Company: Ooredoo Group Conference Title: 1H 2015 Results Presenter: Andreas Goldau Date: Thursday 30th July 2015



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Ooredoo Group 1H 2015 Results



Company: Ooredoo Group

Conference Title: 1H 2015 Results

Presenter: Andreas Goldau

Date: Thursday 30th July 2015

Operator: Good day and welcome to the Ooredoo First Half 2015 Results Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. Andreas Goldau. Please go ahead sir.


Andrea Goldau: As-salamu alaykum. Hello and welcome to Ooredoo’s Financial Results Call. My name is Andreas Goldau and on behalf of the Investor Relations team I thank you for joining this session. As part of today’s discussion I am pleased to introduce Ajay Bahri, our Chief Financial Officer.

As always we start with an overview of the group results followed by a Q&A session. The presentation is available on our website at Ooredoo.com. Before we begin a few necessary disclaimer points if you refer to slide number 2. In the course of today’s discussion we may make some forward-looking statements. These will be based on the information available to us as of today and so you should not assume that in future we will continue to hold these views. As such we do not commit to notify you if our views change. We therefore refer you to our public filings for some factors that may cause forward-looking statements to differ from actual future events or results.


So to begin I will now hand over to Ajay.

Ajay Bahri: Thank you Andreas and good day to everyone joining us on the call. The Group has delivered a strong performance for the half year in local currency terms across our main markets. We continue to face challenges mainly currency related and in Iraq, but, overall our strategy is on track. Our revenue of QAR 16 billion was generated from strong growth in local currency terms in key markets such as Qatar, Oman, Indonesia, Myanmar, Algeria and Kuwait. EBITDA for the half year has remained robust at QAR 6.5 billion and excluding the impact of foreign exchange would be in line with last year. The appeal of our fast networks, global brands and innovative services has continued to attract more customers from across our markets. Strong customer figures from Indonesia, Algeria and Myanmar have driven our customer numbers up by 21% to over 114 million. Indosat has been particularly successful in attracting customers with more than 13 million compared to last year while in Myanmar we almost doubled the number of customers in the first six months. Our strategic direction is to shift Ooredoo to become even more data-centric. Group data revenue grew by 64% to over QAR 5.4 billion for the first half of 2015. Data now makes up 34% of group revenue and Ooredoo is increasingly a data leader in its operating markets as we deliver an increasing range of new and innovative services. Our global B2B strategy, targeted at the communication needs of our business customers, is also generating good growth with more than QAR 2.5 billion of revenue for the period.

Moving on to slide number 5, the Group generated good levels of revenue growth in markets such as Qatar, Oman and Kuwait. We also saw growth in local currency terms in markets such as Indonesia and Algeria. Significantly, Kuwait has continued its positive recovery trajectory with an 8% increase in local terms revenue. Tunisia’s revenue was down for the first half at 8% in local currency as a consequence of the tough macro environment in the country. Iraq, which continues to suffer from the effects of the security situation and intense levels of competition during the period, also reported a reduction in revenue. Our EBITDA and EBITDA margin reflect the impact of foreign currency in Indonesia and Algeria as well as the competitive pressures of our markets. Excluding the impact of foreign currency, revenue was up 3% and EBITDA was flat for the period.

Moving on to the next slide, slide number 6. Adjusting for the effect of foreign currency, net profit would have reduced by 24% to QAR 1.3 billion compared to the reported reduction of 41%. This reduction is mainly due to Asiacell. It had to face the challenges of the ongoing security situation as well as the intense competition in the market. We are clearly continuing to face the challenge of Emerging Market currencies being at 15 year lows against the dollar. Obviously, this is not just an issue for Ooredoo, but for all emerging market economies and companies. We are doing all that we can to mitigate the situation and reduce our exposure where practical. Looking at the Group’s Net Debt and Net Debt to EBITDA ratio, net debt now stands at QAR 29.7 billion, a 6% reduction in comparison to 30th June 2014. Gearing is now at 2.4 times, a slight reduction from Q1’s 2.5 times. This is at the upper end of the Board of Directors’ target range of 1.5-2.5 times, although this ratio remains well within our banking covenants of four times.

