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

[Foreign Language] Hello, everyone. Thank you for attending today to Ooredoo Oman Investor Call to discuss the results of Q1 2024. As part of today's presentation, Nasser Al Yaarubi, CFO, he will be presenting the results. So first of all, our CFO will take you through the results of Q1 2024. And then it will be followed with Q&A session. Before we begin, a few necessary disclaimer points in Slide 2. So in the course of today's discussion, we may take -- we may make some forward-looking statements. These will be based on the information available to us as of today. And you should not assume that in the future, we will continue to hold these views. Also, we do not commit to notify you if our views got change. We, therefore, refer you to our public filings for some factors that may cause forward-looking statements to differ from actual future events or results. So now we will begin.

[Foreign Language] I would like to start by thanking you for joining this call. Unfortunately, our CEO is having some sort of an emergency and won't be able to join us. Having said this, actually, there are a few key notes or highlights I would like to start, which are related to quarter 1. Our focused strategy on turning around fixed is resulting actually in some sort of improvement in the fixed revenue, yet we face actually a number of challenges in the mobile. We also continue our efforts to control the churn that's happening in the mobile and therefore, improve our revenue. We have launched also a number of campaigns. We launched actually [indiscernible] campaign, which was welcomed warmly by our customers and community as a whole. Also, on our D2C subsidiary, it has reported also significant results and outstanding performance with more than 50% growth. So a quick highlight on the financials. As you can see, we have actually the revenue has decreased by around 2.7% in absolute value, this is around OMR 1.7 million, impacted actually by the continuous challenge in the mobile market. And as I highlighted earlier, actually, the fixed revenue improved around OMR 0.3 million. The EBITDA, which is actually also reported a drop by around 5%, is impacted by the decrease in the revenue. And part of this -- or actually the growth in the EBITDA was offset by a better control of our expenses as well as lower depreciation and amortization. That's why we reported actually an improvement in our net profit. On the market share, as you can see that actually, we are reporting actually an improvement in the market share. We managed to add around 67,000 customers in mobile, mainly in the prepaid, and we added also around 1,000 customers in the fixed. And our strategy focusing on FTTH has basically resulted in an improvement in the customer base by around OMR 4,000 as compared to quarter 1, 2023. We are, at the same time, actually, running the kind of cleanup exercise to ensure we have the right focus on all segments. So we are cleaning our base and ensuring that, actually, we are giving all segments the right attention as well as actually the right policy or right strategy to drive or to maximize the growth from these segments. A little bit more details on the customer base. As I highlighted also earlier, we managed in the mobile area to add around 67,000 customers. 90,000 customers are actually in the prepaid. But on the postpaid, we saw a drop in the customer base around 3.4%. And this is in line with the focus on the customer base as well as actually the -- our continuous efforts in improving the quality of activations and the customers we are having in our base. On the fixed, we added around 1,000 customers. Actually, again, continues on focusing on the FTTH to offset the drop in the 4G or LTE customer base because we provide actually fixed for home broadband service through FTTH as well as what is called fixed wireless. On the 5G and the coverage, again, this is a very impressive coverage slide where you can see clearly that, actually, we are covering almost all the areas and all the population. On the 5G, the coverage currently is around 72.3%. That's the mobile coverage. And we have plans to improve the coverage and improve also our customer experience by deploying more and more sites and improving our capacity to provide the customers, again, the best experience. On the other side, on the fixed, as I highlighted, that actually we provide fixed services also through 5G or wireless technology kind of as well as 4G. Now 5G is actually -- or the coverage is also improving, and currently it's around 87%, and we are investing actually in this area to improve our customer experience. This actually -- all these efforts have not gone unnoticed and we've been recognized with multiple awards and multiple actually in well-recognized events, namely, actually, we got the awards in the innovation area as well as actually customer experience. And also the B2B area, we have been actually also awarded in our efforts in developing our products and services to our business customers. So, digging a little bit deeper on the revenue. Our revenue that has been reported to be lower by around OMR 1.8 million. And as highlighted, that's actually due to the challenges that we are facing in mobile where we saw our postpaid revenue being lower than the same period last year by around OMR 1.1 million. And the prepaid is actually lower by around OMR 0.4 million. Month-on-month, there is an improvement in performance. And with our focused strategy in turning around the mobile, we hope things improve in the future. And in the fixed, as I have highlighted, we've seen actually a growth in our fixed revenue by around OMR 300,000, OMR 400,000. And the others, which includes actually the ICT and devices, there is a drop, and this is attributed to one-off deal that we had in 2023. On the expenses front, our cost of sales or direct cost as well, that is called network and general operating expenses. We are -- we've seen actually a stability in this line, and this is due to a number of initiatives to control the pressure that we are having in the gross margin. We've seen actually growth in our roaming costs due to what is happening in the offerings where actually Roam Like Home kind of offers are becoming popular. But actually, we've seen a drop in the interconnection costs as well as actually stability in a lot of our expenses despite the fact that we are growing our network and we are adding more and more elements in our technology. On the CapEx, on the capital expenditure, I would like to stress our commitment to spend in the technology and improve the coverage as well as the -- improving our capabilities in the wholesale as well as digital transformation. So we continue to spend in these areas. I have to highlight that actually in quarter 1 2023, we had also kind of investments that's related to DSS and some more of one-off investments that happened last year. So the financials, wanted to [ effectively ] the bottom line, we saw a growth in our profit before tax by around OMR 200,000. And this is in spite of the fact that actually we've seen a lower EBITDA. And this is actually a result of having lower expenses in the areas of employees, for example, depreciation and amortization. We've seen also a lower spend on the financing costs as well as expenses that are linked to revenue like, for example, royalty. This is an interesting slide where you can see actually that operating cash flow is negative in both quarters. Typically, quarter 1 is having actually negative operating cash flow, and this is due to payments or significant outflow driven by payments for the government licenses, renewals, et cetera. And this usually happens in quarter 1. And we are actually bridging the gap through using RCF facility or what's called the revolving credit facility. So we can clearly see that's actually -- we are improving in terms of actually our operating cash flow. And this is driven by actually lots of initiatives in terms of managing our receivables and payables, as well as inventory. So the net debt at the end of quarter 1 2024 is lower than quarter 1 2023 by around 40% because actually we've tried to depend more on our operating cash flow and minimize the usage of the credit facility. So in summary, we continue to operate in a very challenging market, especially in the mobile, where it's a little bit crowded with multiple players operating in the -- or competing in the mobile market or with the customer base around 5 million customers. That's the total population of Oman. Yet we've seen actually a growth in our mobile market share, and we keep adding customers toward this. We saw a growth in the market share of around 1.1% compared to quarter 1 '23. The fixed market share, although it's a decline, yet actually, there is a continuous improvement as well as continuous addition of customers in the FTTH. On the commercial and operational front, we basically are committed to provide our customers a superior experience. And we enrich their digital experience through continuous investments in this area. And we are also committed to creating or maximizing the shareholder value through continuous adaptation to the market dynamics, continuous working towards actually driving efficiency through a number of initiatives that ensure strong and sustainable future for the company. I think this is the end of the presentation, and the floor is probably open for Q&A. Younis?

