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

Welcome, everyone. Thank you for joining us today to discuss our performance for the Q3 '22. In this discussion, we will discuss the results followed by question and answer session. But before we start [indiscernible] refer to Slide #2, which [indiscernible] statements [indiscernible] some forward-looking statements [indiscernible]. [Technical Difficulty]

Okay. So do you want us to repeat everything from the start?

Okay. So as I mentioned, Q3 for us was a very good quarter. We have seen growth across all of our KPIs, definitely through revenue, EBITDA and net profit versus 2021. 2021 versus 2022 in revenue, we are at 7.8% versus 7.6%; EBITDA at 8.8%; and net profit at 35.2%. This growth has been driven by wholesale handset sales and also postpaid, which has grown at 14% year-on-year. This is very focused on our strategy to retain our customers and to acquire market share through focus on postpaid. Also, the cost management exercise that we have done have resulted into this enhancement in the net profit, which is a key priority for Ooredoo Oman. This is reflected if we go next to our market share dynamics where in Q3, we have jumped from 36.6% to 38.4% as a market share. Customer base, however, we have a growth in our total customer base in mobile at 4.5%. However, with the price [indiscernible] that is ranging in fixed, we actually have seen a drop in fixed customers at 7%. This is driven by the price war that has started beginning of the year with a loss of dropping their prices and impacting the whole market. Next, if we go to our base -- customer base dynamics in the mobile, we have a growth in the customer base in postpaid at 30%. And then when it comes to the prepaid base, yes, there has been a decline of 2%, but as an overall, for mobile, it is a growth. And HBB, as we mentioned, has been impacted by the price war. Next, if we go to our 5G and digitization, we continue our investment in the 5G. By the end of Q3, we have 729 5G sites on air. We are covering the majority of the population at 97.9% with 4G and we added 67 sites of 5G sites in only in Q3. Fixed, we are covering 87.8% of the households with 4G and about 50% of the households with 5G. The company has been recognized with the efforts that we've been putting across all of our segments. We've been recognized by the Global 100 EMG publishing. We -- our focus in customer experience through the way we provide customers our services and also the way we deliver. Our technology has been recognized both by the World Business Outlook Awards and the Middle East Technology Excellence Awards. And then our CSR activities towards the society continues to be at our forefront and our responsibility towards the remaining society. So as a summary, this is our situation, and we will go now through the financials.

Actually, more focus on the Q3. And by now, probably you have seen that actually we have reported a very strong growth for the 3 months ending 30th of September. Our revenue has grown by around 20%. EBITDA has grown also significantly by around 17% and net profit has grown by around 80% compared to last quarter. One remarkable note here is actually in Q3, we have basically one benefit related to wholesale where we have recognized around OMR 2 million that are related to prior quarters. And on the revenue front, you can see that actually our postpaid has grown by around 26% and we have a few challenges when it comes to prepaid and fixed. However, our wholesale has more than doubled. Next. On the expenses front, we have seen actually growth in our expenses by 22%. But let me remind you that actually quarter 3, 2021, was including one-off adjustments related to some sort of change in the accounting of carrier billing of around OMR 1.5 million, yet the company is continuing to investing in efficiencies as well as controlling all sorts of expenses. Next slide. On the CapEx, as highlighted, we have been investing heavily in our network, and we have added around 70 sites, 5G sites. We continue actually to invest in digital and modernizing our network as well as actually strengthening our presence in wholesale and adding more data centers. Next slide. On the adjusted EBITDA, as you can see that actually, it is higher by around [ 15% ] compared to the Q3 2021, supported by the strong performance of revenue. Next. Okay. The net cash position, the company is actually having a very strong cash position and it's very healthy when it comes actually to generating cash from operation. And as you can see here, clearly, that actually, our cash from operation has gone significantly supported by the income from operation as well as actually a strong control of our working capital. The net debt position is actually also very, very healthy. We keep control largely of our loans, and we are having extremely very low gearing. Excellent. And now actually let me hand over back to Noor for the final comments.

