Outstanding Orascom
Orascom has announced excellent results, but what is on the cards for the telecommunications giant in the long term? Wael Gamal reports
On a single day last week, Orascom Telecom Holdings (OTH), announced its consolidated results for the 12 months ending 31 December 2002, recording huge profits, and said that it had finalised the selling off of seven key assets in Sub- Saharan Africa. The two announcements, made last week, were enthusiastically received by the market. OTH's share price skyrocketed nearly five pounds in one day, reaching LE27.17, a 22.7 per cent rise. As the leading Global System for Mobile Communications (GSM) and Internet services operator in the Middle East, Africa and Pakistan, OTH has undergone major restructuring and divestitures in order to improve its financial performance. The strategy seems to be working.
Faced with a serious debt problem in 2002, OTH announced a strategic plan to focus on its core assets and balance sheet restructuring by reducing debt. OTH executed this strategy through the sale of Sabafon and Menatel and the sale of parts of it's African subsidiary, Telecel. Moreover, OTH has sold off it's developed Jordanian operations to focus on operations in regions with high growth potential, such as Pakistan, Algeria and Tunisia.
The improvement in OTH's results is a function of this strategy. "In this latest move, OTH has got rid of a loss generating asset. If we add this to the capital gain attained from selling the profitable asset, Fastlink, last January, we can understand the huge leap in profits and revenues," says Joseph Iskandar, an investment analyst for Prime Investments. "The restructuring plan has been a success and the market reflects this," adds Iskandar.
OTH's share price is up by more than 130 per cent since the end of January, when it stood a LE11.
Revenues have increased by LE249 million to LE4,064 million for the year ending 31 December 2002, a seven per cent increase. Pro forma revenues taken on a comparative basis have increased by 45 per cent. One major contributor to these revenues was MobiNil, with 29 per cent, an increase of 11 per cent over 2001.
Total earnings before interest, taxes, dividends and amortisation (EBITDA) reached LE1,519 million, an increase of LE224 million and a 17 per cent increase over 2001's figure of LE1,295. Pro forma EBITDA increased by 57 per cent.
In a press release, OTH said its strategy in 2003 is to continue to focus on core operations, with particular emphasis on the rollout and financing of Djezzy (Algeria), and Tunisiana (Tunisia). OTH is also keen to continue the de-leveraging of its balance sheet and the restructuring of its sub-Saharan operations, with clear emphasis on countries with a high population and low mobile penetration. An opportunity in Iraq might be an exception to this. "Although the immediate potential of an Iraqi network is not good, OTH's chances and motives to get the deal will be great," Iskandar says.
But new challenges and difficulties are on the horizon. A major factor in the strength of OTH's results was the strong financial performance of MobiNil, achieved despite difficult economic circumstances. MobiNil's financial position has been helped by its dominant position in the Egyptian mobile market and its successfully hedged foreign currency exposure during the last quarter of 2002. Net exposure has been reduced to $38 million, in line with its annual roaming revenues. This is unlikely to continue into the future.
Furthermore, MobiNil and Vodafone's efforts to put a stop to the launch of a third mobile operator in Egypt have been thwarted by Presidential decree (See related story). OTH's share price dropped by LE1.54 the trading day after this was announced. Iskandar doesn't consider this purely as a reaction to the decision, rather it is more likely to signify "profit taking". Still, the entrance of a third operator is a development which makes the market less stable and less predictable.
"The success of the deal would have made the picture rosy for the two companies [MobiNil and Vodafone]. They thought that they could protect their price margins [thereby] generating more profits using their monopoly of the market," says one market analyst who asked to remain anonymous. "Now, the new pattern of competition will determine price margins and if there is a price war, this will be truly harmful," he added.
