcoming quarter. Also one of the key updates that also happened this first half -- sorry, this recent beginning of August, which has an impact of the 6 months ended 30 June 2025 is the royalty rate on mobile service reduction from 12% to 10%. Also, we have signed a major agreement with the tax authority to develop the national e-invoice platform, enhancing the tax governance and operational efficiency. The platform also supports SMEs, which aligns with the global standards and reflects Omantel's digital and sustainability strategy. Looking at the awards and the recognition, looking at Omantel, we're not just a leader in telecom and technology, but also when it comes to nation development and also talent development, Omantel also has a very significant impact on that side that has been recognized by different awards regionally and locally. One of them is the OIA Excellence Award for investment and job creation and CSR Summit & Awards and the MEA Business Achievement awards for different HR initiatives and also IFTDO World Conference recognizing one of the innovation program to develop [ ideatious ] projects and the last one on the mental health in the workplace [indiscernible] excellence from the Inside Out Conference. Now moving to the Zain, Omantel International continues to be one of the most powerful growth engines combining Zain's regional scale with Omantel's extensive network assets through 20 subsea cables. We are having -- we're connecting more than 120 cities across 5 continents across -- also and onnet access countries. And ZOI today reaches over 2 billion people and consolidates the traffic of both Zain and Omantel into a single global interface. This position ZOI as the carrier of choice for hyperscalers, for multinational enterprises, for international and regional operators and as well hyperscalers. The strength of this model was reinforced after our IP consolidation where ZOI was ranked as the highest ranked network in the Middle East entered the global top 100 out of more than 70,000 active networks worldwide. This achievement is not only about prestige, it's a validation of ZOI's robust connectivity, low latency and scalability and enhanced security. It [indiscernible] our competitiveness and lowers payment costs and increase operational efficiency, all of which makes ZOI not just a bigger pipe initiatives, but the uncontested regional [indiscernible]. Moreover, ZOI offers the only purpose-built single carrier subsea terrestrial mesh across the Middle East. The unique 16,000 kilometer network provides the shorter east to west route with a lower latency bypasses geopolitical zones for greater stability and simplifies operations with 1 contract, 1 SLA and 1 thumb eliminating multi-vendor finger-pointing and ensure ZOI delivers the region's most secure and resilient efficiencies digital highway connection connecting Asia, Africa and Europe. Now moving to the next slide. In the first half, the group continues to demonstrate remarkable results through strategic diversification and across different verticals and geographies. Zain Omantel International has delivered an exceptional also increase of 324% year-on-year and ranked among top 20 global ASNs by Kentik, cementing leadership in wholesale connectivity. On Zain Fintech, we also have seen increase in revenue and transaction volume by 28% and 46% subsequently. And the platform in Sudan has also gained almost 600,000 users and processed more than 2 million transactions. And Tamam, KSA also saw an increase of 27% in revenue growth and larger loan portfolio. Also ZainTech, we've seen similar trends of revenue increase driven by enterprises wins and demand in cloud and cybersecurity and managed services. Moving to the key or the highest performance of the group, looking at Sudan, which has a remarkable recovery in the first half with the success of the new data center in Port Sudan and also the restoration of the network sites in some of the key locations, the H1 net profit has increased by 100% also on the back of new digital services, which also saw an outstanding growth surging by almost 425%. Saudi Arabia growth continues both driven by B2B major strategic wins and also by 5G data. Similarly, in Iraq, data revenue continues to be strong and B2B revenues also increasing. And the same trends also in Jordan with that revenue almost growing by 12% year-on-year and formed 54% of the total revenue. We are proud to be among the leading telecom operators in the MENA region with a footprint across 8 markets. We can see that each OpCo has been contributing to this remarkable H1 results with Iraq having the larger subscribers with 20.9 million and revenue reaching almost $600 million with a healthy margin of 37%, and similarly, with Sudan contributing with the highest margin in the group of 56% and