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

Let me introduce my colleagues. You will be familiar with Aziz Ahmad Fakhroo, Managing Director of the Ooredoo Group; Sheikh Mohammed Al Thani, who is the Deputy Group CEO and CEO of Ooredoo Qatar; and we're also joined by René Werner, who is our Chief Strategy Officer; and by my colleague, Sara Al Sayed from the Investor Relations team. All the bios are in the Investor deck as well. And as always, we will start with a summary of the results, the highlights by Aziz. That will be followed by the OpCo overview by Sheikh Mohammed and Abdulla, our Group CFO. We keep the presentation brief on purpose to allow sufficient time for your questions. And the presentation is available on our website at ooredoo.com as well as on the webcast. Please do note the disclaimer on Slide #2. And to begin, I hand over to Aziz.

Good afternoon, everyone, and thank you for joining Ooredoo Group's investor call. We had a good start into 2021. Happy to report growth for the first half of the year with revenues of QAR 14.5 billion. This is up 3% compared to the same period last year. Excluding FX impact, that was a 5% increase year-on-year. Similarly, our EBITDA increased by 7% to QAR 6.4 billion for the same period. Net profit attributable to shareholders turned negative for the first time in the history of the group due to the impairment of about QAR 2.3 billion from Ooredoo Myanmar. This was partially offset by a QAR 1 billion profit from the sale and leaseback of Indosat Ooredoo tower assets in Indonesia. Net profit increased by 52%, excluding the one-offs and FX impact. We continue to focus on providing reliable connectivity and innovative products to our customers. Our robust operational and financial performance reaffirm confidence in the business and resulted in an increase of our customer base by 1%. I'm also glad to report that in May, regulators approved Indosat Ooredoo sales and leaseback agreements with Edge Point Indonesia for the sale of more than 4,200 towers. This was a landmark transaction valued at USD 750 million, making it one of the largest deals of this kind in Asia. Next slide, please. As previously mentioned, we had a healthy revenue increase of 3% to QAR 14.5 billion for the first half of the year. This was mainly driven by growth in Indonesia, Qatar and Tunisia and partially offset by Iraq, Oman and Myanmar. The increase in revenue, combined with our intense focus on cost optimization strategy using technology and digitalization, led to an increase in EBITDA by 7% for the year, which, excluding FX impact, stood at 10% increase for the same period last year. Growth here was driven by Indonesia, Qatar, Kuwait, Tunisia and Algeria and partially offset by decline in Iraq, Oman and Myanmar. To put it into perspective, our EBITDA margin for the first half of 2021 is at 44% compared to last year's first half of 42%. Moving to the next slide, please. As mentioned, our net profit turned negative for the first half of this year. This was mainly driven by an impairment in Ooredoo Myanmar and was partially offset by a profit of QAR 1 billion from the sale and leaseback of Indosat Ooredoo's tower assets. If we exclude these one-offs and FX impact, our net profit increased by 52%. Next slide, please. On this slide, you will see our CapEx and free cash flows. Capital expenditures decreased by 6% at QAR 2 billion for the first half of the year compared to the same period last year. This is in line with our guidance for the full year as we remain focused on optimizing CapEx by taking advantage of the scale of Ooredoo Group and our global sourcing strategy. We reported a healthy free cash flow at QAR 2.7 billion compared to QAR 2.2 billion for the same period last year. This was due mainly to improved EBITDA and reduced CapEx. Next slide. Our customer base increased by 1% to 118 million subscribers due to growth in Indonesia, Oman and Iraq, offsetting the decline in other markets. Yet again, a testament to our reliable connectivity and our ever-expanding innovative product portfolio. Slide 9, please. First half of 2021 saw a positive trend of the group's net debt reduction with a total net debt-to-EBITDA ratio at 1.6x, which is towards the lower end of our Board guidance between 1.5 to 2.5x. Group debt remains mainly at the corporate level, largely in Qatar, followed by Indonesia and then smaller percentage allocated to other OpCos. As a reminder, debt at the OpCo level is kept primarily in local currency. Slide 10, please. Once again, I'm very happy of our performance with revenue and EBITDA both exceeding our guidance range for the year. CapEx was seasonally low, which was expected. As the year progressed, we expect CapEx to fall in within our guided range of QAR 5 billion to QAR 6 billion. However, this will be subject to COVID-19 developments in our key markets. I'll now hand over the call to Sheikh Mohammed, which will provide more detailed overview on Qatar, Indonesia and Iraq. Thank you very much.

