Wrap Text
Interim results for the six months ended 30 September 2001
M-CELL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1994/009584/06) ("M-Cell")
a johnnic group company
Commentary
OVERVIEW
The M-Cell group ("the Group") again experienced good growth, driven by a
strong performance from 100% owned subsidiary, Mobile Telephone Networks
Holdings (Proprietary) Limited ("MTN"), which saw its total revenue-
generating subscriber base reach the 4 million mark. Group revenues grew
34,5% to R5 170,2 million, while earnings before interest, tax, depreciation
and amortisation ("EBITDA") grew by a robust 31,3% to R1 605,1 million over
the same period last year.
MTN South Africa's subscriber base grew by 32,6% to 3,54 million, from 2,67
million at 30 September 2000. The rate of pre-paid subscriber growth in the
six months to September 2001 was lower than the equivalent period last year,
reflecting a degree of maturity entering the South African pre-paid market
and the company's increasing focus on quality rather than quantity of
subscribers. In the high value contract segment, however, MTN South Africa
achieved a significant increase in the number of contracts signed over the
equivalent period last year.
In line with the company's strategy of diversifying its telecommunications
business into selected African countries, MTN Nigeria Communications Limited
("MTN Nigeria") launched in August 2001. The company is already exhibiting
strong growth and is approaching the 100 000 subscriber mark. MTN now
operates in a total of five African countries outside of South Africa and is
regarded as one of the leading Africa-wide cellular operators. MTN's
international operations contributed R449,0 million in revenue in the period
under review, being 8,7% of total revenues, and are expected to experience
even faster growth in the second half of the year now that MTN Nigeria is
fully operational.
Basic headline earnings for the Group grew by 22,4% to R529,5 million. The
decline in attributable earnings, from R312,5 million to R237,7 million,
arises mainly from the amortisation of goodwill for the full six months in
the current period (R291,8 million), as compared to only two and a half
months (R120,0 million) in the corresponding period last year. This goodwill
arose from the acquisition by M-Cell of a 23% interest of MTN in July 2000
from Transnet Limited ("Transnet").
Basic headline earnings per share for the South African operations increased
by 22,6% to 41,7c, from 34c for the previous period. Overall basic headline
earnings per share grew by 5,5% to 32,6c, notwithstanding the significant
growth in finance charges and expenses resulting from the start-up
operations in Nigeria and Cameroon.
REVIEW OF OPERATIONS
mtn South Africa division
Greater emphasis has been placed on attracting and retaining quality
subscribers and reducing subscriber acquisition costs. Consequently,
subsidies on pre-paid handsets have been eliminated. Despite this, pre-paid
subscribers grew by 35%, from 2,0 million in September 2000 to 2,71 million
and now constitute 76% of the total subscriber base. In keeping with this
strategy, the rate of growth of pre-paid subscribers is expected to decrease
somewhat from the exceptional growth experienced in the previous two years
as the emphasis moves to balance volume with value.
As a result of greater focus on the important high-value contract segment,
contract subscriber numbers increased by 21% to 830 000, from 684 000 in
September 2000.
Total revenue increased by 28% to R4 670 million. Non-voice revenue
increased to R151 million, primarily driven by increased use of short
message services ("SMS") and other data services. Average revenue per user
("ARPU") per month decreased by 4% to R219 since March 2001, which is in
line with expectations resulting from the deeper penetration of the South
African market.
MTN South Africa announced the launch of DataFast, a high-speed wireless
data access product. To date, MTN is still the only provider of high speed
circuit switched data services, allowing its customers to access data at a
speed similar to current ISDN lines. MTN South Africa will continue to focus
on growing data revenues and aims to capitalise on its strong leadership
position in this sector. In line with the data strategy, MTN South Africa
plans to launch GPRS services early in 2002, which will provide high-speed
data transmission, coupled with "always on" Internet capability.
MTNICE, MTN's mobile portal, has continued to grow its user base and
currently has 650 000 registered users. MTNICE is now South Africa's leading
mobile portal and provides the foundation for exciting new products and
services in the future.
