Vodafone Qatar P.Q.S.C. (VFQS) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Vodafone Qatar Financial Results Investor Call for the first half of 2026. I'm Pauline Saab from the Investor Relations team. On this session, we have Sheikh Hamad Abdulla Jassim Al-Thani, our Chief Executive Officer; and Masroor Anjum, our Chief Financial Officer. We will start, as usual, with a presentation from our CEO on the financial and operational performance highlights, followed by an update from our CFO on the financial performance for the period ended 30 June 2026. [Operator Instructions] Today's investor presentation is available on this webinar and on our website under the Investor Relations section. Please note that this session is being recorded and also note the usual disclaimer on Slide #2. To begin, I now hand over to Sheikh Hamad.

Thank you. Good afternoon, everyone, and thanks for joining us today. I'm pleased to share another strong set of results for the first half of the year. Despite the challenging operational environment, we continue to execute our strategy with discipline, delivering healthy growth, record profitability and meaningful progress across our strategic transformation initiatives. We are very pleased with our performance during the first half of the year. Our service revenue increased by 9.3% year-on-year basis, while total revenue grew by 3.1% on a year-to-year basis. Most importantly, our net profit exceeded QAR 400 million for the first half, which represents a record for us. The continued strength of our service revenue demonstrates that our core business remains healthy and that we continue to create value for our customers while growing our market position. The difference that you can see between service revenue growth and total revenue growth was primarily driven by temporary delays in enterprise projects affecting non-service revenue. These projects are now back on track [Foreign Language], and we actually got even more awards during the Q2 projects -- Q2 quarter. Our 22% growth in net profit significantly outpaced our top line growth, as you can see, reflecting continued operational excellence, cost optimization and automation initiatives. We continued expanding and upgrading both our mobile and fixed networks while executing one of the largest technology transformation program in the company's history, as we mentioned last quarter. A program of this scale would typically take between 5 and 6 years. We challenged ourselves to complete it within 24 months. Today, more than 40% has been already delivered with remaining critical projects already under implementation. This transformation will reposition us as a company to become a technology company while creating the foundation to monetize AI across our operations and deliver AI-powered solutions to enterprise and consumer -- customers as well. Just to give you an example, when we tested some of those improvements, we managed to take some process that could -- that usually takes 8 hours down to 2 minutes. And another one, which is a customer-facing process, which used to take between 5 and 6 days down to a few hours. These efficiencies will continue to scale across the business, and you can imagine the benefit that we can get both from efficiencies and to improve customer experience. Our business continuity plans were successfully tested during the period. Apart from temporary logistics and project delays, which we now have resolved, operations continued without material disruption. We diversified logistics channels, increased inventory for critical components and doubled our international connectivity capacity to ensure uninterrupted customer service, especially by terrestrial cables. Despite these additional costs, we still delivered 22% growth on net profit basis. We continue to see significant growth opportunities through expansion of our high-value customer segment and healthier industrial price environment. Sustainable pricing will definitely become very important for us as an industry in the country to ensure that we are properly monetizing the future technologies, especially that 5G monetization has fallen short of global expectation. We mentioned earlier the way that we do it is that we avoid, let's say, continuing with expired discount. Usually, our industry is using discounts for acquisitions. But then later after the expiry of the offer, they should go back to direct rate. Unfortunately, there was a behavior in the country as a market where people continue to retain or operators continue to retain customers at the discounted price. Sometimes it's on an average of 30%, 35%. So we took initiatives in the last 24 months, and we have been removing those discounts, although that if we lose some of the customers. But as you can see, those removal of the 30% discount to 35% discount flows directly down to the bottom line, and this is actually one of the driver of the improved also profitability at the bottom line. We hope that this continues because this is benefiting us as an industry and getting us ready for the future telecommunication technologies and to monetize it in the right way. We are also working very closely with the regulator and the industry participant to stop illegal telecommunication resell through unauthorized Wi-Fi voucher operations. We believe those activities have some impact on our prepaid revenue during the first half of the year. We are actively working with them to ensure that this illegal resell of Wi-Fi via consumer products is stopped. And hopefully, with this collaboration will improve definitely [Foreign Language], the profitability of our telecom, especially the prepaid. We continue expanding our ICT and managed services capabilities, while our fintech business remains profitable and continues gaining momentum. Additional digital platforms for both enterprise and consumer markets are progressing well, and we look forward to share more detailed information about those in the upcoming meetings. Overall, we delivered another period of strong service revenue growth, record profitability, continued operational efficiencies and meaningful strategic process, as you can see. We remain confident in our ability to create sustainable value for our customers and shareholders. And with that said, I'm going to transfer now to our CFO, Masroor to take you over the financial details. Thank you.

