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MTN - Reviewed interim results for the six months ended 30 June 2006
MTN GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1994/009584/06
ISIN code: ZAE000042164
Share code: MTN
Reviewed interim results for the six months ended 30 June 2006
- Group subscribers up 9,4% in six months to 25,4 million
- Revenue 17,6% higher to R20,2 billion against six months to 30
September 2005
- EBITDA up 20,9% to R8,7 billion against six months to 30 September
2005
- EBITDA margin of 42,9%
- Adjusted headline EPS increased by 27,5% to 278,5 cents against six
months to 30 September 2005
- Acquisition of Investcom LLC concluded, effective July 2006
OPERATIONAL DATA
30 June 2006 31 December 2005
South Africa
Subscribers 10 437 000 10 235 000
ARPU (Rand) 159 169
Nigeria
Subscribers 9 636 000 8 370 000
ARPU (USD) 18 22
Cameroon
Subscribers 1 528 000 1 248 000
ARPU (USD) 15 16
Uganda
Subscribers 1 236 000 982 000
ARPU (USD) 12 15
Cote d"Ivoire
Subscribers 1 108 000 1 080 000
ARPU (USD) 19 20
Mascom Botswana
Subscribers 531 000 479 000
ARPU (USD) 16 21
Rwanda
Subscribers 311 000 275 000
ARPU (USD) 16 17
Swaziland
Subscribers 236 000 213 000
ARPU (Rand) 141 149
Congo Brazzaville
Subscribers 229 000 210 000
ARPU (USD) 20 21
Zambia
Subscribers 119 000 97 000
ARPU (USD) 20 20
Total subscribers* 25 371 000 23 189 000
CONDENSED CONSOLIDATED INCOME STATEMENTS
6 months 6 months 9 months
ended ended ended
30 June 30 Sept 31 Dec
2006 2005 2005
Reviewed Reviewed Audited
Restated %
Rm Rm change Rm
Revenue 20 209 17 180 18 27 212
Direct network
operating costs (1 563) (1 301) 20 (1 992)
Cost of handsets and
other accessories (1 595) (1 775) (10) (2 717)
Interconnect and
roaming (2 814) (2 357) 19 (3 736)
Employee benefits (935) (840) 11 (1 310)
Selling, distribution
and marketing expenses (3 442) (2 803) 23 (4 736)
Other expenses (1 199) (942) 27 (1 490)
Depreciation (2 009) (1 569) 28 (2 497)
Amortisation of
intangible assets (232) (137) 69 (256)
Net finance
income/(costs) 338 (92) (373)
Share of results of
associates 21 6 10
Profit before tax 6 779 5 370 26 8 115
Income tax expense (1 383) (977) 42 (1 411)
Profit for the period 5 396 4 393 23 6 704
Attributable to:
Equity holders of the
company 4 804 3 776 27 5 866
Minority interests 592 617 (4) 838
5 396 4 393 23 6 704
Earnings per share
(cents) 288,3 227,1 27 352,7
Diluted earnings per
share (cents) 286,0 225,9 27 349,7
Dividend per share
(cents) 65,0 65,0 65,0
CONDENSED CONSOLIDATED BALANCE SHEETS
At
At At 30 Sept
30 June 31 Dec 2005
2006 2005 Reviewed
Reviewed Audited % Restated
Rm Rm change Rm
ASSETS
Non-current assets 36 338 31 136 17 26 256
Property, plant and
equipment 23 897 20 676 16 19 143
Goodwill 4 333 2 650 18 1 554
Other intangible assets 3 054 4 057 5 2 097
Investments in
associates 77 54 43 53
Financial assets held
at fair value through
profit or loss 351 312 13 308
Loan and other
non-current assets 2 792 2 001 40 1 939
Deferred income tax
assets 1 834 1 386 32 1 162
Current assets 19 413 13 676 42 10 358
Cash and cash
equivalents 9 666 7 222 34 4 825
Restricted cash** 290 338 (14) 350
Financial market
Instrument (note 10) 2 611 - -
Other current assets 6 846 6 116 12 5 183
Total assets 55 751 44 812 24 36 614
EQUITY AND LIABILITIES
Shareholders" equity
Share capital and
reserves 27 754 19 716 41 18 565
Minority interests 3 819 3 380 13 3 169
31 573 23 096 37 21 734
Non-current liabilities 11 418 9 765 17 4 800
Borrowings 7 991 7 505 6 3 664
Deferred income tax
liabilities 1 733 853 103 721
Other non-current
Liability (note 11) 1 694 1 407 20 415
