Omani Qatari Telecommunications Company SAOG (ORDS) Earnings Call Transcript & Summary

We will start today the presentation. We will start today to discuss our Q1 2021 results. So today with me are Abdul Al Balushi, the CFO, and [indiscernible] we will take you through the presentation to highlight our results in Q1 2021. In addition to our Chief Financial Officer [indiscernible] We will take you through the highlights of Q1 2021 results, followed by a question and answer session. [Operator Instructions] Before we start, I will refer you to Slide #2 from the presentation that is shared with you, which is about disclaimer. In today's discussion, we may refer to some forward-looking statements, we are not committed to remain on the same on our views. If our view is changed due to some conditions we will notify you, and we will refer with our public filing. To start, I will hand it now to Abdul Razzaq. Abdul Razzaq, please go ahead.

Hi, everyone. I will take you through the summary of the Q1 2021. Indeed this was a challenging economic situation and COVID-19 continues to impact the overall business environment in Oman. In closing of [indiscernible] business as well. The volatility of the COVID-19 was right behind Q1 and there was an increased number of COVID-19 cases, which led the government to take some more strict measures and they continue to do partial lockdown and time to time full lockdown, which impacts our business activities. Mainly we had to close down our stores and impacted the sales performance due to this close down. However, the online and digital channels continue to grow and become -- excuse me we will open the Q&A session after we finish the presentation. So please. We will have a Q&A session at the end of the presentation if you don't mind. Is that okay? So as I said earlier, the online and digital challenge continued to grow. And it's become very popular for utilization, mainly due to [indiscernible] and restrictions. And also, we had during Q1, the resignation of our CEO. So in terms of -- I think after Q1 -- I just want to also give you a shift of what is happening in terms of environment of the COVID, it is a world wide challenge, like other countries, Oman is also going now through the vaccination phase, ensuring that people are vaccinated and life is back gradually. We hope life get normalized from Q4 onwards. In terms of performance, Ooredoo Oman Q1 revenue was lower than last year due to indeed the impact of COVID. But one of the main factors is the consumer mobile prepaid revenue, which was the biggest factor in this revenue decline. Postpaid revenue continued to grow, and customer base has grown from 309,000 at the end of Q1 2022 to 469,000 at the end of Q1 2020. This is partially driven by the fast track of migraine from pre to postpaid. EBITDA and net profit impacted by lower of the prepaid revenue. Slide #4. We continue to invest in 5G and in the digitalization of our services in mobile. As of now, we have 400 5G sites, and we have a very ambitious plan to extend this coverage across South Oman. Slide #5. Currently the 5G coverage is in this space it solid around 35% and mobile population is around 40% coverage. Slide #6. We believe the 5G is set to change the communication landscape by transforming our business and enhancing their digital experience. Slide #7. This will take us through the market share. And my colleague, [indiscernible] Chief Commercial Officer will take us through the market share and the remaining pages. Please, [indiscernible], you can.

Yes. Thank you, Abdul Razzaq, and welcome for all the attendees. So for the market share, the market share is still at a stable condition in the market plus or minus 0.5%. As Abdul Razzaq said, we are continuing our growth on the postpaid, our prepaid as well, which is activated by the migration of the prepaid to postpaid. However, of course, the drop in the population of the experts and us, which has a lot of experts on our network that affected our base as well growth in the prepaid market. Nevertheless, Q1 2020 to Q1 2021, the market share is stable. But of course, due to the population drop and all what is happening in the market and the increased competition in Q1 with the MVNOs and with our competition, we have a slight drop in the customer base. Thank you, Abdul Razzaq, and back to you.

Yes, you can continue, Nasser.

