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

Okay, I think we are good to start. I see we have around 65 people in the call. So [Foreign Language]. My name is Andreas Goldau, from the investor relations team at Ooredoo, and I'm happy to welcome you to our full year 2020 results call. This is the first time actually that we are doing a call on -- an investor call on Zoom, so fingers crossed that everything works out. Let me introduce you my fellow speakers. So today, we are joined by Sheikh Mohammed Al Thani, who is the Deputy CEO of the Ooredoo Group and the CEO of Ooredoo Qatar. We got Ajay Bahri, our Group Chief Financial Officer; Andrew Kvålseth, our Chief Commercial Officer; Mark Dowds, Chief Strategy Officer; and Fatima Al Kuwari, who is the Chief Commercial Officer of Ooredoo Qatar. I would like to refer you to our presentation and especially the disclaimer there on Slide 2. Also, if you ask any questions later, please be mindful that this call is being recorded, and if you don't want to be seen on this call, don't turn on your camera. Or leave the call completely, but it will be uploaded on our website later. The presentation is available on our website as well. And Ajay, our group CFO, will provide more details on the quarter after some introduction remarks by Sheikh Mohammed. Then Andrew will provide you with an update on the company's digital health. And as always, we will leave ample time for your questions at the end of the session. So to begin then, I would like to hand over to Sheikh Mohammed and if I could ask Sara to share our presentation as well. Thank you, Sara. Okay, apologies about that. I just hear that Sheikh Mohammed is not connected on the line yet, so in this case, I would like to ask Ajay to kick off the meeting with the opening remarks. And Sheikh Mohammed is going to join us, hopefully, later.

Thanks, Andreas. I think we can give a few seconds for Sheikh Mohammed [indiscernible] the icon right now on the screen. If we can wait for a few seconds.

Hello...

Excellent. I think we got Sheikh Mohammed now as well, so that's great news. Apologies for the start. So in this case, I would like to ask Sheikh Mohammed, Deputy CEO of the Group and CEO of Ooredoo Qatar, to start with some opening remarks on our financial year 2020 results.

Thank you, Andreas. I'm sorry for being late because of technical issues there just to get in. So I would like to just start for a high level of group results. And as everyone knows and can see from that slide, COVID-19 has really affected and the pandemic has affected our -- all opcos and operation across where we are. And we have seen -- or you can see here also the revenue has declined by 4% year-on-year. And that's heavily, as I said, a COVID-19 impact, also reduction in handset sales and roaming businesses and some offers that we will cover later on by Ajay as well. Also some macroeconomics weak in some markets despite the growth, offset by other markets like Indonesia, Myanmar and Palestine. In terms of EBITDA, decline happened as also resulted from a revenue decline, and that's decline of 6% year-on-year. Also a challenging market conditions in our most markets have really affected our EBITDA. We're still making sure that we have a very healthy EBITDA margin at 42% for the year 2020 too. And we're still having our ongoing program of cost optimization and digitalization that really can enhance and improve a healthy EBITDA across all our operations. And when it's come to the net profit. Our net profit at Ooredoo decreased by 35% year-on-year. That's stands at QAR 1.1 billion in 2020. Of course, that also lower EBITDA affected the bottom line for 2020, but also compared to last year, there is a gain of one-off, that sale of our towers in Indonesia. Data revenues accounted for more than 50%. And that really goes in line with our digital strategy and vision for Ooredoo Group and opcos around how we can transform our business and, of course, that we are operating -- what market that we are operating at. Our customer number has increased by 3%, reaching 121 million. We still have a very healthy cash reserve and liquidity levels. We also say that we have a very good performance on our healthy EBITDA margin. That's also -- it translated on the bottom line despite some one-off of last year and as well as a lower EBITDA that's affected the bottom line. Despite all these challenges, our Board recommends a distribution of QAR 0.25 per share. Having said that, as I said, this is a glance of [ available ] view of the group results in 2020. I think, as a telecom or the industry that we are in, we are the least impacted. We have been very resilient. We make sure that we really serve our customer across all our opcos through the best service that we can deliver. And I think, with that challenging year that we have been through, it has been a very good performance across all our operations. By that, I will leave the floor for our colleague Ajay, our group CFO, to take you through for the further details by opcos and operation.

