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

Good afternoon, everyone. Welcome to Ooredoo Group's financial results call for the period ended 30th September 2024. My name is Luelle Pillay, and I'm Head of Investor Relations for the group. Today, I'm joined by our CEO, Aziz Aluthman Fakhroo, who will take us through an update of the strategy and walk us through 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. [Operator Instructions] The presentation is available on our website at ooredoo.com as well as on this webcast. The recording and transcription of the session has started now. So by joining the session, you consent to be included. Please note our usual disclaimer on Slide #2. And on that note, I hand over to Aziz.

Good afternoon, everyone. Welcome to our Q3 2024 investor call. Starting off, we continue to be guided by our clear strategy, which remains unchanged and focus on our 5 core pillars. We are making progress across each of the verticals. On the tower, we reiterate our priority remains on completing the transaction closure in each market. We have already started with Qatar, which has been progressing well. As previously mentioned, we expected the transaction to be completed within 18 to 24 months from announcement. To accelerate the expansion of our data centers, we signed a Qatari Riyal, $2 billion financing deal with 3 local banks. I will elaborate more on the transaction in the next slide. This deal further support our recent initiative to lead in AI, following our strategic collaboration with NVIDIA and marks another significant milestone on our journey to become the MENA region's leading digital infrastructure provider. On the DC carve-out, we completed Qatar, Tunisia, Kuwait. Other countries are on track to follow suit in 2025. Moving to our fintech vertical. We are progressing with obtaining licenses and have received PSP license in Oman and more recently in the Maldives. We are currently in advanced discussion with the regulator in Tunisia and are working on our license application in Iraq and Kuwait. It has been a notable period for financing initiatives. As mentioned, we successfully signed a QAR 2 billion 10-year financing deal with QNB, Doha Bank and Masraf Al Rayan, marking the largest transaction ever achieved in Qatar Tech's industry. The funds will be used to carve out existing data centers assets from telecom operations and a large portion will also be used to expand capacity and upgrade infrastructure supporting the growing demand for AI, cloud services and hyperconnectivity in the MENA region. There is significant untapped potential in AI, cloud services and accelerated computing, and we believe we are well positioned to take advantage of this. Additionally, post period end, we completed a $0.5 billion 10-year international bond issuance. The bond carries a coupon rate of 4.625% with a yield of 4.714%. Notably, we secured the tightest spread in our company's history at 88 basis points over the 10-year U.S. Treasury, which was also one of the lowest emerging market corporate issuer spread ever. The issuance was oversubscribed by 3.6x, underscoring strong demand and further validating our strategic direction. These funds will be allocated for general corporate purposes, which include the refinancing of our existing indebtedness, alternately enhancing our financial flexibility as we continue to grow. These 2 initiatives strongly reflect the resilience of the business and our credibility in the market, reinforcing our banking partners and the market's view of Ooredoo as a reliable, secure and future-proofed investments. Now turning to the performance for the period. Here, you can see a snapshot of the performance showing we have maintained a strong growth trajectory while driving consistent profitability. I will walk you through the consolidated numbers in the next few slides. For the first 9 months, we delivered year-on-year growth across the majority of the financial metrics. Revenue grew by 2%, EBITDA increased by 4% and EBITDA margin reached a strong 44%, improving by 1 percentage point. We delivered an impressive 15% growth in our normalized net profit on the back of strong operational performance. We delivered a robust performance for the third quarter. Revenues were up by 1%, EBITDA came in flat, EBITDA margin was steady at 44%. Net profit was up by 15% on a normalized basis. Revenue for the period reached QAR 17.7 billion. On a year-to-date basis, revenue was up 2%. On a quarterly basis, it rose 1%. Growth for the quarter was driven by our operation in Iraq, Algeria, Kuwait, Tunisia and Maldives, all of which sustained their momentum. Qatar and Oman continued to see their top line performance mainly impacted by the highly competitive environment. Looking at EBITDA, we continue to drive profitability and operational efficiency, which is contributing to solid EBITDA performance. EBITDA increased by 4% to QAR 7.7 billion. EBITDA margin reached a strong 44%. Iraq, Algeria, Qatar, Tunisia and Maldives were the main contributor to the solid performance. Looking specifically at the quarter, the group EBITDA's performance was impacted mainly by the decline in Oman's EBITDA due to lower revenue and gross margin and a drop in Kuwait's EBITDA due to a one-off bad debt provision. The net profit growth delivered by the group was derived by healthy increase in revenue and EBITDA. On a reported basis, net profit was up by 10% and up by 15% on a normalized basis to QAR 2.9 billion. In the following slide, you can see the bridge between reported and normalized net profit. It's worth noting that the 9 months 2024 figures include a one-off gain from the Myanmar disposal. Though the same period, in 2023, also benefited from a number of one-offs, including gains from the MNTC legal case, the MESA IPO and the IOH tower sales. Turning to net profit in Q3, we delivered growth at a reported basis of 21% and 15% on a normalized basis to QAR 1 billion. In the third quarter of 2024, we did not recognize any material one-offs. Turning to CapEx. We continue to invest strategically for strong returns. For the first 9 months, we invested a total of QAR 1.9 billion, up by 22%, mainly in Iraq, Oman, Qatar, Algeria, Tunisia, Kuwait. Investment covered mostly network rollouts, including site and fiber plus digital spend. Normalized free cash flow remained flat at QAR 5.8 billion. The strong EBITDA performance was offset by an acceleration in CapEx projects as we continue making strategic investments in the growth of our telecom operations, particularly Algeria and Iraq, to capitalize on market expansion and rising demand. During the period, including IOH and excluding Myanmar, we increased our customer base by 1% in just shy of 150 million subscribers on our network. The group's financial and liquidity position remains resilient with investment-grade rating. Liquidity remains strong with QAR 12.4 billion in cash reserves and QAR 5.2 billion in on-loan facilities. Leverage is conservative at 0.6x below our Board guidance. We have a balance of maturity profile with over 6-year average remaining maturity at the group level. 98% of our debt is at a fixed rate, which means we are structurally hedged against interest rate hikes. Following the period end, as mentioned earlier, we successfully completed the issuance of $0.5 billion 10-year bond. To conclude, Ooredoo delivered robust results in the third quarter, and we are in a strong position. The 9 months results are ahead of our full year guidance for revenue and EBITDA margin. Our revenue are up by 2%, thanks to growing service revenues. The EBITDA margin expanded by 1 percentage point to 44%. For 2024, we expected an EBITDA margin in the low 40s with a continued focus on cost discipline. CapEx will continue to ramp up in the fourth quarter 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.

