Statement from our chairman

Phuthuma Nhleko Chairman

Dear shareholders,

MTN achieved a satisfactory performance in 2013. This was against a backdrop of relatively stable global economic growth of around 3%, which showed that while the shock waves of the economic crisis of 2008 have not fully abated, we appear to have entered a period of reduced economic turbulence.

It is pleasing that the emerging markets in general, and the African economies in particular, have remained on a robust economic growth trajectory. Nigeria, Uganda and Ghana achieved GDP growth of 6,4%, 3,5% and 7,2% respectively in 2013. The proverbial economic “rising tide lifting all the boats” is central to the growth of the mobile communications sector. As a consequence, the growing African economies have been conducive to mobile penetration growth experienced across our markets in 2013.

The South African economy, however, delivered disappointing growth of 1,9% in 2013. This had an unfavourable impact on MTN’s second-largest operation with regards to its contributions to Group earnings. This was further exacerbated by operational challenges faced by MTN South Africa in the year.

It is encouraging that the overall mobile communications sector in non-OECD countries continues to grow, supported by rapidly growing populations. This growth reflects a customer base trending towards a youthful demographic profile and consumption patterns that are increasing its sophistication with a higher demand for technology, connectivity and other services that reflect a more integrated and connected world. The high demand for communications capacity has resulted in large capex deployment by mobile operators over the years. MTN Group has invested around R211 billion in its networks over the last 16 years. During 2013 alone, MTN Group invested R30 billion to upgrade and create new capacity in its networks.

Although this sector continues to grow and create value for its shareholders, it is clear that the industry has entered a new phase, with slower growth and heightened competition. The reduced growth of voice revenue and the abundance of internet-centric applications and connectivity from a wide range of service providers have put the traditional mobile operators under severe pressure to develop new sources of revenue.

This challenge is further compounded by acute regulatory pressures to reduce tariffs in many markets. In light of this, the MTN Group annually reviews its strategy to ensure that it remains on the cutting edge of competition and innovation, and the preferred provider of communication services in all its markets. To this end, a great deal of effort is being invested on innovation in the development of the business enterprise aspect of mobile communications. Furthermore, the Group continues to assess its position in a continuously consolidating mobile sector, taking into account a wide range of geopolitical matters and their impact on the ability of the Group to repatriate its earnings, among other things.

Management continues to explore processes and structures that will enable the Group to operate at an optimum level of efficiency and benchmark favourably against the top quartile of comparative operators around the globe. This will ensure that MTN maintains decent margins and continues to deliver an acceptable total return to shareholders.

Having served the MTN Group as chairman from 2001 to 2002 and subsequently as Group president and CEO from 2002 to 2011, I am humbled and honoured to have been invited to serve the Group again as non-executive chairman from May 2013. On behalf of the MTN Group board, its staff and all its stakeholders, I would like to convey my gratitude to Cyril Ramaphosa for his sterling contribution in leading the MTN Group board as chairman from 2002 until 13 May 2013. We wish Cyril well in his future endeavours.

In 2013, we had a seamless transition with Brett Goschen replacing Nazir Patel as Group chief financial officer. Brett was previously the CEO of MTN Ghana and then of MTN Nigeria. He brings a wealth of knowledge on the mobile sector and the MTN Group in particular, Brett is well placed to make a valuable contribution to the Group’s continued growth. We welcome him to the board.

This is also an opportune time to convey the board’s gratitude to the executive team for their dedication, leadership and commitment to continue delivering on the Group strategy during these challenging times. The board members have also continued to work effectively to provide valuable insight and guidance to the executive team. I am grateful for their collective business skills and experience.

I also thank our employees in our many operations across our business for their contribution to our success and their commitment to serving our customers who now number more than 200 million.

The MTN Group is delighted and proud to have been named as the most valuable African brand in Millward Brown’s BrandZ Top 100 Most Valuable Global Brands 2013 survey. This accolade should be seen in the context of MTN being a South African-domiciled company with a market capitalisation in excess of R400 billion and a wide international shareholder register. This behoves MTN to be exemplary in its stakeholder management. To this end, MTN will continue to explore ways of providing thought leadership and be a beacon of good governance and corporate citizenship. This will ensure, inter alia, that the MTN Group observes a sustainable business model that has development at its core through the many MTN foundations that have been established across our footprint.

