Emirates Telecommunications Corporation 'Etisalat' Earnings

Emirates Telecommunications Corporation

‘Etisalat’

Earnings Release

Second Quarter 2014

Emirates Telecommunications Corporation ‘Etisalat’ Earnings Release Q2 2014

Page | 2

Abu Dhabi, July 20th 2014: Etisalat announced today its consolidated financial statements for the second quarter ending 30th June 2014.

Financial Highlights for Q2 2014

Aggregate subscriber base reached 182 million representing net addition of 39 million subscribers during the last 12 months;

Consolidated revenues amounted to AED 12.6 billion and increased year over year by 27%;

Consolidated EBITDA totaled AED 5.9 billion, resulting in EBITDA margin of 47%;

Consolidated net profit after Federal Royalty amounted to AED 2.5 billion and increased year over year by 27%;

Proposed interim dividend for first half of fiscal year 2014 of 35 fils per share; and

Consolidated capital spending increased 84% to AED 3.4 billion, representing 27% of the consolidated revenues

Key Developments

Etisalat successfully completed the acquisition of 53% stake in Maroc Telecom ;

Etisalat signed multi-currency bank syndication for €3.15 bn with 17 international, regional and local banks to finance the acquisition of 53% stake in Maroc Telecom;

Etisalat successfully issued its inaugural bond under the GMTN programme listed on the Irish Stock Exchange and the proceeds used to repay the bank syndication facilities;

Etisalat and Maroc Telecom signed Sale Purchase Agreement related to Etisalat’s shareholding in the operating companies under Atlantique Telecom in West Africa;

Credit Ratings Agencies S&P, Fitch and Moody’s affirmed Etisalat high credit Ratings at AA-/A+/Aa3 with stable outlook ;

Ufone acquired 3G license and was the first operator to launch 3G services in Pakistan

Statement from His Excellency Eissa Al Suwaidi, Chairman of Etisalat Group

“The overall constantly remarkable performance of Etisalat shows our dedication to become the leading and most admired emerging market telecom group.”

“The key development for this quarter was completing the acquisition of Vivendi’s 53% shareholding in Maroc Telecom, which we are confident it adds a great value to Etisalat and its shareholders, besides the other key developments we witnessed in different markets, and it will have a transformational impact on Etisalat and its key financials. Maroc Telecom is a well-run company, and this acquisition is the largest deal in the history of our great company and a truly exciting moment for us all. In the occasion of achieving this remarkable milestone in the Etisalat journey, we would like to extend our sincere gratitude to the UAE’s wise leadership for the continuous support for this vital industry. ”

Statement from Ahmad Abdulkarim Julfar, CEO of Etisalat Group

“This acquisition marked the largest and most complex deal in the history of Etisalat, and will completely


Page | 3

change the telecoms landscape in Africa; it is one of the largest cross-border M&A transactions in the MENA region of all time, and it expands Etisalat’s reach to 19 markets.” “Our experience in markets across Middle East, Africa and Asia will truly complement Maroc Telecom’s deep expertise in their home market and in other markets in Africa”

