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05 August 2015

 

MTN Group subscribers up by 3.4 percent, revenue down 4.9 percent

MTN has revealed its Interim Results for the six months ended 30 June 2015.

According to the company it currently connects over 230 million people in 22 countries across Africa and the Middle East.

At the Interim Results, MTN stated that it is committed to continuously improving our customers’ experience and delivering a bold, new Digital World to them.

Below are the financial results, as issued by the MTN Group:

Financial results snapshot
– Group subscribers increased 3,4% to 231,0 million
– Revenue decreased 4,9% (increased 0,7%) to R69 210 million
– Data revenue increased 21,3% to R15 412 million – Voice traffic and data traffic increased 11,2% and 87,0% respectively
– EBITDA decreased 10,1% (decreased 4,2%) to R30 274 million
– EBITDA margin decreased 2,6 percentage points to 43,7%
– HEPS decreased 10,3% to 654 cents
– Interim dividend of 480 cents per share
– Capex increased 18,0% to R10 852 million

Overview
MTN Group’s results for the six months are reflective of a challenging operating environment and lower than expected performance in parts of the business. A difficult regulatory environment and weak macro-economic conditions continue to impact the Group’s performance. Reported financial results were further impacted by unfavourable exchange rate movements.

Notwithstanding the challenging environment, MTN remains well positioned in a rapidly evolving market, growing its subscriber base by 3,4% to 231,0 million. Despite a 62,5% decline in US dollar data tariffs year-on-year (YoY), the Group continued to benefit from increased demand for data services, increasing data revenue by 21,3%. This was attributable to an 87,0% YoY increase in data traffic as well as encouraging growth in digital and mobile financial services.

Lower voice tariffs (average price per a minute (APPM) declined 25,3% in US dollar terms), drove a 11,2% increase in billable minutes. The lower tariffs together with lower termination rates and pressure on consumer spending negatively impacted voice revenue growth resulting in a 4,9% decline in total revenue for the period.

MTN South Africa’s performance was hampered by handset supply chain challenges and industrial strike action during the period. Despite this, the operation continued to show encouraging growth in service revenue, driven mainly by data revenue. MTN Nigeria experienced a difficult six months impacted largely by unfavourable macro-economic conditions and operational execution challenges resulting in declining revenue and higher costs. MTN Irancell delivered a strong performance supported by data growth.

The Group earnings before interest, tax, depreciation and amortisation (EBITDA) margin declined by 2,6 percentage points (pp) to 43,7% mainly as a result of lower revenue and weaker local currencies impacting costs. The sale and lease back of towers, which were largely earnings neutral due to lower depreciation costs, were a drag on the EBITDA margin. However, good progress in transforming our operating model, maintaining cost growth below inflation and optimising resources, partly offset the decline in margin.

Capital expenditure (capex) was R10 852 million, 18,0% higher than the previous period.

MTN continued to focus on improving network quality, increasing capacity and expanding the footprint of our 3G, LTE and fibre networks. During the period, the Group’s operations rolled out 1 335 2G, 5 048 largely co-located 3G and 2 475 LTE sites as well as 722km of long distance fibre.

Cash inflows generated by operations decreased by 12,6% to R26 289 million.

Prospects
As we move into the second half of the year there will be an increased focus on building staff engagement and improving customer service in the South African operation. The operation will also accelerate its capex plans to support medium term growth prospects, particularly in the data area. Corrective measures have been implemented to improve handset sales.

We expect the balance of the year to remain challenging for MTN Nigeria. Notwithstanding tough operating conditions, there will be a strong focus on active subscriber management and providing more competitive voice and data offerings to high value customers. We expect the large and small opco clusters to maintain the growth trajectory of the past six months.

We will continue to increase data revenue by encouraging uptake through increased smartphone penetration and new pricing strategies. We will also continue to create a distinct customer experience through investing in our networks to support data growth and improving value and segmentation offers.

The continued rollout of MTN Mobile Money and broader financial services remains a priority as well as developing our digital offering with our partner Rocket Internet AG through the investment in Africa Internet Holdings GmbH (AIH) and Middle East Internet Holdings S.A.R.L (MEIH). We will drive our strategy of becoming the ICT partner of choice and continue to transform our operating model through cost optimisation, operational efficiencies and commercialising our tower infrastructure.

