Good afternoon, everyone, and welcome to Vodafone Qatar financial year 2022 investor call. Please let me introduce myself. I'm Pauline Abi Saab from the investor relations team. On this session, we have Sheikh Hamad bin Abdullah Jassim Al- Thani, our Chief Executive Officer, Masroor Anjum, our Chief Financial Officer, and Diego Camberos, Chief Operating Officer. The call will start with a presentation from our CEO on the strategy and performance highlight. Our COO will then cover the commercial update, followed by an update on the financial performance for the year ended 31 December 2022 by our CFO. As usual, the presentation will be followed by a Q&A session. This time, we will be taking your questions by raising hand virtually. Today's presentation is available on this webinar and on Vodafone Qatar website under the investor relations section.
Please note that this session is recorded and also note the updated disclaimer on slide number 2. To begin, I now hand over to Sheikh Hamad.
Thank you, Pauline. Good afternoon, and thank you for joining us today. This year almost marks the end of five years since the restructure that we had to go through in early 2018. The restructure plus the strategy we put in action proved to be the right thing for our business. For this time, we decided to start to do things a bit differently on these calls and give you more color on how we are looking at our business with perhaps more details. We will start with the key messages for the year 2022, followed by an update on our strategy with some benchmarks, and then we are going to hand over to our CFO to go over the financials. On page number four, this year was the best ever performance year for us.
Our total revenue grew to exceed QAR 3 billion for the first time, which is almost 50% increase in comparison to 2017, just before the restructure. Our net profit crossed the QAR 500,000 riyal also, supported by both growth and cost optimization. Our mobility CMS crossed 42.2% in Q3 2022, many information we are going to share with you in the next sections. During the World Cup, we delivered an unprecedented experience to our fans. 15 million calls were served. Average download speed was 707 Mbps in the stadiums with a maximum of 1.8 Gb per second. More than 400,000 SIMs were activated, almost 70% of which were activated on eKYC and self-registration.
1.8 roamers used our network across the country during the tournament, and more than 5,000 Wi-Fi services has been deployed in buses, taxis, and this was deployed in a record time in a few weeks. If you are interested to know more about this information and statistics, please refer to the press release we have recently released to for information and statistics. It's worth mentioning that the FIFA related revenue was only QAR 134 million. As a result of this great performance, our board of directors is recommending a dividend of 10% or QAR 10 dirhams per share for the AGA. In addition to that, the board of directors has also approved a new dividend policy for the next two years with a guidance of 8%-10%. For more details, please refer to the press release on our website.
On page number five. For the past three years or since three years, we have been benchmarking ourselves against the region and internationally as well. We are happy to share with you that we are ranked as one of the fastest-growing telcos in the region for the last two to three years. From infrastructure perspective, we continue to invest and expand our mobile network, where our RAN grew by more than 35% year on year in 2022. Customer experience and innovation was a key focus for us in 2022 as well. For example, we have launched eKYC and e-signatures with our eSIMs. Real-time tracking of digital orders, what we call internally as authorization of digital orders, many more.
We are also going to make our 2021 to 2023 sustainability reports available online soon with more details on the progress on those matters. I'm going to jump now to page number six. On this page, we are going to give you more details on our market share as we just explained. Page seven, please. On page seven, as you can see, our growth based on Q3 TTM year-on-year, we are leading both revenue growth, EBITDA growth. As mentioned, we have mentioned, we have been leading for the last two to three years and are among the top leaders in the region. On page number eight, I'm going to summarize what we have discussed about two times before.
In 2018, we put the general principle for our strategy, we launched it later that year. We call it digital for three, where the aim was going to make the company or move the company from being a mobile operator, evolve into a total telecom operator, then transform into a digital player. The strategy has five pillars: simplify the way we work, customer experience the digital way, grow our core, diversify beyond core, being responsible to our customers, shareholders, and the environment. Each of those pillars had three to four strategic objectives. Those objectives work as a lighthouse from which initiatives got us started. For example, under grow our core, we committed to build a world-class infrastructure, both network and IT. We committed to pioneer IoT, we have done it. Under diversification, we would like to diversify beyond core.
