Vodafone Qatar P.Q.S.C. ($VFQS)

Hello, and welcome to Vodafone Conference Call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over to Bobby. You may begin.

Thank you, Angela. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Vodafone Qatar's First Quarter 2026 Results Conference Call. So on this call from Vodafone Qatar management, we have Sheikh Hamad Abdulla Jassim Al Thani, who is the CEO of Vodafone Qatar; and Masroor Anjum, who is the CFO. As usual, we will conduct this conference with the management first going over the company's results, followed by a Q&A session. I would now like to turn the call over to Pauline Saab, who is the Head of Investor Relations at Vodafone Qatar. Pauline, please go ahead.

Thank you, Bobby. Good afternoon, everyone, and welcome to Vodafone Qatar First Financial Results call for 2026. Today's presentation is accessible on our website at vodafone.qa with the usual disclaimer on Slide #2. To begin, I hand over to Sheikh Hamad Bin Abdulla Al Thani, our Chief Executive Officer, to present the quarterly commercial and operational performance highlights.

[Foreign Language], good afternoon, everyone, and thank you for joining us today. We are [Foreign Language] very pleased with our performance in the first quarter of the year. Our total revenue reached QAR 914 million, representing 7.1% on year-to-date -- year-on-year basis, while our net profit increased to reach QAR 201 million, reflecting a strong 24% on year-to-year basis. This performance demonstrates both strength of our commercial momentum and discipline of our strategy execution. From profitability perspective, we delivered a net margin 22% from a margin perspective, which is a record level for our company and EBITDA grew to reach 44.5%. At the same time, we continue to enhance our efficiency with OpEx intensity improving down to reach 21%, reflecting our ongoing optimization efforts. Overall, we are very satisfied with our financial performance of this quarter [Foreign Language]. From a business performance, the growth has been broad-based across all revenue lines with particularly strong contribution from non-mobile services, now representing 41.6% of the total revenue. Our Enterprise segment continue to play a critical role driving -- driven by increased demand of advanced solutions such as cybersecurity services, critical communications, disaster recovery and resilience solutions and many other managed services. In parallel, our fintech venture continued to perform strongly. Following our profitability achieved last year, we are now seeing an accelerated growth driven by improved unit economics, and we are remaining confident that this trajectory will continue [Foreign Language]. Importantly, our bottom line is growing more than 3x our top line, clearly reflecting our -- the impact of our ongoing cost optimization program and operating efficiencies, especially the discount removal as we have been explaining earlier. Previously, if you remember, we are saying that there was unfortunately a practice in the market where the discount that come with offers, sometimes it continues with the customers for some reason. Sometimes it continues with less intensity, but the discount remains for most customers. However, we took a decision in the last year to do the removal of those discounts whenever the offer has expired. And yes, although that we lose some of the customers who are the value seekers, we see a lot of them, but approximately 80-plus percent remains on the base price, which is pure profitability increase to our bottom line. And we started -- we continued with the same approach, and this is definitely reflecting or contributing to that improved bottom line, as you can see. And I hope that the entire market will move towards this approach, which is the healthy, more regulatory aligned approach. Another thing that I might need to reflect on away from the performance as you can -- as you are seeing on the presentation, which is more of the strategic transformation outlook that we are going through. Looking ahead, I would like to highlight our plans, which would continue for approximately the next 15 to 18 months. And that's why you see our CapEx intensity stays around 13%. Although that over the 5, 6 to 7 years, we have been modernizing and rearchitecting our technology and IT stacks. Over the last 24 months, we have been assessing how to take this business to the next level. As a result, we are now in a full transformation phase, embedding AI and digital capabilities natively across our system and processes while driving deeper integration and automation. We have already achieved several key milestones, successfully migrating our new SOC or security operation centers, where we used to run for the last about 6 months on parallel run, and we have successfully migrated fully as of April to the new security operations centers. Also, we have launched at the end of last year or completed the migration of our AI-enabled digital -- DNOC or digital network operations center, enabling proactive network management and enhanced customer experience. However, there are so many other projects in the pipeline. For example, we are expected to award our full IT stack modernization program expected to be completed within the next 18 months, which is, by the way, very aggressive time line, which will significantly enhance our agility, reduce costs and improve our time to market, not to mention the improved customer experience expected from this transformation. It took us about 18 months, 24 months to plan, to architect what we want. And we believe now we are ready to go through this transformation, which should help us and impact the business positively. The other thing, which is our core network modernization program already underway, expected to be completed in the next few months. The other thing, which is we believe is very crucial for us, which is our digital contact center, AI-powered digital contact center is in the final stage of award, expected to improve response time, reduce call volume, which means significant reduction in our cost and happier customer. Over the next 18 months, as we just said, will be a very highly exciting phase for us, focused on building AI-enabled automated and digitally integrated organization. The last point, which I believe everyone wants to know about is our business continuity, especially under this conflict that we have been living in, in the last 40 days or so. I would like to brief you on the current recent situation or our capability -- or our, let's say, business continuity planning, which have continuously enhanced over the time. From an operational perspective, we maintain strong inventory levels, which we keep visiting between time to time. At least we have 6 to 12 months of critical stocks available for us, and we maintain this level of critical equipment in our stocks at any point of time, and we ensure -- to ensure that we are operationally safe to operate. From a network and infrastructure, it remains fully stable with no disruption even during the remote working and during the, let's say, the intense, let's say, part of this conflict, especially in September. [Audio Gap] And during the, let's say, the intense part of this conflict, especially in September. As additionally, additional solution, we further diversified -- as a precaution, we further diversified our international connectivity ensuring alternative routes outside of Gulf region, which we used to rely on about 40% of our connectivity. Although it comes with an extra cost, but we believe it was very important for our critical resilience and redundancy. And now we are fully capable of continuous operating even if we lose all the submarine cables in the Gulf region. So our business plan, our business continue to plan works perfectly. We haven't faced any issues. Supply chain is being managed properly and we don't see any impact impacting us during this phase. I believe this is all what I have for now. I'll leave the rest for the Q&A if there is anything. And now I'm handing over to our CFO, to go over the financials in detail.

