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

[Foreign Language] This is Younis Al Naabi, Head of Investor Relations. We would like to thank you all for attending our full year discussion. And in today's event, we have our acting CEO, Saoud Al Riyami. Unfortunately, Bassam, he is unable to attend today. And also our CFO, Nasser Al Yaarubi. So at the beginning, Saoud and Nasser will go through the performance and the results, and then we will go for a Q&A session. And if you have anything, please raise your hand at the end of the presentation. So before we start, a disclaimer. So in today's discussion, we may share some forward-looking statements based on the information available to us as of today. So please note that these views may change in the future, and we are not committed to inform you about it. So please refer to our disclosures in MSX and Ooredoo website. So now we will start the presentation with Saoud. Saoud, please go ahead.

[Foreign Language] Good afternoon, everybody. I'm pleased today to join you into this call, and I hope myself and my colleagues will be giving you an insightful session on how the 2024 go for Ooredoo Oman. And then we will be also very much pleased to answer and respond to your queries, if any. As much as 2024 was a year full of challenges, but we also departed the year with some positive indicators and some positive growth in some areas. I will shed the light on few areas that actually have been successfully improving. Looking at Q4. Revenue has improved versus Q3 by 1.3%. We have witnessed a growth year-on-year '23 to '24, a good growth in B2B as well as international wholesale by around 11%. Our also subsidiary, which is data2cloud, a cloud service provider has also shown a remarkable growth, recording a 37% growth year-on-year. We have continued our investment, and we will also do for this year in many areas, including digital programs, digital transformation in our internal transformation for automation and scaling up our systems as well as we will continue our investments, specifically in the wholesale areas and in the B2B. We will continue our commitment investing on rolling out our infrastructure, be it on the network side, 5G, but not limited to that, but also on the wire, our investment on the fiber optics. We will also continue our investment on the wholesale projects. There are multiple -- or there were multiple deals were signed, big mega projects on the wholesale side for submarines, and there are also a few in the pipeline in this. And that's a considerable area for growth for Ooredoo Oman. Some of the challenges, it's very evident that there is a drop year-on-year if you look at the revenue top line, and that's mainly by 2.9%, and that's mainly driven by a lower mobile, partially offset by the growth I mentioned earlier, the area of B2B. EBITDA is also impacted by lower revenue, obviously. However, we have also witnessed an improvement in network and some other operating costs, 3%, reduction in depreciation and amortization as well as other costs. And those lead to improvement in the net profit by 10% from 8.8% to 11.9%. If we go next. So that is basically how the numbers in 2024 departed. In terms of the base, if we look at Q-on-Q last year -- or the year before and last year, there is an evident also decline by 9.8%. Now I will also clarify that this decline is a result of mainly a cleanness on our prepaid base, those I would call the non-active prepaid customers. There was a continuous cleanness activity that actually drove partially some of those -- some of this drop, but not only that. In addition to the cleanness, it's also a result of continuous pressure on the mobile side and the ARPU decline, which is also an area of focus for us to improve with certain activities. If we go to the base, that is a low-level details I mentioned previously, but the good side is on the fixed. The fixed, more or less, is actually sustained. There is -- maybe the difference in that is all to do with some migration between technologies, but not necessarily. Also we are actually seeing an improvement at least in the first 2 months of this year. So in short, there is a decline, but that is due to the cleanness activities, plus the pressure on the mobile prepaid specifically. Moving to our network. It is very evident also that we are growing in our focus on 5G to actually extend our superior experience. Versus last year, we grew by 8% to 79%. If you look at 4G and 2G, we are already covering almost 99% and 98%. You would see that 3G is actually declining, and that is because of the shutdown of 3G, if I call it. And then in the coming maybe 1 year or 2 years, we will not at least at all see the 3G except in a few areas that are in alignment with the regulatory compliance. On the fixed side, though, we also continue to provide our customers superior 5G, and that's where our expansion actually on the HBB have grown from 80.9% last year to 89%. And this is mainly to strengthen also our position in the fixed business line. By end of Q4, you'd notice the third bullet points that Ooredoo had 2,098 5G sites and growing. Ooredoo also invest in its brand positioning. And hence, we were awarded a couple of awards, and these are awards that is mainly in the brand positioning. On the international business as well, we also were awarded as the best cloud provider through our subsidiary, D2C, which is the picture in the middle. Those are not all, but just limited to the ones that we actually see very strong and has a presence in the local market or in the international market. That's from my side. I would now hand over the mic to my colleague, Nasser, who will take you through a deep dive on the numbers.

