Group president and CEO’s report
MTN's vision is to be the leader in telecommunications in emerging
markets. Our strategy is built on three pillars – consolidation and
diversification; leveraging our footprint and intellectual capacity;
and convergence and operational evolution.
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Phuthuma Nhleko
Group president and CEO |
The acceleration in active mobile subscriber numbers in each
of MTN's 21 operations since inception is indicative of the
phenomenal growth experienced over many years across
our footprint. Industry research points to further robust
expansion in mobile telephony for the world as a whole in
the next five years, particularly in emerging markets, including
those of Africa, Asia and the Middle East. Reputable research
organisation Informa Telecoms & Media forecasts that global
mobile phone penetration will expand to almost 75% of
the world's population by 2013 from just over 50% at the
end of 2007, increasing the number of mobile subscriptions
worldwide to 5,32 billion from 3,42 billion at the end of 2007.
It is notable that these forecasts were made at a time when
the world was beginning to experience a severe economic
slowdown.
The research underscores the considerable opportunity
that exists for MTN - already a well-established global brand
of mobile operator in emerging markets. We estimate that
the addressable mobile telephony market in our present
footprint will grow to over 381 million in the next five years
from 220 million now. MTN remains highly competitive in all its markets, putting it in good stead to take advantage of
significant future growth opportunities.
The 2008 year was challenging for all of the world's economies,
precipitated by the banking credit crisis in the United States.
However, as the economic slowdown began to affect
emerging markets mainly in the fourth quarter of the year,
the negative impact on MTN's performance for the full year
was mitigated. The prices of commodities - and particularly
oil - initially increased in 2008 and then fell sharply as a result
of slowing global economic growth, impacting negatively the
fundamentals of the economies of many of the countries in
which we operate.
Despite this backdrop, MTN's performance was robust. The
Group's subscriber growth expanded by 48% to 90,7 million
customers given the large investment to enhance our
infrastructure capacity. This enabled high subscriber take-up and
resultant year-on-year revenue growth of 40% to R102,5 billion.
MTN's EBITDA (earnings before interest, taxation, depreciation
and amortisation) margin edged down 1,4 percentage points
to 42,1% as a result of a number of factors, including increased network maintenance costs related to the sharply higher
number of base stations in operation in the year, as well as
higher regulatory fees. The weakness of the South African rand– relative to the currencies of the larger countries in which we
operate – supported the revenue and earnings growth by some
15%. Notwithstanding the marginally higher effective tax rate in
the year, profit after tax increased by 44% to R17,1 billion.
Average revenue per user declined marginally in most
operations in 2008, consistent with MTN's greater penetration
into lower-usage segments. The MTN balance sheet remained
strong with significant cash generation reducing Group gearing
to 0,3 times EBITDA.
MTN's key competitive advantage is its people. All
MTN's endeavours are driven by a "can do" spirit, which clearly
differentiates the Group from its competitors. It is also evident
in our work as a good corporate citizen, particularly through
the various MTN foundations which focus their energies on
uplifting the communities in which they are based.
Operating environment
During 2008, competition intensified in virtually all our markets
with the entry of new operators and as many regulators became
increasingly vigilant in applying their mandate. The challenging
macroeconomic backdrop described earlier affected the
various markets in different ways. The larger countries remained
relatively resilient in many respects although a reduction in
hard currency liquidity and the consequent currency volatility
became evident later in the year.
The challenges of emerging markets are well documented
and MTN considers risk management a key performance
fundamental. Roll out and distribution capacity and efficiency in
these more challenging environments is a key competence of
the Group.
Strategic agenda
MTN's vision is to be the leader in telecommunications in
emerging markets. We continue to innovate and develop
products and solutions and evolve the business model. This
is to ensure that we maintain a competitive advantage and
consolidate our position while retaining margins. Our strategy
is built on three pillars - consolidation and diversification;
leveraging our footprint and intellectual capacity; and
convergence and operational evolution.
Consolidation and diversification
In the last financial year, MTN continued to evaluate various
opportunities to continue to grow its business and diversify
earnings through leveraging its scale and offerings.