Thank you, Aziz. We are proud to report that in our home market of Qatar, we maintained our position as the leading operator in terms of both market share and infrastructure. The region fiber rollout program is also progressing very well. And now we have over 485 homes connected across the country. Furthermore, we continue to see growth with year-on-year revenue increase of 5% to QAR 3.7 billion driven by growth in B2B, postpaid services, mobile financial services, Ooredoo TV and higher sales as well of devices. Our EBITDA grew by 2%, and we reported a healthy EBITDA margin of 53%. Another big achievement within Ooredoo Qatar is that we attained Dell Platinum Status and won Emerging Partner of The Year and Collaboration Partner of The Year awards from Cisco. We also represented Qatar as part of delegation at St. Petersburg International Economic Forum (SPIEF) in June and we're optimistic about our potential business opportunities this will bring. Let's move to Indosat. So Indosat Ooredoo reported a stellar performance for the first half of the year with a 14% increase in revenue, outperforming the market. Due to ongoing operational efficiencies and strong revenue growth, EBITDA was up by 24% and EBITDA margin was up by 5% points. Indosat Ooredoo's focus on enhancing customer experience led to a 5% year-on-year growth and customer base of 60 million, and the saturated brand reflected the highest growth in NPS, net promoter scores, customer satisfaction and the brand equity and index scores year-on-year amongst all operators in Indonesia. CapEx rollout as per the plan despite the surge in COVID cases. The company continues its 4G network investment and recently launched 5G commercially. In terms of discussion with Hutchison about the combination of our Indonesian assets are continuing, and we have extended the deadline and MoU until the August 16. Finally, as Aziz mentioned, we are happy to report that regulators approved Indosat Ooredoo's sale and leaseback agreement with Edge Point Indonesia for the sale of Indosat's 4,200 tower assets, marked a major milestone for the company in its transaction history. If we move to the next slide to Iraq. In Iraq, economy was further impacted also by recent purchasing power followed by its 17% devaluation of the Iraqi dinar and the continued pressure associated with the effects of COVID-19. The devaluation of the dinar and the impact of COVID subsequently resulted in a revenue decrease of 12%. While Asiacell EBITDA decreased 6% in Qatari real terms with the ongoing digital transformation program and the new optimized battery solution, EBITDA margin improved to 46%. In local currency terms, Asiacell grew its revenue by 7% as the country gradually came out of COVID-19 restrictions and lockdown while EBITDA grew by 13%. However, despite these ongoing challenges, Asiacell's customer base grew by 9% to 14.5 million, demonstrating strong customer confidence in the business. The company also launched digital partnership with Bing, Google and Huawei and launched its e-commerce platform. Asiacell was resident of towers, leading mobile telecommunication provider in Iraq and thus its sales are in Iraq as well. I will now hand over to our Group CFO, Abdulla Al-Zaman, to take you through rest of the operations. Abdulla, over to you.

