(NMTC.KW) Equity Research Initial Coverage December 24th, 2006 Current Price: KWD 2.34* Country: Kuwait Fair value Target: KWD 3.23 Sector: Telecom Services Recommendation: BUY Exchange: Kuwait Stock Exchange *As at 21st December 2006 Sector Coverage Team Marc Hammoud +9714 3199 753 mhammoud@shuaacapital.com National Mobile Telecommunications, better known as Wataniya Telecom (Wataniya), is a GSM operator with existing operations in Kuwait, Tunisia, Iraq, Algeria, The Maldives and Saudi Arabia. In addition, the company secured the second mobile license in Palestine in September 2006. While we do see Wataniya as an ongoing business continuing to expand organically and by acquisitions, we also view it as a potential target for big regional operators. In a context of strong consolidation in the telecoms sector, big operators are currently aggressively expanding their foothold in the region. In our opinion, Wataniya presents interesting points: rather small market capitalization, significant free float of around 52%, and presence in large and under penetrated markets such as Algeria, Iraq and Tunisia. This, in our opinion, justifies the stock to trade at a premium to its peers. We initiate coverage on Wataniya Telecom with a BUY recommendation. Our fair value target of KWD 3.23/share, implying a 38.0% upside potential to the current price of KWD 2.34/share, is the weighted average of three valuation exercises. Year Net profit (KWD 000) EPS (KWD) EBITDA (KWD 000) BV (KWD 000) BVPS (KWD) RoAE (%) RoAA (%) P/E (x) EV/EBITDA (x) Dec-08E 140,877 0.31 289,859 450,876 0.98 35.4 15.8 7.6 4.3 2.4 Dec-07E 107,156 0.23 238,024 344,365 0.75 34.9 14.2 10.0 5.3 3.1 Dec-06E 75,239 0.16 178,907 269,672 0.59 30.3 10.2 14.3 7.0 4.0 Dec-05 52,833 0.12 117,084 227,342 0.52 24.6 7.5 19.3 10.3 4.5 P/BV (x) 52-week range (KWD) 1.78-2.62 Number of shares ( 000) 458,212 Free Float (%) 52.1 Market Cap (KWD mn) 1,072 Market cap (USD mn) 3,709 Div Yld. 2005 (%) 2.1 7 6 5 4 3 2 1 0 Wataniya stock performance vs. SC Kuwait Index Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Wataniya (KWD) adjusted for corporate actions SC Kuwait Index rebased
Contents INVESTMENT HIGHLIGHTS...3 COMPANY OVERVIEW...4 AMONG THE FIRST TO INITIATE AN ACQUISITION-BASED STRATEGY... 5 STRONG FOCUS ON VALUE ADDED SERVICES AND CUSTOMER SERVICE... 6 A POTENTIAL TARGET FOR AGGRESSIVE BUYERS... 6 KUWAIT - WATANIYA TELECOM (100%)...7 FINANCIAL ANALYSIS AND FORECASTS... 8 TUNISIA - TUNISIANA (50%)...10 FINANCIAL ANALYSIS AND FORECASTS... 11 ALGERIA - NEDJMA (71%)...13 FINANCIAL ANALYSIS AND FORECASTS... 14 IRAQ - ASIA-CELL (40%)...17 FINANCIAL ANALYSIS AND FORECASTS... 18 MALDIVES - WATANIYA TELECOM (100%)...20 FINANCIAL ANALYSIS AND FORECASTS... 20 SAUDI ARABIA - BRAVO (47%)...22 FINANCIAL ANALYSIS AND FORECASTS... 22 PALESTINE (40%)...23 FORECASTS... 24 GROUP FINANCIAL ANALYSIS AND FORECASTS...25 VALUATION...27 WATANIYA GROUP VALUATION... 27 SUM-OF-THE-PARTS (SOTP) VALUATION... 28 TOTAL VALUE OF WATANIYA... 28 FINANCIALS...29 December 24th, 2006 2
Investment Highlights National Mobile Telecommunications, better known as Wataniya Telecom (Wataniya), is a GSM operator with existing operations in Kuwait, Tunisia, Iraq, Algeria, The Maldives and Saudi Arabia. In addition, the company secured the second mobile license in Palestine in September 2006. Wataniya was established in Kuwait in 1997 and launched operations in its home market in December 1999 as a second mobile operator, after MTC in 1994. Wataniya then made its first step outside Kuwait by acquiring 50% of Orascom Telecom Tunisie (set up by Orascom Telecom of Egypt) in October 2002. In 2003, the company was one of three operators to be awarded a mobile license in Iraq for an initial two-year period. With on-going security developments, an interim license was issued until June 2006, and then extended twice until the end of this year. Wataniya s licenses in Algeria, The Maldives and Palestine were obtained in December 2003, November 2004 and September 2006, respectively, after placing the highest bid. Finally, Wataniya acquired 38% of Bravo in Saudi Arabia in March 2005 before increasing its stake to 47% in October 2006. At the end of September 2006, Wataniya increased revenues by 40.3% Y-o-Y to KWD 307.9 million, and EBITDA by 76.4% Y-o-Y, from KWD 71.5 million to KWD 126.1 million. As a result, the company s EBITDA margin jumped to 40.9% from 32.6% a year earlier. The company posted a net profit of KWD 50.1 mn, a 27.8% increase compared to the same period in 2005. However, net profit margin dropped from 17.8% for 9M 05 to 16.3% for 9M 06 due to higher finance charges and losses on sale of investments held for trading. In 2006, we expect Wataniya to post revenues of KWD 431.6 mn and the total number of subscribers to reach 9,611,462 (+50.4% vs. 2005). EBITDA is forecasted to reach KWD 178.9 mn in 2006, translating into an EBITDA margin of 41.5%. We forecast a net profit of KWD 75.2 mn in 2006, or 17.4% of revenues, which would constitute a 1.1 percentage points improvement over 9M 06 reported figures. While we do see Wataniya as an ongoing business continuing to expand organically and by acquisitions, we also view it as a potential target for big regional operators. In a context of strong consolidation in the telecoms sector, big operators are currently aggressively expanding their foothold in the region. In our opinion, Wataniya presents interesting points: rather small market capitalization, significant free float of around 52%, and presence in large and under penetrated markets such as Algeria, Iraq and Tunisia. This is further supported by the fact that Kuwait Projects Co. (KIPCO), Wataniya s biggest strategic shareholder, has announced it is considering selling its stake of 24.9% in the company. This, in our opinion, justifies the stock to trade at a premium to its peers. We initiate coverage on Wataniya Telecom with a BUY recommendation. Our fair value target of KWD 3.23/share, implying a 38.0% upside potential to the current price of KWD 2.34/share, is the weighted average of three valuation exercises. The first is a DCF, based on our consolidated forecasts. The second is a comparative valuation, applying average multiples of regional and global telecoms peers to Wataniya s 2007E consolidated results. The third is a sum-of-the-parts valuation (SOTP), valuing each subsidiary separately. 400 350 Wataniya won the second mobile license in The Maldives Wataniya secured the second mobile license in Palestine KIPCO announced it is considering selling its stake in Wataniya 3 300 250 2 200 150 100 1 50 0 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Average Daily Traded Value (KWD '000) Adjusted monthly closing price in AED December 24th, 2006 3 0
