Group president and CEO’s statement

“MTN recognises the importance of evolving its business as the industry matures and consumers move towards broader product offerings.”

Achieving a solid performance in 2010

MTN performed satisfactorily in 2010 with most operations increasing their share of the subscribers under difficult circumstances as fierce competition and pressure on tariffs continued. The Group achieved solid subscriber growth of 22% to 141,6 million with a pleasing 2,9 percentage point expansion of the EBITDA margin to 44% excluding the MTN Zakhele transaction.

This performance, together with lower capital expenditure, resulted in strong cash generation with EBITDA less capital expenditure increasing 108% to R31 billion. In line with MTN’s revised strategic priorities announced on 15 July 2010, the Group increased cash returns to shareholders with a dividend payout policy of 55% announced together with the results for the year ended 31 December 2010.

Leading the way

MTN recognises the importance of evolving its business as the industry matures and consumers expect broader service offerings. Even though MTN’s 21 markets are at various stages of development, a number of product development and value-added service initiatives continued to gain momentum during 2010.

As part of positioning the Group for the ongoing evolution in the future, a new role, senior vice-president commercial and innovation, was established. The senior VP appointed, Christian de Faria, is now responsible for new product development and innovation, activities which require a higher level of co-ordination across the Group. The increasingly competitive environment makes it critical that MTN takes advantage of products developed across its operations.

MTN’s product and service innovation is motivated by a sound business imperative to remain competitive, as well as a social imperative to bridge the digital divide. The implementation of a common and standard service delivery platform, accessible by all operations, will enhance the promotion of data and related services. This will be complemented by investments in undersea cables and high bandwidth broadband infrastructure to provide cheaper and more inclusive access to new data services and products. This opens up a new space for innovation in areas such as financial and medical services. In 2010, the function’s priority was to develop a more comprehensive data strategy for the Group’s operations. Partners, products and process frameworks are now better established for rapid roll out, where appropriate, across the Group. More details of Christian’s responsibilities with regard to innovation are provided in the operating and financial performance review on page 38.

Remaining competitive

With tariffs under increasing pressure from competition, the key to remaining competitive is having a high-quality network and being able to deliver services efficiently. Therefore the enhanced strategy also focuses on closely monitoring infrastructure investments to ensure appropriate levels of capacity and availability of networks. This incorporates continued investment in metropolitan and national fibre, as well as undersea cables to service evolving voice requirements as well as the potential for data growth to continue on its rapid upward trajectory. MTN believes it made the correct decision with regard to investing heavily in infrastructure between 2007 and 2009, ensuring solid improvements in network quality and giving the Group the capacity to compete robustly as mobile penetration increases. However, it will monitor developments in all its markets and respond appropriately.

For MTN to continue to operate at historical levels of profitability, it is critical that the Group maintains or reduces its cost base. This will enable MTN to profitably service lower-end customers as well as deliver a different product mix. To ensure this, a number of initiatives are at various stages of development across the Group.

In 2010, MTN continued optimising efficiencies through infrastructure sharing, the standardisation of systems and processes, the rationalisation of suppliers and stricter cost management and optimisation. This focus was, however, sharpened through the implementation of a structural framework which forms part of ongoing initiatives including a shared-service project driven through the senior vice-president technology and information systems, Jyoti Desai, who was appointed to this position at the beginning of 2010.

Over the past few years, MTN has already started to achieve some momentum on sharing infrastructure through one-for-one swap arrangements and some commercial leasing of towers. However, MTN is pleased to report the agreement reached towards the end of 2010 for the sale of its towers in Ghana to a joint venture in which it will hold 49%. This deal – with leading owner, operator and developer of wireless and broadcast communication sites, American Tower Company – unlocks the value of the towers, monetising cash from passive infrastructure assets to improve return on assets better for the Group and enable MTN to focus on its core business. It also helps reduce the Group’s environmental footprint. More details are available in the MTN Ghana report on page 58. Ultimately, MTN intends to establish a tower holding company for all of its operations in sub-Saharan Africa.

As detailed by the chairman in his report, MTN has numerous energy-efficiency projects in place, and more are being investigated. These target reductions in greenhouse gas emissions and operational costs and also aim to mitigate the risk of carbon taxes.