Thank you, Aziz. Good afternoon, everyone. I will take you through the group year-on-year operational performance for the first 9 months of 2024. Starting with our home market Qatar. Revenue decreased by 4% on a reported basis. Revenue was higher in 2023 due to FIFA 2022 contracts relating to B2B services, revenue from data center carve-out and one-off project revenue. On a normalized basis, revenue decreased by 1%, mainly due to lower mobile services. Ooredoo Qatar EBITDA remained flat on a normalized basis while the EBITDA margin increased to a healthy 53%, reflecting a 4 percentage point improvement. Customer base increased by 1% to 3 million subscribers. Moving to Kuwait. We continue to see solid top line performance on the business. Revenue expanded by 6% in local currency, thanks to higher service revenue driven by increased use of data and digital services and a higher equipment revenue. The EBITDA performance was impacted by one-off bad debt provisions raised in quarter 1 and quarter 3 of 2024. Excluding these bad debt provisions, EBITDA decreased by 2% in local currency mainly due to increase in operating expense. Customer base remained flat at 2.9 million. Moving to Oman. The high-level competitive market conditions in Oman continue to impact Ooredoo Oman mobile business. Revenue decreased by 2% and EBITDA decreased by 6%. Meanwhile, the operation recorded a resilient EBITDA margin at 46%. Our team in Oman has undertaken several initiatives to enhance its competitive advantage in the market. These include extending the 5G network and testing 5.5G as well as running attractive marketing campaigns. Moving to Iraq. Asiacell once again delivered impressive growth, taking advantage of the favorable market dynamics, additional customer and a great uptake of data services. The operation gained 9% additional customer on its network to reach 18.6 million customers. In local currency, revenue grew by 15% and EBITDA increased by 19%. EBITDA margin expanded by 1 percent point to a strong 47%. Algeria is another market in our portfolio with extremely strong growth, thanks to our strategic investment into a high-quality network and customer satisfaction. Customer base grew by 10% to 14.5 million. In local currency, revenue grew by 15%, driven by data and digital revenue growth. EBITDA expanded by 22% in local currency with a 3 percentage point increase in the EBITDA margin, which now stands at 43%. Moving to Tunisia. The operation continues to deliver healthy performance, thanks to strategic investment and improved operational efficiency. Revenue increased by 5% in local currency, normalizing for the one-off bad debt in 2023. EBITDA margin increased by 3 percentage points to 41%, thanks to continued focus on profitability. In Maldives, we continue to see solid revenue growth across all segments. Our position in the market will become even stronger as we became the largest 5G network on the country. Revenue increased by 6%, while EBITDA grew by 3% with an EBITDA margin that continues to remain very healthy at 54%. Moving to Palestine. I want to commend our colleagues in country for keeping customers connected through the conflict. Support for the customer in Palestine included free bundle in the form of voice and data packages. Our customer base grew by 8% to reach 1.5 million customers. In the face of the challenging operating landscape and a 2% depreciation of local currency against the U.S. dollar, revenue and EBITDA decreased by 2% and 7%, respectively, while EBITDA margin stood at 39%. Wrapping up with our joint venture, IOH, published very strong results for the first 9 months of 2024. Revenue was up by 12% and EBITDA increased by 15% with a solid EBITDA margin of 48%. This concludes the operational review. Over to IR team. Thank you.

