Du, the smaller of two phone companies in the United Arab Emirates, is restructuring operations and outsourcing jobs as it seeks to boost earnings, Chief Executive Officer Osman Sultan said.
The company formally known as Emirates Integrated Telecommunications Co. (DU) started the reorganization program on Jan. 1, Sultan said in a phone interview with Bloomberg News today. Du is outsourcing roles at some call centers in the company’s information technology department, a move that is unrelated to the restructuring of operations, Sultan said. The outsourcing will continue this year and next, he added.
“We’re entering a new phase in the life of this company, and that requires that the company shapes itself,” Sultan said. Du is on track with its growth plans and “for this we have to do certain things like restructuring operations in the most optimal manner,” he said.
The United Arab Emirates government last month raised royalty fees on Du, prompting speculation its earnings may suffer. The phone company, which derives all of its revenue from the U.A.E., said in May it may seek to expand in Saudi Arabia. Mobile phone penetration in the U.A.E. reached 200 percent in 2010, according to the communications regulator. Du has gained 47 percent of the mobile-phone market share in the second- largest Arab economy since it started operations in 2007.
The purpose of outsourcing is “to leverage on expertise and capabilities built by global players” as the company seeks to improve its earnings before interest, taxes, depreciation, and amortization, Sultan added.
Du’s 2012 net income is expected to rise 47 percent to 1.61 billion dirhams ($438 million) after royalty, according to the mean estimate of eight analysts on Bloomberg. The company’s shares have outpaced its competitor, gaining 21 percent in 2012 compared with a drop of 0.7 percent for Emirates Telecommunications Corp. (ETISALAT), which is listed in Abu Dhabi. Du’s shares fell 0.8 percent to 3.54 dirhams at the close in Dubai today.
The company said it obtained a $100 million loan from Standard Chartered Plc on Jan. 2, the third raised in a month, as it seeks funding to upgrade its network and for capital expenditure. The loans came as the new royalty payment terms stipulated Du will pay 17.5 percent of 2012 profit to the government, in addition to 5 percent of revenue. That’s up from 15 percent of profit and the same amount of revenue a year earlier.
The outsourcing and reorganisation are part of a “strategy to increase profits by reducing cost and expanding product line,” Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities, said. “Over the medium to long term this positive for the company.”
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