Emirates Telecommunications Corporation "Etisalat"

By: Maha Kanz (CFA)

The head of research & financial studies Department
Introduction:
Etisalat is the first and the largest telecommunication company in the UAE. Established in
1976, the company enjoys a reputation as a cutting edge telecommunication company of over
34 years. The Federal government of UAE owns 60% of the corporation, which provides
telecommunications services in the UAE market, in addition to its operations outside UAE
through its subsidiaries and associates in eighteen countries. During 2009, Etisalat has been
recognized by international agencies for its accomplishments in different fields in the telecom
sector. Telecoms World Middle East 2009 granted Etisalat "Best Value Added Service Award
"for its internet TV platform, while SAMENA Telecommunications Council awarded Etisalat
Best Content Provider of the year", "Best FTTx/GPON Operator of the year", and "Best
Quality of services Operator of the year" amongst other accolades.

Etisalat within the UAE Market

The first in terms of market capitalization
Etisalat is considered the largest company in term of market cap in the UAE market. Its
market cap equaled at the end of this week AED 82.22 billion, representing 22.5% of the total
market cap of the national companies in the UAE market (AED 365.55 billion). The market
cap of the next four largest companies in the market are, respectively, the National Bank of
Abu Dhabi valued at AED 23.92 billion, First Gulf Bank valued at AED 20.14 billion, Emaar
Properties with value at AED 19.2 billion and Emirates NBD with value of AED 14.78
billion. To put this in perspective, the market cap of those four companies combined (AED
78.05 billion) is less than the market cap of Etisalat. In the Abu Dhabi market alone, the
market cap of Etisalat is higher than the market cap of all 47 national non-banking companies
(total value of AED 65.58 billion). Compared to the banking sector, the market cap of Etisalat
is equivalent to 84% of its total value, which includes 14 national banks with a total market
cap of AED 97.5 billion.
Etisalat portion in Abu Dhabi The five big national companies
market cap in terms if Market cap
non- (values by billion)
82.22
banks Banks
27% 40%
23.92 20.14 19.2 14.78
Etisalat
33%
Etisalat NBAD FGB Emaar ENBD

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The first in terms of shareholder Equity
Etisalat is the largest company in terms of shareholders’ equity compared to all national
companies listed in UAE market with AED 35.46 billion at the end of the first quarter of
2010, and book value per share of AED 4.48. Following Etisalat in the list is Emirates NBD
with a value of AED 33.63 billion, Emaar Properties with a value of AED 29.7 billion, First
Gulf Bank with a value of AED 22.83 billion, and the National Bank of Abu Dhabi with a
value of AED 21.44 billion.
The five big national companies in UAE Market
in terms of sharsholders' equity (Q1'2010)
(values in billions)
35.46 33.54
29.5
22.46 21.44

Etisalat ENBD Emaar FGB NBAD

The first in terms of capital:

Etisalat also ranks the highest among national companies listed on the Abu Dhabi market in
terms of capital. Its capital reached AED 7.187 billion by the end of year 2009, and with the
distribution of bonus shares of 10% in 2010 the capital increased to AED 7.906 billion. In the
UAE market as a whole, it ranks second after the Dubai Financial Market which has a capital
of AED 8 billion.
The five big national companies in Abu Dhabi market
in terms of capital
(values in billions)
7.91
6.4 6.23 6 5.78

Etisalat ALDAR TAQA DANA DEYAAR

The first in terms of dividends:

The cash dividends distributed by Etisalat to its shareholders for year 2009 were valued at
AED 4.312 billion, representing a full 35% of the total cash dividends for all national
companies listed in the UAE market (AED 12.27 billion). Etisalat distributions exceeded the
distributions of the entire banking sector representing (AED 3.87 billion from 21 national
banks) by 11%. Etisalat also distributed more than the remaining 84 non-banking companies
who distributed AED 4.09 billion in 2009.