revenue almost $240 million and Saudi Arabia also having -- the revenues have been touched $1.4 billion and having subscribers of 8.3 million. While Kuwait and Bahrain and Oman also continue to contribute to the overall group performance revenue touching USD 834 million for Oman with subscribers of 3.6 million and Bahrain $109 million with subscribers of 1.2 million. And with Kuwait revenues almost $609 million with subscribers of 2.6 million. Now moving to the Omantel's financial highlights. Of course, as we mentioned earlier, that the performance of Zain Group has witnessed in the first half a remarkable performance with double digit across the key financial metrics of revenue and EBITDA and net profit. And this mainly is coming from Sudan, where the revenue is around $3.5 billion, increasing 14% year-on-year and EBITDA increasing 10% and net profit increasing 49%. While our current market value of Zain shares held by Omantel has reached $1.6 billion compared to $1.4 billion in the first quarter. Now moving to the domestic financial statements -- sorry, our domestic financial and performance indicators. Our continued investments in emerging technology and the network, which set us apart from our competitors in Oman. You can see this here on the mobile subscriber market share and the fixed broadband market share. Both of them has been increased and protected comparing quarter-to-quarter. Looking at the mobile subscriber market share, 40.3% market share compared to 39.8% and fixed broadband market share is 54.6% comparing to 54.4%. And on the fixed broadband market share, the fixed revenue -- you can see that the fixed broadband revenue has increased, which also impacted the fixed revenue to grow by 3%, and this is mainly of the continuous trend of migrating customers from copper to fiber, while mobile revenue regardless of the competition that we have witnessed recently -- in recent years, we continue to have our revenues intact comparing to last year. And this is also on account of new technology, uses of AI and machine learning, to enhance the customer life cycle, which reduced significantly the churn numbers. Also, we have on the noncore revenues, the ICT revenue has increased by 69.2% year-on-year. And this is on the back of smart solutions and hosting and cloud services related revenue, which also solidifies Omantel's journey to move from a telco company to a regional technology hub. Looking at the domestic key financial indicators, we will not spend a lot of time on that because on the subsequent slides, we will have these numbers explained in detail. The revenue has increased 8% year-on-year, and this is mainly on the back of, again, the ICT revenue and the fixed broadband revenue on the devices and the hub, while the EBITDA has increased 3.3% and net profit has seen a decrease of 9.5% year-on-year. Now moving to the group financials. Looking at the group revenue stands at OMR 1.6 billion and increased by 9.5% and EBITDA at OMR 528 million, which increased also by 8.3% and the net profit is at OMR 161 million, which also seen an increase of 46% year-on-year. Let's take each indicator one by one. First, let's see the subscriber year-on-year. The increase is mainly coming from Sudan on account of restoration of services and growth in base in Iraq, while the domestic subscriber has increased almost 670,000. The main contribution is the increase in the fixed broadband and postpaid mobile, which also on the back of the increase in the M2M subscriber base. Looking at the revenue, the revenue increased by 9.5% and the increase is contributed by domestic business, which is almost accounts to OMR 23.7 million and Zain Group revenue, which increased by OMR 162 million. On the EBITDA side, the group EBITDA has increased year-on-year, is contributing by increase of almost OMR 37.5 million, which is mainly coming from Sudan and Iraq and KSA, and the domestic EBITDA has increased by OMR 2.7 million. Looking at the group net profit, the year-on-year increase by OMR 50.9 million is on account of a positive net profit contribution from Zain Group around OMR 54.5 million increased year-on-year with domestic performance decreased by OMR 4.1 million year-on-year. While the net profit after the minority interest increased by OMR 7.1 million in spite of lower domestic performance of the OMR 4.1 million on account of increase coming from the Zain Group, which is the increase of OMR 11.3 million. And this is just to give you a snapshot of the Omantel Group performance from domestic to the consolidated profit year 2025 H1 comparing to 2024 H1 as well. Now moving to the domestic performance in H1, including the domestic subsidiaries, we can see that the revenue has increased 7.9% year-on-year and the revenue increase of OMR 23 million is mainly driven by telco revenue