Update on Maroc Telecom Transaction

On May 4, 2014, Etisalat, Atlantique Telecom SA (“AT”) and Etisalat International Benin Limited (“EIBL”) and Itissalat Al Maghrib (“Maroc Telecom”) signed a Share Purchase Agreement for the sale of Etisalat’s shareholdings in its operations in Benin, the Central African Republic, Gabon, the Ivory Coast, Niger and Togo. These operations provide both mobile voice and data services and operate under the Moov brand. The Share Purchase Agreement also includes Prestige Telecom, established in the Ivory Coast, providing IT services to the operations of Etisalat in these countries. The total consideration in return for Etisalat’s equity in and receivables (including shareholder loans) from these seven companies amounts to USD 650 million. Closing of the transaction is subject to a number of conditions including securing competition and regulatory approvals in the above-mentioned six countries in West Africa. On May 14, 2014, Etisalat successfully completed the acquisition of Vivendi’s 53% shareholding in Maroc Telecom. The final consideration paid amounted to €4,138 million and Etisalat commenced consolidating Maroc Telecom and its subsidiaries effective May 2014. The transaction was effected through the acquisition by Etisalat Investment North Africa LLC (“EINA”) of Vivendi’s 53% effective shareholding in Maroc Telecom. EINA is an indirect subsidiary of Etisalat incorporated in the Emirate of Abu Dhabi. The effective interests in the capital of EINA are Etisalat (93.1%) and Abu Dhabi Fund for Development (8.7%). On 19 May 2014, Etisalat submitted its Mandatory Tender Offering file, as per stock market regulations in Morocco, to the Moroccan Authorities “Conseil Déontologique des Valeurs Mobilières” (CDVM). However, Etisalat was exempted by (“CDVM”).

Subscribers

Etisalat Group aggregate subscriber base grew to 182.1 million by the end of June 2014 representing year over year growth of 27% and quarter over quarter growth of 24%. The Group reported net additions of 38.7 million subscribers during the last 12 months as a result of the consolidation of Maroc Telecom. Excluding Maroc Telecom, aggregate subscriber growth was flat year on year at 143.7 million. In the UAE, the active subscriber base grew to 11.0 million in June 2014 representing year over year growth of 11% and quarter over quarter growth of 1%. In the highly competitive mobile market, we gained more than 0.4 million customers in the second quarter of 2014, thus asserting our leading position in the mobile segment. As a result, our mobile subscriber base grew year on year by 17% to 9.3 million subscribers. Fixed line subscriber including eLife and broadband segments performed well, growing to 1.7 million representing a year on year growth of 58%.

143 147 182

Q2' 13 Q1 '14 Q2'14Aggregate Subscribers (m)


Page | 4

In the Asia cluster, aggregate subscriber base was 35.8 million at the end of June 2014, declining 5% year over year. This is mainly attributed to the cleansing of the subscriber base of mobile operation in Pakistan and competitive pressures in Afghanistan. In the Africa cluster, aggregate subscriber base reached 69.7 million at the end of June 2014 representing a year over year increase of 151% mainly due to strong subscriber growth in Nigeria and consolidation of Maroc Telecom operations effective from May 2014. Excluding Maroc Telecom, subscriber base was 31.3 million, representing 13% increase for the year and 2% quarter over quarter. Maroc Telecom subscriber base exceeded 38 million customers at 30 June 2014, representing a year over year growth of 9%. This growth is mainly attributable to operations in Mail, Burkina Faso and Gabon.

Revenue

Revenue breakdown

Etisalat Group’s consolidated revenue in the second quarter of 2014 amounted to AED 12.6 billion with growth accelerating to 27% in comparison to the same period last year. This was in particular attributable to the first-time inclusion of Maroc Telecom as of May 1, 2014 and the ongoing revenue growth in the UAE operations due to continued strong customer additions. Excluding the results of Maroc Telecom, revenue amounted to AED 10.4 billion for the quarter with an increase of 5% as compared to the same period last year and by 5% quarter over quarter. In the UAE, revenues of AED 6.8 billion for the second quarter of 2014 were 8% higher than the second quarter of 2013 and 5% in comparison to first quarter of 2014. This was mainly as a result of strong customer acquisition coupled with strong data performance and increased device sales. Our International consolidated operations substantially increased its share in revenue year-on-year by 64% mainly due to the consolidation of Maroc Telecom. As a result, the proportion of revenues generated internationally continued to increase reaching 46%, up from 36% in the second quarter of 2013. In Egypt, revenues for the second quarter of 2014 were AED 1.2 billion, a 5% increase in comparison to the same period of last year. Revenue growth is driven by strong performance of data segment. In Asia, consolidated revenues reached AED 1.6 billion, representing a decline of 1% in comparison to the same period last year and contributed 13% to Group consolidated revenues. This decline was mainly due to the competitive

