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

Good afternoon, everyone. Welcome to Ooredoo Group's financial results call for the first half of 2024. I am Luelle Pillay, and I'm Head of Investor Relations for the group. Today, I'm joined by our Group CEO, Aziz Ahmad Aluthman Fakhroo, who will start off the presentation with an update of our strategy and delve into the consolidated results. He will be followed by our Group CFO, Abdulla Al Zaman, who will walk us through the operations performance. We will keep the presentation brief to allow enough time for your questions at the end. [Operator Instructions] The presentation is available on our website at ooredoo.com and also on this webcast. The recording and transcription of the session has started now. So by attending this session you consent to be included. Please note the usual disclaimer on Slide #2. And on that note, I'm handing over to Aziz.

Good afternoon, everyone. Welcome to our H1 2024 investor call. To begin, let's dive into an update of our strategy. Our strategy remains unchanged and centered around 5 core pillars. From a value-focused portfolio standpoint, the disposal of Ooredoo Myanmar was finally completed on the 31st of May 2024. The sale aligns to our strategy of maintaining leading market position where we operate. We are strengthening the core by enhancing profitability and returns. You will see the progress made on this front throughout the presentation. Under smart telco, we are progressing on enhancing the value of the existing assets within our infrastructure stack by turning them into independent profit centers. I will expand on this in the next slide. From a talent perspective, we are focused on developing our people and enhancing our workforce. Cumulatively, our action and investments are enhancing our customers' experience. Turning to our verticals. We're progressing on all of the programs. On the tower vertical, Qatar is progressing nicely. We expect this transaction to close this year. In the data center vertical, we established a carrier-neutral data center company called MENA Digital Hub and appointed Sunita Bottse as CEO. We are investing $1 billion over the medium to long term to increase capacity to 120 megawatts. In July, we completed the carve-out of our data centers assets in Kuwait. We're expected Iraq and Oman to follow suit in the second half of this year. Moving to our fintech vertical. In Oman, we received our PSP license and launched walletii. Walletii is a mobile money app that offers a remittance marketplace that allows users to use from multiple providers to secure the best rate for their transaction. With this app, which is open to both Ooredoo customers and noncustomers, you can make payments and send and receive money both domestically and internationally. We are working to submit our license application in Iraq, Kuwait and Tunisia. A key update for the half is our exciting collaboration with NVIDIA, the first of its kind in the Middle East. I will take a few minutes to highlight some key points around this collaboration. The collaboration supports our strategy to become the leading digital infrastructure provider in the MENA region and position Ooredoo at the forefront of artificial intelligence. We will bring AI capabilities to 6 countries, Qatar, Oman, Kuwait, Tunisia, Algeria and the Maldives. This initiative goes beyond standard data center racks and GPUs. We will deliver a comprehensive AI stack to all enterprise, governments and start-ups in the region to enable a wide range of use cases. Our plan includes deploying thousands of NVIDIA Tensor core GPUs and AI data centers to meet the increasing demand for AI and accelerated computing. Given the Middle East has been a hub of technological innovation over the past 5 to 10 years, Ooredoo aims to be a key enabler of this progress and its collaboration with NVIDIA allows us to lead access to the technology that is economically transformative and expected to drive economic growth, job creation and technological innovation. According to PwC's forecast, every dollar invested in generative AI is expected to yield $9.90 in economic growth across the [ GCity ]. By 2030, the overall economic impact of generative AI in the region could reach $23.5 billion annually. Specifically, Generative AI is projected to generate $2.6 billion in economic benefits for Qatar, $1.6 billion for Oman and $1.3 billion for Kuwait. Overall, AI's potential impact on the Middle East is estimated at 320 billion by 2030, with an annual growth rate between 20% to 34% across the region. Given the significant potential and the rapid advancement in AI, Ooredoo is strategically positioned to capitalize on these opportunities and gain a competitive edge. Now turning to H1 2024 performance. The strong positive momentum carried into Q2 2024, driving significant improvements across all financials and operational metrics. In the first half of this year, we grew revenue and improved profitability. Key updates for the half are, as mentioned, we finalized the disposal of Myanmar after receiving all regulatory approval and recognized a gain on the disposal of QAR 118 million. As a result, please note that Myanmar 2024 results are reported up to May for the current year, whereas in 2023, it covered the full 6 months. On the sustainability front, we achieved a milestone by releasing our first stand-alone ESG report aligned with the best practices, guidelines and enhancing transparency for our stakeholders. In the first half, we developed growth across all financial metrics. Revenue grew by 3%. On a normalized basis, EBITDA increased by 8%, EBITDA margin improved by 2 percentage points to a strong 43% and free cash flow increased by 6%. Net profit was up by 14%. The solid momentum seen in the first quarter continued into Q2. Revenue was up 3% in the second quarter. EBITDA showed strong growth at 7%. Our EBITDA margin improved by 2 percentage points. Net profit was up 3% on a normalized basis. Revenues reached QAR 11.8 billion. On a year-to-date and quarterly basis, revenue was up 3%. Growth for the quarter was driven by our operation in Iraq, Algeria, Kuwait, Maldives and Tunisia, all of which sustain their momentum. Softer top line performance in Qatar, which was impacted by lower mobile fixed services and device revenue, Oman remain under competitive pressure. Palestine continued to be impacted by the war. On to the next slide for an overview of our EBITDA performance. EBITDA for the first 6 months of 2024 increased by 6% to QAR 5.1 billion. Strong EBITDA growth for the quarter of 7% versus same period last year. As a reminder, EBITDA increased 6% in the first quarter year-on-year and 4% in Q4 2023 year-on-year. Qatar, Iraq, Algeria, Kuwait, Tunisia and Maldives were the main contributors to the solid Q2 EBITDA performance. The improvement in profitability and margin were driven by service revenue and cost efficiencies. The growth in revenue and EBITDA has boosted the group's net profit. On a reported basis, net profit was up by 4% and up by 14% on a normalized basis. In the following slide, you can see the bridge between reported and normalized net profit. The main nonrecurring item, first half of 2024 was the gain on the disposal of Ooredoo Myanmar. Turning to net profit in Q2. We delivered growth on a reported basis of 15% and 3% on a normalized basis. The main nonrecurring item in the second quarter was once again the gain on the disposal of Ooredoo Myanmar. Turning to CapEx. We strategically increased investment mainly in Algeria, Kuwait, Iraq, Tunisia and Qatar, investing a total of QAR 1 billion for the first half of 2024, up by 16%. Investment covered mostly network rollouts, including site and fiber plus digital and security. Free cash flow grew by 4% to QAR 4.1 billion. The healthy growth is on the back of a strong EBITDA performance. In the first half of the year, excluding Myanmar and IOH, we increased our customer base by nearly 2 million subscribers compared to the same period last year. Our consolidated consumer base is up by 4% to 49.7 million subscribers. Including IOH, we have over 150 million customers. Looking at our balance sheet, our resilient financial position is reflected in the charts. Our leverage remained conservative at 0.6x and below our Board guidance. We have ample liquidity to cover our long-dated maturities. We are also structurally hedged against interest rate hikes with 97% of our debt at a fixed rate. Rating agencies have emphasized our conservative leverage profile, robust parent support and strong free cash flow generation as key factors contributing to our investment-grade status. To conclude, Ooredoo delivered strong results for the first half of the year, allowing us to reaffirm the group full year's guidance. The first half results are ahead of all our full year guidance. Our revenues are up 3%, thanks to the growing service revenues. The EBITDA margin expanded by 1 percentage point to 43% as we work towards improving profitability and cash generation. For 2024, we expect an EBITDA margin in the low 40s with a continued focus on cost discipline. CapEx will ramp up in the second half and fall within our guidance target of approximately QAR 3.5 billion. And on this note, I leave it to Abdulla to take you through the operational review.

