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M-CELL LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER 94/09584/06)
("M-CELL")
PRELIMINARY REPORT
GROUP AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 1999 WERE AS FOLLOWS:
INCOME STATEMENT
1999 1998
R'M R'M
REVENUES 1 456 843
COST OF SALES AND PROVISION OF SERVICES 661 305
GROSS PROFIT 795 538
OPERATING COSTS 569 423
OPERATING PROFIT 226 115
FINANCE COSTS 35 12
PROFIT BEFORE TAXATION 191 103
TAXATION 57 31
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 134 72
DIVIDEND 22 15
RETAINED PROFIT 112 57
EARNINGS PER SHARE (CENTS) 25,1 14,7
HEADLINE EARNINGS PER SHARE (CENTS) 25,1 14,7
DIVIDEND PER SHARE (CENTS) 4,0 3,0
ABRIDGED CASH FLOW STATEMENT
1999 1998
R'M R'M
CASH GENERATED FROM OPERATIONS 384 236
FINANCE COSTS (35) (12)
TAXATION PAID (22) (12)
DIVIDENDS PAID (37) -
INCREASE IN WORKING CAPITAL 43 (28)
CASH FLOW FROM OPERATIONS 333 184
FIXED AND OTHER NON-CURRENT ASSETS (370) (269)
OTHER INVESTING ACTIVITIES (1 520) (11)
SHARES ISSUED 1 464 -
NET CASH FLOW (93) (96)
NET INTEREST-BEARING DEBT
IN JOINT VENTURE ACQUIRED (125) -
NET INTEREST-BEARING DEBT
AT BEGINNING OF PERIOD (146) (50)
NET INTEREST-BEARING DEBT
AT END OF PERIOD (364) (146)
ABRIDGED BALANCE SHEET
1999 1998
R'M R'M
SHAREHOLDERS' INTEREST 788 509
INTEREST-BEARING DEBT 364 146
LONG-TERM LIABILITIES 462 271
NET BANK BALANCES AND OTHER SHORT-TERM LOANS (98) (125)
NON-INTEREST-BEARING DEBT 19 -
DEFERRED TAXATION 83 17
CAPITAL EMPLOYED 1 254 672
FIXED ASSETS 1 171 653
NON-CURRENT ASSETS 63 44
INVESTMENT AND LOANS 86 22
CURRENT ASSETS 353 157
CURRENT LIABILITIES (419) (204)
EMPLOYMENT OF CAPITAL 1 254 672
SUPPLEMENTARY INFORMATION
1999 1998
R'M R'M
INCLUDED IN OPERATING PROFIT:
DEPRECIATION AND AMORTISATION (158) (140)
OPERATING LEASE CHARGES (24) (14)
FINANCE INCOME:
INTEREST RECEIVED 36 20
INTEREST PAID (71) (31)
INVESTMENTS AND LOANS: 86 22
LOANS TO EMPLOYEE SHARE INCENTIVE SCHEMES 14 17
LOANS AND ADVANCES FOR NETWORK EQUIPMENT 64 5
OTHER 8 -
CAPITAL EXPENDITURE FOR THE YEAR 403 232
COMMITMENTS: 684 246
CAPITAL EXPENDITURE COMMITTED OR AUTHORISED 565 208
OPERATING LEASES 119 38
GUARANTEES - 4
NUMBER OF ORDINARY SHARES IN ISSUE (MILLION) 663,9 494,1
WEIGHTED AVERAGE NUMBER OF SHARES (MILLION) 533,1 494,1
NET ASSET VALUE PER SHARE (CENTS) 118,7 103,1
COMMENTS
M-CELL'S INVESTMENT IN MTN HOLDINGS (PROPRIETARY) LIMITED (MTN) OF 29,5% AT THE
BEGINNING OF THE FINANCIAL YEAR INCREASED WITH EFFECT FROM 31 AUGUST 1998 TO
34,7% AND TO 41% WITH EFFECT FROM 31 MARCH 1999. THE REPORTED RESULTS INCLUDE
THE PROPORTIONATELY CONSOLIDATED RESULTS OF THIS INVESTMENT BASED ON THESE
HOLDINGS. IN A SERIES OF TRANSACTIONS APPROVED BY SHAREHOLDERS ON 29 APRIL
1999, M-CELL HAS INCREASED ITS INTEREST IN MTN TO APPROXIMATELY 72%.