Company overview With Palestine, Wataniya will have operations in seven countries National Mobile Telecommunications, better known as Wataniya Telecom (Wataniya) was incorporated in October 1997 and started offering mobile services in Kuwait in December 1999. Since then, Wataniya has expanded its operations to Tunisia, Iraq, Algeria, the Maldives and Saudi Arabia. In addition, the company secured the second GSM license in Palestine in September of this year with a bid at JOD 251 mn (USD 354 mn). We expect operations in the Palestinian Territories to start sometime in H2 07. The company s shares have been trading on the Kuwait Stock Exchange (KSE) since July 1999. Wataniya also plans a secondary listing in either Dubai (DIFX) or London, whenever market conditions will allow it. At present, 52.1% of the company s shares are publicly held, while KIPCO (Kuwait Projects Company Holding, the largest non-government holding company in Kuwait with over USD 10 bn under management or control) owns 24.9%, and the Kuwait Investment Authority (KIA) the remaining 23%. Wataniya's Ownership Structure Free Float, 52.1% KIPCO, 24.9% Kuwait Investment Authority, 23.0% Wataniya International was formed in 2004 to oversee the group s regional and global expansion Wataniya s current strategy is to focus on regional expansion, targeting under-penetrated markets where demand for telecoms services is growing rapidly. To that effect, Wataniya International (WI) was established in the UAE in July 2004 as a wholly owned subsidiary, with the aim of overseeing the group s regional and global expansion plans and managing its existing international operations. National Mobile Telecommunications Co. Wataniya Kuwait Tunisiana Tunisia Asia Cell Iraq Nedjma Algeria Wataniya International UAE Wataniya Telecom The Maldives Bravo Saudi Arabia Second GSM license Palestine Wataniya provides a range of prepaid and postpaid voice, data and multimedia services. The company has roaming service in more than 130 countries around the world, 60 of which are now also covered by GPRS services such as MMS and Internet access. December 24th, 2006 4
At the end of Q3 06, Wataniya had over 8.8 million customers across its various markets. Breakdown of Wataniya operations Subsidiary name Country Ownership Services launched Total subscribers Q3 2006 Market share Q3 06 Market position Q3 06 Wataniya Telecom Kuwait Kuwait 100% Dec-99 1,023,078 40% 2 out of 2 Tunisiana Tunisia 50% Dec-02 2,821,613 42% 2 out of 2 Asia Cell Telecom Iraq 40% Dec-03 2,544,891 34% 1 out of 3 Nedjma Algeria 71% Aug-04 2,351,336 12% 3 out of 3 Wataniya Telecom aldives Maldives 100% Aug-05 56,341 - - Bravo Saudi Arabia 47% Jul-05 38,834 0.2% 3 out of 3 Wataniya Telecom Palestine Palestine 40%? - - - Total 8,836,093 Among the first to initiate an acquisition-based strategy Looking at the company s commercial operations start date in Tunisia, Iraq or Algeria, it is clear that Wataniya was one the first regional telecom companies to start looking outside its home market in order to diversify its revenue base. It is only recently that companies such as Qtel, Batelco, Jordan Telecom or Oman Mobile announced an acceleration of their non-organic growth strategy. Past acquisitions were made at relatively cheap prices, allowing quicker return on investment Wataniya will most likely not participate to third mobile license bid in Saudi Arabia Buy out minority shareholders in subsidiaries is not excluded Being among the first to initiate an acquisition-based strategy allowed Wataniya to acquire its existing licenses at relatively cheaper prices than those currently prevailing. As a result of this early move, the company should be able to make a quicker return on investment in its existing markets. Today, stellar prices and excessive competition for telecom assets changed the way operators look at investment opportunities. The trend is lower returns and longer time scales, and therefore less value creation. It is now public information that Saudi Arabia is set to further liberalize its telecoms market with the award of a third GSM and second fixed line license early 2007. Wataniya expressed its interest in bidding for the GSM license. However, we believe there is slim chance to see its application materializing as it will have to exit its stake in Bravo, a pushto-talk operator in the kingdom, and this looks even more unlikely with Wataniya having increased its stake in the latter from 38% to 47% in October 2006. MTC, Orascom Telecom and Oger Telecom have already announced their intention to bid for the third mobile license in Saudi Arabia. We expect the price of the third GSM license to be around USD 1.75 bn. Despite the country s rapidly rising mobile penetration (71% as of Q3 06, which should reach 80% by the time the third mobile operator launches operations), we believe that the price should be supported by (i) a lack of green-field licenses on offer and (ii) the inherent characteristics of the telecoms market in Saudi Arabia (high ARPU, large and young population and strong economic growth). Going forward, in addition to potential acquisitions, we may also see Wataniya buying out minority shareholders in the group s strongest markets. Wataniya is interested in entering the telecoms market in the UAE and in Qatar once the green light is given. While in the UAE the Telecom Supreme Committee and the TRA are officially sticking to the 2015 deadline set under the commitments made to the World Trade Organisation (WTO) to further liberalize its telecoms market, in Qatar the government cancelled Qtel s monopoly and should issue new licenses to telecoms service providers in 2007. Wataniya recently mandated an international bank to arrange for a USD 1 bn three year revolving credit facility with an extension option of two years. The facility will mainly be used to finance the company s acquisitions going forward. December 24th, 2006 5
