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

[Foreign Language] This is Younis Annabi, I'm working in Investor Relations department. And I would like to thank you all for joining us today to discuss about Ooredoo Oman Q1 2022 results. Today here with me Noor Sulaiti, CEO; Abdul Razzaq Al Balushi, CFO; Nasser Al-Yarubi, Director of Business Control Planning and Reporting; and Ahmed Al Khuzairi, Head of Treasury, Investor Relations and Insurance. First, we will go through the results and later on, we will take your -- we'll go to a Q&A session. But before we start, there is a disclaimer point in Slide #2. So in the course of today's discussion, we might make some forward-looking statements. This will be based on information available to us as of today. And just to confirm, you should not assume that this will be the same in the future. We will continue to hold these views. And obviously, we do not commit to notify you if our views change. We therefore refer you to the public filing for some factors that might cause forward-looking statements to differ from actual future events. Now we will start the presentation. So Noor will take you through the results.

Fantastic. Hello, everyone. Today, we are discussing Q1 performance for Ooredoo Oman. We are very glad and happy to present these results this quarter because it is the quarter of the turnaround for us. Last quarter was the beginning of the turnaround, the reversing the trends. But this quarter has been a very solid quarter, with the revenue, EBITDA being higher than the last quarter as well as this has been driven by the growth that we are seeing in wholesale, the growth that we're seeing in device sales and the growth that we're seeing in postpaid. Net profit, there is a slight decline and that is only due to the fact that we are now impacted by higher royalties on fixed. When it comes to the market share dynamics, of course, quarter 1 is the quarter when Vodafone have launched. We saw a shift in the market dynamics. Certainly, by Q1, we think, just based on market intelligence, that they've captured 3.3% of the market, where there has been an impact, certainly on Omantel and ourselves when it comes to market share. And certainly, we see it slightly in our customer base. On the base dynamic, we see an impact, certainly in the prepaid. However, we see a big growth in postpaid and those are high-value customers. We saw even a 20% jump in the postpaid base in revenue. So this area is growing exponentially and offsetting the impact of the third entrant. And then there has been also due to the amplified competition and impact on the customer raising the fixed. 5G coverage, we will continue our investment into the 5G where, today, our 5G network covers 25% of the population and we expect about 662 5G sites by the -- not we expect actually -- that actually is the actual for this quarter. On the fixed, this is an area of growth for us. We improved our capacity on the wireless and home broadband for our customer experience. And Ooredoo Oman continues to grow in the FTTH market. So overall, this is the performance of the first quarter. We see very strong indications of a turnaround that spans over the year. The first quarter is always a very critical quarter for us. So we are quite pleased and happy with a solid beginning. The industry, of course, saw a lot on our side, where we've been recognized and we've received awards across. So we won the Best Telecom Company, the Excellence in Innovation and Technology Industries, and that's just a few among several achievements for Ooredoo Oman. And now our CFO, Abdul Razzaq, will kick off the financials.

So the quarter 1 2022 was a good start, a good recovery. So we have grown by 0.5% versus the last quarter. This is mainly driven by postpaid, which has grown by almost 19%. And plus, we had a wholesale Vodafone roaming in our network, and also a growth in our handset areas. Prepaid continued to have some pressure due to macroeconomics lingering from the previous years, however, but we are seeing some recovery there as well in the long term. We continue to manage the OpEx. So we had a good management on maintaining the cost. We had several initiatives to manage this cost. So we are doing quite well in managing the cost. In terms of EBITDA, our normal EBITDA has grown by OMR 0.8 million, which is almost 2.1%. However, the adjusted EBITDA is impacted by the higher royalty, which we have already stated earlier. The net cash flow remained healthy. We -- our main payment was royalty fee, which had at the higher side this quarter. But overall, the operating cash flow remained healthy. Net debt, we continue to draw down due to some of the requirements of the outstanding to -- which will be settled gradually in the due course. We continue to maintain a robust cash flow planning. So therefore, we do not expect any.

So as a summary, our -- as we said, our postpaid revenue continues to grow along with our customer base. We see this as a fantastic indication that the company is moving towards the right direction of having a stable revenue composition. The new entrant, there was definitely an impact on the third operator -- sorry, the third entrant and on the prepaid base. When it comes to commercially and operationally, the data represents 72% of our overall revenue or continues to innovate and revamp services to support the economic growth and Vision 2040 of the country. Also, Ooredoo Oman is focused on the customer experience as a key differentiator in the market and a key focus across all the operations. We continue to invest and grow in the 5G network. And we believe in a differentiated and a unique experience for the digital interface with our customers. So that is a commitment to our customer base and our key focus for our deliverables. So that's the summary, and thank you so much.