growth of OMR 14.3 million. And when we look at this OMR 14.3 million is mainly coming from the fixed revenue, which is around OMR 4.4 million (sic) [ OMR 2.4 million ] and the device revenue by OMR 6.1 million and the wholesale revenue by OMR 5.8 million, and the ICT revenue also grew by OMR 3.7 million with growth coming from the smart solutions and the hosting and cloud services. Additionally to the -- which is also captured here additionally, this is as a result of the implementation of our telco strategy and diversification. Now moving to the EBITDA indicator. The domestic EBITDA has increased by OMR 2.7 million, which is on account of 2 reasons. The gross margin was in turn increased on account of the top line performance and the decrease in royalty rates that we've seen in early August from 12% to 10%. Moving to the net profit attributable to shareholders has decreased by OMR 4.2 million, primarily due to the depreciation cost increased by OMR 5.4 million, resulting from investments in network and digital channels and the tech co initiatives. Now moving to the business performance slides, where we can see the -- through the effective base management and via retention and upselling in the challenging market conditions. We've seen that Omantel has demonstrated resilience and a very competitive edge when it comes to keeping our market share intact comparing to our competitors and also from both the mobile subscribers and fixed broadband market share. As I explained earlier, the growth that's coming from fixed is mainly coming from the fixed broadband, and this is on the back of migrating customers from legacy technologies to more advanced technologies such as 4G and 5G and fiber, and also capturing the competition base. And on the mobile value -- on the mobile side, we can see that the prepaid base is somewhat impacted. The postpaid subscriber has increased and the increase is coming from the usual postpaid base and the M2M as well and the fixed broadband also slightly has increased. And looking at the value creation on the fixed broadband, our ARPUs are enhanced by almost OMR 2, and this is again on the back of the same reasoning from transitioning the customers. Prepaid and postpaid have witnessed a bit of a drop on the back of the competition. However, strategic investments again on artificial intelligence and machine learning-based CVM and retention engines significantly improved our customers' life cycle management, which also enhanced the churn rates. And just on the back of what we had from earlier strategies that we continue to see this trend until 2025 H1 is the continuous migration from pre to postpaid migration of almost 38,600 customers have been migrated in total in H1, which also protects our base from competition capturing. Now turning to our cost analysis slide, we can see that the cost of sales has increased 14.9%. This increase in cost of sales is in line with the increase in revenue that we've seen in the previous slides, which is related to the transit revenue, which is transit revenue increased OMR by 8.3 million and the devices sales, which increased by OMR 6.7 million and also charges payable to OBC for growth in fiber broadband revenues increased almost by OMR 1.4 million and the smart solution costs by OMR 5.3 million. While the reduction in royalty rates on mobile businesses from 12% to 10% contributed a reduction of OMR 2 million in cost of sales. We also look at the operating and administration expenses, which also witnessed an increase on 1.6% and these are all related to IT cost-driven investments in digital and emerging technology, which also on the back of the strategic transformation and the group is undergoing. Looking at the CapEx addition comparing year-on-year, the CapEx has increased significantly. And the investments are primarily on 5G upgrades and 4G sites and also in digital channels and marketplace platform. We can see that the revenue to CapEx ratio is at 15.6%. Lastly, looking at the cash flow and debt analysis, a snapshot as of June 2025, the free cash flow has decreased by OMR 16.6 million year-on-year on account of reduction in cash flow from operations by OMR 13.7 million and increase in cash outflows from investing activities by OMR 2.8 million. The cash flow operations decreases mainly on account of increase in receivables and CFI increased by OMR 2.8 million on account of investments in associates and subsidiaries by almost OMR 14.2 million, whereas CapEx cash outflow by OMR 7.4 million. But we still enjoy a strong credit rating regardless of the increased net debt to EBITDA, Ba1/Stable from Moody's and BB+/Positive from Fitch. And with this slide, it brings us to the end of the presentation and the main highlights of H1. Now I would invite the analysts and investors to raise their questions.