Okay. Thank you, Hamad, and good afternoon to everyone joining us today. I'm pleased to take you through our financial results for the first half of 2026. The half year picture is a straightforward one, profitable growth in every part of the business delivered through the same disciplined playbook we have been executing over the recent years. Let's talk about the headlines before we go deeper. Service revenue maintained robust growth of 9.3%, supported by sustained momentum across consumer and enterprise. Overall revenue also continued its positive momentum, registering an increase of 3.1% year-on-year. On the cost side, our efficiency agenda kept working for us. OpEx intensity came down on an underlying basis by another 0.5 percentage points to 21.6% versus the prior year. Put growth and cost discipline together and the effect on profitability is clear. EBITDA up 10.6% at a margin of 44.9% and net profit climbed 22% year-on-year. Finally, our financial position remains robust. Underlying free cash flow grew 14.7% year-on-year, underpinned by effective working capital optimization, while net debt declined by QAR 139 million year-on-year. Now turning to Slide #7. But before discussing the detailed financial results, it is worth noting that the first half was impacted by a few temporary geopolitical and resulting supply chain-related challenges. These include lower visitor and roaming activity, softer prepaid customer acquisitions due to reduced inflow into the country, logistical constraints affecting handset shipments and project delays, as mentioned by Hamad earlier, and certain additional resiliency costs incurred to strengthen network redundancy. Importantly, we saw a meaningful improvement in these trends through June with visitor activity recovering towards prior year levels and alternative logistics routes now in place. What is particularly important to highlight is, that despite these temporary headwinds, Vodafone Qatar continued to deliver strong growth across all key financial metrics. Furthermore, as market conditions normalize, these factors are expected to reverse, providing additional upside to the business going forward. Now turning to the results themselves. Total revenue grew by QAR 53 million, representing a solid 3.1% increase year-on-year. This growth was driven by a strong 9.3% increase in service revenue with both mobility and nonmobility segments contributing to the performance. We will discuss the key drivers underlying growth in service revenue in more detail in the next slide. Equipment revenue, as I mentioned earlier, declined by QAR 81 million year-on-year. As noted, this reflects shipments and logistical constraints rather than any weakening in underlying demand. With alternative transport routes now in place, we expect a gradual recovery in device sales through the coming quarters. Total expenses declined by 2.4% as lower equipment volumes more than offset higher revenue-related costs. Operating expenses, although increased by 4%, reflecting network expansion, investments in growth initiatives and resiliency-related costs, as mentioned earlier. Importantly, OpEx intensity continued to improve, demonstrating our ability to scale efficiency while investing for future growth. Supported by strong service revenue growth and disciplined cost management, EBITDA increased by an impressive 10.6% year-on-year to reach QAR 810 million. Finally, the strong operational performance translated into an even stronger bottom line outcome with net profit increasing by 22% year-on-year to reach QAR 401 million. Now let's zoom into the key drivers of service revenue growth on Slide #8. Postpaid revenue sustained its upward momentum, up 5.9% year-on-year, underpinned by an 8.7% increase in postpaid subscriber base. This momentum reflects how our enriched portfolio and continued focus on customer experience are translating into acquisition and retention. Turning to ARPU. Consumer postpaid ARPU eased modestly, driven by -- primarily by lower mobile termination rates this year, softer roaming revenues and plan mix. On the enterprise side, competitive pricing pressure remains there, a dynamic we have