Thank you very much, Aziz and Abdulla. We have now come to the Q&A segment of today's call. [Operator Instructions] I'm joined by the senior leadership team today for the Q&A section. In addition with 2 of these, we have Sheikh Mohammed Al Thani, Deputy CEO; Eyas Assaf, Deputy CFO; and René Werner, our Head of Strategy. So let's open the floor to questions. I don't see any typed questions. I see a hand raised. [ Fahad Abdi ], please go ahead and ask your question.

This is [indiscernible]. I just have one question. What's the percentage of your revenues in Qatar that are related to the B2B segment?

Qatar, I think of the cost spend, we can send right number, I think we're totally working around 17%, I think.

It's around 20%, 22%.

22%.

22%, this is B2B. Are you including the B2G in it? Or it's only B2B?

Yes. B2G isn't in it.

Do you disclose how much is the B2G?

No, we don't break down by segment.

Our next question comes from Alessandra David from Ashmore.

Just one question for me. I think in the last earnings call with regards to the data center carve-out, it was mentioned that there was the ambition to have the financials in Q4 to have the data center financial split out. Is that still -- are we still operating along that trajectory? Or has the time line been revised?

So to have segregated financials for data centers, look, the target is to have full segregated by Q1 for the beginning of next year. I don't know if we'll be issuing pro formas in Q4. I need to check with my team.

Yes, we might do it based on the status of [indiscernible] of other countries. So it's between Q4 and Q1.

We have a typed question for [ Celene ]. Ooredoo Algeria, the postpaid ARPU has declined while the base remains stable. How can this be explained? The EBITDA increased by 3 percentage points during a commercial challenging period. How is this achieved, Ooredoo Algeria?

Ooredoo Algeria is a seasonality, usually Q3 is the best season for the prepaid, slower in the EBIT for the postpaid because some people travel outside. The improvement in the EBITDA percentage is linked again to the seasonality. If you see, the highest growth revenue usually comes in Q3 due to the expat coming back to the country and using prepaid more than postpaid.

Another question [ Agarwal Shekhar ]. Are we expecting significant impairment to be booked in Q3? I think you mean 2024, fourth quarter of 2024.

We do this exercise to review the impairment. We do the impairment test by end of the year. And by that time, we'd share those results. As of today, we don't see any material number as of Q3. But usually, we do it in Q4.

I don't see any other questions. [Operator Instructions] Another question from Alessandra.

I just had another question. It was just maybe a more general one. If you could maybe talk to some of the demand that you're seeing in your home market in Qatar. I think the 2023 numbers, especially on the customer side, I understand there was that reclassification. But just in terms of like how your market share is looking within both the postpaid and the prepaid segments, and maybe some of the competitive dynamics you're seeing on the grounds? That would be really helpful to get a bit more color on that.

Yes. The market is quite competitive at Qatar. It has been a very challenging year. It has been -- [indiscernible] said about the segmentation and classification. Still, honestly, the market itself, very competitive, a lot of promotions going here and there. However, we acknowledge that challenging in the top line and what we are facing. However, Ooredoo Qatar has made a good contribution to the bottom line or specifically to the EBITDA standing at 53% of EBITDA margin, which is quite healthy for the entire group.

