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Group president and chief executive officer's report
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| Sifiso Dabengwa |
Welcome to the New World
In 2012, MTN performed well in a challenging environment. We grew our customer base and traffic volumes and maintained market share, while accelerating our capital expenditure programme to ensure the Group’s continued competitiveness and support revenue growth into the future.
We delivered to our customers through a keen focus on network quality and coverage, wider and more effective distribution and by introducing various innovative and competitive products and services. Underscoring the importance we give to a robust network, we invested over R30 billion in world-class technology infrastructure (up 69,9% in the year), improving voice call quality and extending faster data services to more customers.
 Subscribers (’000) |
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| * We have broadened our definition of data which results in 'other' revenue from 2011 now included in the data category. Using prior period classification, data and SMS would have increased by 45,8%. |
Over 24 million new subscribers joined our network, bringing MTN's subscribers to almost 190 million. Almost a third of these subscribers use our data services.
Through our segmented approach, we were able to provide more appropriate products and services to specific customer groups, including individuals, smalland medium-sized enterprises as well as corporates. We also got closer to our customers by 'regionalising' our customer-facing activities.
We grew revenue by 10,9% to R135,1 billion, with the contribution of data and SMS increasing 37,8%* to R22,7 billion - or 16,8% of the total (up from 13,5%). Earnings before interest, taxation, depreciation and amortisation (EBITDA) rose 7,0% to R58,6 billion. We achieved these results despite heightened competition and stiffer regulatory demands, including subscriber registration and more onerous fees and requirements to secure necessary radio spectrum.
Among other challenges in the year, many of them
addressed by the chairman in his statement, were
network congestion in some key operations; civil unrest
and the impact of sanctions in others; difficulties in
repatriating cash from some countries and adverse
moves in foreign exchange rates as well as legal action
against MTN.
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Refining our vision, mission and strategy
Since its establishment in 1994, MTN has grown rapidly, consistently delivering strong returns. But as the rate of change in the telecommunications industry quickens, and competition intensifies, this is becoming more challenging.
Many telecoms services are becoming 'commoditised'. At MTN, we need to ensure that our products and services - as well as our people and processes - differentiate us. This, in turn, will support profit growth at the rate to which shareholders have become accustomed. The challenges of effective differentiation are significant.
2012 was a year of introspection, when we considered afresh what it is that we want to become; how we can use our assets more efficiently and so sustain profitable growth. As a result, we redefined MTN's vision and mission, and honed our strategy.
Our new vision - to lead the delivery of a bold, new Digital World to our customers - marks an evolution from the vision to be the leader in telecommunications in emerging markets. With clear market leadership in 15 of the 22 countries in which we operate, the leading telecoms brand in Africa and a top brand in the Middle East, we have largely delivered on this earlier vision. We do, however, remain focused on developing economies.
Our new mission - to make our customers' lives a whole lot brighter - means easier engagements with MTN such that all our customers are MTN promoters. It is a differentiated MTN-branded customer experience that we give at every touchpoint.
Launched towards the end of 2012, the updated strategy better addresses customers' needs, truly putting them at the centre of our efforts. It covers a more comprehensive range of offerings to drive sustainable growth and also focuses on transforming our operating model, to bring down costs and increase efficiencies.
Creating sustainable value for our many stakeholders remains fundamental. So too does ensuring an innovative approach and best practice in all that we do. The evolving strategy is well aligned to our values, which remain intact. They are: providing leadership; acting with integrity; cultivating relationships; inspiring innovation; and having a 'can do' attitude.
We are now working to better align our key performance indicators with our strategy and will measure this in 2013. We are also introducing new metrics, in addition to financial ones, to track our progress.
To facilitate the best delivery of strategy, in 2012 we introduced changes to the organisational structure. The new structure groups operations based on scale - South Africa, Nigeria and the large and small opco clusters - replacing the regional division of responsibilities. The CEOs of South Africa and Nigeria now report directly to me, and we have created a new position of chief operations executive who is responsible for all operations outside these two main markets.
