Ooredoo Q.P.S.C. (ORDS) Earnings Call Transcript & Summary

Welcome to Ooredoo Third Quarter 2020 Financial Results Investor Call. I will now hand over to Mr. Andreas Goldau from Ooredoo Group. Sir, please go ahead.

[Foreign Language] Hello, and welcome to Ooredoo's financial results call. My name is Andreas Goldau from the Investor Relations team. Like in our last call, my colleagues are dialing in from various locations across Doha. We are joined by Sheikh Mohammed Al Thani, Deputy CEO of the Ooredoo Group and CEO of Ooredoo Qatar; Ajay Bahri, our Group Chief Financial Officer; Andrew Kvålseth, our Chief Commercial Officer; Mark Dowds, our Chief Strategy Officer; and Sara Al Sayed from the Investor Relations team. Sheikh Mohammed Al Thani will start the session with a summary of our results. Then Ajay Bahri, our group CFO, will provide more details on the quarter. And in the end, we will have the usual Q&A session. We'll keep the presentation brief to allow enough time for your questions. The presentation is available on our website at ooredoo.com as well as on this webcast. Please do note the usual disclaimer on Slide #2. So to begin, I will now hand it over to Sheikh Mohammed.

Thank you, Andreas. Good afternoon, everyone, and thank you for joining Ooredoo Group investor call. I'll start with some high-level highlights of our results of Q3 2020. I would like just to say a few things. Here, we as Ooredoo always believe our investment in our technology and network and digital are really a key element for our success. That's how we have recently and witnessed how to navigate our -- the challenges that we have been through the pandemic and how we are serving our customer at best during this tough time. Today, I'm proud to announce that we, as Ooredoo, we have more than 50% of our total revenue attributed to the data. And that can translate how we are accelerating our digital. Yes, thanks to the pandemic, but that's how -- also telling how we're confident in our strategy of digitization, our core and how we go and embracing the raise of digital part. Also, as you can see here, our revenue declined by 3% year-on-year, that's affected by the COVID-19 pandemic. It has been impacted big time in some markets because of the huge or large lockdown that happened across our markets. However -- and also some micro atomic weakness. However, we have seen some improvements and back to the growth from Q3 2020 compared to Q2 2020. Also, if you can see here, from a high level, our EBITDA declined by 4% year-on-year. And that's also impacted by the top line reduction and some challenges market that we have been, as I said, either from macro economy, like Algeria, or full lockdown in Iraq and Kuwait. We remain committed, being efficient and smart in our cost and investment and how we can be focused also to accelerate our digitalization during this tough time. And that's reflecting our strong EBITDA margin for the 9 months. If we move to the net profit, we can see there is a growth of 16% year-on-year, and that attributed also to a foreign exchange environment compared to the last year. I think details of this bottom line financials will be explained further by our group CFO in a little while. So as I said earlier, and if you can see also in data revenue, we have -- and we are very proud of having around 50%, and that's reflecting how we are really leading in the data and digital transformation initiative that we have started across our operational markets. So from that, I would -- just to highlight about digital. We know that digital is part of our strategy, and we always being vigilant how we can be at the top or at the beginning from that race compared to our peers. And that's where you can see digital has really taken part of our revenue growth for 2020. And we are really adopting the initiatives how we can be sustainable for digital growth and working into new [ initiatives ] of digital. So having said that, I will hand over now to my colleague, Ajay Bahri, our group CFO, to take you through the financial breakdown. So Ajay, the floor is yours.

