Review of results
Against the background of increased investment
in infrastructure and distribution to cater for ever
increasing demand, the MTN Group Limited (MTN
Group) delivered a sound performance in the six
months to 30 June 2008, driven mainly by subscriber
growth in increasingly competitive markets.
The Group reports operational performance by region,
namely South and East Africa (“SEA”), West and Central
Africa (“WECA”) and Middle East and North Africa
(“MENA”).
The Group recorded strong revenue growth of 35% to
R46,1 billion (30 June 2007: R34,2 billion). The WECA
and SEA regions contributed 46% and 38% respectively
of total Group revenue, and MENA the remaining 16%.
This compares with 44% by WECA, 43% by SEA and 13%
by MENA for the six months to June 2007. Included
in these numbers is the positive effect of foreign
currencies which, having strengthened against the
Rand, contributed to the increase in Group revenue.
The Group’s earnings before interest, tax, depreciation
and amortisation (“EBITDA”) increased by 29% to
R19,6 billion (30 June 2007: R15,2 billion). The WECA
and SEA regions contributed 57% and 30% respectively
of total Group EBITDA, and MENA the remaining
11%. This compares with 54% by WECA, 34% by SEA
and 8% by MENA for the six months to June 2007.
Included in these numbers is the positive effect
of foreign currencies which, having strengthened
against the rand, contributed to the increase in
Group EBITDA.
The Group EBITDA margin reduced by 1,8 percentage
points to 42,6% for the period ended 30 June 2008
(30 June 2007: 44,4%). MTN maintained EBITDA margins
in Nigeria but margins in South Africa were lower by
2 percentage points when compared to the same period
last year. The Group EBITDA margin dilution was due to
a number of factors including increased investment
in distribution and marketing, the benefits of which
are expected to come through in future reporting
periods; increased maintenance activities to improve
network quality; rising fuel; site rental renewal costs and
increased marketing spend. Excluding the high revenue
share arrangements in Iran and Syria, the Group EBITDA
margin would have been 46,0% (June 2007: 47,8%).
Notwithstanding the increase in the tax charge in
Nigeria mentioned in the income statement analysis
below, profit after tax (“PAT”) increased by 11% to
R7,0 billion compared to R6,3 billion for the six months
to 30 June 2007.
Basic headline earnings per share (“HEPS”) rose to 339,3
cents for the period, 12% above the 304,2 cents for the
six months ended 30 June 2007.
Adjusted headline earnings per share increased to
408,5 cents for the period, 26% above the 324,7 cents
for the six months ended 30 June 2007.
The Group recorded 74,1 million subscribers as at
30 June 2008, a 53% increase from the same period last
year (48,2 million subscribers) and a 21% increase from
61,4 million at 31 December 2007. In the six months
from December 2007, subscribers in the WECA region
increased by 16% to 32,5 million, in the SEA region by
9% to 21,0 million and the MENA region recorded a 47%
increase to 20,6 million. The growth in the MENA region
over the last six months was mainly driven by a 93%
increase in subscribers in Irancell to 11,6 million. MTN
consolidates only 49% of Irancell financials thereby
diluting the impact on revenue and EBITDA growth.
The average revenue per user (“ARPU”) has marginally
declined in most operations, which is consistent with
increased penetration into lower usage segments.
Income statement analysis
Group consolidated revenue increased by 35% to
R46,1 billion (30 June 2007: R34,2 billion) driven
largely by the 53% growth in subscribers since
30 June 2007. The increase in revenue was mainly
driven by Nigeria, which increased revenue by 39% to
R13,4 billion, and South Africa, which increased revenue
by 18% to R15,4 billion when compared to the sixmonth
period ending 30 June 2007. Syria, Ghana and
Iran (MTN’s share of 49% only) generated revenues of
R2,9 billion, R2,8 billion and R1,9 billion respectively.
Group EBITDA increased by 29% to R19,6 billion
(30 June 2007: R15,2 billion) as a result of strong
revenue growth.
The WECA region’s EBITDA increased by 37%
accounting for 57% of the Group’s EBITDA. This was
mainly driven by EBITDA from Nigeria. The SEA region
contributed 30% to Group EBITDA, down 4% from 30
June 2007. The MENA region contributed 11% to Group
EBITDA, up 3% from 30 June 2007.