Thanks, Saoud. [Foreign Language] It always is a pleasure having those calls. So looking at the financials and throwing some light on the quarterly results. So quarter 4 2024, we achieved around OMR 63 million, a reduction of around OMR 3 million compared to the same period in 2023. And the reduction is driven by the challenges, as mentioned by Saoud, in the areas in the -- of the mobile, where we've seen a reduction by around 2.7% in the postpaid and the prepaid with more or less similar percentage. On the fixed and wholesale, we see also some decline with Vodafone, as Vodafone is exiting our network and using their own network. However, we've seen actually very strong growth in international wholesale business. So for the full year, as we've seen in the first slides that, actually, we saw a decline by around 2.9%. That's around OMR 7.6 million, which is mainly coming from the mobile segments where we saw a decline by OMR 3.4 million, OMR 1.4 million in postpaid and prepaid, respectively. Next slide, please. So what is happening in the profit of the organization? And in this slide, you can see basically the bridge, which shows actually the development of our net profit in 2024, where we've seen a growth by around 11% or OMR 1.4 million. In spite of the challenges that we've faced in revenue, we've seen actually an improvement in some of our expenses, especially when it comes to the network, interconnection and other operating expenses. We saw lower network operating costs, and we saw lower international interconnection cost and lower roaming expenses. That's also offset by the growth of the employees' salaries and other associated costs. Remember, in 2023, we have favorable adjustments in the employee cost of around OMR 1 million, but we do have actually a higher employee cost with Ooredoo Oman filling vacancies as well as actually higher variable pay. Now in the depreciation and amortization, we've highlighted that, actually, we have an adjustment -- a favorable adjustments on account of IFRS 16 or lease liability that has actually favorably affected our profit for the year, and this actually having the -- a positive implication on the depreciation, amortization, net financing as well as other income. Next slide. Again, as mentioned also by our acting CEO that for the year, we are committing to expand our network and also strengthening our position in some key areas in wholesale, B2B as well as our digital capabilities. That's why we've seen a growth in our CapEx investments by around OMR 14.2 million higher than last year. And this is in line with our, actually, strategy to strengthen our presence in the 5G network as well as actually building a network that can serve wholesale as well as B2B and the requirement of our local and international partners. Next slide. So on the cash position, Ooredoo Oman maintains a very strong cash position, thanks to the management of our receivables and payables, which resulted in improvement in the operating cash flow, in spite the fact that we've seen a reduction in our EBITDA. And of course, this is actually remains the biggest source of our cash, which was used to fund our CapEx as well as other cash requirements. And it will continue to be the primary source for our funding. And in here, that's actually that improvement has also resulted in also improvement in the net debt position. And it's worth noting that Ooredoo Oman continues to maintain a very strong balance sheet. And when it comes also to the loan, revolving credit facility remains the method to bridge any cash requirements. I think with that, I would like to hand over again to my colleague, Saoud, for the final remarks. So back to you, Saoud.