Delivering on our key strategic objectives
Creating and managing stakeholder value
In 2012, we revised our dividend policy to an absolute growth policy, and the board declared a final dividend of 503 cents per share bringing the total dividend to 824 cents per share. We extended our share buy-back programme, spending R2,1 billion on purchasing MTN shares from the market.
Being an enthusiastic and responsible corporate citizen remains important to us. In 2012, we spent R193 million on corporate social investment projects - the largest contribution being to education.
More than 12 000 employees volunteered to help the less fortunate in our annual 21 Days of Y'ello Care programme. This initiative is just one aspect of our many efforts to ensure MTN is a great place to work. We need to continue to safeguard this by, among others, attracting and retaining the appropriate skills and investing in employee development. In 2012, we spent R383 million on developing our nearly 27 000 employees, up from R265 million in 2011. While MTN provides opportunities for development, we expect our employees to take responsibility for this and to continually upgrade their skills through the MTN Academy in particular.
Holding on to good employees in an increasingly competitive market is not always easy. In 2012, it was pleasing to note that employee turnover declined to 5,3% from 7,1%.
Recognising the value of diversity within a group with a solid organisational culture across 22 operations, in 2012 we launched our culture operating system project, identifying the employee behaviour we consider vital to support our strategy. We will continue to roll this out in the year ahead.
To mitigate the risks to employees of instability in some of the countries in which we operate, most notably Syria, Afghanistan and Nigeria, we continue to improve our various medical, security, safe travel and crisis risk management initiatives.
As the chairman has made clear, sound governance is absolutely vital to our strategy and should underpin all our efforts. In 2012, we sharpened our focus on social and ethical governance functions and processes, and are now partnering with the Ethics Institute of South Africa to provide training on these matters to all employees, starting at the highest level of the organisation.
Creating a distinct customer experience
In what seems to be an increasingly homogenous telecoms market in many countries, MTN strives to create a distinct customer experience. This starts with continually enhancing the quality of the network and ensuring appropriate capacity. In 2012 this was achieved in most operations through our targeted and large capital investments.
However, there were some challenges with the quality of service in a few markets - most markedly Nigeria. This stemmed from a faster-than-anticipated reduction in voice tariffs which in turn led to a significant increase in minutes of use on the network. As a result, our network became congested, leading to regulatory penalties. We have now committed sufficient capex to bolster our network capacity and quality in the year ahead.
Among other initiatives to create a distinct customer experience, in the year we extended our retail presence and refitted many of our retail and services centres to make them more device oriented. In some countries we negotiated a new distribution model with resellers. We got closer to our customers through our regionalised and segmented approach. We were pleased to have been ranked the top brand in Africa, and number 88 in the world, in the reputable Millward Brown BrandZ annual survey.
Driving sustainable growth
While revenue from voice services, that contributes just over three-quarters of MTN's total revenue, remains critical to our success today, data use will increasingly define the telecoms landscape ahead. Mobile networks will become important enablers for many aspects of life, providing connectivity anywhere, allowing intelligent systems to operate independently and linking consumers and businesses, and so forth.
Within the next decade, large swathes of people will likely depend on data connectivity to deliver this 'New World' lifestyle. In emerging markets, in particular, we see significant underlying demand for basic services which could be best delivered through mobile communications. MTN is working to drive these changes and so capitalise on them. Examples of our efforts in this regard in 2012 include a broadening of our Mobile Money and financial services offering, a step up in our cloud services as well as more development of local entertainment content, to name but a few.
By year end we had almost 10 million Mobile Money users, up by two-thirds on 2011's 6 million subscribers. In 2012, data services were the strongest contributor to MTN's revenue growth. We increased data subscriber numbers by 41,0% to 58,7 million and data traffic grew by more than 50%. This was achieved through extending our 3G coverage, investing in new technologies and our continued support of data-enabled devices. The number of smartphones on our network increased dramatically - to 21,9 million from 10,7 million.
