Financial and Subscriber Highlights
- Gross Revenues of BD228m ($605m ) for the period;
- EBITDA of BD73m ($194m) representing a 32% margin; Adjusted EBITDA normalized for one-offs was BD84m ($223m) at 36%;
- Consolidated Net Profit of BD43m ($114m); Adjusted Net Profit normalised for one-offs was BD54m ($143m);
- Group's total customer base increases to 7.4 million, an increase of 5% QoQ;
- Continued strong uptake of 3G services by Umniah, the Group's Jordanian subsidiary since launch in June;
- Ongoing diversification of Group revenues with 40% of revenues and 38% of EBITDA now sourced from markets outside Bahrain; and
- Low debt and substantial cash and bank balance of BD87m ($231m).
For the nine-month period, the Group reported Net Profit of BD43m ($114m) versus BD57m ($151m) for the corresponding period in 2011, a decrease of 25%. Reported EBITDA for the period was BD73m ($194m), representing a 32% margin, compared to EBITDA of BD93m ($247m) for the previous year.
The decline was attributed to aggressive competitive conditions in Bahrain, good leadership of our restructuring programme and a number of one-off adjustments. Specifically, we experienced a 12% drop in gross revenues versus the previous year in our home market due to increased competition and lower tariffs.
Redundancy payments for a higher number of employees and an adjustment of mobile data revenues contributed to the low Quarter 3 profit result. Normalised for the above items, the adjusted EBITDA was BD84m ($223m) with an EBITDA margin of 36%, commensurate with prior periods.
The Group's Gross Revenue for the period stood at BD228m ($605m) versus BD245m ($650m) year over year. Operating Profit for the nine-months of 2012 was BD47m ($125m) versus BD65m ($172m) for the corresponding period in 2011. In line with ongoing efforts to diversify revenues and maximise investments, the Group continued to see an increasing contribution from overseas markets. At the end of the period, 40% of revenues and 38% of EBITDA was attributable to the Group's operations outside of Bahrain.
The Group's balance sheet remained strong. As of 30 September 2012, there was low debt at BD27m ($72m) and substantial cash and bank balances of BD87m ($231m). This includes the impact of the interim dividend (15 fils per share) announced and paid during the quarter as well as significant investments made in overseas operations at the start of the year. Earnings per share for the period stood at 29.6 fils.
Batelco Chairman, Shaikh Hamad Bin Abdulla Al Khalifa, announced the results following a meeting of the Board of Directors at Batelco Group Headquarters, stating: "The first nine months of the year continued to be marked by consistently strong cash generation and growing customer numbers across the Group. A number of one-off adjustments resulted in more pronounced decreases than would otherwise have been the case. Still, margins are healthy and these one-off charges help position the Group in executing its strategy of revenue enhancement, cost optimisation and achieving scale. The Group continues to generate strong cash flows and underlying profits, well in line with the industry, and shareholder returns, which remain among the strongest in the region despite substantial competitive pressures in Bahrain and across the MENA markets."
Shaikh Hamad added: "Throughout the period, we remain focused on further building the business and our customer base. We've made great progress in this regard and are pleased to announce three consecutive quarters of overall subscriber growth, following the announcement of the sale of our stake in India. We've seen a 5% increase since last quarter and an impressive 12% gain in the Group's subscriber base, when normalised for STel, since Q4 2011. This brings us to 7.4 million users today and growing."
"We continue to look at ways to further build our position in the MENA region and other regional markets. We have a strong balance sheet and cash position which we are working actively to put to use. Scale is essential for stabilizing and growing revenues as well as in achieving greater efficiencies. While seeking both organic growth and acquisitions, we are also implementing initiatives aimed at maximising synergies across our existing businesses. This includes rationalizing costs while simultaneously optimising operations and service in the interest of customers and shareholders alike. Some of these initiatives have impacted results for this period, but will help to streamline operations and costs as we go forward. We have launched a restructuring programme that will generate BD20m of cost savings annually from 2014 onwards, essentially in Bahrain where ever increasing competition in what has become a mature mobile market, has strengthened both the need and our focus on innovation and efficiency."
