Thank you for standing by, and welcome to the Vodafone Qatar conference call. Please note that today, today's call is being recorded. I would like to hand over to Bobby Sarkar from QNB to begin the call. Please go ahead.
All right. Okay, thank you, Raya. Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Vodafone Qatar's third quarter and nine months 2022, 2023 results conference call. So on this call from Vodafone Qatar management, we have Masroor Anjum, who is the CFO. And so we will conduct this conference with the management first reviewing 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 Financial Results Call. Before we begin, I would like to apologize on behalf of Sheikh Hamad Abdulla Al-Thani, our Chief Executive Officer, who is unable to join us today. Masroor Anjum, our Chief Financial Officer, will present the financial and operational performance highlights on his behalf. The investor presentation is available on our website at vodafone.qa. Please note the usual disclaimer on slide number 2 of the presentation. To begin, I now hand over to Masroor.
Thank you, Pauline. Thank you, Bobby, and thank you, QNB, for organizing this conference. Welcome, everyone, to our FY 2023 third quarter results presentation. If you go to slide number 4, it's the key messages. I will start by mentioning that our quarterly top-line growth continued for the 23rd consecutive quarter on a year-on-year basis. Together with that, we have seen the highest nine-month profit in our history. The consistency of the high performance, both top line and bottom line, is driven by commercial execution focus with sustained cost discipline. The second point I would like to touch upon is that we have continued to gain market share in the first half of the year, both in terms of total revenue and mobility subscribers. We have come a long way in the market compared to few years ago.
To remind you, we were having around 20% RMS in the same period of FY 2017. The steady market share increase is mainly supported by the focus on higher value segments in mobility and increased penetration in fixed. This gives us strong belief that we are going into the right direction to capture fair market share in the near future. The third point I want to update you about is our critical focus areas. As you know, last year we launched our fintech business, iPay. It was a year full of learnings, continuous improvements, and new partnerships. With the trend of adoption we are observing in the market by the customers and thousands of merchants, we are confident about the role we can play towards cashless economy. Also, we continue to execute numerous digital initiatives, and on the enterprise side, we further expand on our ICT capabilities.
Lastly, I want to mention that we expect to see a positive impact in the overall market demand in the upcoming months, with the population returning to 3 million level after summer season, as well as with the visitors of international events our country is hosting, such as Expo and Asian Football Tournament. With that, I will now switch to the next section to cover the detailed financial performance. We'll start the financial review for the nine-month period ended September 30th, 2023, with key highlights on slide number 6. As I have already mentioned, our top-line growth momentum continues, with total revenue growing by 5.6%, led by 10.1% service revenue growth. Key drivers of this growth include managed services, fixed, ICT, and wholesale.
Despite significant expansion in our mobile and fixed network, OpEx intensity has declined by 0.6 percentage points to 24.3%. This reflects our continued focus on cost efficiency and productivity improvements. Continued top-line growth, specifically service revenue, has enabled us achieve persistent profitability growth. EBITDA is QAR 950 million, registering a growth of 8.2% year-on-year, and net profit is QAR 392 million, a growth of 17.3% compared to last year. Again, these are our highest profitability levels. And lastly, our subscriber base remains robust and growing. Compared to last year, Q3, we have added 2% more mobility subscribers. Now, moving on to slide 7, our financial performance for the nine months period compared to the same period of last year. Overall revenue grew by QAR 122 million, translating to 5.6% growth year-on-year.
This is led by a very pleasing growth in service revenue of QAR 189 million, a 10.1% growth year-on-year, together with the impact of higher handsets and equipment sales, but partially offset by projects revenue that we recognized last year. Expenses have increased by 3.9%. Increase in direct costs mainly corresponds to the growth in revenue and subscribers, specifically the managed services costs. We would like to highlight the reduction in bad debt year-on-year by QAR 10 million, as you can see from the detailed income statement. It is driven by the initiatives taken to collect the receivables and ensuring rigid controls in managing credit risk. We ensure timely collection of World Cup-related projects, which has optimized our working capital and improved OFCF. Looking at the OpEx, the increase is mainly attributable to network expansion and its allied costs.
