Notes to the summary consolidated financial statements

for the year ended 31 December 2015]

1.
INDEPENDENT AUDIT

The summary consolidated financial statements have been derived from the audited consolidated financial statements. The directors of the Company take full responsibility for the preparation of the summary consolidated financial statements and that the financial information has been correctly derived and are consistent in all material respects with the underlying audited consolidated financial statements. The summary consolidated financial statements for the year ended 31 December 2015 have been audited by our joint auditors PricewaterhouseCoopers Inc. and SizweNtsalubaGobodo Inc., who expressed an unmodified opinion thereon. The auditors also expressed an unmodified opinion on the consolidated financial statements from which these summary consolidated financial statements were derived. The auditors’ reports contained emphasis of matter paragraphs which drew attention to the circumstances, uncertainty and current status of the regulatory fine imposed by the NCC against MTN Nigeria Communications Limited. Disclosure regarding the matter that was emphasised by the auditors is contained in note 8 to the summary consolidated financial statements. A copy of the auditors’ report on the consolidated financial statements is available for inspection at the Company’s registered office, together with the financial statements identified in the auditors’ report.
2.
GENERAL INFORMATION

MTN Group Limited (the Company) carries on the business of investing in the telecommunications industry through its subsidiary companies, joint ventures and associates.
3.
BASIS OF PRESENTATION

The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require provisional reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council (FRSC), and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting.

The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial statements were derived, are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements unless otherwise stated.

These summary consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRS. A copy of the full set of the audited consolidated financial statements is available for inspection.

4.
PRINCIPAL ACCOUNTING POLICIES

The Group has adopted all the new, revised or amended accounting pronouncements as issued by the International Accounting Standards Board (IASB) which were effective for the Group from 1 January 2015, none of which had a material impact on the Group.

The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated financial statements unless otherwise stated.
5.
FINANCIAL INSTRUMENTS

The Group has not disclosed the fair values of financial instruments measured at amortised cost except for its listed long-term borrowings set out below, as their carrying amounts closely approximate their fair values. Other than investments, there were no financial instruments measured at fair value that were individually material at the end of the current year.

Listed long-term borrowings

The Group has listed long-term fixed interest rate senior unsecured notes in issue with a carrying amount of R11 633 million (2014: R8 686 million) and a fair value of
R10 268 million (2014: R8 686 million) at 31 December 2015. The fair value of this instrument is determined by reference to published market values on the relevant exchange.

Fair value measurement of investments

The Group holds an equity investment in IHS Holdings Limited (IHS) at fair value of R9 250 million at 31 December 2015 (2014: R5 912 million). The increase in the value of the investment is mainly due to an additional investment in IHS amounting to R1 189 million and foreign exchange translation movements relating to the investment at the end of the reporting period amounting to R2 149 million.

The investment is classified as available for sale and categorised within level 3 in the fair value hierarchy. The fair value of the investment was previously determined with reference to recent transactions between market participants. The absence of recent transactions resulted in the fair value being determined using models considered to be appropriate by management and consequently the investment was transferred from level 2 to level 3 of the fair value hierarchy. The fair value is calculated using an earnings multiple technique and is based on unobservable market inputs including average tower industry earnings multiples of between 10 – 14 (2014: 12 – 14).

An increase of 1 in the multiple at the reporting date would result in an increase in the fair value by R792 million (2014: R434 million) and a 1 decrease in the multiple would result in a decrease in the fair value by R792 million (2014: R434 million).
6.
SEGMENT ANALYSIS

The Group has identified reportable segments that are used by the Group executive committee (chief operating decision maker (CODM)) to make key operating decisions, allocate resources and assess performance. The reportable segments are geographically differentiated regions and grouped by their relative size.

Operating results are reported and reviewed regularly by the CODM and include items directly attributable to a segment as well as those that are attributed on a reasonable basis, whether from external transactions or from transactions with other Group segments. EBITDA is used as the measure of reporting profit or loss for each segment. EBITDA is defined as earnings before interest, tax, depreciation, amortisation and goodwill impairment losses.