[Operator Instructions] I'm just going to read [indiscernible] question. Is Omantel exploring opportunities to leverage its strong user base by launching a new revenue stream such as a digital payment platform similar to Orange Money, Europe or Paycell by Turkcell or STC Pay like Saudi Arabia. I would give this question to Sheikh Ghassan.

Thank you, Aisha. We've actually highlighted in our previous earnings calls and in investor meetings that we had one of our subsidiaries, which is called OmPay is our fintech platform part of Omantel. And it's the same one that you can experience today if you start using the Omantel application, where it currently allows remittances to abroad, and there are many other facilities as well. So we are expanding from there, enhancing the customer experience when it comes to the B2C and our customer experience platform. So this we are seeing developing as we move forward, and this has been licensed by the Central Bank of Oman since 2023. So yes, to answer you, yes, the initiative is there, and it's currently growing gradually as we move forward. Basically, the objective is to bank on the customer base already active and registered in our Omantel's digital platform. So I hope this answers the question. It seems I believe the participants are facing issue, a technical issue, maybe Aisha, if you can help. I think the microphone is locked.

Actually, we can allow the mic. You can unmute yourself [indiscernible].

Just a question on this TRA news that was out a couple of days ago where it spoke about how they're trying to control these price wars that are happening in the country. Can you give us a little more color on it? What's the background? How do you see this impacting the market? I'm sure you know the news I'm alluding to.

Yes. I think we discussed previously also, particularly on the mobile side, the competitive intensity has been quite high. So what TRA is also trying to do is to ensure that the offers are brought to the market, they respect certain levels of profitability. So that's the key message. But while the regulator is looking at some of these initiatives, like last year, they brought in these initiatives to ensure that all the SIMs will be charged a uniform price of OMR 1 and fixed commission rate would be paid on those SIM initiatives. So I think while regulator is taking these initiatives parallelly, at an operator level also, we are having discussions with the other operators also to see what levels of prices have to be maintained in the market to ensure that there are no adverse consequences on the profitability. So these are some discussions which are happening both at a regulator level and at an operator level to preserve the profitability.

So what kind of conversations -- what kind of feedback are you hearing, let's say, from the new entrant, Vodafone? Because obviously, you guys -- I mean, the whole market has suffered, right, in terms of profitability, margins...

[ Abbas ], actually, this is at a very sort of high level as we speak. But definitely, TRA is very well aware of all of these discussions. But of course, there are some areas that can be, of course, measured and managed, but there are some areas that are left to each and every operator. Luckily, Omantel being the incumbent operator, we are in a stronger position as we speak and compared to maybe the competition that we have in the market. But definitely, we are seeing some sort of acts by other operators that may deteriorate value of the market. And in our case, we are being transparent as a public listed company in the market with our financials. And you are seeing, of course, the level of financial performance we are delivering at our bottom line. So I'm sure any sort of value taken out of the market will definitely harm any operator negatively. But these are discussions at a very high level. And then, of course, it's left at the discretion of the operator themselves to manage within the guidelines and the regulations of the TRA.

Okay. That's helpful. So only time will tell, I mean, how seriously are guys actually taking this sort of directive or guidance from TRA and actually show in the numbers, right? I mean it's only -- I think it's only the next couple of quarters will we find out that our price was a thing of the past or people sticking to the spirit of this announcement.

Well, at least we are in a very close coordination and having a close dialogue with the TRA from time to time. And that always helps us in ensuring that we are seeing the right and clear picture of the competition landscape in the market. So we are also continuing monitoring that. And from our sort of the figures that you are seeing in front of you, especially this slide we are showing, I believe the market softened a little bit compared to the aggressive competition that was there in the past. So we hope to maintain similar levels as we move forward.

Okay. Now in terms of the postpaid side, you guys have done exceptionally well over the last couple of years. Where do you see this business sort of growing? There's a migration from prepaid to postpaid. I think the Baqati plan has been a great success. Now how do you benchmark internally? What are your goals for the next, let's say, year or 2?

I think first on the subscriber base, I think the growth what you're witnessing is mainly on the M2M SIMs. Now providing these IT solutions has been part of our strategy. But what you need to understand is that this growth in postpaid SIMs coming from M2M is in terms of revenue contribution, it is not as substantial as that of a normal postpaid base. Now if you exclude the growth in M2M SIMs and then look at the postpaid base, it was a marginal growth compared to the year-end numbers. Now that was possible, one, because of our continued strategy of migrating pre to post. And besides that, we are also trying to see that within the postpaid segment, we migrate customers from the lower-end plans to higher-end plans. Now below where you see the ARPU numbers, you would see that compared to the previous year, there has been a small dip in the ARPU, but that is because of our drop coming from our contribution from value-added services. If you actually isolate and exclude the value-added services, then the ARPU has marginally grown compared to last year. So while at a subscriber level, our growth has been pretty marginal on a postpaid level, we have been able to maintain and grow our ARPUs margin. So I hope that sums up how our postpaid market is. It's not a super growth like what we have seen in the past years. It's more maintaining the current base and growing ARPUs from the current base. And I think that's what we have been focusing on when Aisha was saying that we are making these strategic investments in CVM and the retention engines. That started yielding results from an improvement in the ARPU.

