Investor
Presentation
Q2 2018
2
Disclaimer
This document has been prepared by Telecom Egypt (the “Company”) solely for the use at the analyst/investor presentation, held in connection with the Company. The information
contained in this document has not been independently verified. This document contains statements related to our future business and financial performance and future events or
developments involving Telecom Egypt that may constitute forward-looking statements. Such statements are based on the current expectations and certain assumptions of Telecom
Egypt's management, of which many are beyond Telecom Egypt's control. Such assumptions are subject to a number of risks and uncertainties. Should any of these risks or
uncertainties materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results may (negatively or positively) vary materially from those described
explicitly or implicitly in the relevant forward-looking statement. Telecom Egypt neither intends, nor assumes any obligation, to update or revise these forward-looking statements in
light of developments, which differ from those anticipated.
This document does not constitute an offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares of the Company and neither it nor any
part of it shall form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. This presentation has been made to you solely for information purposes
and is subject to amendment. This presentation (or any part of it) may not be reproduced or redistributed, passed on, or the contents otherwise divulged, directly or indirectly, to any
other person or published in whole or in part for any purpose without the prior written consent of the Company.
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3
H1 2018 results highlightsOperational growth as a manifestation of our growth strategy
10.1bn+ 16% YoY
3.3bn+19% YoY
2.1bn-18% YoY
Revenue (EGP bn)
EBITDA (EGP bn)
Customers ( In mn )
Net profit (EGP bn)
Half year revenue crosses 10bn for the first
time with a 16% YoY growth boosted by the
continuation of data growth – a clear manifestation of
the growth strategy adopted more than a year ago.
Our customer footprint continues to
expand with growth in fixed (11% YoY in voice, 27%
in data) plus 1mn mobile net additions year-to-date.
Operating profit growth of 11% YoY on a 19%
YoY growth in EBITDA, despite the high level of Capex
reflected on higher depreciation on the P&L and the
cost of the license represented into the hike
amortization (D&A +51% YoY).
Stable EBITDA margin at 32.5% as EBITDA
grew on effective cost control and improved gross
margin. Management maintains full year guidance as
H2 is usually lower margin.
Net profit decline of 18% weighed on by Q1 performance (-40% YoY)
mainly due to one off decline in investment income
from Vodafone Egypt and the impact of higher
financing expenses in line with our investment
strategy & a direct impact of the high-interest
environment in Egypt.
EBITDA margin of 32.5% Net profit margin of 20.3%
H1 2018: Operational growth in line with strategy
Fixed
Mobile
Voice Data
7.4+11% YoY
4.6+27% YoY
3.3+1 million net additions ytd
4
Q2 2018 results highlightsEBITDA margin enhancement on cost mgmt, net profit jumps 66% QoQ
5.3bn+16% YoY/ +12%QoQ
1.8bn+24% YoY/ +19% QoQ
1.3bn+4% YoY/ +66% QoQ
Revenue (EGP bn)
EBITDA (EGP bn)
Customers ( In mn )
Net Profit(EGP bn)
Fixed
Mobile
Voice Data Strong revenue growth momentum growing 16% YoY:
driven by strong growth in data services (+45%
YoY in Home & Enterprise).
3rd quarter of mobile revenue, already
contributing a high single digit to retail revenue on
the successful launch of the WE data platform.
EBITDA margin of 33.4% on strict cost management:
Offsetting the impact of higher advertising costs and
low margin start-up nature of mobile segment
through
1. Employee cost management (22% of revenue,
down from 25% last year, ↓329bps)
2. Lower call costs as % of revenue ↓351bps in
spite of new costs of mobile national roaming &
interconnect
Net profit grew 4% YoY as operational growth offset
increased expenditure below the EBITDA absent in
the prior year namely higher depreciation &
amortization expenses (+53%) and interest/ finance
expense.