In October, an interconnect agreement was signed with Telkom SA, Vodacom and
Cell-C, which removes certain uncertainties inherent in the old agreement.
Telkom was able to increase the amount of money retained for fixed-to-mobile
calls, while the overall effect is expected to be neutral to MTN.
mtn International division
MTN International launched its 80% owned Nigeria operation in Lagos in
August. This was followed by further launches of both pre-paid and contract
services in Abuja, Port Harcourt and Kaduna. By 30 September 32 000
subscribers had been signed up, although the base has subsequently grown to
nearly 100 000, which is well ahead of target. It is expected that the total
number of mobile lines in Nigeria will exceed the total number of fixed
lines in less than one year.
Since the relaunch of the network in November 2000 and the introduction of
pre-paid services, Mobile Telephone Networks Cameroon Limited ("MTN
Cameroon") saw its subscriber base increase to 137 000, from 7 000 at the
same time last year. With an estimated market share of 43%, MTN Cameroon is
strongly positioned against Mobilis, the second mobile operator in Cameroon.
Mobile Telephone Networks Uganda Limited ("MTN Uganda") increased its
subscriber base by 62% to 190 000 over the past year. Its superior network
coverage, distribution capabilities, brand affinity and customer services
have been key factors in maintaining its leading position in the Ugandan
market, despite increased competition through the introduction of a third
mobile competitor in January 2001. In July 2001 the government of Uganda had
introduced a 7% tax levy on airtime and subscription fee revenue which will
put pressure on the existing EBIDTA margin of 44%. Subsequent to the
reporting period, the Group's interest in MTN Uganda was increased from 50%
to 52%.
Rwandacell S.A.R.L. ("MTN Rwanda") increased its subscriber base by 152% to
53 000, while MTN Swaziland recorded 40 000 active subscribers as at 30
September 2001, a 90% increase from last year.
Overall, MTN's international operations recorded an operating loss of R42,3
million, which is well below expectation given the significant costs
associated with the new operations.
Strategic investments division
The purpose of this division is to create a platform for the integration of
telecommunication services with the wider market for data applications and
content services, extending the Group's presence further up the value chain.
In November, Orbicom (Proprietary) Limited ("Orbicom") successfully launched
an innovative wireless-based network for electronic payments and inter-bank
settlements in Ghana. This first move into banking infrastructure provision
will be extended into other African countries in the coming year.
Revenue for the period ended 30 September increased by 7,5% to R48,9 million
as compared to the same period last year, with the bulk coming from its
Multichoice satellite services contract. This contract was renewed for a
further five years in October 2001. A total loss of R0,6 million was
recorded for the period compared to a loss of R4,1 million for the same
period last year, as a result of start-up expenditure associated with the
electronic payments project.
Airborn, which markets MTN technology and services internationally,
continues to look for opportunities to sell its innovative Remote
Interactive Voice Response ("RIVR") technology beyond Italy, where it has
built a successful reference site at Wind through its Aliasnet associate.
New products are being developed based on the TWIST platform, which delivers
two-way instant messaging between the wireless and the internet space. As at
30 September, Airborn had over
7,1 million registered users on its mtnsms.com site and continues to be the
world's largest SMS community. However, several international operators are
attempting to extract interconnect charges for SMS's which may threaten this
service.
In June, MTN acquired a 60% interest in Citec (Proprietary) Limited
("Citec"), one of four tier-one Internet Service Providers ("ISP"). The
remaining 40% is held by sister company, Johnnic e-Ventures Limited. Citec
has since established a national backbone infrastructure serving all MTN and
Johnnic group companies, as well as providing ISP services to over 120
corporate customers. This provides a strong basis for continued expansion
into the managed data networking sector and is in line with MTN's strategy
of diversifying into a broader telecommunications provider.
PROSPECTS
The South African cellular market has continued to show strong growth even
though penetration has exceeded 18%. MTN's network now reaches a potential
92% of South Africa's population providing the foundation for continued
growth prospects. However, ARPU is declining at the lower end. Attention
will be focussed on managing incremental capital expenditure and operating
costs in accordance with this trend in order to maintain margins.