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 Banks
Non-banks
32% Etisalat portion from
33%
national companies in UAE market
in year 2009

Etisalat
35%

The total amount of Etisalat's cash dividends in the past five years, which equal AED 14.9
billion, is the highest amount compared to total cash dividends for each company in the
sample. Furthermore, it's equivalent to 60% of the summation of all cash dividends for other
companies in the sample.
Table shows Dividend value for the ten largest national companies in UAE market over the past five years
Total
Year (w/o
(values in
billion) Etisalat ENBD TAQA NBAD ADCB ALDAR EMAAR FGB MASQ AABAR Etisalat)

2005 1.815 0.967 0.000 0.377 0.000 0.075 2.312 0.250 1.732 0.000 5.713

2006 2.269 1.218 0.208 0.490 1.210 0.138 1.215 0.875 0.000 0.045 5.399

2007 2.995 1.538 0.415 0.636 0.400 0.222 1.218 0.250 0.000 0.090 4.769

2008 3.594 1.010 0.934 0.593 0.481 0.322 0.000 0.481 0.146 0.000 3.967

2009 4.312 1.111 0.623 0.217 0.000 0.129 0.000 0.688 2.415 0.000 5.183

Total 14.985 5.845 2.179 2.313 2.091 0.886 4.745 2.544 4.293 0.135 25.031

Cash divide nds for the te n largest national companie s in the UAE marke t
over the past five years

16
14
12
10
8
6
4
2
0
Etisalat ENBD TAQA NBAD ADCB ALDAR EMAAR FGB MASQ AABAR

2005 2006 2007 2008 2009

Financial Analysis for Etisalat

3

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Tel. : 02-6668899, Fax : 02-6668311, P.O. Box : 2583, Abu Dhabi, U.A.E. website :www.alfajerco.com
We will be analyzing the financial position of Etisalat by tracking a set of financial indicators
divided into four main groups, each of which aims to determine the position of the institution
in the following aspects: the liquidity, the capital structure (or credit risk), the profitability,
and the distributions to shareholders.
The liquidity measures
Etisalat has a high degree of liquidity. It maintained cash and cash equivalents balance at the
end of last year of AED 11.31 billion. This cash balance is sufficient to pay 48% of its short-
term obligations valued at AED 23.49 billion. With a current ratio of 83%, the institution
maintains current assets sufficient to cover 83% of liabilities payable in the short term.
Furthermore, the net cash flow generated from its operational activities in 2009, which
amounted to AED 10.12 billion, was equivalent to 2.16 times the company’s loans, amounting
to AED 4.68 billion.
Liquidity ratios for "Etisalat" over the past five years
*2009 *2008 *2007 2006 2005
Cash ratio 0.48 0.53 0.57 0.76 1.18
Cash to current assets 0.58 0.65 0.70 0.76 0.73
Current ratio 0.83 0.81 0.82 1 1.62
NCFO to total debt 2.16 3.15 1.89 0.94 -
WC (AED billion) )3.926 ( (3.993) (3.066) )0.052 ( 5.054
*2007 and 2008 balance sheet items reflect IFRS restatement

Capital structure
Etisalat has historically depended mainly on its internal resources (equity) to finance its
operations and asset growth, along with a relatively small portion of debt. The total amount of
invested funds (total capital) of the institution by the end of last year equaled AED 45.07
billion ; including equity worth AED 36.39 billion (representing 81% of total capital) , and
loans worth AED 4.7 billion (representing 10% of the total capital) and minority interest
worth AED 4 billion. Etisalat bank's loans by the end of 2009 reached AED 2.92 billion, with
weighted average interest rate paid of 8.99%. Loans from other parties reached a total value of
AED 1.59 billion and weighted average interest rate paid of 4.13%. The total profit before
interest and taxes (EBIT) last year amounted toAED 16.97 billion, which was equivalent to
14.23 times company’s interest expenses.
As of today, Etisalat has a long term debt rating of AA- by Standard & Poor’s, Aa3 by
Moody’s, and A+ by Fitch. The company was downgraded from AA- to A+ by Fitch in the
4th quarter of 2009 and from Aa2 to Aa3 by Moody’s in first quarter of 2010. Both
downgrades were a result of a revised review of the UAE sovereign ratings. In spite of this,
S&P has recently upgraded Etisalat’s rating to AA- and the company remains among the
highest rated telecom companies globally.