Sanctions MTN continues to work closely with all relevant authorities with regards to US and EU sanctions against Iran, Syria and Sudan. Our international legal advisors continue to assist the Group in remaining compliant with all applicable sanctions.

Appointment of new board member
During the period, the board appointed Dr Shaygan Kheradpir (54) as an Independent Non-Executive Director to the Group board of directors, effective on 8 July 2015. Shaygan is a business and technology executive based in the United States of America and holds a doctorate in electrical engineering from Cornell University College of Engineering. Prior to this, he held various leadership roles including, Executive Vice President and Chief Information Officer at Verizon, Group Chief Operations & Technology Officer at Barclays Bank PLC in the United Kingdom and Chief Executive Officer of Juniper Networks.

Leading the delivery of a bold a “Bold New Digital World”
We continue working towards our Group vision to lead the delivery of a “bold, new Digital World” to our customers. Over the past six months the Group focused on improving its business structure to facilitate non-voice revenue growth. Dedicated Group Consumer and Group Digital functions have been established to ensure MTN is well positioned to participate in a rapidly evolving industry, effectively meeting our customers’ needs through digital, financial and enterprise services.

Group Consumer
The Group Consumer function has been established to focus on supporting MTN’s traditional voice, data and SMS revenue while also enabling operations to effectively package these offerings to meet our consumer segment needs. Customer analytics are central to understanding and segmenting our offerings. Driving smartphone penetration, positioning MTN as a digital brand and creating synergies across the Group for agile rollout of services are also key priorities.

Group Digital Services
MTN is well positioned to tap into the digital space on the African continent and in the Middle East. The Group’s Digital function aims to leverage our brand, customer base and distribution network to accelerate growth in e-commerce, financial services, media and entertainment and lifestyle services. Through our investments with Rocket Internet AG we continue to rollout a range of e-commerce and lifestyle offerings with 128 operations across 30 markets.

During the period, we grew Mobile Money subscribers by 45,8% to 32,4 million. This performance was underpinned by expanding our distribution base and product range to include international remittances, savings, lending and insurance and retail payments.

Enterprise Business Unit
Our enterprise business unit (EBU) continued to work towards its vision of becoming the ICT partner of choice to corporate, SME, public sector and financial services customers.

The key focus during the period was aligning the organisational structure and appointing industry leaders in key markets to support this vision. The EBU has established strategic partnerships with Amazon Web Services and Azure Microsoft to enable the Group to effectively take products and services to the market.

Transforming our operating model
The continued transformation of our operating model remains a key focus and has supported the EBITDA margin for the period.

Key initiatives include:
– The continued rollout of Project Next!, with the completion in Cameroon expected September 2015 and Benin and Management companies to be completed by year end;
– Implementation of an integrated charging system under a managed services platform, enabling access to skilled resources and end-to-end accountability;

– Leveraging global procurement and expediting time to market.

Financial Review
Revenue
Group revenue declined by 4,9% to R69 210 million. Movements in the majority of the Group’s operational currencies against the rand negatively impacted performance. The rand strengthened by 8,7% against the Nigerian naira, 23,1% against the Ghanaian cedi, 10,6% against the Central African Franc, 5,8% against the Ugandan shilling, 36,9% against the Syrian pound and weakened 5,7% against the Sudanese pound.

Constant currency revenue grew marginally by 0,7%. Growth was impacted by a 1,1% decline in MTN Nigeria’s revenue due to a challenging operating environment and a 1,4% decline in MTN South Africa’s revenue following lower handset sales during the period.

The large opco cluster’s revenue decreased by 6,3% on a reported basis while organic revenue grew 6,1% supported by healthy double digit growth in Ghana and Sudan. This was, however, offset by challenging financial performance in Cameroon as a result of growing competition. The small opco cluster grew revenue marginally by 0,8% supported by healthy double digit growth in Congo-Brazzaville, Zambia, Guinea Bissau and South Sudan.