Thank you, Aziz. Good afternoon, everyone. I will take you through our operational performance for the first half of 2024, starting with our home market, Qatar. Revenue decreased by 5% on a reported basis. The revenue for first half of 2023 was higher due to FIFA 2022 contracts related to B2B services and also revenue from data center, carve-out and one-off project revenue. On a normalized basis, revenue decreased by 1%, impacted by lower mobile and fixed services as well as device revenue. On a normalized basis, EBITDA increased by 1% year-on-year. For first half of 2024, EBITDA margin increased to 53%, reflecting a 5 percentage point improvement year-on-year. Improved operational efficiency on a quarter 2 contributed 2% point increase to EBITDA margin from quarter 1, 2024. Moving to Kuwait. The underlying result of the operation are healthy. We grew up our customer rates by 2% year-on-year. Revenue expanded by 8% in local currency, supported by higher service revenue thanks to increased usage in data and digital and higher equipment revenue. Excluding the one-off bad debt provision that was raised in the quarter 1, 2024, EBITDA grew by 3% in local currency. Next is Oman -- in Oman. We continue to see higher competitive intensity in mobile segment. Revenue decreased by 3% and EBITDA decreased by 6% year-on-year. The Omani team has a clear focus on maximizing growth and market presence and Oman while driving cost efficiencies. Moving to Iraq, Asiacell continued to excel, driven by commercial and operation excellence, favorable market condition as well as increased adoption data services. Our customer base increased by 7% to 18.3 million customers. In local currency, revenue grew by 16% and EBITDA increased by 20% year-on-year. EBITDA margin expanded by 2 percentage points to a strong 47%. Next is Algeria. Algeria was the other top performers on the group, demonstrating our ability to enhance efficiency, profitability and higher return in strategic network investment. Our customer base grew by 5% to 13.7 million year-on-year. Improved network quality has led to expansion of our customer and higher data and digital revenue, which resulted to a local currency revenue increased by 14% year-on-year. EBITDA expanded by 20% in local currency with a 2% point increase in margin, which is now stand at 42%. Moving to Tunisia. The operation delivered a good performance for the first half of the year. Revenue increased by 4% in local currency, thanks to the continuous investment on the fixed business. Normalization for the exceptional bad debt in first half of 2023, EBITDA increased by 5%. Next is Maldives. The performance in Maldives is supported by its strategy to elevate revenue and streamline operational expenses. Revenue increased by 8% year-on-year. EBITDA increased 4% while margin remained very healthy at 54%. In Palestine, I would like to highlight the courage and dedication of our colleagues. Despite the extreme, they have continue to provide support to our customer and maintain connectivity. Our customer base grew by 9% year-on-year, ending the first half of the year with 1.5 million customers. In the face of the challenge, operation landscape and a 3% depreciation of the local currency against the U.S. dollar, revenue declined by 2% while EBITDA decreased by 6% year-on-year. Wrapping up with our joint venture, IOH published another healthy set of results last week. Revenue was up by 13% and EBITDA increased by 18%. This concludes the operational review, back to IR team. Thank you.