Credit profile of "Etisalat" over the past three years

4

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 LT credit S&P Moody's Fitch
rate grade date Grade date Grade date
2008 A+ Aa2 AA-
2009 A+ Aa2 A+↓ Q4
2010 AA-↑ Q2 Aa3↓ Q1 A+
Future view stable stable stable

Profitability analysis
Despite the the prevailing economic environment and the saturation of the local mobile market
state, with the number of participants surpassed 10 million and penetration rate exceeding
215%, Etisalat adopted an international expansion strategy over the past five years to continue
its positive revenue trend. The company's international mobile operations in India, Egypt,
Pakistan, and Nigeria are the company’s main drivers for growth and expansion. Revenues
rose in 2009 by 5% to AED 30.83b, with more than 85% contributed by UAE operations. The
flagship operation saw its revenues decline slighty by 0.7% due to intensified competition
with du and slowing economic activity. Alternately, Etisalat’s international revenues grew by
a solid 65%.
Net profit reached AED 8.84b, an increase of 2% compared with AED 8.51 billionin Y2008.
We would like to point out that the profits in 2008 included an exceptional gain resulting from
the sale of an equity interest in "Mobily" worth AED 1.78b. After excluding this exceptional
profit, the growth in net profit would effectively be 16%.
Income statement for "Etisalat" over the past five years
Values in billion 2009 2008 2007 2006 2005
Revenues 30.831 29.36 21.340 16.290 12.866
Operating expenses )13.862 ( )14.615 ( (7.434) (4.835) )4.634 (
Royalty fees )8.836 ( )8.664 ( )7.297 ( )5.860 ( )4.256 (
Operating profit 8.133 6.081 6.610 5.596 3.976
Finance cost )0.571 ( )0.564 ( )0.503 ( )0.262 ( -
Non-operating income 1.265 2.672 0.736 0.476 0.281
EBT 8.827 8.189 6.843 5.81 4.257
Taxes )0.244 ( )0.187 ( )0.122 ( - -
Minority interest 0.254 0.510 0.576 0.05 -
Shareholders' profit 8.836 8.511 7.297 5.860 4.257
EPS 1.23 1.18 0.94 0.82 0.59

Profitability ratios for "Etisalat" over the past five years

indicator 2009 2008 2007 2006 2005
Operating profit margin (%) 26.38 20.7 30.97 34.35 30.9
Net profit margin (%) 28.66 33.17 34.19 35.97 33.08
ROE (%) 27.01 32.64 33.75 33.57 29.34
ROA (%) 13.24 15.13 14.84 16.69 19.04
ROIC (%) 22.44 25.44 23.68 - -
Distributions for shareholders

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Cash dividends:
Etisalat provides annual cash dividend in two installments, the first after the announcement of
first half's earnings and the second following the announcement of the company’s annual
profits. For several years, Etisalat has provided cash dividends equal to 50% of its par value.
In 2006, it raised the rate of distribution to 60% and maintained this percentage afterward. The
first distribution represents an interim payment of AED 0.25 per share, made after the
announcement of the second quarter profit, and the final distribution of AED 0.35 per share is
made after the announcement of annual results.

Stock dividends:
Etisalat was established in 1976 with a capital of AED 100 million and its capital increased to
AED 3 Billion 2003 as a result of bonus shares distribution and capital increase. From 2004
onwards, Etisalat has made annual issues of bonus stock that have increased its capital today
to AED 7.906 billion. The following chart shows the percentage of bonus shares distributed
for each fiscal year and the capital after the distribution
Stock Dividends of "Etisalat"over Cash Dividends of "Etisalat"over
the past five years the past five years
4.31
3.59
7.91
7.19 3.00
5.99 2.72
4.99
4.54 1.82

25% 20% 20% 0.50 0.60 0.60 0.60 0.60

10% 10%

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
DPS (AED)
stock dividend % cash dividends (in billions)
capital after divd. (in billions)

Strong Operational performance

In 2009, Etisalat has witnessed strong operational performance in UAE. The number of
mobile users has reached 7.74 million, a growth of 6% over 2008. Fixed line subscribers also
increased to 1.31 million while the Internet subscriber base reached 1.33 million, with an
increase of 16% over 2008 results.
UAE share of consolidated profits is 90% as the international operations are still relatively
young operations. Etisalat plans to generate 20% of its profits from these international
markets in the coming three years and to increase the percentage 50% by 2020

New Initiatives in 2010

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Earlier this year, Mohammed Omran, Chairman of Etisalat announced three new initiatives
which will be implemented by the company in 2010. This comes as part of Etisalat’s strategy
to innovate, explore and provide added value.
Through its continuous approach to provide job opportunities for UAE nationals, Mohammad
Omran announced that Etisalat will raise the percentage of UAE nationals among its
employee by opening doors for them to fill in current vacancies. Percentage of nationals has
reached 35%.