Thank you very much, Sheikh Mohammed, and good afternoon to everyone for joining the call today. Let's move to Slide #5 for more information about our group revenue and EBITDA. We continue to see positive revenue trends in Indonesia, Tunisia, Myanmar and Palestine. However, as Sheikh Mohammed explained, the COVID-19 impact, the reduction in handset sales and growing revenue as well as macroeconomic weaknesses in some of our markets, group revenues are down 3% during the first 9 months of 2020 compared to the same period last year, reaching QAR 21.4 billion. EBITDA declined 4% year-on-year to QAR 9.2 billion for the first 9 months of 2020 due to lower revenues and higher cost of sales as well as challenging market conditions in Algeria, Kuwait, Iraq and Oman. This was partially offset by strong EBITDA growth in Indonesia and Palestine. We continue to focus on driving efficiency across all our operations, while optimizing our cost base, which helped us maintain a strong EBITDA margin of 43% during the 9-month period. Sequentially, we are beginning to see growth in both revenue and EBITDA in the vast majority of our markets, signaling the beginning of a recovery should the pandemic be contained. As a result, revenue grew from QAR 6.8 billion to QAR 7.3 billion from quarter 2 to quarter 3, and EBITDA grew from quarter 2 from QAR 2.90 billion to QAR 3.2 billion during the same period. Let's move to Slide #6 (sic) [ Slide #7 ], net profit. Good net profit attributable to Ooredoo shareholders increased by 16% to QAR 1.5 billion during the first 9 months of 2020 compared to the same period last year due to a more favorable foreign exchange environment as explained by Sheikh Mohammed. Excluding the FX impact, net profit for the 9-month period would have been QAR 1.1 billion in the 9 months compared to QAR 1.3 billion for the same period last year. However, for the 3-month period, net profit excluding foreign exchange would have been QAR 508 million in quarter 3 2020, compared to QAR 475 million for the same period last year, showing the growth in operational performance in quarter 3 year-on-year. Moving on to Slide 7, capital expenditure and free cash flow. As you will see that CapEx for the period was stable at QAR 3.4 billion, representing a CapEx to revenue ratio of 16%, which is in line with our guidance. We remain focused on optimizing CapEx by taking advantage of the really good economies of scale. We continue to generate positive cash flows even in these challenging times. Although free cash flow for the first 9 months decreased 3% to QAR 3.7 billion compared to the same period last year. Please do note that the free cash flow for quarter 3 2020 actually improved compared to the third quarter of 2019 by 12%. Moving on to Slide 8, total customers. You'll see that the total customer base increased by 3% in the 9-month period. Growth was driven mainly by strong customer acquisitions in Qatar, Indonesia, Iraq and Myanmar. Moving on to the next slide, net debt. We continue to maintain a healthy and well-balanced debt profile. Net debt decreased by 12% to reach QAR 23.6 billion as we maintain our course of deleveraging. Net debt-to-EBITDA is at 1.7x, which is within the long-term guidance given by the Board of 1.5 to 2.5x and well below our bank covenants of 4.5x. Group debt remains mainly at a corporate level, largely in Qatar, followed by Indonesia and then a smaller percentage allocated to the other operating companies. As a reminder, that at the opco level is kept primarily in local currency. Moving on to the next slide. We're beginning to see a recovery in the vast majority of our markets following the easing of movement restrictions in many of our markets. However, we remain cognizant that as the COVID-19 pandemic continues, policy measures will continue to change and customer preferences will evolve. So as far as the guidance is concerned, visibility is still limited, but we've seen an improvement in our run rate during the third quarter, which is close