Independent auditors' report to the shareholders of MTN Group Limited

Refer to note 1.5.2: Critical accounting judgements, estimates and assumptions - IHS available-for-sale investment classification and measurement, note 2.3: Other income, note 7.1.3: Fair value estimation and note 7.2: Investments to the consolidated financial statements for the related disclosure.

As disclosed in these notes to the consolidated financial statements, the Group entered into an arrangement in terms of which it acquired an equity stake of approximately 15% in the class B shares issued by IHS during 2014.

As part of the tower sales transaction entered into by the Group with IHS in the same year, the Group obtained an exchange right whereby it was entitled to exchange its 51% non-controlling interest in Nigeria Tower InterCo B.V., the parent company of INT Towers Limited (INT), the Nigerian telecom tower operator, for an equity interest in the class A shares issued by IHS.

In January 2017, the Group exercised its aforementioned exchange right in return for additional shareholding in IHS (the 'transaction'). As a result of the transaction, the Group's economic interest in IHS increased from the previously held 15% class B non-voting shares to an economic interest of approximately 29%, comprising class A voting shares and class B non-voting shares.

Management has determined that neither the interest prior to, nor the interest obtained subsequent to the transaction will allow the Group to appoint a board member. In addition, IHS has the right to decide what strategic, financial and operational information is shared with the Group. As a result of these restrictions, the Group's vote is limited to matters which relate to fundamental changes in the business or which apply in exceptional circumstances and are considered by management to be protective in nature.

At 31 December 2017, the absence of transactions between market participants resulted in the fair value of the investment held in IHS being determined using models considered to be appropriate by management. The fair value was calculated using industry earnings multiples applied to management's estimates of earnings, less estimated net debt. The Group does not have access to the IHS Group business plans or 2017 actual financial information. Any estimated earnings used to derive the fair value are therefore solely determined by management, based on market estimates and assumptions on financial growth, currency movements, costs and performance.

We considered this to be a matter of most significance to the current year's audit due to the significant judgements made by management and the complexity in respect of the classification and valuation of the investment, the calculation of the profit realised from the exercise of the exchange right and the fair value movement recorded in respect of the available-for-sale financial instrument at the end of the year.

With the assistance of our internal IFRS specialists, we considered whether or not the Group's rights, as embedded in the underlying agreements which were inspected as part of the audit, constituted significant influence to participate in the financial and operating policy decisions of IHS and whether accounting for the investment in IHS as an available-for-sale financial instrument (as opposed to an investment in an associate) was appropriate. Based on the results of our procedures, we deemed the classification of the investment as an available-for-sale financial instrument to be appropriate.

We tested the mathematical accuracy of the valuation model and found no material exceptions. With the assistance of our internal valuation experts, we assessed the approach adopted by management in the valuation model used to value the investment in IHS at year-end and at the effective date of the exercise of the exchange right ('respective dates') against the applicable requirements of IFRS 13 Fair Value Measurement and found it to be consistent. We also performed reasonability assessments of the valuations performed by management with the assistance of our internal valuation experts on the respective dates through an independent assessment of appropriate EBITDA multiples to be applied to businesses of this nature, and deemed the multiples applied by management to be reasonable.

We recalculated the profit on exercise of the exchange right on the effective date of the transaction which was determined as the difference between the fair value of the new interest obtained and the carrying amount of the equity-accounted interest in INT, after recycling the applicable portion of the foreign currency translation reserve to the consolidated income statement and we found no exceptions.

We agreed the share percentage held by the Group in IHS subsequent to the transaction to the IHS share register and did not find exceptions.

As disclosed in note 2.6: Loss on derecognition of long-term loan receivable to the consolidated financial statements, with effect from 27 December 2017 MTN Nigeria Towers SPV B.V. assigned its shareholder loan of R2 840 million to IHS Group. The shareholder loan arose as part of MTN Nigeria Communications Limited's ('MTN Nigeria') tower transactions whereby MTN Nigeria sold a portfolio of towers to INT in 2014 and 2015 which, through Nigeria Tower Interco BV, was 51% owned by MTN Nigeria Towers SPV B.V. and 49% by IHS. When forming INT, MTN Group (through MTN Nigeria Towers SPV B.V.) as well as IHS, provided proportionate shareholder loans to INT. These loans were subordinated and due for repayment in 2024 and 2025 with interest capitalised until two years prior to repayment.