During the past year, litigation against the Group in respect of the 2005 award of a licence to MTN Irancell has continued. In November, Turkcell Iletisim Hizmetleri AS (Turkcell) filed a lawsuit against MTN, MTN International (MTNI) and others in the South Gauteng High Court of South Africa, seeking damages of approximately US$4.2 billion plus interest. Its claim arose from substantially the same allegations on which it founded US proceedings against MTN in early 2012. Those were related to Turkcell subsidiary East Asian Consortium’s (EAC) unsuccessful effort to obtain the second GSM licence in Iran during 2005. Turkcell had withdrawn its claims in the US proceedings on 1 May 2013.

Turkcell’s allegations were investigated by a special committee appointed by the MTN board (the Hoffmann Committee) and its findings reported by MTN to stakeholders in February 2013. After a thorough examination of Turkcell’s allegations and consideration of the available evidence, the Hoffmann Committee concluded that the allegations were unfounded. MTN will continue to vigorously defend any proceedings instituted by Turkcell in respect of such matters.

To our stakeholders: Thank you for your continued support over the years, we encourage you to interact with us and share your views.

On 27 May 2014, we will hold our nineteenth AGM. I invite all shareholders to attend. This is your opportunity to meet and interact with the MTN Group’s board, particularly regarding the Group’s performance for 2013. Please take time to read our integrated report and familiarise yourselves with the resolutions to be tabled at the AGM. We have provided you with background information to each resolution.

In 2013, the board focused on improving its effectiveness and ensuring that it continued to align its objectives with sustainable business practices, while keeping abreast of changes in the legislative and regulatory environment.

Maintaining sound governance, while enhancing the ethics of the Group, is central to the work of directors. The Group continues to do its best to uphold the highest level of governance and ethics and in doing so we have strengthened our governance policies and procedures, as well as our stakeholder engagement and communication. In 2013, we implemented most of the key recommendations of the 2012 board appraisal conducted by external appraiser Ratings Afrika. One of the key implementations is the restructuring of our board committees by refreshing the membership of some of them to ensure that each committee has a renewed perspective.

Although our directors have the necessary skills and expertise, the board is planning to supplement these by attaining more skills and experience with regard to technology and industry knowledge. The process of identifying the candidates with the requisite skills will be conducted by our nominations committee, guided by our formal director appointment policy adopted in 2012.

During the year, the board participated in an Ethics SA workshop to reaffirm our commitment to ethical values and practices. The Group also launched an ethics management programme and approved a number of significant policies in support of this. These included a revised conflict of interest policy, which outlines the declaration, management and reporting of conflicts.

As we look ahead in 2014, the board will embark on a programme aimed at enhancing its effectiveness. The programme will entail various robust engagements and development sessions with external advisors.

The MTN Group was founded on the ethos and vision of providing telecommunication services and connectivity primarily to the growing populations in emerging markets. This vision has evolved adjusting for a dynamic and constantly changing competitive landscape. Notwithstanding periods of unforeseen economic, political and regulatory challenges, the MTN Group has managed to stay on course.

We are hopeful that an improving global economic environment in 2014, together with increased efficiencies within the Group will ensure that we can continue to deliver acceptable returns and continued support to all stakeholders.

The board will continue to work to improve its effectiveness and the standard of MTN’s corporate governance processes, policies and procedures at all operating subsidiaries to ensure a high standard of practices throughout the Group.

In 2014, MTN celebrates 20 years as a going concern. MTN shares its anniversary with that of a free and democratic South Africa. It is 20 years since Nelson Mandela became the first president of this free and democratic country. As 2013 came to a close, MTNers joined millions around the world in mourning the departure of the elder statesman and embracing the legacy he has left to the advancement of the human spirit. We acknowledge Madiba’s important contribution to humanity and continue to draw inspiration from it.

Phuthuma Nhleko
Chairman

11 March 2014