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, cva@group-mmc.com)
Fran González (+34 616 285 092, fjg@group-mmc.com)

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 Subs Revenues EBITDA

22 63.5 7.4 2.8

Million Billion $ Billion $

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy Page 2

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
USD (Mn.) CAGR: 53% Margin

8,000 7,441 50%

43.7%
41.4% 40.6% 41.0% 45%
7,000
5,912 37.3%
40%
6,000
35%
5,000 4,466 30%
Revenues:
4,000 100% mobile 25%
2,776 20%
3,000 2,254 2,424
1,953 15%
2,000 1,344
1,015 1,130 1,196 10%
914
1,000 557 407 622
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

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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 Sources of funds to finance expansion

USD (Mn) Current Assets Non-current assets

19,635

2,839 +2,114 Current

15,939 +3,649 Other liabilities 21%
assets
2,016
11,996 Total +6,466 Bank debt 37%
increase
2,388 in assets Non-current
16,796 +15,319
7,032 +17,433 assets

1,349 13,923 Equity, reserves

+7,317 42%
9,608 & minority interests
2,202
5,683
724
1,478
Increase Incrase
2004 2005 2006 2007 2008 in assets in liabilities
2004 – ‘08 and equity
2004 – ‘08

1,636 953 1,324

1,002
146 1.  Zain’s expansion started in 2003 with
-235 -499 their 1st acquisition but it was in 2005
-381
-1,501 -3,131 Key they bought Celtel.
+ Cash
-4,767 -6,293
-5,523 Highlights 2.  Debt represents 37% of the funding
Net debt -7,246 -6,847 needed for the expansion whilst
shareholders equity supports 42%.
- Debt

Source: Operator, mmC analysis.

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy Page 5

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

EBITDA (%) Need to improve Deployment

Performers performance Laggard stage

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%
60% 51% 48% 47% 46% 46% 45%
50% 44% 42% 42% 41% 39% 37% 36%
40% 33% Group EBITDA: 37%
30% 22% 22% 20% 19% 16%
20%
10%
0%
-10%
-20% -15%
-30% Currency volatility in 2008 -22%
-27%
-40%

KSA
Kuwait

Zambia

Sudan

Jordan

Niger

Gabon

Tanzania
Iraq

Malawi

Burkina Faso

Chad

Congo

Nigeria

Bahrain

DR Congo

Uganda

Lebanon

Sierra Leon

Madagascar

Kenya

Ghana
xx% Share of group revenues

•  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

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

Subscriber base and ARPU per market

Subscribers Total Subscribers (M) ARPU Blended (USD/month) ARPU

(Mn.) (USD/month)
The two biggest revenue contributors
17.2 52 60
16 50
31 29
40
12 25
9.7 19 19
30
16 16
9
13
9 11 12 11 9
12 13
9 10 20
8 6 6 7
5.2 10
3.9 3.3
4 3.1 2.7 0
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 -10
0.5 0.3
0 -20

KSA
Tanzania
Nigeria

Iraq

Sudan

DR Congo

Kenya

Zambia

Jordan

Uganda

Kuwait

Congo

Malawi

Burkina Faso

Madagascar

Niger

Chad

Lebanon

Gabon

Bahrain

Sierra Leon

Ghana
•  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 2003 2004 2005 2006 2007 2008 2009

MTC (Kuwait)
Fastlink (Jordan)
MTC Vodafone (Bahrain)
Zain merged MTC Atheer MTC Atheer (Iraq)
Zain (Iraq)
and Iraqna immediately Iraqna (Iraq)
after Iraqna’s acquistion MTC Touch (Lebanon)
from Orascom in 2007. Celtel (Niger)
Celtel (Chad)
The new company was
Celtel (Burkina Faso)
rebranded “Zain”. Celtel (Sierra Leone)
Celtel (Gabon)
Celtel (Congo)
Celtel (DRC)
Merger Celtel (Uganda)
Continuing operation Celtel (Tanzania)
Celtel (Kenya)
Celtel (Zambia)
Celtel (Malawi)
Celtel (Sudan)
Madacom (Madagascar)
Mobitel (Sudan)
MTC (KSA)
Westel (Ghana)
Wana (Morocco)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1) Sources: Zain annual reports

mmC GROUP Strategy Consultants – Zain Profile – Internationalization strategy Page 8

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

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