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Edited Transcript of ORDS.OM earnings conference call or presentation 30-Oct-19 11:00am GMT

Q3 2019 Omani Qatari Telecommunications Company SAOG Earnings Call

Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Omani Qatari Telecommunications Company SAOG earnings conference call or presentation Wednesday, October 30, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Abdul Razzaq Al Balushi

Omani Qatari Telecommunications Company SAOG - CFO

* Ahmed Al Khuzairi

Omani Qatari Telecommunications Company SAOG - Investor Relation Manager

* Ian Charles Dench

Omani Qatari Telecommunications Company SAOG - CEO

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Conference Call Participants

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* Dalal Darwich

Arqaam Capital Research Offshore S.A.L. - Research Analyst

* Zohaib Pervez

Al Rayan Investment Company - Research Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 conference call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 31st of October 2019. I would now like to hand the conference over to your first speaker today, Mr. Ahmed Al Khuzairi. Thank you. Please go ahead, sir.

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Ahmed Al Khuzairi, Omani Qatari Telecommunications Company SAOG - Investor Relation Manager [2]

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Thank you, operator. (foreign language) Hello and welcome, everyone. This is Ahmed Al Khuzairi, Ooredoo Oman's Investor Relations Manager. Today, we are discussing the Q3 2019 Ooredoo Oman results. With me here are Mr. Ian Dench, our CEO; and Mr. Abdul Razzaq Al Balushi, our CFO.

Before we start the presentation, I will refer you to Slide #2, which is a disclaimer. Today, as per discussion, we may talk about some statements in the future. So don't consider that the statements may occur if you don't know the business operation. So to start the presentation, I'll hand it to Ian.

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [3]

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Okay. So good afternoon, everyone. So I'll go through a few slides just to give you the -- an update on the performance and a few achievements and some progress on our plan, which we have mentioned in previous calls, as we go through. So I will go in summary. The flat revenue over the 9 months, year-on-year, which I think is such improvement in EBITDA and the growth in net profit. So I would characterize, I think, everyone is aware in terms of the market, in terms of the economic trading challenges in the market. So I think flat revenue in that environment is to be expected. I mean it's good performance when you look at -- we'll show you later on our position relative to the market. There is limited growth in terms of population. So the competition is very much amongst us, competing for the same customer base. So there is some pressure on pricing, which impacts the overall size of the market. So as you'll see later on, however, good performance relative to the market.

So when you look at the next slide. There's some indications of what I was just saying. So you see a steady increase in our customer market share. Q3 numbers are yet to be published, but you can see the trend, how that's reflected and those numbers will be available shortly. But you can see that our customer base is indeed growing.

The next slide, 4G and digitization. So if you remember, some quarters ago, we spoke about our altahadiy initiatives, which was the preparation for the third operator, which we also have -- which is our digital strategy. So turning the company into a digital telco, so that we can serve our customers in a more efficient and effective and digital way. Another part of our strategy was, I think you remember, was having a great network and having that data experience leadership, and that continues as we continue to roll out our 4G and strengthen our network, whether it's in the fixed, it's on the mobile or the fixed side, we're continuing to expand our network. One highlight, for example, during this year's Khareef, we extended our network to cover the Dhofar, Salalah region. And in fact, our network performance is measured by the CRA, and we were shown to be stronger than competition this year, which is a core part of our strategy to strengthen our network across the Sultanate. We also -- on the digital side, we've now achieved over 1 million downloads of our app. Our digital prepaid service hit a milestone of 500,000 customers. And our digital postpaid products we launched in the last quarter, is now approaching 10,000 customers. So what you're seeing is good traction now on serving our customers through the digital platforms. And I would consider us to be leaders in this area. And this is an area that we are focusing on as an organization, both to improve customer experience, but also to manage costs, which is an important factor given the market conditions and the future challenges that we are faced with.

Also, we launched another multiple -- we launched -- we've a direct relationship with Apple now, and we launched iPhone 11 very successfully in the market during the quarter, and we could consider ourselves to be one of the leaders when it comes to that device during this period. So good commercial performance and good network deployment continues.

On the next slide is a little bit more detail in net market share. So you can see that -- and our focus is twofold when it comes to mobile. One is defending our market-leading position in prepaid and growing our postpaid position. In postpaid, we launched, as I mentioned, our all-digital product with no contracts in the market. This is the first, and we're seeing good take-up there. Lots of offers and promotions around prepaid to defend that market leadership position that we have in prepaid. Mobile broadband and home broadband continues to grow. Customers' requirements for data continues to grow, which is why we continue to invest in our 4G network to maintain that market leadership in terms of the network quality. So as you can see here in the mobile broadband and fixed broadband in particular, growing very -- quite strongly with the home broadband in particular, growing 16%.