Next slide please. We have maintained investment in our business, principally our network expansion and upgrades to ensure our competitive positioning in our markets. Free Cash Flow was impacted by lower EBITDA, largely due to Iraq and also the impact of foreign currency. This has meant a reduction in free cash flows whilst capex was down 3% with the capex to revenue ratio remaining stable at 24%.
Next slide: Total group debt breakdown. Total group debt increased slightly against the first half of 2014 to just over QAR 43 billion due to the pre-funding of a bond call for Indosat which we talked about earlier, and was partially offset by certain re-payments in Algeria. This is a reduction against the first quarter’s debt position of almost QAR 44 billion. Group debt is well balanced and we have maintained appropriate levels of cash. We have no short-term refinancing requirements and Qatar remains the principal holder of Group debt.

Moving on to the next slide, slide number 9. Our debt profile continues to be conservatively managed with liabilities spread out until 2043. Our short term liabilities are covered by a comfortable cash position of QAR 17.6 billion as at 30th June 2015. Our credit ratings remain stable with all three main agencies. In May we arranged a new $500 million credit facility to refinance an existing $498 million Islamic loan. And post-period, in July, our team in Algeria arranged the first ever local currency loan for an internationally controlled business to be backed by Algerian public banks. The loan arranged was for 38.5 billion Algerian dinars which is approximately $389 million. The local currency loan in Algeria is the latest example of the Group’s strategy to reduce its foreign exchange exposure by increasingly raising debt financing in local currency and refinancing USD debt to local currency debt, as we are doing in Indonesia, by replacing the USD bond partially with an Indonesian Rupiah bond.

Moving on to the next slide, customers. Half year customer growth has been strong for the Group as it registered almost 20 million new net adds, a 21% increase to 114 million. Growth was driven principally by Indonesia which added more than 13 million customers; Algeria adding more than 2 million customers; whilst Myanmar nearly doubled its customer base.
Next slide please, 2015 First Half Guidance. At the half way point in the year, we are in line with our guidance on revenue and we are slightly below EBITDA due to Iraq issues, so broadly we are in line with our guidance on the basis of revenue, EBITDA and capex. And we expect to be within our annual guidance of QAR 8.5 to 9.5 billion by year end for the capex.
Moving on to the next slide, I’ll briefly cover an update on Ooredoo’s strategy. As presented at our Capital Markets Day, our strategy remains focused on the geographies in the Middle East, North Africa and South East Asia. The business is focused on the growth opportunities in the consumer mobile, broadband and enterprise markets. Our strategic priorities remain focused on convergence, network consolidation and efficiency. There has been no change to the strategy as presented to you a few months ago. The only new development is the pending sale of Wi Tribe Philippines as we considered this a non-core asset to our business, similar to our decision to sell bravo in Saudi. The sales process is going through a Mandatory Tender Offer process currently which will finish on 14th August. If you want to see more detail on our strategy, please check the Capital Markets Day presentations which can be found under the Investor Relations section on our website.

Moving on to the operations review, moving on to slide number 16 now, Qatar. Our home market of Qatar delivered strong growth during the period. EBITDA was up 16% as demand for mobile and fixed data increased. The business maintained its healthy margin of 50%. Customer growth across all segments was strong and we achieved the important milestone of 3 million mobile customers in Qatar. The fixed customer base grew through Ooredoo’s extensive Fibre-To-The-Home network which now connects more than 230,000 customers. Q1 to Q2 revenue was up 2% and the EBITDA margin was also up from 49% to 52% - a slight improvement in Q2 due to the timing difference of spend on marketing - but the first half EBITDA margin of 50% is a sustainable level.

Moving on to the next slide, slide number 17, Indonesia. Indosat will hold a conference call for its Q2 results by the end of August – their presentation will be available from the IR section of Indosat’s website. Indosat has had a good six months. Reported numbers were affected by the depreciation of the Rupiah, however in local currency terms the revenue grew by 9% which was driven by strong customer growth to more than 68 million. Data growth was the main reason for revenue improvement during the period. EBITDA also performed well in local currency terms, increasing by 7% whilst sustaining a robust margin of 45%. Net profit was lower from last year due to the foreign exchange losses and also last year there was a one-off sale of Tower Bersama as we have discussed in the past. Indosat completed the latest phase of its network modernisation programme during the period. Q1 to Q2 revenue was up 5% in Qatari riyal terms and 7% in local currencies. The increase also includes a little bit of seasonality. Q1 is generally a low performance quarter. EBITDA margin was stable across quarters at 45%.