Thank you, Sheikh Mohammed. [indiscernible] to all of you. Let's move on to the next slide, revenue and EBITDA. Revenue in 2020 was QAR 28.9 billion, down 4% compared to the previous year primarily due to COVID-19 impact; and also partly due to handset sales being lower, roaming business being lower and in addition the macroeconomic weakness in some of our markets. Despite these challenges, we reported positive growth in Indonesia, Myanmar and Palestine. We maintained cost discipline and focused on delivering efficiencies through digitization during the year, resulting in healthy EBITDA margin of 42% in 2020. However, due to the decline in revenue, EBITDA declined 6% to QAR 12.1 billion in 2020 compared to the previous year. Let's move to the next slide, net profit. Group net profit for the year was QAR 1.1 billion, a decline of 35% compared to the previous year, and that was due to decline in EBITDA. And also when compared to 2019, there was a positive impact last year due to one-off gains from our Indonesian tower sale. We reported a net loss in Q4 due to foreign exchange losses mainly due to the devaluation of the Iraqi dinar in December and a one-off impairment from an investment. Let's move to the next slide, capital expenditure and free cash flow. As you will see, the CapEx for the period was stable at QAR 5.8 billion, representing a CapEx-to-revenue ratio of 20%, which is in line with our guidance. We remained focused on optimizing CapEx by taking advantage of Ooredoo Group's economic -- economies of scale. An example of this is our strategic 5G agreement with Ericsson for the supply of 5G equipment as well as related implementation and integration services for all 10 group operating companies. We generated a positive free cash flow in 2020 despite the challenging environment due to the COVID-19 pandemic. Cash flow for Q4 was impacted by net losses in Q4, as explained earlier. Moving on to the next slide, total customers. As you will see, the total customer base increased 3% to more than 120 million in 2020 compared to the same period last year. Growth was driven mainly by strong customer acquisitions in Myanmar, Indonesia and Iraq. Moving on to the next slide, net debt. We maintained a healthy and well-balanced debt profile and continued to make progress in deleveraging. Net debt declined 3% year-on-year, to reach QAR 24.1 billion in 2020. Our net debt-to-EBITDA ratio is 1.9x, which is within our long-term guidance of 1.5 to 2.5x and well below our bank covenant of 4.5x. Group debt remains mainly at [ corporate level, i.e. ], in Qatar, followed by Indonesia and then a smaller percentage allocated to the other opcos. As a reminder, debt at the opco level is kept primarily in local currency. Moving on to the next slide. As you know, 2020 was unprecedented year, but despite this, we delivered a healthy set of results. In 2021, we expect to improve [ all of the ] run rates in terms of revenue and EBITDA. The expected range is between negative 3% and positive 1%. The actual results will vary, depending on COVID-19 developments in our markets. We will continue to invest in our future with CapEx between QAR 5 billion and QAR 6 billion allocated primarily for the rollout and maintenance of our 4G and 5G networks. Let's move on to Slide #12 for the operational review of our opcos, starting with Qatar. In home market Qatar we continued to lead the way with innovative offerings to provide our customers a seamless digital experience. In 2020, we launched the OSN Streaming app for our postpaid customers. And we also launched the new Ooredoo Money Android app. Financially, we were impacted by the global travel restrictions, which negatively impacted our roaming revenues. Revenue declined slightly in 2020 compared to the previous year. This flowed through to the EBITDA. The cost optimization initiatives enabled us to sustain a robust EBITDA margin of 52% during the year. Our customer numbers increased marginally to 3.3 million in 2020, supported by growth in the postpaid segment and Ooredoo tv. Support for the community remained a top priority, with extended network and telecom support provided to quarantine centers and hubs across the country. In addition, Ooredoo was also named 1 of the 10 best brands in Qatar in efforts to combat COVID-19. Sequentially, revenue increased 1% to QAR 1.8 billion in Q4 2020 compared to Q3 2020, driven by higher handset sales. The EBITDA margin was impacted by a one-off discount for network disruption in November and by the lower-margin handset sales. Let's move to the next slide, Indonesia. Indosat Ooredoo delivered a robust set of results in 2020, achieving quarter-on-quarter growth for every quarter during the year. Year-on-year revenue increased 4% to QAR 7 billion, supported by launch of our digital brand myIM3, which became the highest-rated telco app in Indonesia. We continue to focus on operational efficiencies, which enabled us to increase our EBITDA margin to 46% in 2020 from 43% in the previous year, and this was despite the COVID-19 impact and price competition by competitors. EBITDA increased 11% in 2020 compared to the previous year. Our customer base showed a healthy growth of 2% for the year supported by our investments in our infrastructure, which was recognized at the Opensignal's global mobile experience award 2020 where we received the Global Rising Star award. Sequentially, revenue increased 5% to QAR 1.9 billion in quarter 4 2020. EBITDA margin was impacted by timing of marketing spend in quarter 4. As already announced on 20th December 2020, Ooredoo Group entered into an exclusive