As to the Group’s increased focus on procurement, in addition to the responsibilities of the senior VP commercial and innovation, Christian de Faria is also responsible for rapidly evolving the Group’s procurement function to an independent highly centralised and more disciplined supply chain management function. A key feature of his role is to achieve economies of scale and develop strategic sourcing opportunities. These include reverse auctions, during which vendors enter competitive supply bids and from which the Group has already recorded tangible benefits.

Enabling MTN people to thrive

MTN recognises the vital role that a skilled and motivated workforce plays in MTN’s success and long-term sustainability and works to enable its 34 558 people to thrive. In 2010, to attract and retain talent, the Group developed a new employee value proposition that will be rolled out in 2011, based on independently verified employee survey results. MTN invested more than R246 million on training, offering nearly 50 000 learning and development courses to employees, many of these specifically designed in-house courses. The Y’elloStars programme continues to reward and recognise employees who have displayed outstanding value and contribution to the organisation both on a local, regional and Group-wide basis. The Group has also implemented various initiatives to engage employees as well as foster respect for diversity, equality and representation at specific operations.

Engaging with regulators

Continued engagement with regulatory authorities in the development and refinement of the telecommunications sector remains critical to MTN’s strategy and occupies a significant amount of senior management’s time and attention. While progress in some countries is very slow, some Group businesses reported encouraging advances in the year. A highlight was the memorandum of understanding signed with the authorities in Syria to convert the build-operate-transfer arrangement to a standard mobile operator’s licence which will significantly improve the profitability of the operation.

Empowering the historically disadvantaged and extending local ownership

2010 was also a milestone year for MTN as the MTN Zakhele offering was completed in November – the largest black economic empowerment equity ownership deal in the South African telecoms sector. The R8,1 billion transaction, which runs over six years, offered previously disadvantaged individuals the opportunity to buy shares in MTN Zakhele Limited, which ultimately holds 4% of MTN Group Limited’s issued shares. This is just one of the many steps MTN has taken over the years towards helping right the economic wrongs of apartheid. It is part of the Group’s efforts to ensure the sustainability of the business and the market in South Africa and – when combined with previous BEE initiatives – takes MTN’s effective indirect BEE ownership level in South Africa beyond 30%.

In other markets, MTN has adopted a local approach, to better engage with stakeholders. A degree of local ownership of MTN’s operations stimulates domestic economic empowerment and local participation in the business. In addition, the Group’s investments in community programmes – including education and health – help develop and sustain the markets in which MTN operates. In 2010, MTN placed a 7,8% shareholding in MTN Zambia into a special fund combatting HIV and Aids.

The end of 2010 saw the beginning of a dramatic wave of pro-democracy protests across North and West Africa and the Middle East, which – at the time of writing – had led to the toppling of at least two long-standing political leaders. MTN, with its strong focus on emerging economies, will continue to monitor events across its markets and work to ensure the safety of all its people, everywhere.

Changing the guard

A number of key senior management changes occurred in the year. Ignatius Sehoole was appointed as vice-president of MTN’s South and East Africa region. He took the reins from Tim Lowry, whose contract came to an end in June. MTN also said goodbye to Santie Botha, who left the Group after seven years of distinguished service as chief marketing officer. Marketing now reports to the senior VP commercial and innovation, Christian de Faria. Ahmad Farroukh was appointed VP for the West and Central African region early in 2011 after acting in the position for most of 2010 following Christian de Faria’s change of role.

We would also like to bid farewell and thank to Nozipho January- Bardill, Group executive: corporate affairs and MTN’s spokesperson. Corporate affairs now reports to Paul Norman, Group executive: human resources.

After having the honour of serving MTN as chief executive since July 2002, the time has come for me, too, to pursue other challenges. I would like to thank all MTN’s stakeholders – customers, employees, partners, management and the board of directors, governments and regulators, suppliers, as well as investors – for their support over the years. May you continue to encourage the Group to deliver the best value proposition in the market.

Way back in 1961, Nobel Peace Prize winner Chief Albert Luthuli recognised that “the world is now a neighbourhood”. Although I am leaving the forward-looking comments to incoming CEO Sifiso Dabengwa, I have no doubt that in the years ahead MTN will work to facilitate this growing neighbourhood, guiding the way with innovative mobile offerings to make people’s lives easier, wherever they are.

Phuthuma Nhleko
Outgoing president and chief executive officer
March 2011