Earnings Call: Q2 2021

Jul 29, 2021

Let me introduce my colleagues. You will be familiar with Aziz Alizman Al Fatru, Managing Director of the Uredoo Group Sheikh Mohammed Alsani, who is the Deputy Group CEO and CEO of Uredoo Qatar and we're also joined by Svenja Werner, who is our Chief Strategy Officer and by my colleague Sarah Alsales from the Investor Relations team. All the bios are in the Investor deck as well. And as always, we will start with a summary of the results, the highlights by our Cs. That will be followed by the Opco overview by Sheikh Mohammed and Abdallah, our group CFO. We keep the presentation brief on purpose to allow sufficient time for your questions and the presentation is available on our website at oribil.com as well as on this webcast. Please do note the disclaimer on Slide number 2. And then to begin, I hand over to Aziz. Good afternoon, everyone, and thank you for joining Oridoo Group's investor call. We had a good start into 2021. Happy to report growth for the first half of the year with revenues of CNY14.5 billion. This is up 3% compared to the same period last year. Excluding FX impact, that was a 5% increase year on year. Similarly, our EBITDA increased by 7% to CLP 6,400,000,000 for the same period. Net profit attributable to shareholders went negative for the first time in the history of the group due to the impairment of about CNY 2,300,000,000 from Oyuidu Myanmar. This was partially offset by a CNY 1,000,000,000 profit from the sale and leaseback of Indo Satoridu Star assets in Indonesia. Net profit increased by 52%, excluding the one offs and FX impact. We continue to focus on providing reliable connectivity and innovative products to our customers. Our robust operational and financial performance reaffirmed confidence in the business and resulted in an increase of our customer base by 1%. I'm also glad to report that in May, regulators approved Indosat's reduced sales and leaseback agreements with Edge Point Indonesia for the sale of more than 4,200 towers. This was a landmark transaction valued at USD 750,000,000 making it one of the largest deals of this kind in Asia. Next slide, please. As previously mentioned, we had a healthy revenue increase of 3% to CLAR 14,500,000,000 for the first half of the year. This was mainly driven by growth in Indonesia, Qatar and Tunisia and partially offset by Iraq, Oman and Myanmar. The increase in revenue, combined with our intense focus on cost optimization strategy using technology and digitalization, led to an increase in EBITDA by 7% for the year, which excluding FX and tax stood at 10% increase for the same period last year. Growth here was driven by Indonesia, Qatar, Kuwait, Tunisia and Algeria and partially offset by decline in Iraq, Oman and Myanmar. To put it into perspective, our EBITDA margin for the first half of twenty twenty one is at 44% compared to last year's first half of 42%. Moving to the next slide, please. As mentioned, our net profit turned negative for the first half of this year. This was mainly driven by an impairment in Uredu Myanmar and was partially offset by a profit of €1,000,000,000 from the sale and leaseback of Indo Saturidis tower asset. If we exclude these one off and FX impact, our net profit increased by 52%. Next slide, please. On this slide, you will see our CapEx and free cash flows. Capital expenditures decreased by 6% at CNY2 billion for the first half of the year compared to the same period last year. This is in line with our guidance for the full year as we remain focused on optimizing CapEx by taking advantage of the scale of Urridis Group and our global sourcing strategy. We reported a healthy free cash flow at EUR 2,700,000,000 compared to EUR 2,200,000,000 for the same period last year. This was due mainly to improve EBITDA and reduced CapEx. Next slide. Our customer base increased by 1% to 118,000,000 subscribers due to growth in Indonesia, Oman and Iraq, offsetting the decline in other markets, yet again, a testament to our reliable connectivity and our ever expanding innovative product portfolio. Slide 9, please. First half of twenty twenty one saw a positive trend of the group's net debt reduction with the total net debt to EBITDA ratio at 1.6x, which is towards the lower end of our board guidance between 1.5x to 2.5x. Group debt remains mainly at the corporate level, largely in Qatar, followed by Indonesia and then smaller percentage allocated to other OpCos. As a reminder, debt at the OpCo level is kept primarily in local currency. Slide 10, please. Once again, I'm very happy of our performance with revenue and EBITDA both exceeding our guidance range for the year. CapEx was seasonally low, which was expected. As the year progressed, we expect CapEx to fall in within our guidance range of €5,000,000,000 to €6,000,000,000 However, this will be subject to COVID-nineteen developments in our key markets. I'll now hand over the call to Sheikh Mohammed, which will provide more detailed overview on Qatar, Indonesia and Iraq. Thank