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Establishing a Market Leadership Position in Cambodia13 December 2012
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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
_________________(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
Axiata is now well positioned for value creation in CambodiaEstablishing a market leadership position by consolidating a strong competitor at the right time
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35%
19%
7%
2% 2% 1%
21%
13%
34%
Metfone Mobitel Beeline Mfone QB Excell
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)
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
Subscriber Market Share(2)
Strategic Combination — Transaction Rationale
1
2
_________________(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
% Change in Market Share (June 2010 to June 2012)
-44%
104%139%
9%
-69%
3%
-38%-17%
Metfone Beeline Excell QB Mobitel Mfone
#1 #2 #3 #4 #5 #6 #7 #8Ranking
1. Compelling combination securing a strong leadership position
2. 25%+ real market share3. Tangible scale benefits +
synergies
(3)
(3)
25%
4
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
Strategic Combination — Transaction Rationale (cont’d)
3
4
_________________(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
5
5
Cambodia Continues to be an Attractive Country for Investment
Economy Back on High Growth Track Inflation Subdued
2,2162,0651,9462,361
1,956
6.1%7.3% 6.5%
7.3%
(0.5%)
2008 2009 2010 2011 2012E
GDP per capita (US$, PPP) y-o-y change
12.5%
3.1%4.9% 3.9%
5.3%
2008 2009 2010 2011 2012E
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
_________________Sources: Third‐party research
Attractive Regional Market
2,866
3,550
1,388
1,790
3,944
2,361
India
Vietnam
Laos
Cambodia
Bangladesh
Nepal
2012E GDP per capita (US$, PPP)
Cambodia Highlights
4.5%
4.0%
2.2%
6.2%
6.8%
5.7%
5.7%
7.8%
6.5%
Laos
India
Cambodia
Thailand
Bangladesh
Vietnam
Nepal
Malaysia
Singapore
2012E GDP per capita y-o-y change
Vietnam
Thailand
Laos
Cambodia
Myanmar
Malaysia
89m
6m
15m
29m
64m
62m
= Population
1a
6
Axiata has a long term view on its core markets
Cambodia meets Axiata’s criteria for an attractive, growth market in a preferred geographical location
Axiata has extensive experience in the market since its investment in 1998
Strong tourism sector driving roaming and data revenues
Young population drives wireless data take‐up
Recent establishment of telecom regulatory authority is a positive development
3.97.0
9.6
2.5
13.616.7
2007 2008 2009 2010 2011 1H12
Subscribers (mm)
_________________Sources: Third‐party research(1) Based on Axiata estimates(2) Number inclusive of Applifone in both June 2010 and June 2012. “Smart Mobile” is the brand name of Latelz(3) 2009 data (latest available)
2007 – 2011 Subscribers CAGR = 52.9%
2012E – 2015E Subscribers CAGR = 11.0%(1)
# of Players 4 6 9 9 8 8
(3)
4.54.0
2.4
5.0
3.43.0
3.5
Vietnam Laos Bangladesh Cambodia Sri Lanka Pakistan India
ARPU, 2011 (US$)
2012 unique SIM penetrationestimated at under 40%(1)
(1)
Attractive Telecom Market with Continuing Healthy Growth1b
27%
47%65%
17%
90%111%
2007 2008 2009 2010 2011 1H12
Penetration (%)
Subscriber Growth Momentum Axiata’s Cambodia Focus
Regional ARPU Comparison
7
Latelz and Hello are currently at #2 and #4 positions based on subscriber market share
Latelz and Hello have more than doubled their market shares since June 2010
Latelz has strong momentum and extensive network and sales reach
_________________Sources: Third‐party research(1) Number inclusive of Applifone in both June 2010 and June 2012. “Smart Mobile” is the brand name of Latelz
Market Position
Highly competitive market with 8 operators – Only Latelz, Hello and Metfone increased their market share over the past 2 years
% Change in Market Share (June 2010 to June 2012)
-44%
104%139%
9%
-69%
3%
-38%-17%
Metfone Beeline Excell QB Mobitel Mfone
#1 #2 #3 #4 #5 #6 #7 #8Ranking
(1)
Hello and Smart are the Top Performers in the Market2a
June 2012June 2010
35%
2%7%
2% 1%
19%13%
21%
Metfone Mobitel Hello Beeline Mfone QB Excell
#1 #2 #3 #4 #5 #6 #7 #8