Current liabilities 12 760 11 951 7 10 080
Non-interest-bearing
liabilities 11 507 10 851 6 9 108
Interest-bearing
liabilities 1 253 1 100 14 972
Total equity and
liabilities 55 751 44 812 24 36 614
**These monies consist primarily of amounts placed on deposit with banks in
Nigeria to secure letters of credit.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
6 months 6 months 9 months
ended ended ended
30 June 30 Sept 31 Dec
2006 2005 2005
Reviewed Reviewed Audited
Restated
Rm Rm Rm
Restated opening balance 23 096 18 416 18 416
Net profit 4 804 3 776 5 866
Dividends paid (1 083) (1 080) (1 081)
Issue of share capital 18 15 33
Effect of put option - (415) (1 284)
Transaction with minorities - - 124
Minorities" share of profits
and reserves 439 836 838
Minority interest on acquisition (290) - -
Revaluation of shareholders" loans 296 69 79
Share-based payments reserve 9 12 17
Transfer to cash flow hedging
reserve 1 900 - -
Currency translation differences 2 384 105 88
1 573 21 734 23 096
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
6 months 6 months 9 months
30 June 30 Sept 31 Dec
2006 2005 2005
Reviewed Reviewed Audited
Rm Rm Rm
Cash inflows from operating
activities 5 430 4 514 9 161
Cash outflows from investing
activities (3 812) (6 763) (12 922)
Cash (out)/inflows from financing
activities (146) 647 5 357
Net movement in cash and cash
equivalents 1 472 (1 602) 1 596
Cash and cash equivalents at
beginning of period 7 164 5 772 5 772
Cash acquired through acquisitions - - (152)
Foreign entities translation
adjustment 913 144 (52)
Cash and cash equivalents at end
of period 9 549 4 314 7 164
SEGMENT ANALYSIS
6 months 6 months 9 months
ended ended ended
30 June 30 Sept 31 Dec
2006 2005 2005
Reviewed Reviewed Audited
Restated
Rm Rm Rm
REVENUE
Southern Africa 11 643 9 918 15 793
West and Central Africa 8 169 6 905 10 868
Middle East, North and East Africa 397 357 551
20 209 17 180 27 212
EBITDA
Southern Africa 4 118 3 427 5 360
West and Central Africa 4 352 3 554 5 597
Middle East, North and East Africa 191 181 274
8 661 7 162 11 231
PAT
Southern Africa 2 517 1 854 2 836
West and Central Africa 2 857 2 460 3 763
Middle East, North and East Africa 22 79 105
5 396 4 393 6 704
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed consolidated interim financial information ("interim
financial information") announcement was prepared in accordance with
International Financial Reporting Standards ("IFRS") IAS 34 - Interim
Financial Reporting and in compliance with the Listings Requirements of the
JSE Limited and the South African Companies Act, 1973 (Act 61 of 1973), on
a consistent basis with that of the prior period.
The financial year-end for MTN Group and its subsidiaries has changed from
31 March to 31 December. The interim financial statements are therefore for
the six-month period ended 30 June 2006, with the comparative results for
the 6 months ended 30 September 2005.
The Group elected to early adopt IAS 21 (The effects of changes in foreign
exchange rates) revised December 2005 (effective from 1 January 2006),
from 1 April 2004 onwards. The financial impact of early adopting has been
included in the September 2005 comparative results.
2. HEADLINE EARNINGS PER ORDINARY SHARE
The calculations of basic and adjusted headline earnings per ordinary share
are based on basic headline earnings of R4816 million (December 2005:
R5984 million) and adjusted headline earnings of R4640 million (December
2005: R5626 million) respectively, and a weighted average of 1 666 091 087
(December 2005: 1 663 208 548) ordinary shares in issue.
