Ringing up subscribers
Simply sensational. MTN’s blow-out results for its 2008 financial year, in which it lifted subscriber numbers by almost 50%, to more than 90m, and generated revenue of more than R100bn, up 40%, come in spite of the meltdown in world markets.
The growth has continued unabated into the new financial year (which runs concurrently with the calendar year). In January and February, MTN added another 4,8m subscribers and should notch up 100m customers by the end of April. If it keeps up the pace, it will add nearly 30m subscribers by year-end. Management is more conservative, predicting 22,6m net adds, a 25% improvement, but even that is astonishing given that the world is being stalked by recession.
MTN CEO Phuthuma Nhleko cautions that the economic crisis will have some effect on the group, especially in economies dependent on commodities. There’s little sign of it yet, though: in the oil-dependent Nigerian economy, MTN expects to lift subscriber numbers from 23m to 29m by the end of 2009. It also expects to add 6m customers in Iran, where it has a 49% stake in MTN Irancell, bringing the total there to 22m. This year Iran will have more customers, just three years after launch, than MTN SA has after 15 years.
To keep all these new customers sweet, and to keep up subscriber growth, MTN has to invest huge amounts in network capacity, especially in its key markets.
It has raised capital expenditure from R28bn in 2008 to R37bn in 2009. Nhleko says the group is putting the squeeze on suppliers to keep costs down.
In spite of the steep hike in capex, the group’s net debt to earnings ratio is healthy. And it has R28,7bn of cash on its balance sheet. The group generated R44,8bn in cash in 2008, thanks to strong operational performance and the weaker rand, which also helped lift revenue and earnings.
Nhleko says the group’s strong balance sheet will stand it in good stead if it needs to do a blockbuster acquisition. He says it’s hard to raise capital from financial institutions in the current environment so having access to a large pool of cash means it will more easily be able to beat rivals to new opportunities in Africa and the Middle East. That’s bad news for investors who are agitating for a better dividend — MTN’s yield is less than 2%.
India appears to be off the table for now, though Nhleko admits he remains interested in that market. Separate talks with India’s Bharti Airtel and Reliance Communications broke down last year.
“India is a big market and a future locomotive of emerging markets. However, I must hastily add that as a big a market as it is, it has its challenges. If we go into India, it will have to be under the right construct and set of circumstances.”
But Nhleko is still agitating to do more big deals. He likes Angola and Ethiopia, though there are no immediate opportunities in those markets.
MTN may not be able to find another Nigeria. That country has become the group’s biggest and most profitable market, contributing 42% to group earnings before interest, tax, depreciation & amortisation (Ebitda) in 2008.
SA’s contribution to Ebitda has fallen to 25% as growth has slowed. Pressures in the SA market are likely to grow significantly in the next few years. There is pressure on voice tariffs and a broadband price war also looks imminent.
Then there is a battle looming in corporate data services. Nhleko says MTN’s recent, R1,4bn acquisition of Verizon Business makes it a stronger player in the corporate market, with 23% market share. But rivals, especially Vodacom and Dimension Data, are seen as strong.
MTN financial results – give your views
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