Establishing a Market Leadership Position in Cambodia 13 December 2012
Strategic Combination Overview Axiata Group Berhad ( Axiata ) is establishing a market leadership position in the Cambodian mobile telecommunications market through a strategic combination of Hello Axiata Company Limited ( Hello ) and Latelz Company Limited ( Latelz ) Axiata s market position significantly strengthens from a current #4 to a market leadership position (1) Axiata s 100% owned subsidiary Axiata Investments (Cambodia) Limited will acquire Glasswool Holdings Limited ( Glasswool ) from Timeturns Holdings Limited ( Timeturns ) which will be the sole owner of Latelz upon transaction completion Subsequently, Axiata intends to merge the operations of Hello and Latelz subject to regulatory approvals which will be a condition precedent to transaction completion The acquisition will be settled to Timeturns via a cash consideration of approximately US$155 million (2) and a 10% stake in the combined entity, the 10% stake will be held by the remaining partner Axiata will have a 90% controlling stake in the combined Hello + Latelz entity from the day of completion Axiata is now well positioned for value creation in Cambodia Establishing a market leadership position by consolidating a strong competitor at the right time (1) Based on number of subscribers as of June 2012 from third party research (2) Subject to adjustment for the level of net debt and working capital as of the date of completion 2
Strategic Combination Transaction Rationale 1 Cambodia continues to be an attractive market for investments Key growth market in South East Asia Attractive economy with strong fundamentals Subscriber growth momentum with 2007 2011 CAGR of 52.9% and 2012E 2015E CAGR of 11.0% (1) 2012 unique SIM penetration estimated at under 40% (1) 35% 34% 25% Subscriber Market Share (2) 21% 19% 13% 1. Compelling combination securing a strong leadership position 2. 25%+ real market share 3. Tangible scale benefits + synergies 7% 2 Axiata establishes a strong market leadership position in Cambodia Combination of the strongest performing operators in the market, currently at #2 and #4 positions based on subscriber market share (2) Significantly strengthens Axiata s market position in Cambodia, from #4 to a market leadership position (2) Axiata will control the combined enlarged entity (1) Based on Axiata estimates (2) Based on number of subscribers as of June 2012 from third party research (3) Smart Mobile is the brand name of Latelz Ranking 2% 2% Metfone Mobitel Beeline Mfone QB Excell 139% % Change in Market Share (June 2010 to June 2012) (3) 104% (3) 9% 3% -17% -38% -44% 1% -69% Metfone Beeline Excell QB Mobitel Mfone #1 #2 #3 #4 #5 #6 #7 #8 3
Strategic Combination Transaction Rationale (cont d) 3 4 5 Drive scale benefits and tangible synergies Significant scale enhancement across subscribers, revenue, network /sales reach Tangible synergies by reducing duplicative costs across network coverage, marketing and human resources and by enhanced revenue potential Benefit from complementary Latelz asset base and spectrum Axiata acquires highly regarded Latelz management team Axiata led in market consolidation improves overall market fundamentals Axiata believes this is the right timing for Cambodian market consolidation Axiata benefits from improving industry fundamentals and reduced competitive intensity Further consolidation anticipated in the near/medium term Will likely evolve into a 3 5 player market In line with Axiata s long term strategy and financial objectives Establishes a strong beachhead in Indochina a focus region for Axiata Meets Axiata s financial criteria reinforcing Axiata s M&A/Financial discipline Strategic combination expected to be EPS accretive from the first year onwards (1) Based on Axiata estimates (2) Based on number of subscribers as of June 2012 from third party research (3) Smart Mobile is the brand name of Latelz 4
1a Cambodia Continues to be an Attractive Country for Investment Myanmar 62m = Population Vietnam 89m Laos 6m Thailand 64m Cambodia 15m Malaysia 29m Cambodia Highlights Indochina is a key growth market in S.E. Asia Cambodia is an attractive economy with strong fundamentals in Indochina Stable political environment provides comfort to international investors Satisfactory currency risk as local currency pegged to US$ Strong and growing tourism sector Economy Back on High Growth Track Attractive Regional Market Inflation Subdued 7.3% 1,956 1,946 6.1% 2,065 7.3% 6.5% 2,216 2,361 India Vietnam 3,944 3,550 Laos India Cambodia 6.8% 6.5% 7.8% 12.5% (0.5%) Laos Cambodia 2,866 2,361 Thailand Bangladesh Vietnam 6.2% 5.7% 5.7% 5.3% 3.1% 4.9% 3.9% 2008 2009 2010 2011 2012E Bangladesh 1,790 Nepal Malays ia 4.5% 4.0% GDP per capita (US$, PPP) y-o-y change Nepal 1,388 Singapore 2.2% 2008 2009 2010 2011 2012E 2012E GDP per capita (US$, PPP) 2012E GDP per capita y-o-y change Sources: Third party research 5
