Orascom Telecom Incurs $28 mln Loss During Q2/13
Orascom Telecom Holding S.A.E. (‘OTH’, or ‘the Group’) (ORTE.CA), a leading provider of mobile telecommunications in Africa, Asia and North America, announces its consolidated financial and operating results for the second quarter ending June 30, 2013.
1. 2Q13 Highlights
Total subscribers increased 4% YoY to approximately 86 million.
Revenues grew 1% YoY organically to USD 904 million, despite negative impact from regulatory and governmental actions.
EBITDA of USD 438 million. Excluding one-offs and restructuring costs in this quarter, EBITDA would have increased 2% YoY organically. Group EBITDA was supported by EBITDA growth YoY in Algeria in local currency.
Strong group EBITDA margin of 48.5%. EBITDA margins for the subsidiaries: Djezzy 60.1%, Mobilink 42.0%, and banglalink 36.8%.
Net income before minority interest stood at a loss of USD 23 million, mainly driven by the adverse impact of foreign exchange losses of USD 86 million and financial expenses of USD 126 million.
Net debt stood at USD 2.5 billion, decreasing 7% compared to 4Q12; with Net Debt/EBITDA of 1.5x as at June 30, 2013.
Ahmed Abou Doma, Chief Executive Officer, commented on the results:
Our operations continued to be negatively impacted by regulatory and government actions that are beyond our control and decisions. Our revenues stood at USD 904 million for the quarter. This represents an organic growth of 1% compared to last year, in spite of the on-going ban in Algeria, the slowdown in Bangladesh due to the application of the regulatory directives regarding suspected VoIP customers and major power blackouts in Pakistan. EBITDA decreased 1% YoY organically, reaching USD 438 million.
Costs included one-offs and restructuring expenses; without these items, EBITDA would have increased 2% YoY organically. Reported results in US dollar terms were adversely impacted by the local currency devaluation against the US dollar, mainly in Algeria and Pakistan resulting in a revenue decline of 3% YoY and an EBITDA decline of 7% YoY.
Our subscribers increased 4% YoY to nearly 86 million customers, driven by growth in Pakistan and Bangladesh. As announced on July 1, 2013, during an internal investigation with regards to Djezzy’s active subscribers, we found a technical bug that overstated Djezzy’s active subscriber base by 1.4 million customers. The subscribers’ base comparative figures were adjusted accordingly. We launched a new brand identity for Mobilink in Pakistan; featuring a fresh new look for the operator. In parallel, the on-going network modernization and swap program is underway.
Total subscribers increased 4% YoY to approximately 86 million customers at the end of the quarter, driven by steady growth YoY in Pakistan and Bangladesh, as well as strong additions to our subscribers in Sub-Saharan Africa and Canada.
In Algeria, Djezzy’s subscriber base decreased 1% YoY to 16.8 million customers, as a result of the on-going ban and regulatory constraints that limited our ability to compete effectively.
In Pakistan, Mobilink’s subscribers increased 3% YoY to 37.1 million customers, as a result of churn management coupled with changes implemented to the distribution structure during 1Q13 and continued focus on reactivation offers. The government removed the SIM activation tax in April 2013, but then reinstated it toward the end of the second quarter, as competition became more aggressive.
banglalink’s subscribers’ base increased 6% YoY to 27.1 million customers, driven by high gross additions and low churn rate.
Subscribers in Sub-Saharan Africa grew 13% YoY, mainly driven by strong additions in Zimbabwe, with the number of subscribers growing by 22% YoY. In Canada, WIND Mobile Canada grew its subscriber base by an impressive 36% YoY, through its continued focus on “Value Plus” attracting both postpaid and prepaid customers to the network.
Reported revenues for the second quarter were negatively impacted by the local currency devaluation against the US dollar mainly in Algeria and Pakistan. In Bangladesh, the local currency appreciated against the US dollar. For more details on the foreign exchange rates applied to the financial statements, please refer to the appendix. Group revenues achieved an organic growth of 1% YoY, reaching USD 904 million for 2Q13.
In Algeria, Djezzy’s revenues increased 3% YoY in local currency, driven by higher voice revenues following the changes made to the communication messages of existing offers.
