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

Thank you for joining us for our Q1 2023 results. As usual, we normally start with a strategy update. Our strategy remains unchanged and fixed around the same 5 pillars: customer experience; our people; our talent; smart telco evolving the core, strengthening the core; and a value-focused portfolio. We're still moving ahead on all of these programs and hopefully will come with more in-depth presentation in our next quarter. For this slide, I'll skip, it's the key highlights. We'll dive down into more details in the following slides. I'm happy to announce that we're starting the year with the first quarter on a very strong base. All our key KPIs are in the green. Our revenue is up by 2% at QAR 5.6 billion. Our EBITDA is up by 3% at QAR 2.4 billion. Our EBITDA margin is up by 1 point at 43%. Our CapEx intensity is stable at 7%. Free cash flows are up by 3% at QAR 2 billion. Our net profit is up by 43% to QAR 1 billion, on a normalized basis at 15% or QAR 800 million. Our net debt-to-EBITDA keeps dropping at 1.1x, and our customers are also up for 2% at 56.5 million subscribers for our consolidated operations and up by 3% if we include Indosat with 155 million subscribers. As mentioned previously, our revenue are up by 2% at QAR 5.6 billion. This has been mainly driven by Qatar, Iraq, Algeria, Kuwait and Oman, which all experienced very strong revenue growth. We've seen revenue increase across all segments. Tunisia is down by 3% in the local currency and are further impacted by FX. Also, Myanmar and Palestine are up in local currency, but have been negatively impacted by FX with depreciation of up to 20% for Myanmar and 10% for Palestine. Our EBITDA is up by 3%, mainly driven by top line growth, but also a strong focus on our cost controls. We have also a very strong contribution from IOH, QAR 67 million for the first quarter. Highest cost of sales, dealer commission, handset and interconnect led to a decrease in Oman's EBITDA. Our reported net profit for the first quarter is up by 43% at QAR 961 million. On an adjusted basis, it's up by 15% at QAR 795 million. I'll go into the detail of the deviation in the next slide. As you can see on this slide, the major differences is negative impacts from FX and an impairment in Tunisia's goodwill. On the positive side, we recorded a $56 million one-off gain from IOH tower sale and a $446 million gain from the NMTC legal case gain in Kuwait. Our CapEx intensity remains unchanged at 7%. There's a slight increase quarter-on-quarter, plus 6% versus last year. This has been mainly driven by front loading a lot of our CapEx program, trying to bring forward the CapEx so we can reap the benefit across the year. We've seen this in Tunisia, Oman, Maldives, Palestine, Kuwait and Iraq. In Algeria, our CapEx is down as we had a significant network rollout last year. And in Qatar, our CapEx is down by 40% as we completed the construction of QDC 5, which was a data center for Microsoft in 2022. Myanmar, our CapEx is significantly down as we remain focused on managing this investment closely. In line with our top line growth and especially our increase in EBITDA, our free cash flow are up by 3% for the first quarter at QAE 2 billion. This increase in the free cash flows has driven S&P to upgrade our credit rating from A minus to A. One significantly contributor to free cash flow QAR 67 million coming from IOH. As mentioned previously, our total subscriber base has grown in every single operation except from Myanmar. Our total subscriber base, including IOH, is at 155 million subscribers. IOH customers stood at 98 million subscribers and the remaining of our consolidated operation at 56.5 million subscribers. That's a growth of 2%. Despite a very strong first quarter, our guidance remains unchanged with revenue growth flat for the year, EBITDA margin in the low 40s and a CapEx of roughly QAR 3 billion. Our net debt-to-EBITDA ratio is at 1.1x below current Board guidance of 1.5 to 2.5. The strong liquidity position with majority of the debt, 93% of the debt is at a fixed rate, created the catalyst for S&P to upgrade our credit rating from A minus to A. I'll now hand to our CFO, Abdulla Zaman, for the operational review.

