MTN reported a fall in profit due mainly to exchange rate movements, as it released its results for the year ended December 31, 2009 on Thursday.
MTN profit decreases
MTN profit decreases
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MTN profit decreases
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die MTN die
die MTN die
MTN Group reports sound operational performance for the year ended 31 December 2009
Official MTN press statement:
Highlights
Overview
MTN Group revenues increased by 9,2% to R111,9 billion and earnings before interest, tax and depreciation (“EBITDA”) by 6,7% to R46,1 billion based on a sound operational performance for the year ended 31 December 2009. Movements in exchange rates in the year, mainly in the South African Rand (“ZAR”) and Nigerian Naira (“NGN”), had a substantially negative impact on the Group’s financial results. To illustrate this, had there been no change in currency rates during the year, reported revenues at year end would have been 11 percentage points higher, and EBITDA 12 percentage points above that reported. Adjusted headline earnings per share (“EPS”) decreased by 16,6% to 754.3 cents and, excluding the impact of the functional currency losses, increased by 8,5% to 878.9 cents.
Said MTN Group President and CEO Mr. Phuthuma Nhleko: “The solid performance of MTN operations in most of the countries in which the Group has a presence was achieved despite economic challenges, increased regulatory changes and growing competition. Continued delivery in accordance with an aggressive network rollout strategy remained key throughout 2009, enabling MTN to maintain or improve its market share in most of its operations. Better distribution and a focus on segmental product offerings were other contributory factors. As a result, subscribers increased by 28,0% to 116,0 million for the period under review, indicating a continuing demand for mobile services in countries where mobile penetration is still relatively low”.
MTN initiated several Group projects during 2009 which are being rolled out through most operations. Although many of these projects are still in progress, this Group-wide approach allows MTN to differentiate itself from the competition, thereby ensuring a stronger brand and product preference whilst leveraging its regional footprint. These projects include the following:
A coordinated effort to improve operational efficiencies through centralised procurement, best practice guidelines for site build, network management, safety and activity based costing.
Continued investments in Internet Service Providers (“ISP”) across all regions have been made to ensure that MTN is favourably positioned. MTN South Africa acquired Verizon Business South Africa (Pty) Ltd in early 2009 and successfully integrated the company with Network Solutions. The combined entity was launched in September 2009 with a key focus on converged services to the corporate segment. It is envisaged that MTN Business, although South African based, will provide a Pan-African opportunity to service the corporate sector across and beyond MTN’s footprint.
MTN has committed in excess of USD191 million in various submarine cables to ensure high-speed connectivity and improved quality and capacity of voice and data offerings. These include the East Africa submarine cable (“EASSy”); the Europe India gateway (“EIG”); SAT-3/SAFE; the East Africa Marine system (“TEAMs”) and the West Africa Cable System (“WACS”).
With an initial focus on money transfers, Mobile Money has been launched to date in South Africa, Uganda, Rwanda, Ghana, Côte d’Ivoire, Benin and Yemen. The success of MTN Uganda, which was first to launch the new service in March 2009, is indicative of the scale of the opportunity: to date, Uganda has more than 680,000 Mobile Money subscribers.
There have been many regulatory changes within the telecommunications industry over the past year, particularly focused on SIM registration and reductions in Mobile Termination Rates (“MTR”). Constructive and early engagement with regulatory authorities by management teams have ensured that MTN’s operations have been generally well prepared for compliance with the regulatory changes implemented in 2009, and will be for those to follow in 2010.
Official MTN press statement:
Highlights
- Group subscribers up 28% to 116,0 million
- Revenue up 9,2% to R111,9 billion
- EBITDA up 6,7% to R46,1 billion
- Adjusted Headline EPS down 16.6% to 754,3 cents
- Adjusted Headline EPS, excluding the impact of functional currency losses, up 8,5% to 878,9 cents
- Dividend per share of 192 cents
Overview
MTN Group revenues increased by 9,2% to R111,9 billion and earnings before interest, tax and depreciation (“EBITDA”) by 6,7% to R46,1 billion based on a sound operational performance for the year ended 31 December 2009. Movements in exchange rates in the year, mainly in the South African Rand (“ZAR”) and Nigerian Naira (“NGN”), had a substantially negative impact on the Group’s financial results. To illustrate this, had there been no change in currency rates during the year, reported revenues at year end would have been 11 percentage points higher, and EBITDA 12 percentage points above that reported. Adjusted headline earnings per share (“EPS”) decreased by 16,6% to 754.3 cents and, excluding the impact of the functional currency losses, increased by 8,5% to 878.9 cents.