Thank you, Sheikh Mohammed. Good afternoon, everyone, and thank you for being here today on the meeting. I will be covering Oman. Oman performance was further impacted by the pandemic, contributed to softer macroeconomic environment. The company reported 5% year-on-year decline in revenue due to lower consumer mobile prepaid, which have partially been offset by the postpaid revenue. Also when it comes to the EBITDA, decreased by 10% to the level of QAR 618 million, as you can see it in the slide. And EBITDA margin was also 52%, down from 54% in first half of -- compared to the first half of 2020. 5G is performing very well in Oman as the company's 5G revenue doubled sequentially from quarter 1 2021, resulting in customer base increased to 8% to 2.8 million for the first half of the year. VAT was also implemented as of April 16, and we have adjusted our price accordingly. Next slide, please. And when it comes to Kuwait, almost, when it comes to the pandemic, it contributed to put pressure on Ooredoo Kuwait’s also performance. The company reported a slight increase in revenue, approximately QAR 1.2 billion, an increase in EBITDA of 13% due to general cost saving initiatives for the first half of the year. EBITDA margin grew to 29%. Ooredoo Kuwait customer base reached 2.3 million as compared to 2.4 million for the previous year. The decrease is due to a significant drop in overall population of COVID and the lockdown, of course. If for some of you who are aware of the lockdown that's happening right now in Kuwait. The company remains focused on introducing initiatives on product and services and recently launched it's Cloud Connect service to partnership with Microsoft and align well with Ooredoo digital transformation agenda. Ooredoo Kuwait was awarded with several awards during the year for Innovation in Business Information Apps, Achievement in Growth and Innovation in Customer Service Management. Next slide, please. Algeria macroeconomic indicator started showing signs of recovery despite movement restriction and home -- I would say, home confinement measure. Revenues stood flat at QAR 1.2 billion. But this is at QAR 1.2 billion in Qatari currency, but in local currency increased by 8%. EBITDA margin improved by approximately 36% as the company continued to implement cost optimization initiative and look to improve efficiency. Network site available today in Algeria are 4G network, rollout also increasing. And Algeria expands in the digital servicing offering through launch of Yooz, a new digital prepaid offer, which focus on target in youth segment. Go to the next, please. And when it comes to Tunisia, Tunisia revenue increased by 8%, supported by favorable FX trends, so the FX trend in Tunisia was positive. EBITDA was up to 5% and EBITDA margin was also by 41% for the first half of the year. It's due to value creation, a plan that focuses on streamlining operation through digitalization of sales and distribution channels. In all, good performance in Tunisia and very strong. Our customer base stood at 7.2 million due to the change of the prepaid customer life-cycle definition of 90 days and opposite to 180 days previously. Lastly, I will move to Myanmar, which is the next slide, please. The political development, as you are all aware, in Myanmar continue to impact performance. With restriction in mobile and wireless broadband, Ooredoo Myanmar revenue and EBITDA declined by 16% and 9%, respectively, and these restrictions impacted data revenue, which are partially offset by increase in gross revenue. FX also declined by approximately 4%. Restrictions started to ease towards end of quarter 2, while Ooredoo Myanmar customer base decreased by 7% to 13.8 million year-on-year. We saw a trend start to reverse with 400,000 new customers towards end of second quarter of this year. Ooredoo Myanmar with 4G remain focused to improve customer experience and focus on optimization in order to bring a better value for the group. This will conclude my presentation. Back to you, Andreas.

Yes. Thank you very much, Abdulla. So that concludes the overall presentation. And now we are moving on to the Q&A part. [Operator Instructions] So Sarah is going to coordinate in the Q&A. So feel free to ask any questions with regard to our first half results. Thank you.

Do we have any questions, Sarah Jessica?

No questions.

That is unusual. [Operator Instructions] I'm going to read out the first one. You can take the later one, Sarah. I see a question from Omar Maher from EFG. Could you please shed light on the recovery in Kuwait?

Sure. Andreas, I can take those questions. So in Kuwait, as mentioned by our Group CFO, still the COVID-19 impact remains there. However, there has been some loosening on the restriction and lockdown in Kuwait market. The recovery in Kuwait is -- we have seen how they are really doing quite well in the bottom line. And that's a good job that being done by our team in Kuwait for controlling their costs and also looking into a healthier sustainable revenue from service revenue. And that also represents how the markets start rationalizing. And that's a good signal also for H2 of 2021. That can be stabilized in the market further, and we can, hopefully, inshallah, enter 2022 in a good start point where the market is restabilizing for rationalizing the price pressure that they have been through. The cost control that they have been doing is part of also an umbrella of Ooredoo global brand and also part of a braveheart study that we had in the group level that pertaining to the cost optimization, but also thanks to the local team in Kuwait for further improvement in their cost and expenditure that they had for the first half of 2021.

Excellent. Thank you very much. I just had answer to the question for Omar. And then could we open up the microphone for Ziad Itani from Arqaam for his question.

