Commentary

MTN Group’s performance for the six months ended 30 June 2009 was satisfactory considering the economic downturn which affected markets worldwide. Reported revenue and EBITDA results, when compared to the prior six month period ended 30 June, were not materially impacted by movements in currencies in the majority of countries in which we operate against the ZAR. However, growth in earnings were negatively impacted by functional currency losses of R2,8 billion (June 2008: R0,9 million gain) on shareholder loans, receivables and cash.

Although competition increased in most markets following the entry of new competitors, execution of the operational strategy has generally proved successful. MTN’s network expansion and capacity investment strategy initiated in 2008 has also supported the strong performance of the Group’s subsidiaries, particularly where competitors have elected to scale back on investments. Enhanced distribution channels and attractive value propositions also contributed to the positive performance.

The Group’s mobile subscriber base passed the 100 million milestone during the reported period to reach 103,2 million subscribers at 30 June 2009. This is a 14% increase since 31 December 2008 and was mainly driven by robust subscriber growth in MTN Nigeria and MTN Irancell which added 4,3 million and 3,1 million subscribers respectively for the half year. Subscribers have increased by 39% since 30 June 2008.

The Group reports its performance by region, namely South and East Africa (SEA), West and Central Africa (WECA) and the Middle East and North Africa (MENA). MTN consolidates 49% of MTN Irancell’s financials.

Income statement analysis

MTN Group revenues increased by 24,2% to R57,3 billion (30 June 2008: R46,1 billion), largely driven by the strong growth in subscribers since 30 June 2008.

The WECA region remains the largest contributor to Group revenue, contributing 47% of total revenue, up 1 percentage point compared with the sixmonth period to 30 June 2008. The SEA and MENA regions contributed 34% and 19% respectively of the Group’s total revenues.

US dollar-reported average revenue per user (ARPU) declined considerably from the 30 June 2008 comparative in most operations due to increased penetration and the depreciation of local currencies against the US dollar. ARPU’s are also lower than in December 2008 but in line with the ARPU for the first quarter. Slowing GDP growth, increased penetration into lower-use segments of the market and aggressive competition also had a negative impact on local-currency ARPU’s.

In line with the strong growth in revenue, MTN’s earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 24,8% to R24,5 billion for the six-month period ended 30 June 2009 (June 2008: R19,6 billion). Cost optimisation and other efficiencies, although partially offset by higher network operating costs and inflationary increases on staffing, drove margins slightly higher.

The WECA region recorded 33% EBITDA growth to R14,8 billion (June 2008: R11,2 billion), contributing 61% to the Group’s total EBITDA. The SEA region’s contribution of 25% based on a 6% growth to R6,2 billion (June 2008: R5,9 billion), was affected by increased operating expenditure partly due to the integration of newly acquired businesses in MTN South Africa and pricing pressure from new competition in Rwanda. The MENA region grew EBITDA by 34% to R2,9 billion (June 2008: R2,2 billion) and contributed 12% to Group EBITDA, increasing its contribution by 1 percentage point compared with the prior year. The Group’s EBITDA margin remained relatively stable at 42,8%, compared with 42,6% for the six months to 30 June 2008.

The Group incurred capital expenditure (capex) of R15,5 billion for the half year, a 50% increase over June 2008. We anticipate that while a substantial portion of the approved capex has been committed as part of our expansion strategy, some investments are only likely to be capitalised in the first half of 2010.

The Group’s depreciation charge increased by R1,6 billion to R5,9 billion (June 2008: R4,4 billion) following the substantial increase in network capital expansion projects initiated in 2008. Nigeria, Iran and South Africa were the main contributors to the increase in depreciation, adding R0,5 billion, R0,3 billion and R0,2 billion respectively. The Group amortisation charge was in line with the prior comparative period.

Net finance costs increased by 143% to R3,6 billion compared to the same period last year. The large increase is due to the R2,8 billion (June 2008: R0,9 billion gain) functional currency loss in Mauritius which arises on the translation of US dollar-denominated loans, receivables and cash balances. The Nigeria put option charge to income was a credit of R1 billion (June 2008: R0,9 billion debit) mostly due to the devaluation of the Naira versus the ZAR.

The Group taxation charge decreased by 18% (R1,0 billion) to R4,5 billion (June 2008: R5,5 billion). The decrease is mainly attributable to the full effect of the Nigerian commencement provisions having been absorbed in the reporting period ended 30 June 2008 which decrease is partially offset by additional withholding tax on dividends from Nigeria that are sourced from post Pioneer profits.

The Group’s effective tax rate reduced from 44% in June 2008 to 33% in June 2009. The period-toperiod decrease in the effective rate is also in part attributable to the Nigerian put option effect on the profit before tax.