Strong focus on value added services and customer service Value added services and customer-centric strategies have materialised on the ground Though most mobile operators include value added services and customer service as key points of their strategy, we believe this to be especially the case for Wataniya. In most of its markets, Wataniya s value added services and customer-centric strategies have materialized on the ground. This should benefit the company in the long run as we believe that building a strong brand equity should enhance market position and be a focus for higher income segment customers. Moreover, Wataniya is betting on applications such as multimedia and location services to boost margins as ARPU have been under growing pressure due to stronger competition. A potential target for aggressive buyers While we do see Wataniya as an ongoing business continuing to expand organically and by acquisitions, we also view it as a potential target for big regional operators. In a context of strong consolidation in the telecoms sector, big operators are currently aggressively expanding their foothold in the region. In our opinion, Wataniya presents interesting points: rather small market capitalization (see table below), significant free float of around 52%, and presence in large and under penetrated markets such as Algeria, Iraq and Tunisia. This is further supported by the fact that Kuwait Projects Co. (KIPCO), Wataniya s biggest strategic shareholder, has announced it is considering selling its stake of 24.9% in the company. This, in our opinion, justifies the stock to trade at a premium to other, less likely candidates for takeover. Wataniya may be a potential target for Etisalat as there are virtually no geographic overlap between the two operators We also believe that the most likely suitor to acquire a stake in Wataniya would be Etisalat, as we believe that it fits within the latter s regional expansion strategy, while virtually no geographic overlap exists between the two operators. Also, the current market value of KIPCO s equity stake in the company, at around USD 1,000 mn, would not represent much of an obstacle for Etisalat, given its demonstrated deep pockets and appetite. Firm Market Cap (USD 000) Wataniya 3,772,336 Etisalat 21,621,263 MTC 14,491,124 OTH 13,990,959 MTN 21,882,005 Source: Reuters, SHUAA Capital December 24th, 2006 6
Kuwait - Wataniya Telecom (100%) As mentioned earlier in this report, Kuwait is Wataniya s home market. With operations launched in December 1999, it was the second operator to provide mobile services in the country after MTC in 1994. Both operators were granted a 50-year license. 100% 80% 60% 40% 20% Mobile subscribers net additions breakdown in Kuwait 2.7% 24.7% 30.3% 37.5% 56.3% 63.1% 97.3% 75.3% 69.7% 62.5% 43.7% 36.9% 92.1% 0% 7.9% Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 MTC net additions Wataniya net additions Source: MTC, Wataniya, SHUAA Capital The Ministry of Communications (MoC) acts as regulator overseeing the cellular market and provides fixed line services (including international gateway). Wataniya enjoys 40% market share in Kuwait, where mobile penetration reached 81% A third mobile operator should enter the Kuwaiti mobile market in 2007 As in most markets in the Gulf, mobile penetration in Kuwait is high at 81%, and advanced mobile services are available in the country. Both players offer 3G services. For the past two years, MTC has been dominating the market with a constant market share of 60%. We believe that MTC s leading position is the result of what we call the first mover advantage. Another difference between the two operators is the postpaid subscribers contribution to the total customer base. While approximately 25% of MTC s subscribers are postpaid users, only 12% of Wataniya s customer base fall in this category. We think that the situation could change with the introduction of Mobile Number Portability (MNP). MNP allows customers to switch from a network to another while keeping the same number. The duopoly between MTC Vodafone and Wataniya ended in December 2006 when Kuwait s government approved the award of a third mobile license, claiming that the new operator would help improving services and lowering prices. The new firm would be owned at 24% by state-owned Kuwait Investment Authority (KIA), Zakat House, the Public Institution for Social Security and other government agencies, while 60% would be offered to the public. The remaining 16% would be sold in an open bid to a strategic local or international investor. The parliament had approved the formation a third mobile company in April, but the government said it would oppose the plan in the absence of a feasibility study. It is worth pointing out that under Kuwaiti law, parliament could have overridden government rejection by a two-thirds majority vote. Wataniya was established in the same way when parliament passed a law in 1996, despite initial government opposition. With mobile penetration standing at 81% as of Q3 06, the Kuwaiti mobile market is almost saturated. However, like in Saudi Arabia, we believe that the GSM market in Kuwait still presents good characteristics for a third entrant: high ARPU, young and rapidly growing population and strong economic growth. Mobile indicators in Kuwait 1,050,000 1,000,000 950,000 900,000 850,000 800,000 750,000 76.7% 80.1% 80.6% 79.3% 79.5% 80.6% 80.5% Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Wataniya Kuwait total subscribers Mobile penetration 100% 80% 60% 40% 20% 0% Source: EIU, MTC, Wataniya, SHUAA Capital December 24th, 2006 7