9.9 9.9 12.6

Q2' 13 Q1 '14 Q2'14

Group Revenue (AED Billion)

UAE 54%

Egypt 10%

Asia 13%

Africa 22%

Others 1%


Page | 5

pressures in Afghanistan operation. In Pakistan, Ufone was the first operator to launch 3G services and has introduced a range of prepaid and postpaid 3G packages, incorporating different download speeds and data allowances. Africa cluster benefited from the consolidation of Maroc Telecom. Consolidated revenues grew year over year by 320% to AED 2.9 billion in the second quarter of 2014. Excluding results of Maroc Telecom, Africa Cluster marginally grew year over year by 1% and quarter over quarter by 2% to AED 0.7 billion. Maroc Telecom’s consolidated revenue for the second quarter amounted to AED 3.3 billion, representing a year on year growth of 6%. This growth is attributable to strong performance of its international subsidiaries.

Operating Expenses

EBITDA

EBITDA breakdown

Group Consolidated EBITDA for the second quarter of 2014 was AED 5.9 billion

representing a year over year increase of 21% and a quarter over quarter

increase of 19%. Excluding the results of Maroc Telecom, EBITDA for the

second quarter was AED 4.6 billion declining 4% year on year and 6% quarter

over quarter. This decline is due to higher interconnection and termination

costs, higher regulatory expenses and network related costs

In the UAE, EBITDA increased year over year by 7% to AED 3.9 billion and EBITDA margin was 56%, 1 point lower than the same period of last year. The increase in EBITDA in absolute terms is attributed to higher revenues and effective control measures on operating expenses. EBITDA of international consolidated operations increased year over year by 117% to AED 2.4 billion, resulting in 41% contribution to Group consolidated EBITDA. Excluding Maroc Telecom, EBITDA for the second quarter of 2014 was AED 1.2 billion and EBITDA margin 33% representing a 6% growth from the same period last year and 6% increase quarter over quarter. In Egypt, EBITDA for the second quarter of 2014 reached AED 0.5 billion and EBITDA margin was 39%, 4 points higher than the second quarter of 2013. This improvement in EBITDA is driven by growth in the data segment and more favorable product mix. In the Asia cluster, EBITDA for the second quarter of 2014 decreased year over year by 3% to AED 0.5 billion and EBITDA margin decreased by 1 point to 32% in comparison to the same period last year. This decline in EBITDA was mainly driven by higher network costs and regulatory costs in relation to the 3G license acquisition and 2G license renewal as well as higher staff costs in the Pakistan

4.9 4.9

5.9

Q2' 13 Q1 '14 Q2'14

Group EBITDA (AED Billion)

UAE 66%

Egypt 8%

Asia 9%

Africa 24%

Others -6%


Page | 6

operations. In the Africa cluster, EBITDA increased year over year by 787% to AED 1.4 billion and EBITDA margin increased to 49% in comparison to 23% last year. Excluding Maroc Telecom, EBITDA increased year over year by 10% to AED 0.2 billion and EBITDA margin increased to 24%. Quarter over quarter EBITDA increased by 7% and EBITDA margin increased by 1 point. Maroc Telecom’s consolidated EBITDA for the second quarter amounted to AED 1.8 billion, representing a year on year growth of 2%. EBITDA of the international subsidiaries was impacted by increase in regulatory taxes. As a result, EBITDA margin of Maroc Telecom declined year on year by 2 points to 56%.

Federal Royalty

Federal Royalty for the second quarter of 2014 amounted to AED 1.8 billion, representing a year over year decrease of 7%. This resulted in an effective royalty rate of 41% on net profit before Federal Royalty in comparison to 49% in the same quarter prior year.

Net Profit and EPS

Consolidated net profit after Federal Royalty increased year over year by 27% to AED 2.5 billion in the second quarter of 2014. This increase is impacted by the consolidation of Maroc Telecom and other income.