Outgoing voice revenue declined by 9,8% (4,0%*) and contributed 59,2% to total revenue. Performance was negatively affected by price competition in key markets resulting in lower voice tariffs. Across our operations APPM declined by 25,3% in US dollar terms.

Group data revenue (excluding SMS) increased by 21,3% (28,3%), supported by an increase in smartphone penetration and an expanded 3G and LTE network. Data usage increased 87,0% following the strong uptake in data services and reduced tariffs. Data’s contribution to total revenue was 22,3%. Digital services and mobile financial services showed encouraging growth, increasing their contribution to data revenue. MTN South Africa and MTN Nigeria were the largest contributors, together accounting for 69,7% of MTN Group’s total data revenue.

Group interconnect revenue declined by 7,9% (1,9%) following a reduction in termination rates in our Nigerian and South African operations in line with the glide paths.

EBITDA
EBITDA decreased by 10,1% (4,2%) to R30 274 million. The Group EBITDA margin contracted by 2,6 pp to 43,7%, mainly as a result of lower EBITDA margins in Nigeria, Cameroon, Ivory Coast and Uganda. This was partly offset by expansion in the EBITDA margin in MTN South Africa. While operations continued to focus on cost optimisation, exchange rate movements against the US dollar and high inflation had an unfavourable impact on margins.

Depreciation and Amortisation
Depreciation decreased by 4,3% ( increased 0,7%) to R8 879 million as a result of the sale of towers in Nigeria as well as the depreciation of the naira against the rand. Amortisation costs increased by 13,9% (20,8%*), driven by increased spending on software in South Africa and Cameroon as well the licence acquisition in Syria.

Net Finance costs
Net finance costs of R2 320 million increased sharply from the R1 668 million recorded in the prior comparable period. This was largely due to foreign currency losses in 2015 of R1 481 million, which were mainly the result of:

– Mauritius functional currency losses of R253 million as a result of US dollar denominated borrowings and foreign denominated intercompany receivables;
– Nigeria forex losses of R769 million incurred on US dollar borrowings as a result of the devaluation of the naira;
– Ghana forex losses of R81 million as a result of the depreciation of the cedi;
– Zambia forex losses of R93 million due to the weakening of the kwacha during the period;
– Head office forex losses of R172 million relating to foreign denominated receivables from tower companies; and
– South Africa forex loss R77 million due to the weakening of the rand during the period

Taxation
The Group’s taxation charge decreased by 14,2% (10.5%) to R6 223 million and the effective tax rate increased to 32,9% from 31,5%. The effective tax rate increase is largely a result of the end of the tax holiday in Sudan in 2014, reversal of the deferred tax asset in Cameroon due to changes in the corporate income tax rate and a lower Group profit before tax balance due to a decrease in equity income from joint ventures and associates.

Earnings
Basic headline earnings per share (HEPS) decreased by 10,3% to 654 cents and attributable earnings per share (EPS) decreased by 10,7% to 653 cents.

Cashflow
Cash inflows generated by operations decreased by 12,6% to R26 289 million. Cash generated by operating activities decreased 77,0% to R1 432 million mainly as a result of a 19,6% increase in dividends paid of R2 413 million and lower EBITDA.

Capital Expenditure
Capex increased by 18,0% (21,0%) to R10 852 million, of which R283 million related to foreign currency movements.

Financial Position
The Group reported net debt of R17 161 million at the end of June 2015 compared to net debt of R4 543 million at 31 December 2014. This increase was due to the Group dividend payment of R14 697 million during the period, payment to minorities relating to the Nigeria tower sale of R1 453 million and the additional investment in IHS Holdings Limited. This excludes R4 963 million (49%) of net cash in MTN Irancell, which is accounted for on an equity basis.

Business Combinations/Acquisitions of Joint Ventures

Africa Internet Holding GmbH (AIH)
Subsequent to the period end the Group exercised its rights to increase its investment in AIH to 41%. The Group continues to retain joint control over AIH.