Reconciliation between net profit attributable to the equity holders of the
company and headline earnings
6 month- 6 month- 9 month-
period period period
ended ended ended
30 June 30 Sept 31 Dec
2006 2005 2005
Reviewed Reviewed Audited
Restated
Rm Rm Rm
Net profit attributable to
company"s equity holders 4 804 3 776 5 866
Adjusted for:
Loss on disposal of
property, plant and equipment 6 6 27
Profit on sale of associate - - (23)
Impairment on PPE 6 41 114
Basic headline earnings 4 816 3 823 5 984
Adjusted for:
Reversal of deferred tax asset (283) (192) (332)
Reversal of put option in respect
of subsidiary
- Fair value adjustment (8) - (19)
- Finance costs 177 - 97
- Minority share of profits (62) - (104)
Adjusted headline earnings 4 640 3 631 5 626
Reconciliation of headline
earnings per ordinary
share (cents)
Attributable earnings per
share (cents) 288,3 227,1 352,7
Adjusted for:
Loss on disposal of property,
plant and equipment 0,4 0,4 1,6
Profit on sale of a subsidiary - - (1,4)
Impairment of property, plant and
equipment 0,4 2,4 6,9
Basic headline earnings per
share (cents) 289,1 229,9 359,8
Effect of reversal of deferred
tax asset (17,0) (11,5) (20,0)
Effect of reversal of put option
entries 6,4 - (1,6)
Adjusted headline earnings per
share (cents) 278,5 218,4 338,2
Contribution to adjusted headline
earnings per ordinary share (cents)
South Africa 125,4 109,7 171,2
Rest of Africa 153,1 108,7 167,0
Adjusted headline earnings per
share (cents) 278,5 218,4 338,2
Number of ordinary shares in issue:
- Weighted average (000) 1 666 091 1 662 605 1 663 209
- At period end (000) 1 666 948 1 664 082 1 665 317
ADJUSTED HEADLINE EARNINGS ADJUSTMENTS
DEFERRED TAX ASSET
The Group"s subsidiary in Nigeria has been granted a five-year tax holiday
under "Pioneer Status" legislation. Furthermore, capital allowances arising
on capital expenditure incurred during this five-year period may be carried
forward and claimed as deductions against taxable income from the sixth
year of operations onwards. A deferred tax credit of R283 million (December
2005: R332 million), excluding minority interests, relating to these
deductible temporary differences, has been recognised for the period ended
30 June 2006 in terms of IAS 12 - Income Taxes.
As previously disclosed, although the Group has complied with the
requirements of IAS 12 in this regard, the Board of Directors has
reservations about the appropriateness of this treatment in view of the
fact that no cognisance may be taken in determining the value of such
deferred tax assets for uncertainties arising out of the effects of the
time value of money or future foreign exchange movements. The Board
therefore resolved to report adjusted headline earnings (negating the
effect of the deferred tax asset) in addition to basic headline earnings,
to more appropriately reflect the Group"s results for the period.
PUT OPTION IN RESPECT OF SUBSIDIARY
The implementation of IFRS requires the Group to account for a written put
option held by a minority shareholder of one of the Group"s subsidiaries,
which provides them with the right to require the subsidiary to acquire
their shareholding at fair value. Prior to the implementation of IFRS the
shareholding was treated as a minority shareholder in the subsidiary, as
all risks and rewards associated with these shares, including dividends,
currently accrue to the minority shareholder.
IAS 32 requires that in the circumstances described in the previous
paragraph:
(a) the present value of the future redemption amount be reclassified
from equity to financial liabilities and that financial liability so
reclassified subsequently be measured in accordance with IAS 39;
(b) in accordance with IAS 39, all subsequent changes in the fair value
of the liability together with the related interest charges arising
from present valuing the future liability, be recognised in the income
statement;
(c) the minority shareholder holding the put option no longer be regarded
as a minority shareholder, but rather as a creditor from the date of
receiving the put option.
Although the Group has complied with the requirements of IAS 32 and IAS 39
as outlined above, the Board of Directors has reservations about the
appropriateness of this treatment in view of the fact that:
(a) the recording of a liability for the present value of the future
strike price of the written put option results in the recording of a
liability that is inconsistent with the framework, as there is no
present obligation for the future strike price;
(b) the shares considered to be subject to the contracts are issued and
fully paid up, have the same rights as any other issued and fully paid
up shares and should be treated as such;
(c) the written put option meets the definition of a derivative and should
therefore be accounted for as a derivative in which case the
liability and the related fair value adjustments recorded through the
income statement would not be required.