The Group’s EBITDA margin declined by 1,8 percentage
points to 42,6% as compared to June 2007.
The Group depreciation and amortisation charge
increased by R1,4 billion to R5,7 billion for the period
ended 30 June 2008. R0,5 billion of this amount is
attributable to additional capital expenditure for the
network expansion in Nigeria where depreciation
increased by 34% to R2,0 billion compared to the sixmonth
period to 30 June 2007. Increased investment in
South Africa, Iran and Sudan accounted for R0,3 billion
of the increase.
Net finance costs remained almost flat at R1,5 billion
for the period ended 30 June 2008 in relation to the
comparable period in the prior year. Net finance costs
include interest expense of R2,8 billion (30 June 2007:
R2,0 billion) and foreign exchange gains of R1,0 billion
(30 June 2007: R2,0 billion). The higher finance costs
mainly relate to the increased funding requirement
for the ongoing expansion of network capacity in
Nigeria. Included in the finance costs this period is
R1,2 billion (MTN share R924 million) relating to the
Nigeria put option (30 June 2007: R288 million and
MTN Share R243 million).
The Group’s Board continues to report adjusted
headline EPS in addition to basic headline EPS. The
adjustments are in respect of:
The IFRS requirement that the Group account for a
written put option held by a minority shareholder of
one of the Group subsidiaries which provides them
with the right to require the subsidiary to acquire
their shareholding at fair value. The net impact is an
increase in adjusted headline EPS of 46,4 cents; and
The unwinding of previously reversed deferred
tax asset in Nigeria, which increased the adjusted
headline EPS by 22,8 cents.
Adjusted headline EPS of 408,5 cents for the period
under review compares favourably with adjusted
headline EPS of 324,7 for the six months ended
30 June 2007.
The Group taxation charge increased by R2,4 billion
compared to the six months ended June 2007. This
relates mainly to the ending of pioneer status tax
holiday in Nigeria in March 2007 resulting in a tax
charge of R2,9 billion for the period under review as
compared to R1,0 billion for the period ended June
2007. As provided by the commencement rule for the
taxation of new business post pioneer status, taxable
profit in Nigeria for the 12 months between April
2007 and March 2008 was effectively taxed twice. The
implication of this is that taxable profits in Nigeria for
the January to March 2008 period was taxed at 60% for
company income tax and 4% for education tax.
MTN Group’s effective tax rate increased from 33%
in June 2007 to 44% in June 2008, mainly due to the
tax effects in Nigeria noted above. This is expected
to decrease to the high thirties for the year ending
December 2008.
Balance sheet and cash flow
The Group’s total assets increased by 26% to
R146 billion compared with R116 billion at 31 December
2007. Property, plant and equipment increased by R10,7
billion from 31 December 2007. Included in this increase
is R5,2 billion relating to foreign currency translation
movements. The increase in assets is mainly driven by
infrastructure investment to increase network capacity
and improve quality of service across all operations. For
the six months ended 30 June 2008, Nigeria invested
R3,9 billion, South Africa R1,8 billion, Ghana R0,8 billion
and Sudan and Iran each invested R0,6 billion. Total
capital expenditure for the Group was R10,3 billion as
at 30 June 2008 (30 June 2007: R6,3 billion).
Goodwill and intangible assets increased by 12% to
R43,5 billion as compared to December 2007, mainly
as a result of exchange rate movement of local
currencies against the rand on the translation of
Investcom LLC’s goodwill.
Current assets increased by R13,1 billion to R46,6 billion
as compared to December 2007. The increase is mainly
attributable to the improvement in cash and cash
equivalents of R10,0 billion to R27,6 billion and other
current assets which increased by R3,1 billion to R19
billion. The increase in other current assets is mainly
due to the movement in trade and other receivables.
Trade and other receivables in South Africa increased
by R0,1 billion to R6,4 billion, in Nigeria by R0,6 billion to
R1,8 billion and in Iran by R0,8 billion to R1,7 billion.
Total interest-bearing debt increased by 21% to
R40,6 billion as at 30 June 2008 (31 December 2007:
R33,7 billion).