you very much. Thank you, Ahid. We are proud to report that in our home market of Qatar, we maintain our position as the leading operator in terms of both market share and infrastructure. The rigid fiber rollout program is also progressing very well, and now we have over 4 85 homes committed across the country. Furthermore, we continue to see growth with year on year revenue increase of 5% to €3,700,000,000 driven by growth in B2B, postpaid services, mobile financial services, OUTV and higher sales as well of devices. Our EBITDA grew by 2%, and we reported a healthy EBITDA margin of 53%. Another big achievement within Urito Hotels is that we attend Del Burton's status and won Emerging Partner of the Year Partner of the Year and Collaboration Partner of the Year award from Cisco. We also visited Rotal as part of delegation at San Francisco's Executive Economic Forum, SPIF, in June, and we are optimistic about the potential business opportunities this will bring. Let's move to EndoSat. So EndoSat really reported a strong performance for the first half of the year with a 14% increase in revenue outperforming the market Due to ongoing operational efficiencies and strong revenue growth, EBITDA was up by 24% and EBITDA margin was up by 5% points. In the South, we do focused on enhancing customer experience grew to 5% year on year growth and customer base was €60,000,000. Endusat Radio brand reflected the highest growth in NPS, net to promoter scores, customer satisfaction and brand equity index scores year on year amongst all operators in Indonesia. CapEx rollout has paid the plan despite the surge in COVID cases. The company continues its 4 gs network investment and recently launched 5 gs commercially. In terms of discussion with Hutchison about a combination of our Indonesian assets are continuing and we have extended the deadline until the and MoU until August 16. Finally, as Aziz mentioned, we are happy to report that regulators approved Andesat Oredu sale and leaseback agreement with Edge Point Indonesia for the sale of Andesat T4200 assets, marking a major milestone for the company and its transaction history. If we move to the next slide to Iraq. In Iraq, the Iraq economy was further impacted also by recent purchasing power following the 17% devaluation of the Iraq regime and continue with the pressure associated with the effects of COVID-nineteen. The devaluation of the EDNAR and the impact of COVID subsequently resulted in a revenue decrease of 12%. While HCSL EBITDA decreased 6% in Qatar real terms, with the ongoing digital transformation program and new optimized debt resolution, EBITDA margin improved to 46%. In local currency terms, HSL grew its revenue by 7% as the country gradually came out of COVID-nineteen restrictions and lockdown, while EBITDA grew by 13%. However, despite these ongoing challenges, Asia's sales customer base grew by 9% to RMB 3,500,000, demonstrating strong customer confidence in the business. The company also launched digital partnership with Bing, Google and Huawei and launched its e commerce platform. A share sale was driven 2 awards, leading mobile telecommunication provider in Iraq and best CSR in Iraq as well. I will now hand over to our group CFO, Abdallah Zama, to take you through the rest of the operations. Abdallah, over to you. Thank you, Sheikh Hammad. Good afternoon, everyone, and thank you for being here today on the meeting. I will be covering Oman. Oman's performance was further impacted by the pandemic, contributed to softened microeconomic environment. The company reported 5% year on year decline in revenue due to lower consumer mobile prepaid, which partially been offset by the postpaid revenue. Also when it comes to the EBITDA, decreased by 10% to the level of EUR618,000,000 as you can see it in the slide. And EBITDA margin was also 52% down from 54% in first half of compared to the first half of twenty twenty. 5 gs is performing very well in Oman as the company 5 gs revenue doubled sequentially from quarter 1 2021, resulting in customer base increased to 8% to 2,800,000 for the first half of the year. VAC was also implemented as of April 16, and we have adjusted our price accordingly. Next slide, please. And when it comes to Kuwait, almost when it comes to the pandemic, contribute to butcher pressure and already the Kuwait also performance. The company reported a slight increase in revenue, approximately EUR 1,200,000,000, an increase in EBITDA of 13% due to general cost saving initiative for the first half of the year. EBITDA margin improved to 29%. Ori de Kuwait customer base reached EUR 2,300,000 as compared to EUR 2,400,000 for the previous year. The decrease is due to significant drop in overall population of COVID. And the lockdown, of course, for some of you who are aware of the lockdown that's happening right now in COVID. The company remain focused on introducing initiative and a product and services and recently launched its cloud connected to partnership with Microsoft and align with Orito