Some achievements and multiple events. A number of different awards here. Best Customer Experience, we felt very proud with this award. So focusing around awards. We've recently won an award as well for Best Network, which is with a company called P3. Again, reemphasizing that investment. We did launch a trial of 5G during the Khareef season. So this was a public demonstration of 5G and 5G speeds here in Muscat and in Salalah. We also have signed a MoU with GBM Oman. So this is taking us into a new area with IoT, and we're looking at a number of different areas for organic and inorganic growth, which is one area. For example, IoT, where we see some opportunities and more of that in the future.

Of course, we signed the deal with a long-term agreement with FRiENDi mobile. And they have now fully migrated over to Ooredoo network in a very short space of time. So we're happy to be hosting FRiENDi on our network again. That is all part of our -- as a result of our inter-network strategy to enhance our coverage and network performance. I think as a result of that, we were able to attract FRiENDi onto our network.

Then in terms of revenue, I will hand over to our CFO, who'll just take you through a few of the remaining slides. There's a few numbers in there to which he'll take you through. Thank you.

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Abdul Razzaq Al Balushi, Omani Qatari Telecommunications Company SAOG - CFO [4]

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Good afternoon. So as for the revenue, as Ian stated, there is flat growth. Having said that, it's true that there was some considerable growth in the area of the pre and the postpaid. In terms of operating expenses, we have a decrease in Q3 2019, mainly affected by lower rentals due to implem -- due to implementation of IFRS 16's impact and some additional benefits from the lower interconnection charges.

S&G -- selling, general and administration expenses have decreased as well, affected by again in the rental and utility expenses driven by -- also by implementation of IFRS 16. EBITDA was affected positively, mainly due to the IFRS 16. Operating cash flow remained well in position. The CapEx revenue, which has slightly gone up, mainly because of -- we have to enhance our 4G and fixed businesses. Also, we added some additional technologies, such as massive MIMO and other related investments overall. So, Ian?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [5]

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Yes. So yes, overall, I think a pretty good performance in a challenging market. And relative to the market, we did very well. Leading in a number of key areas, good strong commercial propositions in the market, managing costs to maintain an increase in the net profit, even with those slightly or very flat revenues.

On the commercial side now, as I said, data is a very significant part of our business, which is why our focus is all around data experience leadership. It's nearly 70% now, 68%. If you look at our brand equity and CSAT and all those measures, which are to me are leading indicators, they're all very positive for us. Network investment continues in preparation for 5G. So that's something that we're looking forward to in the new year. And as I mentioned right up front, the digital transformation, the digital leadership continues at pace. We are very much now a digital company from serving our customers. We -- yesterday, we launched an app for our employees so that all of their -- all of our leaves and salaries and all of the things that people need from the company is now all through an app for employees. So we're pushing ahead and trying to -- making sure that we have that digital leadership as well. Thank you.

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Ahmed Al Khuzairi, Omani Qatari Telecommunications Company SAOG - Investor Relation Manager [6]

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Thank you. Thank you, Ian and Abdul Razzaq. Operator, could you please remind participants on how to ask questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We do have one question on the line that comes from Dalal Darwich.

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Dalal Darwich, Arqaam Capital Research Offshore S.A.L. - Research Analyst [2]

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Congrats on the results. I just have one question, more of a discussion, if I may. Can you please give us your outlook on the market for the coming quarter and for the coming years? So do you see still weakness on the prepaid? Where do you see competition on the fixed? So if you can give us some color on that, it would be a good indication.

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [3]

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Yes. So I think -- yes, just looking, let's say -- look, no more than 1/4 out. But certainly, I think the current trend would -- is there in terms of the softness and the challenges, let's say, in the prepaid market, we're depending on our leading position. It is very competitive when it comes to price being offered in promotion. But we have a road map of activities for the rest of the year, which we're quite excited about. But definitely, the growth for us, we see some good opportunities in the postpaid. And as I mentioned, in particular, we've launched all-digital, no-contract product, which we're seeing some good take-up in the market.

We also have some, what we call B2B2C offers, where we're offering pricing packages for the employees of large entities, whether they're government or large enterprises with some success. So postpaid, very much our focus, and we're seeing growth in that area. Also, on the fixed side, the requirement for or the demand for high-speed home broadband connectivity is there. There's still a lot of ADSL in the market. So we're seeing -- and we expect to see continued growth, whether it's our wireless home broadband, which is a great product because it's a walkout working solution for customers or it's the fiber solution where we're seeing a month-on-month records in terms of the number of fiber customers that we are connecting.