Yes. Thank you, Nasser. [Operator Instructions] Okay, the floor to Vision Capital.

This is Bishen Bhalla from Vision Capital. Just wanted to check, could you comment on the ARPU because you had the Omantel call, and they indicated that after a long time ARPU had sort of stabilized, in fact, increased slightly. So if you could just comment on the ARPU, because we have noticed a declining trend throughout the last couple of years, especially on the prepaid side. So if you can just comment on the ARPU on the broadband as well as prepaid, postpaid. That's the first question.

Thank you very much. As you saw that actually, we've added a number of customers in the prepaid base, while the revenue remains lower, which definitely means that, actually, we are having a lower ARPU in the prepaid. So the prepaid ARPU continues actually to slide down. The same story is happening also with postpaid with intense competition. And there is kind of price and war that is happening between various players. And of course, all these activities drive the ARPU to below.

And could you sort of elaborate on the strategy to sort of increase the prepaid base? I thought probably the postpaid base and the fixed home broadband was the higher-margin product as opposed to prepaid, and I've seen a growth in the prepaid segment. So if you could just elaborate on that strategy? Yes, Slide 7, specifically, where we've seen a decline in postpaid customers and your flat...

Sorry, I was actually talking while it was on mute. I'm so sorry. Actually in this particular slide, you can see that actually our postpaid customers has dropped from around 751,000 to 726,000 customers, a drop of around 25,000, mainly coming from the segment of consumer, where the competition is intense, while you can see a growth of the prepaid. So the challenge in the postpaid is that actually the customer base is dropping as well as there's ARPU challenge. And in the prepaid, the challenge is actually in the area of the ARPU and whether you'll be having sufficient customers to compensate the sliding down of the ARPU.

So the strategy to grow the prepaid base [Technical Difficulty]

Yes, of course, actually, we are having very strong segmentation strategy kind of where we look at the value of the customers, try to upgrade their value, try to maximize our share of wallet. So we are looking actually at improving our customer width as well as depth, i.e., increasing the number of customers as well as actually maximizing the number of customers upgrading them and improving their ARPU.

Okay. And final question, you had mentioned last time that you have around [ 2,000 ] towers. And on your last call, I inquired about the book value of towers, the carrying value. You mentioned at that time, you didn't have it off hand. But if you could just give us that answer right now, what will be the book value of the towers, the carrying value?