Said MTN Group President and CEO Mr. Phuthuma Nhleko: “The solid performance of MTN operations in most of the countries in which the Group has a presence was achieved despite economic challenges, increased regulatory changes and growing competition. Continued delivery in accordance with an aggressive network rollout strategy remained key throughout 2009, enabling MTN to maintain or improve its market share in most of its operations. Better distribution and a focus on segmental product offerings were other contributory factors. As a result, subscribers increased by 28,0% to 116,0 million for the period under review, indicating a continuing demand for mobile services in countries where mobile penetration is still relatively low”.
MTN initiated several Group projects during 2009 which are being rolled out through most operations. Although many of these projects are still in progress, this Group-wide approach allows MTN to differentiate itself from the competition, thereby ensuring a stronger brand and product preference whilst leveraging its regional footprint. These projects include the following:
A coordinated effort to improve operational efficiencies through centralised procurement, best practice guidelines for site build, network management, safety and activity based costing.
Continued investments in Internet Service Providers (“ISP”) across all regions have been made to ensure that MTN is favourably positioned. MTN South Africa acquired Verizon Business South Africa (Pty) Ltd in early 2009 and successfully integrated the company with Network Solutions. The combined entity was launched in September 2009 with a key focus on converged services to the corporate segment. It is envisaged that MTN Business, although South African based, will provide a Pan-African opportunity to service the corporate sector across and beyond MTN’s footprint.
MTN has committed in excess of USD191 million in various submarine cables to ensure high-speed connectivity and improved quality and capacity of voice and data offerings. These include the East Africa submarine cable (“EASSy”); the Europe India gateway (“EIG”); SAT-3/SAFE; the East Africa Marine system (“TEAMs”) and the West Africa Cable System (“WACS”).
With an initial focus on money transfers, Mobile Money has been launched to date in South Africa, Uganda, Rwanda, Ghana, Côte d’Ivoire, Benin and Yemen. The success of MTN Uganda, which was first to launch the new service in March 2009, is indicative of the scale of the opportunity: to date, Uganda has more than 680,000 Mobile Money subscribers.
There have been many regulatory changes within the telecommunications industry over the past year, particularly focused on SIM registration and reductions in Mobile Termination Rates (“MTR”). Constructive and early engagement with regulatory authorities by management teams have ensured that MTN’s operations have been generally well prepared for compliance with the regulatory changes implemented in 2009, and will be for those to follow in 2010.
MTN Group financial review
Income statement
MTN Group revenues increased by 9, 2% to R111,9 billion, largely driven by subscriber growth. The movements in foreign currencies, when compared to December 2008, had a negative impact on reported revenue of R10,9 billion or 11 percentage points, as a strong ZAR eroded foreign earnings.
The Group’s EBITDA increased by 6,7% to R46,1 billion for the year. When compared to December 2008, the fluctuation in foreign exchange rates had a negative impact on reported EBITDA of R5,1 billion, or 12 percentage points. The one percentage point reduction in EBITDA margin was mainly due to an increase in the revenue share costs in Syria, as well as the impact of reducing fixed to mobile interconnect traffic and the integration and outsourcing costs in South Africa.
Currency movements affect the income statement through translated earnings, functional currency adjustments and the effect of the written put option held by a minority shareholder in MTN’s Nigerian subsidiary. The ZAR closed 21% stronger at R7,39 to the USD on the 31 December 2009, compared to the closing rate of R9,35 the year before, R9,49 in March 2009 and R7,72 in June 2009. Translation of earnings affected by movements in the various local currencies to the USD was compounded in the second half of the year by the strong ZAR.
Net finance costs increased by 203% to R5, 8 billion for the year. This was mainly due to the ZAR/USD exchange rate which, as explained above, significantly affects a large proportion of MTN’s assets and liabilities denominated in a currency other than the entities’ reporting currency. These foreign-denominated assets and liabilities resulted in a functional currency loss for the period of R3,2 billion compared to the R2,4 billion foreign currency gain at the end of December 2008 – a swing of R5,6 billion. Much of the loss is attributable to foreign currency denominated loans, receivables and cash balances in Mauritius (a ZAR reporting entity). In addition, the put option effect on the income statement was a credit of R701 million (June 2009: R1 billion credit and December 2008: R1,2 billion debit), mainly as a result of the depreciation in the NGN/USD exchange rate.
The depreciation charge increased by 18, 8% to R11,8 billion mainly as a result of an increase in the Group’s depreciable infrastructure assets.
Minority interests increased by 38% to R2,5 billion, compared to R1,8 billion at 31 December 2008.