(1)
33%
8% 7%4%
1%
33%
6%9%
Mobitel Metfone Mfone Beeline Hello QB Excell
#1 #2 #3 #4 #5 #6 #7 #8
(1)
Market Position
8
35%
19%
7%
2% 2%1%
21%
13%
34%
Metfone Mobitel Beeline Mfone QB Excell
Combination of the strongest performing operators in the market, currently at #2 and #4 positions based on subscriber market share(1)
Significantly strengthens Axiata’s market position in Cambodia, from #4 to a market leadership position(1)
Market structure now clearly defined as Top 3 vs. the rest
Axiata will control the combined enlarged entity
Subscriber Market Share(1)
_________________(1) Based on number of subscribers as of June 2012 from third‐party research(2) “Smart Mobile” is the brand name of Latelz
(2)
1. Compelling combination securing a strong leadership position
2. [25%]+ real market share3. Tangible scale benefits +
synergies
Axiata Establishes a Strong Market Leadership Position in Cambodia2b
1
2
3
4
25%
9
Overview of Combined BusinessPro-forma Consolidation for Hello / Smart for FY11 & 12
Key Operating Metrics Key Financial Metrics
Subs
Total Outgoing MOUs (mm)
Blended ARPU(U$)
BTS (2G)
Revenue(US$mm)(1)
EBITDA(US$mm)(1)
Capex(US$mm)(1)
PAT(US$mm)(1)
3,706,800
5,610,000
2011
1H12
305
387
2011
1H12
4.45
3.74
2011
1H12
1261
1388
2011
1H12
68.3
45.1
2011
1H12
1.4
7.3
2011
1H12
20.0
11.8
2011
1H12
(32.0)
(4.0)
2011
1H12
(1) Latelz 2011 numbers based on audited financials; 1H2012 numbers based on unaudited Latelz management reports; Hello numbers based on Company financials
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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
– 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
Latelz Highlights Significant Positive Impact on Axiata’s Position
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
Drive Scale Benefits and Tangible Synergies3
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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)
12
33%
6%9%
33%
8% 7%4%
1%
Mobitel Metfone Latelz Mfone Beeline Hello QB Excell
Cambodia Market: 2010 Perspective Market Share Evolution(1)
Cambodia Market: 2012 Perspective
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
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
_________________(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
June 2010 June 2012
#1 #2 #3 #4 #5 #6 #7 #8Market Position
(2)
% Change in Market Share (June 2010 to June 2012)
19%
13%
21%
35%
2%7%
2% 1%
Metfone Mobitel Hello Beeline Mfone QB Excell
#1 #2 #3 #4 #5 #6 #7 #8
-44%
104%
139%
9%
-69%
3%
-38%-17%
Latelz Hello Metfone Beeline Excell QB Mobitel Mfone
#1 #2 #3 #4 #5 #6 #7 #8Ranking
(2)
Latelz has demonstrated the
strongest performance in the market
Axiata Led In‐market Consolidation Improves Overall Market Fundamentals
4
13
_________________Sources: Third‐party research(1) 2009 data (latest available)
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
In‐line With Axiata’s Long Term Strategy and Financial Objectives5
14
Criteria Metric Pro-Forma for MergeCo
x
Impact to Axiata Group
Revenue and EBITDA Growth
Immediate Accretive Transaction
Axiata Group Debt/EBITDA < 3.0x
IRR
2013 Group ROIC
No change
Marginally Negative
2013 Group Debt/EBITDA
2012-2015 EBITDA CAGR
2012 - 2015 Revenue CAGR
2013 EPS Accretion Positive ~1% to 2%
IRR Significantly above WACC
Financial Impact to Axiata
Annual ROIC Impact
On Dividend Policy and Guidance 2012-2015 PATCAGR
Capex 2013 Capex
Marginally Positive
Marginally Positive
Marginally Positive
Not Material
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Axiata is now well positioned for value creation in CambodiaEstablishing a market leadership position by consolidating a strong competitor at the right time
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
Conclusion
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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 forward‐looking 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.
Important Notice
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Thank You
www.axiata.com
Axiata Group Berhad
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