MTN South Africa's performance and outlook

2015   2014   2016 guidance   Net additions (’000) 2 595   2 293   1 100   Revenue (Rm) 40 038   38 922       EBITDA margin (%) 33,4   32,1       Capex (Rm) 10 948   5 676   7 970   NPS %   78   70

Overcoming operational challenges

MTN South Africa delivered encouraging results despite operational challenges, including industrial action in the first half of the year. A strong focus on customer experience, competitive offerings, aggressive network rollout and employee engagement resulted in a successful turnaround in the second half.

Along with other commodity exporters, South Africa’s economy and currency were weak in 2015, with GDP growth slowing to 1,3% in the year from 1,5% in 2014 and 2,2% in 2013. The average rand/dollar exchange rate declined 13%, after a volatile performance, hurt by softer demand for commodities.

We increased our subscriber base by 9,3%, surpassing 30 million customers. The number of subscribers in the prepaid segment increased 12,3% to 25,3 million, a result of attractive voice and data offerings. The postpaid subscriber base declined by 3,3% to 5,2 million because of the limited availability of handsets, which normalised in the fourth quarter.

Total revenue increased by 2,9%, driven mainly by healthy growth in data revenue. This was, however, offset by an 18,0% reduction in handset revenue and a 2,4% decrease in outgoing voice revenue. Service revenue, which excludes handset revenue and other revenue, increased 7,5%. Data revenue increased by 37,2% to contribute nearly a third – or 31,7% – to total revenue. This performance was supported by our strong 3G and LTE network rollout, as well as increased 3G and LTE device penetration. The number of smartphones on our network increased by 10,6% to 7,6 million.

Enterprise Business Unit (EBU) and digital services revenue growth was encouraging, with more services offered to EBU customers and content downloads gaining traction. The market in South Africa, however, remains highly competitive in this area.

The EBITDA margin expanded by 1,3 percentage points to 33,4%, a result of cost-containment initiatives including lower staff and advertising costs and lower handset sales. However, the expansion of the network resulted in higher rent and utilities, as well as transmission costs.

We almost doubled capital expenditure, raising it 92,9% to R10 948 million, by adding 966 2G, 1 593 co-located 3G and 3 148 co-located LTE sites. By expanding 3G and LTE coverage, we ensured better quality and capacity. However, the rollout process did cause some disruptions to the network. MTN South Africa’s net promoter score (NPS, a measure of customer satisfaction) increased to 78% in the year from 70% in 2014. This was mainly as a result of value offers and improved network quality in the fourth quarter of the year. In 2015, of the six quality of service metrics for which we obtain external assurance for South Africa, four declined in the year, one improved and one was unchanged ( 117).

MTN South Africa continues to actively engage with the authorities regarding the planned auction of 2,6GHz and 3,5GHz spectrum frequency, which we need to further expand and enhance our LTE network. However, as a short-term solution, we have re-farmed existing spectrum to cater for LTE technology.

Looking ahead

South Africa’s economic outlook for 2016 remains weak with GDP estimated to grow at 0,9%. The depreciation of the rand, constrained infrastructure as well as higher food prices as a result of the severe drought of 2015 is expected to increase inflation levels in 2016.

Notwithstanding this, we expect our operational performance to extend the positive momentum of the second half of 2015 into 2016, supported by competitive voice and data offerings as well as the expansion of digital and EBU services. We expect to add 1,1 million subscribers in 2016.

We expect to benefit from our focused work to improve 3G and LTE network quality and capacity as well as an enhanced 3G/LTE device plan implemented towards the end of 2015. The operation will also continue to roll out fibre-to-the-home, thereby improving customer experience. We expect to commit approximately R8,0 billion in capex in 2016.

We continue to work towards improving our cost structures and creating efficiencies. In 2016, MTN South Africa will implement Project Next!, the Group’s back office transformation programme.

Among other priorities in the year ahead are investing in strong and experienced executive leadership; engaging with our employees, and continuing to work with the regulator to obtain much needed 4G spectrum.