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

[Foreign Language] Welcome to Ooredoo's Q3 Conference Call, the last one before the World Cup. [Foreign Language] My name is Andreas Goldau, and I'm in charge of Investor Relations. I'm joined today by Aziz Aluthman Fakhroo, Managing Director and CEO of the Ooredoo Group. Also we are joined by Abdulla Al Zaman, our Group CFO. For the Q&A session, we will be joined by Sheikh Mohammed Al Thani, Deputy Group CEO and CEO of Ooredoo Qatar, as well by Eyas Assaf, Deputy Group CFO. As always, this presentation starts with the financial highlights, consolidated results presented by our group CEO, Aziz, then the opco section will be covered by our Group CFO, Abdulla. Do type your questions during the presentation in the Q&A area of this Zoom webinar. We will allow ample time for your questions and keep the presentation short. The presentation will also be available on our website at ooredoo.com. With this, the recording and transcription of the session has started. So by attending this meeting, you consent to be included in the recording. And please do also note the disclaimer on Slide #2. And on this, I hand over to Aziz.

Good morning, good afternoon, and I'm happy to be here with you for our Q3 results. We usually start the presentation by a quick deep dive in one of our key strategic pillar. Given that a few weeks back we did the capital markets update and spent a lot of time on our strategy, today we're going to skip this section. If you hadn't had a chance of seeing the Capital Markets Day, I invite you to go to our website and see the recording of the Capital Markets Day. This will give you quite in-depth view of what is our strategy going forward and the areas of focus. This is a quick overview of the performance for the first 9 months, and we're very pleased to announce that we're continuing on the very strong performance we started the year on. Our revenue up -- are up by 4% at close to QAR 17 billion for the first 9 months. Our EBITDA margin is stable at 41%, yielding an EBITDA of close to QAR 7 billion for the first 9 months. Our net profit is up by 33% at QAR 2.1 billion. And in terms of the merger and integration of IOH, we'll dive a bit deeper on that slide at the end of the presentation, but we revised our synergies to QAR 400 million to QAR 500 million of recurring synergies for the year 4 due to the accelerated pace of the integration. Our financial achievements for the normalized first 9 months on a pro forma basis, what -- as mentioned earlier, our revenue are up by 4% year-on-year at QAR 16.9 billion. Our EBITDA is flat at QAR 6.9 billion. Our EBITDA margin is sustained at 41%. Our CapEx intensity is down by 2 points at 9% versus last year. Our free cash flows are up by 3% at QAR 5.3 billion. Our net profit, as mentioned, is up by 33% on a normalized basis at QAR 2.1 billion. Our net debt-to-EBITDA is stable at 1.2x and our customer base is stable at 55 million subscribers. These are our reported numbers. I'm not going to spend much time as its comparing last year when we still consolidated IOH. As you know, since the 8th of January, we merged with CK Hutchison operation to create Indosat Ooredoo Hutchison Group and therefore our content treatment has changed. On a Q3 year-on-year comparison, you have a similar picture as for the first 9 months. Revenue is up by 4% at QAR 5.8 billion. EBITDA is down by 7%, and we'll explain what are the drivers for that, at QAR 2.3 billion. EBITDA margin stable at 44% -- at 40%. CapEx intensity at 10%, free cash flow down by 9% at QAR 1.7 billion. Net profit up by 19% at QAR 7.73 million. Net debt and customers similar for the first 9 months. Again these are the reported numbers. I won't spend time given the difference in accounting treatment of IOH. On the revenue, what you're seeing is that we've increased for the first 9 months and quarter-on-quarter by 4%. The core of the outperformance is driven by Qatar, Oman, Kuwait and the GCC countries in general. Qatar has grown by 11%, Oman by 20% and Kuwait by 10%. This is extremely good performance. Maldives is up by 7%. What you notice is Algeria, Tunisia would be up year-on-year if it was to exclude the impact of FX. Iraq is down by 8%. This is due to a one-off we recorded last year. If we normalize it, Iraq has an actual revenue growth of 3% year-on-year for the first 9 months. This is taking a total revenue growth for the first 9 months to 4% or over QAR 204 million for the period. In terms of pro forma EBITDA for the first 9 months, it's a sort of a reflection of the revenue. What we see is Oman, Kuwait are outperforming as well as Maldives. Algeria is the same and delivering a strong EBITDA. The exception is Qatar, which is down by QAR 39 million or a total of 4% versus last year. This is mainly driven to the