Etisalat fails to hit target despite rise in profits

Etisalat was hit by a bigger slowdown in growth than expected last year, causing the national telecommunications company to fall short of annual profit forecasts. The company made a profit of Dh8.84 billion (US$2.4bn) last year, an increase of 3.6 per cent on 2008. Revenues rose by 5 per cent to Dh30.8bn. However, profit excluding Dh892 million of exceptional income earned in 2008, through the sale of a stake in its Saudi subsidiary, was up by 16 per cent.

Despite the modest rise in sales and earnings, Etisalat's annual profits were lower than expected by most analysts. Christian Kern, a telecoms analyst for the US investment bank JP Morgan Chase, forecast the company would report revenues of Dh29.7bn and net profits of Dh9.09bn. Kunal Bajaj, the telecoms analyst for HSBC, forecast Etisalat would report Dh29.97bn in revenue and Dh9.4bn in net profits.

While analysts predicted Etisalat's subscriber base in the UAE would remain flat or decrease, due to a decline in the region's population, the company said it added 464,000 customers for the year, with 300,000 of those in the final quarter. The du network, Etisalat's only competitor, also reported strong subscriber growth last year, suggesting that worst-case predictions of a population decline might need rethinking.

"The story is basically yes, the UAE has slowed down. That's a given. But revenue growth is still coming on strong," said Irfan Ellam, the telecoms analyst for Al Mal Capital. He believes the company's growth prospects now come mainly from its international division, which operates in 17 overseas markets. "The company is well positioned in terms of the Dh10bn on its balance sheet and can raise debt easily," he said. "Where's the growth? The company can afford to leverage up and buy assets internationally."

Etisalat is expected to release detailed annual results on February 25, while du is expected to release its fourth-quarter earnings later this month. Some analysts say Etisalat's earnings could be squeezed next year following a proposal by the federal telecoms regulator to loosen price controls, which would allow Etisalat and du to engage in more vigorous price competition, but could shrink margins in the process.

Internationally, the company plans to launch its mobile network in India later this year. India's Economic Times reported yesterday the government had deferred a decision on Etisalat's proposal, which involves a joint venture with an Indian property group. The department of revenue opposes Etisalat's proposal, the newspaper reported. @Email:[e-mail] [e-mail]