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

[Foreign Language] Welcome to Ooredoo Oman Investor Call for the Q3 2024. This is Younis Al Naabi, Head of Investor Relations. Today with me here, Bassam Al-Ibrahim, the CEO; and Nasser Al Yaarubi, the CFO. So first, CEO and CFO will take us through the results, and then it will be followed with a Q&A session. Before we start on Slide #2. In the course of today's discussion, 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 changed. 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 start with Mr. Bassam.

[Foreign Language] Thank you for the introduction. Hello, everyone. Thank you for joining us today on this investor call. It's very good that we're all here today as we end towards the end of the year. So it's very important that we showcase the efforts that we have done beginning from our strategy from last year when I first joined the organization and now almost heading to my second year within the organization, and one of the key factors that we had as a strategy is, of course, the biggest one was customer experience, how we want to improve the customer experience for our customers and at the same time, invest in new technologies, invest in rollout. And one of the most important things was a lot of the cleanup that we wanted to do. There was a lot of legacy issues that we were facing, we wanted to begin off by cleaning in that regard. The market, as you know very well here in Oman is extremely competitive, almost 7 operators, 3 MNOs, the rest MVNOs. I'm being a broken record here when I repeat this, but it's very important that we mention it because it's an extremely aggressive market, very high utilization. So we need to make sure that when we capture market share, it's clean, good customers, serious space that we want to ensure that we keep as much as possible. And these customers continue paying recurring every month, so forth. So we try to capture that customer base. And our investment has been, as I mentioned, in a lot of the digital services, latest technologies, making sure that we are the first and leader in the market, which is one of our legacies here in Oman that we've always been digitally first, technology first, and we want to continue doing that moving forward. If we look at the revenue very quickly, revenue has been impacted because -- due to lower mobile and ICT and handset revenue. But this has been offset by the improvement in our fixed and B2B offerings that we are now giving into the market. And this is already part of our strategy in the beginning of the year also that we want to improve in our fixed. Fixed has always been an issue for us since its inception. And we wanted to make sure that, again, we can do a lot of cleanup. We make sure that we're targeting the right customer. We're onboarding customers that are serious about our services because we are offering greater quality service. So these customers come to us because we offer value, but at the same time it's the price they believe that they're paying for. So we want to ensure that, that continues. EBITDA, likewise, lower revenue has impacted the EBITDA. There's been some growth in our cost of sales and of course, employee costs. This has partially been offset by the improvement in our bad debt provisions and the efficiencies in sites and network-related costs. So we are, again, making sure as part of our strategy as we're investing in our rollout, we invest it properly. Smart investment is one of the key strategies that I'm discussing with the leadership here at Ooredoo Oman to make sure that we drop our sites in the areas where they are the most impactful, making sure that we drive as much revenue, customer experience improvements, which is, again, a big part of our strategy, which will bring in the revenue as we move forward. So these droplets that we are doing now will effectively improve the situation as we move forward, and we will continue having this strategy as we get into 2025. Net profit is lower by about OMR 600,000, as you can see in front of you there. The EBITDA gap is also offset by lower depreciation and amortization. It has slightly declined, as I clearly said here, the OMR 600,000. This is a massive improvement from when I first joined the organization, and I was just speaking to the CFO prior to this discussion of how big of an improvement we've made since the period that I've joined, but there's still a lot more improvement to go, and we intend to continue going down that path as we improve our situation when it comes to how we can push our revenue and the different aspects that we discussed earlier. Moving on to the next slide. A picture that you've all seen before, the market share review across the board. As you can clearly see, there is a slight dip from our Q2 to Q3, built by design. The reason because of that, as we mentioned in our previous investor call, and I will mention it again for people who are not there, was that we had a serious base cleanup that we needed to do. There was a lot of fraudulent activities, unfortunately, that were happening, onboarding subscribers that were -- some subscribers didn't even know they had specific services. So we wanted to make sure that, that was cleaned up. We have a serious base as part of our overall market share. Customers that will continue to be with us, customers that are with us because of the fact that we provide great quality latest technology services, and that's the reason why we're doing that. So we did a big cleanup with regards to our prepaid base and our postpaid, and we're slowly trying to rebuild that base by getting quality gross adds moving forward. If you look at the total, there has been almost around 2,000 decline when it comes to our fixed and around 300,000 in the mobile, and that's pretty much the discussion that I mentioned now, which is all part of the cleanup that we saw at the beginning of the year that we continue to almost mid of the year heading into Q3. Now it's around the fact of how we can start capturing quality gross adds, making sure that these customers come in, they stay with us, the stickiness process is there. Our churn management process and strategy has also kicked in to make sure that customers that are very good stay with us and continue to stay with us, and we'll