We will move on to the next slide, Iraq. Iraq is still affected by the ongoing security situation in the country which has inevitably impacted revenue and EBITDA performance. The majority of the network has maintained normal day-to-day operations although we saw some service suspension in parts of Mosul, Tikrit and Anbar. Data revenue growth has been positive following the launch of 3G services at the beginning of the year. The success of our 3G offering in Iraq contributed to the increase in customers using 3G to 2.4 million by the end of the period. We have seen a slight reduction in customer numbers which is due to the current political situation in Mosul, Tikrit and Anbar. Encouragingly, the aggressive marketing that has been the characteristic of the Iraqi market for a while now, showed signs of moderation towards the end of the period. So, although we expect the market to remain competitive, it appears as if there may be a growing level of rationality returning. In our last call, we disclosed the government’s intention to introduce VAT of 20% to telecommunication services. We understand that this will be introduced from August of this year and we will be able to pass the cost onto customers. Given the challenges the business continues to face, we are actively managing the costs of the business proactively, with a new and determined focus. Q1 to Q2 revenue was down 6% and as a reminder from Q4 to Q1 it was down 15%, so we are seeing a decreasing trend in the decline. The impact of the political instability is not escalating further. EBITDA margins quarter on quarter have been stable at 42% as cost efficiencies are being implemented.

Moving on to the next slide, Oman. Ooredoo Oman announced its results and will be hosting a conference call on 4th August: the details are on their website. The business generated strong growth across all metrics benefiting from its network investment programme. Revenue and EBITDA grew by 12% and 18% respectively during the period whilst the EBITDA margin increased to 54% from 51%. There was a lot of reversal of provisions which has benefited the EBITDA margin on Q2. Net profit increased 19% to QAR 210 million. Customers increased by 11% whilst generating a stable ARPU. Oman’s network capacity was upgraded during the period as part of its ongoing network investment, enabling deeper and wider data network coverage. Q1 to Q2 revenue was up 12% and EBITDA margin was stable at around 54%.

Moving on to the next slide, Kuwait. Encouragingly, the recovery of the business seen in the first quarter has continued through to the second. The business reported growth in customers, revenue and EBITDA for the first half of 2015. In terms of local currency, revenue increased by 8% and EBITDA increased 13%. In addition, EBITDA margin improved to 22%. Margin also improved sequentially with 23% generated in Q2. The investment we have made into Kuwait’s network to make it the country’s fastest continues to attract customers to Ooredoo. Customers were up 8% to 2.5 million. Overall, Ooredoo Kuwait has tripled the number of wireless broadband customers in the past 12 months. A significant number of Ooredoo Kuwait customers are now 4G customers following the successful launch of 4G+. The depth and spread of Ooredoo’s network in Kuwait means that our customers benefit from a superior customer experience. Quarter on quarter revenue was up 6% in local currencies. Part of the increase was due to the increasing data revenue and there’s a little bit of seasonality also from Q1 to Q2. Margins were up from 22% to 23%.

Moving on to the next slide, Algeria. In local currency terms, Algeria delivered 6% revenue growth for the period, which positioned it as the fastest growing Algerian operator during the period. EBITDA margin stabilised at 36% following the significant investment made by the business to drive 3G device penetration at the end of last year. Ooredoo Algeria will continue to build on its 3G leadership with ongoing data promotions but expects moderation in the market for handset subsidies. The Algerian Dinar depreciated 18% which affected reported revenues and EBITDA in Qatari riyal terms. Similarly net profit was impacted by foreign exchange losses as well. The focused marketing of Ooredoo’s 3G services resulted in strong customer growth of 21% to over 13 million. Data growth was strong during the period for Algeria. Ooredoo also cemented its technology leadership in the Algerian market with a successful LTE trial during the period. As part of our overall funding strategy, Ooredoo Algeria raised its first local currency loan. Algerian banks showed strong support for Ooredoo’s business in the country. Q1 to Q2 revenue was up 3% in riyal terms and 9% in local currency. EBITDA margin remained stable at 36%.

Moving on to the next slide, Tunisia. Ooredoo Tunisia maintained its market leadership position, with over 7 million customers, despite the challenges facing the market. Clearly, the most recent terrorist attacks have not helped Tunisia’s overall prospects. However, we remain positive about the long-term potential of the market, especially given the growth trends seen in both mobile and fixed broadband. Reported revenue and EBITDA were impacted by the 17% depreciation of the Dinar during the period. Ooredoo Tunisia delivered strong growth in mobile data as it developed and marketed innovative bundle products. Ooredoo’s focus on convergence in Tunisia is also generating good levels of growth in fixed B2B services. Revenue year on year was down 8% in local currency, mostly a decreasing voice revenue partially offset with data growth. EBITDA margin decreased from 47% to 45% impacted by provisions for receivables. Q1 to Q2 revenue was up 6% in local currency as well as in Qatari riyals benefiting a little bit from the seasonality. EBITDA margin improved from 42% to 48%. Q1 as you will recall led to some regulatory penalties that were charged and accounted for in Q1.