World Cup preparation, which is a significant event of scale in Qatar and driving some slight additional cost. Myanmar is down by 31% or QAR 40 million. This is mainly due to currency. Iraq, what we have is a drop of QAR 76 million. Costs have been increasing in Iraq, especially due to the energy cost and inflation in the countries. Others, you have quite a big jump in others. This is mainly due to a one-off provision for bonuses of this year, which is a 2-year bonus program for the transformation, which have yielded these extraordinary results. Reported net profit is significantly up. On a normalized basis, we're up by 33% from QAR 1.58 billion to QAR 2.1 billion. We'll explain the basis of the normalization in the next slide. If you recall, last year we took an impairment of close to $750 million or QAR 2.3 billion for our Myanmar operation. And we also had an additional QAR 1 billion FX impact due to currency devaluations. We also had a QAR 1 billion extraordinary gain in terms of the tower sales in Indonesia. This is the basis of the normalization from minus 760 loss in 2021 to QAR 1.5 billion net profit. This year, the only 2 adjustments we have is QAR 300 million -- close to QAR 300 million FX impact and a one-off QAR 200 million extraordinary gain to the sale of data centers in Indonesia. Reported Q3 net profit, similar picture. They're up by 19% year-on-year on a normalized basis. The only adjustment in Q3 we have versus last year is FX impact. This year is close to QAR 200 million. Last year it was close to QAR 453 million. Our CapEx is a continuation of the picture we had for the last 2 quarters. We see Palestine and Algeria with significant spend. Palestine is due to delayed CapEx last year due to customer issue. Algeria, network enhancement and also delays of imports into the country, which is -- can be complicated. All the other countries, we have a reduction of CapEx, especially what you'll note is Oman, Kuwait and Iraq. Oman and Kuwait were last year significantly impacted due to the 5G rollout, and Iraq was the 4G rollout. These rollouts are now completed. Therefore there's a reduction in CapEx. Overall we have 14% reduction year-on-year versus this period last year in terms of CapEx. Pro forma free cash flow is a reflection of the growth on the top line as well as the strong discipline on CapEx. This is yielding for the first 9 months of this year, a 9% reduction in CapEx versus last year. What you will note, there is a one-off exceptional in Qatar, again, this is driven by the World Cup. And others, it's again group cost, especially due to human resources, which is the provisioning for the bonus of the strong performance, Braveheart, which I mentioned in the previous slides. Our customer base is at 55 million subscribers. What you will notice is a drop of 5 million subscribers in Myanmar. This is due to the SIM tax, which was introduced, which is impacting our subscriber base in Myanmar. Mostly, these are dormant SIMs or dual SIMers, which are coming off due to the high cost of the tax. If we consolidated Indonesia's numbers, we would be at 155 million subscribers as a total base. As you remember, from an accounting perspective, we don't consolidate IOH, but from an operational perspective, we still leverage all the synergies, especially on the customer side and the procurement side of the yields of IOH. In terms of guidance, we maintain our guidance for the year, and we're expecting to finish on the higher end of our guidance in terms of revenue. As of today, as noted, we're at plus 4%, EBITDA is minus 1% and CapEx is minus 14%. In terms of CapEx, there's usually a catch-up in the last quarter, but we believe to be in the lower end of the CapEx bracket. As mentioned earlier in the presentation, I invite you to see the full disclosure of Indosat's results. Indosat's performance is extremely strong. They're ahead of their network integration, which is at 50% as of today and revise their target of total recurring network synergies of close from $300 million to $400 million per year in year 4. They've also outperformed in terms of revenue. Revenue is up 3% quarter-on-quarter, and EBITDA is up by 5%. Their total subscriber base has gone up by 2.4 million subscribers quarter-on-quarter to close to 99 million subscribers. We're extremely happy with the performance and the benefits that the merger is yielding in Indosat Ooredoo Hutchison. Our debt profile has not changed. Its 88% in fixed rate. We have a very strong cash position. As you can see, we're fully funded to make all our maturities up to 2025, and only 12% of our debt is on a floating basis. Most of our debt is in the form of bonds, and we have around QAR 2.5 billion, QAR 2.6 billion of debt in the form of the loans. Our rating remains stable to A2 or A-, depending on the rating agency.