In return for the assignment of the loan, IHS has facilitated certain network volume commitments and provided more attractive terms for MTN Nigeria's future network rollout, applicable from 2018 onwards. The cash flow benefits to be realised from the improved commercial terms of the future rollout have not been capitalised as a prepayment and will be accounted for as and when they are realised. This is due to the Group contractually not controlling the realisation of the future economic benefits referred to above. However, the Group believes it will obtain economic benefits through IHS being incentivised economically to transact with the Group under the current master services agreement.

We regarded this matter to be a matter of most significance to the audit because significant judgement was applied by management, due to the complexity embedded in the loan agreement, in arriving at the conclusion that the loan should be written off without capitalising future benefits (as a prepayment) under IFRS. In addition, management exercised judgement in determining the nature of the loss for purposes of presentation thereof in the consolidated income statement. Management presented the loss under the finance section below the EBITDA line in the consolidated income statement.

We obtained and assessed the agreement entered into between the Group and IHS in order to obtain an understanding of the contractual terms and conditions embedded therein. With the assistance of our internal IFRS specialists we evaluated the terms of the agreement against IFRS to consider whether or not a portion of the loan, once assigned, should be capitalised as an asset (prepayment) in lieu of future benefits to be received. Based on the results of our procedures, we found management's accounting treatment of the loss to be appropriate.

We evaluated the presentation of the loss on assignment of the loan in the consolidated income statement against the requirements of IFRS and deemed it to be appropriate.

Due to the number of business combinations that the Group has historically entered into, the Group's net assets include a significant amount of goodwill at the reporting date. Some of the businesses that these balances relate to operate in countries subject to political turmoil, worsening economic conditions, hyperinflation and various sanctions. There is a risk that these businesses may not trade in line with expectations and forecasts, resulting in a potential impairment of the carrying amount of goodwill allocated to these businesses.

Goodwill is tested annually for impairment at the opted date of 31 December and whenever there is an impairment indicator identified by management. Such indicators were identified by management at the time of preparation of the Group's interim results for the period ended 30 June 2017 in its operations in Guinea-Bissau, Guinea-Conakry, Liberia, Ghana, Afghanistan, Sudan, Yemen and Syria, which indicators still prevailed at year-end.

This impairment assessment is considered to be a matter of most significance to the current year audit due to the significant judgements made by management regarding the discount rates, the terminal growth rates and cash flow forecasts included in the analyses used to perform the impairment assessments as well as the magnitude of impairments recognised during the year under review, as further outlined below.

Impairments recognised during the year under review include the following entities and amounts:

• MTN Afghanistan and MTN Yemen, where goodwill impairments of R841 million and R807 million, respectively, were recognised.
• MTN Syria, where impairments of property, plant and equipment and intangible assets amounting to R1 348 million were recognised (as goodwill was previously fully impaired).
• MTN Sudan where a goodwill impairment of R983 million and an impairment of property, plant and equipment and intangible assets of R1 690 million were recognised. Goodwill is now fully impaired in this operation.

These matters are disclosed in the following notes to the consolidated financial statements: Note 1.5.1: Critical accounting judgements, estimates and assumptions – Impairment of goodwill, note 5.1: Property, plant and equipment and note 5.2.1: Goodwill.

We tested the mathematical accuracy of the valuation models and found no material exceptions. We also considered the appropriateness of the valuation models applied by management. Based on procedures performed, we are satisfied that the approach adopted by management in the valuation models is principally in line with market practice and the applicable requirements of IAS 36 Impairment of Assets, which was also confirmed with our internal valuation expertise.

We performed stress testing on the valuation models as prepared by management which involved an assessment of management's cash flow forecasts and assumptions by comparison to actual results, our understanding of the industry, the specific entity circumstances involved, in-country economic environment and other market conditions. Management's cash flow forecasts were agreed to approved in-country budgets.

We further assessed the Group's budgeting procedures (which form the basis of the cash flow forecasts) by comparing prior period budgets to actual results and held discussions with management on the reasonability of the forecasts used in the valuations where adjustments were made to the in-country budgets at Group level.

The terminal growth rates as used by management were compared to long-term inflation rates obtained from independent sources by our internal valuation experts. Where differences were noted between the respective growth rates, we obtained an understanding of the reasons and incorporated the PwC rates as part of our stress testing to assess the impact of the differences noted on the valuation results.

With the assistance of our valuation experts, we independently recalculated a weighted average cost of capital discount rate (which includes a country risk premium) for each territory in the Group taking into account independently obtained data such as the cost of debt, risk-free rates in the applicable market, market risk premiums, debt/equity ratios as well as the beta of comparable companies; which was compared to the discount rates used by management. Where differences were noted between the respective discount rates, we obtained an understanding of the reasons and incorporated the PwC rates as part of our stress testing to assess the impact of the differences noted on the valuation results.