In Pakistan, revenues grew 5% YoY in local currency, driven by higher interconnect, VAS, data and other revenues and a higher subscriber base. However, revenues for the quarter were impacted by the government request to shut down all cellular networks in major cities, although shutdowns occurred at a lower rate than in previous quarters. Furthermore, one of the worst power blackouts in Pakistan’s history was seen in May 2013, which resulted in higher OPEX and depletion of fuel at some sites, reducing the network’s availability and negatively impacting revenues.
In Bangladesh, revenues decreased 14% YoY in local currency, mainly driven by lower usage per subscriber, affected by the application of the regulatory directives of disconnecting VoIP customers, and partially offset by higher interconnection and VAS revenues. In addition, the fourteen days of national strikes in 2Q13 negatively impacted business. The application of the regulatory directives of disconnecting high value suspected VoIP customers is expected to have a prolonged negative impact during 2013.
Telecel Globe’s revenues declined by 9% YoY, primarily due to lower revenues achieved in CAR due to the on-going security situation that followed the armed conflict in the country, alongside the devaluation of local currency in Burundi against the US dollar. Burundi’s revenues increased 16% YoY, while CAR’s revenues decreased 28% YoY, in local currency.
In Algeria, ARPU increased 5% in local currency, driven by high uptake for bundles following the changes made to the communication message during the quarter, as opposed to pressure on 2Q12 ARPU that resulted from the retail incentive launched during 1Q12, which led to lower ARPU in 2Q12.
In Pakistan, ARPU increased 1% in local currency, as a result of price increase initiatives for base tariffs and offers implemented during 1Q13, alongside the introduction of new products and bundles.
In Bangladesh, ARPU decreased by 17% in local currency, due to the implementation of a 10 seconds pulse for all packages during September 2012, alongside the impact of applying the regulatory directives of disconnecting high value suspected VoIP customers.
Consolidated EBITDA for 2Q13 increased 2% YoY organically, assuming constant foreign exchange rates and after excluding one-offs and restructuring costs, despite the challenges imposed via regulatory and governmental actions and its impact on our operations. Reported EBITDA in US dollar decreased 7% YoY.
In Algeria, EBITDA grew 2% YoY in local currency, driven by growth in top line.
In Pakistan, EBITDA decreased 1% YoY in local currency, driven by the fine imposed on all operators with regards to the regulatory suggested clearing house for international termination, the total amount of which for Mobilink was USD 5 million. In addition, EBITDA was further affected by higher power utilities expenses resulting from power outages in May 2013.
In Bangladesh, EBITDA decreased 16% YoY due to pressure on revenues that resulted from lower usage per subscriber, related to the application of the regulatory directives of disconnecting VoIP customers, despite savings on structural OPEX.
Group EBITDA margin for the second quarter of 2013 was 48.5%, supported by a solid GSM margin of 50.1%, due to relatively stable EBITDA margins in Algeria, Pakistan and Bangladesh.
2-5 Net Income
Net Income attributable to Equity Holders of the Parent amounted to a loss of USD 28 million for the quarter, mainly driven by the adverse impact of foreign exchange losses of USD 86 million and financial expenses of USD 126 million. EPS for the three months ended June 30, 2013 amounted to USD (0.02)/GDR.
Total CAPEX for the quarter decreased 13% YoY to USD 69 million. In Pakistan, CAPEX increased 25% YoY following the commencement of network swap program, which is on-going in the central and northern regions. In Bangladesh, CAPEX decreased 64% compared to the intensive customer acquisition and network roll-out of the previous year, and in anticipation of network swap with the launch of 3G. CAPEX for Telecel Globe remained low for the quarter.
2-7 Cash and Debt
Net debt declined 7% for the second quarter of 2013 to reach USD 2.5 billion in comparison to USD 2.7 billion as at December 31, 2012, leading to Net Debt/ EBITDA of 1.5x as of June 30, 2013.
3. OTH Operations
The Group operates in seven countries with favourable dynamics in Africa, Asia and North America. OTH serves a population of approximately 459 million people with an average mobile penetration rate of 53%.
3-1 Djezzy, Algeria
Orascom Telecom Algeria S.p.A (“OTA” or “the company”) operates a GSM network in Algeria and provides a range of prepaid and postpaid products encompassing voice, data and multimedia, using the corporate brand “Orascom Telecom Algerie” and the dual commercial brand of “Djezzy” and “Allo”. OTA is focusing on maintaining value through key strategic pillars. These strategic pillars are oriented towards value segmentation, distribution control, operational excellence, new revenue streams and assets monetization, control of regulatory risks, and finally retaining key staff members as well as introducing new talent development programs.
OTA continued to face various challenges due to actions from a number of government authorities. In particular, the bank of Algeria in our view issued an unfounded decision during 2Q10, instructing banks not to process any overseas foreign currency transfers by OTA leading to a very negative impact on OTA’s network and reputation. Nevertheless, the company maintained its leadership position with a market share of approximately 52.5%3.
During the quarter, OTA launched several campaigns promoting existing offers, revamped its WAP portal design and functionalities. The company reinforced its focus towards handset business by launching a pre-order campaign for Samsung Galaxy S4. The company signed major discount deals with international operators and was able to reach Belgacom SMS Interworking Hub, as a way of exchanging international SMS with operators through a single hub, to increase presence in terms of new destinations. With regards to loyalty and retention programs (Imtiyaz), OTA continued to increase the number of partners enrolled in the program.
Furthermore, several events were held for elite customers and churn preventive campaigns were launched targeting different segments.
OTA was strongly present in the media through football sponsorship campaigns following its successful campaign as the official sponsor of the Algerian handball national team. The company continued its corporate social responsibility activates by organizing the “Kids Cup”, allowing 100 orphans to play against the ESS football club, in addition to organizing and sponsoring a blood donor’s day, in cooperation with the national blood agency. OTA continued to sell its mobile telecommunication services through indirect channels (distributors) and through 87 owned “Djezzy” branded shops.
The eight exclusive national distributors cover all 48 provinces (Wilayas) and are distributing OTA’s products through 19,000 authorized points of sale (POS).
Djezzy’s revenues increased 3% YoY to DZD 36.7 billion, driven by higher voice revenues following the changes made to the communication messages of existing offers. EBITDA increased 2% YoY to DZD 22.1 billion, driven by growth in top line. Subscriber base decreased 1% YoY to 16.8 million customers, as a result of the on-going ban and regulatory constraints that limited our ability to compete effectively. The inability to carry out maintenance and expansion works and to secure essential goods and services for the network continues to represent a key source of high operational uncertainty for the months to come.
3-2 Mobilink, Pakistan
Pakistan Mobile Company Limited (PMCL) operates under the brand “Mobilink” and has established itself as a market leader amongst Pakistan’s Mobile network operators, providing prepaid and postpaid voice and data services to individuals and corporate clients across Pakistan. Mobilink is focused on retaining and strengthening its market share to achieve revenue growth, whilst continuing to reduce operational costs.
Although the political situation in Pakistan improved after the elections, the operating environment remained challenging during the second quarter of 2013. One of the worst power blackouts in Pakistan’s history occurred in May 2013, which resulted in higher Opex and depletion of fuel at some sites, reducing the network’s availability and negatively impacting revenues.
The government removed the SIM activation tax in April 2013, but then reinstated it toward the end of the quarter, as competition became more aggressive. For security reasons, all cellular networks in major cities were shut down several times upon government request, although shutdowns occurred at a lower rate than in previous quarters. A fine was imposed on all operators with regards to the regulatory suggested clearing house for international termination, the total amount of which for Mobilink was USD 5 million.
During the quarter, Mobilink consolidated its brand portfolio and moved to a single brand architecture, a new brand identity was launched combining all visual assets into one flagship brand, featuring a fresh new look for the 15-year-old operator. The network modernization program is on-going in the northern and central regions, while the rollout of the southern region is expected to commence in 3Q13.
Mobilink implemented several initiatives by focusing on reactivation offers as to encourage dormant customers, launched acquisition offers providing customers with free minutes, data and SMS on purchase of new SIM. Mobilink launched attractive on-net bundles and a bonus on recharge offer as a way of improving customer engagement. Location based offers were revised by adding mobile internet alongside voice minutes. Two postpaid packages were also launched: M600 and M999, offering an attractive value to prepaid customers.
Mobicash launched the Mobile Account, allowing Mobilink subscribers to perform a wide range of financial transactions from their handsets. In mobile internet, Mobilink launched multiple data bundles and entered into partnerships with Facebook, Twitter and Wikipedia. New value added services were launched, including double up number, election center, free missed call and mHealth.
Mobilink revenues increased 5% YoY reaching PKR 28.5 billion, driven by higher interconnect, VAS, data and other revenues as well as 3% increase YoY in the subscriber base to 37.1 million customers. EBITDA decreased 1% YoY to PKR 11.9 billion, as a result of the previously mentioned fine and higher power utility expense.
3-3 banglalink, Bangladesh
Orascom Telecom Bangladesh (“OTB”) provides its services under two main brand names: “banglalink” and “Icon”. OTB’s marketing strategy is oriented towards targeting different consumer segments with tailored products and services to cater for the needs of these segments.
The government reduced SIM tax to BDT 300 from BDT 606 previously. The 3G auction date was postponed for the second time and is now set for September 2, 2013. According to the guideline, 3G licenses will be provided to a total of five licensees of which, the state-owned Teletalk was awarded a license by default.
Operators were asked to complete the MNP process within seven month, effective June 13, 2013. Mobile operators were instructed to finalize the details of the MNP process and governance modality jointly. However, MNOs showed some concerns with regards to the feasibility of the timeline. The government imposed a 7.5% VAT on 3G spectrum fees in May 2013, and also increased corporate tax rates on listed companies to 40% from 35% previously.
During 2Q13, banglalink continued to launch attractive services and offers to the market promoting voice, VAS and data. banglalink launched new offers with data and voice such as 1000 minutes bonus on recharge, reactivation promotions at competitive tariffs, new data packages, and handset bundle offers.
banglalink’s revenues decreased 14% YoY to BDT 10.1 billion, mainly driven by lower usage per subscriber, related to the disconnection of VoIP customers as well as lowered APPM, and were slightly offset by higher interconnection and VAS revenues. In addition, fourteen days of national strikes in 2Q13 negatively impacted business. The application of the regulator’s directives of disconnecting high value suspected VoIP customers is expected to have a prolonged negative impact during 2013.
EBITDA decreased 16% YoY to BDT 3.7 billion due to pressure on revenues that resulted from lower usage per subscriber, affected by the application of the regulatory directives of disconnecting VoIP customers, despite savings on structural OPEX.
By the end of 2Q13, banglalink’s subscriber base stood at 27.1 million customers, increasing 6% YoY, driven by high gross additions and low churn rate.
3-4 WIND Mobile, Canada
Globalive Wireless Management Corp. (“Company” or “GWMC”), operates its wireless business under the brand name WIND Mobile, is a Canadian wireless services provider.
After a review process and discussion with the Government of Canada, OTH decided to withdraw its applications for Investment Canada Act approval of its acquisition of control of WIND Mobile Canada. The Group might reapply in the future. The process of establishing the final strategic position for the Canadian operations is ongoing, including the possibility of disposing of the business.
WIND Mobile Canada added 18,732 subscribers during the quarter, increasing its active subscriber’s base to 620,451 customers, maintaining its status as one of the fastest growing wireless operators on record in the Canadian market.
On the commercial front, WIND Mobile Canada continued to lead in “unlimited” plan pricing in Canada, as well as continuing with its 1Q13 rate plans supporting managed subsidies and value plus positioning. WIND Mobile Canada launched BlackBerry Q10 and Samsung Galaxy S4 in line with the major operators to enhance credibility and brand image with these iconic devices. Many other devices were added in the middle and low range to complement WIND Mobile Canada’s existing lineup and align with the rate plan strategy including the Samsung Ace IIe, Huawei Ascend Y210 and Samsung T169.
WIND Mobile Canada’s distribution footprint and branded points of sale stood at 313 by the end of the quarter. Population coverage continued to exceed 14 million with more than 1,311 sites on air.