To counter the decline in ARPU, MTN will focus more on quality rather than
quantity of subscribers. In the important contract segment, MTN has
performed strongly against its competitor in the period under review.
Attention will also be focused on growing data revenues and other non-human
subscribers, which will in time have a positive impact on ARPU's.
The South African Telecommunications Amendment Bill has been passed by
Parliament, providing more certainty for the telecommunications industry. An
invitation to apply for participation in the Second Network Operator ("SNO")
licence is expected to be published shortly, with the licence being issued
by May 2002. M-Cell continues to explore the possibilities of participating
in the SNO opportunity.
MTN's international operations are well placed to provide an increasingly
important contribution to group earnings. Three of MTN International's
operations are already profitable, while Nigeria and Cameroon are expected
to be EBITDA positive during the next financial year.
DIVIDEND
The company's current dividend policy allows the businesses to retain and
reinvest the bulk of the cash they generate to fund future growth. In the
past, a conservative target dividend cover ratio between five to six times
dividend was followed.
As a result of the increased funding requirement for the company's expansion
into Africa, the directors believe that it is in the best interest of
shareholders to utilise retained earnings to reduce current borrowings. As a
result, the board of directors has decided to suspend payment of interim and
final dividends for the time being, which will be reviewed on an ongoing
basis to optimise shareholders' value in the most effective manner.
SHAREHOLDER MATTERS
Shareholders are reminded that the JSE Securities Exchange South Africa
("JSE") has introduced an electronic settlement and custody platform for
share transactions, known as Share Transactions Totally Electronic
("STRATE"), for all listed companies. The first day for electronic
settlement of M-Cell share trades will be Monday, 26 November 2001. As of
that date, there will be a legal requirement for M-Cell shareholders to
deposit their shares with a Central Securities Depositary Participant or a
qualifying broker prior to selling them in order for trades to settle in
STRATE. Thus, any trades that take place on or after 26 November 2001 will
undergo simultaneous, final, irrevocable settlement in an electronic
environment.
Paper share certificates will retain their value after the move to STRATE,
but they will no longer be acceptable for the purpose of settlement on the
JSE.
For and on behalf of the Board
Phuthuma Nhleko
(Non-executive Chairman)
Paul Edwards Rob Nisbet
(Chief Executive Officer) (Financial Director)
21 November 2001
Consolidated income statement
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 Mar
2001 2000 2001
Reviewed Reviewed % Audited
Rm Rm change Rm
Revenue 5 170,2 3 844,6 34,5 8 337,3
Cost of sales (2 066,3) (1 582,2) (3 352,6)
Gross profit 3 103,9 2 262,4 37,2 4 984,7
Operating expenses (1 498,8) (1 039,9) (2 193,2)
Earnings before
interest, taxation,
depreciation and
amortisation
("EBITDA") 1 605,1 1 222,5 31,3 2 791,5
Depreciation (455,3) (319,2) (688,5)
Amortisation (133,2) (78,6) (148,3)
Profit from operations
before goodwill
amortisation 1 016,6 824,7 23,3 1 954,7
Goodwill amortisation (291,8) (120,0) (411,2)
Profit from
operations 724,8 704,7 2,9 1 543,5
Finance costs (222,0) (130,7) (264,6)
Finance income 65,1 50,0 81,6
Share of losses from
associates (2,1) (2,1) (0,6)
Profit before
taxation 565,8 621,9 (9,0) 1 359,9
Taxation (334,1) (248,0) (585,3)
Profit after
taxation 231,7 373,9 (38,0) 774,6
Minority interests 6,0 (61,4) (61,1)
Attributable
earnings 237,7 312,5 (23,9) 713,5
Contribution to
attributable earnings
before goodwill
amortisation:
South Africa 684,3 477,0 43,5 1 199,2
MTN 682,0 473,9 43,9 1 194,3
Orbicom 2,3 3,1 4,9
Rest of Africa (148,5) (43,2) (74,7)
MTN (145,6) (36,0) (68,8)
Orbicom (2,9) (7,2) (5,9)
Corporate head
office and interest (6,3) (1,3) 0,2
Basic headline
earnings 529,5 432,5 22,4 1 124,7