to the guidance level we've given. We'll not revise our guidance to factor the impact of COVID-19 pandemic. Please turn to Slide 12 for an operational overview of our opcos, starting with Qatar. In our home market of Qatar, we maintained our focus on strengthening our network and bringing innovative offers to the market. The Ooredoo Fibre rollout program continues to connect an increasing proportion of the population, and now has 463,000 homes connected across the country. During the quarter, we launched Ooredoo ONE, an all-in one home service comprising TV, home broadband and landline, which contributed to a 2% increase year-on-year on customer numbers for Ooredoo tv customer base. Our overall customer base increased 3% to 9 million -- or to 3.3 million in the first 9 months of 2020, showing a strong growth in our mobile and postpaid customer base. Financially, even as Qatar is in the phase 4 of the reopening program and business activity has resumed, limited international travel has impacted our roaming revenues. Ooredoo Qatar reported revenues of QAR 5.3 billion for the first 9 months, down 3% compared to the same period last year. Consequently, EBITDA decreased 5%, reaching QAR 2.9 billion during the first 9 months. We continue to focus on optimizing our costs that helped maintain strong EBITDA margin of 55%. Sequentially, revenue increased 1% to reach QAR 1.8 billion. This was driven by growth in fixed and ICT services. This revenue growth also supported EBITDA growth of 4% sequentially. Ooredoo Qatar's network enhancement program ensured network and telecom support and readiness could be extended to quarantine centers and hubs as required. Moving on to Slide 13, Indonesia. Indosat Ooredoo continues to yield results off its strategy to offer customers simple, relevant and transparent products, which supported a 3% increase in customer base to 60.4 million at the end of 9 months of 2020. This supported a 6% increase year-on-year in the company's revenue to reach QAR 5.1 billion, driven by mobile and data services on the back of enhanced network. EBITDA for the first 9 months was QAR 2.4 billion, an increase of 11% compared to previous year. This was driven by robust top line growth and strict cost discipline. As a result, EBITDA margin increased from 44% to 46% in 2020. Sequentially, revenue and EBITDA increased 5% and 2%, respectively. Moving on to Slide 14, Iraq. In Iraq, we are beginning to see a recovery following the easing of movement restrictions. On a quarterly basis, revenue increased 24% and EBITDA increased 41%, supported by a recovery in voice and data services. Our results for the first 9 months were impacted by weakness in the first half. Revenues for the first 9 months were QAR 3 billion compared to $3.3 billion last year. EBITDA declined 11% year-on-year to QAR 1.3 billion. Asiacell continues to focus on careful cost management and optimized marketing spend during the period, which supported a healthy EBITDA margin of 45% during the first 9 months of 2020. Asiacell extended its metro fiber to 5 new locations, which also recorded a 1% change in customer base to 14.2 million over the first 9 months compared to the same period last year. Preparation for the launch of LTE services in 2021 are progressing well. Moving to Oman, Slide 15. Ooredoo Oman accelerated the pace of its 5G rollout, extending the coverage of the 5G SuperNet home Internet services to more areas in the country, as we remain committed to offering our customers the most advanced infrastructure to keep them connected. Movement restrictions and the strength of the expat population in Oman impacted the results for the period. Ooredoo Oman reported revenue of QAR 1.9 billion during the first 9 months, down 5% compared to the same period last year, driven by a reduction in mobile revenue. Consequently, EBITDA declined 9% to QAR 1 billion compared to the same period last year. Sequentially, overall, we witnessed an early stage of recovery. EBITDA increased 3% in quarter 3 