  2015
Rm		     2014
Rm		  
REVENUE          
South Africa 40 038     38 922  
Nigeria 51 942     53 995  
Large opco cluster 31 358     31 200  
Ghana 7 903     7 149  
Cameroon 5 806     6 194  
Ivory Coast 6 424     6 418  
Uganda 5 148     5 289  
Syria^^ 2 605     3 449  
Sudan^^ 3 472     2 701  
Small opco cluster 23 290     22 385  
Major joint venture – Iran°° 13 660     11 631  
Head office companies and eliminations (275)     (348)  
Hyperinflation impact 710     776  
Iran revenue exclusion°° (13 660)     (11 631)  
  147 063     146 930  
^^
Excludes the increase in revenue resulting from hyperinflation accounting of: Syria R391 million (2014: R434 million), and Sudan R319 million (2014: R342 million).
°°
Irancell Telecommunication Company Services (PJSC) proportionate revenue is included in the segment analysis as reviewed by the CODM and excluded from IFRS reported revenue due to equity accounting for joint ventures and excludes the increase in revenue resulting from hyperinflation accounting of R287 million (2014: R1 655 million). During the year the Iranian economy was assessed to no longer be hyperinflationary and hyperinflation accounting was discontinued effective 1 July 2015.
  2015
Rm		     2014
Rm		  
EBITDA          
South Africa 13 370     12 509  
Nigeria 27 504     31 620  
Large opco cluster 10 944     11 439  
Ghana 3 197     2 674  
Cameroon 2 101     2 651  
Ivory Coast 2 195     2 475  
Uganda 1 775     2 074  
Syria^^ 460     651  
Sudan^^ 1 216     914  
Small opco cluster 7 525     8 083  
Major joint venture – Iran~ 5 665     4 982  
Head office companies and eliminations 575     1 869  
Hyperinflation impact 231     241  
Tower sale profits# 8 263     7 430  
Nigeria regulatory fine# (9 287)     –  
Iran EBITDA exclusion~ (5 665)     (4 982)  
EBITDA 59 125     73 191  
Depreciation, amortisation and impairment of goodwill (23 797)     (23 546)  
Net finance cost (3 010)     (3 668)  
Net monetary gain 1 348     878  
Share of results of joint ventures and associates after tax 1 226     4 208  
Profit before tax 34 892     51 063  
^^
Excludes the increase in EBITDA resulting from hyperinflation accounting of: Syria R106 million (2014: R111 million), and Sudan R125 million (2014: R130 million).
~
Irancell Telecommunication Company Services (PJSC) proportionate EBITDA is included in the segment analysis as reviewed by the CODM and excluded from IFRS reported EBITDA due to equity accounting for joint ventures and excludes the decrease in EBITDA resulting from hyperinflation accounting of R215 million (2014: R776 million increase). During the year the Iranian economy was assessed to no longer be hyperinflationary and hyperinflation accounting was discontinued effective 1 July 2015.
#
Tower sale profits and the expense relating to the regulatory fine imposed by the NCC are excluded as the CODM reviews segment results on this basis.
    2015
     2014
  
7. EARNINGS PER ORDINARY SHARE          
  Number of ordinary shares in issue          
  At end of the year (excluding MTN Zakhele and treasury shares##) 1 822 517 914     1 822 213 500  
  Weighted average number of ordinary shares          
  Shares for earnings per share 1 822 453 695     1 831 196 131  
  Add: dilutive shares          
  – MTN Zakhele shares issued 3 791 878     7 192 687  
  – Share schemes 965 612     2 865 069  
  Shares for dilutive earnings per share 1 827 211 185     1 841 253 887  
  ##
Treasury shares of 11 844 233 (2014: 11 649 825) are held by the Group and 11 131 098 (2014: 14 492 564) shares are held by MTN Zakhele. Due to the call option over Notional Vendor finance shares, the MTN Zakhele shares, although legally issued to MTN Zakhele, are not deemed to be issued. These shares are therefore excluded from this reconciliation..
    2015
Rm		     2014
Rm		  
  Reconciliation between profit attributable to the equity holders of the Company and headline earnings          
  Profit after tax 20 204     32 079  
  Net (profit)/loss on disposal of property, plant and equipment and intangible assets (IAS 16 and IAS 38) (2)     69  
  Realisation of deferred gain (IAS 28) –     (364)  
  Loss on disposal of investment in joint venture (IAS 28) –     15  
  Net impairment loss on property, plant and equipment and intangible assets (IAS 36) 38     708  
  Impairment of goodwill (IAS 36) 504     2 033  
  Realisation of deferred gain on disposal of non-current assets held for sale (IFRS 5) (30)     (31)  
  Profit on disposal of non-current assets held for sale (IFRS 5) (8 264)     (7 399)  
  Total tax effects of adjustments (702)     (326)  
  Total non-controlling interest effect of adjustments 1 852     1 339  
  Basic headline earnings◊ 13 600     28 123  
  Earnings per share (cents)          
  – Basic 1 109     1 752  
  – Basic headline 746     1 536  
  Diluted earnings per share (cents)          
  – Diluted 1 106     1 742  
  – Diluted headline 744     1 527  
  ◊
Headline earnings is calculated in accordance with circular 2/2015 Headline Earnings as issued by the South African Institute of Chartered Accountants, as required by the JSE Limited.
   
