Omani Qatari Telecommunications Company SAOG (ORDS) Q2 FY2025 Earnings Call Transcript & Summary

[Foreign Language] Thank you for joining us today for our H1 earnings call. I'm Ahmed [indiscernible] from Investor Relations department at Ooredoo Oman. We're pleased to have all of you with us as we will walk through our performance for the H1 2025. Joining with us today from Salalah our CEO Saoud Hamad Al Riyami; and our CFO, Mr. Nasser Al Yaarubi. They will be providing insight into our financial results and operational highlights. Before we begin, a few necessary disclaimer gold points in Slide #2. During the discussions, we may share forward-looking statement based on the available information to us as of today. Please note that our views may change over the time, and we are not required to update you if they do. For more details, please refer to our public disclosures for the MSX and Ooredoo Oman websites. With that, I will turn over to Mr. Saoud Hamad Al Riyami to walk us through the highlights of the H1...

[Foreign Language] Good afternoon, everybody or good morning wherever you are. Thank you very much for being with us. This is Saoud Riyami. I'm proud to actually -- I'm delighted to take you through a few highlights of our financials and then key trends of the market and some updates from the regulation perspective and futuristic strategic investment from Ooredoo Oman. But before going to the financials, I would like also to take you through some of our commitment and some of our achievements we have done on the ESG part, where it's undoubtedly a very important pillar in our strategy to create shareholder values and our commitment to be compliance with all the best practices metrics towards the social and governance -- environmental, social and governance practice. Here are some key highlights and you can get more details published ESG reports. We have actually focused on in-country value, and you would realize that there is 74% of our procurement spend is directed to local supplier, mainly to push the SME part in Oman. On the recycling part, this is also our commitment when it comes to the environment, a very good number of tonnes of waste recycled in our operation and daily use from our fixed assets. We are also responsible for our customer experience. Hence, 100% of our customer complaints have been resolved within the set KPIs by the regulation. And that's a commitment where we focus on the one and only pillar that brings and makes the customer actually stay with Ooredoo and enjoy the service, which is customer experience. And lastly, from a nationalization or if you like to call it the harmonization, we are actually [indiscernible] a mark of 93.2% on this metrics, and we are exceeding some of the KPIs that is actually set by the Labor Ministry here in Oman with a 32% mix of resources being female representation. As I said and mentioned earlier, if you would like to get any further details, it's provided in our ESG detailed reports. Next, please. Now I'll take you through some of the key messages before getting into the financials. Now despite the challenges we have faced in fixed wholesale -- in fixed and in the wholesale part, we managed to sustain our mobile revenue. You would see maybe this on the slides and the slide details my colleague, the CFO, is going to take us through. We also have seen a number of initiatives to actually solidify our strategic focus. If you recall, since last year, our ICT and IoT growth is the main pillar. We are actually the #1 operator to introduce some of the ICT, IoT for business customer. Examples are not limited to many, but those sort of managed WiFi solutions that are tailored to meet our B2B need. In addition, also, we are glad that we have introduced Google Workplace, which is also in our ICT portfolio to strengthen the portfolio. This is, by the way, Ooredoo first to offer in the market. In addition to these, some key messages, we will continue sustaining our mobile services in a very, very highly competitive market. It was declining for the last, let's say, 2 years. Now we are actually on the sustainability phase. And hopefully, with few corrective initiatives, it would also -- we will see a slight growth, if at least not but maintain the same. Brand is very important. Hence, we are also glad to share that we were awarded the best or #1 leading position in brand equity. And that is also a commitment for our shareholders to have the brand equity always at the lead. It gives us a very good also positioning in the market. We are spearheading on the digital transformation. The investment we are making on digital transformation is massive, internally to upscale the systems that we have. And in due future, this will actually also impact our customer experience and go-to-market. We will also continue maintaining the momentum in accelerating our 5G coverage expansion. You would also see this in the financial slide. We are spending our CapEx investment structurally, and this is our commitment to cover the whole nation by 5G. As we speak, around 80% of the populated area in Oman are covered by Ooredoo 5G and in some key places, gladly to mention that in Salalah International Airport is actually covered only by 5G with Ooredoo Oman. If you look at #7, there are also priorities of strategic CapEx initiatives and strategic projects towards not only a network expansion, but strategic sustainable investment on the wholesale domain, and that is not only for building data centers and having customers in the data center, but this is also being very competitive in attracting the sea cable consortium that are flooding into Oman by our competitive advantage from the state-of-the-art data center situated across the whole region from north to south. And this is the pillar that we will be focusing, which is invest in the future to actually have a diversification from the core. Last but not least, we will actually continue managing and maintaining our cash headroom. We are having a very strong balance sheet to be ready for the future investment opportunities, and we will continue this healthy look in the coming few years as well. Next, I will just shed the light on some snapshot on the financial results. We actually experienced a decline of around EUR 3 million, a percentage of 2.4% in the top line, and that is mainly impacted by the national roaming of Vodafone being carried for the last 3 years in our network. Now they have actually carved out all their dependencies and built their own network. So if you normalize it, maybe this is going to be almost a net 0 or maybe a slightly less than the OMR 3 million decline. And that automatically impacted our EBITDA. We experienced around OMR 3.6 million decline on the EBITDA. And of course, that is impacted by lower revenue, which impacts the EBITDA margin due to the revenue mix and ultimately, the net profit, OMR 1.3 million below. As I said, we are having a strong balance sheet on the -- let's say, the cash flow, but the CapEx is actually intensity -- OMR 19.5 million have been already spent, and that's towards our commitment for network and the wholesale projects I have mentioned earlier. And we will also continue the health, let's say, balance sheet due to our strong cash position in the market. That's from my side. Now I will hand over the mic to my colleague, Nasser, the CFO, to take you through the low-level details of these numbers and look at the base of the customers and the split of mobile and fixed.