and non-legally binding MoU with CK Hutchison in relation to a potential transaction to combine our respective telecommunications businesses in Indonesia. The exclusivity period for the MoU is valid until April 2021. Moving on to the next slide, Iraq. In Iraq, our performance was impacted by movement restrictions implemented to manage the spread of the COVID-19 pandemic. Revenues declined to QAR 4 billion. However, we saw a recovery in voice revenues in second half of 2020, which were heavily impacted during the first half of the year. EBITDA for the year was QAR 1.8 billion, representing a healthy EBITDA margin of 44%, supported by our prudent cost controls and efficiency measures. Asiacell's customer base increased 4% to -- in 2020 compared to the previous year as the company's digital channels allowed customers to stay connected through the COVID-19 pandemic. Sequentially, revenue declined by 1% in quarter 4 to QAR 1 billion. EBITDA margin was impacted by recording of regulatory fees USF from previous periods. We launched experimental 4G services in late January 2021. Starting 2021, the company signed with CMC a license agreement for $233 million to renew the company's license for 8 years. Moving on to the next slide, Oman. Ooredoo Oman continued to invest in its network and launched new digital products for its customers. They extended coverage of 5G home broadband to new areas of sultanate; and introduced new retail and business products like eShop, pay+ mobile money and 5G business services. Financially, movement restrictions and a shrinkage of the expat population in Oman impacted our results for the period. Revenue was down, and consequently, EBITDA declined. Cost optimization initiatives and digital transformation supported a healthy EBITDA margin of 53% in 2020. [ So Ooredoo ] Oman maintained a customer base of 2.8 million. Sequentially, revenues declined 1%, to reach QAR 619 million, which also impacted the EBITDA margin. Moving on to the next slide, Kuwait. Ooredoo Kuwait's performance in 2020 was impacted, like other opcos, by COVID-19; a softening of the macroeconomic environment; and price competition in the market. The company reported revenues of QAR 2.5 billion. EBITDA for the period was QAR 617 million, down from previous year as a result of lower revenue. 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 6% in local currency between Q3 '20 and Q4 '20. However, the EBITDA was impacted by year-end provisions for collections. Ooredoo Kuwait's customer base at the end of 2020 was 2.5 million. Ooredoo Kuwait remains committed to its 5G rollout despite the challenges of COVID-19 pandemic. Along with its network deployment, Ooredoo Kuwait continues to launch new products for its customers, including collaborating with Citrix to offer innovative B2B solutions. We are proud to be recognized by the Kuwait Red Crescent Society, which honored the voluntary role Ooredoo Kuwait employees performed to support society throughout the ongoing pandemic. Let's move to Slide 17, Algeria. Economic conditions in Algeria deteriorated due to the COVID-19 pandemic, adding to the already challenging market characterized by intense price competition and currency weakness. The Algerian dinar depreciated 5% year-on-year. Ooredoo Algeria reported revenues of QAR 2.3 billion. EBITDA was down 14%. Ooredoo Algeria continued to focus on cost optimization, supporting a stable EBITDA margin of 33%. Sequentially, revenues were stable at QAR 570 million. EBITDA margin was lower due to higher marketing spend in quarter 4 and one-off provisions for taxes and regulatory costs. Ooredoo Algeria's customer base declined to 12.5 million in 2020 compared to the previous year. Moving on to Slide 18, Tunisia. Ooredoo Tunisia grew its revenue by 3% in 2020 compared to the previous year despite challenging macroeconomic conditions. EBITDA for the year was QAR 650 million compared to QAR 682 million in 2019, impacted by increased billing and collection costs, reflecting a slowing economy. Sequentially, Ooredoo Tunisia revenue was stable in Q4 at QAR 392 million, with some decline in margins due to timing of marketing spend and provisions for collections. Ooredoo Tunisia's customer base was 8.2 million in 2020, reaffirming its position of the #1 telecom player by customer market share. Ooredoo Tunisia continued its network dominance by registering the fastest 4G mobile data speeds in the country. Moving on to Slide 19, Myanmar. Our digital offering continues to be well received in Myanmar, with the Ooredoo app increasing its monthly active users to 3.2 million. Our subscriber base increased 28% to 14.7 million in 2020 compared to the previous year. Ooredoo Myanmar reported revenue of QAR 1.2 billion in 2020, up 10% compared to the same period last year, supported by favorable exchange rates and increased data consumption, which offset a decline in voice revenues. We'll continue to focus on the implementation of all our cost optimization strategies, which along with the increase in revenue supported a 12% increase in EBITDA in 2020 compared to the previous year. Sequentially, revenues increased 3%. EBITDA for the quarter benefited from lower operating expenses as well as certain one-off reversals of previous-period provisions. At Ooredoo Group, we are closely monitoring the developing situation in Myanmar. The group has extended its support to Ooredoo Myanmar, which continues to focus on supporting its customers and ensuring the well-being of its employees during this period. I will now hand over to Andrew to give an update on our digital strategy.

