orascom profile

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Page 1mmC GROUP Strategy Consultants Orascom Profile

mmC Groups point of view on Orascoms profile

and its International Expansion Strategy

Point of viewJune 2009

For further information please contact:Carlos Valdecantos (+34 696 940 221, [email protected])

Fran Gonzlez (+34 616 285 092, [email protected])


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A dispersed geographic presence reflects where Orascom saw a green pastureand possibility for first-mover advantage.PEER PROFILES > ORASCOM > GEOGRAPHIC FOOTPRINT

Canada

Markets

11

Subs

78Million

Revenues

5.3

EBITDA

2.4Billion $Billion $

2008 Highlights


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Currently Orascom holds position in only a handful of operations. Previousinvestments which did not deliver enough return were exited.PEER PROFILES > ORASCOM > SUMMARY OF INTERNATIONAL INVESTMENTS

Leadership position ineach of its markets.

Usually a controllingstake in each operation.

Telecel Globe is aholding structure for a

group of smal-marketinvestments in Africa.


4/10


Orascom knows how to build an operation from zero, but also knows how totrade companies buying and selling is part of its strategy.PEER PROFILES > ORASCOM > EVOLUTION OF INTERNATIONAL EXPANSION

Mobinil (Egypt)Fastlink (Jordan)

SabaFon (Yemen)Mobilink (Pakistan)Telecel (Benin)

Telecel (Burkina Faso)

Telecel (Burundi)

Telecel (CAR)

Telecel (Cote dIvoire)

Oasis (Telecel) (DR Congo)Telecel (Gabon)

Telecel (Togo)

Telecel (Uganda)Telecel (Zambia)

Telecel Niger(Niger)

Syriatel (Syria)

2004 2006 2007 2008200320022001200019991998 2005 2009

2004 2006 2007 2008200320022001200019991998 2005 2009

Djezzy (Algeria)Tunisiana

(Tunisia)

Iraqna (Iraq)

banglalink (Bangladesh)Koryolink (N Korea)

Globalive (Canada)

Libertis (Congo)Tchad Mobile (Chad)

Telecel (Zimbabwe)

U-Com (Burundi)

Telecel RCA (CAR)Cell 1

(Namibia)

2008 change of strategy:

Orascom decides to targetnot only large markets butsmaller ones too. Itreenters some countriesnow with the Telecel Globebrand.

2008 change of strategy:

Orascom ventures in coutriesoutside of its traditional domain.

Exit

Original Telecel

Telecel Globe

Not launched yet

Continuing operation


5/10


Orascom delivers healthy revenue growth and stable EBITDA margin. Yet thenet income from ordinary operations is stagnant .PEER PROFILES > ORASCOM > EVOLUTION OF MAIN FINANCIAL INDICATORS

1) Source: Orascom

1,966

3,226

3,906

4,727

5,327

958

1,3631,704

2,0732,384

295667 721

2,021

431

49%

42%44% 44% 45%

0%

10%

20%

30%

40%

50%

60%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2004 2005 2006 2007 2008

Revenues EBITDA Net Profit EBITDA %

USD MRevenues CAGR: 28%

Net income: extraordinarygains realized when sharesin Hutchinson were sold.


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In 2008 the balance sheet becomes leaner (decrease in total assets) while thelong term investments grow financed primarily by debt.PEER PROFILES > ORASCOM > SOURCES OF FUNDS

Source: Operator, mmC analysis.

2,992

5,873

7,082

7,743 8,155

1,076

1,044

1,593

3,6011,765

4,068

6,917

8,675

11,344

9,920

2004 2005 2006 2007 2008

Current assets Non-current assetsUSD (Mn)

Current

assets

Evolution of consolidated assets and net debt Sources of funds to finance expansion

Total

increasein assets

+5,852

Incrasein liabilities2004 08

Increaseassets

2004 08

-1,381-3,245

-4,189-5,219

-5,735

513 287 7561,239 652

-868

-2,958-3,433 -3,980 -5,084+

-

Cash

Debt

Net debt

+689

+5,163Non-current

assets

KeyHighlights

1.Orascom reorganized its financing in2008. It decreased its equty by $2B, andrestructured its debt.

2.Orascom is the most leveraged of allpeers; this also makes it the operatorwith highest ROE 36%. The second bestis STC at 26%.