Our next question comes from [ Himor ].

Can you please share the expansion strategy in depth with respect to data centers, especially AI data centers?

As you know, for the data centers, we've announced a carve-out. We've already carved out most of our significant markets. We're finalizing currently. We've carved out Qatar, Tunisia and Kuwait. We're finalizing the carve-outs in Iraq. We have quite an aggressive expansion strategy, which is not driven as what I would call opportunistic. We will build it and it will come. Most -- all of our expansions are anchored by anchor tenants. We have communicated many times, and we're happy to go into depth and it will be probably subject to the Capital Markets Day. We're looking to really triple our capacity within the medium term within the next 5 years, going from close to 40 megawatts of installed capacity to 120 megawatts of installed capacity, and this is driven just by cloud-native data centers. To this, we have added a leg recently with NVIDIA partnership. We are the first telco in the region to become an NVIDIA cloud partner to layer GPU as a service and to go up the value chain in the AI stack as well. We're seeing significant demand. We estimate the first AI chips to be installed at least by Q1 of next year. To that, in fact, we've committed $1 billion of expansion over the same period for this expansion. As you might have noted, we've raised QAR 550 million of debt in a facility with 3 local banks.

Our next question is from [ Nikhil ].

Well, my actually question has got to do with your region-wise specific performance. We can see actually a clear demarcation coming out within GCC and outside GCC, suppose I may add in terms of both revenues flattening out, margins getting competitive. So largely, as you mentioned, 53% EBITDA from Qatar and to a certain extent, Oman and Kuwait. So how do you foresee it given the fact that it's quite saturated. How you will be able to, at least in the short to medium term, look forward to in terms of revenues getting involved from this region?

Well, look, I'll try to give a short answer because there's a long answer to that question. I think this is the compelling offer or the value of Ooredoo. Ooredoo is a balanced portfolio. It's the most diversified portfolio in the region in terms of footprint. What you get is high, I would say, investor grade mature market within the GCC, which gives you stable cash flows, but there are mature limited growth and extreme currency stability. All countries have pegged or close to pegged in the case of Kuwait currencies. On the other side is attached the growth engines, which is the Iraq, Algeria, Tunisia, which are emerging markets. As you know, you can see in our numbers, what we are announcing are driving the growth of the group with expanding top line and profitability. But these markets carry much more volatility historically and probably going forward. So when you invest into Ooredoo, you're investing into that portfolio effect of the stable foundation, which I would call the GCC and the upside lever, which is these emerging markets. This is the compelling offer and the differentiation of Ooredoo versus, I think, a number of our peers.

So do you see -- foresee -- you continue with the strategy say within Qatar and maybe to certain region Oman, pricing going up, I mean, in terms of maintaining the revenues or while you don't mind, to certain extent, volumes -- I mean, price-driven revenues rather than volume-driven revenues. Do you see that as you are seeing in Qatar?

We've all -- we've been focused in the past year neither in lower on price-driven revenues nor volume-driven revenues, what we've been focused. And I think our numbers show for a fact, it is profitability-driven revenues. So we're trying to target in any given market, we're generally more focused on EBITDA market share than revenue market share as a metric. What we're trying to attract is the healthiest segments in any given market we operate in, in terms of revenue that can flow through the biggest contribution to the bottom line. I think the constant expansion of our EBITDA margin and our net profit is a testament to that.

We have a typed question from [ Pajunia ] from HSBC. Shall we expect any cash proceeds this year from the TowerCo transaction?

So working tirelessly to complete the first closing of this transaction. We're still going through regulatory approval process in all jurisdictions, including our own Qatar. These are not trialed processes as we're the first TowerCo to establish. So we're going through this process. Realistically, we were hoping to target a close by the end of this year. Given where we are in the year, I think it would be probably end of this year, but more realistically, very early next year.

Another one from [ Pajunia ] from HSBC. First quarter's Ooredoo share in income from IOH has been the lowest in the last 5 quarters, around QAR 79 million. Is IOH's earnings growth momentum slowing down? Please shed some light on the outlook.