We may see the third mobile services provider operating as a Mobile Virtual Network Operator (MVNO) instead of rolling out its own infrastructure. MVNOs are wireless companies that would have their own brand, marketing, retail outlets, and phone offerings, but would use MTC or Wataniya s infrastructure (towers and network) instead of building and operating their own. A similar example would be MTC in Bahrain, which did not invest heavily in the mobile services infrastructure. Instead, MTC has been sharing Batelco s network, and mobile services were merely marketed as a brand. Investing in a new infrastructure would require substantial capital expenditures, and returns from a relatively small and saturated market like Kuwait may not justify the expense. Financial analysis and forecasts Wataniya had 1,023,078 customers as of Q3 06 EBITDA margin stood at 46.1% in 9M 06 In 2005, Wataniya s active customer base in Kuwait increased by 11.6% or 98,534 new subscribers to reach 945,811. Another 77,267 new customers were added in the first nine months of this year, bringing Wataniya s total subscribers in Kuwait to 1,023,078. Revenues in 2005 amounted to KWD 155.4 mn compared to KWD 141.4 mn in 2004. Revenues for 9M 06 increased by 14.6% Y-o-Y to reach KWD 130.3 mn. EBITDA in 2005 stood at KWD 58.4 mn, or 37.6% of revenues, compared to KWD 55.1 mn or 39.0% of revenues in 2004. At the end of September 2006, EBITDA reached KWD 60.1 mn or 46.1% of revenues. Net profit in 2005 totaled KWD 70.3 mn, an increase of 49.4% compared to KWD 47.1 mn in 2004. Due to higher depreciation following a major network upgrade that took place in 2005, net profit for 9M 06 declined 3.8% Y-o-Y to KWD 45.9 mn. Indeed, the company started converting its current radio sites-based network into an IP-based Next Generation Network (IP NGN) aimed at solving congestion problems, reducing operational costs, and enabling Wataniya to roll out more services much faster. 100% 80% With Wataniya s subscriber base in Kuwait expected to expand at a CAGR of 2.6% between 2006 and 2010 and the average blended ARPU anticipated to remain relatively stable, we believe that revenues in Kuwait should grow at a CAGR of 3.2% throughout our forecast period. Specifically, we expect revenues to reach KWD 177.0 mn in 2006 and 188.8 mn in 2007. We anticipate Wataniya s market share to decrease from 40% at the moment to 34% as a result of stiffer competition due to the arrival of a third mobile operator late in 2007. Strong economic growth and more added value services should support the ARPU, while a strong population growth (hovering around 6%) should allow the company to continue growing its subscriber base despite high penetration rate in the market. With an EBITDA margin of 46.0% in 2006 and 45.8% in 2007, we anticipate EBITDA to reach KWD 81.4 mn and KWD 86.5 mn, respectively. Wataniya Kuwait EBITDA margin 60% 40% 39.0% 37.6% 46.0% 45.8% 45.5% 45.3% 45.1% 20% 0% 2004 2005 2006E 2007E 2008E 2009E 2010E December 24th, 2006 8
For 2006, we forecast bottom line to decrease by 10.8% to KWD 62.7 mn due to higher depreciation for the year. In 2007, depreciation should continue to weigh down on the company s net profit and we anticipate stiffer competition, which should limit bottom line s growth at 3.5% to KWD 64.9 mn. KUWAIT - Mobile 2004 2005 2006E 2007E 2008E 2009E 2010E Population 2,800,000 3,000,000 3,180,000 3,370,800 3,539,340 3,716,307 3,864,959 Adressable population 2,296,000 2,490,000 2,671,200 2,831,472 2,973,046 3,121,698 3,285,215 Penetration rate 75.3% 79.3% 81.7% 84.8% 86.3% 87.5% 87.8% Number of operators MTC, Wataniya MTC, Wataniya MTC, Wataniya MTC, Wataniya, New entrant MTC, Wataniya, New entrant MTC, Wataniya, New entrant MTC, Wataniya, New entrant Respective Market Share 60% - 40% 60% - 40% 60% - 40% 59% - 38% - 3% 55% - 37% - 8% 54% - 35% - 11% 53% - 34% -13% Total Mobile Subscribers 2,109,694 2,379,811 2,598,616 2,858,477 3,056,099 3,250,117 3,392,549 Net Additions 348,337 270,117 218,805 259,862 197,621 194,019 142,432 Growth 19.8% 12.8% 9.2% 10.0% 6.9% 6.3% 4.4% Wataniya Subscribers 847,277 945,811 1,039,446 1,086,221 1,130,756 1,137,541 1,153,467 Net Additions 61,334 98,534 93,635 46,775 44,535 6,785 15,926 Growth 7.8% 11.6% 9.9% 4.5% 4.1% 0.6% 1.4% Year end Postpaid - Prepaid 10% - 90% 12% - 88% 13% - 87% 13% - 87% 15% - 85% 16% - 84% 17% - 83% Average blended ARPU (KWD) 13.4 13.7 14.2 14.1 14.0 14.0 14.0 Source: EIU, MTC, Wataniya, SHUAA Capital December 24th, 2006 9
Tunisia - Tunisiana (50%) Tunisiana launched operations in December 2002 after acquiring a 15-year license for USD 454 mn Orascom Telecom Tunisie (OTT), better known as Tunisiana, was granted a license in May 2002 to provide GSM services in Tunisia. Tunisiana launched its operations on 27 December 2002. Tunisiana s 15-year license was acquired for a fee of USD 454 million, payable in two equal installments, which were paid in May 2002 and September 2004. The license awarded to Tunisiana does not include 3G services. The company would have to upgrade its license (and hence pay an additional fee) to be able to provide 3G services in the country. Tunisiana was Wataniya s first venture outside Kuwait. The 50% stake in Orascom Telecom Tunisie was acquired in October 2002 for USD 125 mn. Orascom Telecom Tunisie Ownership Structure Wataniya Telecom 50% Orascom Telecom (OTH) 50% Orascom Telecom is trying to fully take control of Tunisiana Duopoly situation with Tunisie Telecom Currently, Orascom Telecom (OTH) of Egypt and Wataniya possess equal rights in management control. We believe that both shareholders are committed to the strategic development of the business and that in time both parties would be interested to increase their participation in the company to take effective control. There has been some tension between the two parties recently, and OTH announced in May 2006 that it had filed a request for arbitration with the ICC in Paris (International Court of Arbitration institution for the resolution of international commercial disputes) against Wataniya to enforce what it claims to be a contractual right to acquire Wataniya s 50% stake in OTT. Wataniya rejected OTH s claim viewing it as entirely without merit. Tunisiana is competing against state-owned Tunisie Telecom (TT), the sole supplier of fixed line services in Tunisia. The duopoly in the GSM mobile market expired on 30 November 2004. 100% 80% 60% 40% 20% Mobile subscribers net additions in Tunisia 37.8% 62.2% 58.6% 41.4% 0% 2005 H1 06 Tunisiana net additions TT net additions Source: Ministry of Communication Technologies Tunisia, Wataniya, SHUAA Capital December 24th, 2006 10