Net profit growth of 66% QoQ equally attributable to
operational growth & recovery in Vodafone Egypt’s
investment income plus interest expense
management (stable QoQ in spite of net debt
increasing by EGP1.8bn (effective interest rate at 10%
-145bps QoQ)
EBITDA margin of 33.4% (+217bps YoY,
+195bps QoQ)Net profit margin of 24.0% (-274bps YoY,
+784bps QoQ)
Q2: Operational growth filters through bottom line
7.4+11% YoY
4.6+27% YoY
3.3+1 million net additions ytd
5
Our focus lies on targeted investmentto serve our strategic goals; boosting Telecom Egypt’s & Egypt’s growth
Mobile launchOverhauling Egypt’s
internet infrastructureExpanding Egypt’s
international network
Strategy
Capex (2018 expected allocation)
Operational KPIs
Commercial highlights
Outlook
To boost operational growth & capitalize on
existing assets
To provide best service quality to our
customers & induce revenue + economic
growth
To enable the vision of Egypt as a digital route
c35% c50% c10%
• 3.3mn customers in 9 months
• Q2 18 revenue reached a high single digit
of overall retail revenue
• 4.6mn customers (+27% YoY)
• c65% of homes connected with fiber to the
curb
• Growing submarine cable revenue (+23%
YoY)
• Product launches addressing all segments,
Indigo: an integrated postpaid bundle
• Sealing a revised national roaming deal &
asymmetric MTRs with two MNOs
• Brand repositioning through customer care
& product offering revamp
• WE Internet increases min. speed to 5Mbps
(60% of homes) & max. speed to 100MBps
• Acquisition of MENA Cable
• Bharti deal: bundling existing TE assets with
new investment of MENA Cable
• Cape to Cairo MoU with Liquid Telecom
• Enterprise integrated offering & solutions
• Financial inclusion platform
• Fiber to the curb reaching 100% by 2020
• Content development and as a product
offering
• Investment in route diversity: new routes
across Egypt & landing stations + Africa-1
• Dev. of digital applications incl. a regional
data center & cloud computing hub
1 2 3Our 3 main strategic
objectives:
6
Highlights of the main events of the quarterProduct launches & financing arrangements in the quarter, wholesale deals subsequently
4 Jul: Telecom Egypt and Etisalat Misr signed amendment of the national roaming agreement sealed in June 2017 to provide better financial and service quality terms to Telecom Egypt. In addition, the first mobile termination agreement was signed.
9 Jul: Telecom Egypt and Orange Egypt sign three agreements for international telecom, transmission, and mobile termination services.
14 Jul: Telecom Egypt and Liquid Telecom sign a MOU that will enable the later to shortly complete Africa’s terrestrial fibre network stretching all the way from Cape Town, South Africa to Cairo, Egypt.
6 Aug: Announcement of strategic partnership with Airtel for global submarine cable systems wherein, Airtel will get IRUs on MENA Submarine Cable and TE North Cable Systems. Airtel will also take large capacities on a long-term basis on two new state-of-the-art Cable Systems (SMW5 & AAE1).
8 Aug: TE signed the first MoU to provide Etisalat Misr with virtual fixed voice services. Under this MoU, Telecom Egypt through its nationwide fixed network will enable Etisalat Misr to provide its customers with fixed voice services.
Events in the quarter Subsequent to the quarter
1 Apr: WE launched its post-paid offering under the name of “indigo”
29 Apr: Fixed broadband service revamped to “WE Internet”, offering highest speed, best reliability, and top-notch customer experience.
21 May: Signature of SPA for the acquisition of Middle East and North Africa Submarine Cable (MENA Cable) by a 50% owned subsidiary
10 May: BoD approved a 5-year USD 500mn syndicated loan to refinance outstanding short-term USD debt and to provide a cushion for working capital needs
21 May: Telecom Egypt signs US$200 million financing deal with African Export-Import Bank managed by ADIB Egypt
30 May: Telecom Egypt obtains US$200 million long-term financing with Huawei and Chinese banks
7
Revenue (EGP mn)
EBITDA (EGP mn)
Net profit(EGP mn )
H1 2018 in numbers
4,592 4,7825,343
8,736
10,125
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+16.3%
+11.7%
+15.9%
Operating Profit(EGP mn)
1,436 1,506
1,787
2,778
3,293
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+24.4%
+18.6%
+18.5%
995 9481,249
1,981
2,197
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+25.6%
+31.8%
+10.9%
1,229774
1,284
2,520
2,058
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+4.4%
+65.9%
-18.4%
8
Revenue by business unitRetail services & specifically data drive revenue growth
Home &
Consumer DomesticEnterprise
International
Carriers Affairs
International
Customers & Networks
Retail services (+32% YoY) continued to lead the increase in revenue in H1 2018 contributing 86% of total
revenue growth, driven by the outstanding increase in Home & Consumer revenue (+45%).
Home & Consumer strong growth in H1 2018 continues to stem from data services (+47%) especially fixed
broadband. In Q2 2018, the increase in Home & Consumer (+46% YoY) managed to cover the 7% decline
in Enterprise Solutions resulting in an overall retail revenue growth of 28% in Q2 2018.
Enterprise Solutions grew 2% in H1 2018 as a 14% drop in other enterprise revenue mainly complimentary
access services was offset by growth in fixed voice (+16%) & data revenue (+26%).