NEGOTIATIONS CONTINUE WITH THE REMAINING SHAREHOLDERS OF MTN FOR THE
ACQUISITION OF THE REMAINING 28% INTEREST IN MTN NOT OWNED BY M-CELL IN
EXCHANGE FOR THE ISSUE OF NEW M-CELL ORDINARY SHARES. UNTIL THESE NEGOTIATIONS
ARE COMPLETED, M-CELL SHAREHOLDERS ARE ADVISED TO EXERCISE CAUTION WHEN DEALING
IN THEIR M-CELL ORDINARY SHARES.
RESULTS
MTN ENJOYED STRONG GROWTH IN THE YEAR UNDER REVIEW, WITH THE ACTIVE SUBSCRIBER
BASE IN SOUTH AFRICA NOW IN EXCESS OF ONE MILLION. INNOVATIVE MARKETING,
COMPETITIVE PRICING AND THE INTRODUCTION OF NEW PRODUCTS AND SERVICES
CONTRIBUTED TO THE STRONG GROWTH. M-CELL'S REVENUES OF R1,45 BILLION FOR THE
YEAR REFLECT GROWTH OF 73%. AN OPERATING PROFIT OF R226 MILLION WAS EARNED - AN
INCREASE OF 97% ON THE PREVIOUS YEAR. THE CONSOLIDATED NET PROFIT AFTER TAX WAS
R134 MILLION, EQUIVALENT TO EARNINGS PER SHARE OF 25,1 CENTS, REFLECTING AN
INCREASE OF 71% ON THE PREVIOUS YEAR.
THE GROUP HAS CHANGED ITS ACCOUNTING POLICY IN RESPECT OF SUBSCRIBER
ACQUISITION COSTS. PREVIOUSLY, SUBSCRIBER ACQUISITION COSTS WHICH WERE
CONSIDERED TO HAVE AN ENDURING BENEFIT WERE CAPITALISED AND AMORTISED OVER A
PERIOD OF FOUR YEARS, SO AS TO MATCH EXPENDITURES WITH FUTURE RELATED ECONOMIC
BENEFITS. THIS BASIS WAS CHANGED DURING THE YEAR TO CONFORM WITH EMERGING
INTERNATIONAL ACCOUNTING PRACTICES. SUBSCRIBER ACQUISITION COSTS IN RESPECT OF
ALL SUBSCRIBERS WITH FIXED PERIOD CONTRACTS ARE NOW CAPITALISED AND AMORTISED
OVER ONE YEAR.
THE RESTATEMENT OF CAPITALISED SUBSCRIBER ACQUISITION COSTS, APPLYING THE NEW
POLICY, RESULTED IN AN INCREASE IN THE ACCUMULATED LOSSES AT THE BEGINNING OF
THE 1998 YEAR OF R35 MILLION, AN INCREASE IN THE PROFIT ATTRIBUTABLE TO
SHAREHOLDERS FOR THE 1998 YEAR OF R2 MILLION AND IN THE CURRENT YEAR OF R18
MILLION. ACCORDINGLY, PRIOR YEAR FIGURES HAVE BEEN RESTATED.
DIVIDEND
A DIVIDEND OF 4 CENTS PER SHARE WAS DECLARED TO SHAREHOLDERS REGISTERED AS SUCH
ON 19 MARCH AND PAID ON 31 MARCH 1999.