The increase is mainly attributable to Nigeria drawing
down US$865 million of the US$2 billion unsecured
facility during the six months ended 30 June 2008. A
significant portion of the interest-bearing debt was
originally used to fund the Investcom acquisition
via MTN International (Mauritius). This debt includes
R5 billion four-year bonds, R1,3 billion eight-year
bonds, as well as syndicate facilities consisting of two
five-year amortising loans of which US$656 million and
R6,1 billion remain respectively, and an undrawn
revolving credit facility of US$1,25 billion. R4 billion
of the unproductive debt was repaid during the
six months ended 30 June 2008, reducing it to
R10,9 billion.
MTN Nigeria’s debt increased by R7,4 billion to
R12,4 billion due to the draw downs mentioned
earlier. This facility comprises two tranches, namely the
Naira equivalent of US$1,6 billion and US$400 million
denominated in US$. The company continues to draw
down on this facility as it rolls out its network.
Irancell’s debt increased by R1,1 billion to R4,5 billion,
primarily as a result of funding its network rollout and
other operational and working capital requirements. The
company continues to benefit from deferred payment
facility arrangements with its equipment vendor for the
sole purpose of funding the network rollout.
The Group’s net debt as at 30 June 2008 was
R13,0 billion (31 December 2007: R16,1 billion),
reflecting the continued strong cash flow generation
of the Group, notwithstanding the increased
investment in infrastructure. Net debt to EBITDA
annualised was 0,3 times for the period ended
30 June 2008. The Group’s target is to reduce net debt
to EBITDA to 0,4 times EBITDA by the end of 2008
financial year.
OPERATIONAL REVIEW
South Africa MTN South Africa performed well
in a very competitive environment and despite the
slowdown in consumer spending in many sectors
due to rising interest rates, inflation and the rising fuel
prices. Subscribers increased by 5% to 15,6 million in
June 2008 from 14,8 million in December 2007. This
was mainly due to strong growth in prepaid subscribers
which grew 6% to 13 million and to a lesser extent the
4% growth in postpaid subscribers to 2,6 million.
The introduction of MTN Zone (a prepaid dynamic
tariffing price plan) in February 2008 together with
the continued impact of low denomination vouchers
played a major role in the acquisition of prepaid
subscribers. MTN Zone had 4,5 million users at the end
of June 2008, of which 400 000 were estimated to be
new connections.
Average revenue per user (ARPU) of the prepaid
segment remained stable at R92 while postpaid
ARPU increased by R9 to R405. The prepaid ARPU
performance was positively influenced by the
continued success of the low denomination vouchers
and higher average usage by the subscribers that
signed up for MTN Zone when compared with other
prepaid subscribers. Blended ARPU, as a consequence
of the movement in postpaid ARPU and increased
contribution of prepaid subscribers, shows a decline by
R4 to R145 from December 2007.
During the period additional nodes were introduced to
increase capacity on the voice and data core networks
of 25% and 30% respectively. SMS capacity was also
increased by over 40%.
To improve the efficiency of the distribution channel,
MTN South Africa acquired the remaining 51%
shareholding of Cell Place (Proprietary) Limited and
also exercised the right to acquire the remaining 51% of
I-Talk (Proprietary) Limited, also a service provider. I-Talk
(Proprietary) Limited together with Verizon South Africa
(Proprietary) Limited, an internet service provider, are
subject to the Competition Commission approval.
Nigeria The Nigeria subscriber base increased
12% to 18,6 million subscribers from December 2007.
ARPU declined slightly to US$16 from US$17 reported
at the end of last year. The trend is in line with the
increasing competitive environment and the deeper
mobile penetration into the market, which is now at
31%. Market share marginally declined to 43% from
44% in December 2007.
Aggressive network rollout continued during the first
half of the year and 758 new BTS sites were integrated
into the network and 494 3G sites are now live. Over
1 200 km of new microwave backbone routes are
already in progress and shall be completed by the end
of 2008.
