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MTN- MTN Group Limited - Final audited results: year ended 31 December 2006
MTN Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1994/009584/06)
Share code: MTN
ISIN: ZAE000042164
("MTN")
Final audited results for the year ended 31 December 2006
HIGHLIGHTS
* Subscribers up 73% to 40 million
* Revenue up 49% to R52 billion*
* EBITDA up 53% to R22 billion*
* EBITDA margin of 43,4% up from 42,4%* driven by operational efficiency
improvements
* PAT of R12 billion up from R7 billion for
previous 9-month period
* Adjusted headline EPS of 584,7 cents from 338,2 cents for previous 9-month
period
* Acquisition of Investcom LLC concluded, effective July 2006
* Dividend per share of 90 cents
*Compared to previous unaudited 12-month period
OPERATIONAL DATA
31 December
2006
Subscribers ARPU (USD)
(`000)
South and East Africa 15 517
South Africa 12 483 23
Swaziland 268 20
Botswana 600 19
Zambia 187 19
Uganda 1 595 12
Rwanda 384 17
West and Central Africa 19 622
Nigeria 12 281 18
Ghana 2 585 17
Cameroon 1 783 15
Cote d`Ivoire 1 625 18
Congo Brazzaville 280 20
Liberia 218 18
Benin 476 21
Guinea Conakry 276 17
Guinea Bissau 98 12
Middle East and North 4 912
Africa
Sudan 1 066 16
Iran 154 9
Afghanistan 218 14
Syria 2 237 17
Yemen 1 161 10
Cyprus 76 35
Total MTN 40 051
REVIEW OF RESULTS
MTN Group achieved solid performance in the 12-month period ending 31 December
2006. Although the Group`s profile changed significantly through acquisitions
concluded during the year, strong organic growth in the traditional markets
underpinned the Group`s performance. South Africa and Nigeria had revenue growth
of 22% and 31% respectively in highly competitive markets compared to the prior
12 months*. MTN Nigeria launched an ultra-modern fibre-optic transmission
network that will cover over 3 500 km when completed and span the length and
breadth of the country. USD 99 million has been invested in this project to
date.
Acquisitions had a significant impact on the Group`s results during the current
year, notably through the Investcom transaction.
The Group changed its financial year-end to 31 December, in line with its
operational cycle and international peer group. Consequently, the Group`s prior
year`s audited results ended December 2005 cover a 9-month period. In certain
instances, in order to provide meaningful comparatives, the unaudited 12-month
period ended 31 December 2005 has been used.
In line with MTN`s vision of being the leading provider of telecommunications
services in emerging markets, the Group made a cash and share offer of USD5,526
billion on 23 May 2006 to acquire the entire issued share capital of Investcom
LLC ("Investcom"), a company listed on the Dubai and London bourses. Investcom
contributed meaningfully to growth over the period since the acquisition and has
been successfully integrated into the Group. In addition, existing operations
continued to perform well.
The Investcom transaction became unconditional on 12 July 2006 and settlement
took place during July 2006. In terms of the offer, USD3,7 billion was settled
in cash and 183 million MTN Group Limited shares were issued to previous
Investcom shareholders in exchange for all of Investcom`s issued share capital.
Investcom was subsequently delisted in both Dubai and London. We have
consolidated the results of Investcom for the six months ended 31 December 2006
in compliance with IFRS reporting requirements.
MTN uses segmental reporting to reflect the performance of the Group within
operationally defined operating regions, viz: South and East Africa ("SEA"),
West and Central Africa ("WECA") and Middle East and North Africa ("MENA").
Investcom operations have expanded our footprint from 11 to 21 countries and
contributed to earnings of the WECA and MENA regions.
The Group`s revenue increased by 49% to R52 billion when compared to the prior
12-month period to 31 December 2005*. The revenue increase was driven mainly by
the acquisition of Investcom and increased subscriber numbers. Excluding the R6
billion revenue impact from Investcom, the year-on-year growth in revenue would
have been 32%*. The SEA region is the largest contributor at 52% followed by
WECA and MENA at 41% and 7% respectively.