Moving on to the next slide, slide number 23, Myanmar. Ooredoo Myanmar’s growth continued during the period and it registered revenues for the half of QAR 510 million. The business became EBITDA positive for the first time during Q2. This is less than a year after launching our services in this high growth market. Customer numbers also grew at a significant rate with customers almost doubling during the period to just over 4 million. Our 3G-only approach to the market has resulted in both customer growth and data usage which has doubled during the first half of the year, driven by the 80% smartphone penetration across our customer base. The crystal clear quality and fast internet speeds of our network generated average ARPUs of $6.50. Our network roll-out continued and Ooredoo Myanmar’s 3G only network now covers 35 million people out of a population of 51 million. Q1 to Q2 was up 17% and EBITDA margin improved from -11% to +3%.

At this point I’d like to hand it back to Andreas.
Andrea Goldau: Thank you very much Ajay. Tara-Lee, can I trouble you to explain how to ask questions for our listeners?
Operator: Certainly. If you would like to ask a question at this time please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered you may remove yourself from the queue by pressing *2. Again ladies and gentlemen please press *1 to ask a question. Our first question comes from Ali Dhaloomal of BOA. Please go ahead.
Ali Dhaloomal: Hi everyone and thank you for the call. A few questions on my side, the first one, I was wondering for Tunisia was your performance in line with the market or have you lost some market share? The second question on Algeria, I saw that you did some LTE tests and I was wondering when you are planning to introduce 4G there and is the licences already granted or not yet? My third question is about the sale of Liberty. How much do you expect to derive from this sale and also should we expect more portfolio optimisations either through disposals or acquisitions going forward? Thank you.

Ajay Bahri: As far as Tunisia’s performance is concerned, in terms of market share we are generally in line with the market movements, not a significant change in customer market share. A slight decrease has been there in the past but nothing significant. As you know Ooredoo has the strongest market player in excess of 50% of customer market share. As far as the Algerian LTE trials are concerned, they are only trial cases right now and there is no clear timeline on the rollout of the full services. When we get more details on that we will share that with you but as of now there is no clear timelines on the 4G implementation. As far as the sale of Liberty is concerned, that’s following the mandatory tender offer process as highlighted and the process finishes mid-August and when the process finishes I think we will be in a better position to give you more details of how much the amount is and how it progresses after that. The question on the optimisation of our portfolio, as you see the only changes we’ve made is to small investments we’ve had in the past. Our major investments have continued strongly, so last year we exited bravo which was a Push To Talk technology in Saudi. Historically we’ve also exited WiMAX in Jordan, so this was a continuation of a rationalisation of our portfolio mostly on the small investments that we made in the past.

Ali Dhaloomal: Ok, thank you.
Andrea Goldau: Just on the Liberty deal, additional information, the mandatory takeover finishes on 14th August, then it actually takes some time until the full deal will be finished, so we probably have some more information about that towards the end of the first week of September.
Ajay Bahri: Perfect.
Operator: Thank you. Our next question comes from Nishit Lakhotia of Sico. Please go ahead.
Nishit Lakhotia: Yes, hi. Thanks for the call. I have a few questions, one on your funding strategy. In the Algerian and Indonesia, you are looking at replacing your USD denominated debt with local currency. How will this impact your interest costs in terms of…obviously you will have to pay much more in local currency, so if you can shed some light on what rate did you manage to finance the Algerian debt and what incremental costs you expect in Indonesia on this? That’s my first question. The second is on the Iraq business, on Asiacell. We are expecting VAT introduction now in August so how do you see that impacting the affordability of telecom services in the country and overall on the growth of your business because of that; and because we’ve also seen a positive trend in terms of Iraq’s business benefiting from data, can we expect 2016 the revenues and EBITDA and the key parameters to be almost stable instead of declining versus 2015, assuming that the situation does not deteriorate, it stays as what it is right now? The third question is on Kuwait, if you can give some more idea on how the competition is moving forward because last time I think during the Capital Markets Day there was a discussion happening between the three operators on the competition and how has this led to some moderation completion there in terms of dynamics? Thank you.