2020 compared to the previous quarter. To raise our customers -- customer base of 2.6 million and differentiate our offerings in the market, Ooredoo Oman launched Pay+, a mobile wallet enabling customers to make contactless deposits, bill payments, transfers and pay at over 3,000 merchants by just using their mobile numbers. We also remain committed as according the local community through these uncertain times by donating laptops to students and providing access to an online education portal and app-based learning solutions through its enhanced digital tutorial app. Moving on to Slide #16, Kuwait. Ooredoo Kuwait's performance for the first 9 months was impacted by a softening of macroeconomic environment and intense price competition in the market. The company reported revenue of QAR 1.8 billion for the first 9 months, down 9% compared to the same period last year. EBITDA for the period was QAR 482 million compared to QAR 636 million last year. Sequentially, we are starting to see market conditions stabilize as commercial activity picks up following the easing of movement restrictions. Quarter-on-quarter revenue increased 5% within Q2 and Q3, and EBITDA increased 9% for the same period. Ooredoo Kuwait's customer base at the end of 9 months of 2.4 million. In September, we celebrated 1,000 days of data center service with 0 downtown. Moving on to Slide 17, Algeria. Economic conditions in Algeria deteriorated during the COVID-19 pandemic adding to the already challenging market, characterized by intense price competition and currency weakness. The Algerian dinar also depreciated 5% year-on-year. Ooredoo Algeria reported a revenue of QAR 1.7 billion, down 11% from last year. Consequently, EBITDA for the 9 months was down 13% to QAR 575 million. Ooredoo Algeria continues to focus on cost optimization, supported by a stable EBITDA margin of 34%. The company witnessed a positive quarter-on-quarter trend in both revenue and EBITDA, which increased 10% and 20%, respectively, in Q3 2020 compared to Q2 2020. Ooredoo Algeria's customer base was 12.3 million at the end of the first 9 months compared to 13.4 million last year. Moving on to Slide 18, Tunisia. In Tunisia, we continue to focus on offering our customers the best in digital experience. And during the quarter, we launched our updated My Ooredoo App, which boosted the adoption of our digital sales and care channels. Our strong digital capabilities and innovative products offering enabled Ooredoo Tunisia to grow its revenue by 2% during the first 9 months, reaching QAR 1.1 billion, despite challenging macroeconomic conditions due to COVID-19 pandemic. EBITDA for the period was QAR 494 million compared to QAR 523 million for the same period last year. Just as a reminder, last year in 2019, there was a one-off reversal which benefited 2019 results. And in addition to that, 2020 was impacted by increased billing and collection costs, reflecting a slow in economy. Sequentially, Ooredoo Tunisia increased revenue by 12% and EBITDA by 22% compared to Q2 2020, showing the recovery in the performance. Ooredoo Tunisia's customer base was 8.8 million, reaffirming its position as the #1 telecom player by customer market share as well. Moving on to the last opco, Myanmar, Slide #19. Our digital offering continues to be well received in Myanmar, with the Ooredoo App increasing its monthly active user base to 3.35 million, supported by the launch of the new version of app. Our subscriber base also increased to 13.1 million during the 9-month period. Ooredoo Myanmar reported revenues of QAR 872 million, up 8% compared to the same period last year, supported by favorable exchange rates and increased data consumption, which offset a decline in voice revenues. However, increased customer acquisition costs contributed to a decline in EBITDA to reach QAR 198 million. Sequentially, there was a slight revenue decline of 1% in Q3 2020 compared to Q2 2020. This concludes the presentation. I will now hand you back to the IR team.