The Group`s earnings before interest, tax, depreciation and amortisation
("EBITDA") increased 53% to R22 billion when compared to the prior 12-month
period*. Excluding the R2,4 billion impact of Investcom, the year-on-year growth
in EBITDA would have been 36%*. The SEA region contributed 42%, which is lower
than its higher revenue contribution given its lower EBITDA margins. WECA
contributed 50% of total EBITDA. The start-up nature of many of the MENA
operations has resulted in a relatively small contribution of 5% to Group
EBITDA.
Adjusted profit after tax ("PAT") increased to R12 billion compared to R7
billion for the nine months to December 2005.
Basic headline earnings per share ("EPS") rose to 606,5 cents for the period,
69% above the 359,8 cents for the nine months ended 31 December 2005.
MTN Group subscriber numbers increased by a healthy 73% on the back of both
organic and acquisitive growth, bringing the total number of subscribers at 31
December 2006 to 40 million. Subscribers in the SEA region increased by 27% to
16 million, the WECA region by 80% to 20 million and MENA recorded five million.
Excluding the impact of Investcom`s 8,4 million subscribers, the year-on-year
growth was 36% with Nigeria and South Africa accounting for 17% and 10%
respectively. Investcom subscribers have grown 38% in the six months since July
2006 reflecting the lower base and greater growth opportunities in these
relatively underpenetrated markets.
Impact of Investcom
Since acquisition, Investcom operations have generated R6 billion of revenue
which is included in the consolidated results to 31 December 2006, and R10
billion** for the full year (2005: R5,7 billion**).
Investcom generated R2,4 billion in EBITDA in the second half of the year and R4
billion** for the full year (2005: R2,5 billion**).
A preliminary allocation of goodwill of R23 billion, representing the difference
between the purchase price and the fair value of net assets of Investcom has
been recognised in the current reporting period.
Total debt of approximately R25 billion was raised to finance part of the
acquisition of Investcom.
This included R5 billion four-year and R1,3 billion eight-year bonds as well as
syndicated facilities consisting of two five-year term loans of USD750 million
and R7 billion each and a three-year revolving credit facility of USD1,25
billion. USD862 million of the revolving credit facility was drawn to settle
Investcom shareholders and repaid in full by February 2007. The Group`s target
is to reduce total net debt to 0,4 times EBITDA by the end of 2008.
Income statement analysis
When compared with the unaudited 12-month period ending 31 December 2005, Group
consolidated revenue increased by 49% (with R6 billion being attributable to the
Investcom acquisition) to R52 billion still driven mainly by South Africa, which
increased by 22% to R25 billion, and Nigeria, which increased by 31% to R15
billion*. Ghana and Sudan revenues for the July to December 2006 period were
R1,7 billion and R570 million respectively.
Group EBITDA increased by 53% to R22 billion when compared with the unaudited
12-month period ending 31 December 2005, as a result of revenue growth, positive
exchange rate movements and initiatives to improve operational efficiency. Group
EBITDA margin improved to 43,4% from 42,4% for the unaudited 12-month period
ended 31 December 2005 on strong margins in the key operations of South Africa
33,9% (2005: 34,3%) and Nigeria 57,2% (2005: 53,2%). For the six months ended 31
December 2006, margins for Ghana and Sudan were 52% and 17% respectively.
Group depreciation increased by R1,8 billion compared to the unaudited 12 months
to December 2005*. Nigeria`s depreciation charge was a major contributor with an
increase of R867 million, with a significant portion attributable to additional
capital expenditure and the strengthening of the Naira against the Rand.
The full-year impact of depreciation related to operations acquired in 2005
(Cote d`Ivoire, Zambia, Botswana, Congo Brazzaville and Iran) was an additional
R165 million compared to the proportional depreciation charge for 2005.
Investcom operations incurred R562 million in depreciation charges for the six
months to December 2006, contributing 31% of the increase in the Group`s
depreciation charge for the year.