Can we give please the opportunity for other participants? We can get back to you just when we finish to take other questions.

[Operator Instructions] [ Gustav ], you can unmute yourself to ask your question.

Perfect. And apologies for the technical issues before. And thank you very much for the presentation. Very helpful. I wanted to ask you a couple of questions around your outlook. I see that net leverage is currently a bit elevated at 3.5x. Where do you expect net leverage to end this year? And could you remind us, please, what your net leverage target is over the medium term? That would be my first question.

Yes, [ Gustav ], thank you very much for this question. With regards to the net leverage, we've always maintained the message since the acquisition of Zain that we were planning to be at around 2.5x, 2.7x in the region. Obviously now with these liabilities have taken our net leverage to almost 3.5x, [indiscernible] that we are 2.4x, which is the target that we want to be towards the end of the year. Having said, of course, we understand that the business needs to grow, which means that we always keep investing in the company. There have been cases where we had to rely a bit on our working capital a little bit, but we are trying to control that and reduce as much as possible as we go forward. I believe to address your question on the -- towards the year-end, we cannot, of course, give a figure from here. But there are some initiatives, as Wahbi mentioned, to work also to enhance our working capital levels and the collections. As you've seen some of the cash flow from operations got impacted also due to increase in receivables. So that's an area that will definitely enhance and reduce the net debt-to-EBITDA levels towards the end of the year. And of course, these receivables are coming from both corporates, large corporates and some, of course, from some government entities. So we are expecting sort of a low risk when it comes to these collections as we move towards year-end.

I hope that answers.

Understood. Yes, it does. So your medium term -- just to confirm your medium-term target is 2.5 to 2.7x, excluding these liabilities, which is already very close to what we are at the moment, right?

That's correct. Yes.

Yes. Okay. Perfect. And my second question was around the CapEx expectations. There was -- I see there was like a material increase in CapEx in this latest year. Where do you see CapEx directionally going? And do you expect to be free cash flow negative as a result of like higher CapEx? How do you see these expectations? That would be my last question.

As Sheikh mentioned, I think the free cash flow is not negative because of CapEx. It was mainly because of the fall in the cash flow from operations. And he has already addressed on the measures which are taken to improve collections and receivables. Now coming to the CapEx part, yes, the total capitalizations for this first half went up to OMR 54.5 million. Now if you break it down and look at where this investment has gone, bulk of this investment has gone into building our digital channels. We have invested close to around OMR 11 million to OMR 12 million on that. And then the rest can be attributed to our network-related projects, which was primarily in enhancing the 5G coverage and at the same time, upgrading our 4G sites to accommodate the growth in the broadband revenue, which we're getting. So that's where our investment has primarily gone. Going forward in the second half also, probably the levels would be kind of similar because we are investing also in our digital and allied channels. And at the same time, we are trying to maintain some momentum in our network expansions. So probably if you look at the CapEx to revenue ratio now, we are looking at around 15.6%. We are targeting to maintain this level by the end of the year also. But we do not expect that this would have a very negative impact on our free cash flow because that would have to be bridged by our cash flow from operations.

Understood. Yes, that's very helpful. Crystal clear. And you plan to maintain this 15% CapEx to sales ratio into 2026 as well?

This is something which we'll not comment on as of now because there is some level of CapEx planning has to be done. Probably the intensity may be a slightly bit lower on certain areas like probably on the network, but it can go up on some other areas. But this is too early for us to give an indication of where we land in FY '26.

Moving to the questions on the chat box. One question from [ Talha ]. Could you please shed more light and give us the breakdown of the ICT revenue segment? I'll give this question to Sudhakar.