Recent Operational Highlights
For the nine-month period, the Group's operating performance remained steady. Commenting on the highlights for the period, Group CEO, Shaikh Mohamed bin Isa Al Khalifa, said: "Across the Group, our focus has been on enhancing competitiveness in our home market, Bahrain, and at our subsidiary companies. This has meant both ensuring we remained as innovative as possible in our approach to serving our customers as well as in the manner in which we manage our operations."
He added: "For us, one strong measure of success has been the growth we have achieved in our subscriber base since the start of the year. We've seen a 12% growth in customer numbers for the nine month period, bringing us to 7.4 million users across the Group. We are especially pleased to have achieved growth during the summer months and Ramadan period, where subscriber renewal and activity has historically been lower.
"In Bahrain, where competition is robust, we have maintained our leadership. Overseas, advancements have also been made. In Jordan, customer response to the launch of Umniah's 3.75G services in late June has exceeded expectations. Similarly, Yemen has turned a corner with normalizing conditions in the country and the resulting resumption of growth at the company."
Mobile and Broadband Segments
Mobile subscriber numbers grew 4% on a quarter-over-quarter basis but recorded a decline of 5% year over year. This decrease when compared to the corresponding period in 2011 is largely due to tough and ongoing competition in Bahrain and the rationalization of the customer base in Yemen, which took place in the first quarter of 2012. However, gains made over the last three quarters reflect positive upward trends in Jordan and Yemen, which are expected to continue, as well as success in Bahrain in protecting market share, including in the high value segment.
Broadband customers for the period increased by 21% quarter over quarter and showed a healthy 31% increase on year-over-year basis and 28% since the start of 2012.
Highlights from Overseas Operations
Contributing to overall Group subscriber growth was healthy performance throughout the period from key subsidiaries where the value of the Group's investments abroad have been delivering returns.
Jordan: Further growth was again reported by Umniah, the Group's 96% owned subsidiary in Jordan, where its successful 3.75G services launch in mid-June 2012 has delivered strong results. Customer response continues to exceed expected demand for the service. Since June nearly 67,000 new subscribers have been added, bringing the Group's total subscriber base in Jordan to nearly 2.4 million customers. This has supported stable growth year over year and a 2% increase since the end of the second quarter. Even greater uptake of the service is expected throughout the remainder of 2012 with continued nationwide rollout.
Similarly positive results were reported by Umniah for broadband subscribers. The company posted a strong increase of 308% compared to the corresponding 2011 period and a 283% rise since the start of the year. Further expansion of 3G and WiMax by Umniah will continue to support the growth of the company's broadband customer base going forward.
Kuwait: Batelco's subsidiary Qualitynet, which delivers total ICT solutions to the Kuwait market, maintained market leadership and steady subscriber numbers for the first nine months of 2012 when compared to the 2011 period and quarter over quarter. This totalled approximately 40,000 users of the company's Data Communications and Internet Services.
Other JVs: Sabafon (Yemen), in which the Group has a minority shareholding, showed growth again this quarter with subscriber numbers reaching more than 3.8 million users. It has reported growth of 22% since the start of the year and 7% since last quarter. Year over year, however, customer numbers were down by 8% as a result of revisions to the customer base which have been noted and were undertaken during the first quarter of 2012 in order to exclude non-active sim cards. These declines have now been reversed and further stabilization in the country will continue to support a return to historical growth levels for the company throughout the remainder of the year.
Atheeb (Saudi Arabia), in which Batelco holds a 15% stake, reported an 11% decline in voice and data services customers for the first nine months of the year when compared to the corresponding 2011 period, however, numbers remained steady on a quarter-over-quarter basis. Not only has this allowed Atheeb to build a solid subscriber base of more than 102,000 users, it has also enabled the company to increase its revenues as higher value business customers come to constitute a greater proportion of its client base.
Continued Market Leadership & Innovation in Bahrain.