Operational Review

South Africa
– Reported revenue declined 1,4%
– Data revenue increased 26,6%
– Revenue excluding handset and other revenue increased by 4,6%
– EBITDA margin expanded 2,3 pp to 35,6%

MTN South Africa delivered an improved performance despite disruptions caused by industrial strike action, which took place between 20 May 2015 and 16 July 2015. The operation increased its subscriber base by 1,8% to 28,5 million supported by attractive promotions and below-the-line campaigns in the pre-paid segment. As a result, the prepaid subscriber base increased 2,7% to 23,2 million for the period. The post-paid segment declined its subscriber base 1,7% to 5,3 million largely impacted by handset supply chain challenges.

Total revenue declined by 1,4% to R18 882 million. This was mainly due to a 27,5% reduction in handset revenue although management expects this to improve in the second half supported by the changes in the logistics process. Outgoing voice revenue decreased marginally by 0,4% while data revenue delivered a meaningful improvement, growing by 26,6% for the period and now contributes 30,1% to total revenue. The number of smartphones on MTN’s network increased by 9,1% to 5,8 million, and the number of data users increased by 18,1% to 17,3 million. Growth in smartphones and data users was constrained by low handset availability.

MTN South Africa EBU and digital services showed positive momentum with the launch of “Internet of Things” in the EBU space and more than 9 000 users taking up music+ in the digital area.

The EBITDA margin expanded by 2,3 pp. The operation benefited from lower handset and commission costs, reduced roaming costs as well as a reduction in staff costs following retrenchments made in 2014.

Capex for the period was R4 678 million, 133,9% higher than the comparable period. During the six months, we added 267 new 2G sites and 1 939 largely co-located 3G sites and 1 891 LTE sites. The key focus during the first half was the expansion of 3G and LTE coverage and improved network quality in key cities. Rollout is expected to ramp up in the second half of the year.

We continue to have discussions with the authorities regarding the planned auction of 2.6 GHz and 3.5 GHz spectrum frequency and allocations.

Nigeria
– Subscribers increased 4,9% to 62,8 million
– Revenue declined 1,1%
– Data revenue increased 21,3%
– Interconnect revenue increased by 10,6%
– EBITDA margin decreased to 57,3%

MTN Nigeria’s results were constrained by the weak macro-economic environment, aggressive competition and operational execution challenges. Despite this, the operation grew its subscriber base by 4,9%, increasing total subscribers to 62,8 million and maintained market share for the period. Subscriber growth was underpinned by improved segmented offerings, churn management and attractive promotions.

Total revenue declined 9,0% or 1,1% in constant-currency terms. This was mainly impacted by a fall in outgoing voice revenue as a result of lower competitor voice tariffs, increased pressure on consumer spending and the use of multiple SIM cards, which is estimated to be almost 50% of the subscriber base. The decline in the effective tariff translated into lower than expected minutes of use for the period. Data revenue continued to show healthy growth, increasing 21,3% despite a decline in data tariffs and contributed 20,5% to total revenue. This was mainly attributable to the growth in 3G device penetration, which increased 84,6% to 14,9 million and a 19,2% increase in data users for the period. Digital revenue showed positive growth supported by the continued success of the MTN music+ and other lifestyle services.

MTN Nigeria’s Mobile Money offering, Diamond Yellow, continued to gain traction with 3 500 merchants now in place and approximately 4,3 million accounts registered at the end of June 2015.

The MTN Nigeria EBU continued to rollout offerings targeted at the SME segment. At the end of the period the operation had more than 600 000 SMEs added to its MTN yellow directory.

The EBITDA margin declined by 2,8 pp to 57,3%. This was largely due to higher lease costs from the sale of towers, the impact of a weaker naira on US dollar expenditure, an increase in dealer commissions, digital services revenue share, higher interconnect costs and an increase in marketing spend. Despite this, effective cost management enabled operational costs to be maintained below inflation. The transfer of the final tranche of 4 696 towers was completed on 1 July 2015.

MTN Nigeria continued to expand 3G coverage and increase capacity of its 3G network. During the period 286 new 2G sites and 744 co-located 3G sites were added. Capex declined by 63,2% in the period to R1 172 million due to utilising existing inventory. MTN Nigeria continues to maintain sufficient quality and headroom on its 2G radio network and the broader operation remains flexible to rollout as required.