continue down that strategy as we move into 2025. Moving over to the next slide. As I mentioned earlier, the customer base that we saw, this is, again, basically all based around the cleanup that we wanted to do as the 300,000 that I mentioned earlier, the drop in prepaid and the 8,000 drop in our postpaid customers. This is all based on pure cleanup. We wanted to continue doing that. You will slowly start to see an improvement throughout the next quarters as we move into 2025, and this is now our strategy to start onboarding customers that are good customer base. This is all -- this is -- and this strategy is going all the way down to our sales and distribution. It's going all the way down to the dealer, the point of sale, how we can start capturing customer base at that level that are quality gross adds that will make sure that they will stay with us. That churn will also improve. We'll reduce our churn because of that fact. And this is all becoming a huge part of our strategy moving forward into 2025. Fixed, mobile fixed or FWA, we like to call it. We saw a reduction here also, but the majority of that reduction, as you can clearly remember, and if not mention it here is that, again, as a company that drives on latest technologies as part of our strategy since the beginning of Nawras days and now Ooredoo Oman, we want the customers to have the fastest speed. 5G is becoming a norm now at the moment. It's not necessarily a new technology. 6G is around the corner. And speed is the #1 requirement for all our customers. So we are trying to remove customer base from the LTE technology or the 4G technology and onboard them into 5G which is faster, better, more reliable. So the customer actually appreciates and actually gets the service that he is paying for, and this is what we want them to do. So we're moving people over into 5G. And likewise, 5G went through the process of some minor cleanup, and now we're moving forward ahead with transferring people over into -- from 4G to 5G. This is also related to the fact that as we plan to continue investing in our 5G technology and rolling out more sites, our push is to drive 5G at 3.5 megahertz, which is the bigger capacity, better technology, better quality so that the customers can actually appreciate the service that we're giving them, which is the 5G service at FWA, faster speeds, better speeds. It will actually enter the home, you can actually utilize the service to its full capacity, whereas with LTE, 4G, you're not getting that. So you want to give the customer that improvement. And because of that fact, we've also started seeing slow improvement in our 5G FWA, which has grown by around 5%. And likewise, FTTH, which is the fixed line services, which has also had a complete revamp as part of our sales and distribution strategy has also improved by almost around 10%. So we will continue having these strategies driving into 2025, making sure that we push even stronger, faster and attack areas where we are not necessarily prominent to make sure that this becomes an Ooredoo territory. As we move on to the next slide. As I mentioned earlier, this is just an overview of our 5G and digitalization in the mobile space. We continue to invest. As I mentioned earlier, we will continue to invest in 5G and in the better quality 5G or I like to call 3.5G. As of Q3, we have around 2,052 sites 5G on air, and we continue to invest more as we're rolling out and modernizing these sites to make sure that they have the 3.5G technology that I was discussing, and this will make sure that the quality of 5G and the speed that the customer has been expecting will be -- that's exactly what they'll be getting as they get the 5G services. Moving on to the next slide. Likewise, for fixed, we continue to invest in that area, too. We are working extensively and some of the points that you see here in front of you, boosting our broadband capacity to improve the customer experience, 5G wireless or FWA, we're pushing to have higher speeds, and this will happen because of the investment we're having on the 3.5G technology. As of Q3 '24, we have around just under 1,000 sites on 5G supporting our fixed services. We will continue driving and pushing to have the rollout of even more of that. And we have had this continued support and relationship with OBB, Oman Broadband to expand our fixed services in the alternate. And again, that's the strategy that we have. We -- in areas where we are not prominent in FTTH, we attack or grab the customer utilizing our FWA services so that they can actually use our fixed services. They get to use it, they get to enjoy it. And then we boost that quality by giving them fixed in the areas that we would like to invest. And there are a lot of areas here in Oman that are not privy to FTTH services, and we want to make sure that they get those. So we're -- regardless of the area, whether it has FTTH or not, we want to make sure that the customer has the ability to have our services, whether it being FTTH or FWA. So we are pushing in every single area where we can get that, and we make sure that they get this absolute fixed line connected service for that ultimate premium service that all our customers should be getting. Moving on to the next slide. As we always like to present our awards, and I think one of the most important ones, there are many awards that we get. We get contacted a lot on the awards that we have. But I think one of the most important ones is the one on the bottom left-hand corner, which is related to our customer experience leadership. So it is evident that we are being awarded this, and it showcases the fact that our strategy at the beginning of the year is now working. Other entities are seeing it and therefore, awarding us for it, and it will continue to be our strategy moving forward. Our customer is #1. It needs -- the customer when he comes to Ooredoo, he knows that he's getting the ultimate experience. We want to continue being that customer's choice moving forward, and that will be our continued strategy into 2025 that the customer believes that Ooredoo is the right choice for me, and that's the reason why I'm moving to Ooredoo or becoming an Ooredoo subscriber. And with that, thank you so much. I hand over to my esteemed colleague, the CFO, Nasser. Thank you.