3. INDEPENDENT REVIEW BY THE AUDITORS
These condensed consolidated results have been reviewed by our joint
auditors PricewaterhouseCoopers Inc. and SizweNtsaluba VSP, who have
performed their review in accordance with the International Statement on
Review Engagements 2400. A copy of their unqualified review report is
available for inspection at the registered office of the company.
6 months 9 months 6 months
30 June 31 Dec 30 Sept
2006 2005 2005
Reviewed Audited Reviewed
Rm Rm Rm
4. Capital expenditure incurred 3 290 6 732 4 125
5. Contingent liabilities and
commitments
Contingent liabilities 1 030 781 3 749
Operating leases 777 331 453
Finance leases 625 638 467
6. Commitments for property,
plant and equipment and
intangible assets
- Contracted for 4 913 2 902 1 855
- Authorised but not contracted
for 6 322 10 039 1 538
7. Cash and cash equivalents
Bank balances, deposits and cash 9 666 7 222 4 825
Call borrowings (117) (58) (511)
9 549 7 164 4 314
8. Interest-bearing liabilities
Call borrowings 117 58 511
Short-term borrowings 1 136 1 042 461
Current liabilities 1 253 1 100 972
Long-term liabilities 7 991 7 505 3 664
9 244 8 605 4 636
9. Other non-current liability
The put options in respect of subsidiaries arise from arrangements whereby
minority shareholders of two of the Group"s subsidiaries have the rights to
put their remaining shareholdings in the subsidiaries to Group companies.
On initial recognition, these put options were fair valued using effective
interest rates as deemed appropriate by management to the extent that these
put options are not exercisable at a fixed strike price the fair value will
be determined on an annual base with movements in fair value being recorded
in the income statement.
10. Financial market instrument
The financial market instrument relates to the fair value movement on the
foreign exchange contracts and currency options in respect of the Investcom
transaction as detailed in note 11. This has been treated as a cash flow
hedge.
11. Post-balance sheet events
On 4 July 2006 the Group acquired 99,5% of the issued share capital of
Investcom Plc for a consideration of US$5,5 billion settled in cash and
shares. The cost of acquisition was settled through an issue of corporate
paper in the South African bond market, a US$ and ZAR- denominated bank
facility, 183 210 084 MTN Group shares issued and $3,7 billion cash settled
out of the new facilities raised above.
The purchase price allocation for the acquisition of Investcom has not yet
been finalised. This is as a result of significant time limitations between
acquisition date and issue of these interim financial statements. It is
therefore impractical to disclose net assets acquired and goodwill
allocation at this stage. This will be disclosed in the annual financial
statements for the year ended 31 December 2006.
The shareholding in MTN Uganda was increased in two tranches in July 2006
from 52,01% to 97,34% for a total consideration of approximately US$220
million, converting the joint venture operation into a fully consolidated
subsidiary of the Group.
12. Net asset value per ordinary share and net (debt)/cash equity ratios
At At At
30 June 31 Dec 30 Sept
2006 2005 2005
Reviewed Audited Reviewed
Rm Rm Rm
Net asset value 16,65 11,84 11,2
Net (debt)/cash equity 2% (4,5%) 2%
REVIEW OF RESULTS
MTN Group Limited (MTN Group) achieved a strong increase of 27,5% in
adjusted headline earnings per share (adjusted headline EPS) to 278,5 cents
(30 September 2005: 218,4 cents restated). The Group changed its financial
year-end to 31 December at the end of the previous financial year in line
with its operational cycle and international peer group, and is reporting
interim results at 30 June for the first time. The last reviewed six-month
period was 30 September 2005, which has been used for income statement
comparatives. Results to 30 September 2005 have been restated due to the
early adoption of IAS 21 (Revised) at 31 December 2005. The last reported
results at 31 December 2005 have been used for balance sheet comparatives.
Revenue increased by 17,6% to R20,2 billion (30 September 2005: R17,2
billion). Earnings before interest, tax, depreciation and amortisation
(EBITDA) increased to R8,7 billion (30 September 2005: R7,2 billion) and
adjusted profit after tax (PAT) to R5,0 billion (30 September 2005: R4,1
billion) and reflected increases of 20,9% and 21,3% in EBITDA and adjusted
PAT, respectively, compared to the six months ended 30 September 2005. The
reported adjusted headline EPS and adjusted PAT exclude the beneficial
financial impact of the recognition of the deferred tax asset accounted for
in MTN Nigeria Communication Limited (MTN Nigeria), as well as the negative
effect of an obligation whereby MTN Nigeria might have to purchase a
certain portion of its own equity from a minority shareholder ("put
option"). Basic headline earnings per share rose to 289,1 cents for the
period, 25,8% above the restated 229,9 cents for the six months to 30
September 2005.