Ajay Bahri: As far as the funding is concerned, you’re right, we replaced dollar denominated debt with local currency, the costs do go up and the costs, we can share these details as these loans are signed off. All these borrowing details are in the financial statements, so I think you will get to see that when they announce that information. But big picture what’s going to happen now is the movement of foreign exchange losses as you’ve seen in the past will not be as much, especially in Algeria where they replaced most of their dollar borrowing in local currencies, in fact all of it. Indosat on the other side has replaced partially the $650 bond which they have with Indonesian Rupiah and still have some dollar denominated revolving facility which will be gradually used to repay and replace by local borrowing, but I think you will have to wait for the Indosat details to come out where we will share details of the loans. The next question was on Iraq. Iraq has three issues going forward, one is VAT which you pointed out and although the cost can be passed onto the customers it does have an impact on the usage as well and the spend capability of the customers, so it will have some impact on the bottom line although the costs can be passed on to the customers. The second point was about the political stability and how that is impacting our revenues. We’ve seen that the decline coming from the political instability is become less now. Last quarter we were down 15% quarter on quarter. This quarter it’s a 6% decline so you can see it’s a declining trend of loss of revenue from political instability; and the third point of the competitive environment there, towards the end of the quarter you’ll see a little bit of abatement in competition and although it’s difficult to project how this will continue going forward, the initial signs have been a little more encouraging in terms of intensity of competition which was there earlier. So if you put all these together there is a negative impact from the VAT, the instability coming from the political situation so far and some upside coming from competition becoming less. How all this will evolve in 2016 is difficult to predict but what we’ve seen in Q2 is that the decline seems to be now much less and moving towards more stability. Your last question was on Kuwait and how competition is evolving there. We have intense competition in Kuwait on handset subsidies. A little bit of moderation is visible in the market but it’s too early to say whether that’s sustainable and we’ll have to watch Q3 to give you a better view of how that impacts the business.

Nishit Lakhotia: Ok, just one follow-up on the Algerian loan. Can you share the price at which the loan was raised?
Ajay Bahri: I’m not sure whether we’ve disclosed these prices in the past but I think what you can expect is the inflation differential between both the dollar and Algeria is normally the difference what you’d expect in terms of higher costs, so that could be a good indication to expect higher interest costs.
Nishit Lakhotia: Fine, thank you.
Operator: Thank you. Our next question comes from Richard Barker of Credit Suisse. Please go ahead.
Richard Barker: Thank you. I’ve actually got three questions if that’s ok. The first question is just very quickly on Kuwait, you touched on handset subsidies there and I just wondered if you could maybe share a bit of detail about what kind of proportion of a handset costs you’re actually now seeing being subsidised in the market? That’s the first question. The second question is I just wanted to know, in Myanmar you seem to have lagged quite some way behind Telenor in terms of your ability to capture some of the growth, the very rapid growth in what is obviously a very under-penetrated market. Can you maybe talk a little bit about the reasons for that and why it is that they seem to be better able to accelerate their growth faster than Ooredoo is managing to? Then finally I understand that there’s quite a lot of change going on within the Ooredoo Group organisation at the moment, a number of people I think leaving the business both in Doha and in Asia and there has also been reports in the press that you are closing down the Singapore office that you had there. I just wondered, you’ve obviously made some comments that the strategy hasn’t changed but those observations seem to be somewhat at odds with that claim. I just wondered if you could help explain the difference there? What has changed and why are these changes within the organisation happening? Thank you.

Ajay Bahri: As far as the Kuwait question is concerned, with the handset subsidy changes from quarter to quarter and different promotions happen in the markets, there’s not one fixed percentage that I can give you. It’s very often market driven itself depending on what the competition is doing, so that’s in public domain so we can see about sometimes up to 50% costs being subsidised, so that’s clear from the market information. Like I said earlier the subsidy level is getting moderated recently, so the high levels of subsidies are expected to reduce as we go forward hopefully. The Myanmar story is something which is linked to our strategy of going with only 3G and when we did the licence bid, one of our strategies to get the licence was to fast-track the country straight to 3G and our strategy was to bid for 3G and we launched only a 3G network. As a result of that, a certain potential market is not meant for us, it’s for Telenor, the 2G market so to say, so a big difference between us and Telenor is the high growth they’re getting in the 2G market. So the fact that Telenor will grow faster than us was not unexpected but what we do see is that the growth in the market is much higher than what we previously anticipated. Our sales are ahead of where we thought we would be and consequently of course the 2G market also is growing ahead of what we initially thought. Your third question was on changes in the organisation and you’ve probably talked about some market rumours about the Singapore office. There is no closure of any offices and they are just market rumours. There’s no such change of us making closures of any offices in Singapore. The strategy as I just said earlier in the briefing again, the strategy remains what it was recently in the Capital Markets Day. We are on the same strategy so there is no change.

