Revenues of the two major telecoms providers of the UAE have been affected due to movement restrictions imposed fight COVID-19, but demand for data remains high as customers work remotely and seek entertainment at home, prompting both companies to pace up their digital transformation.

Etisalat Group’s profits increased year on year for the first half of 2020, by three percent to 4.6 billion dirhams. While du’s net income for H1 2020 fell significantly year on year from 905 million dirhams to 570 million dirhams, its Board of Directors approved the distribution to shareholders of an interim dividend of 589 million dirhams, equivalent to an interim dividend per share of 0.13 dirhams.

du’s revenue fell year on year to the second quarter of 2020, but the company pledged to continue its investment in digital transformation, saying that it had increased capex spending by 75 percent, and said there had been an increase in fixed subscribers.

Etisalat Group also revealed falling revenue from Q2 2019 to Q2 2020, but said cost optimisation had minimised top line impact.

The group, which has a total of 148 million subscribers across 16 countries, revealed a reduction in Etisalat subscribers in the UAE, by five percent quarter on quarter to 11.8 million. However there was a nine percent year over year increase to 68.4 million subscribers to the group’s Maroc Telecom, which covers territories including Burkina Faso, Morocco, Ivory Coast, Mali and Niger.

Despite the challenges, both of the UAE’s two major providers posted upbeat second quarter reports, a tone that was echoed in S&P Global Ratings’ Industry Report Card, which highlighted strong telecoms balance sheets.

2020 Outlook

“We expect weaker forecasts (namely topline declines in the low single digits) for 2020, on the back of a weaker macroeconomic picture in key markets related to COVID-19, oil price declines, and pressure on higher value segments roaming,” the S&P report card said.

“In addition, we see increasing competition (mobile penetration exceeding 200 percent in most domestic markets) and currency fluctuations for some operators with an international footprint. Even so, we continue to expect S&P Global Ratings-adjusted margins for rated telecom players will remain at 38 percent to 40 percent on average over the next two to three years, since they benefit from dominant positions in domestic markets, especially in high-value segments such as post-paid and corporates.”

du announced a revenue of 2.7 billion dirhams in Q2 2020, down from 3.2 billion dirhams for the same period in 2019 but pledged to accelerate a transformation programme to sustain long-term value creation.

du’s revenues and net income were impacted by movement restrictions, reduced business activity and change in customer behaviour due to the Covid-19 pandemic.

Johan Dennelind, du CEO, said: “Financially, we have seen, as expected, a severe negative impact on our business coming mainly from mobile revenues, as we are structurally more exposed to the prepaid sector and from “other revenues” due to the lockdown and travel restrictions.

“However, our fixed business continued to grow, boosted by the increase in demand for home connectivity. Consequently, for the first half of the year, we reported revenues of 5.66 billion dirhams and a net income of 570 million dirhams, down year on year, reflecting the unprecedented market conditions and the significant contraction in the economic activity.”

In a H2 2020 highlights report to ADX, Etisalat Group said it had upgraded its network capacity to accommodate increasing data traffic and provide more online services to support business continuity, and to account for higher demand in all sectors, including education.

The highlights report also explained the COVID-19 lockdown measures impact on its operations: “This impacted the way we conduct our business and put pressure on our revenue as a result of store closure, affecting the mobile prepaid segment and handset sales in addition to the loss of roaming revenue due to the travel ban and additional provisions related to trade receivables and contract assets,” the report said.

“In response, Etisalat Group was agile in implementing cost optimisation initiatives aimed at reducing costs and minimising the impact of top-line pressure.”

Digital Transformation

Both companies highlighted their investment in accelerating digital transformation as a result of the global pandemic.

Chaiman of du, Mohamed Hadi Al Hussaini, said: “Despite a challenging environment that adversely impacted our results for the quarter we continued our transformation programme, particularly on the digital front, and we remain committed to continue investing in our business to sustain long-term value creation. Our capex spend for the half year period was up by 75.3% to 819 million dirhams, equivalent to 14.5% of our half year revenues.”

Etisalat Group meanwhile reported a consolidated capital spend of 1.5 billion dirhams in Q2 2020, up six percent on the previous year.

S&P’s analysis of telecoms in the region concluded: “Despite macroeconomic headwinds and weaker purchasing power, we expect data demand will continue increasing.

“In addition to supportive regional demographics – high disposable income, a young population, and increased reliance on social media and over-the-top services – we view governments' focus on transformation and information communication technology (ICT)-led initiatives across the GCC as a key driver for network modernisation and technology ramp-up.”

(Writing by Imogen Lillywhite; editing by Seban Scaria)

(imogen.lillywhite@refinitiv.com)

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