[Foreign Language] Thanks, Saoud. In this slide, you can clearly see that actually we have managed to add around 63 customers by having actually a good performance in the prepaid as well as M2M, thanks to our actually strategic focus on ICT and IoT. And the prepaid customers, we've seen an increase by around 2,000 customers. And it's not only the number of customers that we are focusing on, but also the value customers. Postpaid customers is driven by M2M, while the real postpaid mobile customers face a little bit of challenge, we've seen actually improvement in other dimensions related to the postpaid, especially when it comes to the value from each customer. And three, when it comes to network, we are focusing more on more advanced technologies as our CEO highlighted. We've managed to sunset fully the 3G, which is expected also to drive some savings in the network. We've seen actually some savings in the operational expenses by adapting actually the best efficiency practices. And we continue to push our 5G coverage, which have reached 80%. Now 80% of the population in Oman is covered, and we will continue to drive that. We've managed to add around 88 sites so far of 5G this year and around 240 new fixed home broadband 5G sites. The next slide, please. Now let me throw a little bit more highlights when it comes to the financials on our revenue, we've seen actually a drop of around OMR 3 million. Now it's reaching around OMR 124 million, and this is as highlighted by our CEO, is impacted by the national roaming and wholesale in general as well as actually the challenges -- the continuous challenges that we faced in the fixed domain. However, this is partially offset by growth in the ICT and devices. When it comes to the quarterly trend, we have seen a small growth between quarter 1 '25 and quarter 2 '25, again, is impacted actually by the wholesale and the carve-out of the national roaming. So all in all, the decrease of around 1.4% on the revenue, okay, is -- has impacted actually the -- our financials, as we've seen previously. However, there are a few good signs when it comes actually to the number of customers and the value that we are creating from them. On the EBITDA front, that's the next slide. We've seen actually a drop by around 6%. Now our EBITDA is OMR 55 million. That's a drop of OMR 3.6 million. Again, it's attributed to the drop of the revenue. However, we have offset the drop in the revenue and the gross margin by a number of efficiency and operational excellence initiatives that has got our costs under control. So we've seen actually improvement in our operating expenses spend mainly coming from the network efficiency as well as bad debt provision. And that actually has proven also improvement quarter-on-quarter. So you can see basically, we've added around OMR 250,000 in quarter 2 '25 compared to the quarter 1 2025. Next slide. So when it comes actually to the net profit, a lot of the decline in the revenue and EBITDA, which was around OMR 3.6 million, as I highlighted in the previous slide, have been actually offset by efficiencies in other below the line. And we've seen actually a lower spend on the depreciation and amortization as well as actually the financing costs. So the drop in the net profit is around OMR 1.36 million, reaching to around OMR 3.6 million in the first half of 2025. And one thing that I have to highlight here that our results here includes actually the old level of royalty. And if we normalize that, actually, our net profit would have grown by around OMR 1.3 million or OMR 1.4 million this year. Probably you heard that actually -- and we have made announcements related to this, that the TRA has issued a direction towards reducing the royalty on mobile and unifying the royalty level for both fixed and mobile to 10%. And this, of course, as you have probably heard or read in our disclosure, that will have actually a positive effect on our financial. On the capital expenditure, that's in the next slide, we are committing to invest in technology and in the infrastructure that supports our growth targets as well as actually ensuring that we create the maximum value to our shareholders in the most sustainable, efficient way. So we've spent around OMR 22 million so far this year. And this is an increase by around OMR 0.5 million compared to the same period last year. Most of our spend is directed towards actually the network and building our capabilities in wholesales as well as actually ensuring that we have the digital transformation program completed by investing in the best systems that suit the purpose when it comes to the billing, the system that has actually direct interfaces with the customers, the application and all what is called digital experience for our customers. Next slide. Next slide, please. Now when it comes to the balance sheet and our debt portfolio, as highlighted by our CEO, we maintain and we will continue to maintain a very strong balance sheet. And our net debt is stable at around OMR 23.5 million. We have actually established lots of initiatives to ensure that actually we do not have excessive financial liability, and we will invest whatever is actually required and when it's required. There are lots of plans and lots of investment plans. And we will use and we will utilize the facilities and we will access the financial market who are actually more than happy to work with us and support us due to our strong balance sheet. And there are lots of plans, as I have been highlighted also by our CEO, to invest in technologies, to invest in the future, to further continue our efforts and our actually strategic pillars to strengthen our wholesale and our ICT and IoT capabilities. So you can see clearly that all the ratios when it comes actually to debt, name it, whether it's actually the net debt or net debt as a ratio of EBITDA or equity, they are really very strong. And it gives us actually a room as a management here to invest for possible opportunities in the future. Yes, with that, actually, we do have also undrawn facility of around OMR 67 million. Now I give it back to Saoud for his final messages.