Now we will move to Q&A session. So if anyone has a question, please raise your hands. Ziad, you may go.

Just a couple of questions from our end. You mentioned that this is the beginning of the turnaround story for Ooredoo Oman. So we're just wondering what are the catalysts for a turnaround? I mean competition just entered the market with very heavy price discounts on the prepaid segment. Yes, there is growth on the postpaid segment, but is it enough to offset the decline in prepaid and the price erosion in the market? So what is the management of Ooredoo Oman bullish on when it comes to the growth? And you mentioned also royalties are on the rise on the fixed segment from 7% to 10%. You are already seeing pressure in Q1 on your margins. Is there any sort of negotiations with the regulator to lower the royalties back to the 7% rate on the fixed? And do you see any potential for tower sales this year? We've seen Omantel sell their towers for -- to Helios and now it's a 3-player market. So what's your view on that?

So thank you, Ziad, for your questions. On your first part of the question, the -- Ooredoo Oman has gone through a full transformation program for, let's say, the last 2 quarters of last year. That so -- that actually showed us in the last quarter early stages of growth when we managed with a comprehensive 360 transformation program, to revamp a lot of what we are doing, especially when it comes to our products, our offering, the way we deliver our services to our customers. So for us, this was a critical piece to, first of all, secure our base and to ensure that even with the launch of -- with the push of the third entrant, that our most valued customers are retained, happy and they continue to be with us. So this was the first, let's say, objective that we have as a company, is focusing on retention and strengthening our retention. So that has helped us a lot. And then on the other side, it's about revamping the way we execute in both our retail and our indirect channel to achieve more growth during the same time, which right now, we are quite happy that it is on the right track, and we are completely ready for this challenge of a third entrant. So a lot of the work that we've done last year is paying off right now. It was a very important, let's say, shock to the system to push really hard to put everything into place. Also, the other thing which was critical for us is winning Vodafone on our network and getting a new revenue stream of wholesale, which is certainly helping us, let's say, swallow the initial push from Vodafone. And also, let's not forget that, that sort of price -- that very aggressive price point did not last for long in Q1. So it was just a matter of 6 weeks, and then it was pulled off from the market. So that also have helped in us ensuring that we don't lose our key valuable customers. So that is, again, another thing. So that's around your first question. If I remember your second question when it comes to the royalties, there was a lot of efforts from our side. And it was perhaps maybe the top, let's say, priority for us when it comes to regulation and working with the government on the fixed royalty, where we actually like had a full-on campaign and we worked with all the stakeholders. We know that it's still under review, and we are still hoping that there might be, let's say, a reconsideration on this. But we are definitely provisioning for it. So, so far, the situation it is there. However, there's a lot of efforts and discussions and also reviews that have been submitted in that regard. Finally, when it comes to your tower sale, basically, this is a fully fledged program for us. As Ooredoo in association with the group, we are looking to maximize the value by ensuring that -- as you're aware, the tower sale is an economy of scale game, which we are very fortunate to be part of a larger group, where we are continuing fully the exercise. But I cannot comment exactly on when is the launch or when is the sale, however, the exercise is in full fledge.

Now Mr. Akber Khan, you may go ahead.

This is Akber from Al Rayan Investment, Doha. Just first question is you talked about the way you engage with your customers and efficiencies, et cetera. What metric or metrics do you use to gauge sort of the engagement that you have with the customer that is digital versus the -- electronic versus with a human? And how has -- what is that now and where did it used to be?

Definitely. So the customer experience is a deep, let's say, exercise that we run, we measure across the full operation. And it's something that we believe is a continuous effort that never stops, not only on the digital interactions but also on the traditional interactions. But we do believe, like with the digital transformation that we're running across the full organization, even traditional interactions become better, become more intuitive, the transaction times per -- when it comes to a customer interfacing with us in detail becomes easier. Our call center and all the KPIs that we have for our call center, the speed of interaction becomes better. As well as the fact that our application actually takes a huge amount of our transactions. So for example, when it comes to bill collection and so on, and it's a leading application within the app stores, both on Android and on Apple. So from our perspective, as I mentioned, it's a full on 360. We know... [Technical Difficulty]

I'm sorry I don't think anyone can hear the voice. Sorry. Noor, you are not audible. We cannot hear you.

