Du extends earnings slump as government royalties, mobile revenue decline hit Q2 results

Du had disconnected more than 10 per cent of its active base at the beginning of last year, some of them heavy users, hitting profitability.

Du disconnected more than 10 per cent of its active mobile subscriber base at the beginning of last year. Sarah Dea / The National

Weaker mobile revenues and a rise in royalties paid to the government hit profit at du, the UAE's second telecoms operator.

It posted an 11.3 per cent decline in its second-quarter net profit, the Dubai-listed operator said yesterday.

Net profit in the three months ending June 30 after royalty dropped to Dh445.4 million from Dh502m a year earlier, as year-on-year royalty increased Dh47.8m.

Revenue for the last quarter was nearly flat at Dh3.07 billion, a 0.8 per cent decline from Dh3.09bn a year earlier. Mobile revenue reached Dh2.1bn, a 2.8 per cent drop from Dh2.23bn a year earlier, even though mobile subscription grew 10 per cent to 8.1 million.

Fixed line revenue decreased by 0.5 per cent to Dh646.7m compared to Dh649.8m a year earlier.

This is the sixth consecutive quarter of profit decline for du.

Osman Sultan, du’s chief executive, attributed the mobile revenue decline to fewer pre-paid accounts. The phone company disconnected more than 10 per cent of its active base at the beginning of last year, some of them heavy users, hitting profitability, he said.

“We know that our challenge is to be able to refigure growth in the mobile revenue with the prepaid segment,” said Mr Sultan on a media conference call.

The earnings were in line with projections from EFG Hermes of Egypt, but missed forecasts from Sico Bahrain.

Du’s average revenue per user (Arpu) – a key industry indicator – dropped 12 per cent year-on-year to Dh82m in the second quarter, according to Nishit Lakhotia, an analyst at Sico.

“The ongoing trend of declining Arpu is a concern,” said Mr Lakhotia. “Also, we hope [the] royalty rate and mechanism will remain [the] same as 2016 from 2017 and onwards. Any deviation there will directly affect the earnings.”

Mr Sultan said du has not been told by the government if there will be an increase in royalty next year.

“One inference is that du should step up its efforts to expand in the fixed market and also perhaps other new sectors that could represent growth opportunities,” said Matthew Reed, a Dubai-based analyst with consultancy Ovum.

Mr Sultan said the company is exploring new investments in IT and managed services and could partner with companies on such projects.

“They [the investments] can as well take the form of partnering with exiting players,” said Mr Sultan. “[It] could take the form of either organic or inorganic growth.”

Du is recommending a dividend for the first half of 13 fils per share, in line with same period last year.

Abu Dhabi-listed telco Etisalat reported last week a 51 per cent rise in second-quarter net profit, mainly on the back of lower costs and forex exchange gains.

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