PROSPECTS AND DEVELOPMENTS
IN THE CURRENT YEAR MTN INVESTED A FURTHER R1 BILLION TO EXPAND BOTH THE
CAPACITY AND THE COVERAGE OF THE NETWORK. THE NETWORK, ONE OF THE LARGEST OF
ITS KIND IN THE WORLD, NOW COVERS SOME 650 000 SQUARE KILOMETRES, EMBRACING 52%
OF SOUTH AFRICA'S GEOGRAPHICAL AREA AND GIVING 75% OF THE POPULATION ACCESS TO
GSM TELECOMMUNICATION FACILITIES. IN ADDITION, IN EXCESS OF 7 000 COMMUNITY
PAYPHONES HAVE BEEN INSTALLED IN UNDERSERVICED AREAS AND HAVE PLAYED A
SIGNIFICANT ROLE IN SOCIAL UPLIFTMENT AND ECONOMIC EMPOWERMENT.
THESE INVESTMENTS ARE NOT ONLY AN INDICATION OF MTN'S ABILITY TO RESPOND TO
CUSTOMER NEEDS, BUT ALSO OF ITS COMMITMENT TO THE SOCIO-ECONOMIC DEVELOPMENT OF
SOUTH AFRICA.
MTN IS ALSO EXPANDING ITS TELECOMMUNICATIONS OPERATIONS OUTSIDE SOUTH AFRICA
AND HAS ALREADY INVESTED IN UGANDA, RWANDA AND SWAZILAND WHERE, IN THE SPACE OF
A FEW MONTHS, IN EXCESS OF 30 000 SUBSCRIBERS HAVE ALREADY BEEN RECRUITED.
FURTHER SUCH OPPORTUNITIES ARE BEING INVESTIGATED.
WHILST THE PURSUIT OF THESE OPPORTUNITIES ARE EXPECTED TO HAVE A POSITIVE,
LONG-TERM IMPACT ON MTN'S FINANCIAL PERFORMANCE, THEY WILL REQUIRE FUNDING AND
ARE EXPECTED TO IMPACT EARNINGS NEGATIVELY IN THE SHORT TERM.
INDICATIONS ARE THAT THE DEMAND FOR CELLULAR SERVICES IN SOUTH AFRICA WILL
CONTINUE TO GROW OVER THE NEXT FEW YEARS. THE POSITIVE CONTRIBUTION OF THIS TO
MTN'S GROWTH RATE IS LIKELY TO BE TEMPERED BY A LICENSED CELLULAR OPERATOR
DESTINED FOR COMMERCIAL LAUNCH IN SOUTH AFRICA DURING 1999.
YEAR 2000
M-CELL AND MTN ARE CONDUCTING COMPREHENSIVE REVIEWS OF THEIR OPERATIONS TO
ENSURE THAT THEIR PRODUCTS, SERVICES AND BUSINESS CRITICAL SYSTEMS WILL ACHIEVE
ACCEPTABLE LEVELS OF YEAR 2000 COMPLIANCE. BASED ON THEIR ASSESSMENT TO DATE,
AND WITH THEIR PLANNED MODIFICATIONS. M-CELL AND MTN DO NOT EXPECT TO ENCOUNTER
MATERIAL OPERATIONAL DIFFICULTIES ARISING FROM THE ADVENT OF THE YEAR 2000.
M-CELL AND MTN HAVE INCURRED, AND WILL CONTINUE TO INCUR, GENERAL STAFF COSTS,
CONSULTANCY FEES AND OTHER EXPENSES, WHICH WILL BE ABSORBED IN THE NORMAL
OPERATING BUDGETS.
ON BEHALF OF THE BOARD
I CHARNLEY
CHAIRPERSON
26 MAY 1999
DIRECTORS
I CHARNLEY (CHAIRPERSON), J P BEKKER, V G BRAY, Z N A CINDI, J S CRAIB, A S
MABOGOANE,
J R D MODISE, S J Z PACAK (CHIEF EXECUTIVE)
TRANSFER SECRETARIES REGISTERED OFFICE
MERCANTILE REGISTRARS LIMITED 13TH FLOOR
11 DIAGONAL STREET 28 HARRISON STREET
JOHANNESBURG 2001 JOHANNESBURG 2001
(PO BOX 1053, JOHANNESBURG 2000) (PO BOX 231, JOHANNESBURG 2000)
HTTP://WWW.M-CELL.CO.ZA
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