Can you hear us now?

Yes. Now we can hear you. There is a bit of echo, but we can hear you.

Okay. So let's get back to it. So when it comes to the customer experience, what I was saying is that this is a key focus for us. We believe when you do the right thing for your customers, everything becomes more successful from a business perspective. Hence why, as part of the transformation that we kicked off last year, there has been a, what we call, customer 360 journey that we looked at and we worked on fixing all the fundamentals. We believe in also our digital transformation as a key driver to enhance the experience on both the classical interaction with our customers and the digital interaction with our customers. There are KPIs and metrics that we follow and we set for ourselves across the whole organization. Even as the CEO, let's say, 25% of my scorecard is related to the customer experience and it is cascaded across. We also would like say that we follow a lot of these KPIs that are quite known in the industry, by customer satisfaction and NPS. And most know that we've been ahead and leading ahead of the market from Q4 and also in Q1. So for us, the beginning of Ooredoo Oman and until today, there is always this focus and commitment towards customer experience and customer satisfaction that continues to be a key driver for our success and other key differentiator, even with a more crowded market. I hope that answers your question.

So -- but is there -- it sort of does and it sort of doesn't. So what percentage of your customer interaction currently happens digitally? And I guess what I'm trying to understand is, you are spending a lot of money on this and time and effort. What -- how can we track that this is improving? So what is it now and what it used to be? And what is your target?

We're quite actually proud that definitely in the postpaid and when it comes to like bill payments and various things like that, we're talking about something where 70% of our transactions go through our application. We're also pushing, even for activation with, of course, some limitations from the authority to do full onboarding on the app, but that's still in development. But once that happens as well, it will actually like provide the customer the ability to full -- for the full journey and interaction with Ooredoo Oman throughout the application. So these are a few sort of indications of how much our application is adopted by our base.

And my second and final question is, can you just comment a little bit on the intensity of the competitive environment right now versus how it was, say, 6 or 12 months ago?

Yes, definitely. So certainly a lot more competitive than what it used to be. And is a lot more competitive than what it used to be. And also it's a lot more competitive than when I was here with Oman 10 years ago. So the market has actually changed in this dynamic. Certainly, as the telecom market, Oman is not a place where, say, the population is growing. On the contrary, I mean, it's slightly shrunk. So it makes the area of competition extremely fierce amongst the players. We actually measure even internally our ability to respond and how quickly we can respond to an offer or a price change. So right now, I mean, we are sort of in the time line of 24-hour response, and we're pushing everyone within the company to be able to respond that quickly. So this is becoming, let's say, a competitive market, similar to other markets I have worked in such as Kuwait and Indonesia.

The question is coming from Mr. Joice Mathew.

My question is on your ARPU trend. I've seen that even though you have 5% growth in your subscriber base, in the postpaid subscriber base, the ARPU has -- the revenue has grown only by 14%, which essentially is a drop in ARPU. And you haven't mentioned the ARPU levels in your presentation. So was just wondering if you can share your ARPU data for the postpaid, prepaid and blended and the home broadband segment? And what are the reasons for the drop in ARPU -- a significant drop in ARPU during this period?

Okay. So thank you so much for your questions. I hope I heard everything because the voice was not so clear. But if I understand your question, you're talking about what is the evolution of ARPU and the nature of competitive environment. So I would say the most important thing other than ARPU is the composition of your base. Especially in prepaid, for example, you can have a large base as it uplifts the value or dilutes the KPI and ARPU. But we launched actually new products, both in postpaid and in prepaid, where we see the new base business coming on these new products to have an uplift in ARPU of about 20% to 30% in both postpaid and prepaid. So this was seen not only on the ARPU of the overall, but on the ARPU of the new products which has been driving the growth. But when it comes to specific ARPU sort of information, we can share with the various agencies if you want.

The second question is on the jump in postpaid revenue. Is it primarily because of the Vodafone -- onboarding of Vodafone? Or are there any other capacity sales or any other reasons for the jump in wholesale revenue during this quarter? And I just want to know whether this is recurring kind of revenue going forward? Or is this just a one-off?

Sorry, I heard the first part of the question, but not the second part. So where the wholesale jump came from, that's the first part. And then the second part was on...

Yes, the wholesale revenue has witnessed a big jump compared to last quarter and even the previous quarters. What was the reason for that? And what's the nature of this? Is it a onetime revenue? Or is it recurring in nature?