No, there's no slowing down, but the right comparison is to compare year-on-year. Quarter-on-quarter, the seasonality. If you compare to Q1 '24, it's higher than Q1 '23, and I can give you the numbers. The same Q2 '24 is always higher than Q2 '23. Q3 '24 is higher than the Q3 '23. We cannot compare quarter 4, which is the best performance for Indosat with the Q1, and we cannot compare Q1 with Q2, this is seasonality. So in summary, year-on-year, all the quarters are growing. But if you compare Q2 to Q1 in the same year, it is less, and this is normal. And if you check our history, it's the same trend. We are comfortable with IOH results. Maybe Aziz can add, but we compare it year-on-year, we see always the growth.

I think I would expand on the word comfortable. We're actually very proud of the IOH journey from the work delivered by the management, but also we've realized ahead of schedule, all the envisaged synergies when we did the merger. We are again, and I've said this many times, when we have announced the merger of Indosat with CK Hutchison, we had guided to $300 million to $400 million of synergies within year 4 or year 5. Today, we're in year 3 of the merger, and we're realizing at the top range of our guidance. So we're extremely happy with the performance in terms of delivering the synergies in terms of the merger, but also the management in Indosat has been exceptional in terms of the work that's done on the ground and in the market.

Last point, if you allow me, I want just to -- in Q1, we clarified this point. There are always difference between our books and Indosat books, around QAR 7 million every quarter. This is -- I don't want to go in details about amortization, deferred tax liability, but as we said in the Q1, by Q4, this amortization will finish. And from Q1 next year, it will be 100% EBITDA comparison. But overall, I think the comments from Aziz clarified the position.

We have 4 questions from an anonymous attendee. On data center or MESA, what are your plans for the remaining stake you have in MESA? Isn't there conflict of interest to grow in data centers while still holding on to a competitor stake?

So when it comes to MESA, we've already monetized 10% at the IPO. It's an asset -- it's a noncore asset. We see it as a financial investment. We -- our lockup has expired, so we will be looking at monetizing the stake over time in an orderly manner to protect our value, but also as a responsible corporate citizen within the framework of Qatar to protect the value even if it's of our competitors of MESA by not just liquidating this position. Furthermore, we don't need the cash right now, as you've seen from our balance sheet. We're in a strong cash position. So as of today, we're holding it and looking to monetize it at an opportune time, where we will maximize value for our shareholder without implying any disruption to the value of MESA intrinsically by itself.

And the next one on data centers. Are you looking for a strategic investor in data centers? And if so, what's the reason behind this?

So yes, we've announced to the market that we're running a process to look at the strategic investor, a significant minority investor. The reason is quite clear is we've been doing data centers for a long time. We are actually, in terms of installed capacity, the market leader in all the markets we operate with close to north of 60% of installed capacity. That being said, is data centers as a whole, and the way we were trying to gear it up is a whole new business. This is why we're carving out and we're hiring experts into the business, anchoring that with an investor that is an expert, not a financial investor, pure, but as an expert in the space that can help us leapfrog the learning curve, whether technologically design, build and commercially, it would be a huge benefit. Two, it would also anchor the valuation of our data center business stand-alone within our sum of the parts. So we do believe there is merit to doing that exercise as long as we will achieve the right alignment of interest and the right valuation.

Great. And moving to Iraq, are there any updates on the 5G tender? And what about the issuance of a new mobile license there?

Yes. There is no such update on the 5G tender as well as from new mobile license, still the talk is there with the leadership of the country. So still, we don't have the time line of the issuance of these licenses. Back to the 5G, there's no such update as I said. However, from 4G perspective, we are already covering -- having a decent coverage in the country. We're really acquiring the highest [indiscernible] percentage of the 4G subscription and we're still committed to invest in the country.

And then on dividend. Why is your dividend policy still conservative, especially when you compare it to your domestic competitor, Vodafone Qatar, who doesn't shy away from paying even 100% of its earnings in dividends?

So I could shy away from the question by saying that the dividend policy is the prerogative of the Board and not of the management team. That being said, our dividend policy is we guide a 60% payout ratio, normalized net profit. At the same time, we've been at the top of that range consecutively for the last 3 years. And in the same time period, our dividend has grown, I think, close to 128%, something like this. So I'm not sure a lot of our peers in the market have had the same growth in absolute dividend as we've had.

And I don't see any more questions or any more hands raised. Since there are no further questions, I'd like to thank everyone for joining today's Q3 2024 call. Ooredoo's next results are scheduled for the full year results mid-Feb 2025. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you again, and we look forward to connecting with you soon. Thank you.

Thank you very much, everyone.