We reperformed the value in use calculations as performed by management. We performed a stress test on the value in use calculations with focus on the discount rates, annual growth rates, terminal growth rates and the forecast cash flows for each entity. We recalculated a range of values and compared this to the value as calculated by management. We further performed sensitivity procedures to determine the maximum decline that would result in limited or no headroom being available and compared our results to that of management in order to identify those operations considered sensitive to a change in assumptions for disclosure purposes.

The Group operates across multiple tax and regulatory jurisdictions and due to the inherent nature of exposures, rulings issued and assessments and sanctions by tax and regulatory authorities in developing markets, the Group recognised a significant amount of tax and/or regulatory provisions and contingencies at year-end. Management applies its judgement to estimate the potential exposure where the interpretation of the applicable tax laws and regulations could be subjective.

We considered this to be a matter of most significance to the current year's audit due to the magnitude, complexity and nature of these exposures together with a significant level of management judgement involved in interpreting specific acts, regulatory provisions or practices in determining the amounts of these liabilities.

These matters are disclosed in the following notes to the consolidated financial statements: Note 1.5.4: Critical accounting judgements, estimates and assumptions – Income taxes, note 4.5: Trade and other payables, note 6.3: Provisions and note 6.8: Contingent liabilities.

We utilised our tax specialists to evaluate management's assessment of tax exposures relating to income tax (including transfer pricing and controlled foreign company legislation), withholding tax, VAT and other taxes.

Meetings were held between our tax specialists and the Group's in-country internal tax experts and management to discuss the significant exposures and evaluate the reasonableness of management's conclusions. In-country management's tax assessment reports were also considered by our in-country tax specialists and at a Group level, as necessary, by our internal tax specialists to independently assess the conclusions reached by management.

To corroborate management's assessment, we also inspected correspondence received by management from the tax authorities and the Group's tax advisors to evaluate the adequacy of provisions and disclosures made. Where required, we performed an independent recalculation of the tax exposures.

Regulatory related matters

We evaluated management's assessment of regulatory exposures relating to applicable legislation and related regulations and requirements prevalent in each of the jurisdictions in which the Group operates.

Meetings were held between ourselves and the Group's local territories' internal legal and regulatory experts and management to discuss the significant exposures and evaluate the reasonableness of management's conclusions. In-country management's assessments were also considered at a Group level through evaluation of reports provided and assessments performed by internal compliance and legal counsel at a Group level. Correspondence with external legal counsel was also inspected, as applicable.

To corroborate management's assessment against the requirements of IFRS, we also inspected correspondence received by management from the respective regulatory authorities and external counsel (where applicable), to evaluate the adequacy of provisions and disclosures made. Where required, we performed an independent recalculation of the regulatory exposures noted.

During April 2017, the Central Bank of Nigeria ('CBN') launched a new Foreign Exchange ('FX') window open to portfolio investors, exporters and end-users of FX, including the CBN, known as the Nigerian Autonomous Foreign Exchange Rate Fixing ('NAFEX')/Autonomous market ('NAFEX').

Following a review by management of the liquidity and sustainability of the newly introduced rate, the Group changed the rate applicable to the translation of the results, cash flows and financial position of MTN Nigeria to the NAFEX rate in the last quarter of 2017.

Management considers the NAFEX rate to represent more appropriately the rate at which dividends can be remitted from MTN Nigeria from this date onwards.

Management exercised significant judgement in determining the appropriate date from which the NAFEX rate should be applied for consolidation purposes.

We considered this to be a matter of most significance to the current year audit due to the significant contribution of MTN Nigeria to the consolidated results of the Group and the amount of judgement required to determine the appropriate date from which the NAFEX rate should be applied for consolidation purposes.

These matters are disclosed in the following notes to the consolidated financial statements: Note 1.5.3: Critical accounting judgements, estimates and assumptions - Dual exchange rates and note 7.6: Exchange rates to South African rand.

This included an assessment of the relevant requirements of IAS 21 The Effects of Changes in Foreign Exchange Rates with the assistance of our internal IFRS specialists, management's assessment of data points as to when other market participants started applying the new rate, evidence regarding the rate applied when dividends are repatriated from Nigeria and insights obtained as to the period required to achieve sustainability of newly introduced foreign exchange markets in other global geographies subsequent to these being introduced.

The policy established by the Group stipulating from when the NAFEX rate should be applied was found to be in line with the audit evidence that we obtained. We verified that the appropriate rate was applied from the determined date in preparing the consolidated financial statements.