Okay. So yes, the jump in ARPU actually it is driven by Vodafone. And it was up actually -- sorry, the wholesale revenue, the jump in wholesale revenue is driven by Vodafone. And it puts us in a very, let's say, good position because the nature of the how we'll pay on national roaming works. If they don't want draining in their data offering or their allowances, we make more money off it. So it deters them from going too crazy. So yes, the jump is there. It is a 3-year contract, but we are looking with them into, not just the wholesale which is just coming from voice and data traffic, but also on other fronts. For example, tower sharing and IVS, which actually is a continuous revenue stream from the business. Once you set up your partners in this, the next -- the recurring revenue for you is a possession of that. And then on the other part on wholesale, we are -- are you trying to say something, Joice?

No, no, I'm sorry.

Okay. And then on the other side of wholesale, we are working actively on several areas of growth. We are investing heavily in data centers this year. We are the landing partner for 2Africa, a sea cable that's coming from Africa to Oman. We will have a landing station both in Salalah and Barka. Also, we are building 2 data centers, both in Salalah and in Barka, those are going to be the carrier. also we are building 2 data centers, which is now working and giving us huge, let's say, projections of multi revenues versus what we have today, and also with investments in A2P. So overall, not only that, we have the business that we have today, but there is a continuous, let's say, projects that are going to invest in the next 1 to 2 years.

And the next question that I have is on your home broadband customer base, which is continuously coming down compared to last quarter, and it has switched below the prepandemic level. What could be the reason for the decline in HBB segment?

Yes. In the HBB area, I'm pretty sure we're not just competing with the our handset, but we are also competing with our offer. What's happening is that we're -- there's, I think unfortunately below the line price war that has impacted, let's say, the customer base. And also, there has been -- not so much on the 5G and prepaid, but the impact that we are seeing more is on the legacy 4G fixed which, right now, we are investing heavily to compensate in 5G. So it's driven mainly also by the customer base in 4G that is dropping, but the growth that's happening in the 5G. So it's base dynamics rather than -- not just base dynamics, it's also product dynamics. So we have 3 types of products in fixed, you have FTTH, you have 5G and you have 4G. The issue is with the 4G. And you'll see our competitor who has invested in copper, which is now legacy, seeing the same trend when it comes to their legacy components.

Where do you see the home broadband subscriber base getting to? Is it getting likely to remain stable or likely to show some growth?

Sorry?

Where do you see the HBB subscriber base heading to?

Yes. So the area of growth for us is certainly the 5G. So you even see it in the RA reports where you see that our network in 5G is a lot smaller than even half of the time of our competitors. But our market share of -- total customer base of 5G is a lot higher. So it gives us an indication that we've invested smartly in the area of 5G fixed connection and that trend continues. So we see a growth in 5G, 5G fixed wireless handsets.

Okay. I don't see any other hands raising up, so can I just continue with the questions? Or should I just take a backseat and then come back later?

Yes, Joice, you can contact us after this meeting, so we can actually discuss one-to-one with you about other questions. We can give a chance to other participants if they have any further questions. Okay. Thank you, Joice. Any other participants, please, if you have questions.

This is Siju from United. I just had a quick follow-up on that ARPU. I do see ARPU drastically lower compared to your competitors. So you have mentioned that you expect your ARPUs to go to double digits. Correct me if I'm wrong, this is what I heard. If that's not true, could you just give us a color on do you expect to reach to your competitor level on your ARPUs? This is what I want to understand, what are the drivers there?

So let me just clarify what I said. So we have new custom -- new products that is creating a new base, which is within our base. So for example, we launched Hala as a new product in prepaid. Now that Hala base is not the full base, but it's a new product that we launched that actually has a double-digit sort of growth on the overall average of ARPU for the overall blended base. So that's what we are mentioning. Now when you launch a new product, it does not -- so this will impact the new customers that you acquire, but will not impact the existing customers. So having an ARPU uplift from an existing customer is quite difficult. But when you acquire new customers or a new product, the already -- let's say your existing customers opt-in for a new product, that's when you're going to have an uplift. So that's usually our way we do it in telecom. So when you launch a new product that has a better ARPU, that is the beginning of the recovery of your overall blended ARPU. And this is like when you plant a seed and then it will continue to grow until it impacts your overall production. So that's what I mentioned.

