Over the past decade, companies from Asia, Latin America, Africa, the Middle East, Russia and eastern Europe have significantly increased their global presence. And in seeking new opportunities outside of their home countries, they have increasingly turned to other emerging markets.
To better understand that trend, FT Tilt examined the financial statements of some of those companies in key sectors to see how much exposure they now have to other developing regions -- and how that exposure has changed over the past few years.
When it comes to businesses from the MENA region that have expanded their global footprint, the story begins, and almost ends, with the telecommunications sector. Over the last decade, five regional telcos have raced out of their home markets and built some of the world's biggest mobile operators, focussed entirely on emerging markets.
MENA telcos have been laser-focussed on Africa, the Middle East and Asia for their overseas expansion. None have moved into Latin America or eastern Europe.
On the revenues front, the most successful story of international EM diversification among MENA operators has been Qatar's Qtel. Like the rest of the Qatari economy, the last five years have been a wild ride, and a graphic from the company's 2010 annual report puts it best:
From a super-rich, high-spending home base (Qatar contributes just 3 per cent of Qtel's customers but 23 per cent of its EBITDA), Qtel has snapped up some lucrative EM assets, most notably Indosat, Indonesia's second-largest mobile network. Indosat is now the biggest single source of revenue and EBITDA for the group, contributing 29 per cent and 32 per cent respectively.
Slower moving in international expansion - but equally EM-focussed - is Saudi Telecom (STC). The kingdom's national operator has taken a more hands-off approach to international growth, choosing to make large minority investments in existing operators, rather than the more aggressive takeovers or greenfield expansions preferred by its regional peers.
Regardless, the company has made smart investments, including a 35 per cent stake in Oger, a Dubai-registered holding company controlled by the family of Lebanon's former prime minister, Rafik Hariri. Oger owns networks in Turkey and South Africa. STC also owns a controlling stake in Axis, an Indonesian telecoms company launched in 2008, as well as mobile networks in Bahrain and Kuwait. In 2007, STC bought a 25 per cent stake in Malaysia's Binariang Holding, an investment company that owns Maxis, a Malaysian mobile operator as well as stakes in India's Aircel and Indonesia's Axis.
How is that working out for them? In 2010 - the first year the company broke down the contribution of each unit to group - those international affiliates pulled in about $4.4bn in revenue, or 32 per cent of STC's group-wide revenue:
Source: Saudi Telecom
The UAE national telco, Etisalat, pulled in Dh31.9bn ($8.7bn) in 2010 annual revenue, and just over 76 per cent was earned in its home market. But the remainder was entirely from emerging markets. That's up from about 16 per cent of revenues coming from overseas EM operations in 2009.
Etisalat operates eight networks in Africa, six of which are run by Atlantique Telecom, a regional operator in West Africa. The company runs three more in the MENA region, including the Mobily network in Saudi Arabia, in which it is a minority shareholder but has management control. In Asia, it owns a network in Afghanistan, and is a minority investor in networks in India, Pakistan and Sri Lanka.
Notably, it's not just the share of UAE revenue in the overall mix that is declining: thanks to domestic competition, sluggish subscriber growth and falling average revenue per user (ARPU), Etisalat's revenues in the UAE are declining on an absolute basis, down by 6.5 per cent y-o-y in 2010. If it wasn't for strong overseas growth in its EM subsidiaries, particularly in Egypt where revenues jumped 56.5 per cent, company-wide revenue would have fallen in 2010.
Etisalat doesn't break down the contributions of its foreign subsidiaries in its own financial statements, but did share them at a recent analyst day. Here's how it looks, courtesy of EFG-Hermes (only included are majority-owned international affiliates whose earnings are consolidated into Etisalat's results):
Kuwait's Zain, which launched the Gulf's first mobile network in 1983, is the only MENA telco to consciously scale back its international operations in the last year, after selling off its sub-Saharan African businesses to India's Bharti Airtel in a $10.7bn deal in early 2010. The company, which was the subject of a failed takeover attempt by Etisalat, has also since agreed to sell its 25 per cent stake in Zain Saudi Arabia, although the deal has not yet been finalised.
Zain now operates in seven MENA markets including its home base of Kuwait. Of the company's $4.9bn in 2010 revenue, Kuwait accounted for about 25 per cent, with Iraq the biggest contributor at 36 per cent. Here's Zain's breakdown of 2010 revenue by geography, including revenue at its network in Saudi Arabia, which is not consolidated into the group's results but is by far the biggest earner:
And here's how that translates into EBITDA; margins in Iraq are impressive:
Egypt's Orascom Telecom is an almost-pure EM play, with networks in Algeria, Pakistan, Bangladesh and North Korea, as well as Telecel Globe, a subsidiary that operates networks in Burundi, the Central African Republic, Zimbabwe and Namibia. Orascom owns minority stakes in networks in Canada and Egypt, whose earnings are not consolidated into group results.
Total consolidated revenues in 2010 were $3.82bn, up 1.7 per cent y-o-y. Slow growth was mainly due to a slowdown in the company's biggest unit, Algeria's Djezzy network, which is in the process of being nationalised by the Algerian government. Political and economic instability in Pakistan, home to Mobilink, the company's second-biggest revenue-generator, also didn't help:
Source: Orascom Telecom
A note on the "telecom services" category that contributed $260m in 2010 revenue: Ring is Orascom Telecom's handset distribution and retailing business, which the company says is the biggest wholesaler of Nokia phones in Egypt and North Africa. "Other" includes the company's Lebanese business, which operates a mobile phone network on contract for the Lebanese government, as well as MENA Cable and TWA, which own undersea fibre-optic cables in the Middle East and Pakistan.
Outside of the telecom sector, three other Dubai-based companies have also extended their reach across the world:
Emirates Airline, whose business model is built around connecting Europe and North America to the emerging world of Asia, the Middle East and Africa, is booming everywhere, in both developed and emerging markets. No single geographic region accounts for more than 30 per cent of the company's revenues, and EMs accounted for the majority of its $14.4bn in 2010 revenues:
Africa accounts for a little over 10 per cent of group revenue, while East Asia and Australasia, the company's single biggest region for revenues, contributes 29 per cent.
DP World, the Dubai- and London-listed global ports operator, is making heavy investments into port infrastructure across the world, from the new London Gateway port and logistics park - which it says is the single biggest employment-creating project in the UK - to the new port of Callao in Peru.
Of it's $3.1bn in 2010 revenue, 56 per cent came from Europe, the Middle East and Africa, 15 per cent from Asia and 28 per cent from Australia and the Americas. Like Emirates Airline, DP World's growth story is very much a play on the growth in trade between emerging and developed markets, using its massive Jebel Ali port in Dubai as a hub for shipments from East to West.
Finally, Emaar, Dubai's biggest real estate developer, is looking increasingly abroad for growth after the bursting of Dubai's property bubble. The company has established international subsidiaries and launched big development projects in emerging markets, primarily in the Middle East, India and Pakistan.
While these projects, still in the early phases, are yet to contribute significant revenue to the company (it only recognises revenues from home sales when the property is delivered), analysts at EFG-Hermes (PDF) reckon 72 per cent of Emaar's revenue will come from outside the UAE by 2013:
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