Digital Transformation Agenda. Orito Kuwait was awarded with several awards during the year for Innovation and Business Information Hub, achieving the growth in innovation customer service management. Next slide, please. Algeria microeconomic indicator has stated showing sign of recovery despite movement, restriction and home, I would say, home containment measure, revenue stood flat at EUR 1,200,000,000. But this is at EUR 1,200,000,000 in Qatar currency. But local currency increased by 8%. EBITDA margin improved by approximately 36% as the company contributes to implement cost optimization initiative and look to improve efficiency. Network site available today in Algeria are 4 gs network. Rollout also increasing. And Algeria expand in the digital servicing offering through launch of YOOZ, a new digital prepaid offer, which focus and target in youth segment. Go to the next, please. And when it comes to Tunisia, Tunisia revenue increased by 8%, support by favorable FX trends. So the FX trend in Tunisia was positive. EBITDA was up to 5% and EBITDA margin is also by 41% for the first half of the year. Due to value creation, a plan that focuses on streamlining operation through digitalization of sales and distribution channels. In all, good performance in Tunisia and very strong. Our customer base stood at 7,200,000 due to the change of the prepaid customer, lifecycle definition of 90 days as opposed to 180 days ATC. Lastly, I will move to minimark, which is the next slide, please. The political development, as you are all aware, in Minimax continued to impact performance. With restrictions in mobile and wireless broadband, Oredo Minimax revenue and data declined by 16 percent 9%, respectively. These restrictions impacted data revenue, which were partially offset by increase in voice revenue. FX also declined by approximately 4%. Restrictions started too easy toward end of a quarter too, while Orito minimal customer base decreased by 7% to 13,800,000 year on year. We saw trend start to reverse with 400,000 new customer towards end of Q2 of this year. For Redo Minima, with OG remain focus to improve customer experience and focus on optimization in order to bring a better value for the group. This will conclude my presentation. Back to you, Anders. Yes. Thank you very much, Abdullah. So that concludes the overall presentation. And now we are moving on to the Q and A part. There are multiple ways to ask questions here. If you are on Zoom, you can raise your hand or you can type a question. If you are dialing in via a phone line, you have to push star 9 to ask your questions. So Sarah is going to be coordinating the Q and A. So feel free to ask any questions with regards to our first half results. Thank you. Do we have any questions? Sarah, Jessica? No questions. That is unusual, but let me just repeat the instructions. So if you are on the phone, you can dial in with star 9 or if you are on Zoom, you can just raise your hand, which is a function at the bottom of your screen next to the share screen option or you can type something in the chat function. I see something is coming in now. Questions, yes. I'm going to read out the first one. You can take the later one, Sarah. I see a question from Omar Maha from EFG. Could you please shed light on the recovery in Kuwait? Sure. Andres, I can take that question. So in Kuwait, as mentioned by our group CFO, still the COVID-nineteen impact remains there. However, there has been some loosening on the restriction and the lockdown in Kuwait market. The recovery in Kuwait is we have seen how they are really doing quite well in the bottom line, and that's a good job that's being done by our team in Kuwait for controlling the cost and also looking into a healthier sustainable revenue from service revenue. And that also represents how the market starts visualizing. And that's a good signal also for H2 of 2021 that can be stabilizing the market further and we can hopefully shall I enter 2022 in a good start point where the market is restabilizing for rationalizing the price pressure that they have been through. The cost control that they have been doing is part of also an umbrella of Oyu To Grow program and also part of a breath hard study that we have in the group level that pertains to the cost optimization, but also thanks to the local team in Kuwait for a further improvement in their cost and expenditure that they have for the first half of twenty twenty one. Excellent. Thank you very much. I just have answered the question for Umer. And then could we open up the microphone for Diet Itani from Aachen for his question? Hi, yes. Thank you for the presentation. Just a few questions from our side. First, on Myanmar, how much of these operations have been written off basically? Can we expect any further impairments in this asset? And also, what of other assets that Orito have? I mean, now we know there's quite some turmoil in Tunisia specifically. Do you think that there is a risk of additional impairments in that market? And on