Telecom operator du has proposed its first dividend payment to shareholders after accepting a "fair and reasonable" increase in royalty payments to the UAE Federal Government.
Du, which posted a robust set of financials on Tuesday, said its net profit before royalty grew by 47.8 per cent to Dh1.8 billion in 2011, leading the company to propose a dividend of 15 fils per share.
However, du also had to take into account the Government's new royalty structure, which will see the company pay over 15 per cent of its 2011 net profit, along with a further five per cent of revenues.
Du will make the Dh715 million payment in 12 monthly instalments starting in April. The telco paid royalties of Dh184 million in 2010.
This was a sovereign decision. The government estimated this was a fair and reasonable royalty in this phase of du's life. We respect the decision and abide by it," said Othman Sultan, du's chief executive officer.
"[In terms of the five per cent royalty on revenues] it happens although it is not very frequent. It is something that is absolutely at their [the Government's] discretion."
Du's net profit after royalty stood at Dh1.1 billion, up from Dh1 billion in 2010. Revenues increased 25.2 per cent to Dh8.9 billion while free cash flow reached Dh1.4 billion, up from Dh36 million in 2010.
Share price fall
In the fourth quarter, 278,100 mobile customers were added, bringing du's total mobile customer base to 5.2 million. Du's share price fell 1.89 per cent to Dh3.12 on the Dubai Financial Market on Tuesday following the announcement.
"Du's board decision to announce a dividend payout is a strategic step which creates significant shareholder value creation," said Hassan Sandila, a telecommunications analyst at IDC Middle East Turkey and Africa.
"The decision to pay out dividends implies that du is in a relatively comfortable cash position, as evident from its sharp increase in free cash flows now reaching Dh1.4 billion."
Last month, rival operator etisalat proposed a 60 fils per share dividend for 2011 after posting a 23.4 per cent fall in full-year net profit, which was hit by the telco's decision to write-off the value of its Indian operations.
Du's decision to pay out a dividend so early has caught analysts by surprise.
"Du is doing very well operationally and in terms of paying out a dividend, it actually happened a year before most analysts were expecting," said Ebrahim Masoud, senior investment officer at Mashreq bank.
"The company's actual cash generation is very strong and it was not just a token dividend; it was a decent payout. The UAE is a rich market and a good proxy of economic growth; a lot of tourist and business traffic passes through the country."
No expansion plans
Du expects to spend around Dh1.2 billion in 2012 but has no immediate plans to expand beyond its home market, the company's chief executive officer said yesterday. Othman Sultan said du still had value to offer the UAE including the roll-out of its high-speed fourth-generation (4G) long-term evolution (LTE) network.
"We spent Dh1.29 billion in 2011 and [our spending] this year will be in the same range," he said. "Regarding LTE, this is happening; if not in the second quarter, it will be the third quarter."