Thank you, Ajay, yes. So we a couple of years ago now, at the end of 2018, implemented a digital strategy across all of the commercial organizations across each of the countries to make it easy for our customers to find, buy and use our services online. And obviously, we saw back then the global trend and the trend in each of our markets of customers spending more and more of their time online. And we needed our capabilities to catch up with that customer demand, so we focused primarily on 3 main areas, with a few supporting areas as well, and that's digital marketing, digital sales and digital care. On digital marketing, we had really 2 missions. Number one was customers were spending more and more of their time on Facebook, Google, Instagram and online platforms, but a lot of our marketing spending was still on traditional media. So step one, we shift our spending to online, to a proportion that matches consumer consumption. And then with that spending, a beautiful thing of digital marketing is obviously that you have a lot of data on what works and what doesn't work so we can then make our marketing far more ROI-driven. So we put the marketing dollars behind the ads in the media and the channels that have impact. And then of course, once we show someone one of our ads, we would like them to click on that ad, and we would like to sell them a product online. So that product is a new SIM card or subscription for new customers. Or for existing customers, it's around up-selling them additional products or packages. And one trend that we saw coming, which made us back in 2018 feel it was imperative to put a big focus on this, was of course eSIM. And with eSIM, you remove the real need for a customer to go to a shop. So with that, we did a big drive behind digital sales as well. And then the last piece is, of course, digital care, which means getting people to use our application to change package or to get support or to purchase a new product. Or anything they would typically go to a store or call our call center for, they now do through the application. And we, of course, had a few internal enablers to support that. We focused heavily on recruiting and building digital talent and teams across our markets, getting in place the right technology and platforms to enable seamless online marketing sales and care. And then of course, all of this is powered with digital analytics and CVM. And then as a telco, we have an incredible access to data that we can use to make our products and services better for our customers. And I think one of the most important things on that is actually the analytics and the algorithms. And then finally, we've begun implementing more agile ways of work so that we're able to drive these things in a much more fast manner. And luckily, we began this journey back in 2018, and this gave us the foundation required to really serve our customers well and accelerate when we had to deal with the challenges that COVID brought about. So that positioned us well, and I think that helped us a lot through this last year of 2020. So thank you very much.