Irancell (Joint venture, equity accounted)
– Subscribers increased 0,5% to 44,1 million
– Revenue increased 13,9%
– Data revenue increased 84,7%
– EBITDA margin decreased to 40,1%

MTN Irancell delivered sound performance in a highly penetrated market. The operation grew its subscriber base 0,5% to 44,1 million subscribers. The slower growth in net additions was largely due to a delay in obtaining a new number range and regulatory requirements on registration.

Total revenue increased by 13,9%* compared to the prior year, supported by attractive promotions and the adoption of 3G services. Data revenue increased by 84,7%* and now contributes 26,7% of total revenue. This was mainly driven by an increase in the adoption of 3G enabled devices, which grew 59,4% to 21,4 million. Data users increased 22,3% to 15,5 million for the period.

MTN Irancell’s EBITDA margin declined by 4,3 pp to 40,1%, mainly as a result of costs associated with the rollout of 3G and LTE as well as an increase in 2G regulatory fees.

MTN Irancell invested R3 783 million (100%) of capex during the period. It rolled out 117 LTE sites and 1 401 3G sites to support 3G adoption. The operation continued to focus on network modernisation and fibre rollout.

Large Opco Cluster
– Subscribers increased 4,7% to 59,4 million
– Revenue increased 6,1%
– Data revenue increased 44,1%
– EBITDA margin contracted 1.0 pp to 35,3%

MTN Ghana increased its subscriber base by 7,5% to 14,9 million in a weak macro-economic environment and against tough competition. The growth in net additions was attributable to an expanded distribution network and a strong churn management programme focusing on below the line offers.

Total revenue increased by 13,4%*, supported by a 75,9%* growth in data revenue. Data contributed 27,2% to total revenue, underpinned by an expansion in the 3G network as well as a focus on network quality. A significant uptake of mobile financial services and digital services also contributed to data growth. MTN Mobile Money delivered a strong performance with 4,6 million registered customers. This was attributable to an expansion in the agent network and improvements in customer awareness.

MTN Ghana continued to focus on cost optimisation as the weakening of the cedi against the US dollar resulted in significant pressure on US dollar-denominated expenses. Despite this, MTN Ghana’s EBITDA margin grew 1,0 pp* to 39,7%, also supported by the expiration of the management fee agreement on 31 March 2014.

During the period, MTN Ghana invested R355 million in the network, adding 18 2G sites and 136 3G sites. The low spend was largely due to transition challenges associated with the implementation of managed services. Capex is expected to accelerate during the second half of the year.

MTN Cameroon’s performance was below expectations mainly due to aggressive competition resulting in lower effective tariffs. The operation was also impacted by the third operator’s exclusivity on 3G, which ended on 31 March 2015. Despite this MTN Cameroon increased its subscriber base by 7,3% to 10,4 million and maintained its market share.

Total revenue declined by 0,4%*, largely impacted by a 7,7% decrease in outgoing voice revenue. This was due to a 15,7% fall in the effective tariff, which resulted in a marginal increase in billable minutes of 7,4%. Data revenue increased by 45,7%, contributing 11,5% to total revenue following the finalisation of its 3G licence on 11 March 2015. Attractive 3G promotions and encouraging growth in digital services and MTN Mobile Money contributed to data growth. At the end of June, the operation had 1,7 million registered MTN Mobile Money customers.

MTN Cameroon’s EBITDA margin decreased 4,6 pp to 37,8% as a result of an increase in rent and utilities and transmission costs associated with significant 3G rollout and lower revenue.

Capex increased by 153% to R943 million largely due to an extensive 3G network rollout. During the period the operation rolled out 95 2G and 282 largely co-located 3G sites.

MTN Ivory Coast delivered a satisfactory performance for the period increasing its subscribers by 5,9% to 8,5 million. This was attributable to successful retention promotions and penetration in lower segments of the market.

Total revenue increased by 5,5% supported by outgoing voice revenue and strong growth in data revenue. Data revenue increased by 58,7% and now contributes 14,5% of total revenue. 3G network expansion and an increased uptake of digital and MTN Mobile Money offerings were key contributors to data growth. MTN Mobile Money showed healthy growth, ending the period with 2,8 million customers, underpinned by remittances between Ivory Coast and Burkina Faso.