The Group’s effective taxation charge for the year reduced from 39,9% to 33,4%, for the comparable period. This was mainly due to the end of the commencement period following the tax holiday in Nigeria in 2008 and the financial effect of the put option.
The 24% reduction in tax and the resultant reduction in the effective tax rate were not sufficient to offset an 18, 8% increase in depreciation, a 203% increase in net finance costs and a 38% increase in minority interests, and the overall result was a decrease in the Group’s attributable EPS of 3,6% and adjusted headline EPS of 16,6% to 791,4 and 754,3 cents respectively, when compared to the prior year.
The impact of the reversal of the put option on adjusted headline EPS was a debit of 48,9 cents, while functional currency losses on the revaluation of assets and liabilities due to the strong ZAR was a debit of 124,6 cents. Adjusted headline EPS excluding the impact of the functional currency losses of 124,6 cents increased by 8,5% to 878.9 cents for the year.
The Group continues to report adjusted headline earnings per share in addition to the attributable headline EPS. The adjustment is in respect of the IFRS requirement that the Group accounts for a written put option held by a minority shareholder of one of the Group’s subsidiaries, which gives the minority shareholder the right to require the subsidiary or its holding company to acquire this shareholding at fair value. Although the Group has complied with the IFRS requirements, the board of directors (the board) has reservations about the appropriateness of this interpretation and hence the adjustment.
Income statement
MTN Group revenues increased by 9, 2% to R111,9 billion, largely driven by subscriber growth. The movements in foreign currencies, when compared to December 2008, had a negative impact on reported revenue of R10,9 billion or 11 percentage points, as a strong ZAR eroded foreign earnings.
The Group’s EBITDA increased by 6,7% to R46,1 billion for the year. When compared to December 2008, the fluctuation in foreign exchange rates had a negative impact on reported EBITDA of R5,1 billion, or 12 percentage points. The one percentage point reduction in EBITDA margin was mainly due to an increase in the revenue share costs in Syria, as well as the impact of reducing fixed to mobile interconnect traffic and the integration and outsourcing costs in South Africa.
Currency movements affect the income statement through translated earnings, functional currency adjustments and the effect of the written put option held by a minority shareholder in MTN’s Nigerian subsidiary. The ZAR closed 21% stronger at R7,39 to the USD on the 31 December 2009, compared to the closing rate of R9,35 the year before, R9,49 in March 2009 and R7,72 in June 2009. Translation of earnings affected by movements in the various local currencies to the USD was compounded in the second half of the year by the strong ZAR.
Net finance costs increased by 203% to R5, 8 billion for the year. This was mainly due to the ZAR/USD exchange rate which, as explained above, significantly affects a large proportion of MTN’s assets and liabilities denominated in a currency other than the entities’ reporting currency. These foreign-denominated assets and liabilities resulted in a functional currency loss for the period of R3,2 billion compared to the R2,4 billion foreign currency gain at the end of December 2008 – a swing of R5,6 billion. Much of the loss is attributable to foreign currency denominated loans, receivables and cash balances in Mauritius (a ZAR reporting entity). In addition, the put option effect on the income statement was a credit of R701 million (June 2009: R1 billion credit and December 2008: R1,2 billion debit), mainly as a result of the depreciation in the NGN/USD exchange rate.
The depreciation charge increased by 18, 8% to R11,8 billion mainly as a result of an increase in the Group’s depreciable infrastructure assets.
Minority interests increased by 38% to R2,5 billion, compared to R1,8 billion at 31 December 2008.
The Group’s effective taxation charge for the year reduced from 39,9% to 33,4%, for the comparable period. This was mainly due to the end of the commencement period following the tax holiday in Nigeria in 2008 and the financial effect of the put option.
The 24% reduction in tax and the resultant reduction in the effective tax rate were not sufficient to offset an 18, 8% increase in depreciation, a 203% increase in net finance costs and a 38% increase in minority interests, and the overall result was a decrease in the Group’s attributable EPS of 3,6% and adjusted headline EPS of 16,6% to 791,4 and 754,3 cents respectively, when compared to the prior year.
The impact of the reversal of the put option on adjusted headline EPS was a debit of 48,9 cents, while functional currency losses on the revaluation of assets and liabilities due to the strong ZAR was a debit of 124,6 cents. Adjusted headline EPS excluding the impact of the functional currency losses of 124,6 cents increased by 8,5% to 878.9 cents for the year.
The Group continues to report adjusted headline earnings per share in addition to the attributable headline EPS. The adjustment is in respect of the IFRS requirement that the Group accounts for a written put option held by a minority shareholder of one of the Group’s subsidiaries, which gives the minority shareholder the right to require the subsidiary or its holding company to acquire this shareholding at fair value. Although the Group has complied with the IFRS requirements, the board of directors (the board) has reservations about the appropriateness of this interpretation and hence the adjustment.