If you can go straight to Slide #8, 9. Yes. Okay. So quick highlights on the revenue. You have probably seen earlier and highlighted by our CFO, there was actually a drop in the revenue by around 4.6% -- 4.5% and this is actually driven by the growth in prepaid, given actually the factor that has been highlighted by our CTO. Nevertheless actually we witnessed strong growth in our postpaid base, which is more stable. And we managed to add around OMR 3 million minimum monthly basis from postpaid in fixed revenue is also continued its strong performance, and it has grown by around 3%, by [ 1% ], which is actually something that is continuing and we hope to achieve even better results in the coming months. Next slide. On our operating expenses, there was an increase in the -- our operating expenses driven by price increase in the costs of goods [indiscernible] due to the revenue mix that is [indiscernible] considering we managed to strengthen on some of our demand from sales. And we have also some cost related to that interconnection. And that really is not driven by market. On the sales for general and admin expenses, we have actually continued our cost control and cost efficiency programs which is being good. And we managed actually to reduce our expenses. We are actually reviewing all our cost drivers and negotiating with vendors. And we are having a number of initiatives that is expected actually to deliver even more efficiently. On the EBITDA, that's naturally actually down driven by lower revenue and also the higher operating expenses related to the cost of goods sold. When it comes actually to the operating cash flow and the CapEx spend, let me firstly actually throw some light on the CapEx spend. On quarter 1, 2020, we have capitalized OMR 75 million related to the license renewal and that's why actually, in quarter 1 2020, the CapEx was very high. However, if you normalize that, you will see that actually quarter 1 2021, the CapEx spend is also on the higher end and bigger than last year. And this is driven by our investments in the network infrastructure as well as actually the 5G network expansion, which will help us actually grow more and achieve our strategic or actually plans to expand the 5G coverage as highlighted by our CFO earlier. On the operating cash flow, it is actually driven by the working capital movements. We have a -- you had a chance to look at our balance sheet during the introduction in [ papers ]. And this is driven by license also installments bear. Net debt, just saying actually our net debt is pretty healthy and our position when it comes to cash is very strong. We are having actually facilities that are sufficient to meet our cash requirements in the possible future. I think that's it from my side, and over to you Abdul Razzaq.

So in Q1, we also have multiple rewards. So in technology as well as in customer services as well. And also we got award from the corporate vision magazine on the excellence reward on the one of the most outstanding telecom communication company in 2021. Thanks. So in summary, the revenue will decrease in Q1, 4.5% due to reduction in [ primarily ] driven by the prepaid, net profit as well decreased by 25% for the quarter, which was in fact, lower in the EBITDA, partially, which was offset by depreciation. In terms of commercial and operational activities, the data represent 71% of overall revenues. We continue to focus on digital services and digital area. And we make sure the customers are enjoying our internet. Yes. This is a brief summary. We can start now on the Q&A. [Operator Instructions]

Yes. No, we can start the Q&A. [Operator Instructions] Okay. We'll go first with the Karmani.

I just have a few quick questions. One is regarding the revenue, we have seen the revenues declining mainly because of ex pats have been leaving. And next, what we'll see -- what will be happening is that the third operator will be coming in as well by the next year. What plans does Ooredoo have in terms of continued revenue growth, how do they want to address this issue, that revenue is declining? And how -- what are the original counter strategies by Ooredoo to keep the revenue growth going on in the coming period with third operator and ex pats being the main reason. And second question, I think, is probably everyone would have the same in mind is regarding tower sales. Omantel tower sales is continuing and probably it will happen by the end of this year. What plan does Ooredoo have? And if you can explain more about it?

Yes. Let me take the first question, and then I will pass to our CFO to answer on the second question. So regarding the revenues and the competition. So of course, we will not be able to disclose our competitive plans in the future. But what we do have plans for a continuous growth of revenues and mitigation plans are in place to achieve the targets of the end of year. Regarding the competition, we as well have plans for when the competition comes and how to stabilize the market and how we continue our revenue growth. So this is what we can disclose at the moment. And I will pass the mic to our CFO for the second question.

Yes. Regarding the tower sales, we do have a plan actually. We are set at this stage of evaluating our strategy on various options. So it's still at the earlier stage. So we don't have much update beyond this. Yes. If something will come, we will announce it.

Yes. [Operator Instructions] Majid, you would like to ask?

This is Jonathan Milan from Waha Capital. I just have a follow-up question on the tower sale. With the hotel having sold its towers to Helios, do you have options besides selling to Helios? So do you see the possibility of another tower company coming to Oman and buying your towers? Because it wouldn't make economic sense then because tower tenancy would -- could not be very high when Helios already has hotels towers. And if that's not an option, then could you please elaborate on what are the possible options that are ahead of you?

Yes as I said it earlier, we are evaluating all the options. We have not yet decided which strategy we would follow. Once we see the -- basically, the benefit of our evaluations of all the options, and we'll follow the right strategy at that time. Maybe this scenario, which indicated possible, maybe. So we will be considering a lot of option. I think this should include also in our options.