One of the few of the pillars was innovate in ICT, digital services, and un-focus on the organic growth. Under responsibility, application of smart CapEx, cost optimization, et cetera, and many more. We are planning to give you more details on our strategy soon on a session that we are planning to organize that's going to relate or to look back at the last five years of our strategy versus our execution. We are going to notify you on this session very soon. I'm going to hand over to Diego to give you more details on our commercials.
Thank you, Sheikh Hamad. As Sheikh Hamad was mentioning, we put together a transformation strategy. We believe strongly that it has paid off. Quarter per quarter, we see the results. As you see, we did. We went from a traditional telco to more complex projects and digital. From 2017 to now, we are a different company. Just an example, in 2017, above 50% of our revenue come from prepaid. That's not the case anymore. Today, the contribution is less than 20%. It shows how we have diversify and extended our portfolio from traditional telco products to, for example, 5G, among the first ones that launched 5G with unlimited packages, rollout of Fix, launch of TV, move to different projects worth to mention.
For example, all the public Wi-Fi in the Metro, the global contact center with Qatar Airways, a very complex project, and lately, the broadcast of the largest event that Qatar held in last December. That shows that the consistency of the execution of our commercial strategy is been paying off. We are a different company today, and we continue our journey to become a digital player in the market.
Thank you, Diego. Before I hand over to the CFO for the financial, I would like to cover just two slides very quickly. If you have any question on those, you can come back on the Q&A. Page number 10, basically, you can see the performance against the market. We showed you against the region. We are going to show it to you against the market. That is baseline based on 2017. I think it's a good slide to see. You can see the accumulated revenue growth since then versus the market and the accumulated EBITDA growth.
When you see that the EBITDA is growing in a faster base than the revenue, which means that we are cost responsible, our cost optimization is paying off, and our margin is going high, higher year by year and as it's going to be shown by our CFO. The last page, it has been. Or page number 11, it has been, we have been always hearing from you to give you more. You ask us to give you more details on our network, especially the mobile network, how many towers we have, how many sites we have. We promised you last time in this session, at the end of the day, we are going to share with you more information. On this page, you can see a comparison of our network on 2018 versus 2022.
Clearly, you can see that there is no gaps. We have managed to bridge all the gaps and managed to build a world-class network. You can see the number of sites or the RANs have jumped from 1,100 levels to almost 2,200 levels. Almost double the number of the sites. You can see the 5G coverage in the table there. Of course, the 5G is illustrative because we are using the sub-C band, which is, have a limited coverage. Sometimes depends on how operator would like to show it in the map, but we used very strict and conservative way of showing you the 5G coverage. With this slide, I'm going to hand over to Masroor to take you, our CFO, to take you over the financials. To you, Masroor.
Thank you, Hamad. Thank you, Diego, good afternoon, everyone. Let's start the financial review for the year 2022 with key highlights on slide number 13. Strong financial performance momentum that we have seen throughout the year continued in Q4 as well, especially with the World Cup related opportunities. Total revenue grew 21.4% year-on-year, led by service revenue growth and the projects. Pleasingly, we have outperformed in all the revenue segments: prepaid, postpaid, enterprise, and also fixed, IoT, and managed services. Despite higher revenue, subscribers, and significant expansion in our mobile and fixed network, our underlying OpEx intensity continues to decline year-on-year.
As a result, we were able to achieve highest ever profitability numbers this year, with EBITDA reaching QAR 1.2 billion at an underlying margin of 45.2% while net profit reaching QAR 502 million.The primary driving factor for this performance is strong growth in our subscribers. Our underlying mobility subscribers have increased by 8.9% this year, and this is excluding the impact of the World Cup. Moving to the next slide and looking at our financial performance for the year 2022 in comparison to the last year. Overall revenue grew by QAR 540 million, translating to 21.4% growth year-on-year. This is led by continuously strong growth in our service revenue, together with the revenue from World Cup related opportunities and the impact of higher projects and managed services revenue.