Goodwill amortisation (291,8) (120,0) (411,2)
Attributable earnings 237,7 312,5 (23,9) 713,5
Basic earnings per
ordinary share (cents)
Headline 32,6 30,9 5,5 74,5
- South Africa 41,7 34,0 22,6 79,5
- Rest of Africa (9,1) (3,1) (5,0)
Attributable 14,6 22,3 (34,5) 47,3
Dividend per
ordinary share
(cents)
- Interim - 3,0 3,0
- Final n/a n/a 7,0
- 3,0 10,0
Dividend cover on
basic headline
earnings (times) n/a 8,9 6,9
Number of ordinary
shares in issue:
- Weighted
average ('000) 1 626 067 1 399 253 1 508 874
- At period
end ('000) 1 638 007 1 617 345 1 620 244
Summarised group statement of changes in equity
30 Sept 30 Sept 31 Mar
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
Balance at 1 April 14 766,9 1 923,4 1 923,4
Net profit attributable to
ordinary shareholders 237,7 312,5 713,5
Dividends (0,5) (48,5) (162,1)
Share capital issued at a
premium less share issue expenses 314,8 12 095,0 12 175,5
Share election reserve (113,5) - 113,5
Variation of interests - - (15,8)
Exchange differences arising
on translation of foreign operations 85,6 (30,4) 18,9
Ordinary shareholders' interest 15 291,0 14 252,0 14 766,9
Summarised consolidated
balance sheet
30 Sept 30 Sept 31 Mar
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 6 296,9 4 197,5 5 491,3
Goodwill 11 061,7 11 404,0 11 198,2
Intangible assets 3 160,6 498,0 2 868,3
Investments and loans 326,6 238,2 247,0
Deferred taxation 49,0 17,7 37,3
20 894,8 16 355,4 19 842,1
Current assets 2 883,1 2 186,5 2 440,8
Bank balances, deposits
and cash 631,8 551,2 804,9
Other current assets 2 251,3 1 635,3 1 635,9
Total assets 23 777,9 18 541,9 22 282,9
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' interest 15 341,0 14 252,0 14 766,9
Minority interest 595,5 - 143,8
Non-current liabilities 4 688,4 2 718,9 4 595,1
Long-term liabilities 3 886,2 1 994,2 3 889,2
Deferred taxation 802,2 724,7 705,9
Current liabilities 3 153,0 1 571,0 2 777,1
Non-interest-bearing liabilities 2 345,1 1 397,0 2 302,0
Interest-bearing liabilities 807,9 174,0 475,1
Total equity and liabilities 23 777,9 18 541,9 22 282,9
Net asset value per
ordinary share
- Book value 9,37 8,81 9,11
Summarised consolidated cash flow statement
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 Mar
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
Cash inflows from
operating activities 631,4 866,4 2 914,8
Cash outflows from
investing activities (1 327,2) (712,0) (4 663,7)
Cash inflows from
financing activities 394,9 73,6 2 187,8
Net (decrease)/increase in
cash and cash equivalents (300,9) 228,0 438,9
Cash and cash equivalents
at beginning of period 803,7 380,4 380,4
Foreign entities translation
adjustment (28,5) (30,6) (15,6)
Cash and cash equivalents
at end of period 474,3 577,8 803,7
Segmental analysis
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 Mar
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
GEOGRAPHIC
Revenue
South Africa 4 721,2 3 695,4 7 960,2
Rest of Africa 449,0 149,2 377,1
5 170,2 3 844,6 8 337,3
EBITDA
South Africa 1 562,0 1 200,9 2 686,6
Rest of Africa 50,0 25,8 107,8
Corporate head office (6,9) (4,2) (2,9)
1 605,1 1 222,5 2 791,5
BUSINESS GROUPING
Revenue
Wireless telecommunications
(MTN) 5 121,3 3 799,1 8 247,1
Satellite telecommunications
(Orbicom) 48,9 45,5 90,2
5 170,2 3 844,6 8 337,3
EBITDA
Wireless telecommunications
(MTN) 1 607,2 1 223,6 2 784,2
Satellite telecommunications
(Orbicom) 4,8 3,1 10,2
Corporate head office (6,9) (4,2) (2,9)
1 605,1 1 222,5 2 791,5
Notes
1. Basis of accounting
These consolidated condensed interim financial statements are prepared
in accordance with South African Statements of Generally Accepted Accounting
Practice ("GAAP") and Schedule 4 of the South African Companies Act. The
accounting policies are consistent with those used in the annual financial
statements for the year ended 31 March 2001, except for the capitalisation
to intangible assets of exchange differences arising on the conversion of
loans denominated in foreign currencies for which there is no practical
means of hedging. This change is consistent with the allowed alternative
treatment in terms of AC112, paragraph 22.