Excellent. Thank you very much, Andrew and Ajay and Sheikh Mohammed. Just in terms of investor relations upcoming events. Ooredoo will be presenting at the third EFG Hermes virtual conference at the beginning of March. And we will announce our Q1 results around the end of April. And now we are coming to the Q&A part. [Operator Instructions]

Yes, I think we got a question there from Nishit. I put you on voice, if that's all right.

Yes. I have a few questions on the results. First, on the ForEx impact that we see from Iraqi dinar's devaluation in December. I was wondering. Other than the translation exposure, do you have any Iraq dollar-denominated debt? Or what exactly resulted in this ForEx loss in 4Q from Iraqi dinar devaluation? So that's my first question. The second one is on Myanmar. Now we've seen some pressure on the currency after the coup, and Myanmar's currency strength helped the operations in 2020. So Mark, what's your outlook going forward in terms of after the coup, how things have changed? And is there any business risk as well along with the fact that you might see some ForEx volatility coming in the income statement? If I'm not wrong, you have some intercompany loan to Myanmar, right, in dollar terms. That will -- that comes as ForEx volatility in your other income. That's my second question. And third, if there can be more details on this impairment. And what exactly has this impairment been done on, which assets in the 4Q? And sorry -- and one more question on the Myanmar as well, for it seems you did well in the -- at the EBITDA level, but that's -- there appears to be some loss in 4Q at bottom line level before taxes. So what happened below EBITDA in Myanmar in 4Q?

Thank you very much, Nishit. I think most of these questions can be covered by Ajay. We start with the Iraqi question, the FX impact there.

Thanks, Nishit, for the questions. The ForEx impact for Iraq is coming at the group level due to some receivables in terms of dividend upstreaming, as if you've followed us for some time, for the past 3 years we've been upstreaming dividends, but before that, there was a time when we could not upstream dividends. So some historical dividends have still not been upstreamed, so they are denominated in IQD. So once we convert that to our base currency, that receivable becomes a smaller number. So that's why you see loss in the books of the group. At the Iraq level, they don't have dollar borrowing of any significant amount, so that is not the reason for the loss. As in the case of Myanmar, where they have dollar borrowing from the group, that's what triggers the loss at Myanmar levels. In fact, it's a good segment to Myanmar. So right now the business is continuing okay. It's early days right now. We are monitoring the situation very closely. Our focus really is to make sure telecommunication services continue and our employees are safe. The FX volatility has been there in this country ever since we have invested there. The current environment can, of course, have an impact on that. This year was good. We had large FX gain during the year, but equally when the FX becomes weak, it turns into a loss as well. So the volatility, if you look at last couple of years, a similar volatility can still continue and this year depending on which way the currency would move. As far as the quarter 4 is concerned, the EBITDA was positive, but again in the quarter itself the FX movement was not as positive. And that's why, for the quarter, you see an impact for Myanmar, but for the full year, the FX was positive for Myanmar. The impairment which has been taken in quarter 4, in the details of our financial statement, you can see it. It relates to our investments that we've done in one of our subsidiaries [indiscernible], where we do a period-end evaluation with the auditors and the impact of foreign exchange as well as the continuing economic deterioration over there. And as result of that, if the carrying value is higher than the valuation of the business, we have to take an impairment. It's a one-off item not expected to repeat going forward.

Yes. Thank you very much, Ajay. On the Myanmar outlook...

I think normally we don't forecast outlook for each individual opcos. We have given you overall guidance for the group, but of course, Myanmar situation is more volatile. And as things develop on the ground, I think we can talk about these things more in quarter 1 results.

Yes. Nishit, just for your information: The importance of Myanmar to the group is limited to around 4% of the group revenue and 2% of the EBITDA. Okay then. We have a question from [ Fatima ]. I put you on sounds as well. Maybe she's not ready yet. Then I hand over to Ziad from Arqaam.