Following our strategic pillar of diversification, as mentioned by Hamad earlier, we have developed in-house capability and a strong ecosystem of technology partners to get into managed services projects. As you can see from the last couple of years, specifically, our revenue from these projects has increased. Project specific revenue recognized during the year amounts to roughly QAR 220 million, which carries a margin in the range of 10%-12%. For some of these projects, managed services phase has started after the completion of build phase, and I have mentioned this before, this phase carries a higher margin. Expenses have increased by 22.5%. Increase in direct costs mainly corresponds to growth in revenues and subscribers. Specifically, roughly 70% of the direct cost increase is related to growth in projects and managed services revenues.
Remaining increase is directly related to higher customer acquisitions and higher service revenue. Looking at the OpEx, the growth is mainly attributable to network expansion and its allied costs. There are three key elements of OpEx growth this year. One, significant expansion in our telecom network. As mentioned by Hamad earlier, our mobility network has increased by more than 40% this year. Two, there was a one-off OpEx reversal benefit that we had last year amounting to roughly QAR 20 million. Lastly, the OpEx related to World Cup activities. As a result of strong top line performance, our EBITDA grew by 19.7% to reach QAR 1.2 billion, while net profit increased by 53.4% to reach QAR 502 million.
I'm on slide number 15, we have included this slide to show you the impact of World Cup on our reported numbers. Most of this occurred during Q4, while few items were recognized in the previous quarters. Just quickly, talking about the key drivers. Fan SIMs activated roughly 419,000. There were roughly 1.8 million roamers latched to our network during this period. Event specific short-term postpaid connections were around 15,000. We also connected 5,000 Mowasalat buses and taxis. Lastly, we provided connectivity and equipment delivery services to Supreme Committee. These activities generated a revenue of QAR 134 million with an EBITDA impact of QAR 31 million. Direct costs mainly relate to include equipment, connectivity and acquisition costs, while the OpEx majorly covers technology, publicity and other operational costs.
Coming to Q4 financial performance compared to last year on slide 16. Q4 has shown strong financial performance with continuing growth year-on-year. Revenue grew 14%, strongly supported by service revenue growth of 26% or QAR 155 million, including the impact of World Cup. Underlying service revenue grew by roughly 13% year-on-year. We have registered growth across all our core service revenue segments in Q4 this year versus the last year. Expenses increased by 13.8%, mainly due to growth in OpEx, as explained in the previous slide. Specifically, the increase in Q3 to Q4 relates to FIFA related costs. With the increased service revenue, our EBITDA grew by 14.3%. Net profit grew by 32.3%, reflecting higher EBITDA flow through.
Now taking a closer look at the service revenue on slide number 17. The revenue numbers here are excluding FIFA World Cup revenue, which has been discussed in the previous slide. This is to give you a better view of our underlying revenue. Postpaid continuing its growth momentum compared to previous year. The growth of 13.1% versus last year is mainly driven by higher subscribers. We continue to have good traction for our mid-value plans. At the same time, our unlimited plans are selling well, helping us to penetrate into high-value segment. Prepaid also increased by 6.9% year-over-year on the back of higher subscriber base. Overall, total service revenue increased 13.7% year-over-year, led by growth in all segments, including mobility, fixed, managed services, IoT and wholesale.
As already mentioned, managed services revenue from projects commenced during mid of Q4 and is expected to continue for FY 2023 and beyond. Moving to the next slide and looking at the efficiency and profitability margin trends, we continue to see improvement across all KPIs. Despite increase in our OpEx, underlying OpEx intensity continues to decline and reach 24.5% this year. This is the result of our cost optimization program, which has been the cornerstone of our strategic pillar of being for the last five years. Underlying OpEx intensity excludes the impact of World Cup and one-off OpEx benefit last year. Underlying EBITDA margin also expanded by 1.4 percentage points to reach 45.2%.
The decline in reported EBITDA margin of 0.6 percentage points is due to higher mix of low margin projects and equipment revenue. Lastly, the net profit margin expands by another 3.4 percentage points to reach 16.4%. It has now increased by nearly 3x since FY 2018. Now CapEx and Return on Capital Employed. Slide number 19. For the year is QAR 660 million with an intensity of 21.5%. This was primarily focused on investment for capacity expansion and coverage footprint enhancement. Our CapEx intensity over the last few years has been consistently higher than the industry average. This is the result of continuous focus on our strategic pillars of growth and customer experience.