1b Attractive Telecom Market with Continuing Healthy Growth Subscriber Growth Momentum Axiata s Cambodia Focus 16.7 13.6 9.6 7.0 3.9 2.5 # of 2007 2008 2009 2010 2011 1H12 Players 4 6 9 9 8 8 Subscribers (mm) 2007 2011 Subscribers CAGR = 52.9% 2012E 2015E Subscribers CAGR = 11.0% (1) Axiata has a long term view on its core markets Cambodia meets Axiata s criteria for an attractive, growth market in a preferred geographical location Axiata has extensive experience in the market since its investment in 1998 Strong tourism sector driving roaming and data revenues Young population drives wireless data take up Recent establishment of telecom regulatory authority is a positive development 90% 111% Regional ARPU Comparison 17% 27% 47% 65% 2012 unique SIM penetration estimated at under 40% (1) 5.0 4.5 4.0 3.5 3.4 3.0 2.4 2007 2008 2009 2010 2011 1H12 Vietnam Laos Bangladesh Cambodia Sri Lanka Pakistan India (1) (3) Penetration (%) ARPU, 2011 (US$) Sources: Third party research (1) Based on Axiata estimates (2) Number inclusive of Applifone in both June 2010 and June 2012. Smart Mobile is the brand name of Latelz (3) 2009 data (latest available) 6
2a Hello and Smart are the Top Performers in the Market % Change in Market Share (June 2010 to June 2012) Latelz and Hello are currently at #2 and #4 positions based on subscriber market share 139% 104% Latelz and Hello have more than doubled their market shares since June 2010 Latelz has strong momentum and extensive network and sales reach June 2010 Ranking (1) 9% 3% -17% -38% -44% -69% Metfone Beeline Excell QB Mobitel Mfone #1 #2 #3 #4 #5 #6 #7 #8 June 2012 33% 33% 35% 21% 19% 9% 8% 7% 6% 4% 1% 13% 7% 2% 2% 1% Market Position (1) Mobitel Metfone Mfone Beeline Hello QB Excell #1 #2 #3 #4 #5 #6 #7 #8 Market Position (1) Metfone Mobitel Hello Beeline Mfone QB Excell #1 #2 #3 #4 #5 #6 #7 #8 Highly competitive market with 8 operators Only Latelz, Hello and Metfone increased their market share over the past 2 years Sources: Third party research (1) Number inclusive of Applifone in both June 2010 and June 2012. Smart Mobile is the brand name of Latelz 7
2b Axiata Establishes a Strong Market Leadership Position in Cambodia Subscriber Market Share (1) 1 Combination of the strongest performing operators in the market, currently at #2 and #4 positions based on subscriber market share (1) 35% 34% 1. Compelling combination securing a strong leadership position 2. [25%]+ real market share 3. Tangible scale benefits + synergies 2 Significantly strengthens Axiata s market position in Cambodia, from #4 to a market leadership position (1) 21% 19% 25% 3 Market structure now clearly defined as Top 3 vs. the rest 13% 7% 4 Axiata will control the combined enlarged entity 2% 2% 1% (2) Metfone Mobitel Beeline Mfone QB Excell (1) Based on number of subscribers as of June 2012 from third party research (2) Smart Mobile is the brand name of Latelz 8
Overview of Combined Business Pro-forma Consolidation for Hello / Smart for FY11 & 12 Key Operating Metrics Key Financial Metrics Subs 2011 1H12 3,706,800 5,610,000 Revenue (US$mm) (1) 2011 1H12 45.1 68.3 Total Outgoing MOUs (mm) 2011 1H12 305 387 EBITDA (US$mm) (1) 2011 1H12 1.4 7.3 Blended ARPU (U$) 2011 1H12 3.74 4.45 Capex (US$mm) (1) 2011 1H12 11.8 20.0 BTS (2G) 2011 1H12 1261 1388 PAT (US$mm) (1) 2011 1H12 (32.0) (4.0) (1) Latelz 2011 numbers based on audited financials; 1H2012 numbers based on unaudited Latelz management reports; Hello numbers based on Company financials 9
3 Drive Scale Benefits and Tangible Synergies Latelz Highlights Latelz has operated under its main Smart Mobile brand name since 2004 Acquired Applifone ( StarCell brand) in December 2010 from TeliaSonera with integration completed in approximately 6 months More than doubled its subscriber market share since January 2011 Latelz key operating model features: Low cost model with stringent capex management High impact brand, reach and network Aggressive in targeted markets and tariffs Latelz superior license conditions: 25 year period vs. Hello s BTO status; more favourable license fee structure Latelz currently owns: GSM license with 15MHz (GSM1800) and 3.6MHz (GSM900) 3G license with 10MHz (UMTS2100), ISP license with 70MHz (WiMAX) Approximately 350 employees with an industry leading revenue/employee Significant Positive Impact on Axiata s Position Close competitor for #1 position in terms of subscriber market share (1) More than 2x network coverage More than 2x MOUs More than 2x revenues Strong and complementary spectrum position Enhanced nationwide points of sales Brand complementarity Tangible Synergies Rationale for Synergies Remove Duplication Marketing, sales, service points, human resources, general & administrative rationalize to achieve target cost ratios Network Optimization Cost reduction based on best practices from both companies Enhanced Revenue Potential Improved pricing power, lower competitive intensity, higher on net traffic, optimized tariff plans for increased scale (1) Based on number of subscribers as of June 2012 from third party research 10
Potential Cost Synergies Service points costs Employee related costs Subscriber acquisition costs Marketing costs Network operations costs Management Fees Office Rentals and Administration costs One off Integration Costs VRS Costs Network integration costs (Billing, Cors, VAS platforms, Site rationalization) 11