Thank you, Aziz. Ladies and gentlemen, this is Abdulla Al Zaman, Group CFO. I will be reviewing opco performance under OG. We're starting with the home country, Qatar. Revenue year-on-year has a growth by 6%, reaching 5.7, and this is driven by mobile, fixed and wholesale and also mobile money. EBITDA has slightly decreased due to higher costs led by the hosting of World Cup in Qatar. And quarter versus quarter, we're also monitoring growth in revenue. And as I said earlier, a drop in the gross margin and lower EBITDA margin. My second opco or our second opco is Kuwait. Year-on-year, Kuwait growth is 12%, very strong performance, and this has been driven by mobile and fixed and wholesale revenue. And EBITDA also year-on-year growth is 13%. And this has been reflected also to the quarter versus quarter, which is we can notice is a 12% growth quarter versus a quarter in terms of revenue. EBITDA margin at 30%, and EBITDA at constant level of QAR 18 billion. Algeria, our third opcos revenue has declined 3%, and this is on Qatar Real but in local currency, EBITDA increased by 4% and 10% year-on-year growth in the 9 months, driven by higher mobile revenue, data. And just for your information, the depreciation on the currency in Algeria is approximately 6%. We can see quarter versus a quarter, a 4% increase in local currency. And the improvement also on the EBITDA margin to 40% and EBITDA level to QAR 9 billion. Customer number in Algeria has increased to 13 million which is 2% year-on-year growth and driven by mobile postpaid and prepaid. Fourth opco is Tunisia. Revenue in QAR has dropped to 8% and EBITDA also to 3% year-on-year. And again, as Algeria's story, in local currency revenue and EBITDA increased by 2% and 8% year-on-year, respectively, in 9 months in 2022, driven by higher mobile revenue, data, both in consumer and B2B. Ooredoo Tunisia consider #1 mobile market share position, have maintained its position. Customer number is stable at 7.2 million and successful launch of [ DO2.0 ] digital offer, a new hero product in OT. Iraq, local currency revenue down year-on-year by 1% in 9 months in 2022. And there was one-off related deferred revenue in 2021 accounting normalize the impact on quarter 3 revenue would be up by 3% year-on-year. Local currency EBITDA impacted by 7% lower revenue due to higher energy and lease line costs. And despite the fact of all the challenges, still we consider quarter 3 of 2022 is a very good quarter in terms of performance. Customer number increased to 13% year-on-year, reaches to 17.1 million. We have very strong 4G coverage, 100% of our site. And today, also, we are focusing on launching 4G technology in all major cities of Iraq. Our next opco is Oman. Oman has shown also a stronger performance year-on-year with 8% growth in terms of revenue, driven by fixed and wholesale and equipment revenue. And EBITDA also showing year-on-year growth of 9%. And this is also reflected in a quarterly growth, quarter versus a quarter by 20%. EBITDA margin stood at 52% and its QAR 35 million at the EBITDA level. Customer number increased year-on-year by 4%, reaching 2.9 million. And we have done a very good job on the iPhone 14 launch sales. Our next opco is Myanmar. Revenue year-on-year was flat in 9 months in 2022. And local currency revenue was up by 19% driven by mobile revenue, data and voice. Currency depreciated at 17% and local currency EBITDA increased by 51% due to higher revenue and strict cost control. Customer number declined by 7.6 million, drop of 43%, mainly due to higher SIM card and taxes. We are also in the process of selling Myanmar operations. Maldives. Maldives performance year-on-year has showing a very stronger performance of 9% in terms of revenue, and this is driven by mobile, fixed and wholesale. And also in EBITDA, the year-on-year growth of 15%. This was reflected or is reflected on their quarter versus the quarter of a growth of 7% and EBITDA margin of 53% and growth also on EBITDA by QAR 249 billion. Last is Palestine. A strong year-on-year growth of 3% in terms of revenue and EBITDA is 6% also year-on-year growth. With a customer number increased to 1.4 million, 3% driven by prepaid and postpaid mobile. This is including my opco parts and back to Andreas. Thank you.