On ICT revenues, if you have a look at growth plan, [indiscernible], I think that's where our major growth has been. And that growth is driven by smart solutions provided for meter reading. So that's where the main growth has come in. From an outlook perspective, we have been investing aggressively in our other subsidiaries, namely Oman Data Park and the Fintech OmPay. So going forward, we expect that these 2 subsidiaries also will help us in improving our top line numbers and at the same time, our EBITDA numbers. So the growth is primarily driven by [indiscernible].

We'll go to the next question.

The next question, can we expect EBITDA margin to pick up for domestic market in the coming quarter and years? Also to Sudhakar.

Our EBITDA margin currently stands at around 27.5%. But actually, if you -- from the revenue mix, you would see that a big chunk of our revenue is also coming from wholesale segment, which under the wholesale segment itself, there are certain streams of revenue, which are low margin, particularly on the halving traffic, which delivers a 4% margin. If you actually exclude that, we are talking about a margin of close to 33%. Now in terms of outlook, we believe that we can sustain this margin for the rest of the year. Royalty had a pretty positive -- royalty reduction had a pretty positive impact on our numbers. And for the full year, we believe that we can maintain the margins what you currently see.

Thank you, Sudhakar. Another question from the chat box from [ Anis ]. Did you factor the recent reduction of royalty fees on your outlook? Again, over to Sudhakar.

Yes. For the first half, you see that it is close to OMR 1.7 million. And we expect that the revenues remain at similar levels, we expect that for the full year, we can end up with something like close to OMR 3.5 million to OMR 4 million positive impact on our EBITDA.

Thank you very much, Sudhakar. And now moving to [ Joyce ].

Thank you for the presentation. One follow-up question on the subscriber numbers. You mentioned the M2M numbers SIM. How much is the machine-to-machine SIMs that you have?

So M2M SIMs is around 1.07 million out of that 1.8 million subscriber base. So if you exclude that, we are talking about 747,000 as the normal postpaid base. And last year, similar numbers out of that 1.1 million, we are talking around 400,000 as M2M SIMs. So the normal base is around 718,000, which means net-net, we have gained around 29,000 compared to June 2024 on the postpaid. Whereas M2M, it's a growth of 674,000.

Okay. But when I look at last quarter, there is no significant change in the total number of prepaid SIMs. Is it that it's going to be cyclical probably your meter installation project as the project moves, then only we will see any increase in the number? Or is it -- is the current phase of it, it is fully done?

Sorry, [ Joyce ], what project are you looking to?

The meter installation projects.

Smart meters is like -- it's a continuous project where you have to deliver the scope, which is provided by the entities. You would see a spike as and when the meters are actually installed and then it would come back to normalcy. Now [indiscernible] was awarded a contract for meter installation last year, which was getting delivered in the last quarter of 2024 and the first quarter of 2025. So that's where you saw the spikes. And those SIMs were provided by Omantel. That's why the M2M SIMs went up. Besides this, even electricity company, NAMA, is also looking for smart solutions for meter reading where Omantel is partnering with them. So that's where you see the spike in M2M SIMs. But then it will spike at the time when the meters are installed, but then it will come down once it is delivered.

Thanks, Sudhakar. Joyce, I'm sorry, I have to give chance to [ Hiba ] because we are 5 minutes away from ending the session.

Where do you see the growth in the ICT segment as the company is transitioning into a digital company? And in the future, do you see the segment as one of the main drivers?

Sure. I'll hand it over to Sudhakar.

