With nearly Rs200 billion in revenues under its belt, Pakistan Mobile Communications Limited (Jazz) closed CY20 on a note of profitable growth, as per the latest financial results released last week by Veon, the parent company of Jazz. The local telecom sector was already under a cloud before the pandemic hit, with varying effects on individual operators. The coronavirus posed new set of challenges for all, but it appears that Jazz, the market leader, was able to better navigate a difficult year compared to its rivals.

But it wasn't an easy journey after all. Jazz operating revenues grew by just one percent in CY20 – this is the slowest annual growth for the operator in recent years. In real terms, adjusting for inflation, this counts as negative growth or decline in topline. The sales-related weaknesses in the first half were allayed in the second half of the year. On a yearly basis, the topline had declined by 2 percent in 1QCY20 and by 8 percent in 2QCY20 – revenues had improved by 12 percent in 3QCY20 and by 4 percent in 4QCY20.

But the key indicator of Average Revenue per User (ARPU) continues to struggle. The latest quarterly ARPU of Rs241 per month is well below the recent high of Rs272 per month that was seen in early 2019. ARPU was down in latest quarter by 7 percent year-on-year, something which the HQ has attributed to “administration fee adjustment in Q4 2019 and overall softness in revenues due to the impact of COVID-19”. Mobile broadband revenues and digital financial services (DFS), however, continued to offer support.

Jazz’s mobile data revenues have been growing well in excess of 20 percent year-on-year in recent quarters. There is strong growth in 4G user base, as overall data users reached 44 million by December 2020 end, reflecting 13 percent annual growth. No wonder data consumption continued to expand significantly. Meanwhile, JazzCash in the DFS segment was affected by regulatory waiver of transaction fees, but user base (in terms of wallet registrations and activity) continued to expand in high double digits.

In contrast with the paltry topline increase in the year under review, the Jazz Ebitda grew by 7 percent year-on-year in CY20 to settle near the Rs100 billion mark. This impressive Ebitda margin of 50 percent – which is the highest in recent years – owes in part to cost savings during the year. In recent quarters, after scoring a high of 62 percent in 3QCY20, Ebitda margin was down to 44 percent in 4QCY20. This has been attributed by Veon to a couple of one-off accounting adjustments relating to prior years.

Despite tough operational conditions last year, Jazz was able to dish out Rs40 billion under operational capex, a figure that is a quarter more than what it had spent under this head in CY19 as well as highest in recent years. The operator is pumping money in line with its focus on expanding and improving its 4G network so that the user base increasingly tilts towards better-paying subscribers. As per Veon, Jazz 4G network had grown to cover 59 percent of population by 2020 end, up from 52 percent by 2019 end.

Recall that the leading operator had a nasty run-in with tax authorities in late October last year, but Veon continued to pour capex into this market in 4QCY20 – a signal that it had moved on. A final resolution of license renewal saga may help heal investor confidence. Be that as it may, the healthy 2020 financial close may help Jazz in cementing its leadership position in 2021, as there is optimism that economy will rebound and normalcy will continue to accrue with gradual decrease in virulence of Covid-19.


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