Thank you, Nasser. And I'm sure the audience have got at least an insightful information about how did 2024 going to Oman, but let me also shed the light on few things about the market dynamics. And I think it's also not a secret to many of you that the market is actually facing a lot of competitive challenges for almost a 4-point something million population. We have more than 3-plus operators, which is actually making it more competitive to grow in the core business lines. Hence, the need of diversity. And as I mentioned earlier, we are committed to actually invest in the growing areas, not limited to B2B ICT, IoT and wholesale as well as our subsidiary, D2C, which is a cloud provider. There are also some positive marks that at least the -- we all have seen the global rating has actually upgraded the economy of Oman and its credit from minus BBB to BB+, and that at least gives a good indicator for international investors and FDIs to actually come and invest in here in Oman. Specifically, in the telecom, there are good opportunities in the data center and some of the ICT and wholesale opportunity. Also, the government has also completed several privatization, the latest being what we see now on the roads. Oman Shipping is due, but we also, in 2024, have witnessed OQ with all its streamlines, be it OQ exploration production and OQ business infrastructure, OQBI is actually gone through their initial public offering. On the commercial and operational part, we will continue to drive the value to our customer as well as to our shareholders through enriching our customer experience. I mentioned a few projects that we are working on to enhance our superior customer experience for our customer, be it the investment on the fiber for a superior fixed service and the rollout of number of hundreds of 5G network towers. The company is also undergoing a lot of challenges, and some businesses are being very squeezed in margin. Hence, there is a very need of some effective program that the company is now -- has started. So the management is driving some cost efficiency programs, and that is to actually ensure there is a healthy gross margin associated with the revenue mix, not only coming from the core, but specifically coming from the high-margin business line. Our mobile market share is very stable. Looking at the competition, it still sits at 33.4 as of December 2024. While on the fixed side, it sits at 27.6 as of December 2024 and as per the reports by the local regulator. So in summary, I would actually conclude with an acknowledgment that the company is undergoing some challenges, and that is something to do with the market dynamics, hence, the investment in some projects to diversify or to actually enhance the internal capabilities and the external capabilities. We are committed also for our customers and shareholders to maximize the value for both in the customer experience and the value for the shareholders. Thank you very much for listening to us, and we would welcome now your queries, questions, if any.

Thank you, Saoud. Thank you, Nasser. [Operator Instructions] Manna, please go ahead.

Good afternoon. Hello?

Yes, we hear you. Can you please raise your voice? And you can go ahead with your question.

Okay. I have a question regarding your data centers. The 3 Tier 3 centers have been launched this year. So just want to understand how much of this capacity has been utilized so far.

Yes. In terms of actually the utilization, and there are lots of the -- those data centers to cater for our own use. And some of those data centers are occupied, reaching actually around 90%. But we do -- we continue actually to expand our capacity and to increase the number of racks to serve the customers.

Okay. So what kind of revenue contribution is expected from these data centers in the coming years, 2025 and 2026?

Yes. What's your name again?

Manna.

Manna, Saoud here. Manna, I think it's a very good question. And it is in our plan that we are very ambitious to have a higher contribution that comes from the wholesale and one of which is actually on the international side. As I mentioned, there is a good growth that is coming from the international streamline on wholesale. And some of those are actually some occupancy of data centers. However, mainly for the local market, if you like, most of the data center services, we do them through our data2cloud company. And there where you see a 37% growth year-on-year through our data2cloud company.

Okay. Are there any plans to expand the number of data centers?

Not in the very near future because what we have now, we are actually having plans to increase the occupancy, as you rightly said. So in some, there are lower occupancy. So if you talk about, for example, Barka and Sohar, because they are only commercialized few months ago, and that -- the objective now is to actually increase the occupancy from the local market in those. There are no plans to increase the data center in the very near future, but we are also watching Oman being a hub of the hyperscaler bringing their, let's say, a lot of sea cables. And with that demand, we are now occupied at least for the coming 5 years for this demand.

Thank you, Manna. [Operator Instructions] Shur, please go ahead.

I had a question regarding the depreciation, the change in the policy that led to a smaller number this time. Is it permanent? Should we be expecting a similar run rate because the run rate has changed, I guess, from OMR 16 million quarterly to OMR 14 million? We have seen this in the past as well. What I'm trying to question is what -- going forward, what should we expect the depreciation rate or the actual number to be.