To maintain this pace, we need to ensure access to sufficient reliable broadband capacity. In the year we gained access to the submarine West Africa Cable System (WACS). Data provision also requires that we have access to appropriate spectrum, as well as applicable licences. For this, continued constructive engagement with regulators remains essential.
We continue to make progress in embedding responsible environmental and social business requirements into our day-to-day activities. However, we can and must do more in areas such as energy efficiency, e-waste management and by leveraging our products and services to narrow the digital divide.
We continue to improve our understanding of our environmental impact, and use a combination of alternative energy and engineering solutions for optimum energy efficiency, mainly on network sites and data centres. By working on managing and reducing our energy use, we traded over R12 million worth of carbon credits and achieved silver certification from the US Green Building Council for our head office campus in South Africa.
Transforming our operating model
Amid greater price competition, which in turn pressures revenue and margins, it is imperative that we lower the cost base of our business and improve operational efficiency. In 2012 we made good progress with the launch of the detailed design phase of Project Next! This back-office transformation initiative aims to centralise transactional activities; implement standardised processes with clear roles and responsibilities; and optimise and consolidate the technology landscape.
Project Next! - which will likely run until the end of 2016 - will move MTN from operating as 22 autonomous opcos to a more cohesive and integrated company and ultimately build a foundation for the future. It requires a strong internal customer focus and seeks to free up the operations to focus on their core activities while various support functions are centralised. It is about digitising our own lives at MTN so that we can do the same for our customers. In a nutshell, Project Next! is about building the right platform to deliver on strategy, as efficient execution is key.
We also continue to look to monetise non-core assets - such as passive infrastructure - and transform our supply chain and procurement management.
Facilitating innovation and best practice
All our strategic objectives are underpinned by the objective of facilitating innovation and best practice. By this, we recognise that product development and execution are critical. In 2012, we launched numerous new services and products and better managed network use through our dynamic tariffing offering MTN Zone. We provide examples of key product launches in the performance reviews of our top nine operations.
We understand that we need to ensure innovation in all respects: in creating structures, policies and procedures, performance metrics, talent investment and reward and recognition mechanisms to support the execution of new initiatives. We made good progress in this regard in the year.
An important aspect of best practice is knowledge sharing, and in 2012 many operations benefited from the experience of others, with regard to, for example, subscriber registration, subscriber acquisition, the execution of handset or device strategies and cost management.
Looking ahead
To ensure that MTN continues along a profitable growth trajectory, we must rise to a number of challenges. Among these are intense competition and greater regulatory pressures, significant capital investment requirements and the growth of what are known as OTT players (internet-based alternatives to traditional telephony services).
Civil unrest and pressure from sanctions in some of the markets in which we operate, along with fluctuations in foreign exchange rates and difficulties in extracting cash from certain markets, are other challenges.
There remain, however, significant opportunities for MTN, which I have outlined above. They include opportunities to broaden our offering; providing more services to customers by moving decisively into the digital space; leveraging MTN's inherent strength in adjacent industries; creating a distinct customer experience and transforming our operating model.
We see potential in unlocking more value from our passive infrastructure, as we are doing through tower sales in Ghana, Ivory Coast, Cameroon and Uganda. We also see more opportunity to share our network and fibre, as well as diversify our earnings.
We are well positioned to take advantage of growth in data traffic in 2013, when we plan to invest R28 billion to further enhance our services. Although competition will remain intense, we will continue to be competitive by providing an excellent customer experience. Low internet penetration in many markets and the declining cost of data-enabled devices provide a good opportunity for MTN.
We expect to deliver improved organic growth in both revenue and EBITDA in 2013 and anticipate reaching the milestone of 200 million subscribers by the middle of the year. By year end, we expect 21 million new customers to have joined the MTN family. We look forward to welcoming them to the New World.
Sifiso Dabengwa
Group president and CEO
28 March 2013
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