that same question, with regards to the dividend policy, it's related to normalized earnings. So does this mean that when you look at H1, normalized earnings is up 50% year on year. So can we expect something positive on dividends or not really? Yes. So these are the two main questions. Great. Thank you very much, Elias. The first question was with regards to the impairments. How much is that in Myanmar? I don't think that's visible in our financials. And are we thinking of an impairment for Tunisia? Maybe Abdullah, as CFO, want to comment on this one. Sure. In terms of the impairment, we took the impairment up to the equity. And for Tunisia, we do not see there is a potential impairment. Tunisia are doing very well in terms of the performance. I hope I answered the questions. Yes, great. And on the dividends? Dividends, I think we have a positive cash flow, and this will be pertain to our dividend policy. And the end of the year, I think the Board of Directors will be in position take a call on our dividend policy. Okay, perfect. And just one follow-up question on the one offs that we're seeing in the financials. There's also close to €280,000,000 in FX losses. This is again related to Myanmar? Yes. Many more FX losses is continuing to have FX losses due to the deviation of the currency over there. So this is, I would say, due to the currency position of the local versus U. S. Dollar versus catarrhythia. And now that the equity has been written off, we can still expect FX losses in that market going forward? As long as long we have the operation life, yes. Okay, perfect. And finally on there's another impairment related to, I think, 2 or 3 gs farming in one of the subsidiaries to the tune of €138,000,000 Can you potentially shed some light on this? And which market is this from IR? This is for EndoSat subsidiaries. This is for EndoSat subsidiaries and we have written off these 2 gs, 3 gs license. Okay, perfect. Thank you. Thank you, Jigar. Yes, we had Mitsyoti was asking the same question before on the impairment in Myanmar. So that's already covered by the previous comments. Then there was a question from Nishit again, Nishit Lakioga from CECO. He is asking what's the outlook for the Qatari market? What are the revenue drivers here? Maybe that's a good question for Sheikh Mohammed. Yes, sure. For Qatar, it's always, as mentioned, some of our markets. And always we see Qatar, it's a very mature market. And the revenue driver here, we always rely on the B2B side and we have seen how the growth was visible and presented here in the first half of twenty twenty one. And we see also one of the drivers, main driver is in the ICT business. And you see also Qatar getting into a major partnership with a blue chip company like Google, Microsoft Azure. And recently, we launched with the administrative communication and we're proud of that launch of TESMO platform that's really focusing on 5 main verticals in the country, healthcare, transport, logistics, environments and so on. And that puts Redo Qatar in a very advanced level of leading the ICT market and being the leader to provide a smart solution across copper. And this is part of our vision in Orito Copper to go into that business and being growing through the ICT business. Great. Thank you very much. There was another question on from Huda Bostanji. Could you please indicate the change in prepaid customer definitions in Tunisia? Will it also be extended to other op course? And I can already comment on this one. Across we do, of course, in most of our groups, we have 90 days policy as well. Indonesia, that's a standard that our competitors are following as well. So it's just an adjustment to follow international practice here. Then there was the question with regards to interest rates from ESG from Omaha again. He is asking and maybe that's a question for Aziz. With the return of higher interest rates globally, has management strategy towards leverage changed recently? Or Abdullah, whoever wants to comment on this one. I'll take this one. Our policy is guided by the board. We have very strong guidance, quite conservative policy regarding leverage. As you've seen from our results, we've been slowly decreasing our leverage, and we'll continue on that road going forward. Great. I see that we have handled the race. Is that from the first question? Or is there a follow-up question, With regards to the deleveraging process, indeed, it's been the company has been substantially deleveraging over the past few years. But this year, when you look at the finance costs, they're up by close to €20,000,000 year on year. And this is despite, I recall, you refinanced €1,000,000,000 and then you fixed that. And because of that, everywhere has gone down drastically. So why did the finance costs go up? Is this related to capitalization of assets in those sites? I can't take this equation. This is due to the leasing costs. Okay. And Indonesia? Yes. Okay, perfect. Thank you. Any further questions, please raise your hands, type or