Etisalat Q2 earnings miss analyst forecasts on higher FX losses

In its expanded earnings report, Etisalat, the UAE's biggest telecom operator, said it posted a 15.2 per cent decline in second quarter net profit, missing analyst forecasts, owing to higher impairments and foreign exchange losses.
Net profit attributable to equity holders in the three months ended June 30 reached Dh1.96 billion (US$533 million) compared with Dh2.31bn in a year earlier period.
Revenue declined 3.7 per cent to Dh12.83bn from Dh13.32bn in a year earlier period, mainly due to the depreciation of the Egyptian pound.
Bahrain investment bank Sico had forecast a second quarter net profit of Dh2.19bn and Egyptian investment bank EGFG Hermes had projected a net profit of Dh2.2bn.
The operator booked a foreign exchange loss of Dh267m in the second quarter versus a gain of Dh32m in a year earlier period. Impairments and other losses reached Dh185m versus Dh22m in a same time last year.
Etisalat attributed the lower profits to "higher impairment losses from associates and incurring forex losses during the period as compared to forex gain in the same period of last year mainly due to appreciation of Euro against the USD and EGP (Egyptian pound) devaluation."
The Egyptian pound has lost about half of its value since its floatation in November last year, denting revenue in the North African country, which fell 46 per cent year-on-year in the second quarter.
Higher forex losses are to blame for Etisalat missing forecasts, analysts said. 
"I don't think the pound is going to appreciate any time soon," said Omar Maher, an analyst with EFG Hermes. "It is almost sure we will see the same level of revenue and margins and profitability form Egypt going forward."
The UAE operations, which account for 62 per cent of revenue, remains one bright spot for Etisalat. UAE revenue rose 1 per cent year-on-year to Dh7.8bn as the company focused on mobile data and its home entertainment e-Life segment. In contrast, international revenue fell 11 per cent to Dh4.9 billion owing to forex issues in Egypt and competition from the mobile segment in Morocco and fixed line in Pakistan.
"Etisalat group's geographic footprint expands across the Middle East, Africa and Asia, witnessing various opportunities and challenges in each market that are governed by specific economic conditions," said chief executive Saleh Al Abdooli. "Some of these markets witnessed marcoeconomic challenges that imposed limitations on investments and future growth."
The UAE subscriber base grew 2 per cent to 12.4 million, compared with 0.7 per cent decline in total group's subscriber numbers to 139 million.
"The continuing loss from Mobily, Egyptian currency impact in FY17, regulatory issues in Maroc Telecom's Morocoo operations are key challenging areas for Etisalat," said Nishit Lakhotia, an analyst with Sico.
Mobily, Saudi Arabia's second biggest telecom operator in which Etisalat is a major shareholder, reported a second quarter net loss of 189.7m Saudi riyals (Dh185.8m), missing analysts' average forecast for a loss of 166m riyals.
"My expectation is that Mobily will continue to make losses so this obviously will have a negative impact on Etisalat's overall bottom line," said Mr Maher. "Given that the market is more stable in the UAE versus the other international operations, I do think that the UAE is going to be the driver for profitability going forward."