As a summary, as we mentioned, postpaid revenue continues to grow, driven by growing the customer base. This has helped us derisk the impact of the third entrant. Definitely, the prepaid has been impacted by the third [indiscernible]. Fixed and home broadband market also have seen an impact because of the intensified competition. Data revenue is at a very healthy contribution to our overall revenue at 70%. Basically all strong results this quarter are testaments to the many initiatives that we've actually rolled out across the whole organization to transform the business and turn it around. Postpaid customer base has grown with our offers [indiscernible] plans and also the focus during the Kharif season. B2B continues to grow, and we've actually captured 1% market share in a very difficult market. And we diversified also our incomes in B2B through ICT and other revenue streams. Overall, it's a very good quarter for Ooredoo Oman. And I think we are good. So we can open for questions. As a company strategy, we -- our focus has to be about how we're going to grow and diversify our income. Hence, why there is a big investment that we're having in wholesale and in international connectivity. We are growing our postpaid base. We also are working on achieving growth and turning around the fixed situation. Building the capability is, again, another area that is the foundation for us. So our focus has been in our turnaround plan about regional growth and regional expansion to basically revamp our distribution channels, to continue to strengthen the excellence that we provide in our retail service and to have digital enablement and analytics across the whole organization. Customer satisfaction becomes believed, and I think it's the secret to our success. We are at 1.1% ahead of our incumbent competitor Omantel. And this is happening through a strong focus, the way we provide our services to our customers. And then finally, the most important thing, which is the assets to our organization is our people, building the capabilities, injecting the company with talent, pushing the performance management and ensuring that we have an engagement and a team spirit. Next, a big area of growth for us in Oman and for Ooredoo is the investments that we are injecting as a company in the international schema, where we are building 2 data centers, one in Salalah and another in Sohar; and 2 landing stations for sea cables in Salalah and in Barka. These investments are going to bring a new revenue line for Ooredoo Oman. We are soon going, inshaAllah, to announce [ neutral ] data center in Salalah, which is attracting big interest from the hyperscalers, be it Amazon, Microsoft, Metaverse. And this, hopefully, will become the new revenue stream for Ooredoo Oman in the next few years where we will diversify our income. This investments are in process, and it is going to be rolled out live in March of next year. It's a very aggressive plan to expand in the international. And that's it. Thank you so much. This is the summary of our discussion today, and we can open for questions.

[Operator Instructions].

Congratulations on the good set of numbers. My first question is, can you throw some light on the ARPU segments? Because what I'm seeing is your FBB numbers -- subscriber numbers are going down, the prepaid numbers are going down. But at the same time, we are seeing some improvement in the postpaid segment -- mobile postpaid segment, 100,000 net additions this quarter, that's a very good number. So can you throw some -- but you haven't mentioned anything about the ARPU trends, how these subscriber additions are affecting your ARPU? And where do you see the ARPU going? So can you give us some more insights about the ARPU parameters?

I'll take this question. Thanks, Mathew, for this important question. As you probably know that actually in Oman, Vodafone started operation and the main area of their focus is actually prepaid. And naturally due to the changes in the market dynamic there is a drop in the prepaid ARPU. However, when it comes actually to postpaid, where the ARPU is more than 5x the prepaid ARPU, we see there is a kind of stability in the ARPU this year. Fixed revenue or fixed ARPU is impacted with the price competition, if I can call it, that has been happening and led by competitors in the past 9 months. We saw signs of improvement and hopefully, things moves in the right direction in the coming future.

So can you give us some indications from a modeling perspective, some indications on what are your postpaid ARPU and fixed ARPU and prepaid ARPU, the numbers?

When it comes to the prepaid ARPU, it's in the area of OMR 3. So postpaid ARPU is actually more than OMR 15 and fixed towards the -- in the OMR 20s, beginning of OMR 30s.

Okay. Okay. And how do you see the fixed ARPU -- not fixed, but the prepaid -- postpaid ARPU trend during the course of this year?

Postpaid, by nature, is actually the ARPU of -- it is stable, and we expect the postpaid ARPU to be stabilizing. We have been preparing ourselves along with the competition in terms of strengthening our postpaid presence and migrating customers also from prepaid to postpaid is one of the reasons why our prepaid customer fees has decreased and postpaid customer has seen actually a massive increase by around 30% this year compared to the same period last year. Prepaid, there is a drop of around 2%. But all in all, the whole customer base has seen a growth.

Yes, I agree. 100,000 net additions in the quarter is something big achievement, congratulations on that. And another question that I have is on your data revenue proportion. We've been maintaining a data revenue around 75% to -- 72% to 75%. But this quarter, you've just mentioned that the data revenue is 70% of total revenue. So what exactly is happening there? And how do you see this panning out? What are the other revenue streams that you're better evolving for Ooredoo Oman?

Actually, when it comes to the mobile number of customers, that's data customers. That's extremely important. We saw a growth, the number of users. And we continue also to strengthen our data by investing in 5G and modernizing our network and technology because, naturally, there is an increase in data, yet voice is very strong, and it is not dying as a lot of people might have thought. But actually -- it is actually improving significantly. I have to highlight also in this quarter, wholesale contribution has also increased significantly. And as I mentioned, there is a one-off adjustment this quarter, and this is related to this year actually to the previous quarters of this year.