Okay. Okay. So even your postpaid, also, you will look for a high -- because I think your postpaid ARPU is around OMR 10. I mean -- so are you going to increase your basic -- that is your basic monthly postpaid price. So are you going to increase that as well to OMR 15 or something for your -- so that for new customers, they are going for a higher postpaid connection? Is this what I can also say? Or is it going to be a similar strategy?

For us, what's critical is the overall revenue that's coming upwards from your base. So that area in postpaid has grown dramatically. So even if we are still keeping the same ARPU, the overall income from postpaid has grown dramatically over the last 18 months.

Okay. And one more question is that on the tower you have mentioned. I couldn't hear it properly. You -- so correct me if I'm wrong. So you have already started the plans or exercise of doing a tower sale? This is what my understanding, or is it still a nascent stage?

Correct. So not only that we started this on full fledge, and we are working really hard with the group, with -- the deal is going to be a massive deal across all the operators of Ooredoo Group, of North Africa and Asia. So this is something that we are working on as part of the overall group in a major transaction. And of course, we will create that...

Okay. Is there any tentative time for that? Or is it still not decided there? Is it like any time line or anything you've set a time?

Yes, I cannot comment on this. But like I said, it's fully fledged.

The next question is coming from Ziad Itani.

Yes. Can you hear me now?

No, no. There's something wrong with the connection, if you can check it, please.

I'm going to write it in the chat, so that you can see it clearly.

Actually, your voice is starting to improve, so do you want to try to say it again?

Okay. Let me ask you again. So basically...

I'm sorry, you're going to have to write it. I'm sorry, you have to write, you're again breaking up.

Ziad, are those your questions. Do you only have 2 questions?

No. These are the 2 questions.

Okay. On the cost side, we -- as you can see, we have been keeping -- maintaining the cost as much as we can. There is pressure that leans on the inflation side. But we do have several programs and we are trying to optimize our process as much we can. And we will do -- we will continue to do that, and that's a priority in terms of our cost of operations. The second question...

Yes. On the second question, yes, this is a global issue that's impacting everyone. It's -- we actually made sure that we put our orders early on, which skewed a lot of our requirements for this year. But however, that didn't come without an impact on the book.

Yes. One the CapEx, we will continue to invest on 5G, and we will continue to invest on the expansion of our networks, that will be the key areas in order to improve the customer experience.

There's another question on 2022 CapEx and sales.

I hope that answers the question.

Any other questions? Mr. Joice, please go ahead.

This is about your balance sheet, leverage and increase in your receivables. I see your DSO is going up and it's reaching perhaps 3 months right now. Can you throw some color on that? What are the factors that are leading to it? And I see it's probably because of the cash flow situation. But leverage also is going up. So where do you see leverage and what -- where do you see the receivables heading to? Is it because of any specific reasons? Or are you finding it difficult as such?

Yes. So this is mainly due to the growth in the postpaid and also the additional contract of the Vodafone. These are the key factors, which is supporting our cash flow.

So Vodafone terms are much longer. Are they much longer? Or what are the typical terms for Vodafone actually?

Sorry, I cannot...

Sorry, I couldn't hear you.

Can you repeat your question again? Can you repeat?

You said it was -- the receivables was going up because of the Vodafone terms, Vodafone payments. So what are the terms for Vodafone's payment?

So as I said, I think the element -- the key element is the Vodafone, but there are other factors as well. It's not specific to Vodafone as well. So Vodafone is one of the largest factors.

So where do you see the DSO heading to? Is it likely to remain at these levels? Or where is it changing to?

So this will be a continuous discussion with the Vodafone and then it will be based on the long-term relationships with the Vodafone.

Okay. Okay. And how far will this affect our leverage position? Our debt is going up, isn't it?

Yes. So that's -- as I said earlier, so the peak value was in the Q1. We will gradually be repaying, hopefully. We believe we have a robust cash front. There's only cash flow. We foresee a reduction in the coming months.

Okay. Okay. And on the spectrum payment, how much is the balance outstanding right now? Or have we completed all the spectrum payments?

It's OMR 12.5 million.

Sorry?

There is still a final installment, OMR 12.5 million, so maybe OMR 12 million.

OMR 12 million is outstanding, but that has to be paid this year?

Yes.

Is that final payment?

Yes.

Thank you, Joice. Is there any other question? So if there are no other questions, we would like to thank you all for attending this call. And please refer to our website and MSX website for future updates. Thank you all.