The slight increase in payroll cost is due to resources allocated to enhance capability in identified growth areas like managed services, ICT, and mobile financial services. Having said that, the business continues to leverage from the company-wide cost optimization program, which is clearly visible from its declining OpEx intensity. With increased service revenue, our EBITDA grew by 8.2% year-on-year, translating to QAR 950 million, while the net profit has increased by 17.3%, reflecting incremental EBITDA flow-through, partially impacted by higher borrowing costs. Now, moving on to the next slide and looking at Quarter Three financial performance compared to last year on slide number 8. Growth momentum we saw till Q2 has continued in Q3 as well. Service revenue has increased by 7%, driven by growth in managed services, fixed, ICT, and wholesale.
Total revenue growth of 1% reflects the impact of lower projects revenue versus Q3 last year, amounting to QAR 52 million. Excluding this impact, total revenue in Q3 has increased by 8.8%. Expenses lowered by 4.5%, mainly due to lower project cost and the impact of cost optimization initiatives. OpEx intensity for the third quarter remained 1.7 percentage points lower than the last year, despite the impact of higher 5G and fixed-related operational costs. With increased service revenue, our EBITDA grew by 9.5%, translating to QAR 28 million, and the net profit grew by 12% or QAR 14 million, reflecting higher EBITDA, partially offset by higher borrowing costs. Now, let's take a closer look at service revenue. I am on slide number 9 now. Postpaid remained largely stable, with 0.7% growth year-on-year.
During last quarter, we revamped our postpaid product portfolio with enriched unlimited plans for high-value segment and new mid-value plans. We see good uptake on these products. There is a decline in postpaid ARPU, which is attributable to both the slowdown in economic activity and the intensifying of market promotions. Despite these factors, postpaid still continued its positive momentum. The decline in prepaid market is primarily due to a combination of factors, including a declining prepaid market, which has been a trend for the last several years, lower economic activity, specifically the construction sector, intense competition moves, which have resulted in overall market value reduction. We have been cautious in responding to such aggressive value reductions, but this segment is highly sensitive to price movements. Despite these challenges, we have outperformed the overall prepaid market declines. Till H1 2023, prepaid market revenue has declined by 14.5% year-on-year.
However, Vodafone prepaid revenue declined by only 9.3%. This is a testament to our strong brand and customer loyalty. We are confident that we can continue to outperform the market in the prepaid segment. We are focused on providing our customers with the best possible value for money, and we are committed to maintaining our strong brand reputation. Looking at the third graph, the managed services revenue from the project commenced during mid of Q4 last year, as we have talked about previously as well. These ICT-related revenues have contributed to our service revenue growth. Our wholesale business, including inbound roaming visitors, recorded good growth, reflecting the traffic increase. While our fixed revenue has also increased as we expand our fiber footprint to new areas.
Overall, total service revenue increased by 10.1% year-on-year, led by growth in managed services, wholesale, fixed, and postpaid, but partially offset by prepaid, as we just talked about. Now, looking at the efficiency and profitability margin trends on slide 10. Looking at the first graph, we continue to improve our operational efficiencies, resulting in reduction in our OpEx intensity to 24.3%. That's a reduction of 0.6 percentage points versus last year. This is despite significant expansion of mobility and fixed networks. Looking at the next graph in the middle, our EBITDA margin, with the red trend line being the reported EBITDA margin and the gray trend line showing EBITDA margin, excluding equipment, business, and one-offs.
As explained in previous slides, higher service revenue has enabled us to maintain a 40% mark, resulting in a reported EBITDA margin of 41.4%. This represents a 1.1 percentage point expansion compared to FY 2022 and is very much in line with our guidance. Our EBITDA margin, excluding equipment business, is at 45%. This represents a slight decrease of 0.2 percentage points since FY 2022, which is due to a change in the mix of our revenue towards comparatively lower margin offerings, specifically the managed services revenue. And lastly, our net profit margin has increased by 0.7 percentage points compared to FY 2022, reaching 17.1%. This increase is due to a combination of factors, including our strong operational performance and our disciplined approach to capital expenditure. CapEx and return on capital employed on slide 11.