flagged consistently. While we await broader return to market rationality, we continue to prioritize profitable retention and bidding selectively rather than chasing volumes. Taken together, these factors resulted in a 3.5% year-on-year reduction in overall postpaid ARPU during the second quarter. Now prepaid revenue remained broadly stable at QAR 284 million during the first half of the year. As mentioned earlier, Q2 performance was impacted by the ongoing geopolitical developments, which resulted in lower visitor and transit customer volumes as well as reduced inflows of new residents into the country. Combined with the normal summer seasonality, these factors led to a 2.1% year-on-year and 1.2% quarter-on-quarter decline in the customer base. On ARPU side, Q2 ARPU declined by 3.1% year-on-year and 1.8% quarter-on-quarter adjusted for the number of days. This is primarily due to the reduction in high-value visitor and transit customers who typically generate above average prepaid ARPU. The lower contribution from these segments driven by the same geopolitical factors affecting customer volumes weigh on the ARPU performance. Looking ahead, we expect visitor activity and new to Qatar additions to normalize once geopolitical conditions stabilize, providing supportive backdrop for customer base recovery while maintaining healthy ARPU levels. And lastly, wholesale, managed services and fixed delivered strong year-on-year growth of 18.8%, driven by 3 key factors. Number one, continued expansion of our fiber footprint has enabled sustained growth in our fixed customer base, resulting in higher fixed and broadband revenues. Wholesale revenues continued to grow strongly, supported by increased activity across both low-margin and high-margin services, reflecting the resilience and diversification of wholesale business. Managed services revenue benefited from a one-off contribution of QAR 9 million during the quarter, providing an additional uplift to the segment performance. Overall, this segment continues to be the primary growth driver of service revenue for the company. Turning to key ratios on Slide #9. This slide demonstrates the continued improvement in our cost efficiency and profitability margins. Starting with OpEx intensity on the left-hand side, we continue to see a positive trend. On an underlying basis, OpEx intensity reduced further to 21.6% in the first half of the year compared with the underlying intensity of 22.2% in FY '25, reflecting an improvement of around 0.5 percentage points. This improvement has been achieved despite continued investments in network expansion, customer growth initiatives and business scale up. It reflects the impact of disciplined cost management, tighter control over discretionary spend and the continued benefits of our cost optimization program. Moving to EBITDA margin. On the left-hand side, the trend is equally strong. The EBITDA -- underlying EBITDA margin, which excludes equipment and one-off, improved to 49.3% this year, up from 48.6% in FY '25. This represents a further improvement of 0.7 percentage points and shows that the business continues to convert revenue growth into stronger profitability. Importantly, reported EBITDA margin also improved to 44.9% compared with 43.2% in FY '25, an increase of 1.8 percentage points. Overall, we continue to expand margins through operational excellence, revenue growth being supported by disciplined cost execution, enabling us to absorb network and business expansion costs while continuing to improve profitability. Moving to capital expenditure on Slide #10 now. This slide highlights how we continue to invest in the business while maintaining a clear focus on profitable growth and shareholder returns. CapEx for the first half stands at QAR 170 million at an intensity of 9.4%. Importantly, our investments remains focused on areas that directly support long-term growth, including network expansion, fixed infrastructure, capacity enhancements and technology modernization. We continue to apply a disciplined capital allocation framework, ensuring that investment decisions are aligned with long-term value creation and sustainable profitable