Amortisation of intangible assets for the Group increased by R1 billion when
compared to the nine months to 31 December 2005. The amortisation of intangible
assets as a result of the Investcom acquisition totalled R587 million for the 6-
month period.
Net finance costs of the Group increased by R1,1 billion when compared to the
nine months to 31 December 2005, which primarily relates to financing for the
acquisition of Investcom.
The Group incurred total foreign exchange losses of R700 million for the current
year. This included recognition of the fair value and foreign exchange
adjustments related to the Nigeria put option of R270 million, R100 million of
losses on the importation of mobile handsets, R71 million in respect of Guinea
Conakry due to the sharp devaluation of the currency during the six months and
other charges on foreign currency transactions.
Functional currency gains of R452 million were included in finance income for
the year.
The Group`s tax charge has increased by R1,2 billion compared to the nine months
to 31 December 2005 due to the higher profit levels as well as additional tax
charges of R233 million relating to the former Investcom operations.
The Board continues to report adjusted headline EPS in addition to basic
headline EPS. The adjustments are in respect of:
* The positive impact on earnings due to the Nigerian deferred tax credit.
This decreases adjusted headline EPS by 37,1 cents.
* IFRS requires the Group to account for a written put option held by
minority shareholders of certain 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 adjusted headline EPS of 15,3
cents.
Adjusted headline EPS of 584,7 cents for the period compares favourably to
adjusted headline EPS of 338,2 cents for the 9-month period ended 31 December
2005.
Balance sheet and cash flow
MTN`s balance sheet transformed substantially following the acquisition of 100%
of Investcom as well as the acquisition of additional shares in MTN Uganda, MTN
Nigeria and other acquisitions during the year. These acquisitions had a
material impact on the balance sheet of the Group, with a cash outflow of R28,7
billion as well as the issue of more than 189 million new shares, and
corresponding increases in tangible and intangible assets and long-term
borrowings.
The total assets for the Group increased by R52 billion to R97 billion at 31
December 2006 from a balance of R45 billion at 31 December 2005.
The Group`s closing balance sheet has also been impacted by the depreciation of
the South African Rand against foreign currencies. The most significant impact
was the 11% depreciation of the Rand against the Nigerian Naira.
Property, plant and equipment increased by R9,9 billion from the beginning of
the financial year. Acquisitions of property, plant and equipment across the
Group amounted to R9,8 billion and included R3,6 billion for the Nigeria network
rollout and R2,2 billion in South Africa. Of the closing property, plant and
equipment values, R3,8 billion relates to Investcom operations. Exchange rate
differences noted previously increased property, plant and equipment closing
values by R1,7 billion while depreciation decreased property, plant and
equipment by R5 billion.
Goodwill and other intangible assets have increased by R33,3 billion, comprising
goodwill of R24 billion, licences of R5,3 billion and subscriber bases of R3,5
billion primarily as a result of the Investcom acquisition. Goodwill of R24
billion was effectively reduced by a R2,5 billion gain from hedging the cash
settlement of the Investcom transaction.
Current assets increased by R6,9 billion to R20,6 billion at 31 December 2006.
The majority of this increase was attributable to Investcom (R5,6 billion) which
included cash balances of R3,6 billion.
The Group`s cash balances increased by R2,5 billion to R10,1 billion after cash
outflows of R9,8 billion for capital expenditure, R1 billion for dividends and
R4,8 billion for the additional equity purchased in Cote d`Ivoire, Botswana,
Uganda and Nigeria.
* Compared to previous unaudited 12-month period
** Unaudited
OPERATIONAL REVIEW
South Africa MTN South Africa recorded a solid 22% growth in subscribers from
10,2 million to 12,5 million following the introduction of new products and
services and an increased focus on distribution.
Average revenue per user ("ARPU") increased in the prepaid segment to R94, an
increase of 1% from the prior period, due to the launch of attractive packages
and competitive tariffs. Postpaid ARPU continued to trend lower at R487 for the
year due to increased connections of lower-end packages.