CapEx for the period is QAR 290 million, with an intensity of 12.6%. This was focused on investment for capacity expansion and coverage footprint enhancement, investment to enhance digital capabilities and products, and lastly, investment to maintain the network, and includes QAR 105 million incurred on network software renewal for three years period, which is payable over a period of three years. However, based on accounting standards, it has been capitalized upfront. We continue to expand our fixed and mobility network, giving better coverage and also enhance our digital capabilities for a superior customer experience. Our focus on growth and profitability has resulted in significant improvement in our return on capital employed. Our return on capital employed has increased by 0.5 percentage points this year, and we have now crossed the 10% mark.
This represents significant growth in returns over the past 4-5 years. Coming to cash flow and net debt on slide number 12. Working capital management has been a major area of focus this year, and this is due to a number of factors, which include higher borrowing costs, the fact that we entered the year with higher CapEx payables and the World Cup-related receivables, and lastly, the increase in our dividends payout to 10% for the last year. The first chart on the slide represents cash generated from operations. This is calculated as EBITDA, less CapEx, working capital changes, and lease payments. It reflects the true cash available for dividends and debt repayments. Our operating cash flow has more than doubled compared to the same period of last year.
This is despite the fact that we are coming out of a high CapEx-intensive period and carrying over related liabilities into this year. We have taken a number of initiatives across the company to optimize our cash position and working capital. In addition to growth in EBITDA, our focus on cash collections has also contributed to the increase in operating cash flow. This is particularly true of the receivables that spilled over from last year, which were related to World Cup and other projects. The reduction in bad debt is also a reflection of this initiative. As a result of our strong cash flows, we were able to keep our net debt stable despite 67% increase in our dividend payout. This has helped us to keep our financing costs lower.
Our net debt to EBITDA ratio has improved from 0.5 times to 0.38 times compared to last year. Our financing covenant remains at 2.5 x of EBITDA. Turning to the statutory income statement, we have, I think, talked about the major variances already. Increase in borrowing costs that you see reflects the increase in effective rates in the prevailing market conditions. Finally, the earnings per share increase is in line with the growth in net profit. Now, before we take a look at the guidance for the full year, let's look at the 5-year trend view of our key financial performance indicators for the first 9 months period. Key headlines here include: top-line growth continues in FY 2023 despite anticipated slowdown post-World Cup. Revenue has grown at a CAGR of 10% since 2019.
Expenses have also increased, but remained lower than the growth in top line, and this has resulted in significant growth in our profitability over time. EBITDA has increased at a CAGR of 16%, while net profit has increased at a CAGR of 38%. Lastly, on full year guidance, there are no changes to what we discussed in H1. We are tracking very well to deliver on our guidance. We have seen analyst expectations that have been published by some of you who follow us. We are excited to see that we were able to deliver on the revenue growth forecast for our service revenue, despite the seasonally low Q3. However, we had a low margin one-off equipment business last year that did not recur to the same magnitude this year. As a result, our equipment revenue is slightly off the forecast that you put in.
However, this did not have an impact on our profitability, and are meeting the expectations on EBITDA and net profit growth. As usual, the balance sheet, detailed income statement, subscribers, and ARPU details are available in the appendix. I've already talked about them during my speaker notes. This concludes my review. Would be happy to take your questions. Thank you. Now, back to Pauline.
Thank you, Masroor. We can now move to the Q&A session. Operator, please, explain to the participants how to ask questions.
Thanks, Pauline. So at this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We will pause for just a moment to compile the Q&A roster. Our first question is from Ziad Itani of Arqaam Capital. Please go ahead.
Hi, thank you for the presentation. So just a couple of questions from our end. First, looking at the industry fee, it seems it's flat year-on-year, despite the very strong revenue growth you have, specifically in terms of service revenues. What's the reason behind this? And then the second question is, what's your strategy when it comes to data centers, specifically?
Okay. So regarding your first question on industry fees, the industry fee is mainly applicable to regulated service revenue. As you see increasing mix of managed services revenue, which is not a regulated revenue, that's why you see sort of flattish industry fee in our P&L. The second question is about data centers. For data center, I mean, we consider it as more of a real estate business, whereby the operators render space to the operators. There are already enough suppliers in the market, and as of now, the strategy of Vodafone is not to get into that business.
Okay, perfect. That's very clear. Thank you. Just following up on the first question. So basically, there is no growth when it comes to the traditional telecom services from a mobile-
There is growth-
Services.