As mentioned earlier, we have significantly expanded our fixed and mobility network, giving better and wider coverage, enhanced our digital capabilities for a superior customer experience. The success of our strategy and CapEx investments are yielding better returns, helping the business grow return on capital employed. Our return on capital employed has expanded by another 3 percentage points compared to last year. It has now increased by more than 3x since 2018. Coming to cash flows and net debt on slide number 20. In line with the growth in profitability, operating cash flow has also increased by 22.5% this year. This represents cash generated from operations, adjustments and net of lease payments. As a result of strong cash flow generation, net debt largely stable year-on-year despite CapEx intensity.
Finally, this resulted in improvement of Net Debt to EBITDA ratio to 0.436. We currently have a borrowing capacity arranged with the banks to avail financing up to 2.5x of annualized EBITDA. Turning to full income statement for the year. We've already covered the major year-on-year movements. Our consumer and enterprise and other revenue increased year-on-year. Also increased in line with the net profit. As usual, balance sheet and detailed statement is included in the appendix. Commentary is self-explanatory. I'll now take a quick look at our five-year trend view of the key financial performance on slide number 22. We see accelerating top-line and profitability growth. Total revenue has increased at a CAGR of 10% during the last five years, with strong growth in our service revenue.
At the same time, we kept our expenses under control increase in network size and increase in revenue and subscriber base. As a result, our EBITDA has more than doubled, while net profit has increased by more than 4x five years. This is one of the best performance among regional telcos for this period, as you in the presentation. Moving to the next slide and looking at the full year guidance for FY 2023. Management expects continuing top-line growth in FY 2023. It is too early to quantify the growth, but we will keep you updated as the year progresses. I have mentioned during my presentation that project-specific revenue recognized during the year amounts to roughly QAR 220 million. Going forward, we expect to continue to get more of such projects, but not at the same level as 2022.
Any negative variance is expected to be offset by the managed services revenue from the projects for which build phase was completed this year. Managed services phase has significantly higher margin as compared to build phase. Higher revenue, along with cost optimization initiatives and mix of higher margin managed services revenue, is expected to drive EBITDA margin expansion of 1.5 percentage points or more. Our CapEx investments into profitable growth segments will continue, with CapEx intensity expected to range between 17%-18%. This represents management's best estimate based on careful evaluation of various factors, both internal and external. The board has approved a dividend policy for the coming two years, as mentioned by Hamad earlier, and that is included in the appendix to this presentation. This concludes my review. Thank you. Back to Pauline.
Thank you, Masroor. Now we can start with the Q&A session. Please raise your hand virtually to open the microphone for you. I'll take the first question from Zohaib Pervez. The microphone is open for you, Zohaib.
Thank you. Thank you, gentlemen, for the presentation, and congratulations on a good set of results. Firstly, I see there are a number of changes in the presentation, which is very encouraging, the guidance, and most importantly, a dividend policy that gives us investors quite confidence on the future and clarity on the future dividend. A question on that dividend policy. Do you think this is like the range, the maximum or the minimum, or this is just, you know, a bottom, just the bottom of the dividend. For the next two years, your dividend is not going to be more than 8%-10%. Is that what this dividend policy tells us? That's my first question.
The other question is on slide 9. You have shown quite a progression of how the company moved from and provided different services over the years. Now that we are in 2022, you have a long list of services, which is great. What more can you add which could bring in more growth for Vodafone? Thank you.
Okay. Answering your question regarding dividends. Yes, the board has for the first time approved a policy, and it is more of a guidance. Shows the confidence that the management and the board has on the future growth prospects of the company. We are not at all saying that we will maximum pay 10%. As I said, it's a guidance. In case our profitability is higher, definitely the decision is in the hands of the board to maybe give more than 10%. And we have shown that this year, in line with the growth in our profitability, our dividend recommendation from the board has increased from QAR 6 dirham last year to QAR 10 dirham this year. I'll refer to Diego for answering the second question.