The operation’s EBITDA margin declined by 1,0 pp to 36,5%. This was a result of high transmission costs associated with 3G rollout and international transmission costs. MTN Ivory Coast spent R422 million on its capex programme and rolled out 75 2G sites and 211 co-located 3G sites during the period.

MTN Uganda increased its subscriber base by 7,2% to 11,1 million driven by attractive bundled propositions, improved 3G coverage and increased take up of MTN Mobile Money. The operation increased market share to 57,6% despite operating in a highly competitive market.

Total revenue increased by 2,6%* supported by outgoing voice revenue which was underpinned by a 12,5% increase in billable minutes. Data revenue grew only 8,5% mainly as a result of low 3G handset penetration and cancelled contracts with third party content providers. Total revenue was further impacted by a 12,8% decline in incoming voice revenue following the implementation of the One Area Network in Eastern Africa resulting in reduced international and national roaming revenue. MTN Mobile Money recorded a 12,8% increase in registered subscribers to 8,2 million.

MTN Uganda’s EBITDA margin decreased by 0,9 pp to 36,0% impacted by higher commission costs and US dollar denominated expenses.

Capex in the year amounted to R556 million, with 110 new 2G sites and 57 co-located 3G sites rolled out, improving quality and capacity on the network.

MTN Syria recorded a 1,6% decline in its subscriber base to 5,8 million, operating under extremely challenging conditions. Despite this, the operation marginally increased total revenue supported by strong growth in data revenue. Data revenue increased 23,9% and now contributes 27,2% of total revenue. MTN Syria’s EBITDA margin declined by 2,6 pp to 16,2%. High inflation and costs related to maintaining the network were key contributing factors.

MTN Sudan showed encouraging progress despite a 2,2% decline in subscribers to 8,8 million impacted by subscriber registration requirements. Total revenue increased by 17,2% supported by a 76,1% increase in data revenue, contributing 18,0% to total revenue. The EBITDA margin declined slightly to 33,5 % despite high inflation. Capex in the year amounted to R337 million.

Small OPCO Cluster
– Subscribers increased 3,9% to 33,5 million
– Revenue increased 0,8%
– Data revenue increased 29,2%
– EBITDA margin decreased 2,8 pp to 34,9%

The small opco cluster increased subscribers by 3,9% in a tough operating environment and weak macro-economic conditions. Revenue was supported by solid growth in Zambia, Benin, Guinea Bissau, Congo-Brazzaville and South Sudan, with Liberia continuing to show improvement from the second half of 2014. Yemen continues to operate under challenging conditions with the majority of the management team now based in Jordan, and Guinea Conakry’s results were impacted by the Ebola crisis. Data revenue increased 29,2%, constrained largely by slow 3G device penetration. The EBITDA margin declined by 2,8 pp to 34,9%. This was largely due to high inflation impacting costs. Capex for the year amounted to R1 761 million with 288 2G and 210 co-located 3G sites added in the period.

 

ENDS

 

 

FOR MORE MEDIA INFORMATION, PLEASE CONTACT:

Bridget Bhengu: Senior Manager - PR and Communications, MTN SA

Cell: 083 212 1964 / E-mail: Bhengu_b@mtn.co.za

Mamello Raborifi: PR Specialist, MTN SA

Cell: 083 214 5681 / E-mail: mamello_r@mtn.co.za

ABOUT MTN GROUP

Launched in 1994, the MTN Group is a multinational telecommunications group, operating in 22 countries in Africa, Asia and the Middle East. The MTN Group is listed on the JSE Securities Exchange in South Africa under the share code: “MTN.” As of 30 June 2014, MTN recorded 215 million subscribers across its operations in Afghanistan, Benin, Botswana, Cameroon, Cote d’Ivoire, Cyprus, Ghana, Guinea Bissau, Guinea Republic, Iran, Liberia, Nigeria, Republic of Congo (Congo Brazzaville), Rwanda, South Africa, Sudan, Swaziland, Syria, Uganda, Yemen and Zambia. Visit us at www.mtn.com and www.mtnfootball.com.