Okay. Thank you, Hamad, and good afternoon, everyone. It is a pleasure to be with you again today and share the detailed financial results for the first quarter of 2026. Building on the momentum of recent years, the first quarter reflected disciplined execution and broad-based profitable growth across every segment of our business. Starting with the key financial performance highlights. Total revenue delivered a robust 7.1% growth year-on-year, reflecting sustained momentum across all core business segments: prepaid, postpaid and fixed services. Complementing this top line growth, our continued commitment to cost discipline delivered tangible results, with OpEx intensity declining a further 0.9 percentage points year-on-year to 21%. This combination of revenue growth and cost discipline translated directly into meaningful bottom line expansion. EBITDA grew 13.4% to QAR 406 million, while net profit surged by 24% year-on-year. We are also proud to highlight a significant profitability milestone this quarter. Our EBITDA margin, excluding the equipment business, has reached 50%, an achievement that underscores the continuously improving efficiency of our core operations. Finally, our financial position remains robust. Underlying free cash flow grew 5.3% year-on-year. underpinned by effective working capital optimization, while net debt declined 45% year-on-year. Now turning to Slide #7. The graphs provide a clear year-on-year perspective on our key financial metrics. Total revenue grew by QAR 61 million, representing a substantial 7.1% growth year-on-year. This growth was predominantly driven by an impressive 9.4% increase in service revenue, partially offset by the impact of lower enterprise projects revenue. The growth is broad-based with all service revenue segments posting solid year-on-year increase. We will do a deep dive into the key drivers of this growth in the next slide. Despite higher revenue and ongoing network expansion, management continues to focus on identifying opportunities to optimize costs. Year-on-year increase in direct cost is attributable to higher service revenue. Looking at the OpEx, increase in OpEx reflects expansion in network footprint. It is notable that OpEx intensity remained 0.9 percentage points lower than last year's same period. With increased service revenue and optimized costs, our EBITDA grew by an impressive 13.4% year-on-year. This strong operational performance translated into solid bottom line. We recorded a very healthy 24% growth year-on-year, reporting net profit of QAR 201 million. Now taking a closer look at service revenue on Slide #8. As I mentioned before, all our service revenue segments continue to show positive growth year-on-year. Postpaid revenue maintained its upward momentum, growing 6.7% year-on-year, underpinned by a 9.4% expansion in our postpaid subscriber base. This subscriber growth reflects the continued success of our enriched portfolio alongside our sustained commitment to elevating the customer experience. Regarding ARPU, consumer ARPU reduced substantially driven primarily by a reduction in mobile termination rates and softer roaming revenues reflecting travel restrictions. The enterprise segment, however, continues to face aggressive competitive pricing pressures, a dynamic we have flagged consistently. Our response remains disciplined, prioritizing profitable retention and selective bidding, while we await a broader return to market rationality. Collectively, these factors contributed to 2.8% year-on-year reduction in overall postpaid ARPU. Now moving to prepaid segment, prepaid revenue increased by 6.5% year-on-year. The pricing adjustments implemented towards the end of Q1 last year continue to flow through, supporting ARPU growth of 6% year-on-year. ARPU expansion remains the primary driver of prepaid revenue growth in Q1, reflecting a stable pricing environment thereafter where customers continue to receive strong value at appropriate price points. Prepaid customer base, however, has declined versus December, largely due to seasonality, coupled with lower visitor activity in March amidst the ongoing geopolitical situation as well as a slowdown in new to Qatar population inflows. In addition, December customer number benefited from large-scale events, including FIFA Arab Cup and other sporting and entertainment activities, which drove a temporary uplift in the number of visitors. Looking ahead, we expect visitor activity and new to Qatar additions to normalize once geopolitical conditions stabilize, providing a supportive backdrop for customer-based recovery, while maintaining healthy ARPU levels. Lastly, managed services, wholesale and fixed revenues also contributed to the growth of service revenue. Our commitment to diversification and expanding our fiber network is paying off. We continuously are adding customers nationwide, which has led to steady increase in year-on-year revenue. Overall, total service revenue increased 9.4% year-on-year. Now turning to Slide #9. This