Thank you, Aziz. I'll be covering the OpCo performance starting with the home country, Qatar. Revenue in Qatar has grew by 3% year-on-year, and [ 3 ] -- population expanded 6% year-on-year. Healthy EBITDA margin at 51%. Customer base at 3.4 million, expanded digital channel 50% customer Ooredoo app. And also during January 2023, Ooredoo Qatar has appointed a new CEO, Sheikh Ali Bin Jabor Al Thani. I would like to wish him all the best. Next is Oman. Despite the aggressive competitive market in Oman, the revenue in local currency has grow by 2%. EBITDA decreased by 8% year-on-year. During 2023, which is March, Ooredoo Oman has appointed a new CEO, Bassam Al Ibrahim, which we moved from Ooredoo Algeria. Next is Kuwait. Healthy revenue growth up to 3% is due to improvement of macroeconomic environments. EBITDA increased by 17% in local currency year-on-year. EBITDA margin stood at 32%. Number range case being won by Ooredoo Kuwait, which contributed approximately EUR 510 million. Customer base reached 2.8 billion -- million, sorry, 8% year-on-year. On base customer experience in telecom, first operator also to launch Google Pay in Kuwait, successful completion trial for advanced 5G. Kuwait been doing very good quarter versus the quarter and year versus year. Next is Iraq. A growth -- I would say, solid growth across the board. Revenue by 8%, EBITDA by 12%, and customer base also increased by 6% year-on-year. Next, we're moving to North Africa OpCos, starting with Algeria. Stable revenue up by 1%. EBITDA margin stood at 39%. Customer base also increased to QAR 13 million. Significant growth on data revenue, partially offsetted by voice. Next is Tunisia. Due to the challenge macroeconomic environment in Tunisia, revenue and EBITDA are down. Customer base up by 2% year-on-year. Maintain leadership position in mobile market. Next is Myanmar. Myanmar hit by high currency depreciation, while revenue in local currency is up by 2%. EBITDA decreased by 13% in local currency year-on-year. Customer base declined to QAR 8.3 million due to SIM card taxes. Next is Maldives. I would say, continued impressive performance during the year. Revenue is up by 5%, EBITDA also by 6%, customer base by almost 10% year-on-year. Next is Palestine. Happy to mention that despite the decrease of 4% in revenue, EBITDA margin reached for the first time to 40%. And EBITDA also increased 2%, mainly due to disciplined cost control. Last but not least, IOH is no longer being consolidated as they are treated as a joint venture. Nevertheless, the IOH performance has been excellent, with a revenue of almost 10% and EBITDA up by 22% local currency term. This is concluding the OpCo parts. Back to Andreas for Q&A.

Thank you very much, Abdulla. Before we start with the Q&A part, a few Investor Relations updates. We would like to request your support for the upcoming Institutional Investor magazine survey. We always appreciate your feedback. But on this occasion, we especially appreciate your votes. You got the link on the slide there. We also have a few conferences coming up. We will be attending the Bank of America Emerging Market Conference in the U.S. on the 31st of May with our Group CFO, and we're going to be in London at the HSBC [ Kaza ] Exchange Conference. Together with Aziz and Abdulla, Group CEO and Group CFO will be there. I also would like to highlight to you that we uploaded some new documents onto our website. You can now enjoy a new refreshed Ooredoo at a Glance presentation, not only a presentation but the full video. That's quite helpful, especially for new investors. So I encourage you to click on the link and check that out as well. Okay. So now we are ready for the Q&A part.

[Operator Instructions] We got the first question here from Sadia [ Longberg ]. She's asking about the performance in Algeria. Will you Ooredoo Algeria invest in the same way as in 2022? Maybe we can show our CapEx slide there. If we go back to the previous CapEx slide and showing the changes there. That's Slide #12. And as we've mentioned before, there's been some heavy rollout of 4G in the previous year. [indiscernible], please. And we here minimize the Q&A section. Yes. Who wants to take the CapEx question on Algeria? Abdulla?

Actually, we just are working on a business case also to expand [ more] to -- 500 more sites. And yes, we are looking to spend and invest more in term of CapEx in Algeria.

Feel free to type any additional questions or raise your hand. And we're going to open up the line now for any next questions. Yes. The first question comes from Nishit Lakhotia from SICO. [Operator Instructions]

Yes, and congratulations for solid results in 1Q. I have a couple of questions. First, on the margin front, particularly in Kuwait and Iraq. Both cases -- I mean both, of course, did very well in 1Q in terms of margins. For Kuwait, it looks like more came from cost controls. So if you can guide us to how this margin will sustain over the next coming quarters, then whether there is more cost control initiatives planned in Kuwait? And while in Iraq, as far as I understand, the competition is very -- is pretty intense on the 4G side. So how is the margin going to evolve again in the next coming quarter, whether this is sustainable, the 1Q margins? And second is on the Myanmar transaction. Given that the transaction value were decided in dollars and the currency continues to deteriorate, what's the management's outlook regarding this particular transaction? Is there a high likelihood that this transaction may not go through? Is that risk increasing as the permission takes time or the valuations can change? Any feedback on that would be helpful.

Can we take the Myanmar question first, Mr. Aziz?

I'll take both and then maybe finance can complement on the margins. On the Myanmar transaction, the Myanmar transaction is obviously on track. So we're going through the different regulatory approvals in Myanmar. It's a lengthy process, especially that -- the Thingyan Water Festival which delayed a few approvals on private -- prior to that, the state of emergency, which was supposed to be listed at the end of February was reinstated for another 12 to 18 months. But we're confident, given our latest discussions with the different stakeholders that it's a matter of when -- this transaction to happen.

And there was a question on the margins for Kuwait and Iraq.

Yes. I'll make a comment in general, and then I'll hand over. In general, we are implementing quite stringent cost controls across the group as a multiyear overall. So we anticipate margins to remain -- to sustain at this current levels or actually even improved. Just one comment on Iraq. Iraq's small margins are very good. There is one variable which is usually under control, which is the cost of [ fuel ]. That is the main barrier which is out of our control. The other parameters [Technical Difficulty] make sure that [Technical Difficulty].