2. Comparatives
Where necessary, comparative figures have been adjusted to conform
with changes in presentation in the current period.
3. Earnings per ordinary share
The calculation of basic headline earnings per ordinary share is based
on attributable earnings before goodwill amortisation of R529,5 million
(2000: R432,5 million) and a weighted average of 1 626 067 069 (2000: 1 399
252 904) ordinary shares in issue.
No fully diluted earnings per ordinary share, in respect of debentures
convertible into ordinary shares, have been disclosed as the potential
dilution is not material.
4. Independent review by the auditors
This interim report has been the subject of a review by our auditors
PricewaterhouseCoopers Inc., who have performed this review in accordance
with the guideline "Guidance for Auditors on Review of Interim Financial
Information" issued by the South African Institute of Chartered Accountants.
The objective of the review was to enable Pricewaterhouse-Coopers Inc.
to report that nothing came to their attention that caused them to believe
that the interim financial information needs modification, so as to fairly
present in accordance with South African Statements of Generally Accepted
Accounting Practice, the financial position of the group at 30 September
2001 and the results of its operations and cash flow information for the
period then ended. It should be recognised that their review did not
constitute an audit where a high level of assurance is expressed on the fair
presentation of the interim financial information. Accordingly,
PricewaterhouseCoopers Inc. expressed only a moderate level of assurance on
the fair presentation of the interim financial information.
A copy of their unqualified review report is available for inspection
at the registered office of the company.
30 Sept 30 Sept 31 Mar
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
5. Interest-bearing
liabilities
Call borrowings 157,5 4,1 5,0
Short-term borrowings 650,4 169,9 470,1
Current liabilities 807,9 174,0 475,1
Long-term liabilities 3 886,2 1 994,2 3 889,2
4 694,1 2 168,2 4 364,3
6. Capital expenditure
incurred 1 239,1 614,0 2 219,0
7. Contingent liabilities
and commitments
Guarantees (ZAR) 61,1 - 98,9
Guarantees (USD) - 108,0 -
Operating leases 1 262,1 884,9 907,1
Commitments for
capital expenditure
- Contracted for 481,6 468,4 259,7
- Approved but not
contracted for 2 263,6 1 034,4 1 941,2
8. Cash and cash
equivalents
Bank balances, deposits
and cash 631,8 551,2 804,9
Loans to affiliated
companies receivable
on demand - 30,7 3,8
Call borrowings (157,5) (4,1) (5,0)
474,3 577,8 803,7
P F Nhleko (Chairman) P Edwards* (CEO) D D B Band I Charnley Z N A
Cindi R S Dabengwa P L Heinamann C R Jardine R D Nisbet M C
Ramaphosa P L Zim L C Webb (alternate) J R D Modise (alternate)
*British Company secretary: M R D Boyns* Transfer secretaries:
Mercantile Registrars Limited 11 Diagonal Street Johannesburg 2001 PO
Box 1053 Johannesburg 2000
Registered office: 28 Harrison Street Johannesburg 2001 PO Box 231
Johannesburg 2000
These results can be viewed on the website at http://www.m-cell.co.za
E-mail: investor_relations@m-cell.co.za
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