Thank you very much for this. We have not changed our depreciation policies and the estimates. What has happened is, actually, there is one-off adjustments on the lease liability on the account of IFRS 16, which has resulted actually in an improvement in the depreciation and amortization as an expense. Having said this, going forward, there will be some reduction in depreciation for the assets that become fully depreciated. However, we are also continuing to invest in other projects. So all in all, depreciation levels are expected to slowly go down. However, it's not -- it won't be unlikely it will be like this year.

Shur, do you have any other questions?

Yes. Regarding the upcoming capital expenditures that the management has just alluded to, could the management give us a ballpark number of what this capital expenditures be? And how much of that would be funded by debt from a cash flow perspective?

Can you repeat the question, please?

Yes. Regarding the capital expenditures that the management indicated, could you just give us a number of the quantum of this expenditure that the management is planning to? And from a cash flow perspective, would this be funded by debt or the management is considering another sources of funding?

Let me just try because I'm not sure actually getting your question correctly. Are you asking about the CapEx investments?

Yes, sir.

Yes. So on the CapEx investments, we will be -- there are some projects, which we will fund through the kind of project financing. We'll explore the financial market, and we are in the process of exploring those. I want to highlight the fact that every year, we are assessing all options available, and we take whatever is actually suitable for the organization. As of 2024, RCF was the facility that we used to bridge any cash requirement, and operating cash flow was the primary source for funding. Going forward, there are some mega projects, which we will probably need to explore other means.

Thank you, Nasser. Thank you. Anyone has a question? So it seems no one has another question. Okay. Joice, please go ahead.

I have a few questions, but the first one is regarding your fixed broadband revenue. During 4Q, what we have seen is your entry-level tariff level has been increased by OMR 1 or OMR 2 in Q4. And you said your customer numbers have been stable at 158,000. But at the same time, we are seeing a 2% Q-on-Q decline in your FBB revenue. Could you please throw some light on what's happening in there? And what's your outlook on this segment?

Yes. In terms of the prices, there have been actually lots of -- if I can basically quote them as value-destroying activities. I'm not talking specifically about fixed or mobile here, but overall telecom industry. Now as expected, actually, as we move on, we do expect that more rational decisions to come and also the stabilization of the market. So what you saw in Q3, Q4 last year is a correction or actually a movement in the market that we do expect also the market to move in the direction where, actually, the prices moves to a right level that creates also sufficient return to the investors. And this level of prices are actually naturally will be reached as all operators moving towards creating more and more return on their investments.

See, Nasser, the question that I have asked is your price has moved up, your number of customers remain the same. But at the same time, we are -- naturally, we should see an upside on the total revenue from FBB. But at the same time, we are seeing a decline.

Clear, clear. Also you need to consider that, actually, there are various price points for various technologies. And one of the things that's actually happening is the migration from one technology to another technology as well as there are also multiple products. So when you consider the whole thing and when you consider the ARPU for fixed, there was a negative impact in 2024. So the movements in 2023 was not sufficient to overcome whatever is actually happening in terms of migration or movements between technologies or different price points.

Okay. Got it. Also, you mentioned about some high-margin business opportunities lies ahead for the company. Could you please elaborate on what are those opportunities for us? And what is the potential that you see there? And how soon do you see this getting materialized?

Yes. So when it comes actually to the core services, as highlighted by Saoud, there has been actually an improvement in B2B. We've seen also the improvement also in wholesale international services, which are usually of a high margin. However, there is also a challenge when it comes also to the capital and the CapEx or capital expenditure requirements. At the end of the day, we are evaluating all those opportunities when they come based on whatever factors, based on their margin as well as actually their requirements in terms of investments.

Okay. And next is on Vodafone has completed a 3 year of operations, and they were riding on your network. So -- and you had a 3-year arrangement -- agreement with Vodafone for network sharing. Is there any developments on Vodafone shifting to their own network? Or are they still using the network, Ooredoo network?

Actually, they are having their own network almost probably. Saoud, do you want to shed some light in this?