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Operator [4]

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(Operator Instructions) And your next question comes from the line of Zohaib Pervez.

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Zohaib Pervez, Al Rayan Investment Company - Research Associate [5]

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Could you elaborate a little bit on how the macro environment is impacting the -- your business and particularly the prepaid segment?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [6]

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Sure. I think it's fairly obvious or self-evident that prepaid traditionally grows in line with, particularly, let's say, the expatriate working population, which is not growing. So that makes it very challenging. Generally, in the market, economic activity, I think, with GDP growth, et cetera, et cetera, is very flat and very stable, let's say, very flat. So -- and our business tends to follow that trend quite closely. Sorry, what was the other -- EBITDA -- more than that. Can you just repeat it? Sorry.

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Zohaib Pervez, Al Rayan Investment Company - Research Associate [7]

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I was -- so what's the -- what -- and I just wanted to understand what's the outlook for that. Do you see improvement on macro environment to help your businesses?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [8]

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So I think if you look at the blend, so I think -- I am looking at it as a blend, I think the economic outlook -- I mean, we can speculate about the future. But I think I'm just looking forward in the quarter, I think, I don't see any changes into fourth quarter. I don't see an influx of expatriates. Most of the key projects are complete or completing. So I think the macroeconomics, it's fairly stable, let's say, just looking in the short-term ahead.

So for prepaid, it's really a case of maintaining our leading position with offers, promotion, making sure that we bring those -- keep those customers with us and bring more of that share of wallet to us, so that's the prepaid story. And again, postpaid is very much a growth opportunity for us because there is a larger postpaid base out there that we think we can offer a unique value proposition, too. And of course, the fixed business is just as a growth story because there is this base of ADSL customers out there, and everyone is in -- or people are looking to upgrade the speed of their connectivity at the home, which is why we see good growth for home broadband. And as fiber extends to the new areas around the sultanate, which is OBB's rollout, let's say, we also see a good uptake there. So when OBB comes to an area, they open up the area and then in we go, and that's an opportunity to do door knocking and promote our services. And again, that sort of helps with the momentum as well.

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Operator [9]

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(Operator Instructions) And your next question comes from the line of [Sundar Sundar]

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Unidentified Analyst, [10]

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I think I have difficult question. I think to start off would be your recent, whatever the FRiENDi -- the partnership and the synergies. I believe the CEO said, the completion of the transformation is done. I think, what are the synergies you're looking at? What kind of prospects we are seeing now? Any plans to add up in terms of the revenue and the margins in this? That's my first question. And the second is on the recent announcement where the company has signed some agreement with the Oman Tower Company. I believe this is related to the tower sharing. I think we want to understand what kind of infrastructure sharing the company is looking at? And this is looking at both in terms of your expansion and also the third operator, which is going to come in. And we just want to understand of your alliance to this Oman Tower? And on the last point, I think, on the 5G CapEx, I believe, I think, we read a news article again. It showed, I think, there has been a kind of the spectrum fees have been relaxed for 1 year. I think we just want to understand what kind of spectrum is allotted? And what is the kind of CapEx we are looking at for the 5 years overall?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [11]

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Okay. So on the first question, the MVNO. Yes, so [3G] customer base, by and large, is now fully migrated. As you know, they were on another network. So by and large, not all, I think it's still by and large migrated over. So in terms of the prospects going forward, then we hope that they prosper on our network, and of course that's the wholesale relationship that we have. I can't comment on their retail business. But we're very happy that they've joined us, obviously, to be additive to our business, our wholesale business.

When it comes to OTC, we signed 2 deals. So one is, going forward, a nontower company can -- it's nonexclusive, but they can build towers and lease them to us on our behalf, or we can share the towers that they build going forward. We've also signed a deal that would allow them to host on our towers, the other way around. So for example, the third operator would be able to use our towers. On CapEx for 5G and spectrum, et cetera, our plan is to -- we will see 5G launch next year. We're quite very excited about that. Yes, there is a 1-year grace period for the -- I guess this essentially allows trial and testing and all of that sort of proof-of-concept that is natural that you would expect to see that we've been doing already. I'm just looking at the questions here. CapEx, I don't have any -- what we would hope is that in the business cycle -- 4G deployment, if you remember, we had -- a couple of years ago, we were at 60%, but now fully, 4G covers the whole country. So the need to roll out 4G is now really around certain areas in the interior and certain key areas. I was in the (inaudible) the other day, for example. So filling in the gaps, let's say. So we would hope to be able to deploy 5G within the CapEx envelope that you see us sort of traditionally having. So that would be our hope. We are going through a tendering process with Ooredoo Group at the moment. So a lot will depend on that. We don't know what prices are, et cetera, et cetera. So we don't have the number as such to that at the moment. And we expect to see -- so 5G is...

