Financial review

During the year, MTN Group delivered satisfactory growth in headline earnings, supported by favourable currency movements. The Group faced a number of challenges, including aggressive price competition and increased regulatory pressures in many of our key markets.

Group subscribers increased by 9,8% to 207,8 million, notwithstanding ongoing subscriber registration programmes in a number of markets. Subscriber growth was supported by competitive segmented offerings and improved network quality and capacity in many markets.

The efficient execution of our extensive capital expenditure (capex) programme significantly improved network quality and capacity, and facilitated higher voice and data traffic. This investment in capacity will also ensure that MTN remains competitive and is able to roll out solutions beyond traditional voice services.

Group reported revenue increased by 12,0% in the year. This was positively impacted by a weakening of the rand against a number of currencies in which our businesses operate. For the year as a whole, the rand declined by 18,3% on average against the US dollar. On a constant currency basis, revenue increased by a more muted 3,1%*. This was largely the result of a 6,1% decline in revenue in MTN South Africa and 5,7%* growth in MTN Nigeria. Both our Large and Small opco clusters delivered more pleasing results with revenue growth of 11,0%* and 7,5%* respectively, with particularly encouraging growth reported by our operations in Uganda, Ghana, Cameroon, Sudan, Yemen and Zambia.

Our Nigerian operation continued to improve its performance during the year, with fourth quarter revenue up 15,3% year- on-year (YoY) in local currency. Notwithstanding the challenges faced by our South African operation, the business showed signs of improved performance in the second half.

Group EBITDA increased by 13,0% (1,6%*) to R58 820 million excluding the profit from the sale of towers. Further progress was made on cost optimisation across the Group, which supported the EBITDA margin of 43,1%** for the year, 0,4 percentage points higher than the previous year. The good progress made on cost savings was offset to an extent by the lower EBITDA margin in the South African operation, which was largely driven by the decline in revenue.

Capital expenditure for the year was R30 164 million, 4,6% higher than the previous year. Excluding the effect of changes in foreign exchange movements, capex decreased by 4,3%*. During 2013, the Group’s operations rolled out 5 161 2G and 4 413 3G sites, supporting increased minutes of use (MOU) and faster data speeds on our 3G networks.

Table 1: Group revenue by country

Group revenue increased by 12,0% (3,1%*) to R136 495 million. This was supported by strong growth in the Large opco cluster 13,7% (11,0%*), supported by Uganda 35,5% (17,8%*), Ghana 20,5% (13,0%*), Cameroon 36,5% (11,9%*) and Sudan 15,7% (34,5%*). The South African and Nigerian operations reported revenue growth of -6,1% and 24,5% (5,7%*) respectively. The Small opco cluster performed well, increasing revenue by 25,8% (7,5%*). This was supported by strong growth in Zambia 51,0% (33,4%*) and Yemen 31,6% (11,1%*).

The weakness in the rand exchange rate in the year contributed to the improvement in reported revenue for operations outside South Africa. More specifically, the rand declined by 15,6% against the naira, while the naira remained relatively constant against the US dollar.

Table 2: Group revenue analysis

Outgoing voice revenue increased by 12,3% (2,4%*) compared to the prior year and contributed 64,2% of total revenue. Performance was negatively impacted by price competition in key markets. In 2013, the average price per minute (APPM) declined by 14,9% in US dollar terms. These lower voice tariffs resulted in a 19,0% increase in MTN’s voice traffic volumes YoY. We expect to see APPM declining further in 2014.

Table 3: Cost analysis

Group data revenue (excluding SMS) increased by 41,4% (32,6%*), supported by an expanded 3G network, strong growth in data users and an increase in smartphone adoption. Data’s contribution to total revenue was 15,1%, 3,1 percentage points higher than the prior year. South Africa and Nigeria were the largest contributors to data revenue growth and together accounted for 77,9% of the Group’s total data revenue. Other strong operations included Ghana, Uganda, Cameroon, Ivory Coast and Syria.

Group interconnect revenue declined by 4,4% (12,9%*) following a cut in termination rates in our Nigerian and South African operations. These two operations accounted for 52,0% of total Group interconnect revenue. The 24,9% decline in South Africa interconnect revenue and the 23,0%* decrease in Nigerian interconnect revenue resulted in a
6,5 percentage point decline in the Group’s interconnect margin to 17,7%.

Table 4: Group EBITDA by country

Group earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 13,0%(1,6%*) to R58 820 million, excluding the profit on tower sales. The Group EBITDA margin increased marginally by 0,4 percentage point to 43,1%**, despite lower margins in South Africa and Nigeria (excluding the reversal of the provision of management fees). Progress was made in reducing advertising and transmission costs but these gains were offset by higher rent and utility costs as well as increased interconnect costs.

The slight widening in the Group’s EBITDA margin was supported by increased margins in Ghana (0,5pp), Ivory Coast (0,6pp), Sudan (4,0pp), Yemen (2,7pp) and Zambia (13,2pp). However, South Africa, Nigeria (excluding the reversal of the provision of the management fees), Syria, Cameroon and Uganda recorded declines in their EBITDA margins.

Table 5: Group depreciation and amortisation

Depreciation increased by 19,3% as a result of the significant capex roll out in South Africa and Nigeria. Amortisation costs increased by 30,5%, driven by increased spending on software.

Table 6: Net finance costs

Net finance costs of R1 234 million were 67,4% below the R3 790 million in the previous year. This was largely due to foreign currency gains of R1 066 million as a result of
R2 226 million in functional currency gains in Mauritius, partly offset by foreign exchange losses incurred on the Sudan working capital accounts of R778 million. The increase in interest costs was largely due to the higher debt levels in Nigeria as the business invested in its capex programme.

Table 7: Taxation

The Group’s absolute taxation charge increased by 4,0% to R12 307 million and the effective tax rate declined by 4,2 percentage points to 28,8%. The lower effective tax rate was mainly the result of the discontinuance of secondary tax on companies (STC) in South Africa and the IAS 21 adjustment on foreign exchange losses.

Basic headline earnings per share (HEPS) increased by 27,3% to 1 386 cents and attributable earnings per share (EPS) increased by 27,4% to 1 434 cents.

Cash inflows from operating activities increased by 34,7% to R27 025 million mainly due to a 16,8% increase in cash generated from operations and a 16,6% decrease in tax payments. Cash outflows on property, plant and equipment (excluding software) increased by 18,5% to R24 568 million, which contributed significantly to the cash outflow in investing activities. This was partially offset by the proceeds from the sale of the towers of R2 378 million. Cash inflows from financing activities were mainly the result of an increase in borrowings in Nigeria. Cash and cash equivalents increased to R39 577 million due to the net cash inflow and the positive effect of the weaker rand/US dollar exchange rate.

Table 8: Capital expenditure

Capex increased by 4,6% (-4,3%*) to R30 164 million, of which R2 563 million related to foreign currency movements. In 2013, we accelerated infrastructure investment to support the improvement of our network quality and capacity.

Table 9: Net debt analysis (Rm)

The Group reported net debt of R352 million. This excludes R5 518 million (49%) of net cash in MTN Irancell that is now accounted for on an equity basis.

During the year under review, the following changes in shareholding occurred: