Investor Presentation Q2 2018

Transcription

1 Investor Presentation Q2 2018

2 Disclaimer This document has been prepared by Telecom Egypt (the Company ) solely for the use at the analyst/investor presentation, held in connection with the Company. The information contained in this document has not been independently verified. This document contains statements related to our future business and financial performance and future events or developments involving Telecom Egypt that may constitute forward-looking statements. Such statements are based on the current expectations and certain assumptions of Telecom Egypt's management, of which many are beyond Telecom Egypt's control. Such assumptions are subject to a number of risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results may (negatively or positively) vary materially from those described explicitly or implicitly in the relevant forward-looking statement. Telecom Egypt neither intends, nor assumes any obligation, to update or revise these forward-looking statements in light of developments, which differ from those anticipated. This document does not constitute an offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares of the Company and neither it nor any part of it shall form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. This presentation has been made to you solely for information purposes and is subject to amendment. This presentation (or any part of it) may not be reproduced or redistributed, passed on, or the contents otherwise divulged, directly or indirectly, to any other person or published in whole or in part for any purpose without the prior written consent of the Company. 2 2

3 H results highlights Operational growth as a manifestation of our growth strategy Revenue (EGP bn) 10.1bn + 16% YoY EBITDA (EGP bn) Customers ( In mn ) Fixed Mobile Net profit (EGP bn) Voice % YoY Data % YoY million net additions ytd H1 2018: Operational growth in line with strategy Half year revenue crosses 10bn for the first time with a 16% YoY growth boosted by the continuation of data growth a clear manifestation of the growth strategy adopted more than a year ago. Our customer footprint continues to expand with growth in fixed (11% YoY in voice, 27% in data) plus 1mn mobile net additions year-to-date. Operating profit growth of 11% YoY on a 19% YoY growth in EBITDA, despite the high level of Capex reflected on higher depreciation on the P&L and the cost of the license represented into the hike amortization (D&A +51% YoY). 3.3bn +19% YoY 2.1bn -18% YoY EBITDA margin of 32.5% Net profit margin of 20.3% Stable EBITDA margin at 32.5% as EBITDA grew on effective cost control and improved gross margin. Management maintains full year guidance as H2 is usually lower margin. Net profit decline of 18% weighed on by Q1 performance (-40% YoY) mainly due to one off decline in investment income from Vodafone Egypt and the impact of higher financing expenses in line with our investment strategy & a direct impact of the high-interest environment in Egypt. 3

4 Q results highlights EBITDA margin enhancement on cost mgmt, net profit jumps 66% QoQ Revenue (EGP bn) Customers ( In mn ) Q2: Operational growth filters through bottom line 5.3bn +16% YoY/ +12%QoQ EBITDA (EGP bn) Fixed Mobile Net Profit (EGP bn) 1.8bn 1.3bn +24% YoY/ +19% QoQ +4% YoY/ +66% QoQ EBITDA margin of 33.4% (+217bps YoY, +195bps QoQ) Voice Data Strong revenue growth momentum growing 16% YoY: driven by strong growth in data services (+45% % YoY % YoY million net additions ytd Net profit margin of 24.0% (-274bps YoY, +784bps QoQ) YoY in Home & Enterprise). 3 rd quarter of mobile revenue, already contributing a high single digit to retail revenue on the successful launch of the WE data platform. EBITDA margin of 33.4% on strict cost management: Offsetting the impact of higher advertising costs and low margin start-up nature of mobile segment through 1. Employee cost management (22% of revenue, down from 25% last year, 329bps) 2. Lower call costs as % of revenue 351bps in spite of new costs of mobile national roaming & interconnect Net profit grew 4% YoY as operational growth offset increased expenditure below the EBITDA absent in the prior year namely higher depreciation & amortization expenses (+53%) and interest/ finance expense. Net profit growth of 66% QoQ equally attributable to operational growth & recovery in Vodafone Egypt s investment income plus interest expense management (stable QoQ in spite of net debt increasing by EGP1.8bn (effective interest rate at 10% -145bps QoQ) 4

5 Our focus lies on targeted investment to serve our strategic goals; boosting Telecom Egypt s & Egypt s growth Our 3 main strategic objectives: 1 Overhauling Egypt s Mobile launch 2 3 internet infrastructure Expanding Egypt s international network Strategy To boost operational growth & capitalize on existing assets To provide best service quality to our customers & induce revenue + economic growth To enable the vision of Egypt as a digital route Capex (2018 expected allocation) c35% c50% c10% Operational KPIs 3.3mn customers in 9 months Q2 18 revenue reached a high single digit of overall retail revenue 4.6mn customers (+27% YoY) c65% of homes connected with fiber to the curb Growing submarine cable revenue (+23% YoY) Commercial highlights Product launches addressing all segments, Indigo: an integrated postpaid bundle Sealing a revised national roaming deal & asymmetric MTRs with two MNOs Brand repositioning through customer care & product offering revamp WE Internet increases min. speed to 5Mbps (60% of homes) & max. speed to 100MBps Acquisition of MENA Cable Bharti deal: bundling existing TE assets with new investment of MENA Cable Cape to Cairo MoU with Liquid Telecom Outlook Enterprise integrated offering & solutions Financial inclusion platform Fiber to the curb reaching 100% by 2020 Content development and as a product offering Investment in route diversity: new routes across Egypt & landing stations + Africa-1 Dev. of digital applications incl. a regional data center & cloud computing hub 5

6 Highlights of the main events of the quarter Product launches & financing arrangements in the quarter, wholesale deals subsequently Events in the quarter 1 Apr: WE launched its post-paid offering under the name of indigo Subsequent to the quarter 4 Jul: Telecom Egypt and Etisalat Misr signed amendment of the national roaming agreement sealed in June 2017 to provide better financial and service quality terms to Telecom Egypt. In addition, the first mobile termination agreement was signed. 29 Apr: Fixed broadband service revamped to WE Internet, offering highest speed, best reliability, and top-notch customer experience. 10 May: BoD approved a 5-year USD 500mn syndicated loan to refinance outstanding short-term USD debt and to provide a cushion for working capital needs 21 May: Signature of SPA for the acquisition of Middle East and North Africa Submarine Cable (MENA Cable) by a 50% owned subsidiary 21 May: Telecom Egypt signs US$200 million financing deal with African Export-Import Bank managed by ADIB Egypt 30 May: Telecom Egypt obtains US$200 million long-term financing with Huawei and Chinese banks 9 Jul: Telecom Egypt and Orange Egypt sign three agreements for international telecom, transmission, and mobile termination services. 14 Jul: Telecom Egypt and Liquid Telecom sign a MOU that will enable the later to shortly complete Africa s terrestrial fibre network stretching all the way from Cape Town, South Africa to Cairo, Egypt. 6 Aug: Announcement of strategic partnership with Airtel for global submarine cable systems wherein, Airtel will get IRUs on MENA Submarine Cable and TE North Cable Systems. Airtel will also take large capacities on a long-term basis on two new stateof-the-art Cable Systems (SMW5 & AAE1). 8 Aug: TE signed the first MoU to provide Etisalat Misr with virtual fixed voice services. Under this MoU, Telecom Egypt through its nationwide fixed network will enable Etisalat Misr to provide its customers with fixed voice services. 6

7 H in numbers Revenue +16.3% +15.9% EBITDA +24.4% +18.5% +11.7% +18.6% 3,293 8,736 10,125 2,778 4,592 4,782 5,343 1,436 1,506 1,787 Operating Profit +25.6% +10.9% Net profit (EGP mn ) +4.4% -18.4% +31.8% 1,981 2, % 2,520 2, ,249 1, ,284 7

8 Revenue by business unit Retail services & specifically data drive revenue growth Home & Consumer Enterprise Domestic International Carriers Affairs International Customers & Networks +45.7% +5.8% +45.3% 3, % +7.7% +2.1% +31.0% +23.3% +17.4% -14.0% +3.9% -11.0% +27.7% +41.0% +22.3% 947 1,328 1,829 1,935 2, ,187 1, ,085 1,673 1,965 1,326 1,096 1,140 2,512 2, Retail services (+32% YoY) continued to lead the increase in revenue in H contributing 86% of total revenue growth, driven by the outstanding increase in Home & Consumer revenue (+45%). Home & Consumer strong growth in H continues to stem from data services (+47%) especially fixed broadband. In Q2 2018, the increase in Home & Consumer (+46% YoY) managed to cover the 7% decline in Enterprise Solutions resulting in an overall retail revenue growth of 28% in Q Enterprise Solutions grew 2% in H as a 14% drop in other enterprise revenue mainly complimentary access services was offset by growth in fixed voice (+16%) & data revenue (+26%). Mobile revenue is still in its early stages contributing a low single digit to total revenue and a high single digit to retail revenue. Wholesale services managed to grow in H by 4% YoY boosted by a hike in Domestic and IC&N revenue compensating for the decline of ICA revenue in line with the global trend. 22% 9% H % 12% 37% 21% 11% Q % 12% 36% During the first half of the year, Domestic revenue grew by 17% YoY supported by a 31% YoY growth in the business unit s revenue of Q on an increase in IRU sales to domestic operators on top of the usual growth in transmission services. 8

9 Net profit Non-operational Other OPEX EBITDA Expenses Revenue Income statement (Q2 2018) In EGP mn H H YoY Q Q Q QoQ YoY Revenue 10,125 8,736 16% 5,343 4,782 4,592 12% 16% Home & Consumer 3,764 2,590 45% 1,935 1,829 1,328 6% 46% Enterprise Solutions 1,212 1,187 2% % -7% Domestic Wholesale 1,965 1,673 17% 1, % 31% International Carriers Affairs 2,236 2,512-11% 1,140 1,096 1,326 4% -14% International Customers & Networks % % 28% Total employee cost (2,376) (2,168) 10% (1,174) (1,202) (1,160) -2% 1% Call costs (2,093) (2,031) 3% (1,079) (1,015) (1,088) 6% -1% CoGS (excl. above expenses) (1,581) (1,356) 17% (828) (753) (712) 10% 16% S&D (excl. salaries, D&A) (563) (162) 248% (362) (201) (75) 80% 381% G&A (excl. salaries, D&A) (219) (242) -10% (114) (105) (121) 9% -6% EBITDA 3,293 2,778 19% 1,787 1,506 1,436 19% 24% Margin 33% 32% 72 bps 33% 31% 31% 195 bps 217 bps Other (expense) / income % (20) 194% -631% Depreciation (937) (765) 23% (494) (443) (392) 12% 26% Amortization (300) (55) 443% (149) (151) (30) -2% 401% Operating profit 2,197 1,981 11% 1, % 26% Margin 22% 23% (97 bps) 23% 20% 22% 356 bps 173 bps Income from investments 874 1,175-26% % 17% Net finance (cost) / income (145) (128) 13% (64) (80) (14) -20% 351% Net interest (expense) / income (418) % (207) (211) 5-2% -3876% Top line of Q grew by 16% recording a total of EGP5.3bn Retail services contributed 75% of the growth in total revenue where the increase in Home & Consumer managed to absorb the decline in Enterprise Solutions delivering an overall growth of 28% in retail revenue. Call costs to revenue declined 351bps to 20% in spite of the appearance of mobile costs (national roaming and interconnection). This comes as a result of regulatory action driven by TE s wholesale team in Q to decrease illegal bypass. The increase in S&D is related to the absence of advertising costs in Q2 2017, advertising represents still a minor 4% of revenue. EBITDA totaled EGP 1.8bn growing 24% YoY as gross margin improved on call costs decline to revenue and revenue outpaced growth in salaries, which represents in Q % of sales vs. 25% last year. The start of mobile license amortization in Sep led to the increase in Q2 18. Depreciation increased as a direct effect of higher Capex spending as TE is actively engaged in overhauling the internet infrastructure in Egypt as well as the investment in its 4G mobile network. Income from Vodafone Egypt recovered from the one-off decline last quarter. Vodafone s operating profit grew 5% YoY and net profit by 10%, the 17% growth in TE s investment income is a result of a reclassification by TE in Q Net interest expense grew YoY as interest expense related to borrowing resulting from the payment of the mobile license was capitalized prior to Sept On A QoQ basis interest expense declined due to efficient conversion of debt to USD with the effective interest rate reaching 10% down from 12% in Q Tax (447) (518) -14% (279) (168) (256) 66% 9% Net Profit 2,058 2,520-18% 1, ,229 66% 4% Margin 20% 29% (852 bps) 24% 16% 27% 784 bps (274 bps) EPS % % 4% NPAT stood at EGP 1.3bn growing by 4% YoY driven by operational growth as operating profit growth of 26% offset non-operational decline in VFE investment income and hike in interest/ finance costs. EPS for Q was EGP0.75 for Q compared to EGP0.72 in Q Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards * EPS excludes employees profit share 9

10 Net profit Non-operational Other OPEX EBITDA Expenses Revenue Income statement (H1 2018) In EGP mn H H YoY Q Q Q QoQ YoY Revenue 10,125 8,736 16% 5,343 4,782 4,592 12% 16% Home & Consumer 3,764 2,590 45% 1,935 1,829 1,328 6% 46% Enterprise Solutions 1,212 1,187 2% % -7% Domestic Wholesale 1,965 1,673 17% 1, % 31% International Carriers Affairs 2,236 2,512-11% 1,140 1,096 1,326 4% -14% International Customers & Networks % % 28% Total revenue of H grew by 16% with an equal YoY growth in Q1 and Q2. Home & Consumer business unit led the growth in revenue contributing 85% to total growth. Data revenue (fixed + mobile in home & enterprise) grew by 45% YoY contributing 66% to total revenue growth. Total employee cost (2,376) (2,168) 10% (1,174) (1,202) (1,160) -2% 1% Call costs (2,093) (2,031) 3% (1,079) (1,015) (1,088) 6% -1% CoGS (excl. above expenses) (1,581) (1,356) 17% (828) (753) (712) 10% 16% S&D (excl. salaries, D&A) (563) (162) 248% (362) (201) (75) 80% 381% G&A (excl. salaries, D&A) (219) (242) -10% (114) (105) (121) 9% -6% Call costs dropped as a percentage of revenue to 21% from 23% last year due to regulatory action limiting illegal bypass. Employee cost dropped to 23% down from 25% of revenue. EBITDA 3,293 2,778 19% 1,787 1,506 1,436 19% 24% Margin 33% 32% 72 bps 33% 31% 31% 195 bps 217 bps Other (expense) / income % (20) 194% -631% Depreciation (937) (765) 23% (494) (443) (392) 12% 26% Amortization (300) (55) 443% (149) (151) (30) -2% 401% EBITDA grew 19% YoY as the growth in revenue outpaced that of expenditure. Effective cost management led to a slightly improved margin despite the increase in S&D expenses resulting from the marketing campaigns for our WE retail brand noting that advertising expenses still represents a minor 3% of revenue. Amortization of mobile network license started in Sept and hence the sharp increase. Depreciation grew 23% YoY as a direct effect from the increased investment in our 4G mobile network and the modernization of the broadband infrastructure in Egypt. Operating profit 2,197 1,981 11% 1, % 26% Margin 22% 23% (97 bps) 23% 20% 22% 356 bps 173 bps Income from investments 874 1,175-26% % 17% Net finance (cost) / income (145) (128) 13% (64) (80) (14) -20% 351% Net interest (expense) / income (418) % (207) (211) 5-2% -3876% Income from Vodafone Egypt dropped by 26% impacted the one-off decline Q Net interest expense rose mainly as it has been capitalized prior to Sept Effective interest rate reached 10.6% in spite of high EGP lending rate due to successful conversion of a portion of debt into lower interest USD loans. Tax (447) (518) -14% (279) (168) (256) 66% 9% Net Profit 2,058 2,520-18% 1, ,229 66% 4% Margin 20% 29% (852 bps) 24% 16% 27% 784 bps (274 bps) EPS % % 4% Net Profit after Tax declined by 18% to total EGP 2.1bn in H1 weighed on by declining net profit in Q1 2018, noting that operating profit grew by 11% YoY and that the decline is mainly non-operational. EPS recorded EGP1.21 for H compared to EGP1.48 in H Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards * EPS excludes employees profit share 10

11 Revising the useful life of fixed assets To align operational use of assets with P&L expenses incurred Total fixed assets of EGP 51.7bn as of FY 17 of which EGP 23.2bn (49%) fully depreciated and still in use TE technical team undertook the following action: 1. Assessing the useful life of all network elements in line with best practice & benchmarking against other countries 2. Study the asset categories in line with telecom industry norms and separate assets based on the underlying components Two decisions were taken based on the recommendations: Increasing the useful life of equipment by an average of 3 years The separation of infrastructure into two parts: 1. fiber cables with the useful life remaining at 25 years 2. Civil works with the useful life increasing to 50 years from 25 years previously (relying on benchmarking analysis of the norm in other countries including the US & New Zealand) P&L savings as a result of the decisions: Total savings of 86mn in Q restatement of depreciation in Q Total savings of 83mn in Q Total annual savings estimated at cegp 350mn of which 25% relate to the increase in the useful life of equipment 75% relate to the separation of infrastructure works 11

12 Operating Profit Q revenue growth outpaces growth in expenditure % ,249 Q2 17 Opearting Profit Revenue COGS Employee Costs SG&A Provisions Depr & Amort. Other Income/Expense Q2 18 Operating Profit Note: All financial figures are in EGP million 12

13 Operating Profit Variance Analysis H (YoY) % 1, ,981 2,197 H1 17 Opearting Profit Revenue COGS Employee Costs SG&A Provisions Depr & Amort. Other Income/Expense H1 18 Operating Profit Note: All financial figures are in EGP million 13

14 3,50 0 3,00 0 2,50 0 2,00 0 1,50 0 1, % 80% 70% 60% 50% 40% 30% 20% 10% 0% 2,00 0 1,80 0 1,60 0 1,40 0 1,20 0 1, % 20% 18% 16% 14% 12% 10% Cash flow analysis Net cash from operating activities 2,484 Normalizing for one-off settlement payment to Etisalat of EGP 919mn 2,614 FCFF 1,748 Normalizing for one-off settlement payment to Etisalat of EGP 919mn 2,165 1,695 1, (395) (883) (891) H H H H H Nor.H Cash capex Capex License Capex/sales H H H H H Nor.H In-service capex Capex Capex/sales 20% 2,878 2,918 17% 16% 1,784 1,672 17% 580 9% 1,324 23% 1,571 25% 36% % % 1,007 1,002 H H H H H H H H H H Note: All financial figures reported are based on Consolidated financials under The Egyptian Accounting Standards. 14

15 Balance sheet highlights FCFE 1,694 2, Normalizing for one-off settlement payment to Etisalat of EGP 919mn 1,648 Breakdown of capex in-service Access Network Transmission International cable Customer care Others 2% 3% 9% % H (438) H H H H H Nor.H % Net debt Total debt Cash Net debt/ EBITDA (Based on annualized EBITDA) 1.3x 4,641 2,484 2,977 2, x -7,026-9,242 Net debt -4,125-2,072-2,586 4,753 8,317 H H H H H x -0.6x -0.8x H H H H H

16 Our performance in context Delivering on guidance across main KPIs H actual FY 2018 guidance Revenue Growth YoY 16% High single to low double digit EBITDA margin (%) 33% Mid to high 20s CAPEX / sales (%) In-service: 17% Cash: 30% In-service: 30-35% 16

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