Zain Profile

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])

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 1

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

2008 Highlights Markets

22

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 2

Subs

Revenues

63.5 7.4 Million

Billion $

EBITDA

2.8 Billion $

Zain maintains an operational standard that leads to similar EBITDA margins, although markets vary substantially in potential. PEER PROFILES > ZAIN > SUMMARY OF INTERNATIONAL INVESTMENTS

Characterization of subsidiaries

Source: Zain 2008 annual report. mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 3

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 Revenues

EBITDA

NET PROFIT

EBITDA %

EBITDA Margin

CAGR: 53%

USD (Mn.) 8,000 41.4%

7,000

7,441

43.7%

40.6%

6,000

2,000

1,344

1,000

557 407

20% 15% 1,196

1,130

1,015

622

25% 2,776

2,424

1,953 914

30%

Revenues: 100% mobile

4,000 2,254

40% 35%

4,466

3,000

45%

37.3%

5,912

5,000

50%

41.0%

10% 5%

0

0% 2004

2005

2006

2007

2008

•  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. Source: Zain annual reports mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 4

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

Evolution of consolidated assets and net debt USD (Mn)

Current Assets

Sources of funds to finance expansion

Non-current assets 19,635

2,388

+6,466 Bank debt

37%

+7,317

9,608

Equity, reserves & minority interests

42%

5,683

724 1,478

2004

2005

2006

2007

2008

146

1,002

1,636

953

1,324

-235

Increase in assets 2004 – ‘08

-499 -1,501

Cash Net debt

-

21%

Non-current +15,319 assets

13,923

1,349

+

Total increase in assets +17,433

16,796

7,032

2,202

+3,649 Other liabilities

2,016

11,996

-381

+2,114 Current assets

2,839

15,939

-3,131 -4,767

-5,523

-6,293 -7,246

-6,847

Debt

Source: Operator, mmC analysis. mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 5

Key Highlights

Incrase in liabilities and equity 2004 – ‘08

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%.

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

10%

6%

1.5%

3%

15%

4%

1.5%

1.5%

1.5%

2.5%

19%

2.5%

48%

47%

46%

46%

45%

44%

42%

42%

41%

39%

37%

36%

33%

4.5%

1.5%

1%

0.5%

1%

22%

20%

19%

Madagascar

Sierra Leon

Lebanon

Uganda

DR Congo

Bahrain

Nigeria

Congo

Chad

Burkina Faso

Malawi

Tanzania

Iraq

Gabon

Niger

Jordan

Sudan

-15%

-22%

•  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 Source: Zain annual reports mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 6

1.5%

16%

Currency volatility in 2008 Zambia

0.1%

Group EBITDA: 37% 22%

xx% Share of group revenues

2%

Deployment stage

-27% KSA

4%

Laggard

Ghana

16% 51%

Kuwait

60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40%

Need to improve performance

Performers

Kenya

EBITDA (%)

Except Nigeria, Sudan and Iraq the subsidiaries have small individual subscriber bases. PEER PROFILES > ZAIN > SUBSIDIARIES BASE

Subscriber base and ARPU per market Subscribers (Mn.)

Total Subscribers (M)

ARPU (USD/month)

ARPU Blended (USD/month)

The two biggest revenue contributors

17.2

60

52

16

50 31

12 8

25

9.7 9

13

19

16 9

5.2

4

3.9

11

3.3

16

12 6

3.1

6

2.7

2.3

2.1

2.0

1.8

40

29

30

19 11

9

7

12

13

9

10

20 10 0

1.3

1.3

1.3

1.2

1.1

1.0

0.8

0.8

0.7

0.5

0.3 Ghana

Sierra Leon

Bahrain

Gabon

Lebanon

Chad

Niger

Madagascar

Burkina Faso

Malawi

Congo

Kuwait

KSA

Uganda

Jordan

Zambia

Kenya

DR Congo

Tanzania

Sudan

Iraq

-20 Nigeria

0

-10

•  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%) Source: Zain annual reports Note: Lebanon ARPU has been calculated since it is not disclosed due to managemnt contract mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 7

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

1998

1999

2000

2001

2002

MTC (Kuwait) Zain merged MTC Atheer and Iraqna immediately after Iraqna’s acquistion from Orascom in 2007. The new company was rebranded “Zain”.

2003

1999

2000

2001

2002

2005

2006

2007

2008

Fastlink (Jordan) MTC Vodafone (Bahrain) MTC Atheer (Iraq)

Iraqna (Iraq) 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)

Merger Continuing operation

1998

2004

2003

2004

1) Sources: Zain annual reports

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 8

2005

2006

2007

2008

2009

Zain (Iraq)

Wana (Morocco)

2009

Zain has consolidated a leadership both in terms of operations and image in Africa and the Middle East. PEER PROFILES > ZAIN > STRATEGY OVERVIEW

•  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.

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 9

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

Cons

•  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

•  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

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy

Page 10