And could it -- could the decision be reached sometimes in 2021? Or is this 2022 decision?

The target is to reach something within end of this year, if not probably Q1 of 2022.

We have one question on the chat. You will go for this question Abdul Razzaq. The growth revenue, I believe this is going to be -- [indiscernible] answered that [Operator Instructions]. Please go ahead [indiscernible].

Yes. So regarding the question on the chat. So yes, we are optimistic that Q2 will have better revenues than Q1 led by the openness of the economy and the opening of the country and the commercial activities in the country. We're hoping as well after the vaccinations percentage growth that the tourism will be back, and this will have a very positive effect whether internally on the hospitality business. And accordingly, our business or the tourists coming and roaming on our network or buying our services. So we are optimistic about -- till end of the year. And we hope that the circumstances will help us with this as well. So that's from my side.

Okay. There is a question coming from Dalal from CI Capital. She's asking about how many towers do we currently own. And on the 5G CapEx for the full year and also in the timeline [indiscernible]. Abdul Razzaq?

So in terms of the number of towers, we have around 1,500 -- over 1,500, I would say, towers. And what is the second question?

The question about the CapEx.

Yes. So our CapEx is in [ 2 digits ] actually. And the timeline of the third entrance it's a multi million question myself, I don't know. We've been hearing it since 3 years now, but they have not launched. So we are not sure we think maybe Q4 2021. But I may be wrong.

I'm really sorry, this is Dalal I didn't hear the answer for the number of towers the 5G CapEx, I just got back. Sorry.

Okay. The number of towers is 1,500 plus. And the 5G CapEx is in 2 digits. And regarding the third entrance, we think they will come in Q4, but I'm not sure. I can't -- there's no news here actually.

I just have a generic question actually. I just want to understand this 5G rollout, which I just want to understand is that when you -- when 10 years ago when you had a 3G to 4G, at least, that actually drive the -- or buoyed the revenue going forward. But do you think 5G would have a drive for growth? Because if I look at -- do you think any kind of ARPU improving? Or how do you see this 5G benefiting you? Could you just give some color on that? Because I think the landscape has also changed, right? So could you just -- it would be very helpful if you could just give some color on that as well.

So yes, let me take this. So yes, we see revenue growth coming from the 5G. So all our 5G plans due to the experience that is much, much better than the 4G we are pricing it a little bit higher. So if you can -- if you see in the market now, our 5G fixed is higher than the 4G. And we believe that this will continue the migrations from 4G to 5G with a higher ARPU. So this should continue as well. For the mobile, it's the same once we have enough coverage in the country, we will start launching 5G plans in the country that will have a little bit higher prices or the utilization on these price as well will be higher due to the speed that the customers will be experiencing. So yes, we are optimistic that this will lead to a revenue growth and monetization of our 5G network as well.

Just to add that because since I'm an Ooredoo customer, I could say that I could have a free upgrade. So how does this -- you're saying that ARPUs will increase in the -- on mobile. Could you just -- you said that you're increasing but ARPUs remain the same, right, for a customer who is an 5G as well?

So currently, we are in a free promotion for 5G for the customers to try. So this is just a promotion. It's not permanent. Once we have enough coverage that the customers can really, in any place in Oman can enjoy the 5G, then we will be launching our 5G packages that will lead to an increase in pricing as well by utilization of data. So if a customer is using now 5 GB, on 5G, he will be using 6 GB and 7 GB because the speed is much higher and the streaming is much higher. So that as well will increase the utilization and the usage and accordingly the revenues. And these are our plans. Unless competition gets fiercer, and then we will have to, of course, compete with that.

How do you see in your fixed line actually, how -- you see any improvement in the utilization for 5G?

So 5G, we're already seeing a lot of migration, lots of both on our 5G base, which we're very happy and proud with. All these customers are coming with higher revenues per month, higher monthly fee since they are getting more allowances and better experience. So yes, we are seeing this happening, and the ARPUs are increasing in fixed business.

Okay. There are no more questions. We would like to thank you again for attending our call. And we would like to refer you to our public filing in case we have any new news. And also to our page at [indiscernible] Exchange. Thank you, and have a good day, and stay safe. Thanks.

Thank you.

Thank you, everyone.