Courage fuels MTN’s progress
While companies are reeling under recessionary gloom, with many barely staying afloat, MTN’s enigmatic CEO Phuthuma Nhleko stood up before staff and investors this week to report that by the December year-end, MTN had increased its subscriber base by 48% to 90.7 million, largely due to huge increases in Nigeria and Iran.
Its revenue grew by 40% to R102.5-billion and its earnings shot up 33%, although about 15% can be lopped off both revenue and earnings growth to exclude the foreign exchange gain from the weakening rand.
MTN has also managed to reduce its debt. It has R28.7-billion in cash and is spending a massive R37.7-billion during this year, most of it just to keep up with demand.
There was no talk during Nhleko’s presentation of debt levels, turnarounds, impairments or defaults, the standard lingo of current company results, but rather of investment, expansion, acquisition and diversification.
If anything, it appeared that it was straining to keep up with its own growth.
Despite the fact that two significant deals in India recently fell through, Nhleko remains hungry for acquisition.
He did secure Verizon SA for R1.4-billion, giving MTN an instant 23% of SA’s data traffic market and opportunities on the continent.
“Convergence is more and more a reality, hence the acquisitions,” he said.
“Consolidation is going to be imperative, and it will be driven by economies of scale.”
While this is a good time to make acquisitions, “you also have doubting sellers who ask themselves if they should look for a different price”.
But with net debt to pre-tax earnings of 0.3 times and cash resources of R28-billion, he believed MTN was well positioned to play a meaningful role in industry consolidation.
Asked where he would look for acquisitions, he said that “we are first and foremost an emerging-market player”.
With central and South America dominated by major players, it was logical to look in the Middle East and further east, he said, adding that he would not, despite two failures there, discount India.
While many companies are feeling the effect of growing too fast, Nhleko seemed confident that MTN can manage it.
He said the group’s structure, put together some years ago, of having three functional regions and vice-presidents looking after each, was scalable structure.
Working across so many countries in Africa and the Middle East, Nhleko said every country was completely different and MTN used many different people depending on the need of each place.
“We have a fairly unique combination of skills well suited for the emerging market footprint in which we operate. We have learnt who to send in where.”
While MTN’s results have been widely praised, there has been some concern at the high level of capital expenditure in the coming year.
Nhleko pointed out that given the weaker rand, it was not that much more than last year.
As one analyst pointed out, it will roughly translate at a 20% increase in capex, taking into account currency differences between this and last year, and it is expected that the subscriber base could grow at 25%.
Uncharacteristically, MTN gave some guidance about its expectations for subscriber growth in the coming year after a first few months of strong uptake.
Another criticism has been its postponement of a BEE deal, but Nhleko said: “The BEE imperative remains. But I don’t think it is responsible or prudent with this volatility.”
He has welcomed rival Vodacom’s May listing, saying it was “fantastic”, and would create benchmarks and a sense of comparison.
Vodacom is also a strong performer but is heavily reliant on local users. MTN’s recent results, however, show that the bulk of growth is coming from outside SA.
As Nhleko pointed out, the group now has 37% market share in Iran, and in two and a half years, its business in this one country is roughly the same size as SA — even with the presence of a strong fixed- line operator with low tariffs.
Vodacom and MTN share a vision for the future. They both understand that convergence is going to happen, hence their investments in satellite, data and other companies.
They understand the need to share to bring down capex costs, like the new fibre- optic cable.
They also realise that geographic expansion is necessary, but here MTN has been more fortunate than Vodacom, whose expansion to other countries was seriously hampered by shareholder agreements.
Now, under Vodafone, this may change, but Vodacom is way behind. MTN is in 21 countries stretching from South Africa to Iran, and it has no plans to stop there.
MTN financial results discussion
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