The second initiative complements Etisalat’s achievements in the community. Etisalat will
introduce “Etisalat Foundation”, through which Etisalat will funnel its support of community
activities and events.

Omran also announced that 2010 is to be considered the year of Excellence in Customer
Service. This initiative aims to achieve significant growth in customer service and
satisfaction, through increasing quality and technical support for the different services
provided by Etisalat. The initiative also aims to launch new services and packages to provide
added value for Etisalat customers.

International Expansion
Since the start of its international expansion Etisalat maintained careful approach in
international strategy and evaluated investment opportunities in vigilant manner. Etisalat
exceeded its role as a big investor in Telecom to be an ambassador of a strong UAE economy.
It is currently operating in 18 countries of high growth markets with low penetration and large
population. Expanding its global footprint, Etisalat has joined the league of major telecom
providers in the world.
Saudi Arabia:
Mobily is the official brand name of Etihad Etisalat, the second mobile service provider in the
Kingdom of Saudi Arabia. Established in accordance with a 2004 royal decree, the ownership
of the company is two-fold: a Saudi ownership, comprising public investors holding 40% of
the company’s shareholding, while private investors own a 33.75% stake. The balance of
27.24% is owned by Etisalat .
Mobily launched service in 2005 in 32 cities (license requirement only seven), bringing
coverage to 79.2 percent of the population and attracting first million subscribers in less than
90 days. Mobily introduced 3.5G services into Saudi Arabia in June 2006 to cover 19 cities in
the kingdom. By the end of 2006, Mobily had more than 500,000 active subscribers in the 3G
and 3.5G, and remains the largest 3G/3.5G service. By the end of 2006 company’s subscriber-
base grew to just over 6 million representing more than 30 percent market share.

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Currently the company has the largest high speed packet access (HSPA) network in the region
covering 337 regions, cities and areas inside the Kingdom of Saudi Arabia’s geographical
expanse of 2.149 million square kilometers and covers 16 cities with WiMAX service. Mobily
has more than 8,000 towers providing 97% of the population with second generation mobile
services and high-speed packet access (HSPA) coverage to 90% of the population, allowing
them to enjoy access to mobile broadband Internet services, video calling capabilities, hybrid
digital content services and much more.
Sudan:
In Sudan, Canar was established in April 2005 as a shared investment entity between Emirates
Telecommunication Corporation (Etisalat) and prominent Sudanese investors. Within 3 years
of its launch, Canar has been able to secure 61.5% of fixed line subscribers in Sudan.
Canar uses cutting edge technologies such as Next Generation Network applications (NGN)
based on the Internet Protocols (IP), which positions Sudan amongst the first countries to
benefit from this technology. Canar has installed highly advanced technologies including
fiber-optic cables, and rolled out 3920 KM of fiber nationally and locally in major cities in
Sudan. These new advancements are paving the way for making technology available to wide
sectors of the Sudanese society .
Canar’s Carriers relation department provides wholesale solutions to local mobile operators
and ISPs, Regional carriers and International carriers. Canar is the first operator in East Africa
to be a landing party to a submarine cable system. Canar provides customers with capacity to
any destination in the world through Flag Submarine Fiber-Optic Network .
During 2009, fibre optic links between Sudan and Ethiopia were rolled out as part of overall
plans to expand the Canar fibre network across all neighbouring countries. This will maximise
use of the Canar submarine landing station, which is an integral part of the Canar Wholesale
offer in international connectivity for the region. Moreover, Canar established STM-1 links
.with Flag Hong Kong, as well as provisioned seven new international interconnections
Egypt:
In July 2006 a consortium led by Etisalat won the bid for Egypt’s third mobile GSM and 3G
license. In the first 50 days of operation, Etisalat Misr acquired approximately 1million
subscribers and now covers 98% of the entire country via around 5000 2nd and 3G stations –
less than 30 months after commercial launch, two years ahead of the National Telecom
Regulatory Authority’s (NTRA) license coverage obligations
Etisalat Misr offered unprecedented new services such as video calls, Mobile TV and high-
speed Internet, all using Etisalat's advanced 3.75G network to transmit data, images, video
and audio. 3.5G, high speed data connectivity is provided to over 40 cities across the country.
Coverage exceeded 70% of the population by end of 2007. The company is the first mobile
operator in Egypt to offer Downlink speeds up to 7.2Mbps which is two times faster than
3.5G downlink speeds. During 2009 Etisalat Misr had a very successful HSPA+ live trial.