Building on the consumer, corporate and reseller business unit structure
established in 2005, a major focus in 2006 was establishing customer-centric
processes and a clear value proposition for each market. Internal campaigns to
improve customer service across all levels of interaction are showing promising
results and reflected in MTN South Africa securing a number of sizeable tenders
in the corporate market.
MTN South Africa maintained its market share for the year at 36%.
Major innovations during the year included the launch of a prepaid value wallet,
MTN@Access, an entertainment portal focused on music, games and World Cup
soccer.
Infrastructural enhancement continued during the year, with 263 new base
transceiver stations ("BTSs"), bringing the total to 4 932, integrated into the
network which is experiencing significantly higher SMS traffic and increasing
GPRS/data volumes. MTN`s banking product made good progress during the year and
recorded 83 000 subscribers.
Nigeria In an exceptional performance, MTN Nigeria increased its subscriber
base by 47% over the prior reported period, recording some 3,9 million net
connections for the year with more than 12,3 million subscribers at year-end. In
addition, MTN Nigeria recorded market share of 46% and reduced churn levels from
35% to 30%. This performance was largely due to the successful introduction of a
segmented value proposition and distributor campaigns.
ARPU declined by 18% from USD22 in the prior year to USD18, consistent with
increased penetration and reflecting the continued acquisition of subscribers at
the lower end of the market.
Product innovation played an important role in keeping the MTN brand at the
forefront of consumer awareness in the highly competitive Nigerian market. Over
the last six months, MTN Nigeria`s brand preference and customer satisfaction
increased from 49% to 54% and 69% to 80% respectively. Among the numerous
product offerings introduced during the review period, MTN Loaded has proved
immensely popular. The MTN Loaded portal service provides customers with easy
and direct access to a virtual island of fun and entertainment ranging from
downloadable ringtones to popular logos. The MTN Xtra Ordinary range of new
prepaid per-second-plans offer unique value to different customer segments,
while MTN Xtra Connect offers cost-effective calls such as discounts on calls to
friends and family members and at low-traffic times. In the first product of its
kind in Nigeria, MTN X-Change introduced a revolutionary electronic wallet
through which subscribers purchase airtime and make payments from ATMs in MTN
service centres, ConnectStores and selected external ATMs. The impact of these
products has been most evident in subscriber retention and increased minutes of
use. For corporate users, MTN Nigeria launched a mail package incorporating
multimedia messaging and GPRS.
Ghana MTN`s Ghana operation was incorporated into the MTN Group as part of the
Investcom acquisition in July 2006. In that time, the company launched several
innovative services into the Ghanaian market, improved service and call quality
and made further progress in expanding the network infrastructure.
Year-on-year subscriber growth was over 42%, from 1,8 million to 2,6 million,
comprising mainly prepaid subscribers. Due to a delayed network rollout and
competitors` offerings, market share dropped to 52%. Levels of churn among
postpaid subscribers have declined following improved credit control measures
and heightened awareness of service.
ARPU decreased from USD18 for the full year to 31 December 2005 to USD17 for the
six months to 31 December 2006, primarily due to lower tariff and
interconnection charges but also due to the addition of lower-end customers.
MTN`s Ghana operation introduced discounted off-peak calls, bulk SMS, GPRS and
EDGE services and a wireless mobile office package that is particularly
effective in rural areas with limited data connectivity. The company also
introduced GPRS roaming with South Africa and Nigeria. These initiatives have
proved successful and will be intensified in the new financial year.
Following a slow rollout in the first half of the year, network quality and
capacity improved significantly in the last four months with 297 BTSs being
completed compared with only 159 in the first eight months. Substantial progress
was also made in completing microwave backbone transmission rings that will
enable the company to reduce transmission costs in future and penetrate new
areas.
Iran The MTN Group holds 49% of MTN Irancell, with the balance held by the
Iran Electronic Development company. The company has a 15 year renewable GSM
license and launched commercial operations on 21 October 2006.