Tunisie Telecom was privatised in March 2006 after the government sold a 35% stake to UAE investors In March 2006, the Tunisian government privatized TT by offering a 35% stake of the company. A consortium including TECOM Investments and Dubai Investment Group (TECOM-DIG), both members of Dubai Holding, won the tender with a bid at TND 3.05 bn (USD 2.25 bn). The consortium officially acquired the 35% stake in TT on 17 July 2006. Tunisiana provides a range of prepaid and postpaid voice, data and multimedia services based on a GPRS and EDGE-enabled network. The company markets its prepaid services using the brand name Awal Tunisian prepaye and its postpaid services using Awal Tunisian postpaye. The Ministry of Communication Technologies (MCT) along with the National Telecommunication Commission (Instance Nationale des Telecommunication - INT) and the National Agency for Frequencies are responsible for regulatory aspects. The ministry is in charge of licensing and the INT is responsible for arbitration and solving disputes between the operators but also for regulating interconnection. Financial analysis and forecasts From full consolidation the previous years to proportionate consolidation in 2006 Tunisiana ended Q3 06 with 2,821,613 mobile users or approximately 42% market share EBITDA margin stood at 42.8% in 9M 06 It is worth noting that Wataniya used to fully consolidate Tunisiana in the previous years, but starting in 2006, it adopted the proportionate consolidation method. Therefore all figures mentioned for FY 06 onwards represent the actual revenues, EBITDA and net profit attributable to Wataniya from Tunisiana. Tunisiana closed FY 05 with 2,257,662 subscribers compared to 1,047,516 at the end of 2004. As of Q3 06, the number of subscribers increased to 2,821,613 (+25.0% vs. end of 2005). Revenues rose 44.1% Y-o-Y to reach KWD 93.6 million despite a dilution of the average blended ARPU due to the acquisition of a large number of lower-income and prepaid subscribers. Revenues for 9M 06 amounted to KWD 49.1 mn, an increase of 41.9% Y-o-Y. 2005 EBITDA soared 43.8% to KWD 36.1 mn, translating into an EBITDA margin of 38.5% (vs. 38.6% in 2004). EBITDA for 9M 06 reached KWD 21.0 mn or 42.8% of revenues. Excluding license payments, OTT s capital expenditure (Capex) has exceeded TND 95 mn (USD 73 mn) since its inception. Despite a strengthening EBITDA, Capex and financial charges (total debt of KWD 122 mn at the end of 2005) depressed Tunisiana s bottom line. Net profit in 2005 reached a mere KWD 3.0 mn (nil in 2004). As for 9M 06, net profit amounted to KWD 3.9 mn (KWD 7.8 mn if we take the fully consolidation method). So far, OTT has not distributed cash dividends due to its relatively high leverage metrics. We may see dividends distribution starting in 2008 following a decline in debt servicing. 100% 80% Going forward, we anticipate revenues to grow at a CAGR of 13.0% between 2006 and 2010 on the back of a subscribers CAGR of 8.8% during the same period. Growth in the number of subscribers should continue to be driven by prepaid services and fixedto-mobile churn or substitution. Tunisiana s impressive subscribers growth has been facilitated by low fixed-line penetration, falling tariffs due to rising competition, and high fixed-to-mobile substitution amongst other factors. EBITDA margin should stand at 42.9% in 2006 and 43.1% in 2007, with EBITDA reaching KWD 29.9 mn and KWD 36.4 mn, respectively. Tunisiana EBITDA margin 60% 40% 38.6% 38.5% 42.9% 43.1% 42.3% 42.1% 42.2% 20% 0% 2004 2005 2006E 2007E 2008E 2009E 2010E December 24th, 2006 11
We forecast net profit to be KWD 7.2 mn in 2006 and KWD 16.1 mn in 2007. TUNISIA Mobile 2004 2005 2006E 2007E 2008E 2009E 2010E Population 10,000,000 10,100,000 10,201,000 10,303,010 10,406,040 10,510,101 10,615,202 Addressable population 7,800,000 7,979,000 8,160,800 8,345,438 8,637,013 8,828,484 9,129,073 Penetration rate 37.4% 56.2% 66.4% 72.2% 77.5% 80.0% 82.0% Number of operators Tunisiana, TT Tunisiana, TT Tunisiana, TT Tunisiana, TT Tunisiana, TT Tunisiana, TT Tunisiana, TT Respective Market Share 28% - 72% 40% - 60% 44% - 56% 48% - 52% 47% - 53% 48% - 52% 48% - 52% Total Mobile Subscribers 3,735,695 5,680,726 6,778,117 7,437,289 8,066,452 8,403,899 8,706,439 Net Additions 1,824,047 1,945,031 1,097,391 659,172 629,163 337,447 302,540 Growth 95.4% 52.1% 19.3% 9.7% 8.5% 4.2% 3.6% Wataniya Subscribers 1,047,516 2,257,662 2,982,372 3,569,899 3,791,232 4,033,871 4,179,091 Net Additions 549,742 1,210,146 724,710 587,527 221,334 242,639 145,219 Growth 110.4% 115.5% 32.1% 19.7% 6.2% 6.4% 3.6% Year end Postpaid - Prepaid 2% - 98% 1% - 99% 1% - 99% 2% - 98% 3% - 97% 4% - 96% 6% - 94% Average blended ARPU (KWD) 6.5 4.5 4.2 4.0 4.2 4.4 4.4 Source: EIU, Ministry of Communication Technologies - Tunisia, CIA World Factbook, Wataniya, SHUAA Capital Tunisiana s strategic objective is to overtake incumbent TT and become the leading GSM operator in Tunisia. However, we believe that TT s privatization should improve operating efficiencies as well as the company s marketing strategy. Moreover, convergence of telecoms services should give TT a competitive edge in the medium term with bundled offers dominating the market. A third mobile operator in Tunisia is not excluded We do not exclude the possibility of a third mobile operator entering the Tunisian mobile market. Typically, comparable markets (same size and same level of mobile penetration) such as Jordan and more broadly Iraq, Morocco, Saudi Arabia and Kuwait, have introduced third mobile operators in their market to enhance competition, improve services and lower prices. Along with the award of third mobile license, we may also see the introduction of MNP, which would allow customers to switch from a network to another while keeping the same number. December 24th, 2006 12