Group basic earnings per share (EPS) increased by 22,4% to 409,7 cents per share compared to 30 June 2008. Adjusted headline EPS decreased to 363,8 cents, 10.9% lower than at 30 June 2008. The various contributory factors, both positive and negative, that resulted in the net decrease in adjusted headline EPS are the impact of the reversal of the put option, the impact of functional currency profits in the prior comparative period versus functional currency losses in the current period as well as the lower effective tax rate.

The Group continues to report adjusted headline EPS in addition to basic headline EPS. The adjustment is in respect of the IFRS requirement that the Group accounts for a written put option held by a minority shareholder of one of the Group subsidiaries, which provides the minority shareholder the right to require the subsidiary or its holding company to acquire this shareholding at fair value. Although the Group has complied with the requirements, the board of directors (the board) has reservations about the appropriateness of this treatment and hence the adjustment. The net impact is that adjusted headline reflect the decrease of EPS of 51,7 cents (June 2008: 69,2 cents, including the impact of the reversal of the deferred tax asset).

Balance sheet and cash flow analysis

MTN Group’s assets decreased by 14% to R146 billion compared with R170 billion at 31 December 2008. This was largely as a result of the depreciation of the closing rate of the respective local currencies against the ZAR.

Asset classes affected by this include property, plant and equipment which decreased by 5% from R64,2 billion to R61,0 billion notwithstanding additions of R15,0 billion; goodwill and intangible assets which decreased by 18% (R8.1 billion) to R37,6 billion compared to December 2008; and current assets which decreased by 24% (R13,3 billion) to R41,4 billion from December 2008.

Cash generated from operating activities improved from R13,0 billion for the 6 months to 30 June 2008 to R17,0 billion reflecting the strong operational performance after paying a dividend of R3,4 billion (June 2008: R2,5 billion). Cash outflows from investing activities utilised R16,9 billion of cash as a result of the significant capital expenditure programme. The foreign currency translation losses of R3,9 billion contributed to the net debt increasing to R15,2 billion from R12,9 billion.

Other

Acquisitions in the six-month period ended 30 June 2009 included 100% of Verizon South Africa (Pty) Ltd (Verizon) in February 2009 and 59% of i-Talk Cellular (Pty) Ltd (iTalk) in January 2009. The acquisition of Verizon is expected to improve MTN South Africa’s competitive position in the rapidly converging mobile/ISP sector, particularly in the corporate segment. Verizon is currently being integrated within MTN Business, including the previously acquired Network Solutions, to allow for a comprehensive and integrated offer to our customer base. Verizon has been reported under “other” in the SEA region for the review period.

Changes to shareholding for the six months ended 30 June 2009 include a 2,2% sale of equity interest in MTN Zambia to Zambian financial institutions by way of a private placement as part of MTN’s undertaking to broaden its local shareholder base and fulfil its licence commitment.

MTN purchased the entire issued ordinary share capital of Newshelf 664 (Pty) Ltd (Newshelf ) in May 2009. The Newshelf acquisition was effected by way of a specific issue of 213.9 million MTN shares to the PIC and the specific repurchase by MTN of 243,5 million MTN shares. MTN acquired the Newshelf shares at an effective discount to market value and intends to apply a significant portion of this effective discount to facilitate a new Black Economic Empowerment (BEE) transaction. The board remains fully committed to implementing a BEE transaction as soon as conditions become conducive.

Operational review

South Africa MTN South Africa’s subscriber base grew by 62 000 during the review period to 17,2 million. The disappointing increase in subscribers was due to a combination of factors including challenges on the network and supporting systems, slowing GDP growth, pressure on consumer spend, and competitor activity in the first half of the year.

Postpaid subscribers grew by 4% to 2,9 million for the six-month period. The postpaid market has had a challenging six months with economic pressure affecting growth in the market and generally putting a squeeze on credit. Growth was mainly attributable to MTN Anytime, which currently makes up 39% of the postpaid base.

The prepaid subscriber base declined by 52 000 during the period. ARPU in the prepaid and postpaid market segments declined by 5% to R92 and 10% to R362 respectively.

The proposed Musica transaction has been terminated as certain legal conditions precedent, beyond the control of the parties, could not be met.

The iTalk acquisition was finalised in January 2009. The branded channel incorporates eight stores that will ultimately be integrated under the MTN Brand. MTN South Africa will maintain its focus on distribution.

MTN South Africa also continues to invest in its network (radio, core and transmission). The Gauteng southern fibre network ring to interconnect the main switching and data centers has been completed. Further trenching is under way to complete the Gauteng northern ring which incorporates Pretoria. The 5 000km national fibre optic network tri-build agreement has been finalised. The trenching route between Gauteng and the Durban route has begun. The operation has rolled out 234 second-generation (2G) and 307 third-generation (3G) base transceiver stations (BTS’s) since the beginning of 2009, enabling it to increase circuit switch data capacity by 8,5% and packet switch data capacity by 80%. The 3G population coverage increased from 35% in December 2008 to 44% at the half year.