In the two months between launch and year-end, MTN Irancell acquired 154 000
postpaid subscribers at an ARPU of US$9, a weaker start than expected due to a
late launch and uncompetitive national coverage. Network coverage for MTN
Irancell was initially only at 16% of the national population making it
difficult to attract subscribers against a well entrenched competitor. Coverage
and network quality continues to improve and MTN Irancell`s focus for 2007 is to
continue extending coverage as rapidly as possible, supported by attractive
promotional campaigns and continued customer service.
Already 2007 has shown faster subscriber growth as the company improves its
coverage, distribution and brand awareness. By 25 March 2007, MTN Irancell had
recorded more than one million subscribers commissioned 588 BTS`s and covered 49
cities. Bedding down the Iran operation remains material to the Group`s
performance.
The United Nations Security Council passed formal sanctions against Iran on 24
March 2007 in respect of Iran`s uranium enrichment nuclear programme and
military issues. We hope that the current situation will be resolved through
peaceful diplomatic means.
Sudan The Sudan operation recorded an exceptional increase in subscriber
numbers for the period from 269 000 in December 2005 to exceed the million mark
at year-end. This is despite regulatory and logistical challenges with rollout
as well as increased competition in the second half of the year. A range of
initiatives and country-firsts enabled it to lift its market share from the mid-
teens to almost 25%.
Strong growth in subscriber numbers was supported by an equally strong increase
in the staff complement - particularly in senior positions - aggressive
advertising and marketing campaigns, and significant expansions to network
infrastructure and coverage. ARPU was USD16 for the six months to 31 December
2006.
During the period, 480 BTSs were rolled out, one mobile switching centre and 19
base station controllers were added to the network.
Prospects
The ability to execute MTN`s vision to be the leading operator in emerging
markets has been enhanced by the Group`s increased footprint and scale. The
focus for 2007 includes driving regional synergies, taking advantage of
opportunities within the value chain and improving operational efficiency
through our least-cost operator strategy. In addition, we will continue to focus
on rolling out our networks and pursuing strategic expansion opportunities to
diversify earnings. The Group will also focus on implementing mobile
money/payment solutions in our key markets to facilitate the transfer of funds
in underserviced markets.
Assuming the continuation of current market conditions, the Board expects the
Group to continue showing healthy subscriber growth and maintain its strong
market position in key operations.
MTN Nigeria`s pioneer status ends on 1 April 2007 and 2007 will also be the
first year in which profits will be taxed. This and the initial dilution impact
of the Investcom acquisition will result in earnings consolidation in 2007.
DIVIDEND DECLARATION
In light of the Group`s strong free cash flow generation coupled with its strong
financial position, a dividend of 90 cents per share (December 2005: 65 cents
per share) has been declared.
Notice is hereby given that a dividend (number 8) of 90 cents per ordinary share
has been declared and is payable to shareholders recorded in the register of the
MTN Group at the close of business on Friday, 20 April 2007.
In compliance with the requirements of STRATE, the electronic settlement and
custody system used by the JSE, the MTN Group has determined the following
salient dates for the payment of the dividend:
Last day to trade cum dividend Friday, 13 April 2007
Shares commence trading ex dividend Monday, 16 April 2007
Record date Friday, 20 April 2007
Payment date of dividend Monday, 23 April 2007
Share certificates may not be dematerialised/rematerialised between Monday, 16
April 2007 and Friday, 20 April 2007, both days inclusive.
On Monday, 23 April 2007 the dividend will be electronically transferred to the
bank accounts of certificated shareholders who make use of this facility. In
respect of those who do not use this facility, cheques dated
Monday, 23 April 2007 will be posted on or about that date. Shareholders who
have dematerialised their shares will have their accounts held by their Central
Securities Depository Participant or broker credited on Monday, 23 April 2007.
For and on behalf of the Board
M C Ramaphosa P F Nhleko
(Chairman) (Group President and Chief Executive Officer)
Fairland
28 March 2007
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.