MTN Group recorded 25,4 million subscribers at the end of June 2006, a 9,4%
increase from December 2005.
Operations acquired during 2005 accounted for 1 986 000 subscribers,
comprising 8% of the Group"s subscriber base as at 30 June 2006. These
operations contributed 5,8% of revenue and 4,5% of EBITDA for the review
period.
The Group has changed its segmental reporting to reflect three major
operating regions: Southern Africa; West and Central Africa; and Middle
East, North and East Africa. Southern Africa contributed 58% of revenue and
48% of EBITDA (September 2005: 58% and 48% respectively). The West and
Central Africa region contributed 40% and 50% of revenue and EBITDA
respectively, unchanged from September 2005. The Middle East, North and
East African region has not contributed significantly as Iran, which is
expected to be the major contributing operation in this region, has not yet
launched commercial services.
Reported Rand values of assets and liabilities of non-South African
operations increased between 10% and 20% owing to the depreciation of the
Rand towards the end of the reporting period against the functional
currencies of the operating companies. Most significantly, the Nigerian
Naira strengthened by 12% to 17,9 versus the Rand since 31 December 2005,
increasing the value of Nigerian assets by R2,1 billion.
Results for the review period do not include results of the Investcom
transaction which was concluded during July 2006. The only material impact
that this transaction has had on the first half of the year was the
recognition of the hedging instruments taken out prior to period-end, to
limit the exchange risk between the offer and effective dates of the
transaction.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The early adoption of IAS 21 (Revised) at the end of December 2005 has
resulted in exchange differences arising from the translation of US$-
denominated shareholders" loans granted to operating companies, which are
deemed part of the Group"s net investment in a foreign operation, being
recorded on consolidation as a separate component of equity as opposed to
being accounted for through profit or loss. This treatment has resulted in
a restatement of finance costs previously disclosed in the September 2005
of R69 million and has negatively impacted the previous adjusted headline
EPS of September 2005 by 4,2 cents per share.
Income statement analysis
Group consolidated revenue increased by 17,6% to R20,2 billion (30
September 2005: R17,2 billion). This was mainly due to the strong
performance of MTN South Africa with revenue of the Southern African region
at R11,6 billion (30 September 2005: R9,9 billion) and Nigeria contributing
R6,4 billion in revenue, a 9% increase from September 2005. Operations
acquired during 2005 contributed R1,2 billion (30 September 2005: R395
million).
EBITDA increased by 20,9% to R8,7 billion as a result of revenue growth,
positive exchange rate impacts and cost-control initiatives, while the
EBITDA margin increased from 41,7% to 42,9%. MTN South Africa achieved an
EBITDA margin of 33,3%.
MTN Nigeria delivered a strong EBITDA margin of 56,1%, 3,9 percentage
points better than in the six-month period ended 30 September 2005. The
remaining international operations recorded EBITDA margins of between 33%
and 59% excluding Zambia, which is virtually a start-up operation. The
EBITDA margins of MTN Cote d"Ivoire, MTN Congo Brazzaville and MTN Zambia
are currently lower than those of established MTN operations.
Depreciation and amortisation charges increased by 31,4% to R2,2 billion
for the period (30 September 2005: R1,7 billion). This was mainly due to
additional capital expenditure for the network rollout in Nigeria, where
depreciation increased by R318 million to R1,2 billion, an increase of 36%
relative to the six-month period ended 30 September 2005. Subscriber bases
that were acquired in 2005 were capitalised on initial recognition in terms
of IFRS 3. These bases were amortised during the period resulting in an
increase in the amortisation charge of R78 million (30 September 2005: R27
million). Net finance income of R338 million was reported for the period in
comparison to net finance costs of R92 million for the six-month period
ended 30 September 2005.
The net exchange gain as a result of the translation of assets and
liabilities to Rand in MTN Mauritius has added R537 million to profit
before tax (September 2005: R18 million), while the impact of the put
options in respect of minorities reduced profit before tax by R218 million.