Earnings per share (EPS) amounted to 32 fils in the second quarter of 2014, an increase of 27% from the same period last year.

The Board of Directors has approved an interim dividend distribution for the six months period ended 30 June 2014 at the rate of 35 fils per share. This is subject to final approval at the Annual General Assembly. Interim dividend distribution of 35 fils per share will commence from 13 August 2014 to those shareholders registered in the Shareholders’ Register at the close of the business day on 30 July 2014.

1.9 1.9 1.8

Q2' 13 Q1 '14 Q2'14Federal Royalty (AED Billion)

2.0 1.5

2.5

0.25 0.26 0.32

Q2' 13 Q1 '14 Q2'14

Net Profit EPS


Page | 7

CAPEX

Capex Breakdown

Consolidated capital expenditure increased year over year by 84% to AED 3.4 billion in the second quarter of 2014 resulting in a capital intensity ratio of 27%. This increase is due to the 3G license acquisition and 2G license renewals in Pakistan and consolidation of Maroc Telecom. Adjusting for these items, capital expenditure would have been AED 1.5 billion representing a year over year decrease of 17% and capital intensity ratio of 15%. In the UAE, capital expenditure in the second quarter was committed to network modernization and store rollout and amounted to AED 0.5 billion, a decrease of 21% in comparison to the same period last year. Capital intensity ratio was 7%, 3 points lower than the same quarter of the prior year and at the same level as the first quarter of 2014 at 7%as the Capital expenditures in consolidated international operations in the second quarter of 2014 increased by 136% to AED 2.9 billion compared to the same period last year and represents 84% of total Group capital expenditure. Excluding Maroc Telecom, capital spending for international operations was AED 2.4 billion, an increase of 101% compared to the same period last year and represents 82% of total group capital spending. In Egypt, capital expenditures for the period increased by 41% year over year to AED 0.3 billion resulting in a capital intensity ratio of 24%. Capital spending focused on capacity upgrade to cope with the higher demand for data services. In the Asia Cluster, capital expenditure for the second quarter of 2014 accelerated by 386% to AED 2.0 billion resulting in a capital intensity ratio of 122%. This is mainly attributed to the recently acquired 2x5 MHz spectrum at 2100 MHz band and 2G license renewal in Pakistan. Adjusting for these, capital spending in Asia would have been AED 0.6 billion and capital intensity would have been 34%. In the Africa cluster, capital expenditure amounted to AED 0.6 billion for the second quarter of 2014. Excluding Maroc Telecom, capital expenditure decreased year on year by 75% to AED 0.1 billion, resulting in a capital intensity ratio of 21%.

1.9

1.5

3.4

19% 9% 27%

Q2' 13 Q1 '14 Q2'14

Capex % Revenue

UAE 14%

Egypt 9%

Asia 59%

Africa 17%

Others 1%


Page | 8

Debt

Debt Breakdown by Currency

Total consolidated debt amounted to AED 26.4 billion as of 30 June 2014, as compared to AED 5.8 billion as at 30 June 2013 , an increase of AED 20.6 billion reflecting primarily external borrowing to fund the acquisition of 53% stake in Maroc Telecom and the first-time consolidation of Maroc Telecom’s results. The rest of the existing debt is related to international operations to finance investments in networks. About 77% of the debt balance is of long-term maturity. On 28 April 2014, Etisalat signed a multi-currency club deal of EUR 3.15 billion with a group of seventeen international, regional and local banks. The purpose of the financing facility was to fund the acquisition of the Vivendi’s 53% stake in Maroc Telecom and it involved two facilities which can be utilized in EUR and/or USD. Tranche A is a twelve months bridge loan amounting to EUR 2.1 billion at a price of EURIBOR plus 45 basis points for the first six months increasing by 15 basis points in each of the following three months. Tranche B is a three-year bullet term loan amounting to €1.05 billion at a price of EURIBOR plus 87 basis point. On 22 May 2014, Etisalat completed the listing of its Global Medium Term Note

(GMTN) Programme on the Irish Stock Exchange (ISE). Under the programme,

Etisalat can issue one or more series of conventional bonds in any currency and

amount up to USD 7 billion. The listed bond programme was rated by three

Credit Ratings Agencies as follows: Aa3 stable (Moody’s), AA- Stable (S&P) and

A+ stable (Fitch). On 11 June 2014, after completion of a roadshow in UAE, Asia

and Europe, Etisalat issued its inaugural bond that were denominated in US

Dollars and Euros and consist of four tranches:

5 years tranche: USD 500 million with coupon rate of 2.375% per

annum.