push star line on your phone. There was one more question with regards to acceleration and deleveraging going forward. Andreas was the question? Yes. That's a question from Omar Maha. To clarify, should we expect an acceleration in deleveraging going forward? No, I don't think you should expect an acceleration. As you know, the guidance we have from our Board and our shareholders is to keep the range of our debt net debt to EBITDA ratio between 1.5x to 2.5x. We currently stand at the very bottom of this range at 1.6x net debt to EBITDA. So I think we're going to keep a stable level at these levels. Thanks for clarifying that. We have another question from Talal, new Head. Please can we have an update on Oman, 3rd player entry and competition? I can take this. 3rd question? Omani updates and certainly competition. As per our knowledge, the waterfall Oman will start operation by Q4 of this year. From our perspective, we are already with a plan, the plan that we are introducing today by converting all our prepaid customer or most of our prepaid customer to postpaid customer in order to have long lasting relation with them. But as I stated earlier, this is to our latest knowledge that they will go up by Q4 of this year. Great, thank you. Then there's a question from Nikhil Arora. Can you please help explain the definition of normalized earnings for the purpose of dividend policy of 40% to 60% normalized earnings? It's a normal item without any offsetting like one time offset. So for example, as we see today, there is a procedure from the tower sales of from Hindustat or from minimal impairment. This is what we call it one offset. But normalized today, as Aziz explained in his presentation, from quarter to quarter and from a year from half a year to half a year, we're having a very positive operational performance. So this is what will be applicable in my opinion tomorrow to the dividend policy if the board see it is suitable to do it. Great. Thank you. Then we have a question from Ziyad. Yes. Wirth, you might be on mute. Yes. Yes. Now I can hear you. Perfect. Yes. So just one question. When it comes to becoming a NASDAQ light telecom player, what other markets you see opportunity to sell the towers? And I mean, anything going on in Oman? We've seen Oman recently sell their towers. And what about Ayda because we also the resin group is active on that market. And also another question, any potential mergers, acquisitions other than what's happening in Indonesia and the pipeline or markets that you're considering? Very strategic question. Renee, do you want to comment on the asset light approach? I think we mentioned that earlier, we are always reviewing obviously our portfolio and trying to optimize per strategy that was communicated the use of assets, right? For obvious reasons, we wouldn't comment on any M and A considerations in a call like this. But what would be I mean, certain criteria you would consider when looking at the market if you want to enter a market? I mean like very simple and this is very traditional here around the world, strong market position and obviously value accretive for shareholders. Okay. And FX stable as well, I would assume? Yes, that's a consideration in that value creation for shareholder bucket, I would say, yes. Okay. Thank you. Excellent. I see one more question from Uda Vasanti. Could you comment on the 5 gs uptake across your footprint? You shared a few numbers on Qatar in previous calls and on Oman today. Are you still seeing a strong uptake momentum in Qatar? What about the other markets with regard to 5 gs? Yes. And I think I'll take that question. In Qatar, we are very mature and ahead of other OpCos within the group, and we see the uptake on the device from the customer into 5 gs. And also, we have launched 5 gs in Kuwait and Oman and also recently in Magyar. And there's also commercial launch, as we mentioned, of tests on Indusat. And we are giving we're having a full study with our footprint that need to be ahead of the competition and to be ahead also and pioneer on the recent or get locked technology to be there. And that's also taken into account our North African markets as well as Aira. Aira, yes, we recently launched 4 gs, and we see a very big uptake in the customer for the 5 gs for the 4 gs, and we see a big percentage of customer shift towards 4 gs. So we are really ahead and thinking ahead also of our competition in respective markets to be also dynamic on the synergy that we are providing today. Excellent. Thank you very much. Any other raised hands, comments, questions? Okay. If not, then I would like to thank you very much for the continued interest in Redo. Please do refer to our Investor Relations website for future updates and follow us on Twitter. Feel free to contact Sarah and myself for any further information that you might need. And we are looking forward to your participation in the next call probably at the end of October. Meanwhile, thank you very much again for your interest in O'Neill. Bye.