growth. On the right-hand side, the benefits of this disciplined investment approach are reflected in our profitability and returns. Net profit margin increased to 22.3% this year, improving by 1.9 percentage points compared to FY '25. Similarly, return on equity increased to 14.9%, up by 1.3 percentage points over the same period. Now turning to cash flows and net debt. This slide highlights the continued strength of our cash generation and balance sheet position. Starting with the free cash flow, the reported number for this year is QAR 344 million compared with QAR 375 million in the same period last year. However, it is important to note that FY '25 included a one-off collection of QAR 75 million. Excluding that, the underlying free cash flow increased by QAR 44 million or 14.7% year-on-year. This reflects stronger collections and continued discipline in working capital management. On net debt, we have seen a significant year-on-year improvement. Net debt reduced from QAR 424 million to QAR 285 million as of June 2026, representing a reduction of QAR 139 million. This improvement was achieved despite the FY '25 dividend payout and despite long-term investments made during the quarter, which is separately shown on the chart. On an underlying basis, excluding the investment, net debt stood at QAR 196 million, reflecting a 54% reduction versus last year. This is also reflected in net debt-to-equity ratio, which reduced from 8.7% in June '25 to 3.8% in June '26, an improvement of 4.9 percentage points versus the last year. Overall, business continues to generate robust operational cash flow, supported by strong collections and disciplined working capital management. This has enabled us to fund dividend commitments, absorb strategic investments and still materially strengthen the balance sheet year-on-year. Turning to the 5-year trend view of our key financial performance indicators on Slide #12. This slide demonstrates the consistent strengthening of business across revenue, EBITDA and net profit. Service revenue has reached QAR 1.59 billion this year, representing a CAGR of 6.7%. This reflects sustained growth across our core revenue streams and continued expansion of the underlying customer and service base. Total revenue has also followed a strong upward trajectory, reaching QAR 1.8 billion over the same period with a CAGR of 5.8%. Moving to profitability. EBITDA reached QAR 810 million this year, reflecting a CAGR of 8.2%. EBITDA growth has outpaced revenue growth, which demonstrates operating leverage in the business, meaning that incremental revenue is increasingly converting into stronger earnings. The most significant improvement is visible in net profits, which increased from QAR 216 million to QAR 401 million, representing a very healthy CAGR of 16.7% over a long period of 5 years. Overall, business has delivered consistent and compounding growth over the last 5 years. Service revenue and total revenue have grown steadily, while EBITDA and net profit have grown at a faster pace, demonstrating the strength of our operating model and our ability to translate growth into higher profitability and shareholder value. On Slide #13, we have included the summary P&L. I think we have already talked about majority of the variances. Enterprise, equipment and other revenues declined mainly because of the handsets and the project delays mentioned earlier. Earnings per share, EPS also grew in line with the net profit. Now turning to FY '26 full year guidance on Slide 14. I'm pleased to say that we are maintaining the guidance that was communicated during Q1 investor call. We expect continued top line growth in mid-single digits, supported by sustained momentum in the mobility segment and ongoing expansion 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. Overall, the first half performance reinforces our confidence in the full year outlook. And therefore, we are maintaining the same guidance as provided in Q1. That's all from my side. As usual, the balance sheet, detailed statement of income, subscribers and ARPU details are available in the appendix. This concludes my review. And now back to Pauline.