Operator: Thank you. We will now take our next question from Tibor Bokor of Arqaam Capital. Please go ahead.
Tibor Bokor: Hi, thank you. I wanted to focus on 2, maybe 3 countries of your operations. Your work in Algeria, I would like to know what is your share on the 3G market because Algeria has been performing fantastically? I’m just guessing that you are doing much better on the 3G than the competitors and Iraq, I’d be interested to hear what’s the situation there as well? Can you comment on that? Thank you.
Ajay Bahri: In terms of Algeria’s market share, it’s difficult to give you market share details because it’s not directly available in terms of publicly available information. What we can tell you is that coverage is ahead of competition. We cover about 65% of the target geographies. I think Mobilis is about 55% and Djezzy is about 30% in terms of coverage, so that automatically gives us the advantage of having a higher percentage in terms of market share of 3G as well.
Tibor Bokor: If I can follow up on Qatar, it seems that there’s quite a heavy price reduction in the prepaid segment driven by yourself which is hurting your competitors quite heavily. What is the strategy from your point of view there? Is it enough or do you need to hurt them a bit more, to be frank?
Ajay Bahri: I think what’s happening in Qatar is nothing new. I think the competitive nature of the market has been there ever since Vodafone has come and in different points of time, different operators have different promotions so I think one should not read anything more into that. There have been times when Vodafone has been aggressive in pricing for local calls – we have responded to that so I think it’s the normal continuation of competition in the market, nothing unusual at this time.

Tibor Bokor: Last question on Indonesia, despite the currency impact, if I look at the local currency performance it seems to me that it’s quite satisfactory. How much of that – looking at quarter over quarter performance – how much of that is seasonal and how much of that is sustainable and if you can elaborate on being ahead of your expectations in Indonesia or behind? Thank you.

Ajay Bahri: Ok. Starting on the quarter on quarter concerning the seasonality, the better comparison really for Indonesia is a year on year comparison because the seasonality factor gets covered there, so in local currency terms year on year the growth has been about 9% which is also a healthy growth as well. So I think overall the direction for Indonesia is a very positive direction. We see healthy growth in customer numbers, we see growth year on year as well as quarter on quarter, so it’s fast growth despite seasonality.
Tibor Bokor: If I could follow up, Indonesia has been a disappointment for a while. Correct me if I’m wrong, this is the first quarter of good results, are we out of the woods and should we expect continuous strong performance in Indonesia or there’s still hiccups on the road to be expected?
Ajay Bahri: I think what happened in Indonesia historically has been a fixing of the network there in making sure we have network advantages in certain areas of the country. It’s a huge country. In some places other telecoms are much stronger than us. I think some of the investments we have done on the network especially on the data side and also having deep 3G coverage with U900 some of that is giving us benefits now. Having said that it might be too early to say that if this will sustain for coming years because competition is also not sitting doing nothing, so it’s early days to claim sustained levels here, but two quarters have been good and we are encouraged by what we see in these two quarters.
Tibor Bokor: Thank you very much.
Operator: Our next question ladies and gentlemen comes from Omar Maher of EFG Hermes. Please go ahead.

Omar Maher: Thank you very much. I just had a follow-up question on the VAT implementation in Iraq. I was just trying to understand a little bit how this will impact the operations numbers from an accounting perspective, so is it going to be accounting perspective, so is it going to be accounted for on a net basis or will you be reporting the revenue on gross and taking the VAT on the opex level, so just understand how the numbers will be impacted.

Ajay Bahri: We are still trying to understanding the implication also in terms of how the VAT input/output would work there, so I am not able to give you a clear answer on how this will work out depending on how the input/output of VAT works, the accounting could be different. Very often what’s going to happen is the net impact of course will be the same no matter how the accounting happens as far as EBITDA is concerned.
Omar Maher: Sorry Ajay, can you just repeat that last point? I didn’t catch it well.
Ajay Bahri: Regarding growth of revenue and growth of cost or we just take the cash and show it as a payable, so it doesn’t impact our EBITDA. As an absolute number the EBITDA is the same irrespective of how we do the accounting.
Omar Maher: Thank you.
Operator: The next question now comes from Walid Bellaha of Barclays. Please go ahead.