Our comparatively low level of gearing enables us to consider
potential acquisitions with confidence regarding our ability
to finance such acquisition. MTN’s aspirations are moderated by evaluation criteria and methodology that continue to be
stringent.
In the last three quarters of the year, the market value of mobile
operators across the world fell sharply. However it has not
necessarily made it easier to conclude transactions because it
resulted in an "expectation gap" as potential sellers have been
reluctant to sell at the significantly lower market prices. There
also continues to be competition for quality assets, putting
upward pressure on valuations.
We continued our efforts to facilitate local participation
in MTN operations. Apart from the commitment to a
new empowerment scheme in South Africa in 2009, the
most meaningful of these in 2008 was the disposal of a
5,96% interest in MTN Nigeria through a private placement
to Nigerian individuals and institutions for a consideration
of USD594 million. MTN also disposed of 49% of MTN Cyprus
to a prominent Cypriot trading company, which has a further
option for 1%.
Leveraging our footprint and intellectual capacity
MTN has built a strong global brand and is recognised for its
leadership in mobile telephony in emerging markets. Our
acquisition of the mobile content rights for the 2010 FIFA World
Cup South AfricaTM has enhanced the MTN brand. Our brand is
a key differentiator, and our strategy is to leverage it to achieve
even greater growth and efficiencies. In 2008 we launched the
first phase of the 2010 World Cup marketing campaign to unite
the continent that will host this event for the first time next year.
In 2008, there was increased focus on not only the speed and
pace but also the efficiency of the roll out of our R28,3 billion
capital expenditure programme (details of which appear in the
Group chief operating officer’s report.)
Through our Group procurement function, we secured more
competitive prices from vendors of network equipment. We
also rationalised our sources of supply, entering long-term
partnerships with suppliers, reducing costs and allowing for
replication of products across standard technology platforms.
An example of this was the introduction in nine markets of
MTN Zone, the dynamic tariffing innovation, which manages
demand on the network by encouraging greater use during
quiet times and so reducing congestion. MTN Zone also partly
addresses subscriber affordability constraints by offering large
discounts to our customers when sufficient capacity exists on
networks.
MTN's people are its key competitive resource and advantage.
MTN employs some 26 000 people, including contractors, over
45 different nationalities in more than 21 countries. MTN recognises
that people diversity, within a common Group culture and value
framework, is a key strength. We are able to capitalise on skills in one
market to use in a neighbouring one resulting in a higher degree
of mobility of staff between operations. Apart from the benefits to
the business of increased knowledge sharing, this also provides our
people with attractive and meaningful opportunities for growth and
bolsters MTN's ability to attract and retain the best talent.
In line with our objective of training people and skills development,
we launched the MTN Academy in the final quarter of 2008. This
is in addition to existing learnership programmes, such as the
graduate training schemes we have in place in many markets.
Initiatives have been put in place to improve staff engagement
at every level. We are most pleased with the record participation
rate of 85% in the 2008 annual employee culture audit.
Motivated by this feedback, MTN has stepped up its efforts to
recognise and reward deserving employees through many
initiatives including the Y’ello Stars programme.
Convergence and operational evolution
There is a growing acceptance of the inevitable importance
of data within the industry, with significant implications
for infrastructure. As detailed above, MTN accelerated its
preparations for an era, in which mobile operators will become
meaningful providers of internet-based connectivity.
We have started work on the transition of the network
infrastructure across all 21 markets to the next-generation,
packet-switch network, based on Internet Protocol (IP). In
South Africa and Rwanda, for example, we changed the core
infrastructure by replacing 98% of the monolithic network and
moving from classic transmission (using microwave or timedivision
multiplexing) to IP fibre-based transmission. Ultimately,
this should lead to increased capacity and better quality of
service. The installation of new-generation radio equipment
makes use of network technologies such as EDGE and 3G,
allowing for increased data access and improved voice quality.