7 years tranche: Euro 1,200 million with coupon rate of 1.750% per

annum.

10 years tranche: USD 500 million with coupon rate of 3.500% per

annum.

12 years tranche: Euro 1,200 million with coupon rate of 2.750% per

annum

Net proceeds from the issuance of the bond was used for repayment of the outstanding banks facilities amounting to EUR 3.15 billion that was used to fund the acquisition of the Vivendi’s 53% stake in Maroc Telecom.

5.8 5.5

26.4

Q2' 13 Q1 '14 Q2'14Debt (AED Billion)

USD 7% EGP

5%

EURO 64%

MAD 14%

Others 10%


Page | 9

Consolidated debt breakdown by operations as of 30 June 2014 is as following:

Etisalat Group (AED 15.5 billion)

Maroc Telecom (AED 4.6 billion)

Etisalat Misr (AED 1.8 billion)

Atlantique Telecom (AED 1.7 billion)

Etisalat Afghanistan (AED 0.7 billion)

PTCL Group (AED 0.7 billion)

Etisalat International Pakistan (AED 0.6 billion)

Zantel (AED 0.4 billion)

Etisalat Sri Lanka (AED 0.3 billion) Consolidated cash balance reached AED 15.5 billion as of 30 June 2014 leading to a net debt position of AED 10.8. Currency mix for external borrowings is 64% in Euros, 14% in Moroccan Dirhams, 7% in US Dollars, 5% in Egyptian Pounds and 10% in various currencies.


Page | 10

Profit and Loss Summary

(AED m) Q2’13 Q1’14 Q2’14 QoQ YoY

Revenue 9,882 9,899 12,579 +27% +27%

EBITDA 4,867 4,939 5,866 +19% +21%

EBITDA Margin 49% 50% 47% -3pp -3pp

Federal Royalty 1,911 1,901 1,778 -6% -7%

Net Profit after Federal Royalty 1,976 2,024 2,507 +24% +27%

Net Profit Margin 20% 20% 20% -1pp 0pp

Balance Sheet Summary

(AED m) Q1’14 Q2’14

Cash & Cash Equivalents 18,823 15,547

Total Assets 90,814 123,622

Total Debt 5,505 26,350

Net Cash / (Debt) 13,319 (10,803)

Total Equity 49,769 58,065

Cash flow Summary

(AED m) Q2’13 Q2’14

Operating 2,633 5,145

Investing (2,277) (19,867)