Thank you very much, Ajay. Before we go into the Q&A session, we are sharing with you our conference planning for the remainder of the year, 3 conferences in November, all virtually, by Bank of America, Morgan Stanley and Arqaam. We hope to see you at these events. And now we can start the Q&A part. [Operator Instructions] Dunia, would you please be so kind to explain our participants how to ask questions. Thank you.

[Operator Instructions] Our first question comes from Dilya Ibragimova, Citi.

I had 2, please, from my side. First is on Qatar revenue and EBITDA improvement in the third quarter. You mentioned that both have been supported by the ICT and fixed revenue. Could you please quantify how much of that is actually, you expect to be recurring, all of that or whether there has been a one-off project in there? My second question is on the miscellaneous income that you tend to have -- that you just reported below EBITDA. There has been, I think, a chunk of QAR 100 million and further QAR 87 million in the second and third quarter, respectively. Could you give some follow on that, what it relates to and whether that's cash income or noncash? And maybe last question, again focusing on Qatar, maybe you could -- if you could update on the competitive environment in mobile. How do you see the price competition? And with the focus on to 5G, is it being positioned by you and Vodafone as a premium product or just more of -- whether you see opportunity to drive ARPU and revenue growth as you launch -- as the 5G devices come on the market?

Okay. I'll take that question. Regarding Qatar, I would like just to say a few things here. We are very solid in our quarter in Ooredoo Qatar, and we have been reporting a very solid quarter 3 2020 compared to the last quarter and also compared to the Q3 2019. And we know that when we see or look at the year-on-year, we have seen that decline, which is impacted heavily by COVID-19. We know that, for sure, we as a telco industry, we are the least impacted compared to other businesses, and that's -- the pandemic really hitting the global or hitting all the globe. So however, when we talk about our growth, and it's been mentioned by our group CFO, the main increase we have seen is in the fixed and ICT. And that's, frankly speaking, of our advantage and being unique in our Ooredoo ONE tv that we are providing a home broadband, TV and landline. And that's where Ooredoo Qatar is having an advantage of offering this type of a product, which, honestly, we have seen also an increase in customer base by 2% year-on-year. And that's where we can see the increase coming from a fixed line. As well as been mentioned also in the ICT business, we have seen a growth in Ooredoo Qatar, and that's also attributed to the pandemic, where we had seen a lot of demand of video conferencing and enterprise services that really bringing the increase in the ICT business and other managed services that we have seen for the last few months during the pandemic. Concerning the question or query about the mobile, we know that mobile market has been flat. And we have seen a tough competition, specifically for the prepaid. And I could attribute that the prepaid decline is because of the pandemic that really affected the disposable income of workers, and also consolidation of some services that customers have been -- or confidence -- customer confidence has been hit by this pandemic. And this consolidation of services and products has been also a bigger part which is really hitting, I think, the market itself. However, we have been very proud how we are excelling in our mobile services through our recent 5G plans in Qatarna, which really bringing uplifted ARPU and unique products in the market as well as the type of products that we are offering. So that's really bringing a flavor how we are uplifting the -- or giving the value for money for our customers through a good type of products here. For questions, I think -- or part of that question, related to that, below the line, I would maybe leave that question to my colleague, Ajay, our group CFO, to highlight of this below the line, let's say, remarks. Ajay?

Thank you, Sheikh Mohammed. Thank you very much. For the miscellaneous income, the year-on-year increase is about QAR 235 million. The biggest piece of that increase is coming from foreign exchange movement. About QAR 80 million comes from foreign exchange movement, primarily coming from Myanmar. Apart of them, there were 3 other large items, 2 of them were last year, which were benefits in Indonesia, one of the spectrum-related bottlenecks, if you'll recall, and certain reversal of tax provisions last year. And this year, the major other income coming in is also from Indonesia, which was the reversal of the warranty provisions for the sale of the towers there. So these are the 4 big reasons why the variance was there between the 2 years. So complete foreign exchange benefit is not coming to the bottom line because last year, there were 2 large one-offs in Asia. It was partially offset by the warranty provision reversal.

[Operator Instructions] We have no further audio questions. Dear speakers, back to you for the written questions.

We have one question from Omar Maher. Could you please provide updates on competitive dynamics in Iraq?

Sure. Let me take that question. And without cutting the 2 dynamics, right now, the most important one really is that in quarter 2, because of the pandemic, there is a shutdown in the country and that's why we saw a steep decline in the overall market size. And you can see a steep recovery now coming into the market. As a result of this recovery, there was a significant increase in both revenue and EBITDA quarter 2 to quarter 3, almost 24% increase in revenue and 41% increase in EBITDA. So we can see some stability coming back from the COVID impact, but not still reaching the normal levels. As far as competition is concerned, it's been always intense in Iraq, and that intensity still continues. The real dynamic in Iraq is going to be the launch of 4G services, which was initially expected to happen in the beginning of next year with the award of the spectrum and renewal of the licenses. And maybe it's good to highlight that the license renewal has been challenged in the court by one of the parliamentarians there, and that issue is still not decided. So we'll wait for the court decision to see how this progresses going forward. I think there's a questions from Omar, is there? So he's question, would you like me to answer now?

I think there was a follow-up from Omar. He said, "Can you be more specific? My question is, would you say that the intense price competition is value-destructive in your view? Or is it not?

I this quarter, the -- actually, we can see a recovery quarter-on-quarter. And the price competition, like I said, has always been there, it goes up and down. So nothing unusual about the intensity. But the offers, which are unlimited in nature, if they are not controlled well, there is a risk of destroying the market, that is true. But we have to see how that plays out in the coming quarters.

Great. Thank you, Ajay. Then we have a question from Yejide Onabule, plans to refinance the bond in 2021 in the market.

So the February refinancing for the $1 billion bond, we are quite well placed, right, in terms of the liquidity. And we are looking at options if you need to access the market, which will include options of going to the bank market or the bond market. So those reviews are still ongoing. If there's any update to that, we'll let you know. But as far as the liquidity is concerned, we're well placed already for the refinancing.

