zain profile
DESCRIPTION
mmC Group's company analysis on Zain. More info at www.group-mmc.com and www.consultantvalueadded.comTRANSCRIPT
Page 1 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
mmC Group’s point of view on Zain’s profile and it’s International Expansion Strategy
Point of view May 2009
For further information please contact: Carlos Valdecantos (+34 696 940 221, [email protected])
Fran González (+34 616 285 092, [email protected])
Page 2 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Zain’s footprint is concentrated in Africa and the Middle East in order to exploit the advantages of the close geographic proximity. PEER PROFILES > ZAIN > GEOGRAPHIC FOOTPRINT
Markets
22 Subs
63.5 Million
Revenues
7.4 EBITDA
2.8 Billion $ Billion $
2008 Highlights
Page 3 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Characterization of subsidiaries
Zain maintains an operational standard that leads to similar EBITDA margins, although markets vary substantially in potential.
Source: Zain 2008 annual report.
PEER PROFILES > ZAIN > SUMMARY OF INTERNATIONAL INVESTMENTS
Page 4 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
There s a dramatic jump in net income in 2006 – the year where the full impact from the Celtel acquisition was felt. PEER PROFILES > ZAIN > EVOLUTION OF MAIN FINANCIAL INDICATORS
Evolution of main financial indicators
Source: Zain annual reports
• Revenues have been growing rapidly thanks to the new acquisitions and the high take up of mobile services. • The company has not been able to maintain profitability due to:
A. Adding less profitable businesses to its portfolio (lower ARPU or startup phase). B. Costs related with integration and improving efficiencies. C. Forex losses.
USD (Mn.)
1,344 2,254
4,466
5,912
7,441
557 914
1,953 2,424
2,776
407 622 1,015 1,130 1,196
41.4% 40.6% 43.7%
41.0% 37.3%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
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 %
Revenues: 100% mobile
EBITDA Margin CAGR: 53%
Page 5 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Zain is the only peer where growth is financed in larger proportion by equity than debt – for every dollar borrowed from the bank, shareholders put 1.13 $. PEER PROFILES > ZAIN > SOURCES OF FUNDS
Source: Operator, mmC analysis.
1,478 5,683
9,608 13,923
16,796
724
1,349
2,388
2,016
2,839
2,202
7,032
11,996
15,939
19,635
2004 2005 2006 2007 2008
Current Assets Non-current assets USD (Mn)
Current assets
Evolution of consolidated assets and net debt Sources of funds to finance expansion
Total increase in assets +17,433
Incrase in liabilities and equity 2004 – ‘08
Increase in assets 2004 – ‘08
-381 -1,501
-4,767 -7,246 -6,847
146 1,002 1,636 953 1,324
-235 -499
-3,131
-6,293 -5,523 +
-
Cash
Debt
Net debt
+2,114
+15,319 Non-current assets
+7,317 Equity, reserves & minority interests
+6,466 Bank debt
+3,649 Other liabilities
Key Highlights
1. Zain’s expansion started in 2003 with their 1st acquisition but it was in 2005 they bought Celtel.
2. Debt represents 37% of the funding needed for the expansion whilst shareholders equity supports 42%.
37%
42%
21%
Page 6 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
The Group has a healthy EBITDA level despite the negative impacts of new deployments and currency issues in certain countries. PEER PROFILES > ZAIN > SUBSIDIARIES PROFITABILITY
Profitability per subsidiary in 2008
Source: Zain annual reports
EBITDA (%)
51% 48% 47% 46% 46% 45% 44% 42% 42% 41% 39% 37% 36% 33% 22% 22% 20% 19% 16%
-15% -22%
-27% -40% -30% -20% -10%
0% 10% 20% 30% 40% 50% 60%
Kuw
ait
Zam
bia
Suda
n
Jord
an
Nig
er
Gab
on
Iraq
Tanz
ania
Mal
awi
Bur
kina
Fas
o
Cha
d
Con
go
Nig
eria
Bah
rain
DR
Con
go
Uga
nda
Leba
non
Sier
ra L
eon
Mad
agas
car
Ken
ya
Gha
na
KSA
16% 4% 10% 6% 1.5% 3% 15% 4% 1.5% 1.5% 1.5% 2.5% 19% 2.5% 4.5% 1.5% 1% 0.5% 1% 2% 0.1% 1.5%
Share of group revenues xx%
Group EBITDA: 37%
Deployment stage Laggard
Need to improve performance Performers
• Madagascar , DRC and Sierra Leone have experienced issues with local currencies • Lebanon is a controlled market a management contract where there is little room for action • Established operations coming mostly from Celtel’s buyout show a strong performance based on market leadership
Currency volatility in 2008
Page 7 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Except Nigeria, Sudan and Iraq the subsidiaries have small individual subscriber bases.