Operational review
South Africa
MTN’s South African operations had a challenging 2009. External challenges as the country went through a recession in the first half of the year, combined with maturing market conditions and increased regulation of the industry were compounded by difficulties experienced with the outsourcing of various critical IT functions. High churn and lower gross connections in the prepaid segment resulted in a 6,4% reduction in subscriber numbers to 16,1 million at 31 December 2009. The lower gross connections were a consequence of the implementation of new industry regulations (RICA). In line with RICA, mobile operators have to register subscribers’ personal details and to date MTN has collected the details of 5,5 million prepaid customers. The postpaid segment was not affected to the same degree by the RICA requirements, and showed subscriber growth of 9,8%, mainly because of the increasing use of hybrid packages.
MTN South Africa’s revenue increased modestly by 3,1% to R33,1 billion for the year to 31 December 2009, indicating that those prepaid subscribers lost during the RICA process were not as meaningful to revenue. Consequently, prepaid Average Revenue per User per month (“ARPU”) increased by R3 to R100 at December 2009, despite the disconnection of 1,4 million prepaid subscribers, as customers who remained on the network continued to spend. Lower post-paid ARPU, which decreased by R38 to R365, was mainly due to lower out-of-bundle usage and migrations to lower-value packages, reflecting slowing consumer spending within the more formal economy.
The EBITDA margin decrease of 1,7 percentage points to 31,4% at 31 December 2009 was mainly a result of increased distribution costs, following the integration of i-Talk Cellular and Cell Place as well as the impact of lower fixed to mobile traffic.
MTN South Africa continued to make substantial investments in its network to improve capacity and increase 3G coverage. Capacity increased by 12% on 2G and 22% on 3G networks with the integration of 496 2G and 659 3G base transceiver stations (“BTS’s”), while the 3G population coverage increased from 35% in December 2008 to 48% in December 2009. The deployment of 5 000 km of national fibre continued throughout 2009 with 245 km completed along the Gauteng-Durban route. The southern and northern rings of the Gauteng fibre projects are expected to be completed by July 2010.
Although some progress has been made on improving the various IT functions, further improvements are required. Increased management attention is also being given to support systems, including customer care and call centres, in order to cope with the challenges.
South Africa
MTN’s South African operations had a challenging 2009. External challenges as the country went through a recession in the first half of the year, combined with maturing market conditions and increased regulation of the industry were compounded by difficulties experienced with the outsourcing of various critical IT functions. High churn and lower gross connections in the prepaid segment resulted in a 6,4% reduction in subscriber numbers to 16,1 million at 31 December 2009. The lower gross connections were a consequence of the implementation of new industry regulations (RICA). In line with RICA, mobile operators have to register subscribers’ personal details and to date MTN has collected the details of 5,5 million prepaid customers. The postpaid segment was not affected to the same degree by the RICA requirements, and showed subscriber growth of 9,8%, mainly because of the increasing use of hybrid packages.
MTN South Africa’s revenue increased modestly by 3,1% to R33,1 billion for the year to 31 December 2009, indicating that those prepaid subscribers lost during the RICA process were not as meaningful to revenue. Consequently, prepaid Average Revenue per User per month (“ARPU”) increased by R3 to R100 at December 2009, despite the disconnection of 1,4 million prepaid subscribers, as customers who remained on the network continued to spend. Lower post-paid ARPU, which decreased by R38 to R365, was mainly due to lower out-of-bundle usage and migrations to lower-value packages, reflecting slowing consumer spending within the more formal economy.
The EBITDA margin decrease of 1,7 percentage points to 31,4% at 31 December 2009 was mainly a result of increased distribution costs, following the integration of i-Talk Cellular and Cell Place as well as the impact of lower fixed to mobile traffic.
MTN South Africa continued to make substantial investments in its network to improve capacity and increase 3G coverage. Capacity increased by 12% on 2G and 22% on 3G networks with the integration of 496 2G and 659 3G base transceiver stations (“BTS’s”), while the 3G population coverage increased from 35% in December 2008 to 48% in December 2009. The deployment of 5 000 km of national fibre continued throughout 2009 with 245 km completed along the Gauteng-Durban route. The southern and northern rings of the Gauteng fibre projects are expected to be completed by July 2010.
Although some progress has been made on improving the various IT functions, further improvements are required. Increased management attention is also being given to support systems, including customer care and call centres, in order to cope with the challenges.
supersunbird
Honorary Master
Good, it's called Karma... MTN managers should watch My name is Earl and learn about it.