Well, Aziz, I think you have covered it all.

Nishit, I hope that answers your question?

Yes, that's fine.

We're going to take another audio question. Abdulla [ Ameen ].

So I have 2 questions. Congrats on the good set of results, but I just want to ask 2 questions. In the Qatar market, you offer Roam Like Home where certain postpaid customers can use their local data and call [ allowance is ] abroad without any additional charges. And I think this is continuing for the next 2 quarters. How do you think this will affect the revenues and the ARPUs? And second question is, how do you recognize IoT SIMs in your customers' private numbers? Is it including this [ subscriber ] base? Or does that -- how much growth you've seen that -- going forward?

Sorry, can you -- The audio wasn't very clear. Can you just repeat the question on Qatar once more?

Both of them, or the first, or second?

Both please.

Okay. In the Qatar market, you offer Roam Like Home where certain postpaid customers can use their local data and call [ allowance is ] abroad without any additional charges. With the roaming season to commence and extend for the next 2 quarters, what do you see -- how do you see an impact on the postpaid revenues and ARPUs? Will you be looking to expand this offer to other markets as well? That's question number one. Number 2, how do you recognize IoT SIMs in your customers' private numbers which is included in the subscriber base? What is the current number of IoT SIMs, and it is contributing [indiscernible] to the subscriber base growth or no?

What kind of SIMs are you referring to?

IoT.

Okay. Sorry.. Yes. The first question was with regards to Roam Like Home, which I understood as part of the new Qatarna Plus and Shahry Plus. Technically, a good question for Abdulla too.

Yes. I'm sure -- I've been talking on behalf of Ooredoo, Qatar. There is a solid business case behind these promotions. And I'll say this is a positive business created that would add value to the top line. This is to the first question. I wasn't sure about the second question.

Usually IoT or things are not to recognized into subscriber base, their risk [ analyzed ] into the B2B line of business. Then we're going to open up the line for [indiscernible].

Congratulations on strong results. Hopefully, the strong performance with business. So only a few questions from our end. First, on the Qatari market, it seems there is a bit of pressure on the prepaid segment, ARPU specifically. We've seen this with your competitor, but also, I mean, we've seen your results. The supplementary schedule shows almost 25% drop in ARPU year-on-year and sequentially, it's around a 20% drop as well. So we're just wondering what's the reason behind this drop? Is it short-term promotions? Do you think that we're going to see also a recovery going forward after these are [ done ] and dusted basically? Or do you think this might persist the medium run? That's the first question.

So the prepaid segment is the most competitive segment in the market. It's also usually late to the transient workforce in Qatar. So there's fluctuation into the market in terms of volumes and in terms of price. This is probably the most challenging part of the segment in Qatar. That being said, the postpaid segment and especially the high-value segment, Ooredoo continues its growth and has a strong grip and this is the biggest value contributor to Qatar.

In addition, also this Hayya card, the regulatory ask us to keep it valid beyond the 90 days. Therefore, it's more than 90 days. And after mid of February, the number of subscribers will go down there. This is a onetime impact.

Just for clarification, Hayya card was a World Cup promotion?

Yes.

But I mean the subscriber numbers on the prepaid segment are still relatively strong, up 8% year-on-year. But I mean my main question is on the ARPU, specifically the monetization of these subscribers. Are there any specific price promotion?

So there are price promotions, but the biggest impact promotion were the World Cup promotion, which are persisting beyond as Andreas highlighted, which should erode starting February. So you should see a recovery in the ARPU, hopefully in the prepaid market as of Q2.

The second question specifically on Myanmar. I understand the process might take some time, but -- and I mean, at this versus our numbers, Q1 was a bit disappointing from a loss perspective. We've seen QAR 210 million FX losses and overall QAR 267 million losses before taxes. I mean if -- how should we think about this ARPU if the transaction is delayed further? I mean, what's the typical run rate of losses that we can expect?

So 2 parts. Yes, the FX is a significant concern and keeps devaluating, and this is putting pressure on Myanmar's operation, plus with the extension of the state of security, there was some partial internet bans in the country, which dropped down -- dropped the revenue. Myanmar remains a significant concern. We're still managing the operations. I think the best way to qualify it is in an approach of, keeps the lights on. So minimizing as much as possible any funding to the operation actually is funded mostly out of its own cash generation. And we are pushing extremely hard to close this transaction as quickly as possible.

And the last question is on tower sales. And I understand you can't comment much on that front. But are you still looking to close a tower deal or a tower sale within the next few months or are we facing any delays?

No, we're not facing any delays. We're proceeding -- We're actually quite close to the end of the process right now. It's a complicated process as you can imagine. We're talking about 22,000 spread out of 6 geographies with different competitors, [ especially in ] regulatory environments. We're currently in the final round with a very limited number of bidders. And hopefully, we will come up with some [ news ] in the foreseeable future.

On the topic of tower sales, we also got a typed question in the Q&A session from [ Ole Adamson ] asking, are you going to sell all the towers at once or separately in different markets?