8.
NIGERIA REGULATORY FINE

During October 2015, the Nigerian Communications Commission (NCC) imposed a fine of N1,04 trillion (R80,7 billion1) on MTN Nigeria Communications Limited (MTN Nigeria). This fine relates to the timing of the disconnection of 5,1 million MTN Nigeria subscribers who were disconnected in August and September 2015 and is based on a fine of N200 000 for each unregistered subscriber. Subsequently during December 2015, the NCC revised the amount to N780 billion (R60,6 billion1).

MTN Nigeria, acting on external legal advice, has resolved that the manner of the imposition of the fine and the quantum thereof is not in accordance with the NCC’s powers under the Nigeria Communications Act, 2003 and therefore believes there to be valid grounds upon which to challenge the fine. Accordingly, MTN Nigeria followed due process and instructed its lawyers to proceed with an action in the Federal High Court in Lagos seeking the appropriate reliefs.

On 22 January 2016, the judge adjourned the matter to 18 March 2016, in order to enable the parties to try to settle the matter.

Pursuant to the ongoing engagement with the Nigerian Authorities, MTN Nigeria on 24 February 2016 made an agreed without prejudice good faith payment of N50 billion (R3,9 billion2) to the Federal Government of Nigeria on the basis that this will be applied towards a settlement, where one is eventually, hopefully arrived at. In an effort to achieve an amicable settlement, MTN has agreed to withdraw the matter from the Federal High Court in Lagos.

In arriving at an appropriate provision at 31 December 2015, management has applied its judgement resulting in a provision being recorded as required in accordance with IFRS, amounting to N119,6 billion (R9,3 billion1).

In light of the engagement with the Nigerian Authorities, the Group has provided limited disclosure relating to the provision in accordance with IFRS.

1 Amounts translated at the closing rate at year end of R1 = N12,88.
2 Translated at the 24 February 2016 closing rate of R1 = N12,76.
    2015
Rm		     2014
Rm		  
9. SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES AFTER TAX 1 226     4 208  
  Irancell Telecommunication Company Services (PJSC) 1 903     4 113  
  Others (677)     95  
10. CAPITAL EXPENDITURE INCURRED 29 611     25 406  
11. CONTINGENT LIABILITIES 875     932  
12. AUTHORISED COMMITMENTS FOR THE ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT AND SOFTWARE 30 814     29 693
  – Contracted 12 501     10 034  
  – Not contracted 18 313     19 659  
13. INTEREST-BEARING LIABILITIES          
  Bank overdrafts 38     26  
  Current borrowings 22 472     13 783  
  Current liabilities 22 510     13 809  
  Non-current borrowings 52 661     39 470  
    75 171     53 279  
  MTN Nigeria – default on loan agreement

Currency constraints in Nigeria caused loan repayment delays by MTN Nigeria during the year amounting to R991 million on loans denominated in US dollar. The defaults resulting from the delays were remedied before year end.
14.
ISSUE AND REPAYMENT OF DEBT AND EQUITY SECURITIES

During the year under review the following entities raised and repaid significant debt instruments:

  • MTN Nigeria repaid R4,2 billion relating to long-term borrowings.
  • MTN Côte d’Ivoire (MTN Ivory Coast) raised short-term borrowings to the value of R1,8 billion.
  • MTN Holdings Proprietary Limited (MTN Holdings) raised R6,5 billion additional debt through general banking facilities, which are short term in nature and R3 billion relating to the syndicated loan facilities.
  • MTN Holdings repaid R500 million relating to the syndicated loan facilities and R5,1 billion relating to general banking facilities.
  • MTN Holdings repaid R1,3 billion (2014: R2,4 billion) in terms of the Domestic Medium Term Programme.
  • MTN International (Mauritius) Limited (MTN Mauritius) raised R10,4 billion (2014: R3,3 billion) debt through a revolving credit facility.

In 2014, MTN Holdings acquired 10 704 475 shares in the ordinary share capital of the Company for an amount of R2,4 billion. The shares acquired are fully paid up and are held as treasury shares.
15.
BUSINESS COMBINATIONS, ACQUISITION OF JOINT VENTURES AND OTHER INVESTMENTS

Nashua Mobile subscriber base, Afrihost Proprietary Limited, Middle East Internet Holdings S.A.R.L (MEIH) and Africa Internet Holding Gmbh (AIH)

The net fair value of the assets, liabilities and goodwill relating to the prior year acquisitions described in the heading above were finalised during the year and no material changes to the previously reported results were required.