slide illustrates our efficiency and profitability margin trends. The solid lines represent underlying performance, while the dotted lines reflect reported numbers. Starting with operational efficiency. The first graph shows OpEx intensity. Despite continued expansion of both our mobile and fixed networks, we have delivered notable efficiency gains, achieving a further reduction of 1.2 percentage points in OpEx intensity over FY '25 on an underlying basis. This is driven by a disciplined approach to cost management and initiatives run across the organization to identify areas of efficiencies and optimization. Now moving to the right side graph, which highlight EBITDA margin performance. The combination of service revenue growth and our disciplined cost management continues to drive margin expansion. Our underlying EBITDA margin, which is a true reflection of our core business, improved to 50% for the first time, up 1.4 percentage points over FY '25. Reported EBITDA margin stands at 44.5%, again, reflecting a very strong growth of 1.3 percentage points versus FY '25 on an underlying basis. Now taking a closer look at CapEx, net profit margin and return on equity on Slide #10. CapEx for the period stands at QAR 81 million, reflecting an intensity of 8.9%. This was primarily targeted at network expansion, both mobile and fixed, as well as customer acquisition-related investments. We continue to apply a disciplined capital allocation framework, investing selectively in projects that meet our stringent return thresholds and are clearly aligned with the long-term value creation. Our continued focus on growth and profitability is reflected in strong expansion in net profit margin, which improved by another 1.67 percentage points versus FY '25 to reach 22%. Return on equity equally reinforced this positive negative, reaching 15%, an increase of 1.34 percentage points on an annualized basis compared to FY '25. Taken in a broader context, this represents a remarkable strengthening of shareholders' returns over the past 5 to 6 years, underscoring the compounding benefit of our long-term strategic choices. Coming to Slide #11. This section highlights our cash flow generation and net debt position. As we have emphasized in previous quarters, working capital management continues to be a prioritized area. Our free cash flow reflects cash generated after taxes and lease payments. As such, it represents actual cash available for allocation between debt and equity holders. Underlying free cash flows, excluding a one-off enterprise collection last year, increased by 5.3% year-on-year. This growth demonstrates a disciplined translation of financial performance into cash, further strengthening our liquidity position and a strong balance sheet. As a result, net debt reduced 45% year-on-year and net debt-to-equity ratio improved further declining from 10.8% to 5.6%. Together, these results highlight a strong liquidity position, effective capital discipline and capacity to fund growth while maintaining a healthy balance sheet. To conclude, Slide 12 provides a 5-year view of our key financial performance indicators, which tells a story of consistent growth and resilience. Despite market headwinds and aggressive pricing, we have maintained a very impressive 5-year CAGR of 6.5% in service revenue and 5.8% in total revenue. This underscores our ability to sustain growth even in challenging environments. Importantly, we have maintained positive operating leverage. While expenses have risen, they continue to grow at a lower pace as compared to the top line. This balance has translated into substantial profitability growth with EBITDA and net profit delivering CAGRs of 7.8% and 17%, respectively. These results validate our focus on operational efficiency and prudent financial management as we continue to drive long-term value creation for our shareholders. Turning to Slide #13. We are pleased to provide an update to our full year 2026 guidance, reflecting the strong momentum and visibility we have built through the first quarter. We expect continued top line growth in the mid-single digits, supported by sustained momentum in the mobility segment and ongoing expansions across fixed and managed services. While the broader regional environment has introduced some short-term volatility, the impact on our business remains limited and manageable. We expect to maintain EBITDA margins above 43.5% supported by disciplined cost management and continued flow-through of revenue growth. On an underlying basis, we anticipate full year net profit growth in the mid-teens range. And lastly, CapEx intensity is expected to range between 14.5% to 15.5% with investments focused on expanding mobility coverage, scaling fixed network infrastructure and advancing our technology modernization agenda. As always, we will continue to monitor the market developments closely and provide updates to our guidance as the year progresses. That concludes my review. Thank you, everyone. And now back to you, Pauline.