Thanks, Bassam. [Foreign Language] Drilling down a little bit on the quarterly results. And as you can see that Q3 shows that there is a reduction in revenue by around 1.8%, which is around OMR 1.1 million. And this is driven by mobile performance, mainly in the postpaid, where we saw a reduction of around OMR 1 million, and that represents around 5% and we saw also a reduction in the prepaid with around OMR 250,000. However, we saw that actually our fixed revenue is partially offsetting the lower revenue that we are having in wholesale as well as in the mobile. Next slide. On this slide, it shows the profit bridge. And as you can see that between quarter 3 2024, we have seen a growth in our net profit compared to the same period in 2023 in spite of the fact that we have less revenue and more direct cost and employee costs. And this is due to the fact that we are having lower expenses when it comes to the depreciation and amortization attributed to the wise investments of the CapEx and lower other costs like royalty and other expenses. One thing I wanted also to highlight is the -- in spite of the fact that we are having lower revenue and higher capital expenditure in this year, we are doing very well when it comes actually to managing our finance and managing our operating cash flow. And when it comes to the employee costs, which has seen an increase of OMR 1 million this quarter, I would like to remind you that in quarter 3 2023, there was one-off adjustments of around OMR 900,000. If we normalize for that, our costs more or less remain the same. Next, on the capital expenditure, as I highlighted in the previous slide, we continue to invest. A matter of fact, we are investing around 50% more this year so far. And the investments is directed towards continuation of expanding our 5G network, enhancing our wholesale capabilities and digital transformation. These all -- these investments are extremely important to defend our position and set ourselves ready for the future. On the operating cash flow, we've seen an improvement this year, and this is attributed to the working capital management, especially the receivables elements. And that also has reflected positively in our bad debt provision. There has been lots of initiatives to control this area, especially with the fact that we are moving away from prepaid towards more of postpaid businesses. Next slide. And with all those investments and the fact that we are having lower revenue, we are also managing our debts very -- in a very efficient way, which is translated into lower financing costs and contributing positively to our P&L. We continue to use the revolving credit facility as the main element to bridge any cash requirement. And so far, we are maintaining a very healthy balance sheet with extremely low gearing. With this, I give it back to Bassam for conclusion and summary.