Conversion of loan to Ghana Tower Interco B.V. into equity

During the year, the Group accounted for the conversion of its loan to Ghana Tower Interco B.V., a related party, into equity, amounting to R1,3 billion.

Visafone Communications Limited

On 31 December 2015, the Group acquired 100% of the share capital of Visafone Communications Limited, an ICT company, for a cash consideration of R3 432 million. As a result, the Group obtained control of Visafone Communications Limited. The acquisition will enable the Group to improve the quality of broadband services for its subscribers. The acquisition seeks to leverage resources for service enhancement and reflects the Group’s concerted efforts to deepen the growth and roll-out of broadband services across Nigeria.

The acquisition has been accounted for in accordance with IFRS 3, Business Combinations. Net identifiable assets acquired of R2 690 million (including intangible assets of R3 752 million and a deferred tax liability of R1 062 million) resulted in goodwill of R742 million determined on a provisional basis, pending completion of the final purchase price allocation.
16.
NON-CURRENT ASSETS HELD FOR SALE

In 2014 the Group entered into a transaction with IHS which involved the sale of its mobile network towers in MTN Nigeria in two tranches to INT Towers Limited, a wholly owned subsidiary of Nigeria Tower Interco B.V.

The first tranche of the tower sales closed on 24 December 2014, which involved the sale of 4 154 mobile network towers by MTN Nigeria to INT Towers Limited for a cash consideration of US$451 million and the Group recognising its equity interest in Nigeria Tower Interco B.V. amounting to US$370 million. The second tranche of the tower sale closed independently on 1 July 2015 which involved the sale of 4 696 mobile network towers by MTN Nigeria to INT Towers Limited for a cash consideration of US$533 million and the Group recognising a further equity interest in Nigeria Tower Interco B.V. amounting to US$405 million.
17.
EVENTS AFTER REPORTING PERIOD

Altech Autopage subscriber base

On 11 February 2016, the Group acquired its Altech Autopage subscriber base from Altron TMT Proprietary Limited for R640 million. The acquisition of the subscriber base will enable the Group to service and interact directly with its customers and will reduce future commission expenditure.

Net identifiable assets acquired of R428 million resulted in goodwill of R212 million being determined on a provisional basis, pending completion of the final purchase price allocation.

Travelstart

On 22 January 2016, the MTN Group made an investment in TravelLab Global AB (Travelstart) amounting to US$30 million. Travelstart is an online travel agency focused on emerging markets. MTN Group jointly controls Travelstart indirectly through a fund managed by its venture capital fund manager, Amadeus Capital Partners.

Increase in investment in AIH

The Group committed a further €135 million investment in Africa Internet Holding GmbH (AIH), the ultimate parent company of Jumia. The investment forms part of a wider capital funding to AIH. The funds will enable it to leverage the significant growth of Jumia and to capitalise on the significant opportunities in Africa. This investment will increase MTN Group’s interest in the joint venture from 33,3% to 41,4%. The transaction is subject to customary closing procedures.

Facilities

During January 2016 and February 2016 additional loan facilities amounting to R14,9 billion were secured by MTN Holdings. These facilities are expected to mature in the next five years. Additionally, facilities amounting to R2,6 billion were refinanced for a further period of three to six months.

In addition, a loan amounting to R481 million payable by MTN Zambia Limited was refinanced for a further three months in January 2016.

Scancom Limited licence acquisition

During December 2015, Scancom Limited (MTN Ghana) was successful in its bid to obtain a 15 year 4G/LTE licence in the 800 MHz spectrum band for an amount of US$67,5 million. 10% of the purchase consideration was settled before year end as part of the bidding process with the remainder settled on 27 January 2016, following which the National Communications Authority provided MTN Ghana with a provisional authorisation pending issuance of the licence.

Dividends declared

Dividends declared at the board meeting held on 2 March 2016 amounted to 830 cents per share.
18.
RESTATEMENTS
18.1 Reclassification of expenses

Following a review of expenses disclosed in the Group income statement during the current financial year, the expenses detailed below have been disclosed separately or reclassified between expense categories in the comparable financial year to present the expenses in accordance with the classification applied in the current year.

Government and regulatory costs

Government and regulatory costs that had previously been included in direct network operating costs (R5 250 million) and other operating expenses (R484 million) have now been disclosed as a significant separate category of expense in the income statement.

Value-added services (VAS) costs

VAS costs amounting to R1 643 million were previously included in the costs of handsets and other accessories. Based on the underlying nature of these costs, this has now been reclassified and included in selling, distribution and marketing expenses.
18.2 Reclassification of cash used in investing activities

In line with the current year presentation, cash used in acquiring intangible assets (R3 282 million) has now been disclosed as a significant item separately from cash used in other investing activities.