Financing (3,324) 14,749

Net change in cash (2,969) 24

Effect of FX rate changes 32 72

Ending cash balance 10,997 15,547


Page | 11

Foreign Exchange Rates

Average rates Closing rates

Q2’13 Q2’14 YOY Q2’13 Q2’14 YOY

EGP - Egyptian Pounds 0.5291 0.5212 -1.5% 0.5233 0.5242 0.2%

SAR - Saudi Riyals

0.9794 0.9794 0.0% 0.9795 0.9794 0.0%

CFA - Central African Francs

0.0073 0.0077 5.7% 0.0073 0.0077 4.4%

TZS - Tanzanian Shillings

0.0023 0.0022 -3.0% 0.0023 0.0022 -3.1%

NGR - Nigerian Naira

0.0231 0.0227 -1.8% 0.0226 0.0229 1.3%

PKR - Pakistani Rupees

0.0373 0.0373 0.1% 0.0369 0.0373 1.0%

AFA - Afghanistan Afghani

0.0690 0.0656 -5.0% 0.0677 0.0656 -3.1%

LKR – Sri Lankan Rupees

0.0289 0.0282 -2.4% 0.0282 0.0282 0.1%

SDG - Sudanese Pounds 0.8324 0.6157 -26.0% 0.8292 0.6156 -25.8%

MAD - Moroccan Dirham 0.4300 0.4497 4.6% 0.4371 0.4494 2.8%

Reconciliation of Non-IFRS Financial Measurements

We believe that EBITDA is a measurement commonly used by companies, analysts and investors in the telecommunications industry, which enhances the understanding of our cash generation ability and liquidity position, and assists in the evaluation of our capacity to meet our financial obligations. We also use EBITDA as an internal measurement tool and, accordingly, we believe that the presentation of EBITDA provides useful and relevant information to analysts and investors. Our EBITDA definition includes revenue, staff costs, direct cost of sales, regulatory expenses, operating lease rentals, repairs and maintenance, general financial expenses, and other operating expenses. EBITDA is not a measure of financial performance under IFRS, and should not be construed as a substitute for net earnings (loss) as a measure of performance or cash flow from operations as a measure of liquidity. The following table provides a reconciliation of EBITDA, which is a non-IFRS financial measurement, to Operating Profit before Federal Royalty, which we believe is the most directly comparable financial measurement calculated and presented in accordance with IFRS.

AED m Q2’13 Q1’14 Q2’14

EBITDA 4,867 4,939 5,866

Depreciation & Amortization (1,142) (1,101) (1,576)

Exchange gain/(loss) (95) (58) 163

Share of Associates and JVs results 610 375 347

Impairment and other losses - - (776)

Operating Profit Before Federal Royalty 4,250 4,155 4,024


Page | 12

Disclaimer

Emirates Telecommunications Corporation and its subsidiaries (“Etisalat” or the “Company”) have prepared this presentation (“ Presentation”) in good faith, however, no warranty or representation, express or implied is made as to the adequacy, correctness, completeness or accuracy of any numbers, statements, opinions or estimates, or other information contained in this Presentation. The information contained in this Presentation is an overview, and should not be considered as the giving of investment advice by the Company or any of its shareholders, directors, officers, agents, employees or advisers. Each party to whom this Presentation is made available must make its own independent assessment of the Company after making such investigations and taking such advice as may be deemed necessary. Where this Presentation contains summaries of documents, those summaries should not be relied upon and the actual documentation must be referred to for its full effect. This Presentation includes certain “forward-looking statements”. Such forward looking statements are not guarantees of future performance and involve risks of uncertainties. Actual results may differ materially from these forward looking statements.

About Etisalat

Etisalat is an international, blue-chip organisation with operations in 19 countries across the Middle East, Africa and Asia. It is one of the leading telecom operators with one of the largest market capitalization among Middle East, African and Asian telcos. It is a highly rated telecom company with ratings from Standard & Poor’s, Moody’s and Fitch (Aa3/AA-/A+); with low leverage and strong UAE Government support. Etisalat became one of the world’s fastest growing telecom operators; with customer numbers growing from 4 million to over 180 million in 10 years. Its international acquisition programme began in earnest in 2004 through the award of the second mobile license, and the first 3G license in Saudi Arabia. Since then the company has witnessed rapid expansion, across the Middle East, Africa and Asia through acquisitions and organic growth. Etisalat now has access to a population of close to 700 million people, with Thuraya; its satellite network provider covering over two thirds of the planet’s surface. Etisalat shareholding structure consists of 60% held by the Emirates Investment Authority and 40% free float. Etisalat (Ticker: Etisalat) is quoted in the Abu Dhabi Stock Exchange (ADX).

Investors: Investor Relations Email: [email protected] Website: www.etisalat.com

mailto:[email protected]

Documents

Emirates Telecommunications Corporation 'Etisalat' Earnings