Yes. Welcome to the slide part and the Q&A session. I am delighted to have you on the call again. [Operator Instructions] Before we take the first question, I would like to thank everyone who voted for Ooredoo at the recent MEIRA Investor Relations Awards. And we won the award for Best IR in Qatar, and we really do appreciate your support and feedback. We also have an overview of the events coming up. We have a couple of conferences lined up in Dubai, mainly, starting actually tomorrow already with the Bank of America Merrill Lynch conference. And then we have some more conferences with Arqaam and EFG lined up next year. [Operator Instructions] Yes, we have some live questions as well. So we're going to start with Nishit from SICO.

I have 2 questions. First on the impact of one-off bonus provision and World Cup cost in non-Qatar operations. Can you quantify how much was the impact during the quarter? And this one-off cost for the World Cup, is it mainly to do with increase in staff costs and marketing promotions or anything else? If you can just be more in-detail on those costs impacting EBITDA. So that's my first question. And second, on the Myanmar expected sale, what would be the impact if the sale is executed at $162 million on the financials?

Aziz, do you want to take the first question on the impact of the World Cup. Is it the marketing costs and staff cost?

So the impact on the bonus and - the impact of the bonuses and additional cost. This is reflected in the EBITDA bridge we showed earlier today. You have -- it's embedded in it. It's not the only item in there. The other item is the major item. In terms of the World Cup cost, it's more than just marketing and staff. As you can expect for a venue of this size, such an exceptional venue, there is special preparation, there is marketing, there is special sponsorship, but there's also some short-term implementations we have to do to host all the media, to host all the different activities, which we will be supporting as a network, which has a one-off temporary cost.

That's on the Qatar part. And then there was a question about the impact of the Myanmar sales?

The impact of the Myanmar sale will depend on the closing. It's quite a fluid because as the operation continues, still we have closed, we can't exactly quantify the accounting impact of the sales. On the only thing we know is that we've secured a transaction and enterprise value of 576 and a total consideration of $162 million.

Then we're going to take a question from Omar Maher.

So I guess since my first question was asked by Nishit already. I'm going to move to the second one, which is on Oman. So, I just wanted to understand that where the growth is coming from. Is it primarily more business on Ooredoo side? Or is it more growth coming from the national roaming deal with Vodafone? I guess, because of the impact on the margin as well. So just to get more clarity and understand what's going on there. And also, if you could shed some light on what's happening in the market essentially because it's -- I guess it's been almost what probably 7, 8 months since the launch of the third player, and it seems so far that the impact has been a bit muted. So could you just confirm whether this assessment is correct or not? And then my second question is on the tower carve-out exercise. Just want to know how far into the process you are right now?

Aziz, again?

Yes. I'll take Oman very quick on if anyone wants to -- in Oman, we've seen growth both on prepaid and postpaid and B2B excluding wholesale. Wholesale has been an element of the outperformance, but it's not the only element there. We've actually grown, if I'm not mistaken, on all segments of the business. We won't comment on our competitors' performance. We're happy with the mitigation plan that we have put in place in order to prepare for the arrival of a third entrant, I think it's bearing its fruit. When it comes to the tower -- when it comes to the tower's process, we had an update at Capital Markets Day, which was 3 weeks ago, we're still going through the current process whilst we'll have any material disclosure. We'll come back through the investors and update them is duly required.