Just a few questions from our side. First, on Myanmar, how much of these operations have been written off basically? Can we expect any further impairment in this asset? And also what of other assets that Ooredoo have? I mean now we know there is quite some turmoil in Tunisia specifically. Do you think that there is a risk of additional impairments in that market? And on that same question, with regards to the dividend policy, it's related to normalized earnings. So does this mean that when you look at H1, normalized earnings is up 50% year-on-year. So can we expect something positive on dividends or not really? Yes. So these are the 2 main questions.

Great. Thank you very much, Ziad. The first question was with regards to the impairments. How much is left in Myanmar? I don't think that's visible in our financials. And are we thinking of an impairment for Tunisia? Maybe Abdulla, our CFO, want to comment on this one?

Sure. In terms of the impairment, we took the impairment up to the equity. And for Tunisia, we do not see there is a potential impairment. Tunisia are doing very well in terms of the performance. I hope I answered the questions, Ziad.

Yes, great. And on the dividends?

Dividends, I think we have a positive cash flow. And this will be pertained to our dividend policy at the end of the year. I think the Board of Directors will be in a position to take a call on our dividend part.

Okay. Perfect. And just one follow-up question on the one-offs that we are seeing in the financials. There is also close to QAR 280 million in FX losses. This is again related to Myanmar?

Yes. Myanmar FX losses is continuing to have FX losses due to the deviation of the currency over there. So this is, I would say, due to the currency position of the local versus U.S. dollar versus Qatari real.

And now that the equity has been written off, we can still expect FX losses in that market going forward?

As long as we have the operation live, yes.

Okay. Perfect. And finally, on -- I mean, there's another impairment related to, I think, 2G or 3G farming in one of the subsidiaries to the tune of QAR 138 million. Can you potentially shed some light on this? And which market, is this from Iraq?

This is for Indosat subsidiaries. This is for Indosat subsidiaries, and we have written off these 2G, 3G license.

Okay. Perfect.

Yes, we had some -- Nishit ji was asking the same question before on the impairment in Myanmar. So that's already covered on these previous comments. Then the other question from Nishit again. Nishit Lakhotia from SICO. He is asking what's the outlook for the Qatari market, what are the revenue drivers here? Maybe that's a good question for Sheikh Mohammed.

Yes, sure. For Qatar, it's always, as mentioned, it's our home market and always we see -- Qatar, it's a very mature market, and the revenue driver here we always rely on the B2B side, and we have seen how the growth was visible and presented here in the first half of 2021. And we see also one of the drivers -- main driver is in the ICT business. And you see also Qatar getting into a major partnership with a blue chip company like Google, Microsoft Azure. And recently, we launched with the Administrative Communication and we're proud of that launch of TASMU platform that's really focusing on 5 main verticals in the country: health care, transport, logistic, environment and so on. And that puts Ooredoo Qatar in a very advanced level of leading the ICT market and being the leader to provide a smart solution across Qatar. And this is part of our vision in Ooredoo Qatar to go into that business and being growing through the ICT business.

Thank you very much. There was another question from [ Puna Rustomjee ]. Could you please indicate the change in prepaid customer definitions in Tunisia? Will it also be extended to other OpCos? I can already comment on this one. Across the Ooredoo OpCos in most of our groups, we have 90 days policy as well. In Tunisia, that's a standard that our competitors are following as well. So it's just an adjustment to follow international practice here. Then there was a question with regards to interest rates from EFG for Omar Maher again. He is asking and maybe that's a question for Aziz. With the return of higher interest rates globally as management strategy towards leverage changed recently. Or Abdulla, whoever wants to comment on this one.

I'll take this one. Our policy is guided by the Board. We have very strong guidance, quite conservative policy regarding leverage. As you've seen from our results, we've been slowly decreasing our leverage and we'll continue on that role going forward.

Great. I see that Ziad's hand is still raised. Is it from the first question? Or is there a follow-up question, Ziad?

No. Actually, I just have one follow-up question. With regards to the deleveraging process and it's been -- the company has been substantially deleveraging over the past few years. But this year, when you look at the finance costs, they're up by close to $20 million year-on-year. And this is despite, I recall, you refinanced $1 billion and then your fixed debt. And because of that, everywhere it has gone down drastically. So why did the finance costs go up? Is this related to capitalization of assets in those sites?

