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Orascom Announces Group EBITDA Up 20% and 44% Increase in Customers at End-2007
12 Mar 08
Egypt's Orascom Telecom has announced its end-2007 results, with revenues up 22% year-on-year and EBITDA up 20%; the gains were attributed to an increase in customer numbers, which were up 44% on the previous year.
Global Insight Perspective | | Significance | The operator is one of the largest in the Middle East by customer number and has posted fair results considering the high-growth markets it operates in. | Implications | The operator has also divested out of high-growth regions, such as Iraq, and volatile companies, such as HTIL, but is investing in North Korea. | Outlook | The operator's short-term financial outlook will remain flat as it implements its expansion strategy; however, its international investments will stand it in good stead in the long term. |
The Egyptian operator has reported its end-2007 results, with revenues of US$4.72 billion, an increase of 22% year-on-year (y/y), a net income of US$2.02 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) of US$2.04 billion, up 20% with an EBITDA margin of 43.3%, compared to last year's margin of 43.9%. Its group customer figure was up 44%, with the figure now exceeding 70 million. The company now has operations in three Middle East and North Africa (MENA) countries: Egypt (MobiNil), Tunisia (Tunisiana) and Algeria (Djezzy). Outside this region, it operates in Pakistan (Mobilink), Bangladesh (Banglalink), and Zimbabwe (Telecel Zimbabwe). Orascom has a 34.6% stake in the top Egyptian mobile operator, MobiNil. It currently leads the Egyptian market with a market share of 50%, closely followed by Vodafone with 47% and new entrant Etisalat Misr with 3%. The Egyptian market has amongst the highest growth potentials in the region, with a mobile penetration level of only 30%, a fact that is compounded by a high youth population that will quickly adopt new technologies. The company said that, during 2008. the markets in which it operates "will continue to grow rapidly due to their sustained economic growth, low mobile penetration rate, limited fixed-line coverage, and the relatively high cost of fixed-line infrastructure deployment". At the end of 2007, the operator exited the Iraqi mobile market in which it operated as Iraqna; this was primarily due to the inability to reach an agreement with its new partner, Korek. It sold its mobile assets to Zain, which now has a 70% market share (see Middle East and North Africa: 3 December 2007: Orascom’s Nine-Month Profit Up 116%, Sells Iraqna for US$1.2 bil.). Whilst the operator exited a potentially high-growth country, the operator has compensated for this by reducing its risk in a state that is still considered as being very volatile. At the end of last year, Orascom also exited HTIL by selling its remaining 14.2% stake for an overall profit of US$600 million (see World: 6 December 2007: Orascom Exits HTIL with US$600-mil. Gain) and last month the operator announced it had won a 3G licence in North Korea. Outlook and Implications The operator has released good financial results, showing very high EBITDA levels and an increase in customer figures; however, Orascom has only entered markets that have very high growth opportunities and growth levels could have been higher. The company has inherently focused on cost due to the nature of the markets in which it operates. As the operator ventures into new markets and develops existing ones, these influencing factors will help it grow significantly. In comparison with other MENA operators, Orascom will fare well in the long term, primarily because the markets in which it operates typically have higher population densities and greater growth potential. - Domestic Market: In Egypt, its part-ownership of MobiNil has in recent years done very well. It has purchased a 3G licence that will let it compete on a level playing field with its two competitors, Vodafone and Etisalat. However, the Egyptian market is primarily made up of low-income users and a high youth population that cannot afford to use value-added services. Whilst the operator's EDGE service was terminated early in 2007, the cost of the 3G licence at US$600 million is very high and it will take some time to win a fair return on investment.
- Divestment from Iraq: In Iraq, Orascom operated under the brand name Iraqna. However, when the new mobile licences were awarded, the operator dropped out of the auction only to reappear a few weeks later by partnering with local telco Korek to become one of the three operators there. Unfortunately, a dispute between the two operators resulted in Orascom exiting the market and selling its mobile assets to Zain. Whilst the country is politically unstable, major Middle Eastern operators such as Etisalat are ready to take the risk and reap the rewards. The operator’s sale of assets to Zain has enabled it to eliminate high risk and win its money back on the investment, at the cost of very high growth potential.
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