Thank you, Nasser. And as mentioned by Nasser, just a quick overview. As we mentioned, the market is extremely challenging, and I'm sure our competitors would end up saying the same because of what I mentioned earlier. The -- some of the good indications are interest rates are starting to drop as of September 2024, which shows very good indication for how additional investment will happen in the country. Global ratings have changed for Oman. Credit ratings are jumping from BBB- to BB+. So that also shows the positivity of FDI coming in and further improving the situation here in Oman. From a commercial perspective, we will continue, of course, with our strategies that I've been mentioning throughout the presentation. Customer experience, we continue to become driving efficiency within the organization, becoming innovative in every single possible way and ensuring the stability and the sustainability of the organization for the future years ahead. Cost efficiency is definitely going to be a program that's going to be important for us. But at the same time, it's cost efficiency based on the investments that I need to do to ensure the advancement of my network, to ensure my drivers such as customer experience, and becoming first when it comes to technology will not be affected. The CFO is very adamant on the fact that when we invest our money, it's invested on areas where we will definitely drive and improve the revenue situation, yet there are other areas that are part of our daily BAU that need to be looked at and efficiency program is going to be kicked in as of -- has already happened. I think we'll become extremely aggressive in 2025 to make sure that becomes definitely effective. Some of the initiatives that we're planning to move, of course, that I mentioned is the 5G rollout. We plan to roll out more sites in 2025 and moving forward into the next couple of years. That will help with customer experience, that will help with coverage, that will help with the mobile experience that the customers have requested from us, and we want to make sure that we drive and deliver that. Digital will be a main driver. It has always been a driver for us. We want to continue becoming digitally advanced, savvy. Customer base is also happening there. We want the one-stop shop experience when the customer is utilizing his phone. That needs to be his one and only reason why he needs to contact me through his phone, and I need to be able to respond to him to his needs. So digital is going to be a major driver for us moving as well. As mentioned, Q3 prepaid revenues have increased by 2.3%. Our mobile -- B2B mobile is also growing. If you look at it from since the beginning of the year until now, year-on-year is almost 7% increase. And the consumer fixed segment also is becoming -- is having an improvement due to the fact that we have really pushed that area. We always knew that there was an issue in that area with regards to fixed. And our strategy, as you can clearly see, is actually showing signs of improvement, a 1% year-on-year improvement. Yes, it's small, but we see it that shows that there is a definite move -- needle shift or move from our previous trajectory or strategy. This is now showing positive signs moving into 2025. Thank you very much. And with that, I hand over to the rest of the team.

Thank you, Bassam. Thank you, Nasser. Now we will move to the Q&A session.

[Operator Instructions] Mr. Joice, please go ahead.

I'm seeing there is a slight decline in your fixed revenue during this quarter. It has been very stable over the last few quarters, but this quarter, we are seeing a little decline. So could you explain what are the reasons for it? Is it -- but at the same time, what I'm seeing is your number -- FBB subscriber number has been stable. So why are we seeing a slight decline in the fixed revenue?

Yes. Fixed revenue for this quarter is actually has seen a growth compared to the same period last year. What you see here is both combination of fixed and wholesale. And the wholesale revenue is expected actually to decrease with national roaming revenue reduction as Vodafone continue to roll out their network. So that reduction in wholesale is compensated fully by the fixed.

Okay. My question was on a quarter-on-quarter basis compared to last quarter, OMR 18.8 million in second quarter and OMR 17.9 million in this quarter.

Yes. There is one-off adjustments, a small amount that has impacted this trend, due to change of accounting for -- I mean, of some -- of the CBEs mainly.

What is that?

Due to the change of the accounting related to the installation and CBEs, it has impacted the revenue for this quarter. So we do expect actually the revenue to be better next quarter [Foreign Language].

Sure. Okay. Next question is on your EBITDA margins. EBITDA margins has been continuously coming down every quarter. Every quarter it's coming down. Where do you see EBITDA margins getting stabilized?

This is an interesting question, and it's related to the competition and the whole market as well as the advancements of technology and as more and more customers use 5G because currently, there are lots of customers using data on 3G and 4G. Now 5G is more advanced technology, and it's cheaper when it comes to the per unit cost. So let's hope that 2 things happens when it comes actually to the customer behaviors as well as the market competition and it becomes more and more rational, which we believe will eventually happen, and I do expect this to happen also very soon.