Yeah, so there is growth, but I mean, you see the some actualization benefit coming from the last year accruals, which result in this year industry fee looking like more flattish. So there is a actualization benefit you can say, which is offsetting the impact of increase in the underlying service revenue, which is regulated as well.
Okay, perfect. Thank you.
At this time, I would like to once again remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Next question is from Mayo Pitami of CBFS. Please go ahead.
Yeah, thank you for the detailed presentation. Well, it's regarding your home turf in your postpaid as well as prepaid segment. We do know you've been offering quite, you know, as compared to the other competitor, quite reduction in rates, not only in the mobile, but also on the home broadband front. And that has been going on for quite some time, for the last 2-3 months, beyond that. But of late, we are also seeing other peer following it in a similar way. So, how you foresee that going forward in fourth quarter? I mean, do you see, you know, that could be affecting indirectly, and that's where exactly you see your, you know, ARPUs coming down further? Thank you.
Yes, and I've spoken during my presentation as well. There is intense competition in the traditional prepaid as well as postpaid market. As I explained in my presentation, we have been very cautious in responding to such moves. Our priority is to preserve the market value. While ARPU has come down, I mean, we are doing pretty well versus the market. As I explained, the prepaid market has gone down till H1 by 14.5%, mainly driven by ARPU. Compared to that, our prepaid revenue reduction is 9.3%. So that is there, but that is a part of, I mean, the competition in the market. Definitely we don't expect that to continue for indefinite period. These phases do come, and yes, they do impact our ARPUs.
Okay. Okay, and, just in terms of your other growth drivers, you mentioned about Expo and other things. Do you see, I mean, that—I mean, currently in the third quarter, have you seen some kind of I mean, when it started in, I mean, right now, I mean, do you see fourth quarter likely to see some kind of an uptrend on that? Similar to, for AFC in the first quarter of 2024, I mean, do you have some progress where exactly a color on this, where exactly you see heading that in terms of population, floating population, and how you, you know, see your top line growth?
So the population has already come back to above 3 million. We have seen the statistics for September, which is a really good sign. We also see the economic activity coming back. Traditionally speaking as well, Q4 of the year and the Q1 are always good. I mean, historically, if you look at our numbers, I mean, the industry as a whole grows well during Q4 and Q1, and we expect the same to continue this year as well. We have already shared our forecast for the full year with you guys in the form of a guidance in terms of total revenue as well as profitability growth, and we are very confident of meeting that target.
Thank you, sir. Thank you.
I don't see any further questions. I will now turn the call back over to Bobby Sarkar for closing remarks.
Thanks. Here's Bobby. I have a couple of questions, if I may. My first question is, you know, if you look at the mobile subs, you know, you're slightly down sequentially while you have population up, in the month of September versus June. Can you touch a little bit on that? And then, you had spoken about, you know, increased momentum in oil and gas related activities and project-related activities, before in your calls that, you know, that made you optimistic about the market, on the prepaid front. Are those drivers still intact? What are you seeing on the prepaid market going forward? Thank you so much.
Yes. So the customers' reduction, quarter on quarter, that is the impact of seasonality in Q3, and the seasonality was over-indexed this time, particularly after the World Cup year. It doesn't immediately reflect back on your subscriber base. I mean, this is the quarter, as I've spoken before as well, Q4 is the quarter when we see these, things started reflecting in our, subscriber base as well as revenue. The initial indications of Q4 are in line with the, what we have been seeing over the last many years, that Q4 and Q1, they're really good. So we can see that. But definitely, I mean, beyond our forecast for Q4 and the full year that we have given, I mean, we cannot give further details at this point of time.
Okay. And about the oil and gas and anything related to North Field, do you have any any color on that? How would that impact your business going forward?
Yeah. It, it's a big project. I mean, will definitely result in increase in the population specific to that segment. And, we believe that will be reflected as the project continues to grow. That should start reflecting in our mobility subscribers as well as fixed.
Okay, great. Well, thank you. Operator, do we have any other questions?
No, we don't. No further questions.
Okay. All right, great. So in that case, if you have no further questions, we can end the call for today. I wanna thank, Masroor and Pauline for taking the time, to, you know, to attend the call and answer our questions, and we will pick this up again next quarter. Thank you very much.
Thank you, Bobby, and thank you, everyone for joining today's call. If you have any further questions, please do not hesitate to contact us. Thank you again.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.