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This succeeded in achieving average throughput of 19.2 Mbps, making Etisalat Misr the first
African operator to accomplish this. Etisalat Misr has acquired over 14 million subscribers.
Pakistan:
In another important market for Etisalat, PTCL in Pakistan became the largest and fastest
growing service provider among all high speed service providers in Pakistan. Broadband
subscriber base crossed 360,000 landmarks over 200 cities of Pakistan while its sister
company Ufone has gained a market share of 18.9% in 2009 and managed to build up a
subscriber base of over 20 million in less than a decade. Ufone has network coverage in
10,000 locations and across all major highways of Pakistan. Ufone currently caters for
International Roaming to more than 260 live operators in more than 150 countries. Ufone also
offers Pakistan’s largest GPRS & BlackBerry Roaming coverage available with more than
150 Live Operators across 105 countries .
Tanzania:
In Tanzania, Zantel managed to function more efficiently, and secure additional revenue by
reengineering certain processes. Company was considered best internet provider in Tanzania .
Afghanistan:
Etisalat Afghanistan has achieved a number of milestones during three years of hard work
since its launch. The company has now more than three million customers and controls more
than 24% market share in 27 provinces in Afghanistan. In 2009 Etisalat Afghanistan’s
revenues has grown three times compared to 2008. The Company will continue expanding its
network coverage and offer more data and voice services .
Sri Lanka &India :
In Sri Lanka Tigo has been renamed as Etisalat Lanka. Prior to Sri lanka Etisalat entered the
Indian telecom market in a carefully calculated step through a tie-up with the Dynamix
Balwas (DB) Group in September 2008 to form Etisalat DB Telecom Pvt Ltd. The company
had licences to offer telecom services in 15 out of 22 circles, representing 84% of the
country’s population. In most of the circles, Etisalat would be the ninth or tenth mobile phone
entrant.
Indonesia:
In Another successful investment for Etisalat, XL in Indonesia , 16% shareholding owned by
Etisalat, has implemented Green BTS Technology which was first introduced in Sumatra and
Kalimantan,. This saves energy, and cuts electricity cost by 40–50% due to its low power
consumption, which also helps to keep operating expenditure down. As a step in delivering
faster data speed, Hybrid Transmission Access was implemented, providing two different
platforms – Time Division Multiplexing (TDM) and Internet Protocol (IP) – in one
transmission link.

Substantial Support to UAE Community

9

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Financial success and technical excellence and reliability in services, have not deter Etisalat
from lending a hand to the UAE community by allocating huge budget to support various
initiatives and projects in key sectors of health, education, economy, sports and tourism, as
well as for scientific research ,

Etisalat contributions to the ICT fund have exceeded AED 692 million by end of 2009 in
addition to its support to sports sector where its contributions since 2005 to UAE Football
Association exceeded AED 300 million. Etisalat was one the main supporters of Dubai Cares
the Emirates Foundation, with AED 50 million that comes to sponsorship

Etisalat is still committed to be a key contributor to CSR activities and always seek to create
strategic partnerships with different social organizations to help them develop. Etisalat will
maintain its role in social activities, and will continue to an example for other organizations to
emulate.

10

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 11

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Tel. : 02-6668899, Fax : 02-6668311, P.O. Box : 2583, Abu Dhabi, U.A.E. website :www.alfajerco.com