Mobile revenue is still in its early stages contributing a low single digit to total revenue and a high single digit
to retail revenue.
Wholesale services managed to grow in H1 2018 by 4% YoY boosted by a hike in Domestic and IC&N
revenue compensating for the decline of ICA revenue in line with the global trend.
During the first half of the year, Domestic revenue grew by 17% YoY supported by a 31% YoY growth in the
business unit’s revenue of Q2 2018 on an increase in IRU sales to domestic operators on top of the usual
growth in transmission services.
1,328
1,829 1,935
2,590
3,764
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+45.7%
+5.8%
+45.3%
677583 629
1,187 1,212
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
-7.1%
+7.7%
+2.1%
828 8801,085
1,673
1,965
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+31.0%
+23.3%
+17.4%
1,3261,096 1,140
2,5122,236
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
-14.0%
+3.9%
-11.0%
434393
554
774
947
Q2 2017 Q1 2018 Q2 2018 H1 2017 H1 2018
+27.7%
+41.0%
+22.3%
37%
12%20%
22%
9%
H1 2018
36%
12%20%
21%
11%
Q2 2018
9
• Call costs to revenue declined 351bps to 20% in spite of the appearance of mobile
costs (national roaming and interconnection). This comes as a result of regulatory
action driven by TE’s wholesale team in Q4 2017 to decrease illegal bypass.
• The increase in S&D is related to the absence of advertising costs in Q2 2017,
advertising represents still a minor 4% of revenue.
Income statement (Q2 2018)
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
Reve
nu
eE
BIT
DA
Oth
er
OP
EX
Net p
rofit
• Top line of Q2 2018 grew by 16% recording a total of EGP5.3bn
• Retail services contributed 75% of the growth in total revenue where the increase in
Home & Consumer managed to absorb the decline in Enterprise Solutions
delivering an overall growth of 28% in retail revenue.
Exp
en
se
sN
on-o
pera
tio
nal
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
* EPS excludes employees profit share
• EBITDA totaled EGP 1.8bn growing 24% YoY as gross margin improved on call
costs decline to revenue and revenue outpaced growth in salaries, which
represents in Q2 2018 22% of sales vs. 25% last year.
• The start of mobile license amortization in Sep. 2017 led to the increase in Q2 18.
• Depreciation increased as a direct effect of higher Capex spending as TE is
actively engaged in overhauling the internet infrastructure in Egypt as well as the
investment in its 4G mobile network.
• Income from Vodafone Egypt recovered from the one-off decline last quarter.
Vodafone’s operating profit grew 5% YoY and net profit by 10%, the 17% growth in
TE’s investment income is a result of a reclassification by TE in Q2 2017.
• Net interest expense grew YoY as interest expense related to borrowing resulting
from the payment of the mobile license was capitalized prior to Sept. 2017. On A
QoQ basis interest expense declined due to efficient conversion of debt to USD
with the effective interest rate reaching 10% down from 12% in Q1 2018.
• NPAT stood at EGP 1.3bn growing by 4% YoY driven by operational growth as
operating profit growth of 26% offset non-operational decline in VFE investment
income and hike in interest/ finance costs.
• EPS for Q2 2018 was EGP0.75 for Q2 2018 compared to EGP0.72 in Q2 2017.
In EGP mn H1 2018 H1 2017 YoY Q2 2018 Q1 2018 Q2 2017 QoQ YoY
Revenue 10,125 8,736 16% 5,343 4,782 4,592 12% 16%
Home & Consumer 3,764 2,590 45% 1,935 1,829 1,328 6% 46%
Enterprise Solutions 1,212 1,187 2% 629 583 677 8% -7%
Domestic Wholesale 1,965 1,673 17% 1,085 880 828 23% 31%
International Carriers Affairs 2,236 2,512 -11% 1,140 1,096 1,326 4% -14%
International Customers & Networks 947 774 22% 554 393 434 41% 28%
Total employee cost (2,376) (2,168) 10% (1,174) (1,202) (1,160) -2% 1%
Call costs (2,093) (2,031) 3% (1,079) (1,015) (1,088) 6% -1%
CoGS (excl. above expenses) (1,581) (1,356) 17% (828) (753) (712) 10% 16%
S&D (excl. salaries, D&A) (563) (162) 248% (362) (201) (75) 80% 381%
G&A (excl. salaries, D&A) (219) (242) -10% (114) (105) (121) 9% -6%
EBITDA 3,293 2,778 19% 1,787 1,506 1,436 19% 24%
Margin 33% 32% 72 bps 33% 31% 31% 195 bps 217 bps
Other (expense) / income 142 23 525% 106 36 (20) 194% -631%
Depreciation (937) (765) 23% (494) (443) (392) 12% 26%
Amortization (300) (55) 443% (149) (151) (30) -2% 401%
Operating profit 2,197 1,981 11% 1,249 948 995 32% 26%
Margin 22% 23% (97 bps) 23% 20% 22% 356 bps 173 bps
Income from investments 874 1,175 -26% 587 287 500 105% 17%
Net finance (cost) / income (145) (128) 13% (64) (80) (14) -20% 351%
Net interest (expense) / income (418) 12 -3714% (207) (211) 5 -2% -3876%
Tax (447) (518) -14% (279) (168) (256) 66% 9%
Net Profit 2,058 2,520 -18% 1,284 774 1,229 66% 4%
Margin 20% 29% (852 bps) 24% 16% 27% 784 bps (274 bps)
EPS 1.21 1.48 -18% 0.75 0.45 0.72 66% 4%
10
• Call costs dropped as a percentage of revenue to 21% from 23% last year due to
regulatory action limiting illegal bypass.