Walid Bellaha: Hi, good afternoon. Thank you very much for your presentation. I have a couple of follow-up questions on Myanmar and one question on liquidity management. So on Myanmar we’ve seen Q2’s improvement in EBITDA generation, it was the first quarter really with positive EBITDA and I just wanted to understand how sustainable it was? I understand that it was mainly driven by the increasing number of customers but at the same time you have the average revenue per user continuing to decline. There have been several headlines mentioning aggressive pricing from your competitors continuing over the second quarter of the year. The second question on Myanmar is regarding the investments. If you could just remind us how much investments do you still plan on an annual basis on Myanmar? My last question is on liquidity management. I understood in your Capital Markets Day that the level of cash that you have is a comfortable level, so I just wanted to understand what would be your policy regarding your gross debt? There have been some bond loans which have been partly refinanced. Do you expect to reduce demand for gross debt that you have using some of the cash that you have or just keep it as it is?

Ajay Bahri: The positive EBITDA at Myanmar level is breaking in right now at [inaudible]margin, so all this is positive in terms of the rapid speed of growth – that’s what it really implies. Having said that we are still in the investment phase in the country and the direction is good but even if it dips a little bit in Q2 or Q3 going forward, we shouldn’t be concerned about EBITDA margin at this stage because the focus right now is to capture growth and invest in the growth of the country. Talking about the investment, I don’t think we disclose the future investments of Myanmar but what I can tell you is that the licence fee payment initial amount and a first instalment has been already paid about $750 million and a large part of the network expansion has already happened and we cover about 68% of the population now which is 35 million out of the 51 million. So a good amount of investment has already happened and what you will see will be a little more as you go forward. Your question on gross debt and net debt, what we have at a group level is revolving credit facilities which are fully drawn and we have cash drawn from those facilities. Local currency interest rates are higher than the US dollar borrowing rates right now, so that’s why you see a little bit of high gross debt and high cash. As long as this situation is sustained we will let these facilities be drawn and repay then if there’s a negative carry in terms of the interest because the standby facilities give us the liquidity production that we need whether we draw them or we leave them on a standby basis.
Walid Bellaha: Thank you very much.
Operator: Our next question now comes from Dilya Ibragimova of Citigroup.

Dilya Ibragimova: Hello, hi. Thank you very much for taking my questions. I had two actually, one is on Qatar and in particular on postpaid. As far as I understand your competitor Vodafone is getting quite aggressive in postpaid and even looking at the share of net adds, it seems that they are taking about 80% net of postpaid net adds in Q2, but looking at your…I guess the first question is what is your strategy to protect your share in postpaid and do you intend to protect your share in postpaid market? Secondly what trends are you seeing in ARPU. It’s just based on your advertising it seems like that Shahry 250 is the most popular tariff and yet when we look at the ARPU, ARPU of postpaid is actually increasing quarter on quarter, so I guess the question is here what drives the increase in postpaid ARPU and where do you see the trend going forwards if possible? My second question is on one-offs. Would it be possible to list one-offs that have affected the second quarter results and would perhaps quantify them below and above EBITDA? Thank you.

Ajay Bahri: OK, first as far as Qatar is concern, postpaid is an important market for us so we will positively focus on postpaid on a very conscious basis and as you have seen there has been aggressive moves in the past from competition and because of the overall strategy which is not just price driven, it’s got a balance of customer service, better network quality, related services and good data as well and advanced services like LTE, plus I think we are well positioned to capture the postpaid market there. ARPUs have been stable as you can see for us and the increase that you see is mostly because of the data usage which is going up quite significantly in the market and that’s where we benefit in terms of increasing revenues in ARPU.
Dilya Ibragimova: So can I just clarify, there is an increase of bundle usage or are you just seeing take-up in higher value bundles?
Ajay Bahri: I think it’s a combination of all these things together and also you do have more people coming into the country and different income levels of people coming into the country, so sometimes we have people moving up to a higher data package because as people get used to higher speeds, what happens is that you consume data more, so when you are in 3G and LTE you are downloading more things and much faster and you end up using more data. So that’s how the usage evolution happens on the data side for each level, when we move from 2G to 3G people start using more data because of the speed itself. So that’s I think the dynamic of the market which is what has shown the increased usage.
Dilya Ibragimova: Thank you.
Ajay Bahri: Your second question was on one-off items below EBITDA?… are you talking about Qatar now or are you talking about...

Dilya Ibragimova: Overall on a group level. If I caught it correctly I think there was a one-off in Oman which is unquantified and I’m just wondering whether there are any one-offs above EBITDA for any other operations and also if there are any one-offs below it. I think there’s net loss from JVs and associates, I don’t know whether that process is recurring or non-recurring.

