February 19, 2013 / 11:46 AM / 5 years ago

UPDATE 2-UAE telco du drops Saudi expansion as profit surges

* Q4 profit 994 mln dirhams vs 440 mln dirhams a yr ago

* Q4 revenue 2.74 bln dirhams vs 2.4 bln dirhams a yr ago

* Proposes cash dividend of 30 fils per share

* Shares surge to four-year high on results (Recasts, adds CEO comments, details)

By Matt Smith

DUBAI, Feb 19 - Du, the United Arab Emirates’ No. 2 telecom operator, beat quarterly profit forecasts, helped by a buoyant local economy, and said it was dropping plans to expand into Saudi Arabia because it would need to find a partner.

Chief executive Osman Sultan said on Tuesday du did not meet the criteria to bid for one of three so-called mobile virtual network operator (MVNO) licences for sale in Saudi Arabia.

“We wouldn’t qualify directly (and) going there through some kind of partnership would make the financial equation less interesting,” he told reporters. “I don’t see us going into regional expansion at least in the coming two years in the traditional way, which is new licences.”

MVNOs lease capacity from conventional mobile operators and pay a percentage of their revenue to them, as well as fees.

Dubai-based du had hoped to expand beyond its UAE base as mobile penetration growth stagnated, but with the country’s economy buoyant this now appears less of a priority.

The UAE government has estimated GDP grew around 4 percent in 2012, while it attracted 30 billion dirhams ($8.2 billion) of direct foreign investment last year.

Du said its fourth-quarter net profit more than doubled after it wrote back tax provisions. Its per-customer revenue also rose and its mobile subscriber base increased by nearly a quarter from a year earlier.

Sultan said du’s 2013 capital expenditure would be roughly the same as last year’s 1.7 billion dirhams, with the money to be spent on expanding and improving its mobile network and broader infrastructure.


Du, which ended rival Etisalat’s domestic monopoly in 2007, made net profit of 994 million dirhams in the three months to Dec. 31, up from 440 million dirhams in the year-earlier period. Analysts had on average forecast a profit of 809.7 million dirhams, in a Reuters poll.

Du’s shares surged 11.7 percent to their highest close since November 2008.

Fourth-quarter revenue was 2.74 billion dirhams. This compares with 2.4 billion dirhams a year earlier.

UAE telecom operators are taxed via royalties under licenses from the federal government. The latter announced a new formula in December that includes a levy on revenues as well as profits.

Du had expected to pay 50 percent of its profit in royalty fees through the year, the same rate as the longer-established Etisalat. But the new formula means it pays less tax as a percentage of profit than 2011, enabling it to write back some of the provisions it set aside in the first nine months of 2012.

Du proposed a cash dividend of 30 fils per share.

The operator had 6.46 million mobile subscribers as of Dec. 31, up from 5.2 million a year earlier, giving it a market share of 48.7 percent. Average revenue per user rose to 117 dirhams in the quarter from 110 dirhams in the third quarter.

The company has sought to sign up more mobile customers to monthly, or post-paid, contracts, with these customers typically spending more and being less likely to switch provider.

Post-paid subscribers accounted for about a quarter of du’s fourth-quarter mobile revenue of 2.18 billion dirhams, but less than a tenth of subscribers.

$1 = 3.6730 UAE dirhams Reporting by Matt Smith; Editing by Amran Abocar and Mark Potter

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