Algeria - Nedjma (71%) Nedjma started operations in August 2005 after obtaining a 15- year license paid USD 421 mn Wataniya was awarded Algeria s third mobile license in December 2003 after placing the highest bid at USD 421 mn. The company was licensed to operate a dual band (GSM 900 and GSM 1800) network for an initial 15-year period. In May 2004, Wataniya sold 20% of Wataniya Telecom Algerie (WTA) to Gulf Investment Corporation of Kuwait, reducing its stake to 71%. Wataniya Telecom Algeria Ownership Structure United Gulf Bank, 9% Gulf Investment Corporation, 20% Wataniya Telecom, 71% United Gulf Bank (UGB) is KIPCO s investment banking arm and subsidiary. Nedjma shares the mobile market with Orascom Telecom and Algerie Telecom and had 11% market share as of Q2 06 WTA started commercial operations under the brand name Nedjma on 25 August 2004. Nedjma faces competition from two other mobile operators; Djezzy (96.8% owned by Orascom Telecom) and Mobilis (owned by incumbent Algerie Telecom). After months of standstill, the privatization of Algerie Telecom (AT) is expected to restart with a completion target of mid-2007. The company said preparations for the transaction were at an advanced stage and the sale documents ready to be signed by the authorities. The Algerian government was supposed to sell a 35% stake in the incumbent operator by the end of this year, but the process never started. Nedjma entered the market with a different positioning - a multimedia operator with aggressive promotions such as free minutes at activation, 100 free MMS, free calls during the evenings. Mobile subscribers net additions breakdown in Algeria 100% 23.2% 38.4% 31.7% 80% 12.1% 51.5% 48.2% 60% 12.4% 15.6% 12.8% 40% 14.6% 64.7% 55.9% 20% 46.1% 33.8% 39.0% 42.9% 11.0% 46.1% 0% Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Djezzy net additions Nedjma net additions Mobilis net additions Source: ARPT - Algeria, Orascom Telecom, Wataniya, SHUAA Capital December 24th, 2006 13
The fast evolving market and the entry of Nedjma forced Mobilis and Djezzy to improve their service offerings and cut tariffs. Hence, there was a need to develop new offers and segment the market. As a result, the market climbed to 18.3 million subscribers as of Q2 06 from 4.9 million at the end of 2004. The net additions of 13.4 million customers in 18 months propelled the mobile penetration from 14.6% in December 2004 to 53.6% by June 2006. 2,500,000 Mobile indicators in Algeria 100% 2,000,000 1,500,000 1,000,000 500,000 19.2% 23.3% 32.8% 39.8% 44.2% 53.6% 80% 60% 40% 20% 0 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Nedjma total subscribers Mobile penetration Source: EIU, ARPT - Algeria, Orascom Telecom, Wataniya, SHUAA Capital 0% It is yet unclear whether Nedjma can provide 3G services with its current license. Like in Tunisia, it may need to pay an additional fee to upgrade it. Financial analysis and forecasts Subscriber base reached 2,351,336 as of Q3 06 EBITDA in the black in 9M 06... At the end of 2005, Nedjma increased its active customer base to 1,475,353 subscribers as compared to 287,562 at the end of 2004. In 2006, growth accelerated further as Nedjma s subscriber base reached 2,351,336 at the end of September (+59.4% vs. end of 2005). 2005 Revenues amounted to KWD 42.2 mn compared to KWD 4.1 mn at the end of 2004. As for 9M 06, Nedjma s top line increased by 71.9% Y-o-Y to reach KWD 50.8 mn. In 2005, Nedjma reduced its loss at EBITDA level to KWD 3.9 mn from a negative KWD 12.0 mn a year earlier. At the end of September 2006, it managed to post a positive EBITDA of KWD 8.2 mn, translating into an EBITDA margin of 16.1%. Bottom line in 2005 was also in the red with a loss of KWD 14.0 mn compared to a loss of KWD 8.5 mn in 2004 (5 months). In the first nine months of 2006, bottom line was still in negative territory with a loss of KWD 13.0 mn. Between 2006 and 2010, we anticipate Nedjma s revenues to grow at a CAGR of 32.5% as we expect its subscriber base to expand at a CAGR of 19.2% during the same period. Nedjma s market share should reach 18% by 2010 while Djezzy s market share should fall from 53% in 2005 to 45% in 2010, and Mobilis market share should broadly stay the same at 38%. As in the case of Tunisie Telecom, we believe that AT s privatization next year should improve operating efficiencies but also force more aggressive marketing, which will eventually enhance the company s brand equity. Moreover, with the convergence of telecoms services taking shape, we see integrated operators in the medium term having a competitive edge compared to pure mobile operators, as we believe that bundled offers should address much of customers telecoms requirements. Nedjma s average blended ARPU should improve over time on the back of (i) a strong economic growth in the country and (ii) more value added services offered by the company to its customers. After a sharp drop in 2005, Nedjma s average blended ARPU has been stabilizing for the past four quarters at around KWD 3.0. December 24th, 2006 14
EBITDA margin should stand at 22.5% in 2006 and 42.7% in 2007 with EBITDA reaching KWD 16.9 mn and KWD 50.2 mn, respectively. At the beginning of Q4 05, the Algerian Telecom Regulator (Autorite de Regulation des Postes et des Telecommunication - ARPT) forced Djezzy to decrease its termination rate by 38% from 6.5 to 4 Algerian Dinhars. Though Djezzy submitted a claim against the regulator s decision to the Supreme Court of Algeria, we do not expect a positive ruling to take place anytime soon, which should support Nedjma s profitability going forward. 