Ajay Bahri: Sure. On a big picture basis normally I run through each operation separately and try to identify any big one-off items above the EBITDA. There’s nothing very significant this time, a few minor things obviously here or there and I alluded to a couple of them in my comments. Below the EBITDA I think what happens for the quarter, last year there was some sale of investment income at Ooredoo level which gets normalised if you all both the quarters together because in Q1 we had that income coming this year, so on Q1 vs Q2 it gets normalised and you don’t see any variation, but for the quarter sometimes in Q2 you will see a bit of variation, and the JVs, joint ventures and associates, as you know when we left it in Rocket and its early stage investments where initially as you would expect they’re not profitable, so as Rocket scales up we do expect initially to have some negative results coming from there.
Dilya Ibragimova: Understood, thank you. That’s very helpful.
Operator: Now our next question comes from Meenakshi Bhardwaj of Morgan Stanley. Please go ahead.
Meenakshi Bhardwaj: Hi. I just had one question on the Algeria operations. Just in terms of the local currency, the growth seems to have slowed down so just wondering if you can give me the growth rate for the quarter on an annual basis and why do you think is it slowing? That’s all.

Ajay Bahri: I think in local currency terms year on year the growth is about 6% in local currency terms and if you see the history of the Algeria operations, it’s a market with three players already entrenched there and in the last couple of years you’ll see double digit growth, up to 20-21% growth. In the 3G market normally you don’t see that and it’s obviously not sustainable year after year so our Algerian operation has done very well to have that growth phase but then it obviously cannot continue forever, the competition becomes more aggressive and tries to protect its base. The growth is expected to slow down, however as we pointed out that we have an advantage in terms of our coverage on the 3G side, we expect to benefit from that at least in the near future.

Meenakshi Bhardwaj: Just to clarify, so even for the first half as well as for the second quarter the growth rate is 6% in local currency?
Ajay Bahri: The numbers are different: quarter on quarter the growth is about 9% and compared to last year in the same quarter the growth is 3% and for six months to six months the growth is 6%, so they are different numbers comparing to which quarter you’re comparing to which quarter.
Meenakshi Bhardwaj: That’s very helpful. Thank you.
Operator: Our next question comes from Saharsh Kumar of JP Morgan. Please go ahead.
Saharsh Kumar: Thank you for taking the question. Just a small one question, most of it was answered before. If you could just provide a bit of colour on the competitive environment in Indonesia? Also are you looking for any income market consolidation in the country in the near term or in 2016? Thanks.
Ajay Bahri: The market in Indonesia is highly competitive as you’re aware and the competition still continues so no changes as far as the competitive environment is concerned. The competition is different in different regions at different points of time and the number of operators as you know is quite a lot in Indonesia. There’s no abatement of competition as far as the environment is concerned. There are some small players in the market and the potential of consolidation which might happen in the future which will definitely help the industry. As far as we are concerned we are not actively today looking for any M&A activity as far as that is concerned, but we do watch and see if any opportunity comes, if it makes sense in terms of what’s available and at what price and there’s no duplication of network coverage…one could look at something but as we speak there is nothing on the cards that we’re looking at.
Saharsh Kumar: Ok, thank you so much.

Operator: Thank you. We now have another question from Tibor Bokor of Arqaam Capital. Please go ahead.

Tibor Bokor: Hi, I have one more question on Tunisia. It seems that quarter over quarter there has been a quite sudden improvement in revenues and also EBITDA margins have improved quite substantially, so I just wanted to hear how sustainable this is and where is it coming from? Thank you.
Ajay Bahri: Tunisia increased revenue in local currency of about 6% and part of that is a level of seasonality. Q1 normally is a low quarter. Year on year if you see Q2 against Q2 of last year, there was a decline of 7% in local currency. The story of growth is a positive sign, however there is a little bit of seasonality as well and the growth in revenue does go down and benefit on the net profit side as well and EBITDA side, however in Q1 as I pointed out there was a one-off recording of a regulatory penalty so the EBITDA margin that you see in Q1 is lower than the Algerian EBITDA margin.
Tibor Bokor: That’s very helpful, thanks.
Operator: Thank you. There are no further questions at this time.
Andrea Goldau: Excellent. Then I would like to thank you all for joining today’s call. We are looking forward to your future participation in our next update probably at the end of October. Thank you very much for your continued interest in Ooredoo.
Operator: Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.


Page | Ref 5560017 30 July 2015




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