Great. Thank you. Then we got a question from [ Anastosios Galifianakis ]. Could you please update on coverage and 5G speeds in Qatar? And how do you see iPhone 12 sales developing in Qatar?

Okay. I'll take that question. I think we are -- regarding the coverage, we are very proud to say that we have more than 90% coverage of 5G on the populated area. I think that we have been seeing the progress of the 5G network also having an iPhone 12 coming and launched, that will really complement the experience of our customers and how we are very confident also that we can provide the best customer experience when this 5G are out in the market. We know that there is a big portion, a big percentage of our customer base, they are iPhone-driven. And I'm sure that we will have that confidence and customer experience enjoyment by our customer base.

All right. We got one -- another question from Yejide Onabule. Can you comment on the Omani market, new players, competitive behavior and strategy?

So the Oman market has witnessed a shrinkage in market this year, partly because of pandemic as well as the level of intensity and competition on the mobile side, which also has MVNO, as you know, in the market there. Competition is going to come now next year, the strategy of Ooredoo Oman is based on focused customer service and digital excellence. An example of that was the launch of the Pay+ mobile wallet recently. We continue to improve our customer service and digital approach, there are a lot data services in the market. Another aspect of Oman is also the fixed line business, which is growing well, where our market share is lower end and we're growing our market share. So it's basically making sure excellence on the digital side, which is the core of a group strategy where Oman also plays a key role.

We have another audio question from Ziad Itani, Arqaam Capital.

I just have a question on the dividends. So your policy is 40% to 60% of normalized earnings. I'm just wondering if we can consider what's disclosed on Slide 7 for the 9 months of QAR 1.1 billion as a normalized earnings or not.

I think we'll talk about normalized profit once the full year is over. But I think big picture, which is the foreign exchange movement, which is unrealized, is taken out from that. In that perspective, you're right, that will be excluded, the gain or the loss when we look at the normalized profits here. But more details we can talk about once the full year results are there on how we will determine what is normalized. Any one-off big items, some of them, certainly the miscellaneous income, could also be something you might have to consider.

Okay. So the miscellaneous also, again, should be probably remote from this. Also, just one more question on the MVNOs in Kuwait, is there any development on this?

I'll take that question. There has been some development. But when the pandemic started, there has been, let's say, some frozen talk into MVNO. And that's where we stand as of today.

Okay. Great. And also on Kuwait, anything new on the number ranges case?

There has been no such progress, still on the stages of the higher court. In that sense, we can update when any such progress happens.

Okay. And one last question on Iraq. Also, you mentioned you plan to launch 4G services next year. Is this associated with the license renewal or it's separate? Or it has to be one-on-one agreement, basically? And is there any color on the potential cost of this?

I think, Ajay, can you take that question?

Yes, sure, sure. So the 4G launch in services was in the same decision, which has been challenged in the court now, which included the license renewal as well. So until this court decision comes out, it will be difficult to say what will be the final amount. But the initial decisions were reasonable and in line with market rates, about $233 million of these renewal costs. But we'll have to wait and see what happens in the court case there.

Okay. And any time line on this?

We believe the hearing is coming next month. But as you know, court cases can take some time. But given the urgency of this matter, we believe this should have, hopefully, a sooner resolution.

[Operator Instructions]

It looks like we covered all the questions. I don't see any more on the webcast or on the audio. Dunia, is that correct?

I can confirm that we don't have any further questions.

Great. Then I would like to thank everyone for joining today's call. Please refer to the Ooredoo Investor Relations website for additional updates. Do follow us on Twitter, @OoredooIR, or feel free to contact the Investor Relations team if you need further information. We look forward to your future participation at the conferences in November, and our next update is the full year results probably mid of February. Meanwhile, thank you again for your continued interest in Ooredoo. Stay safe.

Thank you. Ladies and gentlemen, this concludes today's webcast. Thank you all for attending. You may now disconnect.