e& 2024 Revenue Soars but Profit Crumbles as Regulatory Costs Bite Hard

e& Revenue Soars but Profit Crumbles as Regulatory Costs Bite Hard

Revenue Climbs, but Profitability Takes a Hit

Emirates Telecommunications Group posted a strong revenue performance in 2024, growing from AED 53.75 billion to AED 59.20 billion. Operating profit followed suit, jumping from AED 15.87 billion to AED 20.06 billion, signaling operational efficiency and demand resilience. However, this top-line momentum was overshadowed by a **decline in net profit and earnings per share **—a disconnect that raises critical concerns for investors.

Net profit dropped from AED 11.14 billion to AED 10.58 billion, while EPS fell, contradicting expectations that revenue expansion should drive shareholder returns. The underlying factors behind this divergence reveal deeper structural and financial headwinds that could weigh on the company’s future performance.

Regulatory Pressure Escalates: The Royalty and Tax Burden

A key driver of this profitability squeeze is the significant increase in regulatory expenses:

• Federal royalty fees surged from AED 3.29 billion to AED 5.28 billion due to a policy shift imposing a 38% royalty on total UAE net profit. This new framework means e& now pays higher royalties on both regulated and non-regulated revenue streams, directly impacting net margins.
• Corporate tax expenses rose following the introduction of UAE Corporate Tax Law in 2024, adding another layer of cost pressure.

These regulatory changes mark a structural shift in e&’s financial landscape, signaling that profitability challenges may persist unless mitigated through cost adjustments, pricing strategies, or regulatory advocacy.

Acquisitions and Goodwill: A Double-Edged Sword

e& has aggressively pursued global expansion, completing major acquisitions in PPF Telecom Group, Glasshouse, and Careem CTHL. While these deals enhance the company’s market reach and service portfolio, they also introduce financial complexity:

• Goodwill has ballooned to AED 27.29 billion, making up a significant portion of the balance sheet. The valuation of these acquisitions must be scrutinized, as any impairment could result in significant write-downs.
• Auditor’s concerns on business combinations and goodwill impairment testing suggest potential earnings risks. Even minor adjustments in discount rates or growth assumptions could trigger impairment charges, negatively impacting future profitability.

Liquidity and Refinancing Risks Loom

e& faces a short-term liquidity crunch, with current liabilities exceeding current assets by AED 18.136 billion. The company remains confident about refinancing, but with substantial borrowings maturing in 2025, investors must assess:

• The terms of refinancing: Will higher interest rates or stricter conditions affect profitability?
• Cash flow sustainability: Can e& generate enough internal funds to service its obligations without diluting shareholder value?

If financing conditions tighten or business operations fail to offset rising costs, liquidity constraints could force asset sales or restructuring, impacting investor confidence.

Investor Takeaways: What to Watch

1. Regulatory Cost Management – Can e& mitigate the long-term impact of increased royalties and corporate taxes? Will there be pricing adjustments or cost-cutting measures to offset these burdens?
2. Goodwill Valuation Stability – Given the aggressive acquisitions, what is the risk of impairment write-downs, and how conservative are the company’s financial assumptions?
3. Debt Refinancing Strategy – How will e& navigate the 2025 refinancing challenge, and will borrowing costs rise in a tightening credit market?
4. Synergy Realization from Acquisitions – Are the expected cost efficiencies and revenue synergies materializing, or do integration challenges persist?

Outlook: Growth vs. Structural Pressures

While e&’s core operations remain strong, regulatory costs, goodwill risks, and liquidity pressures introduce uncertainty. Investors should adopt a cautious but observant approach, looking for management’s ability to navigate these headwinds. A successful balance between cost efficiency, regulatory negotiations, and acquisition integration will determine whether e& can sustain its long-term growth trajectory—or face continued margin compression in the years ahead.