100% Nedjma EBITDA margin 80% Nedjma s bottom line is expected to reach breakeven in Q4 06 60% 40% 20% 0% 0.0% 22.5% 42.7% 48.6% 46.2% 45.4% 2005 2006E 2007E 2008E 2009E 2010E We expect Nedjma to reach breakeven for the first time in Q4 06 with a positive contribution of KWD 1.3 mn. This should reduce total losses for the year to 11.7 mn. In 2007, as operating profitability should drastically improve, we forecast a net profit of KWD 15.9 mn. We do not expect Nedjma to pay dividends throughout our forecast period. It is worth noting that Wataniya secured a USD 490 mn seven-year term financing for Nedjma in 2005. The financing proceeds are used to continue the construction and expansion of the GSM network across Algeria. The USD 490 mn equivalent long term financing, combined with the USD 421 mn committed equity, completes the permanent capital structure of the company. ALGERIA - Mobile 2004 2005 2006E 2007E 2008E 2009E 2010E Population 32,400,000 32,800,000 33,292,000 33,791,380 34,298,251 34,812,724 35,334,915 Adressable population 24,948,000 25,584,000 26,300,680 27,033,104 28,124,566 28,894,561 30,034,678 Penetration rate 15.1% 41.1% 61.4% 72.4% 76.7% 80.4% 84.3% Number of operators Djezzy, Nedjma, Mobilis Djezzy, Nedjma, Mobilis Djezzy, Nedjma, Mobilis Djezzy, Nedjma, Mobilis Djezzy, Nedjma, Mobilis Djezzy, Nedjma, Mobilis Djezzy, Nedjma, Mobilis Respective Market Share 70% - 6% - 24% 53% - 11% - 36% 49% - 13% - 38% 48% - 15% - 37% 47% - 17% - 36% 46% - 18% - 36% 45% - 18% - 37% Total Mobile Subscribers 4,881,929 13,492,322 20,439,313 24,463,133 26,312,258 27,981,625 29,772,449 Net Additions - 8,610,393 6,946,991 4,023,820 1,849,125 1,669,367 1,790,824 Growth - 176.4% 51.5% 19.7% 7.6% 6.3% 6.4% Wataniya Subscribers 287,562 1,475,353 2,657,111 3,669,470 4,473,084 5,036,692 5,359,041 Net Additions 287,562 1,187,791 1,181,758 1,012,359 803,614 563,609 322,348 Growth - 413.1% 80.1% 38.1% 21.9% 12.6% 6.4% Year end Postpaid - Prepaid 2% - 98% 1% - 99% 1% - 99% 1% - 99% 2% - 98% 3% - 97% 5% - 95% Average blended ARPU (KWD) 5.7 3.8 2.9 3.0 3.1 3.3 3.6 Source: EIU, CIA World Factbook, ARPT - Algeria, Orascom Telecom, Wataniya, SHUAA Capital December 24th, 2006 15
A potential upside for Nedjma, in our opinion, would be the introduction of Mobile Number Portability (MNP). We observed that in most markets where MNP was introduced, it reinforced the market position of smaller players and weakened the one of dominant players. No more licenses to be awarded in Algeria After studying the idea of further liberalizing its mobile market, the ARPT concluded that Algeria did not need a fourth mobile operator. The ARPT looked at several African and Arab countries and found that apart from Nigeria with a population of roughly 160 million, no other comparable country had more than three mobile operators. MVNOs are not considered as a priority for the time being. December 24th, 2006 16
Iraq - Asia-Cell (40%) Asia-Cell started commercial operations in Iraq in December 2003 with an initial two-year period In October 2003, the Coalition Provisional Authority (CPA) in Iraq awarded three mobile licenses for an initial two-year period. These licenses were regional in scope, although they included provisions allowing licensees to roll out nationally if they were successful in meeting certain agreed objectives set forth in the licenses. The three winning bidders were Iraqna (Orascom Telecom Iraq) in the Central region, Asia-Cell (Wataniya) in the North, and MTC Atheer in the South. Wataniya Telecom 40% Asia-Cell Shareholding Structure Asia-Cell Telecom 51% United Gulf Bank 9% Asia-Cell s license was extended until December 2006 Four national licenses are expected to be awarded in H1 07 Asia-Cell signed the license and started operations in December 2003 in Northern Iraq but expanded services nationwide starting in January 2005. By end of 2005, Asia-Cell extended its network to the southern part of the country and operated in all three regions of Iraq. In December 2005, given the situation in the country, Iraq s Communications and Media Commission (CMC) issued an interim license to the three existing operators valid until June 2006. As security developments worsened in 2006, the interim license was extended to September and then to December. The CMC is now expected to award four national mobile licenses sometime in H1 07. Contenders have entered the pre-qualification stage with 15 companies selected so far. Given their well established position and the fact that they own their network, we believe that the three existing operators have a great chance to secure a license. This would actually leave only one license for competition. However, what we are less certain about is the price element. How licenses for the three existing operators will be priced is the big question. Will they follow the same process for existing operators as any other contender? Will the CMC consider the high Capex already invested in their network and equipment? How much will existing operators be ready to pay to stay in Iraq given the already heavy investments they incurred? And given the hype in the telecoms sector and the generous prices paid for green-field license, would the CMC be ready to give up on some of the proceeds that it could derive from the licensing process? Asia-Cell provides a full range of prepaid and postpaid voice, data and value added services, and also has an international gateway. As of Q3 06 Asia-Cell had only 50 postpaid subscribers out of a subscriber base of over 2.5 million. 100% 80% 60% 40% 20% 0% Mobile subscribers net additions breakdown in Iraq 19.6% 32.5% 34.6% 34.1% 24.9% 33.0% 48.1% 17.0% 45.1% 46.4% 31.7% 27.5% 21.2% 38.6% 58.1% 35.3% 33.8% 38.4% 45.7% 21.1% 13.3% Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 MTC Atheer net additions Iraqna net additions Asia-Cell net additions Source: MTC, Orascom Telcom, Wataniya, SHUAA Capital December 24th, 2006 17
With 34% market share or 2,544,891 subscribers, Asia-Cell is the market leader The three operators combined added close to 6.2 million subscribers since the beginning of 2005. We can now say fairly that the three operators are sharing the market equally with around 33% market share each. The exceptional growth in the number of subscribers boosted penetration rate from 5.4% as of Q1 05 to 22.5% as of Q3 06. Mobile indiactors in Iraq 3,000,000 100% 2,500,000 2,000,000 1,500,000 1,000,000 500,000 5.4% 7.4% 10.6% 13.9% 17.4% 20.2% 22.5% 80% 60% 40% 20% 0 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Asia-Cell total subscribers Mobile penetration Source: EIU, MTC, Orascom Telcom, Wataniya, SHUAA Capital 0% One of the reasons that could explain the success of mobile telephony in Iraq is the very low fixed line penetration in the country, which is among the lowest in the world - at around 3% of the country s 29 million population. Financial analysis and forecasts High EBITDA margin of 58.9% in 9M 06 Asia-Cell ended 2005 with 1,649,710 customers compared to 470,447 a year earlier. Revenues in 2005 increased by 130.6% to KWD 61.0 mn. Growth in revenues remained strong during 9M 06 with top line reaching KWD 