Just to understand, is this sort of like -- just roughly speaking, is it like '23 timetable sort of? Or is it more like first half of '22, sorry, '23.

So you're saying in terms of towers?

Yes. For the crave out process.

So we're looking to come out with a decision by the end of 2022, early probably, depending on the transaction, if a transaction is, if it's a carve-out or spin-off, if obtain quite as we explained during Capital Markets Day, they are quite different approaches we're looking at. And depending on the regulatory environment, we're looking probably at closing towards the end of 2023, and year-on-end. But at least the decision on the transaction communication on what would be the framework of the transaction and/or early next year.

Okay. Then we're going to take the next question from Arqaam, Ziad.

Just a couple of questions from our end. First, are there any updates on the number ranges case in Kuwait, which was foreclose to QAR 0.5 billion? The second question is on Qatar specifically, EBITDA is down 4% year-on-year on exceptional World Cup-related costs. But if you look at note 27 in the financials on Page 25, it seems there is a substantial pickup in profits before tax, up 40% year-on-year to around QAR 617 million. What's the reason behind that? Were there any one-off reversals? Or what's driving this growth specifically?

Okay. I'm going to answer the Kuwaiti question. There's no new development with regard to the number case. And with regards to the net profit question, I'm going to hand over to Eyas, our Deputy CFO.

Ziad, I want to just to clarify that the note you are referring to is not Ooredoo Qatar only, it's including also Ooredoo corporate. Therefore it is not a [indiscernible] comparison? This is a divisional information, is not matching with the presentation for Ooredoo quarter. What we present -- what Aziz presented is Ooredoo Qatar performance alone. This disclosure, including Ooredoo corporate, therefore is not [indiscernible] comparison. I hope I answered your questions here.

And just one more question, specifically on royalties. The decrease in royalties, is it mainly due to the Qatari entity because, I mean, Oman has been outperforming. There's a very strong turnaround in Kuwait as well, but royalties are down 37% year-on-year.

We're going to take up that question and get back to you…

It's coming from a Oman.

Okay. Yes. Then also -- for the moment, billion.

That was not for the royalty. I think it was about the regulator tax. We're talking about it from 17% a drop to 10%. If I'm not mistaken, this is what you are referring to. So we can check on that answer, and we can offline to you. But I know that there is, yes, there is a drop on one of the regulatory tax, where we had a higher provision earlier, but it was revised, the percentage. So maybe this is what was revised this month or this during this quarter. It shows you the difference maybe. But I can come with the explanation on this.

And then I'm going to open up the line for Maddy Singh from HSBC.

My first question is on Iraq. If you could talk about that one-off item you had during the previous period last year. So just wondering why the drop so significant in Iraq. And then secondly, also looking at the contribution from Indonesia, given that there hasn't been much, let's say, one-off activities during this quarter, then should we use this as the base run-rate going forward for contributions from Indonesia?

Yes. Well, if you refer to the one-off of, it was a deferred revenue and as per the advice from the external auditor, we have to do that reversals during the last year quarter. This year, it shows an impact on us. But if you compare apple to apple, there was -- well, there is a growth of approximately 3%. But the way we have done it last year, it's, I would say, to the best treatment, we have revised some deferred revenue. And this year we did not have to do it because we've been compliant with the IFRS standard in terms of [indiscernible] revenue. Second question about Indonesia. I did not hear it well.

Yes, outlook for Indonesia, if you can continue the growth there.

We're very positive on the also of Indonesia. As we said during the presentation, the integration is actually especially on the network side, ahead of schedule, we gain also in terms of subscriber rate. The performance is very strong. We're confident for the near future, but we also advise you to go and look at the results of Indonesia. There is a reporting and quite an extensive Q&A where we'd answer these questions in more detail.