Subscriber base and ARPU per market
Source: Zain annual reports Note: Lebanon ARPU has been calculated since it is not disclosed due to managemnt contract
Subscribers (Mn.)
• The two main revenue generators are Kuwait (16%), with a small subscriber base but high ARPU, and Nigeria (19%) with a large subscriber base and a medium ARPU
• Other important contributors to the Group’s revenue stream are Iraq (15%) and Sudan (10%)
ARPU (USD/month)
17.2
9.7
5.2 3.9 3.3 3.1 2.7 2.3 2.1 2.0 1.8 1.3 1.3 1.3 1.2 1.1 1.0 0.8 0.8 0.7 0.5 0.3
9 13 16
9 11 6
12 19
6
25
52
16 11 9 7
12 13 19
31 29
9 10
-20 -10 0 10 20 30 40 50 60
0
4
8
12
16
Nig
eria
Iraq
Suda
n
Tanz
ania
DR
Con
go
Ken
ya
Zam
bia
Jord
an
Uga
nda
KSA
Kuw
ait
Con
go
Mal
awi
Bur
kina
Fas
o
Mad
agas
car
Nig
er
Cha
d
Leba
non
Gab
on
Bah
rain
Sier
ra L
eon
Gha
na
Total Subscribers (M) ARPU Blended (USD/month)
The two biggest revenue contributors
PEER PROFILES > ZAIN > SUBSIDIARIES BASE
Page 8 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Zain’s strategy is to build its assets by owning and operaing them - mostly done by acquiring established operations. PEER PROFILES > ZAIN > EVOLUTION OF INTERNATIONAL EXPANSION
1) Sources: Zain annual reports
Merger Continuing operation
Fastlink (Jordan) MTC Vodafone (Bahrain)
MTC Touch (Lebanon) Celtel (Niger) Celtel (Chad) Celtel (Burkina Faso) Celtel (Sierra Leone) Celtel (Gabon) Celtel (Congo) Celtel (DRC) Celtel (Uganda) Celtel (Tanzania) Celtel (Kenya) Celtel (Zambia) Celtel (Malawi) Celtel (Sudan)
Madacom (Madagascar) Mobitel (Sudan)
MTC (KSA) Westel (Ghana)
Wana (Morocco)
2004 2006 2007 2008 2003 2002 2001 2000 1999 1998 2005 2009
2004 2006 2007 2008 2003 2002 2001 2000 1999 1998 2005 2009
MTC (Kuwait)
MTC Atheer (Iraq) Iraqna (Iraq) Zain (Iraq) Zain merged MTC Atheer
and Iraqna immediately after Iraqna’s acquistion from Orascom in 2007. The new company was rebranded “Zain”.
Page 9 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Zain has consolidated a leadership both in terms of operations and image in Africa and the Middle East.
• With a focused regional approach, all operations are inside the Africa-Middle East region
• Specialised in mobile services, the markets it operates fall under two typologies: – High penetration but high ARPU (e.g. Lebanon) – Low penetration and mid-to-low ARPU (e.g Sudan)
• Zain pursues a market leadership strategy and is, in effect, market leader in 14 of its operations and holds 2nd place in 5 other operations
• Entry strategy into most of the countries it operates in has been through the acquisition of an already established operator.
• Equity has been a relevant source of financing for Zain’s expansion compared to peers.
PEER PROFILES > ZAIN > STRATEGY OVERVIEW
Page 10 mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy
Zain has a very focused and consistent strategy leveraging on its regional footprint. However, this also provides an inherent risk. PEER PROFILES > ZAIN > INTERNATIONAL EXPANSION STRATEGY ASSESSMENT
Pros
• The dual market approach offers Zain an interesting situation: - Mature markets bring in stable revenues, with minimum
investment in CapEx, that can be employed in the other typology of markets
- Meanwhile, growth markets although still of relative importance in terms overall contribution assure future revenues
• Through the acquisition of up-and-running operations, Zain reduces significantly the time-to-market of its services in high growth markets
• Its regionally focused strategy gives Zain a deep understanding of the markets it operates in
• Aiming for market leadership gives Zain the benefit of taking the top layered subscribers in low ARPU markets - This has a significant impact on bottom line e.g. in Sudan
Zain has a blended ARPU that is over 100% more than that of 2nd placed
Cons
• Regional concentration of the operations portfolio increases the exposure in case of a downturn affecting the region
• Growth through the acquisition of existing smaller operations in Africa presents the complication of integrating systems and processes since there are no existing quality standards
- Not only systems and processes will face issues regarding integration, business culture homogenization will also be a significant challenge
• Certain operations carry some inherent risk due to historical social and political unstableness that might affect Zain’s performance
Options for the future 1. Expansion outside current geographic footprint to diversify risk exposure 2. Further inorganic growth through the buy-out of smaller African operations thanks to their available funds