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Abdul Razzaq Al Balushi, Omani Qatari Telecommunications Company SAOG - CFO [12]

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We will announce about the spectrum when it's come because actually, to be very honest with you, on July 2020, the government (inaudible) 3 spectrum. We bought one, the competition, and generated another one, which is 100 megahertz.

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Unidentified Analyst, [13]

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Okay, okay. And one thing on this overall CapEx. I think the -- which means what you are trying to say is the 5G CapEx will come in the next year, correct? Because, though you have been -- you will be start investing on 5G CapEx as a group according to (inaudible) already looking at launching it in Qatar. You will be launching it as part of the tender in the next year, correct? The launch will be there in next year?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [14]

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Correct. Yes, so next year. So we've already -- there's a few elements to this. A big part of it is the preparation for it. So that's already been -- that's what we've been working on throughout this year. So you have to have the transmission ready and the network ready, all the backhaul ready, et cetera, et cetera. So over this last year, we've been preparing for that. So in next year, it's all about the deployment of the 5G sites. And yes, it will be CapEx for next year.

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Unidentified Analyst, [15]

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Okay. But I think in terms of the other CapEx other than 5G, which you are not part, any other major CapEx is done because we have been working on the network expansion because we just want to understand what are the kind of CapEx other than 5G also going to be coming in the next 2 years?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [16]

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So okay, so 5G, we've already discussed. 4G, as I mentioned, there's some, let's say, capacity and normal enhancements. We are focusing on certain, I'd say, filling in a little gaps here and there where we see key pockets, whether it was -- as we did in the Salalah, Dhofar region. For example, making sure that our network is at that leadership position. So that continued, but that's not a huge amount. So that's sort of in the background, if you like. Of course, we'll continue to invest in the growth of our fixed network to primarily the fixed wireless, that continues to be part of the deployment and the investment that we need to support the rollout of fiber that we used OBB, but we have to put locks in and so on and so forth. But again, not a huge amount.

So the other area would be IT. But there, it's very much a digital transformation. So we're looking, in particular, where we can improve efficiency, reduce costs, serve our customers better and transform our business to become a digital -- and this is an Optus Meimportant word, agile business, and really IT is the heart of that. So 5G, IT, I would say, there's investment there. The rest is sort of business as usual, enhancement and maintenance, yes.

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Unidentified Analyst, [17]

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Okay, okay. And with this context, do you think the dividend payout could be higher because you are talking about -- okay, so 5G CapEx, which you are not aware, but how do you see the dividend? Because your company has become more of a -- okay, as we can tell, a very leveraged company, I think. Do you see the dividend outflow will be pretty strong in the coming year prior to the 5G?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [18]

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We don't -- I don't -- my guy is looking at me. So no comment, we're not commenting on that at the moment. Because of the discussion of the union (inaudible)

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Unidentified Analyst, [19]

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Okay, okay, okay. Okay, last one, I think -- last one on this cost optimization. I can see some of the cost optimization working at your end and which we can point out the margins are better off. How do you see if further improvement can be there in the cost optimization in the coming quarters? How do you see on this context of cost optimization overall for the company?

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Ian Charles Dench, Omani Qatari Telecommunications Company SAOG - CEO [20]

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Yes. So I will do an update on the strategy probably at the end of Q4. If you go back in time, I mean we said we'll invest on network, invest in digital, et cetera, et cetera. So if I update you the strategy now, there's a piece in there on cost optimization -- cost reduction, actually. So we are embarking on a roof and branch review of everything, and whether that supply agreement and your maintenance contracts as well as the sort of dividend from moving to become a digital company by deflecting calls away from call center for sales service. So our whole end-to-end process to cut costs, actually, because there are certain costs which are less. For example, staff costs, there's an annual increment that we've been provided by law. So that means -- so certain costs like that grow and certain costs like [admin] roll out our network, then power, et cetera, et cetera, rentals, cost grows. But we're looking across the businesses where we can actually reduce costs, be it OpEx, primarily, but of course, the CapEx as well.

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Operator [21]

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(Operator Instructions)

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Ahmed Al Khuzairi, Omani Qatari Telecommunications Company SAOG - Investor Relation Manager [22]

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All right, so as there are no more questions, I would like to thank you for joining us today for discussing our Q3 2019 results. For more information, I would like to refer you to our public filing in our Muscat Security Market Breach and also in our website. Thank you, again, and we'll be all in touch. Thank you.

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Operator [23]

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Thank you. And that does conclude your conference for today. Thank you all for participating. You may all disconnect.