The Group"s taxation charge increased by 41,6% to R1,4 billion (30
September 2005: R977 million). The effective tax rate increased by 2
percentage points from September 2005 owing to deferred tax on functional
currency gain in MTN Mauritius as well as extraordinary tax charges
relating to the prior year in MTN Cameroon. The Group"s effective tax rate
remains low at 20,4%, primarily due to MTN Nigeria still benefiting from
the pioneer-status tax holiday. This results in a deferred tax credit to
the income tax charge because of timing differences on property, plant and
equipment.
The Board continues to report adjusted headline earnings in addition to
basic headline earnings, with earnings adjusted for:
- The positive impact on earnings due to recording the Nigerian deferred
tax credit noted earlier. This decreases earnings per share by 17
cents.
- IFRS requires the Group to account for a written put option held by
minority shareholders of the Group"s subsidiaries, which gives them
the right but not the obligation to require the subsidiary to purchase
their shareholding at fair value. The net impact is an increase in
Group adjusted headline earnings per share of 6,4 cents. Refer to note
2 for more details.
Adjusted headline EPS of 278,5 cents for the period compares favourably to
adjusted headline EPS of 218,4 cents for the six-month period ended 30
September 2005. South African operations contributed 125,4 cents or 45% of
total adjusted headline EPS. The adjusted headline EPS contribution from
international operations increased by 41% to 153,1 cents.
BALANCE SHEET AND CASH FLOW
The Group"s total assets have increased by 24,4% to R55,8 billion compared
to R44,8 billion at 31 December 2005. Borrowings increased to R9,2 billion
(December 2005: R8,6 billion). The weakening of the Rand against the US
Dollar and functional currencies of the Group"s other operations has
significantly increased the consolidated Rand value of the Group"s assets
and liabilities.
The Group"s goodwill and other non-current assets have increased since 31
December 2005 mainly due to the impact of exchange rate movements. The
financial market instrument was acquired by the Group to hedge its exchange
rate exposure on the anticipated acquisition of Investcom. This instrument
has been fair valued.
At 30 June 2006, the Group had cash on hand of R10 billion, which included
restricted cash (securitised cash deposits against letters of credit in
Nigeria totalling R290 million). Group net cash (including restricted cash)
increased from net debt of R1,0 billion at 31 December 2005 to net cash of
R712 million at 30 June 2006.
The Group generated operating cash flow (before dividends) of R6,5 billion
over the period with free cash flow (operating cash inflows less capital
expenditure) of R3,2 billion. MTN South Africa and MTN Nigeria invested
R1,2 billion and R1,5 billion respectively in property, plant and
equipment, representing 82% of the Group"s R3,3 billion capital expenditure
for the first six months.
OPERATIONAL REVIEW
MTN South Africa recorded 10 437 000 subscribers at the end of June 2006, a
2% increase from December 2005, with growth expected to increase in the
second half of the financial year. The postpaid component of the subscriber
base was the main contributor to the increase, recording 216 000 net
additions in the first six months. The prepaid base remained constant
despite declines in the first quarter due to increased churn at the low end
of the customer base. Net additions were positive in the second quarter of
2006 with 238 000 net new customers, with post paid and prepaid
contributing equally to this position.
As expected, blended ARPU for the six-month period declined by 6% to R159,
driven principally by declines in the postpaid segment. Postpaid ARPU
decreased by 8,7% to R494 (December 2005: R541) while prepaid ARPU
decreased marginally to R90 (December 2005: R93). Included in total
postpaid subscribers are 388 000 My Choice Top-up subscribers (December
2005: 281 000) who generate significantly lower ARPU than the average
postpaid subscriber.
During the period, MTN South Africa was the 11th global operator (first in
Africa) to launch a commercial HSDPA service.
3G site build continued with, 304 additional base stations being rolled out
in the first half of the year as part of expanding network coverage and
capacity. This infrastructure enables customers in high-density areas with
high-speed access to MTN South Africa"s data offerings as well as video-
based services. It is encouraging to note that the number of 3G subscribers
has increased by 76 000 to 133 000 subscribers.
Data services contributed 7,8% of total revenue, excluding handset revenue.
Whilst SMS continues to contribute 85% of data revenue, uptake of new data
services is encouraging and continues on a positive upward trend.