Nigeria MTN Nigeria subscribers grew by 19% over the six months to 27.3 million at June 2009. MTN Nigeria recorded strong growth in the first half and improved market share to 48%. Significant investment in network capacity and improved quality of service strategies adopted in 2008 and 2009 gave MTN Nigeria an advantage over its competitors for the period. The operation successfully restructured its sales and distribution strategy to improve the focus of the dealer channel and drive acquisitions.

APRU declined by USD4 from December 2008 to USD12. Although the USD ARPU shows a considerable decline following the depreciation of the Naira against the US dollar, local-currency ARPU declined at a slower rate and in line with increased penetration in lower-use segments.

Aggressive network rollout continued in the first half of 2009, as MTN Nigeria rolled out 426 2G and 236 3G BTS’s. The 3G rollout is gaining momentum with 787 3G BTS’s now live and the completion of phase 2 of the 3G rollout underway. A further 1 548km of transmission expansion to improve the network is in progress (66.42% complete).

Ghana MTN Ghana increased subscribers by 12% over the six months to 7,2 million at 30 June 2009. Market share only reduced slightly from 55% to 54% over the period despite fierce competition from new market entrants. The launch of a loyalty programme, Rally Around the Flag, and the continued success of MTN Zone assisted with subscriber retention.

ARPU decreased by 33% from USD12 to USD8 mostly due to the devaluation of the Cedi against the US dollar. Local-currency ARPU decreased by 15% after aggressive price offers by new competitors and deeper penetration into the market.

MTN Ghana rolled out 289 BTS’s for the six-month period.

Irancell MTN Irancell increased its subscriber base by 20% over the six month period to 19,2 million at June 2009 through continued promotional campaigns. An enhanced distribution channel that included efficient subscriber registration has also contributed to subscriber growth.

ARPU dropped USD1 to USD8 mainly due to increased penetration into lower-use market segments.

MTN Irancell added 793 BTSs for the period, improving quality and capacity on the network. During the six months, 368 more cities and an additional 1 434km of road have been covered. Network coverage of the population increased from 62% at the beginning of the year to 67% at June 2009. WiMax rollout is successfully on track with pilot sites identified, call centres set up and dealers selected.

Syria MTN Syria added 11 000 subscribers to its base in the six month period. The low growth in subscriber numbers was, however, in line with lower demand in the telecoms sector in the country with no loss of market share. Segmental product offerings and churn management initiatives have been put in place to drive new acquisitions.

Subscriber ARPU declined marginally from USD19 in December 2008 to USD18 in June 2009.

The implementation of planned network expansions and upgrades has decreased congestion and improved radio capacity. MTN Syria has added 74 BTS’s during the period. Limited 3G service was commercially launched in January 2009, offering attractive data bundles.

Proposed transaction with Bharti

On 25 May 2009, MTN Group and Bharti Airtel Limited (Bharti) announced they were exploring a potential transaction in which MTN and its shareholders would acquire, pursuant to a scheme of arrangement, an approximate 36% economic interest in Bharti, of which 25% would be held by MTN with the remainder held directly by MTN shareholders, and Bharti would acquire an approximate 49% shareholding in MTN.

The potential transaction between Bharti and MTN would create a leading telecommunication service provider group, aligning Bharti’s marketleading Indian business with MTN’s marketleading African and Middle Eastern operations. The potential transaction would also represent a significant development in south-south cooperation between India and South Africa.

The rationale for the transaction is compelling and includes diversification and synergistic benefits as well as addressing the objective of becoming one of the pre-eminent emerging-market telecommunications companies.

The exclusivity period has been extended to 30 September 2009. No decision or agreement to acquire any shares or Global Depository Receipt’s or implement the potential transaction outlined above has yet been made by the boards of either MTN or Bharti. Shareholders will be advised of any further developments.

Prospects

There are some indications that global economic conditions may be starting a slow recovery although many of our markets remain relatively vulnerable at present. Competition across MTN’s footprint is likely to continue to increase. Shorter term prospects in South Africa remain challenging, compounded by the impact of new subscriber registration requirements from 1 August 2009. MTN remains focused on:

• actively seeking value-accretive expansion opportunities in emerging markets;
• tightly monitoring infrastructure investments to ensure appropriate levels of capacity and quality of service for an enlarged market;
• optimising efficiencies in maintaining and improving our competitive position while ensuring the Group is able to benefit from a rapidly converging technology market, and continued investment in sub-marine cables for efficient access;
• continuing engagement with regulatory authorities in the development and refinement of the telecommunication sector; and
• the implementation of MTN’s proposed BEE deal at the appropriate time.

Revised subscriber net addition guidance

For and on behalf of the Board

M C Ramaphosa
(Chairman)

P F Nhleko
(Group President and CEO)

Fairland
27 August 2009

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.