• Employee cost dropped to 23% down from 25% of revenue.
Income statement (H1 2018)
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
Reve
nu
eE
BIT
DA
Oth
er
OP
EX
Net p
rofit
• Total revenue of H1 2018 grew by 16% with an equal YoY growth in Q1 and Q2.
• Home & Consumer business unit led the growth in revenue contributing 85% to
total growth.
• Data revenue (fixed + mobile in home & enterprise) grew by 45% YoY contributing
66% to total revenue growth.
Exp
en
se
sN
on-o
pera
tio
nal
Note: All financial figures reported are based on the consolidated financials under The Egyptian Accounting Standards
* EPS excludes employees profit share
• EBITDA grew 19% YoY as the growth in revenue outpaced that of expenditure.
Effective cost management led to a slightly improved margin despite the increase in
S&D expenses resulting from the marketing campaigns for our “WE” retail brand
noting that advertising expenses still represents a minor 3% of revenue.
• Amortization of mobile network license started in Sept. 2017 and hence the sharp
increase.
• Depreciation grew 23% YoY as a direct effect from the increased investment in our
4G mobile network and the modernization of the broadband infrastructure in Egypt.
• Income from Vodafone Egypt dropped by 26% impacted the one-off decline Q1
2018.
• Net interest expense rose mainly as it has been capitalized prior to Sept. 2017.
Effective interest rate reached 10.6% in spite of high EGP lending rate due to
successful conversion of a portion of debt into lower interest USD loans.
• Net Profit after Tax declined by 18% to total EGP 2.1bn in H1 weighed on by
declining net profit in Q1 2018, noting that operating profit grew by 11% YoY and
that the decline is mainly non-operational.
• EPS recorded EGP1.21 for H1 2018 compared to EGP1.48 in H1 2017.
In EGP mn H1 2018 H1 2017 YoY Q2 2018 Q1 2018 Q2 2017 QoQ YoY
Revenue 10,125 8,736 16% 5,343 4,782 4,592 12% 16%
Home & Consumer 3,764 2,590 45% 1,935 1,829 1,328 6% 46%
Enterprise Solutions 1,212 1,187 2% 629 583 677 8% -7%
Domestic Wholesale 1,965 1,673 17% 1,085 880 828 23% 31%
International Carriers Affairs 2,236 2,512 -11% 1,140 1,096 1,326 4% -14%
International Customers & Networks 947 774 22% 554 393 434 41% 28%
Total employee cost (2,376) (2,168) 10% (1,174) (1,202) (1,160) -2% 1%
Call costs (2,093) (2,031) 3% (1,079) (1,015) (1,088) 6% -1%
CoGS (excl. above expenses) (1,581) (1,356) 17% (828) (753) (712) 10% 16%
S&D (excl. salaries, D&A) (563) (162) 248% (362) (201) (75) 80% 381%
G&A (excl. salaries, D&A) (219) (242) -10% (114) (105) (121) 9% -6%
EBITDA 3,293 2,778 19% 1,787 1,506 1,436 19% 24%
Margin 33% 32% 72 bps 33% 31% 31% 195 bps 217 bps
Other (expense) / income 142 23 525% 106 36 (20) 194% -631%
Depreciation (937) (765) 23% (494) (443) (392) 12% 26%
Amortization (300) (55) 443% (149) (151) (30) -2% 401%
Operating profit 2,197 1,981 11% 1,249 948 995 32% 26%
Margin 22% 23% (97 bps) 23% 20% 22% 356 bps 173 bps
Income from investments 874 1,175 -26% 587 287 500 105% 17%
Net finance (cost) / income (145) (128) 13% (64) (80) (14) -20% 351%
Net interest (expense) / income (418) 12 -3714% (207) (211) 5 -2% -3876%
Tax (447) (518) -14% (279) (168) (256) 66% 9%
Net Profit 2,058 2,520 -18% 1,284 774 1,229 66% 4%
Margin 20% 29% (852 bps) 24% 16% 27% 784 bps (274 bps)
EPS 1.21 1.48 -18% 0.75 0.45 0.72 66% 4%
11
Revising the useful life of fixed assetsTo align operational use of assets with P&L expenses incurred
Total fixed assets of EGP 51.7bn as of FY 17
of which EGP 23.2bn (49%) fully depreciated and still in use