We will now move to the Q&A session. Operator, can you explain to the participants how to ask questions?

[Operator Instructions] Your first question comes from the line of Nishit Lakhotia with SICO.

This is Nishit Lakhotia from SICO. So first and foremost, congrats on the strong results for 1Q. I wanted to understand your outlook and the current situation. Are you seeing any material slowdown in the enterprise side of business, any delay in projects because of the situation currently in the second quarter? And what's your outlook in the pricing? You've reduced the discounting but how is the competitive environment? Do you see even your competition reducing the competitive intensity or the intensity remains strong and there is discounting in the market by a competitor? So how do you see now -- what's the environment currently on that front? And the third question is on the cost optimization. You've done very well in terms of cutting costs. How much scope there is from here for you to generate more profit from cutting costs for the year?

Okay. I'm going to take it backwards. So I'm going to start with the cost optimization. We've been asked this question multiple times where is there still any lemon in the juice because we've been squeezing for a long time. I would like you to understand that many of the optimization we do, we do it in a very smart way. It's not only by letting people go or just cutting things. No, we did this in the first couple of years. And now we believe we are lean and I think we lost the screen. Can you hear us?

Yes, yes, I can.

Sorry, because we lost the view here. Anyway, so we have done those -- the basic cost cutting in the first 18 months, and that's it. Since then, we have been maintaining a very agile and lean organization. And most of the savings that you see is based on playing on the unit economic and improving our -- basically, we have built a P&L for each product. And now we don't -- has a way to kill a product that doesn't generate to us the right level of profitability. So with all of this is being considered sometimes as it has a cost optimization. Sometimes, we decided to take away some of the high-cost destinations. Sometimes, we decided, no, to go and negotiate and for example, in the last few months, we've been reducing our roaming and international agreements contract sometimes by more than 50% to 60% with this is definitely continuously will flow down to the bottom line. So this type of optimization will continue. Additionally, we have managed in the last, as I mentioned to you, from those transformation project, technology transformation projects. we have managed to cut with our partners, big savings from platforms, from radio, from core. Those savings definitely will reduce our depreciation, will definitely also improve our profitability from a bottom line perspective. So we believe even we managed to cut good deals in the last 9 to 6 months, and we see a lot of them as continuously to happen. And also, additionally, as we gain more customers, our usage improves. We continuously are able to renegotiate our terms with other partners, which reduce also our cost. So to answer any question, when it comes to cost optimization, we are going to continuously do the cost optimization. Now we believe we are expert at it. It is actually part of the day. It's actually being budgeted. So imagine each department budget, a cost optimization initiatives, part of the budget itself. So yes, sometimes 10%, we don't get it, but at least everyone has their -- tried their. This is the only way we can compete. We don't want to end up being like the European telcos, where they are suffering from high cost and low EBITDA and it's harming them. So we'll continue into this role. We believe it's part of us now, and it's becoming like business as usual. I'll go back to the second point, which is situation. To be honest, as a category and even I believe all residents even share with us, we are very proud of how the company managed it. We didn't feel it. We come to office. We only had few -- I think a couple of things of remote working. Later, everything was back to normal. We are being -- and we didn't feel it. Even when we go to the restaurants, we don't see anything get impacted. Shelfs are full, people are shopping, nothing we have. And if I'm talking about food and beverage, I'm trying to give an example of this is food and beverage is still business as usual. We believe this is not so much different from telco. We are no longer a luxury. We are now an absolute necessary exactly as F&B. And remote working is relying on us, remote education relying on us. Business success, door-to-door economy is relying on us for consumers to maintain certain level of minimum life standard, minimum life standard, they definitely need telco. So I don't think there will be any impact for us when it comes to business as usual telecom. Actually, enterprise request for redundancy and resiliency has improved. Anyone with the