Just to add on to the CFO's point. I mean, as you clearly mentioned, the market has been going through its ups and downs, very aggressive market. And even prior to my joining the organization, there was a lot of price waring happening that just brought the market further down, which doesn't help any organization. At the end of the day, revenue is what drives the business growth, and that goes into investments and so forth and so forth. I think as in anything in life, there is a correction that's happening now within the market here in Oman. And over the '25, '26 period, there should be a correctiveness that's happening in the market that you should start to slowly see an improvement in our net profits and EBITDA.

My 2 questions quota is over, but I don't see anyone else asking questions. Can I proceed with this, Younis?

Yes. One question, extra question.

I have actually three questions more.

We will limit it to one.

Is there any update on the tower sale that has been in the discussions earlier?

As of yet, I think the same statement that I've been making in the last few investor calls. Again, this is -- the only difference -- the only part here when it comes to the tower sale discussion is that we are continuing this back and forth with multiple parties. But as moving forward, we need to make sure that the investors are benefiting from the outcome. And as of yet, we're not quite there or we believe that it's going to be beneficial to us as an organization or to our investors. So we're still waiting for and reviewing the documentation with regards to this to make sure that we make the right choice for Ooredoo Oman.

If there is any other question. Okay. Joice, you may go ahead with your questions since no one has asked.

And is there any progress on your discussions with the TRA with respect to royalty reductions for the fixed lines? Because -- and another aspect of it, I'm seeing you have received a grant of around OMR 1.8 million during this quarter from the government as a royalty discount, 3% royalty discount, which you have mentioned. So if you can touch upon this and any progress on the royalty reduction discussions, that would be much appreciated.

Yes. So basically, this is an arrangement with the government to use this 3% savings or discounts into the coverage and enhancement of the coverage in areas that are not commercial. So these are actually not commercial based. So the money is used to invest on those. So there's no implication when it comes to the P&L, and that's what we have reflected. Going forward, there's discussions and there are lots of engagement with all stakeholders. And if there is any update, surely, we will let the investor know about any possible updates in this regard.

All right. The next one is a general question where I'm looking at the market, the market, everybody knows it's very competitive. And -- but how do you see the general market scenario panning out with the 3 players? Is it a very oversaturated market? Or will you be considering it as a geopolitical market as it used to be? What's your take on the market evolution as a whole, if we look at it from the business point of view?

Very good question. Thank you for the question, Joice. As I mentioned earlier, when I kicked off the presentation was that we -- and we've mentioned it multiple times, even during my time of being here as the CEO, we've always mentioned that it's been -- it's an aggressive market with 3 MNOs, 3 MVNOs, fighting over one individual, it's very aggressive. And we were looking at around 160, 170 utilization. It's very high, very high, and it's really on the high side if you take into other countries around the world, it's very aggressive. So we're all fighting over that one customer. Like I said earlier with regards to the shift that will happen, the correctiveness has to come into play. Otherwise, it's going to be a situation where organizations won't be able to continue operating. It's going to be very difficult because at some point in time, to make money or to get customers on board, you start to cut price, you start to become extremely aggressive, which is not helpful for any one of us. So we need to be diligent as a market. We need to make sure that we don't fall into this trap of potentially going into price wars. And I think this is something understood by a majority of the operators here in Oman. They believe that we need to go down the path of correctiveness. And I think this will happen in 2025, potentially moving into the next couple of years. It has to happen. It's for the safety of the economy, it's for the safety of the telecom market here in Oman, and it's also for the safety of the investors. So it will happen. It has to happen. And like in everything in life, that correctiveness happens at some point in time. And I think this is going to happen very, very soon.

Besides this, if I can add to what Bassam said, which is the efforts in our core business currently, there are lots of investments and lots of work happening in building capabilities for future revenue streams, and we've invested heavily this year, and we'll continue to invest, and we do expect also to see results, positive results [Foreign Language] in the future. So this -- with the efforts that's happening in the core, we are very optimistic about the positive outcome that [Foreign Language] we should see soon [Foreign Language].

Thank you, Joice. It seems no other questions. So we are -- we want to -- so we'll close by now. And so we want to thank you all for attending this call. And please refer to Ooredoo website and MSX website for additional updates. And if you have any questions, please feel free to contact us. Thank you so much.

Thank you, everyone. Have a pleasant day.