I think at that time, I referred you also to our team. In any case, we -- actually, this source of information will be disclosed when there's any updates related to this matter. And as of now, actually, I advise you to refer back to the financial, to the FS and to the published information to get the maximum information out of it. In case that actually you want further details, happy actually to discuss those information or your requirement based on the fact that actually all information will be available to all investors on due course.

I completely understand. But on behalf of the entire analyst community, I'm asking what the carrying value of towers is. That has nothing to do with the transaction. I'm just trying to understand what the carrying value of these towers is [indiscernible].

Sorry, you are looking for a particular number for the net book value of our towers, right?

Yes, yes, yes.

Yes. I think I answered you related actually to this particular matter. And...

I understand. I didn't get the answer. That's fine.

The floor now to Joice Mathew.

I had the same question, what was the value of the towers and you're carrying -- that you're carrying in your books. See, this is a public forum where anyone can come in and the investors can come in. So there is no selective disclosure of information. That's my view on this. If you are viewing it differently, just let us know that. Because we see it as a public forum where investors can come in and interact with you. And this is the only public forum where MSX and the company is providing. So that's one comment that I had, if you can provide, that would be much appreciated. The first question -- I have 3 questions, basically. And the question that I have is -- one is on CapEx. The CapEx in this quarter was very low, OMR 4 million. So do you see further CapEx intensity increasing during the course of this year? What could be the CapEx level that now we should be looking at for this year? And what are the reasons that there is low CapEx deployment during the quarter?

Yes. Yes, you are right that actually last year, in the same period quarter 1, we spent around OMR 10 million and I highlighted in the presentation that there's around one-off CapEx investments related to what is called 5G DSS. We had this investment in quarter 1 2023, and it's not there in 2024. In terms of the CapEx propensity and the investments, it's going to be more or less in line with what we've been spending in the prior years. So we are actually expecting more and more spend to happen on the catch-up in the next few months. And in terms of -- actually, in terms of commenting on the -- basically on the towers and the value of the -- of the net book value of the towers, rest assured that actually we will provide the information in -- to the customers as we progress with the tower sales project. And for the time being, actually, there is no development, and there's nothing actually to disclose from what we have disclosed previously.

Okay, fine. Next one is on the competition, the increasing -- we are seeing new entrants coming into the market in the fixed space and in the satellite space. Starlink is saying that they will come up within the next 2 months and roll out their operations. So what's your strategy on around maintaining the market share as well as on maintaining the ARPU levels? Do you see any threat from the new entrants? And where do you think that your market share will be within over the next 12 months or 2 years' time?

Yes. It's actually -- it's a very challenging market, especially with the fact that the telecommunication landscape in Oman has changed significantly in the last few years, both in mobile and fixed. Now in terms of actually of Starlink and their announcements, actually, the Starlink probably is there already and offering their services. Now the type of customers and the type of segments, that is something which can be debated. But it's a fact of life, which we are facing. That's -- actually, the market dynamic is the reality. Now, what we are doing? I mentioned actually our segmentation strategy and actually trying to improve the customer width as well as depth, i.e., we get both or improve our customer market share as well as the revenue market share. Of course, there's a detailed strategy basically detailing the tactics as well as actually the programs, which will help us defend our position in both mobile and fixed, as well as actually create what is called as bond and create loyalty environment where the customers actually are valued and the customers are provided with a service that ensures the customers are getting the value that they are paying for. And in a way, that's actually competitive. And in a way, that's actually appreciated by the customers. So if I can summarize it, yes, we are focusing on both improving our customer base, upgrading our customers and getting actually a better share of wallet, as well as actually improving the stickiness of the customers through very focused segmentation propositions as well as relationship with those customers.

Okay. Just one clarification. Is Starlink not allowed to offer for retail? Or are they only targeting the wholesale and business customers?

I'm not sure actually about their final operating model, how it will look like. But probably, it's not a secret how they are operating in the rest of the world. So they are having a different technology. They are having different solutions. And what do you call it, there will be definitely some customers who will be requiring their services. Our focus -- we don't have actually satellite kind of service. But in terms of fixed, we will continue to focus on driving the fiber or FTTH, fiber-to-the-home technology, as well as actually providing the best service to our customers through wireless connectivity through our 5G network, where we are committed to invest in. Now basically, the comparability of the services and the comparability of propositions, we will leave it to the experts because there is actually a kind of probably similarities and differences between various products and various offerings.

Okay. So does that mean that you are not seeing Starlink as a potential competition or the direct competitor?

We see it as a fact of life that we have to handle and to live with. So we are actually, we call it, dealing with it, like it's actually -- it's there. And it's part of the industry, which is already crowded.

From the chat, [ Amit ], please go ahead.