I can take this question. This is, Ziad, due to the leasing cost.

Okay. And Indonesia?

Yes.

[Operator Instructions] There was one more question with regards to acceleration in deleveraging going forward.

Andreas, what's the question?

That's the question from Omar Maher to clarify, should we expect an acceleration in deleveraging going forward?

No, I don't think you should expect an acceleration. As you know, the guidance we have from our Board and our shareholders is to keep the range of our debt -- net debt-to-EBITDA ratio between 1.5 to 2.5x. We currently stand at the very bottom of this range at 1.6x net debt to EBITDA. So I think we're going to keep a stable level at these levels.

Thanks, fine. We have another question from Talal, new heads. Please can we have an update on Oman, third-player entry and competition?

As per our knowledge, the Vodafone Oman will start its operation by fourth quarter of this year. From our perspective, whenever you do, we are already with a plan -- soft of the plan that we are introducing today by converting all our prepaid customers or most of our prepaid customers to postpaid customers in order to have long-lasting relation with them. But as I stated earlier, this is to our latest knowledge that they will go live by fourth quarter of this year.

Great. Thank you. Then there's a question from Nitin Arora. Can you please help explain the definition of normalized earnings for the purpose of dividend policy of 40% to 60% normalized earnings?

It's a normal item without any offsetting like onetime offset. So for example, as we see today, there is a procedure from the tower sales of -- from Indosat or from Myanmar impairment. This is what we call it one offset. But normalized today, as Aziz explained in his presentation from quarter-to-quarter and from the year -- from half year to half year, we're having a very positive operational performance. So this is what will be applicable, in my opinion, to more to the dividend policy, if the Board see it is suitable to do it.

Then we have a question from [ Riaz ]. [ Riaz ], you might be on mute.

Yes, yes.

Now we can hear you.

Perfect. Yes. So just one question. When it comes to becoming asset-light telecom player, what other markets you see opportunity to sell the towers? And I mean, anything going on in Oman? We've seen Oman has recently sell their towers. And what about Iraq, because we also hear then group is active on that market? And just also another question. Any potential mergers, acquisitions, other than what's happening in Indonesia and the pipeline or markets that you're considering?

Very strategic question. René, do you want to comment on the asset-light approach?

I think we mentioned that earlier, we are always reviewing obviously our portfolio and are trying to optimize per strategy that was communicated, the use of assets, right? For obvious reasons, we wouldn't comment on any M&A considerations in call like this.

But what would be, I mean, certain criteria you would consider when looking at the market, if you want to enter a market?

I mean like very simple, and this is a very traditional or secured around the world, strong market position and, obviously, value accretive for shareholders.

Okay. And FX stable as well, I would assume?

Yes, that's a consideration in that value creation for shareholder market...

Excellent. I see one more question from [ Puna Rustomjee ]. Could you comment on the 5G uptake across your footprint? You shared a few numbers on Qatar in previous calls and Oman today? Are you still seeing a strong uptake momentum in Qatar? What about the other markets with regards to 5G?

Yes. And I'm going to take those questions. In Qatar, we are very mature and ahead of other OpCos within the group. And we see the uptake on the appetite from the customer into 5G. And also, we have launched 5G in Kuwait, in Oman and also recent end market. And there's also a commercial launch, as we mentioned, our test on Indosat. And we are giving -- we're having a whole study with our footprint that need to be ahead of the competition and to be ahead also -- and pioneer on the recent or developed technology to be there. And that's also taken into account our North African markets as well as Iraq. And obviously recently launched 4G, and we see a very big uptake in the customer for the 5G -- for the 4G and we see a big percentage of customer shift towards 4G. So we are really ahead and thinking ahead of our competition in respective markets to be also dynamic on the strategy that was provided today.

Excellent. Thank you very much. Okay. Any other raised hands, comments or questions? Okay. If not then, I would like to thank you very much for the continued interest in Ooredoo. Please do refer to our Investor Relations website for future updates and follow up on Twitter. Feel free to contact Sara and myself for any further information that you might need. And we are looking forward to your participation in the next call probably at the end of October. Meanwhile, thank you very much again for your interest in Ooredoo. Bye.