Iran The Iran subscriber base grew 93% from
December 2007 to 11,6 million subscribers. The aggressive subscriber acquisition rate can mainly
be attributed to the Buy One Get One Free (BOGOF)
campaigns, competitive sim pricing which lowered
upfront cost of ownership, and attractive basic and
promotional tariff plans. Market share increased from
23% in December 2007 to 32% at the end of June 2008,
while mobile penetration moved up from 37% to 50%
over the same period.
Iran’s ARPU declined marginally from US$10 in
December 2007 to US$9 for this half-year period
as the operation continued to attract low income
subscribers.
During the half year period, 696 new BTS sites were
rolled out bringing the total live sites to 2 649. At the
end of June 2008, 454 cities have been covered by the
network, of which 220 were switched on this year, and
a total of 4 027 km of road coverage has been put on
the ground (2 918 km at December 2007). Population
coverage has increased from 50% in December 2007 to
57% in June 2008.
The operation now has seven established dealers of
its products with 6 000 registered dealer outlets and
40 000 points of sale countrywide.
Ghana MTN Ghana recorded a 24% increase
in subscribers to 4,9 million from December
2007. A combination of usage-based promotions,
direct consumer engagements and network
coverage expansion led to this performance.
MTN Zone was successfully launched on 1 June 2008.
Market share remained at 52% as in December 2007
and the market environment is expected to become
more competitive later in the year as new entrants join
the industry.
ARPU declined by US$1 to US$14 from
December 2007. The tariffs were adjusted in
June 2008 to partly absorb the 6% CST revenue tax
that was introduced effective 1 June 2008.
The company rolled out 483 new BTS sites and now has
a total of 1 271 sites. One new switch and four new Base
Station Controllers (BSC’s) were also installed during
the period.
Sudan The MTN Sudan subscriber base grew
almost 20 000 from December last year to 2,1 million
subscribers. Stiff competition combined with the
regulatory requirement to disconnect all prepaid
subscribers with no personal information recorded
resulted in lower connections and a high level of
disconnections. A total of 1,1 million subscribers were
disconnected during the beginning of the second
quarter this year. Market share consequently declined
from 28% end of last year to 25%. The results from MTN
Sudan were not as expected but the situation is being
appropriately addressed.
ARPU reduced by US$5 to US$7 from December 2007
as a consequence of both lower minute usage by
subscribers and lower effective tariffs as all the players
in the industry offered cheap on-net calls to ringfence
their market shares.
A total of 191 BTS sites were rolled out during the six-month
period and the core network capacity has been
increased from 3 million to 4,1 million subscribers.
Preparations for rollout of the network into the southern
part of the country commenced in April 2008.
Syria MTN Syria now has 3,4 million subscribers,
up 9% from December 2007. The growth was mainly
driven by the reduction in connection fees and
effective churn management. Market share increased
from December 2007 by 1 percentage point to 46%.
ARPU for the period was US$19, a reduction of
US$1 from the year ended December 2007. Penetration
into the lower usage segments of the market, and a
20% tariff reduction in the last quarter of 2007 were
responsible for this drop.
During the period 239 new BTS sites were rolled out.
The operation has been running a 3G trial project over
the past 12 months and has received government
approvals for commercial launch of the services.
Prospects
Given the current developments in the global
telephony market, the Group’s prospects for the second
half of 2008 remain positive in increasingly competitive
markets. The major strategic priorities are:
- actively seeking value-accretive expansion
opportunities in emerging markets;
- ongoing infrastructure investment to ensure
appropriate levels of capacity and quality of service;
- ensuring the Group is well positioned to benefit
from a rapidly converging technology market; and
- optimise efficiencies in maintaining and improving
competitive position.
For and on behalf of the Board
M C Ramaphosa
(Chairman)
P F Nhleko
(Group President and CEO)
Fairland
28 August 2008
Certain statements in this announcement that are
neither reported financial results nor other historical
information are forward-looking statements, relating
to matters such as future earnings, savings, synergies,
events, trends, plans or objectives.
Undue reliance should not be placed on such
statements because they are inherently subject to
known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results
and company plans and objectives to differ materially
from those expressed or implied in the forward-looking
statements (or from past results).
Unfortunately, the company cannot undertake to
publicly update or revise any of these forward-looking
statements, whether to reflect new information of
future events or circumstances or otherwise.
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