Yes. Thank you. As a company, we always respond to customer needs. We do have a clear roadmap going forward or where we're gonna focus. To give you a flavor, we're really focused on innovation, digital, and managed services because we have built the capabilities for it. We're gonna respond to the market as we go, having all these capabilities and also building more capabilities to address this. Innovation, digital, and managed service are our focus. Thank you.
I'll take the second question from Nishit Lakhotia. Phone is open. Microphone is open for you.
Hello, thank you for the opportunity. I have two questions. First on your dividend itself. You promised a QAR 10 dirham dividend, which transfers to around QAR 420 million, but your balance sheet does not really have that kind of cash right now. Would you be drawing down on your loans to fund this dividend if it is approved? That brings to my next question as to how is your finance cost going to move? Because your finance cost has been kind of falling, have not really gone up ideally, given the interest rate environment. What's your outlook on the drag from finance cost next year, given that you are going to maintain 18%-19% CapEx ratio?
First question on the dividend funding, from where the money is coming, given you have QAR 187 million in cash. Second on the finance cost. Just a third question is on interconnect cost. How has it fallen specifically in four two? Your interconnection costs have been pretty low. Is there any one-off there or can you just explain the reason for this decline in interconnection and roaming cost? Thank you.
Can I ask you, please, just to repeat the question number three? We didn't hear you very well.
Sorry. I meant on the interconnect and roaming cost, it was pretty low in the fourth quarter. How did you manage to, I mean, what happened there? Was there any one-off and what is kind of guidance going forward on this interconnect cost? Thank you.
First of all, answering your question about dividend. Yes, in the short term, we will have to draw down from the bank. We have sufficient borrowing capacity available, facilities already arranged. In the short term, when you'll see the financial statements for Q1, you will see the elevated debt levels. You also appreciate the fact that we have been able to grow our cash flows, operating cash flows significantly. Only this year, the growth is 22.5%. We are confident of continuing with this growth. By the end of the year, we don't expect our net debt levels to increase significantly.
Because of higher debt levels initially during the year, because of higher dividends, definitely there will be some impact of higher financial charges considering the higher interest rate in the market as of now, but that is very well captured as part of our plan for 2023. No worries there. Regarding the interconnect cost. Interconnect cost, the major element. There are two major elements in interconnect cost. One is the international interconnect cost and second is the roaming cost. There is no one-off from Q3 to Q4, specifically in interconnect cost. International traffic, organically is coming down, and that's where you see the reduction in interconnect cost. I think you are referring to the second line item in the P&L, which is interconnection and other direct expenses, is not only the interconnect cost.
It includes the direct costs related to projects as well. Our projects revenue, when it comes down, that direct cost also comes down. Hopefully, I've answered your question.
Yeah. Can I just follow up on that, please? Basically, if I go to your breakdown of interconnect costs, there I'm just focusing mainly on the interconnect and roaming costs. We get it on an annual basis, the breakdown, not on a quarterly basis. That was also low. I was just kind of surprised that given that how much your, and people would have traveled more and all, how is this line item falling?
It's mainly the, so from last year, QAR 378 million, it has come down to QAR 366 million. This is what you are referring to.
Yeah, exactly.
Yeah, it is, this is mainly organically coming down because of international traffic. We keep on renegotiating our interconnect deals, international interconnect deals, and our charging, effective charging rate per minute continues to come down every year.
Okay. Okay, understood. Thank you.
Thank you.
Another question from Ziad Itani, Arqaam Capital. I open the microphones, yes.
Yes. Thank you, Pauline. Congratulations on the strong results and establishing the dividend policy. Just a few questions from our end. We're just wondering about the dividend policy. Specifically, why did you have a lower range of QAR 8 dirhams? You just paid QAR 10 dirhams, you're expecting growth and top line next year, this year actually. Similarly, you're expecting improvement in operational margins and the CapEx intensity is getting lower, so there's free cash flow release. Is this related to uncertainty for 2024? What's the reason behind keeping it, keeping the potential for a reduction in dividends? The second question is specifically you mentioned QAR 20 million reversal. Does this relate specifically to the depreciation line item? It's a non-cash reversal. What is it exactly? Can you please elaborate on this?
