e& plans 20% Vodafone stake despite latest profit hit

Reuters/Jumana El Heloueh

• e& upped its holdings in Vodafone to 14.6% in June
• It now plans to increase its stake to 20%
• Profit at the UAE telco was down 3.2% and revenue up just 1.1%

UAE telecom operator e& has proposed to increase its stake in Vodafone, despite blaming its multibillion-dollar investment in its British rival for a drop in half-year net profit.

Hatem Dowidar, e&’s CEO, told CNBC Arabia on Wednesday the telco has submitted an offer to increase its stake in Vodafone to 20 percent.
“We are hopeful to get these approvals in the next 3 or 4 months,” he said.

From early 2022, e& – formerly known as Etisalat – began acquiring shares in Vodafone, steadily upping its stake until it reached 14.6 percent as of May 11, 2023.

This happened despite a sustained decline in the London-listed company’s stock price that has left the UAE operator facing a huge paper loss on its investment. Vodafone’s shares hit a 26-year low in early July.

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Announcing its latest half-year results, e& said it made a net profit of AED4.71 billion ($1.28 billion) in the first six months of 2023.

This was down 3.2 percent from AED4.86 billion a year earlier, in a decline it said was due to the costs of financing its Vodafone share purchases. 

The UAE operator said dividend income from Vodafone would offset its profit decline in the second half of this year. 

E&’s debt repayments totalled AED22.15 billion in the first half of 2023, nearly quadruple its repayments in the prior-year period.  

Muted performance

Even without the finance costs of the Vodafone investment, e&’s first-half performance was muted, with operating profit falling 2.2 percent year-on-year to AED6.53 billion as revenue declined slightly and operating costs rose. 

From a quarterly perspective, e&’s performance was more positive. Its net profit for the three months to June 30 was AED2.52 billion, up 3.8 percent versus a year earlier. 

E& operates in 16 countries in the Middle East, Asia and Africa. Yet its domestic unit remains its most important and most profitable, providing 59.9 percent of the group’s second-quarter revenue of AED13.61 billion despite the UAE representing only 8.4 percent of its total subscriber base of 165 million.  

“E&’s performance during the first half of the year reinforces the resilience of our business model despite the challenging global macroeconomic environment,” Jassem Mohamed Obaid Bu Ataba Alzaabi, chairman, e&, said in a statement. 

The company’s board has approved an interim dividend at AED 0.4 per share for the first half of 2023.

E&’s shares were up 0.5 percent at AED 22.52 as of 0929 GMT, but are down around 42 percent from an April 2022 peak.

Subscribers up 3%

The aggregate subscriber base reached 165 million in Q2 2023, up three percent year on year, reaching the highest number of subscribers in the group’s history. Capital expenditure grew six percent to AED1.6 billion in the second quarter.

The telco’s revenue grew 1.1 percent to AED26.62 billion in the first half from AED26.33 billion a year earlier.

In the UAE, e& recorded 13.9 million subscribers, an increase of 5.1 percent year on year. Ebitda and net profit margins remained strong at 51 and 26 percent, respectively, during the first half in the Emirates due to the focus on profitable revenue growth and operational efficiency.

Dowidar added that the positive performance was driven by its core businesses and new business verticals, which have seen an increase in demand domestically and internationally.

The company’s board has approved an interim dividend at 40 fils per share for the first half.  

E& recently signed an agreement with Uber’s UAE-based subsidiary Careem to buy a majority stake in Careem’s so-called super app for $400 million.

Expansion into Europe

E& has agreed to pay €2.15 billion ($2.36 billion) to purchase a 50 percent plus one share stake in Czechia-based PPF Group’s telecom assets in Bulgaria, Hungary, Serbia and Slovakia.

The UAE telco may pay up to a further €350 million within three years after the deal is completed should PPF exceed certain financial targets.

In addition, PPF has a put option for its remaining stake, which can be exercised five years after closing. e& will have a reciprocal call option.

The transaction is expected to close in or before the first quarter of 2024 and is subject to regulatory approvals.

Both companies said they would retain the current PPF Telecom CEO Balesh Sharmaand.

In addition, e& capital, the network’s investment arm, this week announced it was part of the $60 million fundraising by Airalo.

The US-based tech firm is the world’s first online esim store, offering digital sim cards that are downloaded and mainly used by mobile phone users roaming in over 200 countries.