Yes. So, I think on the ICT space, we have got quite a few entities, right, where we are focusing. First, let's come to Oman Data Park. And here in Oman Data Park, we have already invested in data centers, where we provide hosting services to the enterprise clientele in Oman. Besides this, we are also expanding our capabilities in providing the cloud services. We have partnered with AWS, Google and Oracle. So we are providing those solutions to our enterprise clientele when we act as a one-stop to not only provide the connectivity services but also provide the cloud services. So when it comes to Oman Data Park, we see growth coming from the hosting services. But then you will have to understand that the investment in these entities will take time in terms of maturity for us to get the revenue realization. Besides this, we are also expanding on cybersecurity and a few other areas which are closely related to these areas. So that's where Oman Data Park will drive the growth going forward, probably 2026 and beyond. Then you have the OmPay, which Sheikh has already mentioned, focuses on the fintech space. And this is where we are looking at expanding the repository of services which we are providing in the fintech space. It has started with the remittance services and the payment gateway services, and this will eventually expand into other fintech areas. So that's going to be one of our further growth engine. And [indiscernible] as you have seen focuses on the smart solutions, and they have been working extensively on providing these services to the clients of interest. So I think that's also going to be one of our growth engine going forward. So these 3 entities collectively will operate in the ICT space. But you have to understand that compared to the telcos, core telco revenues, the margin profile of these ICT services will be different. And it will be slightly on the lower side, but it will complement our core telco revenues.

I believe, as Sudhakar mentioned, the core telco revenues will still continue to be dominant as our full revenue. But at the end, this is not just purely diversification as we aim for our strategy. It's also to complement our connectivity services and to create demand because if we just rely on the conventional traditional connectivity services, I believe we will be also having a threat of disruption as we move forward. So these 2 complement each other, the ICT and connectivity. But as I said, the core will be always dominant and it will be representing a high share of our revenue stream as we move. And of course, the ICT will become an additional upside also with the coming growth in the future. So we move to the next question.

Thank you very much, Sheikh. Moving to [ Jason Hamdan ].

[Foreign Language]

[Foreign Language]

Thank you, [ Jason ], for your question. And just for the time constraint, we limited your questions and I'm opening last question to any of the analysts or any of the investors who would like to raise more questions. Okay. There is a question on the chat box.

Maybe just before we go to the last question, just to repeat Mr. [ Jason's ] question. The question was mainly about the CapEx to revenue and the CapEx level that we have reported. And I believe this question was answered earlier by the team and was covered. Again, the second question was, is there some sort of collaboration between Omantel and the other operators in Oman. And the answer was, of course, the collaboration is always there and sharing infrastructure and colocation to ensure that the coverage reaches all over the country from north to south. So that continues. Competition is aside, but definitely collaboration and partnerships are always there, especially when it comes to the wholesale business, which is the commercial exchange services between operators. So we go to the last question, Aisha.

How does Omantel plan to balance ongoing debt servicing with dividend commitments to shareholders? And her second question is service expenses has increased. What are the specific areas contributed most to this raise? And I'll hand over the first question maybe to Wahbi, and the second question to Sudhakar.

So with regards to the debt services, the plan has always been there that the cash management of the company takes into consideration with regards to the payment. So there is no surprises in terms of our management of the debt service. With regards to the dividend, of course, this is based on the Board's decision. The company continues to maintain its dividends for the last few years, and we don't see major changes going forward there.

I think your second question was on the increase in OpEx, I would assume.

She is saying, service expenses.

See, there are 2 components which we have already covered in our slide, which is the cost of sales and the OpEx. Cost of sales is pretty straightforward. The increase is in line with the increase in the relevant revenue streams. So as you grow on revenue over there, the costs also increase in a proportional manner. Now when it comes to OpEx, we have taken quite a few initiatives to ensure that we optimize on our current cost structure. But you will have to understand that as we are investing in these digital channels and the way we are trying to invest in our IT infrastructure and applications and with most of the vendors turning their models more from a CapEx to an OpEx type of model, the OpEx is increasing, particularly on the IT cost front. But then what we are trying to do is we are trying to ensure that we consolidate our applications. We try to ensure that we get a better price from the vendor, and that's where our cost optimization measures are concentrated on. But the OpEx is primarily driven by our increased investment in all these channels.

Thank you very much, Sudhakar. If this answers your question, [indiscernible], we would like to conclude the session of today. First, I'd like to thank the management for attending the investor call and the analysts and investors for their really productive engagement and to your questions. And if you have any additional questions, please our e-mails are in the last slide. You can also visit the website and the app for additional information. And by this, we would like to end the session. I can see a request from Jason that we would -- he requested to have this recorded video on the website, which is something that we're working with our technical team to provide you both the transcripts and the recorded videos on the website in timely manner. So we look forward to having you in our next quarter update, and thank you very much for joining us today in the investor call.

Thank you very much.