Okay. And on your fixed broadband segment, one of your strategies is to strengthen the FBB in the future. But in the recent past, we have been seeing major challenges. And you mentioned that there is price work going on, and we have it above -- a reduction in the number of customers -- subscribers. So how do you -- how are you planning your strategy? And what's the way forward for subscriber additions and revenue generation from the FBB segment?

Thank you for your question. It's probably the biggest challenge that we have. From a regulatory point of view, we would have wished for an earlier intervention in order not to drag the market down. However, we have been promised -- as we said, this is external outside of our control. We've been promised that this has -- this will be controlled in the next couple of months. However, we did not stop competing, and we did not stop to push for more market share. There has been a slight recovery in our FBB market share with the last offer that we put, but we do hope that we would pull out these offers from the market all of us, including our competition in order to uplift the market for more sustainable growth in this segment. So we're wishing and hoping and we're working really hard to lobby in order to stop this very aggressive competition that's happening. And we've been giving early indications that this should stop in the next few weeks.

But what I see is you mentioned about [indiscernible] are coming early in the year. But off late last month, Omantel also came up with a more aggressive pricing where OMR 20 was the entry point. So how do you expect them to stop immediately? Do you see that...

Both, us and Omantel, we went with an aggressive price during the same period. We started and then they followed. But -- and I speak behalf of Omantel and us, we both are keen to pull this process out of the market once the aggressive competition stops. So we are hopefully, inshaAllah, on track to get out of this within the month.

Great. Nice to know that. And what kind of subscriber numbers are you looking at -- for the next year for FBB? Are you looking at stable? Or are you looking at increasing number of subscribers? And how saturate is the market? What's your view?

When it comes to market saturation, yes, it is a very saturated market. We -- however, our ambition is still aggressive. We still see potential for growth despite that saturation due to the high churn percentage that actually this sector uniquely only in Oman. Usually, fixed market is very stable with a stable market share for competitors, but in Oman, customers tend to change their operators quite a lot. So we are still hopeful that this area is going to be a growth area for us next year.

The next question is coming from [indiscernible].

My question was with regards to the proposed tower sale. Just wanted to understand once the tower sale goes through and the [indiscernible] infusion that comes in, sort of any potential as a CEO of Ooredoo Oman, what would your thoughts be on sort of usage of the cash that comes through the tower sale?

So the -- that's probably a bridge we will cross once we get there. At the moment, we're working really hard on the process of the tower sale. But we believe that there's definitely a lot of investments that we can do to benefit from such a transaction to create diversification into the business, be it at MFS, be it data centers. So I think the world is our [indiscernible] when it comes to what we can do with the added cash and the investments. And it's a global trend across telecom for the tower sale. This is something that Omantel has just finalized, and we see it within the region. The idea is you move into an asset-light organization and then start investing in the growth areas fairly quickly.

I do get that it makes sense to sort of look at further growth avenues, but sort of any surplus left over or any sort of cash left over after factoring in your requirements? Would that sort of be a potential return to investors?

Let me highlight the fact that actually as Noor has highlighted that we are working in this particular projects as well as actually exploring all options and all possibilities. I would like to highlight that no final decision has been made yet related to Ooredoo Oman. And if we have any new information about this tower sales as well as what -- how the cash will be used in whatever form. It will be announced immediately to the market and to the investors.

[Operator Instructions] question coming from [indiscernible].

I was just looking at your CapEx guidance, and there's been pretty much a OMR 5 million increment of what we've really seen in 2021. If -- you've also put in the guidance slide, whereby you've put in your areas of growth and where you would be really concentrating on? So if I just ask you as to where do you see your maximum allocation of capital and related to your CapEx spend, which part of your growth trajectory would you be kind of putting in that capital in?

We categorize usually our CapEx into a few categories. So one is growth, the other is sustain. We -- there is certainly an investment that is required -- that continuously is required for our sector to sustain our investments. So that CapEx investment needs to be there. But on the growth, let's say, a section of our CapEx, a big portion of it is being dedicated to 5G. And then the other area is that investment that we're injecting into data centers and landing stations. But this is, let's say, under the growth area.

Noor, you've also mentioned your ambitions on a regional growth basis. I'm particularly referring to the 2023 direction slide. Where in the region or out of it, are you focusing on?

Mainly in the international connectivity. We would like Oman to become hub for international connectivity. Hence why, the investments that we're putting in order to ensure that we are going to be placed on the map and with the engagement that we're having with the hyperscalers, this will actually generate income for Ooredoo Oman from outside the country. Other areas definitely is MFS as an area of growth, where we're going to be launching, inshaAllah, product across the group, that actually enable customers to have MFS payments across multiple markets in the GCC.

Just take the last question, and this is -- I read that Ooredoo has also applied for a digital license in Kuwait -- digital banking license in Kuwait. Would you be replicating the same over year? Or would you be trying to replicate the same year?