Thank you Nasser, very much. As I said earlier, we will actually continue the momentum in our operational plan, and that is to accelerate the top line by, let's say, diversifying from the core and adding the better propositions when it comes to our postpaid and prepaid. I actually have seen a lot of good improvement when it comes to fixed and that will also maybe see or let's say, through a good positive results in very coming months. TRA have issued the announcement as Nasser actually has mentioned this. And maybe this you would actually see the impact as detailed in our disclosure. We will drive our investment, and we are committed to actually do the future -- investment in the future, as I mentioned earlier. And last but not least, we will continue having the strong position of our balance sheet by sustaining the existing bad debt as well as working capital efficiency to drive improved free cash flow. With that, I will actually hand it over now to you if you have any...

Thank you, Saoud and Nasser [Operator Instructions] We have one of those question from [indiscernible] that the TRA would it increase their royalty to 10% from 12% which would immediately have a positive impact on the [indiscernible]. My question why Ooredoo group is not considering or re-improvising the OMR 4.5 brand and management fees, okay, to support the growth of a company and to [indiscernible] towards our aligned [indiscernible] for low market, higher volume project maintained [indiscernible] ICT.

Thanks for the question [Technical Difficulty].

Nasser will give -- go ahead, please.

Am I audible now?

Yes.

Basically, let me tell you something. Actually, all our expenses are being reviewed, all of it when actually there's nothing, and there are lots of efforts wherever there's an opportunity to optimize, we are optimizing it. Now when it comes specifically to the management fees or the branding fees, these are actually -- we are continuous discussion with the group and with the shareholders. And there are also lots of studies related to this particular matter in terms of the value that actually such services are providing to the group -- to the operating company. So if there's any update or there's actually any improvement or there's any room to optimize or to actually review, we will keep you updated and posted.

Thank you, Nasser. [ Ziad ] go ahead, please.

Yes. Thank you for the presentation. Just a couple of questions from our end. Looking at the key messages you've shared with us and especially with the substantial savings that's happening from the reduced royalty fees, we don't see anything when it comes to the dividend policy or potentially rewarding your shareholders. You talked a lot about investments and also the brand equity that you have. But first, basically, the question is what are you going to do with the cost savings from the reduced royalties as it trickles down to your profit? Are you going to distribute higher dividends basically? Or you're going to focus on investments at this stage?

Okay. Thanks for the question. And for the value we are creating to our shareholders, either through distributing dividends or actually reinvesting, we will always consider the -- what is maximum value shareholder return. And from that perspective, now yes, there are savings that are coming actually from the royalty reduction. And we are having also a headwind that is actually impacting our operation in the form of decline in our net profit due to the normal operation. You saw that actually there's a decline in the first half. What I'm trying to highlight here, we will always actually keep what is the best in terms of value creation for our shareholders when it comes to dividend. And our commitment is to have [Audio Gap] Hello? Am I audible? Hello?