"Efforts to innovate and our continued focus on maximising customer experience and satisfaction have enabled Batelco to maintain our market leadership in the Kingdom across the full spectrum of communications services. This is despite the highly competitive nature of the market and a restrictive regulatory environment, which continues to impact growth," noted Shaikh Mohamed.
At the end of the third quarter, Batelco maintained a strong 42% share of the mobile market. Whilst this reflected a decrease of 9% when compared to the previous year period, the operation witnessed 64% year-on-year growth in mobile broadband subscribers. The growth in mobile broadband subscribers was consistent with previous trends and supported by ongoing services upgrades which continue to make the company's service faster and more reliable.
Demand for fixed services, conversely, decreased during the quarter. Fixed broadband and fixed line subscriber numbers reduced by 12% and 6%, respectively, year over year whilst remaining relatively stable since last quarter. These results are in line with industry trends, particularly in the MENA region where users continue to migrate from fixed broadband and telephony to wireless and mobile technologies.
"Due to the nature of the market in Bahrain, we have naturally been unable to achieve growth in absolute numbers in the mobile market.
Nevertheless, we are focused on retaining our high value business and residential mobile and data customers. We've done a solid job of this and are particularly pleased with the exponential growth we've achieved in mobile data subscribers. The same holds true for wireless broadband, where we continue to report strong increases quarter after quarter. As we've said, success for us can only be achieved through innovation, which we remain fully committed to," added Shaikh Mohammed.
In this regard, Batelco launched a number of new innovations during the third quarer. The company announced its state-of-the-art Customer Experience Centre, the first of its kind in Bahrain. Located at its Hamala Headquarters, the facility is designed to give business customers the opportunity to experience the latest communication and ICT products and services offered by Batelco. Staffed by a team of experienced consultants, customers can obtain advice on the best and broadest range of customized, integreated solutions to meet their business requirements.
Another innovation during the period was the introduction of its cloud service 'IMaaS', a software as a service (SaaS) platform that enables organisations to build business decisions on unique insights into the value and impact of their core infrastructure (i.e. routers, firewalls, switch, servers etc.) IMaaS, available exclusively from Batelco, is one of the first cloud based services launched in the Kingdom, and is one of many cloud initiatives which will be carried out by Batelco in the near future.
Other key initiatives of the third quarter were the continued introduction of new service upgrades, price reductions, offers and promotions both for postpaid and prepaid mobile and broadband subscribers. Batelco Business customers benefitted from discounts on their Broadband packages, and additionally the cost of Batelco's Fixed IP service was discounted by 50% representing great value for money.
At the same time, new Broadband packages, Business Light Packages, offering the ideal solution for small businesses with basic Broadband requirements were also introduced. New packages were made available, all delivering unlimited threshold with high speeds and low prices in addition to other advantages.
Innovation at the company and indeed across the Group is driven by its highly skilled teams and management. In recognition of excellence, four of its senior executives were included in CommsMEA's list of the top 50 female executives of the region. Batelco's HR Division also continued to take top honours, having been presented with the annual GCC Human Capital Award for Best Performance Management Strategy at the 4th Annual GCC HR Excellence Awards 2012. These awards reward organisations and individuals based on innovative approaches to HR and talent management.
Continued Community Engagement
Corporate Social Responsibility also continued to be a major focus for Batelco. Throughout the quarter, the company continued assisting local charitable organisations across the community. New funding was extended to a number of causes including support for the elderly, healthcare, education and sport. To date this year, Batelco has pledged more than BD2.7m in support and over all continues to make significant contributions to more than 35 different charities in Bahrain.
Business & Financial Outlook
Concluding, Shaikh Mohamed said: "We have ended the third quarter with a growing customer base and strong cashflows but lower than expected profit results. We will continue to transform our operations to ensure we become as efficient an organisation as possible. Our restructuring programme at Batelco Bahrain will drive savings of BD20m annually from 2014 onwards and will allow a better alignment of our cost structure to the competitive environment. We will continue to look for acquisitions of complementary businesses which will add scale, maximise synergies and grow our revenue base."