Thank you very much, Aziz and Abdulla. Before we move on to the Q&A session, I'd like to highlight the following. On the slide, you will note 2 conferences that we may participate in, in the second half of the year. We've launched our Investor Relations app, you can scan the code on the slide to download it and stay up-to-date with our share price, view investor events and reports and access key data on screen easily. Lastly, we'll be hosting a Capital Markets Day, which is in penciled into late November. Details around this will be confirmed soon.

We now come to the Q&A part of this call. [Operator Instructions] For the Q&A section, I am joined by senior leadership team, in addition to Aziz and Abdulla, we have Eyas Assaf, our Deputy CFO; and Rene Werner, our Head of Strategy. So we're going to open up the panel for your questions. We will take a virtual question first from [indiscernible]. Please go ahead. We will move on to Nishit. Nishit Lakhotia from SICO Bank.

I have 3 questions. The first, on the tower transaction, the transaction you mentioned is progressing with closing of Qatar. But is the transaction going a bit slower than anticipated? Or this is -- the pace was something that as expected? So if you can just give some color on how do we see this transaction maybe during 2024, what should we expect in terms of -- on the transaction? So that's the first question. Second, on the Iraq operations, what's actually driving the better margins in particular? Is it just a revenue growth or there's some cost efficiencies? Anything on that would be helpful. And finally, on your home market, we've seen -- there seems to be a bit of pressure in general, even if you do more account for the revenue adjustments. But how do you see this -- the competitive environment that you've highlighted. How do you see this in the coming quarters playing out on? Are we seeing the worst behind or there could be more pressure on the home market in the coming quarters?

Thanks, Nishit. We start on tower.

On your question on towers, we have made indeed quite substantial strides in preparing for the transaction in Qatar, for example, we are also progressing quite good in other markets in terms of operational preparedness. But in most of these markets, there is basically no regulatory framework so far for the tower business as such. Within constant dialogue with the authorities, where partially these frameworks are currently built as we speak or have to pass legislation. So that is for us currently, basically a timing factor on the transaction. We're still optimistic that we can close certain of these markets during the current year.

And you ask, what's driving the margins?

EBITDA margins. Well, the EBITDA margin, as you know, the contribution of that line from major opco that we have like around, for example, Algeria and Tunisia, is a driving the EBITDA margin increase. And plus we have sort of a cost optimization also is contributing to the EBITDA margin increase.

And the last question was on Qatar, the competitive pressure.