Yes. You're audible.

Yes, so basically, what I'm trying to highlight here is actually the best value creation model for our shareholders, and we will keep the discussion of this dividend with our Board and whatever is actually a decision related to this matter, you will come to know about it in the due course.

All right. That's perfect. And the second question is basically on the competitive landscape. Is Awasr getting a mobile license? And also, do you expect Vodafone to start competing on the fixed line services as well? Any updates on these? And if I may add also one final question on the tower sale, passive infrastructure monetization basically. What's the progress over there?

Yes. Let me take that. Thanks for the question. I think we all have seen in the local news, the CEO of Awasr and it's not a secret. Yes, Awasr have actually got an MVNO license, and it is a discussion between the regulator and the Awasr. We are in discussion with Awasr for actually hosting them in our network. We don't have any, let's say, concrete date of closure when is this going to be on air because it is still between the regulator and Awasr. The simple answer is yes. Expectation is towards Q1 next year or Q2 next year. That's on the Awasr. We also know that the regulator is also assessing a fixed license for Vodafone. There is no, let's say, 100%, if you like, confirmation that we have actually obtained. But we all hear that they are actually having a consultant with them discussing a few options with the infrastructure operators like Oman Broadband Company as well as in discussion with some of the, let's say, infrastructure operators when it comes to wireless infrastructure. And these are no confirmation, if you like, by the regulation, but these are our market intelligence news that we actually have obtained. On the Tower Co., I'll leave it to Nasser to give you the answer.

See there's -- on the Tower Co., there's absolutely no update related to this matter, and we are committing that actually if there's any update, we will keep the public updated through the disclosures.

Am I audible?

Yes, please go ahead.

Okay. Good afternoon, everyone. Thank you so much for the presentation. I wanted to ask a question that pertains to the towers given that the industry trend is towards tower modernization. I just wanted an update on the scale of Ooredoo's tower portfolio in Oman. Approximately how many numbers or what's the number of towers?

Thank you very much. See, as we -- as I said, we are expanding. So we actually have built many new, and we have also relocated many, but the number is between [ 1,500 to 1,700 ] towers.

All right. And recently, we noticed that Brookfield bought a stake in Oman Tower Company. Are there any similar news from Ooredoo side?

On the tower you mean?

Yes.

Yes. As Nasser, I mean as the CFO have highlighted, there are no updates on this so far. Once we got some concrete answer, I mean, updates, we would, of course, be very transparent in disclosing those. But as of now, there is nothing of this.

[Operator Instruction] Yes, [ Joice ].

Good afternoon, gentlemen. Thank you for the presentation. Two questions. One is on your fixed line subscriber numbers. I'm seeing this quarter, there's a decline of around 2,000 subscribers after a long period of continuous improvement in the number of subscribers. What has caused this decline in the number of subscribers? And are there -- how do you see the home broadband number -- subscriber numbers moving forward for the remaining part of this year?

Thanks, [ Joice ], for the question. Yes, one of the things that's actually we have to highlight is the fact that we have a big base on our wireless customer -- wireless customers that are dependent on 4G and with more customers moving to the FTTH and the newer technologies, that's where actually we have a little bit of challenge. And the churn of the fixed home broadband from 4G is the biggest challenge that causes actually the reduction.

Do you expect further reductions going forward? As part of this churn.

We are actually having a number of initiatives to control that. And we've seen actually some signs of growing the number of customers in other technologies, especially the FTTH.

Okay. So this churn is going out of Ooredoo as we speak. So -- but probably you will be trying to keep them with Ooredoo in the future, right?

Yes, there are lots of migration plans to ensure that actually those customers who are in less severe technology, i.e., the 4G moved and migrated to more advanced technologies, whether it's FTTH or 5G.

Okay. And the second question is on your postpaid mobile subscribers. You've said most of the numbers are driven by M2M SIMs. Can you please give us what's the number of M2M SIMs that are active as we speak?

I don't have exact number in front of me because it's actually it's sometimes mixed with ICT, but we can actually provide you a number related to this.

I guess there are no further questions. Again, thank you very much. And I just also wanted to share with you that we are here in Salalah today. Tomorrow, we will also have an opening ceremony for our state-of-the-art data center, and this is also another investment on the wholesale part, attracting the hyperscaler businesses from across the world. So wish us good luck, and we will see you in the next investor call follow with a more exciting news.

Thank you, all. Thank you.

Thank you very much.