74.7 mn compared to KWD 41.4 for the same period in 2005. EBITDA in 2005 grew 80.2% to KWD 28.1 mn, translating into an EBITDA margin of 46.0%. At the end of September 2006, EBITDA reached KWD 44.0 mn or 58.9% of revenues. Asia-Cell recorded a net loss in 2005 of KWD 2.8 mn compared to a net profit of KWD 1.4 mn in 2004. As for 9M 06, net profit surged to KWD 35.6 mn compared to KWD 1.4 mn during the same period in 2005. We expect the number of subscribers net additions to remain steady in 2006 and 2007 as mobile penetration is still relatively low and the security situation may improve in the medium term (it couldn t get much worse). With the average blended ARPU expected to remain stable until end of 2008 at around KWD 3.6 before reaching KWD 4.2 by 2010, we forecast revenues to grow at a CAGR of 30% between 2006 and 2010. ARPU should be supported by an increasing postpaid subscriber base and the launch of more added value services. Asia-Cell s revenues are expected to reach KWD 106.2 mn in 2006 and KWD 154.0 in 2007. We anticipate Asia-Cell to close 2006 with an EBITDA of KWD 61.5 mn or 57.9% of revenues. EBITDA margin should then drop to 50.6% in 2007 and end at 46.1% by end of 2010 as we expect stiffer competition with the entrance of a fourth mobile operator in 2007. Moreover, more customers from the lower-income segment should sign up as mobile penetration goes up. Of course, all of the above assumes that Asia Cell is successful at retaining its mobile license over the forecast period. 80% Asia-Cell EBITDA margin 60% 58.8% 46.0% 57.9% 50.6% 46.8% 46.4% 46.1% 40% 20% 0% 2004 2005 2006E 2007E 2008E 2009E 2010E December 24th, 2006 18
We forecast net profit to reach KWD 49.3 mn this year and KWD 57.1 mn in 2007. IRAQ - Mobile 2004 2005 2006E 2007E 2008E 2009E 2010E Population 28,100,000 28,800,000 29,520,000 30,258,000 31,014,450 31,758,797 32,521,008 Addressable population 20,513,000 21,312,000 22,140,000 22,693,500 23,881,127 24,771,862 26,016,806 Penetration rate 4.6% 15.9% 28.1% 39.3% 50.3% 59.1% 67.1% Number of operators Respective Market Share Total Mobile Subscribers MTC, Asia-Cell, Iraqna MTC, Asia-Cell, Iraqna MTC, Asia-Cell, Iraqna 19% - 37% - 44% 23% - 36% - 41% 34% - 34% - 32% MTC, AsiaCell, Iraqna, New entrant 33% - 33% - 31% - 3% MTC, AsiaCell, Iraqna, New entrant 32% - 31% - 29% - 8% MTC, AsiaCell, Iraqna, New entrant 30% - 30% - 28% - 12% MTC, AsiaCell, Iraqna, New entrant 29% - 28% - 26% - 17% 1,288,729 4,572,312 8,306,775 11,904,867 15,587,696 18,764,987 21,834,403 Net Additions - 3,283,583 3,734,463 3,598,092 3,682,828 3,177,292 3,069,416 Growth - 254.8% 81.7% 43.3% 30.9% 20.4% 16.4% Wataniya Subscribers 470,447 1,649,710 2,824,304 3,928,606 4,832,186 5,629,496 6,113,633 Net Additions 400,545 1,179,263 1,174,594 1,104,303 903,579 797,311 484,137 Growth 573.0% 250.7% 71.2% 39.1% 23.0% 16.5% 8.6% Year end Postpaid - Prepaid 0% - 100% 0% - 100% 0% - 100% 0% - 100% 1% - 99% 2% - 98% 4% - 96% Average blended ARPU (KWD) 6.1 4.6 3.6 3.6 3.7 3.9 4.2 Source: EIU, CIA World Factbook, MTC, Orascom Telecom, Wataniya, SHUAA Capital December 24th, 2006 19
Maldives - Wataniya Telecom (100%) Wataniya started operations in The Maldives in August 2005 after paying USD 1 mn for the second mobile license Wataniya International was awarded the second nationwide GSM license in the Maldives in November 2004 for a license fee of USD 1 mn. The 15-year license was signed in February 2005 and commercial operations commenced on 1 August 2005. By acquiring the license in the Maldives, the group has made its first acquisition outside the MENA region. Located in the Indian Ocean, the Maldives consists of 1,190 coral islands grouped into 26 atolls spread over 100,000 square kilometers (820 kilometers from north to south). 199 of these islands are inhabited. The Maldives has a population of more than 350,000 and is a popular tourist destination with an estimated 550,000 visitors each year. Wataniya launched operations with a network offering high speed Internet access based on a 3G enabled network in the city area of Male and GPRS/EDGE technologies serving other areas of the country. The network also launched Push-to-Talk services for business users. Wataniya faces competition from Dhivehi Raajjeyge Gulhun (Dhiraagu), the incumbent fixed-line and mobile operator. Dhiraagu is a joint venture between the Government of the Maldives (65%) and Cable & Wireless of UK (35%). The Telecoms Authority of Maldives (TAM) is responsible for regulating telecoms services in the country. Its responsibilities include approval of services, policy and regulatory issues, standards and Spectrum management, tariffs, etc. Financial analysis and forecasts Subscriber base reached 56,341 as of Q3 06 EBITDA and net profit still in the red Wataniya Telecom Maldives (WTM) closed 2005 with a subscriber base of 50,162 (after 5 months of operations). It added another 6,179 customers during the first nine months of 2006. Revenues in 2005 amounted to KWD 1.1 mn with EBITDA and net profit both in the red at KWD 1.3 mn and KWD 1.8 mn, respectively. As for 9M 06, revenues reached KWD 3.1 mn with EBITDA and net profit still in the red at KWD 0.4 and KWD 2.5 mn, respectively. 100% 80% It is worth mentioning that in November 2005 WTM took on a USD 27 million long term financing deal to fund its network expansion and an undersea fiber optic cable project, which will carry its international traffic. Going forward, we expect the number of subscribers to grow at a CAGR of 13.9% between 2006 and 2010 reaching 101,825 by 2010. WTM should close this year with 60,596 users. Average blended ARPU should slowly improve after a big drop in 2006 as roaming revenues (coming from tourists) and value added services should be of good support. Revenues should grow at a CAGR of 13.7% throughout our forecast period and in particular we forecast top line to reach KWD 4.1 mn in 2006 and KWD 4.8 mn in 2007. As far as the EBITDA is concerned, we anticipate WTM to close this year in the red with a loss of KWD 0.5 mn and to reach breakeven in 2007 with an EBITDA of KWD 0.9 mn. WTM EBITDA margin 60% 41.3% 45.2% 45.4% 40% 17.8% 20% 0.0% 0.0% 0% 2005 2006E 2007E 2008E 2009E 2010E December 24th, 2006 20