Well, if we go to Qatar as an individual, we see there is slight pressure, but where see the growth on the EBITDA, I would say as an absolute number and as a margin is sustainable and the competitive, I'll say environment at Qatar today, yes, there is a slight competitions in the market, which probably will pressure or there is pressure right now the Qatari riyals.

Thank you. So we'll go to the typed question from [indiscernible] from HSBC. What is the share of data center CapEx within the QAR 3.5 billion CapEx guidance for the full year of 2024?

Approximately 10%.

And then you've already answered the question on the margins, but what were the drivers for the strong Q2 specifically margins in Qatar and Iraq and is it sustainable?

For Qatar, as I mentioned earlier, it is, I would say, cost optimizations. And for Iraq, it's detailed usage and the parent overall market in Iraq is a very strong market. And I see it also, hopefully, will be sustainable, and there is growth in the market.

Thank you, Abdulla. From Ziad Itani from Arqaam Capital. How will the deconsolidation of Myanmar impact your profits going forward? Is it reasonable to assume it was a loss-making and now finally, its disposal will improve recurring normalized EPS by around 5% to 8%?

I think it will have a positive impact because it used to have a pressure, especially from ForEx impact. How much as a percentage share we don't usually disclose this, but we are optimistic that it will have positive impact.

Myanmar was performing well in local currency over the last couple of years, but with #1 contributed to foreign exchange adjustments. So I think this will create some relief.

Thank, Aziz. Next question from [ Nikhil Putani ]. Your prepaid numbers in Qatar is in a fall quarter-on-quarter basis, can we know the reason? Has your market share reduced?

I will not refer to the market share. During the quarter, when we had a lot of visitors to the [ fish ] comps, I would say. And the visitor was -- we had a big number of visitor. And due to the summer also, we -- in the Qatar, we have a very low season, I would say, of visitor, that's why you see the drop is on the customer base.

Okay. Let's move to a data center business question. Can you give a time frame for your $1 billion CapEx on data center business? Also from where the demand will come for the 120 megawatts capacity?

I'll take -- yes, I'll take it. We've committed to increase our capacity by 120 megawatts by 2030. You've committed $1 billion of CapEx within the next few years. We're currently when we see and track the demand from hyperscalers and the growth of data center capacity requirement, and that's excluding the recent developments in AI, we're seeing that our initial plan was actually conservative in terms of time line. In a certain way, if we could deliver them faster would be better. Now giving exact time line is quite hard because, as you know, to build data centers, it's quite a complex enterprise from securing land acquisitions, securing power capacity and all the required regulatory approval. That being said, the constraint is not on the man, the constraint is on delivery time skips.

Thanks, Aziz. Another financial question from Nikhil. Can we understand the reason behind the flectivity in your impairments on financial assets on a quarter-on-quarter basis?

I would refer that to -- always to the operating -- or the operating performance against [indiscernible]. And this is where we would trigger any, I would say, impairment. This is due to the, as you are aware, of the accounting standards. So it's due to the performance. If the question was on the financial assets, which is the results. We announced last year, there was onetime that debt provision on Qatar is around QAR 88 million. Therefore, we saw last year, we topped almost QAR 135 million, this year report we will impact to the normal budget position. If the question was on the financial assets.

Thanks, guys. From anonymous, 2 questions. Qatar pricing. Your ARPU across each of the segments have declined consistently. Can you comment on the pricing strategy in this market? And going forward, how you aim to maintain market share? Number two, higher operating cost in Maldives, are these one-offs? Could you give some indication of what's driving these?

I'll take the first one, Qatar pricing. Our Qatar operations is predominantly focused also on the high value segment where we are more exposed than our competition to that segment. Hence, the pricing strategy reflects that exposure to the high end of the market, which is obviously also attractive to the competition. So you will see there a little bit of movements along this. But again, there's an old rule of thumb in the mobile industry, 25% of your customers generate 70% of profits. So we feel quite comfortable sitting in a very strong position in the high-end segment. We are having a very strong position in the Qatari segment. Also the expert segment as far as interesting on postpaid, and we're kind of looking into the segment to explore and build further market share. That as much for the market share over there.

And the second question was on Maldives. What's the higher operating costs, are these one-offs? Could you give some indication on what's driving these?

We'll check this point, but overall, it's not 1 item is [indiscernible] cost, we can update on more details [indiscernible].

Okay. The next question is also from anonymous on dividends. Is there a plan to distribute interim dividends in line with other Qatari [ policy ] listed companies?