Thank you, Masroor and Sheikh Hamad. Now we can start with the Q&A session. [Operator Instructions] We'll take the first question from [ Yong Wee Lee. ]

I have just 2 questions, which you may have touched on a little bit, but I need a bit more details. The first one is on your second quarter GP margin. It was helped by a fall in interconnection charges. And you did mention that actually to help with the stability, you had increased actually partners on the interconnection side, if I heard you correctly. Now at the margin level, which you've been reporting, would this be a sustainable level for the rest of 2026 and maybe possibly into 2027? And the second question is regarding your broadband, roaming and managed services, which had a robust growth. Maybe can you just elaborate if this is a sustainable rate despite mentioning that you had a one-off collection of QAR 9 million. I just want to get a feel for what the ongoing numbers could be for the future quarters.

Could you please elaborate more on the second question?

The second question is on your broadband services and managed solutions. They had a very strong growth rate in 2Q. And just my question is on the sustainability. What sort of run rate should we be seeing going forward? Or can it continue at this pace? Because you did mention there was a one-off collection of QAR 9 million.

Got you. Okay. Masroor, would you take the first question?

Yes. So regarding GP margin, so there are 2 factors. One is the volume of handsets, which came down in Q2, and that positively impacts the margin because handsets business is a low-margin business. And the second is that as part of our cost optimization program, we continue to rationalize our direct costs, including the international interconnect cost and the roaming costs. And these things do flow through to GP improvement. So whatever improvement we have got because of the second factor, like rationalization of the cost is going to be sustained into the future, and that's an underlying GP margin.

For the second question, definitely, broadband and fixed services is going to continue to grow because we are still growing our footprint. And we believe we were focusing more on certain areas during the last few years. Now we expanded into other areas that wasn't under our footprint at that time. So definitely, we are expecting to grow. And those areas are in the high-value segment. So definitely, we are expecting to continue to grow there. This is one. Second relates to the managed services. We mentioned earlier that under our new strategy, we see the business going or growing into 3 pillars. Telecommunication, which we would like to definitely continue to grow into the high value and make it as lean as possible and as efficient as possible to generate value. The second vertical is ICT/managed services and the other is the xTech or the digital services. The second one, which is ICT and managed services is a focus for us. We focused to ensure that we are capable. We are not into the business of just lift and shift where we basically partner with someone to deliver and we make like 5%, 7% margin. No, we are getting into the engineering part, project management part and development part into those services. And we are very happy about the performance because we continue to gain experience into this. And as I mentioned, we continue to receive awards during the last quarter. We see big awards. And I'm not talking about single-digit millions. We are talking about double-digit million projects. And those will not be delivered -- maybe delivered partially this year, but the second year -- I mean, the year -- next year will be definitely finished some of those projects. But it's not like a one-off for us. No, we are actually focusing on creating big pipeline when it comes to this, especially when it comes to private networks, which unfortunately, the country wasn't adopting initially. Now we got into this business, and we believe the -- especially government companies or a few companies have seen the value, and they started already investing, and we are already bidding on some of those projects. Actually, I just signed a submission just before I come 5 minutes before this meeting, another submission to one of the big entities related to private networks. So we believe it's going to grow. We believe it is an area where we can diversify away from telecom, although that it has partially telecom, but we added more value, which is having a decent level of margins. And when it comes to digital services or the xTech, which we call which includes fintech and the others, we are already focusing on it. Unfortunately, we are not able to share anything more. But what I can share to you, what -- as I mentioned, I believe in my section, is that our fintech is already profitable. And as you know, that fintech when it comes under the telecom usually takes a long time to become profitable, and many of them unfortunately fails. We are in the profitable phase, and we believe that we can continue to grow and we can bring value into this. So this is -- I hope that I have answered your question.

Would you be able to share how large is broadband as a percentage of that segment?

Unfortunately, we took a decision for competitive reason not to mention it now. But hopefully, I think maybe in the next few quarters, definitely, we'll have to share. That has become very significant for us.

That would be very helpful because it is a big growth segment and to have a bit more granularity on which part is causing it, whether it's broadband or ICT or digital services, that would be helpful going forward.

Definitely. But what can I share with you is that almost they are equivalent to each other, very close to each other. ICT is going to be a big part. We are focusing on it.

We'll take the second question from Madhvendra Singh.

Can you hear me, okay?

Yes, we can hear you. Please proceed.

Congrats on strong set of numbers. I have 2 quick questions. The first is on your handset sales during the quarter. So I understand the reason why they have fallen, but how do you see that impacting your business going forward? Smartphones probably are the big drivers of data consumption and growth. So do you see that becoming an issue if the weak handset sales trend continue in the future? At what point do you see that becoming a challenge for the business in terms of continuing your data consumption growth trends you have seen so far? So that's the first question. And the second question is a related question as well. How are you seeing the consumer behavior evolving, especially in the prepaid side. Have you seen any recharge behavior changes or fewer visitors impacting that segment? So if you could give some colors around how the trends have evolved quarter-on-quarter? Because I think second quarter is more stable in terms of the potential trends and so on. So it will be good to understand.