MTN Nigeria increased its subscriber base to 9 636 000, a 15% growth since
31 December 2005. Subscriber acquisitions are expected to accelerate in the
second half of the year. Blended ARPU remains strong and declined only
marginally to US$18.
MTN Nigeria continues to hold a strong leadership position in the local
market with an estimated 45% market share, a slight decrease from 47% in
December 2005 owing to increased competition.
MTN Nigeria successfully increased core network capacity to support over 12
million subscribers from the 11 million supported in December 2005. The
network rollout is proceeding as planned with 2 200 km of optic fibre
cabling already completed. Total capital expenditure of R1,5 billion has
been incurred during the period.
As previously reported, identifying the most appropriate mechanism to
broaden the Nigerian shareholder base continues to receive attention and
further announcements will be made at the appropriate time.
OTHER OPERATIONS
MTN Cameroon increased its market share from 54% at the end of December
2005 to 56% at the end of June 2006. Mobile subscribers increased by 22% to
1 528 000 subscribers during the review period. Continued growth in
subscribers and MTN"s leadership of the consumer segment in Cameroon is
largely due to the successful launch of electronic voucher distribution as
well as the successful introduction of the total flexibility product. This
product allows prepaid subscribers to select any one of three tariff
options for every call they make. ARPU declined to US$15 for the period,
driven by increased penetration and consequent connections of lower-use
subscribers.
MTN Uganda captured an estimated 80% of net connections during the period,
increasing its mobile market share to 64,5%. Marketing initiatives such as
aggressive retail and direct marketing promotions, a 30% reduction of SIM
pack prices as well as the introduction of the low-denomination airtime
card, have contributed to the 26% increase in its mobile subscriber base
from 982 000 in December 2005 to 1 236 000 at the end of June 2006.
Increased market penetration resulted in ARPU declining to US$12.
MTN Cote d"Ivoire recorded 1 108 000 subscribers at 30 June 2006, a 3%
increase from December 2005. Market share is currently estimated at 44% and
ARPU for the six months ended 30 June 2006 was a strong US$19. MTN Cote
d"Ivoire has experienced some transition challenges that are being
addressed to increase market share and deliver the expected subscriber
growth.
In May 2006, the Group increased its shareholding in MTN Cote d"Ivoire from
51,0% to 68,34% through the purchase of a 17,34% stake from Atlantique
Telecom for 342,75 million.
Mascom Wireless Botswana recorded 531 000 subscribers at 30 June 2006 with
an estimated market share of 62% and ARPU of US$16.
MTN Rwanda still enjoys 100% mobile market share with 311 000 subscribers
and recorded ARPU of US$16. MTN Rwanda successfully launched the Village
phone company to provide telecommunications services to under-serviced
areas. A second operator has been licensed but has not yet commenced
operation.
MTN Swaziland increased its subscriber base to 236 000, an 11% increase
from 31 December 2005. ARPU has decreased to R141, 5% lower than the R149
at the end of December 2005. MTN Swaziland is the only mobile operator in
the country.
MTN Congo Brazzaville recorded 229 000 subscribers at 30 June 2006, a 9%
increase from December 2005 with ARPU at US$20.
MTN Zambia recorded a 23% increase in subscribers to 119 000 from December
2005 with ARPU remaining stable at US$20. In terms of the licence, 10% of
the equity in this business will be placed with Zambian nationals.
MTN IRANCELL
The operation is ready for network system testing in three cities, Tehran,
Mashaad and Tabriz with 5000 test simcards. The first "on net" call was
connected on 24 August 2006. Commercial launch is expected towards the
latter part of September with the company targeting a minimum of 1 million
subscribers and full coverage in six cities by the end of December 2006.
INVESTCOMTRANSACTION
In line with its vision of consolidating its position as the leading
provider of telecommunications services in emerging markets, MTN Group made
a cash and shares offer on 23 May 2006 to acquire the entire issued share
capital of Investcom LLC, a company whose securities were listed in Dubai
and London, for a total consideration of US$5,5 billion. The formal offer
was based on an implied MTN Group share price of R59,25 (US$9,79). The
purchase offer was to be settled partly in cash and partly by the issue of
MTN Group shares. The cash portion of the offer was hedged resulting in a
foreign exchange gain of R2,6 billion at 30 June 2006, which was treated as
a cash flow hedge in terms of IAS 39 and was therefore recorded in equity.