Yes. Thank you, Nasser. You are right. They had -- of course, by obligation for their license, they had an obligation to actually roll out percentage of their traffic to come on their built own network. There is only a portion of it, I would call it, from their total areas. There is only a 5% only area that we agreed to keep until a commercial and on an agreement with them, and that is in the North of Oman. The rest, they already are on their network. So they're covering almost all the areas with exception to a small portion in the North of Oman. Is there any agreement? We are in the negotiation phase of actually how do we extend that portion only, the area I was referring to, for another 1 year until they actually complete their full network rollout.

Okay. Got it. I have 2 more questions, if I may.

Okay. Go ahead.

See, it's about the tower sales that we have been talking about for quite a long period of time. Is there any update? Or at least, is there any internal time lines set by Ooredoo for reaching a decision on the tower sale?

Yes. Joice, I think, so far, there is no update on this. Once there is an update and a bit of clarity on what are the next steps, we will give you some updates either announcement or whatever is the form. But so far, there are no updates on this.

Okay. My last question is on your payout ratio. That has been the lowest since a long period of time. What are the factors that led to the change in dividend policy? And what will be your dividend policy going forward? Will be -- will we be looking at the 65% payout ratio? Or should be looking at a higher payout ratio, especially when you are planning to leverage your balance sheet and you're looking at higher investments for in the future?

Yes. There have been actually a number of discussions related to this with the -- our Board members and based on various scenarios and various actually cash requirements as well as actually the plans and the expansion plans, which we are having in the -- in front of us. So this is actually what we believe is best for the organization and the future perspective also of the organization, which will lead eventually to a higher value creation for the shareholders.

So what's the indicative payout ratio that we should be looking from a modeling perspective, 65%? Will it be stable for the next couple of years?

Last year, we paid 90%, if you remember. So every year is actually a special case. We will try basically based on the projects. And we always try to make the payment as progressive as possible. Let's see how '25 moves on. And I'm very optimistic that our Board will take the best decision that suits the organization as well as the future perspective of the investments -- of the investors as well.

Thank you, Joice. [Operator Instructions] So it sees, Yassem, please go ahead.

[Foreign Language]

[Foreign Language] And then I will translate in English, so that everybody actually understands what Yassem has said.

[Foreign Language]

I actually would like to thank you also for your any passionate interest in the performance of the company and trying to exchange few insights with the team here. And by all means, we are more than happy to sit with you, with any of the colleagues who wants to understand prior to this call or whenever your time permits because at the end of the day, this is your rights, and we are here to actually maximize the value of this company. Your question was around, we have seen this performance for the last 4 years. There is, let's say, a falling knife decline on the net profit. The question specifically, are there plans? Are we going to see this going even down further or there is an improvement? Let me first acknowledge that it is a fact, we are experiencing some challenges in different business lines, but mainly in the B2C areas, and that is due to the market dynamics. But not only that, there are a few also challenges internally. The assurance we are giving to you is there are programs that are not only 1 year and not only to do with cost optimization of people and this. There are cost optimization and cost efficiencies. There are programs for new growth in business streams. I mentioned only a few. Data center is an area we are now accelerating to monetize. The international wholesale projects, I will only name one, which is the international MPLS hub. That is actually not only going to reduce the cost we used to pay for international carriers, but it will actually position Ooredoo in markets like Singapore, Frankfurt in Germany and India as well. And this is going to also be a growth area for international wholesale, which, as Nasser said, is a high gross margin. Maybe we don't see this very much in the last few -- 2 years because, also, there is also a cannibalization in the wholesale, for example, the carve out of Vodafone. So you increase some in here, but you also lose some because of different reason, whether it is the market, whether it is the curve out of a national roaming with the Vodafone. In short, there are programs, some of them of a quick wins. Some of them are very long -- I mean, long-term projects, and there are marginal gains that you would see in the coming -- this year and then the coming few years.

[Foreign Language]

[Foreign Language] [Operator Instructions] So it seems no more questions. So I would like to thank all of you. I would like to thank Nasser and Saoud and all of you for attending this call. And if you have any other questions, you may contact us at any time. And also you may refer to MSX disclosures and also our Ooredoo website for any future updates. So thank you all.