Just a few questions. First of all, with regards to Qatar, can you give us a bit more detail on the network outage you've experienced? How much did it last, and how many users or subscribers did it affect? And is it possible to quantify this impact on revenues and EBITDA for Q4? That's one. Second question is with regards to Indosat and the talks with Hutchison. Is there a scenario where you would see potentially Ooredoo forgo control of the consolidated entity? And how are you looking to achieve this M&A? Is it cash? Could you inject more capital from the parent? Any details on that would be appreciated. And finally, on Iraq with regards to the license renewal. Does it come with 4G? And is the parliament still opposing this? Or it's done. It's ratified.

Thank you very much for the questions. I think, the first one, maybe Sheikh Mohammed, as the CEO of Ooredoo Qatar, wants to comment. We are not talking about a network outage. It was more of a network disruption, so not as dramatic.

Yes. Thank you, Andreas. So what happened in quarter 4, the network outages is an issue that happened to our core network. And it was -- honestly, it's part of our upgrade and what we are doing as routine upgrade for our core network. It's happened, unfortunately, for some time. It affected a percentage of our customers. Hopefully -- it doesn't, [ honestly ], affected full -- the entire customer. However, some of our customer have really felt the outages for a certain time. It really took for some time over the peak time as well as some of weekend, I do remember, and it took us like for a few days that -- to restore. And we managed how we can restore our data and customer connectivity or the service back to the customers. So it's happened for some time, honestly. It wasn't a one-off. I'll be frank here. We managed to restore that. And I can tell it's part of our routine and planned upgrade, but things happen when -- and surprisingly things that can happen sometimes for this type of technicality. When it comes -- I think the question is about the revenue loss. I think what you have seen in Qatar is the joint of pandemic issue -- or the pandemic of COVID-19 impacted our performance in top line and also EBITDA. We can tell as well the roaming business affected as well here. As well as, when we talk about the outages, what hit our top line is the compensation that -- given for our customer as a token of appreciation and to us 50% of -- on the bills for the postpaid and other benefits also given for the prepaid. So that amounted for [ about ] QAR 100 million. So that's, in a nutshell, what's happened and what has been given and hitting our top line and bottom line of financial quarter 4 specifically in Qatar. I think the second question is about Indosat. I can also cover that, I think, what has been publicly announced. Still we are not in a stage to have as more details about the governance and the control stake. It's a nonbinding MoU until 30th of April. That's about Indosat. I don't -- I cannot recall the third question. I can -- or maybe Ajay can jump in. Can you just tell me what that third question, please?

Yes. The third question is probably more for Ajay, is with regards to the license renewal in Iraq.

Okay. So I can answer that. I think we -- as Ajay said, we launched our 4G, and our license has been renewed and it has been bid. And we are there legally and we are serving our customer for the [ latest ] network. And we have settled this license renewal. I think also Ajay can highlight also more details into other stuff maybe that's -- Ajay, please, if you want to add something.

[ No, sure ]. I think you're right. The -- this is something which happened post the year-end, very recently. And this is just to confirm that the license payment was made. The issue, as far as the court case was concerned, the court had finally decided that the CMC, the regulator, had taken the decision correctly after they reissued their decision with the right procedure. And once that court decision was out, after that, only the payments were made. So it's after the confirmation from the court that the CMC decision was fine that the payments were made, yes.

Okay, I hope that answers your questions, Ziad. If I may add on, on Qatar: Post the disruption that we had in November, actually, the network in Qatar has been measured by an independent third-party, by Ookla, as the fastest network in the world. So that's quite a strong achievement.

Just to add, Andreas, on that. So our network affected, honestly, mainly our 4G customers. At 3G, we're working very well. As I said, it's part, honestly, of our upgrade. And I can assure that also for Qatar, since we are, hopefully, inshallah, hosting also our 2022 event, we have a very long-planned or pipeline of, honestly, upgrading our core network and radio. We are very proud that we launched our 5G and we are above 19% of our populated area, but also, when it's come to the core, which is very important for our services, we are having a very well planned of upgrade. And that's something we are working very hard to make sure that we are really serving our customer for the best quality of network and services. And that's something we make sure that we are really serving the and being ready for the big hosting event of 2022.