Over the years, the contribution from data to Group revenue
has grown steadily. 2008 was no exception and MTN South
Africa saw the share of SMS revenue in its overall data revenue
contribution declining as people increasingly used mobile
technology for transferring other types of data. In West Africa,
we experienced greater use of our MTN Loaded content portal
during the year. South Africa continues to be our biggest data
market, but many others are growing sharply too, including
Uganda, Ghana and Iran.
In 2008 MTN undertook a number of transactions to
ensure that we are well positioned to benefit from a rapidly
converging technology market and that we provide a more
comprehensive service to the SME and corporate sector. We
bought internet service provider (ISP) Verizon South Africa
(concluded in February 2009), which we are merging with
MTN Network Solutions under the MTN Business banner. The
enlarged company will give us 23% of the South African data
market. In Côte d'Ivoire, we acquired ISP Afnet and fixed-line
service, Arobase, and in Cyprus we bought ISP OTEnet. These
transactions build on similar acquisitions in Nigeria, Ghana and
Cameroon in previous years.
Apart from buying existing data businesses, we are pursuing
greenfield opportunities. These include ongoing and increased
self-provisioning by rolling out fibre transmission networks,
accessing submarine fibre cables and purchasing new WiMax
and 3G licences. Another advance on the products side of our
convergence efforts is the evolution of the MTN Mobile Money
service.
Prospects
The Group remains cautiously optimistic about its prospects
for 2009, in challenging conditions and amid increased
competition. In the first three months of the year we added
7,6 million customers to our network: a good start to achieving
our target of a total 22,6 million net additions in 2009. With our
promise to be everywhere you go, MTN will continue to be a
reliable provider of connectivity to our customers everywhere.
We continue to seek value-accretive expansion opportunities in
emerging markets, and we believe that we have the potential to
act as a consolidator in the currently depressed global economy.
After achieving record infrastructure roll out rates in 2008, we will
work to keep up this momentum in 2009, and have increased
our capital expenditure forecasts in the year to R37,7 billion. We
will monitor this closely to ensure appropriate levels of capacity
and quality of service and to enable us to respond quickly should
there be changes to the currently strong market demand.
We prioritise the optimisation of cash and operational
efficiencies, ensuring that the group is able to benefit from
a rapidly evolving technology market while maximising
infrastructure sharing.
Economic research commissioned by MTN shows that the
Group is providing mobile phone access to people across all
income levels, including the unemployed. MTN serves a large
number of people employed in the informal sector, enabling
many households to make a living. Ultimately then, through the
evidence on hand, we can claim to have assisted in improving
the lives of marginalised groups in the countries in which we
operate. Further, through our numerous charitable
MTN foundations across our footprint MTN will continue to
make a difference.
MTN continues to work to reduce its impact on the
environment, by using more energy-efficient base stations,
sharing infrastructure with competitors and by encouraging
handset and battery recycling.
Against the backdrop of significant macroeconomic uncertainty,
when governments across the world are spending billions
of dollars on economic stimulus packages, we believe that
the highly cash generative mobile phone sector is one of
the few that can stimulate economic activity through capital
investment. This will rely on a high level of regulatory certainty
and predictability. We will continue to engage positively with
regulatory authorities in the year ahead to achieve solutions for
markets to which we are committed.
In South Africa, where MTN has its roots, we remain fully
committed to supporting and implementing a new black
economic empowerment (BEE) equity deal as soon as
conditions become conducive. This follows the maturing, in
December 2008, of the previous empowerment ownership
scheme which was implemented in 2002 without the
company's financial assistance.
Appreciation and closing
I thank all MTN employees everywhere for the passion and
excitement with which they participate in optimising our
business and living our values, which are leadership, integrity,
innovation, relationships and a "CAN DO" attitude. You are the
heart and soul of our vibrant and dynamic organisation.
My thanks too, to MTN's customers for the loyalty and
enthusiasm with which they support our brand and take up our
innovations; you inspire us to keep striving to deliver the best
value proposition.
I would also like to thank our suppliers and the regulators
and communities in which we operate for their constructive
engagement in the year. I look forward to more of this positive
interaction in the year ahead.
Phuthuma Nhleko
Group president and CEO
May 2009
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