MTN press statement
The MTN Group Limited (MTN) delivered a sound operational performance for the six months ended 30 June 2010, increasing subscribers by 11,4% to 129,2 million. This was the result of a solid performance in all aspects of the business, aided by high quality networks, robust and competitive distribution channels, attractive segmented product offerings and an increased focus on value added services.
Group revenue decreased by 2,2% to R56,0 billion while earnings before interest, tax, depreciation and amortization (EBITDA) decreased by 1,1% to R24,2 billion for the current period compared to the prior comparative period.
The average exchange rate of the rand to the USD strengthened from R9,06 in the first half of 2009 to R7,52 in the period under review. This together with the rand’s strength against the basket of currencies in which the Group operates has had a dampening effect on the rand reported results.
On a constant currency basis (which restates the current period income statement at the same average exchange rates as were applicable for the first half of 2009) total revenue would have been R8,7 billion higher than reported, a 12,9% increase on the prior reported period.
Similarly, EBITDA would have shown growth of 16,3% from the prior comparative period based on a R4,3 billion increase on the reported number. These positive growth rates are more reflective of the underlying organic performance of the company for the period.
MTN’s EBITDA margin increased 0,5 percentage points to 43,3% compared to the prior comparative period and by 3,9 percentage points compared to the six months to 31 December 2009. This was mainly attributable to improved margins in MTN South Africa, MTN Irancell and sustained margins in MTN Nigeria.
Adjusted headline earnings per share (HEPS) increased by 20,6% to 438,6 cents for the period.
Various Group initiatives gained momentum and assisted the various operations in maintaining or improving market share, increasing brand awareness and leveraging product offerings in competitive environments. These key projects included:
• Continued investment in mobile data solutions, accessibility of 3G handsets and aggressive 3G rollout have enabled the Group to increase data revenues by 46% to R2,9 billion compared with the same period last year;
• The formal launch of Mobile Money in Uganda, Ghana, Cote d’Ivoire, Rwanda, Benin and Guinea Bissau. Other countries are in the process of obtaining regulatory approval. At 30 June 2010 there were 2,2 million mobile money subscribers, Uganda accounting for more than 43% of the total;
• The 2010 FIFA World Cup™ provided significant opportunity for Africa to showcase its ability to host an event of this scale. The positive communications campaign, leading up to and during the 2010 FIFA World Cup™, created a meaningful increase in brand awareness for the company; and
• Segmentation analysis across MTN’s markets has been undertaken. This has facilitated improved product offerings.
Income statement
Revenue growth in local currency remained relatively robust in key markets driven largely by subscriber growth. However, with the strengthening rand, this translated into a decrease in rand reported revenue of 2,2% to R56,0 billion compared to the prior comparable period.
Rand strength also negatively impacted reported EBITDA which decreased by 1,1% to R24,2 billion despite strong EBITDA growth in local currency in key markets including South Africa (15,9%), Nigeria (15,1%) and Iran (67,3%). The Group EBITDA margin increased by 0, 5 percentage points to 43,3% primarily due to the improved margin in the South African and Iranian operations.
Net finance costs decreased by 39.4% to R2,2 billion, mainly due to a functional currency gain of R70 million (June 2009: R2,8 billion loss). The movement in the current period was mainly due to the significant reduction in functional currency exposure through capital restructuring.
However, foreign currency losses of R957 million were incurred partly as a result of the translation of various Euro-denominated inter-company loans and bank account balances.
MTN’s depreciation charge increased by 5,5% or R0,3 billion to R6,3 billion compared with June 2009 as a result of higher levels of investment in network infrastructure in prior years.
MTN reported an effective tax rate of 36,8% for the period compared to 33,0% in June 2009. The higher effective tax rate was mainly due to Secondary Tax on Companies (STC) on the dividend paid in April 2010, foreign withholding taxes and the impact of the increase in the value of the put option in Nigeria. Nigeria and South Africa reported a higher deferred tax charge as a result of the significant capital expenditure in prior reporting periods.
MTN’s basic HEPS increased by 4% to 432,1 cents compared to 30 June 2009. Adjusted HEPS (which eliminates the impact of the put option) increased by 20,6% to 438,6 cents primarily due to the functional currency gain compared to the functional currency loss in the prior period.
MTN continues to report adjusted HEPS in addition to the attributable HEPS. The adjustment is in respect of the International Financial Reporting Standards (IFRS) requirement that the Group accounts for a written put option held by a minority shareholder of one of the Group’s subsidiaries, which provides the minority shareholder with the right to require the subsidiary or its holding company to acquire this shareholding at fair value.
Minority or non-controlling interests were 15% down on the previous period mainly due to decreased rand earnings in the Group’s non South African operations.
Balance sheet and cash flow analysis
Capital expenditure of R8,5 billion for the period was R7,0 billion lower than the comparative period. The Group’s capital expenditure peaked in 2009 due to an extensive network expansion and investment strategy undertaken in the previous years. The reduced spend in the current period reflects a trend as markets mature and growth rates are at a lower level, although a pick up is anticipated in the second half of the year. The strength of the rand also had a marginally positive impact on capital spending of R0,2 billion.
Net debt levels continued to reduce, ending at R5,2 billion for the period and lowering the Group’s net debt/EBITDA ratio to 0,11 times. The reduction in net debt was mainly due to higher cash balances across the Group, particularly in Nigeria and Iran, and to a lesser extent in MTN’s holding companies. Gross debt remained fairly stable during the period. A focus during the first six months of the year was the refinancing of maturing debt at the holding company and Nigerian levels. This was successfully concluded.
Strong operating cash flows at local operations were sustained for the period and cash available after investing activities improved as expenditure on property plant and equipment (excluding software) decreased by more than R5,4 billion compared to the prior period.
This resulted in R6,8 billion of free cash flow and a R10,2 billion positive movement in cash and cash equivalents for the period. Free cash flow is calculated using cash flow from operating activities less capital expenditure and intangibles.