incumbent, they are asking now for redundancy and resiliency. Although that they didn't use it, but at least we are being asked to provide the resiliency for the customers who are not with us. So actually, it's improved our business when it comes to resiliency segment. Your question also have you seen any project delays? Anyway, all -- I haven't, to be honest, the ones we are working with it. Why is that? We believe, because our -- the telecom part comes usually at the end when the project is ready to operate, this is where our role is coming. And the one that has been ready, the project that is being ready to commission, we haven't seen anything. We are actually still delivering our projects. And even the one that is work in progress, I doubt there will be any pause. And they haven't received any signal for major project that is being put in hold, especially the one that is already midway. Perhaps what we hear in the news, maybe those are the projects maybe that is what we hear basically. Maybe some projects might be delayed, the one that is not critical. To be honest, we would do the same, even if we have a project that is not important today, we will not cancel it, we'll just delay it till we have more clarity. We'll not start something until we are comfortable with it. So this is when it comes to the situation. In fact, all companies now they reach out to us to try to help them to reduce costs, not to discount them, to help them how to optimize, how to digitally transform, which definitely we can with the use of platforms and technology. This is when it comes to the situation. which is a high level. And I gave you a brief when it comes to our business continuity. So we are very comfortable with. The other thing which you mentioned, the discount, we sometimes act as an incumbent to try to stabilize the market. And we believe this is the right thing. This is more aligned with the regulatory framework. And we have done it last year. It has worked well for us. You lose a few customers, no problem, 20%, but you keep people with a high margin. So this is the healthiest thing for the market, and we are not going to go for low profitability, to be honest, customers. Someone else wants them, be my guest, we are going to go for someone for businesses that makes us to us. We have done it this year. Everything is good. People also value good quality. If you are providing a good quality, people are willing to pay more. So this is when it comes to discounting. I hope that the market will adjust. I don't see to be -- we have seen, to be honest, early signs of stabilization. We have seen it in the prepaid. It's very stable. It started to be in the net value. So I hope this continues to be across because we believe telecom is a critical infrastructure of the company, of the country. And all new technologies will be based on telecom as an infrastructure. So we would like it to be the most advanced capabilities in the region and even in the world. And to do this, we need to have the right level of profitability so we can continue to invest. This is when it comes to the discounting. So I hope I answered 3 parts of the question.

Your next question comes from the line of [indiscernible] with RIM Investment.

This is here from Orin Investment. Congratulations on your excellent results. Maybe I could just focus on the top line side, which you mentioned the target of 5% for the year. Could you just give some color on how you get there? Is it volume or price function? And if it's a combination of both, maybe some clarity on would it be products that's bringing up prices and so on and so forth. If you could just give me some color, I would appreciate that.

Okay. So as we've already seen in the detailed presentation, where we had a walk-through of the key drivers of the growth on the service revenue side. So as far as the pricing environment is concerned, it's largely stable, except for the enterprise segment. We still have some pricing pressure. Other than that, the pricing has stabilized. The pricing adjustment that was done prepaid towards the end of Q1 last year. continues to increase prepaid ARPU this year. During the first quarter and going forward as well, the primary driver of growth is going to be the volume, the subscribers in a stable pricing environment. That's how would I summarize the answer to your question.

That concludes our Q&A session. I will turn the conference back over to Bobby for some closing remarks.

Okay. Thank you. If this is all the questions we have, then we can end the call for today. I want to thank Sheikh Hamad and Masroor for taking the time to go over the presentation and answering your questions. Thanks, everyone. We'll pick this up next quarter.

Thank you, Bob. Thank you all for joining today's call. We'll keep you informed on all our upcoming events. In the meantime, if you have any follow-up questions, please feel free to reach out to the Investor Relations team. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.