TE technical team undertook the following action:
1. Assessing the useful life of all network elements in line with best practice & benchmarking against other countries
2. Study the asset categories in line with telecom industry norms and separate assets based on the underlying components
Two decisions were taken based on the recommendations:
• Increasing the useful life of equipment by an average of 3 years
• The separation of infrastructure into two parts:
1. fiber cables with the useful life remaining at 25 years
2. Civil works with the useful life increasing to 50 years from 25 years previously
(relying on benchmarking analysis of the norm in other countries including the US & New Zealand)
P&L savings as a result of the decisions:
• Total savings of 86mn in Q1 2018 restatement of depreciation in Q1 2018
• Total savings of 83mn in Q2 2018
• Total annual savings estimated at cEGP 350mn of which
• 25% relate to the increase in the useful life of equipment
• 75% relate to the separation of infrastructure works
12
Operating ProfitQ2 2018 revenue growth outpaces growth in expenditure
995
1,249
750
106
279
222115
ProvisionsQ2 17 Opearting Profit
COGS
10
Revenue
14
EmployeeCosts
SG&A Depr & Amort. Other Income/Expense
Q2 18 Operating Profit
+26%
Note: All financial figures are in EGP million
13
Operating ProfitVariance Analysis – H1 2018 (YoY)
1,9812,197
1,388
288
208
377
417
Depr & Amort.RevenueH1 17 Opearting Profit
COGS ProvisionsEmployeeCosts
SG&A
25
94
Other Income/Expense
H1 18 Operating Profit
+11%
Note: All financial figures are in EGP million
14
Cash flow analysis
Cash capex(EGP mn)
Net cash from operating activities (EGP mn)
Note: All financial figures reported are based on Consolidated financials under The Egyptian Accounting Standards.
FCFF(EGP mn)
In-service capex
(EGP mn)
674
1,007 1,002
1,784 1,672
10%
17%
16%
20%
17%
10%
12%
14%
16%
18%
20%
22%
-
200
400
600
800
1,00 0
1,20 0
1,40 0
1,60 0
1,80 0
2,00 0
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018
Capex Capex/sales
580
1,324 1,571
2,878 2,918
269 73
9%
23%25%
36%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
-
500
1,00 0
1,50 0
2,00 0
2,50 0
3,00 0
3,50 0
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018
Capex License Capex/sales
1,068
321
2,484
2,165
1,695
2,614
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 Nor.H1 2018
Normalizing for one-off
settlement payment to
Etisalat of EGP 919mn
186
(395)
1,748
(883) (891)
28
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 Nor.H1 2018
Normalizing for one-off
settlement payment to
Etisalat of EGP 919mn
15
Balance sheet highlights
FCFE(EGP mn)
Net debt(EGP mn)
Net debt/ EBITDA(Based on annualized EBITDA)
Breakdown of capex in-service
73%
13%
9%
3%
2%
H1 2018
Access Network Transmission International cable Customer care Others
4,641 2,484 2,977 2,273
925 -516 -412 -391
-7,026 -9,242
-4,125 -2,072 -2,586 4,753 8,317
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018Net debt
Total debt Cash
-0.8x -0.7x -0.6x
0.9x
1.3x
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018
120
(438)
1,694
2,767
729
1,648
H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 Nor.H1 2018
Normalizing for one-off
settlement payment to
Etisalat of EGP 919mn
16
Our performance in contextDelivering on guidance across main KPIs
Revenue Growth
YoY
EBITDA margin (%)
CAPEX / sales (%)
H1 2018
actual
16%
33%
In-service: 17%
Cash: 30%
FY 2018
guidance
High single to low
double digit
Mid to high 20s
In-service: 30-35%
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