That's exactly the -- what I was just mentioning that there is Ooredoo money product that's being launched. We're actually going to be the pilot market. So despite the fact that currently you see the news of Ooredoo Kuwait getting the license. We are going to be launching even ahead of Ooredoo Kuwait to have Oman as the pilot market for this launch.

[indiscernible], please go ahead.

I just have one question here, and that is regarding to the presentation of revenues on your presentation, Slide 13, which was the first financial slide versus the notes. So if I get it right, in the presentation, the mobile revenues are around OMR 40 million and the fixed are OMR 26 million. While in the notes, they are OMR 50 million and the fixed it is OMR 18 million. Can you help me reconcile the 2 and pardon my ignorance if I missed something about this?

I'm not sure actually what you are referring to. But if I exclude the devices, our mobile revenue is around OMR 110 million followed by fixed of around OMR 48 million, the wholesale is around OMR 27 million. And the rest is devices.

Okay, but that -- where does that reflect on the figure that is there on your notes to the financial statements?

Devices is there. If you want a little bit more details, you can contact us. We're happy to support.

Follow-up questions Mathew, please go ahead.

You just mentioned about data centers and you're planning to expand on the data center business. So you currently have a data center business, which is operational right now. Can you throw some light on the performance of that business? And how is it going? How is it making? What's the growth rate that we are seeing there in terms of revenue and profitability for that to become data center?

D2C is one of our [indiscernible]. We're actually very proud of since it has been launched, we were waiting for that, let's say, points where it turns positive. At that point, we are very happy to announce that this has been happening since January, where the company is even closing its target for 2022 for the full year target in October. So it's done actually pretty well. The interest for the cloud is getting -- as you say, hitting the momentum that's required with the regulation being available now for a few sectors like the oil and gas and the aviation, which has helped the uptake for both government and private sector. Also, we see -- we are very happy with a lot of brands that were added to our D2C solutions, definitely in the call center with Genesis and big brands across Oman now being on our infrastructure -- or our cloud infrastructure. So overall, very happy with the progress that we have with D2C and the traction that this year has brought for us.

So what's the right capacity for [indiscernible] data center that we have? And if you can compare it with the Salalah, Sohar and the other data centers that are coming up very quickly. If you can compare it and give us some more information about that, that would be much appreciated.

Yes. Actually, the business is completing each other. D2C is providing services mainly cloud services as well as software as service and ICT areas. The business that is expected in Salalah and Barka data centers is mainly directed towards international and working with hyperscalers as Noor has highlighted.

So what kind of capacity are we looking at there?

It's -- what do you mean capacity? Do you mean [indiscernible]?

The rack capacity?

Sorry?

Rack capacity.

Number of racks you mean to say?

Yes. Yes.

Number of racks. Actually, the data centers, which we are building in Salalah and Barka, they are built in a way that actually can accommodate and expand in the future. And those actually will be serving also Ooredoo Oman usage as well. The number of racks, I'm not sure actually which has been published, but it is 100-plus.

Both combined or single location?

At least this is in Salalah.

And it's a scalable model. So the design actually that we're launching with and you saw it in the slides. It's a very innovative design where we built the first floor, and then we vertically can actually build the other floors while the floor -- the first floor is active. So it's a really nice stackable design whereas the capacity requirements increase, we can actually scale up the building.

That's interesting. And what's the current revenue contribution from [ BTC ] to overall group revenue?

Yes. As of now, it's actually -- it's on the lower side. It's not much -- it's not significant, but it has been growing significantly. And we do expect as more focus and the market also gain more attention towards ICT products that -- and ICT solution that the contribution will be there. There are a lot of plans of having ICT and fixed services kind of solutions. And it's a core element in our strategy.

Okay. Got it. And another question is on the Gulf tower company, which is yet to be operational. But can you throw some light on what's your strategy there? Are you with the -- will you be going with the Ooredoo Group for carving out the tower business? Or are you planning to have a separate company, get it carved out within Oman and then stay as a stand-alone company. What's your strategy there?

Yes. The regulation of the land dictates that this tender has to happen from Oman. So this is the process that we are complying with where the standard is to -- for the asset Oman needs to come out from Ooredoo Oman directly into the market. So this is the process we need to have. However, this doesn't actually reduce the value for the shareholders as this is just a process. The overall assets for the group, which is a 27,000 towers across all of our markets, is going -- the benefit of the scale is going to be available for Ooredoo Oman and for the investors of Ooredoo Oman.

Thank you [indiscernible].

One last question, if I may. What's the number of towers that we have here in Oman.

So it's 2,700.

Any other questions from participants? As there are no questions, we would like to thank you for joining us today on [indiscernible]. And if we have any update we will let you know [indiscernible]. Thank you very much and have good day.

Thank you.