Lastly, also, if you could sort of give us any indication on where do you expect your CapEx intensity to sort of stabilize at, and what are you investing in? There's a slide you mentioned you have more than 80% of your network already upgraded to 5G. What are you investing in specifically? Thank you.
Okay. Regarding the dividend policy, as I mentioned before as well, it's more of a guidance that the board has approved, keeping in view definitely the profits that we have earned this year and also keeping in mind the future expected growth in the profitability and also any potential projects whereby we might be interested in investing as a company. It's a range of factors that have to be considered while deciding the dividends, not only the profitability. If there are revenues to invest your money, definitely, I mean, you consider as a board whether to put your money back in the business or to pay out that as a dividend. Having said that, eight to ten, again, is a guidance.
Doesn't necessarily mean there is no chance that the dividend cannot increase from QAR 10 dirham in the next two years.
Sorry to interrupt.
Pardon?
Sorry to interrupt. These projects that you mentioned, they are not part of the CapEx guidance given, the intensity?
The CapEx guidance that we have given is for 2023 only.
Okay.
In medium to long term, we expect CapEx intensity to come more in line with the industry average. In the long term, you can expect the CapEx intensity to range around 15%, maximum 15%-16%.
Okay.
Okay?
Let me add something here. Yes, you mentioned something about that we have deployed 5G in multiple places, we have also further plan to enhance even the 5G in certain location and provide more, let's say, 5G, standard on 5G solutions very soon. We cannot reveal it right now. There is something else that we haven't disclosed yet, which is our fiber footprint. We redeployed our fixed product in 2019, we have been rolling fiber since then. We covered a lot of places. I'm talking about the big percentage of Doha. We have basically fiber going from the north to the south, east to west, we are continuously investing there.
Not only from rolling out fiber, but also from enhancing or upgrading the core of the fixed services there. On top of this, we started already delivering services, fixed services to the high, I mean, big enterprises. As I believe mentioned by Diego, that we managed to deliver a big, let's say, broadcast network to a major event recently in the country. Any broadcast that people have seen in the recent event was actually on our network that we have built. There are other events network recently also.
Our fixed service is becoming more, let's say, creditable in the market and is going to be a way, an area we are going to continue to invest CapEx, and that's why we see a higher CapEx in these periods. Most of the projects, usually it's a direct cost, not necessarily a CapEx investment, usually. Okay. Masroor?
Answering your third question regarding the reversal. There was one of vendor settlement benefit that we recognized last year in OpEx, and that was roughly QAR 20 million.
Okay. It's not related to the depreciation practice?
No, no. That was... The benefit was in OpEx.
What is the reason why the depreciation isn't really increasing despite the network upgrade?
I think we have discussed this previously as well. Over the last couple of years, we have modernized certain elements of our network in preparation for the World Cup. As a result, we have taken accelerated depreciation on those elements which went out of service, and that resulted in elevated depreciation charge towards the later part of last year and the first half of this year as well. The increase that you see from Q3 to Q4 this year is majorly related to the significant capitalization that we have done towards Q4 of this year. Going forward as well, we expect the depreciation specifically for Q1 to remain QAR 100 million-QAR 110 million for the quarter.
Okay. Perfect. Makes sense. Just one final question, specifically on the strategy of Vodafone. Can we expect the company to remain focused on Qatar? Is there any potential where we see, you know, mergers, acquisitions outside Qatar or, you know, in markets maybe like, who knows, Turkey or Egypt?
Unfortunately, we cannot comment on this right now.
Okay. Thank you.
I would like to remind you that if you would like to ask questions, please raise your hands. I don't see any more raised hands. As there are no further questions, I would like to thank you all for joining today's call. We will keep you updated on all our upcoming investor calls, as well as the roadshows that we'll be attending this year. Please feel free to contact the investor relations team if you need any further information or visit our investor relations section on Vodafone Qatar website. Thank you.
Thank you all.