So on this one, if you recall at the last AGM, we've secured the approvals to entering to interim dividend policy. For this year, we're looking at the effect of the companies in the market, which have taken interim dividends. We're starting the case if there is a [ material ] benefit to our shareholders in terms of value creation. And in terms of share price appreciation by this type of exercise, also interim dividends requires a bit more -- put a bit more pressure on cash flow management during the year. So we're balancing both. And we will probably come up with a recommendation towards this year to do work.

Thanks, Aziz. I think [ Aziz ] has touched on Qatar and customers, but just for completeness, I'll read the question. The population has come down approximately 8% to 10% in July 2024 versus Q1 2024, that's March 2024 figures in Qatar. How should we look at the rest of the year with regards to subscribers in Qatar?

First of all, there is seasonality where during the summer, we usually see a population decreasing in Qatar. So that's nothing new. More interesting as the year-over-year comparison, in Qatar, the statistics office just published basically fresh July numbers. Now we have roughly 80,000 more population than previous years. So there's actually growth year-on-year.

Thank you, Rene. Tower question from [ Ana Sandra ] from Ashmore. On the TowerCo transactions, do you remain on track to meet the guidance that you initially issued to the markets with the road map that your previous Capital Markets Day?

We're working very hard to meet the guidance. As previously mentioned by Rene, some of the elements in the time line are beyond our control [indiscernible]. We've done quite a lot of progress in the last few months, especially in Qatar in terms of [indiscernible] progress in Iraq, and we're working very hard in Tunisia and Algeria. So we're striving to close at least Qatar by the end of this year. That's our main goal, and to fold in then very quickly the remaining countries within probably the first half of next year. So overall, as a transaction time line, total transaction time line, I think we're [indiscernible] plan, even if some of the building blocks are slightly moving back and forth.

From [ Kamza ]. Given the rapid advancement in AI, how does Ooredoo envision integrating artificial intelligence into its core services, including customer experience and network efficiency?

So AI, we're looking at it from 2 standpoints. I think the first part is [indiscernible] Ooredoo integrates AI within its own practices for its own business. And on this, I know there's been a lot of hype with Generative AI over the last probably 12 to 18 months. That being said, Ooredoo has already been integrating, for instance, the network planning side and natural resilience in machine learning the past years to improve our efficiency in terms of CapEx deployment and also availability of network. So we've already been using AI tools for a while. We're, of course, looking at the new tools and new solutions to see how that could increase our efficiency, our productivity and our customer experience. First, cases are, of course, on the customer-facing side, which is on customer care, see advance CDM, but there's a number of cases which can step through the whole Ooredoo workflows, even in the finance department, from credit risk analysis, et cetera. So there's really a lot of pieces where we can integrate AI within our business. The second part which is also very important is how do we monetize and sell AI. As you remember, we've signed an agreement with NVIDIA. We are the leading telecom provider in the region, signing the first NCB deal for the region and as NVIDIA Cloud Partner, which will allow us to get priority access to their chips. And this will allow us to not just sell data centers, racks that we will be selling GPUs as a service and also sell added value services above of that from NVIDIA and other partners.

Thank you. We have another question from [ Alesandra ] around data centers. On the data center expansion, could you give any comment on the competition within the market, both within your home market and across the others that you are building capacity?

So historically, and as of to date, in most of the markets where we operate, and correct me if I'm wrong, I think we command around roughly 60% market share of installed capacity. There's a lot of growth, we are de facto 1 of the first call for -- to cater to that growth. Of course, there is competition. Now while we see data centers as a great opportunity, not just because of its growth profile, but also due to the barriers to entry in the regions we operate, it's actually quite complicated to build operated data centers in terms of regulatory landscape, acquisition of land, land ownership, but also when we talk about data center, not just about hosting the rack for instance, GPU as a service if we're talking about AI, but you also need the whole connectivity landscape where Ooredoo is a market leader. We will sell a landing station across the region. We own a lot of fiber network in terms of backhaul and international connectivity and all these piece create barriers to entry and allows us to consolidate composition in the market.

I don't see any more questions. So any hands raised?

Regarding the question [indiscernible] check, as Abdulla said, there's 2 parts, is the cost of sales and the stock cost. This is the very reason for the increase in OpEx, but still EBITDA has grown even with this increasing of the OpEx.

Thanks, Aziz, to clarify. I don't see any more questions coming through. So since there are no more questions, I'd like to thank you for participating in Ooredoo H1 2024 call. The next results release will be likely towards the end of October. If you have any further questions, please feel free to reach out to the Investor Relations team. Thank you.

Thank you.

Thank you.

Thank you.