MTN shareholders approved the transaction on 28 June 2006 and it became
wholly unconditional on 4 July 2006. Investcom will be consolidated from
this date onwards.
MTN Group has separately announced Investcom"s results on SENS for the six
months to 30 June 2006.
POST-BALANCE SHEET EVENTS
The Investcom LLC transaction became unconditional on 4 July and in
accordance with DFIX rules settlement of cash and shares took place on 17
and 24 July 2006. In terms of the offer made US$3,7 billion was settled in
cash and 183000000 MTN Group Limited shares were issued to the previous
Investcom LLC shareholders.
Investcom LLC was delisted on 15 August 2006.
Bridging finance obtained at the time of the Investcom LLC offer was
refinanced in early July through an issue of corporate paper in the South
African bond market and a US$ and ZAR-denominated bank facility
underwritten by Calyon, Citibank, Commerz, Deutsche, Sumitomo and Standard
Chartered banks. A total of R6,3 billion was raised in the bond market - R5
billion with a four-year term and R1,3 billion with an eight-year term.
Approximately US$2,6 billion of the underwritten banking facility has been
utilised; US$1 billion is repayable over five years, the Rand equivalent of
US$1 billion is repayable over five years and US$0,6 billion is a revolving
facility.
The shareholding in MTN Uganda was increased during July 2006 from 52,01%
to 97,34% for approximately US$220 million, converting the joint venture
operation into a fully consolidated subsidiary of the Group.
PROSPECTS
MTN Group"s vision is to be the leader in telecommunications in emerging
markets. On the assumption that current market conditions endure, the Board
expects the Group to continue to show good subscriber growth and maintain a
strong market position in existing operations. Capital expansion programmes
in Nigeria, South Africa and Iran, as well as the operations in Investcom,
are expected to provide further impetus to subscriber and revenue growth.
Following the conclusion of the transaction with Investcom LLC in July
2006, the Group has increased its footprint substantially and further
diversified its revenue and earnings streams. Financing the transaction has
resulted in the Group raising additional debt and issuing shares. The
related financing costs and dilution effect will inhibit the rate of growth
in the Group"s earnings per share in the short-term.
The key priorities for the MTN Group in the short term are the integration
of Investcom and realisation of synergies as a result of the transaction.
In the medium term, priorities are the realisation of longer- term
synergies as well as the repayment of debt used to fund the acquisition.
For and on behalf of the Board
MC Ramaphosa PF Nhleko
(Chairman) (Group President and CEO)
Fairland
30 August 2006
Certain statements in this announcement that are neither reported financial
results nor other historical information are forward-looking statements,
relating to matters such as future earnings, savings, synergies, events,
trends, plans or objectives.
Undue reliance should not be placed on such statements because they are
inherently subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results and company plans
and objectives to differ materially from those expressed or implied in the
forward-looking statements (or from past results).
Unfortunately the company cannot undertake to publicly update or revise any
of these forward-looking statements, whether to reflect new information of
future events or circumstances or otherwise.
Directorate: MC Ramaphosa (Chairman), PF Nhleko* (Group President & CEO),
DDB Band, RS Dabengwa*, KP Kalyan, AT Mikati, RD Nisbet*, MJN Njeke, MA
Ramphele, ARH Sharbatly, JHN Strydom, AF van Biljon, J van Rooyen, P Woicke
*Executive
Company Secretary: SB Mtshali, 216 - 14th Avenue, Fairland, 2195. Private
Bag 9955, Cresta, 2118
Registered office: 216 - 14th Avenue, Fairland, 2195
American Depository Receipt (ADR) programme: Cusip No. 62474M108 ADR to
ordinary share 1:1 Depository: The Bank of New York, 101 Barclay Street,
New York NY 10286, USA
Office of the South African registrars: Computershare Investor Services
2004 (Proprietary) Limited (Registration number: 2004/003647/07)
70 Marshall Street, Johannesburg, 2001. PO Box 61051, Marshalltown, 2107
Joint auditors: PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill,
2157 Private Bag X36, Sunninghill, 2157 and SizweNtsaluba VSP Inc., 1
Woodmead Drive, Woodmead Estate, PO Box 2939, Saxonwold, 2132
E-mail: investor_relations@mtn.co.za
Date: 30/08/2006 07:32:45 AM Supplied by www.sharenet.co.za
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