-344

Decreasein equity

2004 08

+4,209

+381

+1,461

+145 ST loans

LT loans

Non-current liabilities

Current liabilities


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Orascoms North African operations maintain healthy EBITDA margins,especially considering they operate in competitive markets.PEER PROFILES > ORASCOM > PROFITABILITY OF INDIVIDUAL SUBSIDIARIES

63%58%

41%

48%

5% 2%

0%

10%

20%

30%

40%

50%

60%

70%

Djezzy Tunisiana Mobilink Mobinil banglalink Telecel Globe

The crown

jewel

The regular

performers

Need to

catch up

Still

warming up%EBITDA

Profitability per Subsidiary, 2008

43% 25% 19% 6% .5%7%

Share of

grouprevenues

Source: Company reports


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The combination of large base with low ARPU or small base with high ARPUensures high revenue contribution.PEER PROFILES > ORASCOM > SUBSCRIBER BASE AND ARPU (PER MARKET)

1) Source: Orascom

14.11

28.48

20.12

4.26

10.34

0.70

12.1

3.5 3.76.4

2.3

-40

-30

-20

-10

0

10

0

5

10

15

20

25

30

35

40

45

50

Djezzy Mobilink Mobinil Tunisiana banglalink Telecel Globe

Total Subscribers

ARPU Blended (US$/month)

Subsmillions

ARPUUS$ / month

Subscriber Base Profile per Subsidiary

Largest revenuecontributors


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Orascoms strategy of all or nothing applies both to their investments,market selection and financing choices.PEER PROFILES > ORASCOM > INTERNATIONAL EXPANSION STRATEGY

1.Orascom begins its trajectory of international investments in the year 2000. Since then its presence inforeign markets is part of the companys business as usual.

2.Orascom buys and sells its international investments depending on whether they can maintain aleadership position in their respective market. This is dictated by Orascom managements belief thatmarket leaders are the only way to ensure sustainable growth. As a result of this strategy:

1. Orascom always tries to enter first in the market2. Orascom predominantly bids for licenses3. If Orascom acquires an existing operation, the acquired company must be a market leader or have a

potential to be one.

3. If an international asset does not perform Orascom sells its stake. If things go well Orascom conso-lidates its position by gradual equity increases (sometimes up to 6 separate consolidation transactions).4.Usually Orascom takes controlling stake, yet almost always it looks for shared risk with another partner.5.Geography does not play a primary role in Orascoms market selection: the criteria is early entry, low

penetration and potential for growth.

6.Orascom takes a risk entering markets with volatile or non-transparent political regimes in the name ofthe first-mover advantage. An example is the recent agreement with the government of North Korea.

7.Orascom is very aggresive in its financing choices almost 75% of its increase in assets in the last 5years have been financed through long-term (72%) and short-term (3%) debt.

8.Orascom opened a second front of niche acquisitions small markets with good potential, via therevived Telecel Globe, having its footprint mainly in West Africa.


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Orascoms strategy generates return but is risky and cannot be maintained inthe medium and long term. Orascom fixed this by starting Telecel Globe.PEER PROFILES > ORASCOM > INTERNATIONAL EXPANSION STRATEGY

PROs CONs

1. This strategy ensures continued leadership in therespective markets.

2. This strategy guarantees high and stable return in theshort and medium term.

3. Buy disposing of non-performing investmentsOrascom can reuse the available funds for new

acquisitions.4. Acquiring and operating a company is the best way to

evaluate its potential and decide whether to keep it

for the future.5. Unlike purely financial investment, Orascom can add

value to the asset during the holding period and

realise a gain on exit.

1. When an asset is held and operated for a short period,this approach generates costs.

1. Transactional costs2. New market entry costs

2. Greenfield investments in may may give surprises.3. Difficult to extract synnergies.4. Difficult to establish and promote a brand.5. Geography is very dispersed, so operations and

logistics are more difficult and costly.

6. Limited growth in the long term: markets with first-mover opportunity are scarse, and those whereOrascom has presence will sooner or later be

saturated.

Options for the future:1. Maintain leadership in current markets. Introduce new products. Optimise costs. Extract cash.2. New markets: enter in smaller markets at second or third position.

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