MobiNil’s Q1’09 profit down despite increase in revenue: our opinion

Egyptian mobile operator Egyptian Company for Mobile Services (MobiNil) has reported net profit at EGP424 million (USD75.8 million) for the three months ended 31 March 2009, down 6.1% on the same period a year earlier.

Higher interest costs and imputed interest amounts relating to 3G installment payments were cited as major factors in the decline. Revenue for the operator rose by 10% year-on-year to EGP2.49 billion, while earnings before interest, tax, depreciation and amortization (EBITDA) also rose by 21% to EGP1.21 billion. MobiNil’s subscribers were up by 31% year-on-year to 21.179 million, although the operator did reveal that blended average revenue per user (ARPU) had fallen 16% y-o-y to EGP39 per month.

It seems to us that the company delivers the message that it continues in maintaining growth rate (the company’s still maintains its profitability) in the current tough economic circumstances, while they don’t unveil info about the future. In our position, the performance of MobiNil has been good and Mr. Kabbani should be congratulated for this, as it hasn’t been easy to reach these levels in such an adverse market situation. Having said this, MobiNil has to look and move forward.

Moving forward for us mean addressing the hot challenges that can contribute in maintaining current growth trend. In our opinion there are three important challenges that MobiNil has to address in the next two quarters:

CHALLENGE 1: ARPU erosion and pricing inelasticity

• The continuous decreasing of prices has not been compensated by usage stimulation within the base
• The ARPU dilution has been increasing (compared with previous quarters) as a result of the incorporation of low-value subscribers to the prepaid segment
• The postpaid price has decreased to reduce the gap with prepaid prices. This has been done to fight against the huge positioning of the competitors in this segment but we come to a point where there’s not much elasticity left.

CHALLENGE 2: Lost of value in the subscribers base

• There has been a clear worsening of the subscribers base mix that has contributed to…
• … increase the de-positioning in prepaid high-value segments.
• On top, there has been a churn increase in the last quarters that unveil a clear need to define a clear positioning to improve the competitiveness of retention and loyalty strategy.

CHALLENGE 3: Drop of postpaid subscribers

• MobiNil has a lack of competitiveness of retention and loyalty strategy. Clear measures have to be undertaken in the next quarters to increase the lifetime of the valuable clients.
• High impact of postpaid to prepaid migrations. The competitors are winning the postpaid segment battle. This might be an issue of the mid term as there’s still room for growth in the market but, as this segment means a hug weight in revenues, specific actions should be launched to manage this.

Please take a look at our detailed assessment on the results. Please understand this assessment as an opinion of mmC Group and therefore, do not necessarily state or reflect the positioning or opinion of the MobiNil’s executives. We are not that far misaligned I think…

Best regards, CVA

P.S. Mobinil’s 1Q results can be found here: http://www.mobinil.com/investors/performance/reports/Q1_2009EarningsRelease.pdf