4 Axiata Led In market Consolidation Improves Overall Market Fundamentals Cambodia Market: 2010 Perspective Market Share Evolution (1) 9 operators, both established and greenfield High competitive intensity, irrational landgrab, uncertain return on investment Given this market environment, Axiata scaled back on its investment Questionable returns on incremental investment Market clearly needed to consolidate timing and consolidators unclear Lack of visibility on future market structure Axiata strategically embarked on a disruptive strategy Enhanced competitive dynamics and triggered industry realignment Cambodia Market: 2012 Perspective Market Position June 2010 June 2012 33% 33% 35% 21% 19% 13% 9% 8% 7% 6% 7% 4% 1% 2% 2% 1% (2) Mobitel Metfone Latelz Mfone Beeline Hello QB Excell Metfone Mobitel Hello Beeline Mfone QB Excell #1 #2 #3 #4 #5 #6 #7 #8 #1 #2 #3 #4 #5 #6 #7 #8 % Change in Market Share (June 2010 to June 2012) (2) Market structure clearly defined Top 3 vs. the rest 2010 leadership positions significantly eroded while new leaders emerge Latelz has emerged as the strongest and most resilient operator through a tough period of industry disruption, competition and realignment Latelz has demonstrated the strongest performance in the market 139% 104% 9% 3% -17% -38% -44% -69% Latelz Hello Metfone Beeline Excell QB Mobitel Mfone Ranking #1 #2 #3 #4 #5 #6 #7 #8 (1) Based on number of subscribers as of June 2010 and June 2012 from third party research (2) Number inclusive of Applifone in both June 2010 and June 2012. Smart Mobile is the brand name of Latelz 12
5 In line With Axiata s Long Term Strategy and Financial Objectives Axiata has a long term commitment to its core markets Prudent investment philosophy across market cycles based on its significant experience in multiple markets Axiata is a believer in the rationale and benefits of in market consolidation, executed at the right time Axiata made a strategic decision to hold back on further investment in Cambodia with a view to CONSOLIDATE NOT EXIT Axiata embarked on a well planned market disruptive strategy Latelz emerged as the most aggressive and successful operator across network, capex spend, brand and reach Axiata is acquiring the strongest operator in the market Axiata has established a strong beachhead in a focus region Indochina Combination meets Axiata s M&A/Financial criteria Acquisition expected to be EPS accretive from first year onwards Investment IRR above Axiata Board required benchmark Axiata controls the enlarged entity Acquire the strongest competitor and management team at a reasonable valuation Sources: Third party research (1) 2009 data (latest available) 13
Financial Impact to Axiata Criteria Metric Pro-Forma for MergeCo Immediate Accretive Transaction 2013 EPS Accretion Positive ~1% to 2% Axiata Group Debt/EBITDA < 3.0x 2013 Group Debt/EBITDA x No change IRR IRR Significantly above WACC Annual ROIC Impact 2013 Group ROIC Marginally Negative Impact to Axiata Group 2012-2015 Revenue CAGR Marginally Positive Revenue and EBITDA Growth 2012-2015 EBITDA CAGR Marginally Positive On Dividend Policy and Guidance 2012-2015 PAT CAGR Marginally Positive Capex 2013 Capex Not Material 14
Conclusion Cambodia continues to be an attractive market to invest in Attractive telecom market with continued healthy growth Axiata is establishing a strong market leadership position in the Cambodian market Transaction drives scale benefits and tangible synergies Axiata led in market consolidation improves overall market fundamentals In line with Axiata s long term strategy and financial objectives Axiata s Cambodia strategy over the past three years has proven to be effective Axiata is now well positioned for value creation in Cambodia Establishing a market leadership position by consolidating a strong competitor at the right time 15
Important Notice Cautionary Note on Forward Looking Statements All statements other than statements of historical facts included in this document are or may be forward looking statements. Forward looking statements include but are not limited to those using words such as expect, anticipate, believe, intend, project, plan, strategy, forecast and similar expressions or future or conditional verbs such as forecast will, would, should, could, may and might. These statements reflect Axiata s current expectations, beliefs, hopes, intentions or strategies regarding the future and assumptions in light of currently available information. Such forwardlooking statements are not guarantees of future performance or events and involve known and unknown risks and uncertainties. Accordingly, actual results or outcomes may differ materially from those described in such forward looking statements. Shareholders and investors should not place undue reliance on such forward looking statements, and Axiata does not undertake any obligation to update publicly or revise any forward looking statements, subject to compliance with all applicable laws and regulations and/or any other regulatory or supervisory body or agency. 16
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