Condensed consolidated income statement
12 months 9 months
ended ended
December 2006 31 December
2005
Audited Audited
Rm Rm
Revenue 51 595 27 212
Direct network operating costs (4 628) (1 992)
Cost of handsets and other (4 135) (2 717)
accessories
Interconnect and roaming (7 178) (3 736)
Employee benefits and consulting (2 453) (1 310)
expenses
Selling, distribution and (7 949) (4 736)
marketing expenses
Other expenses (2 839) (1 490)
Depreciation (5 030) (2 497)
Amortisation of intangible assets (1 289) (256)
Net finance costs (1 427) (373)
Share of results of associates 23 10
Profit before tax 14 690 8 115
Income tax expense (2 591) (1 411)
Profit for the period 12 099 6 704
Attributable to:
Equity holders of the company 10 610 5 866
Minority interest 1 489 838
12 099 6 704
Earnings per share 605,4 352,7
Diluted earnings per share 589,1 349,7
Dividend per share (cents) 65,0 65,0
Condensed consolidated balance sheet
31 December 31 December
2006 2005
Audited Audited
Rm Rm
ASSETS
Non-current assets 76 282 31 136
Property, plant and equipment 30 647 20 676
Goodwill 27 017 2 650
Other intangible assets 13 088 4 057
Investments in associates 73 54
Financial assets held at fair value - 312
through profit and loss
Loans and other non-current assets 2 852 2 001
Deferred income tax assets 2 605 1 386
Current assets 20 635 13 676
Cash and cash equivalents 9 961 7 222
Restricted cash** 130 338
Other current assets 10 544 6 116
Total assets 96 917 44 812
EQUITY AND LIABILITIES
Shareholders` equity
Share capital and reserves 38 696 19 716
Minority interests 4 033 3 380
42 729 23 096
Non-current liabilities 34 203 9 765
Borrowings 28 587 7 505
Deferred income tax liabilities 2 778 853
Other non-current liabilities 2 838 1 407
Current liabilities 19 985 11 951
Non-interest bearing liabilities 15 593 10 851
Interest bearing liabilities 4 392 1 100
Total equity and liabilities 96 917 44 812
**These monies consist primarily of amounts placed on deposit with banks in
Nigeria to secure letters of credit.
Condensed consolidated statement of changes in equity
12 months 9 months
ended ended
31 December 31 December
2006 2005
Audited Audited
Rm Rm
Opening balance 23 096 18 416
Net profit 10 610 5 866
Dividends paid (2 500) (1 081)
Issue of share capital 9 532 33
Effect of put option - (1 284)
Purchase of non-controlling interests (1 686) -
Shareholders` revaluation reserve 86 79
Transaction with minorities (1) 124
Minorities` share of profits and 1 489 838
reserves
Share-based payments reserve 36 17
Cash flow hedging reserve (54) -
Currency translation differences 2 121 88
42 729 23 096
Segmental analysis
12 months 9 months
ended ended
31 December 31 December
2006 2005
Audited Audited
Rm Rm
REVENUE
South and East Africa 26 586 16 293
West and Central Africa 21 208 10 868
Middle East and North Africa 3 756 -
Head office companies 45 51
51 595 27 212
EBITDA
South and East Africa 9 346 5 367
West and Central Africa 11 355 5 599
Middle East and North Africa 1 117 (6)
Head office companies 595 271
22 413 11 231
PAT
South and East Africa 5 119 3 021
West and Central Africa 7 489 3 637
Middle East and North Africa 182 (15)
Head office companies (691) 61
12 099 6 704
Condensed consolidated cash flow statement
12 months 9 months
ended ended
31 December 31 December
2006 2005
Audited Audited
Rm Rm
Cash inflows from operating activities 17 622 9 161
Cash outflows from investing (38 606) (12 922)
activities
Cash inflows from financing activities 18 993 5 357
Net movement in cash and cash (1 991) 1 596
equivalents
Cash and cash equivalents at beginning 7 164 5 772
of period
Cash acquired through acquisitions 2 895 (152)
Foreign entities translation 940 (52)
adjustment
Cash and cash equivalents at end of 9 008 7 164
period
Notes to the condensed financial statements
1. Basis of preparation
The condensed consolidated financial information ("financial information")
announcement is based on the audited financial statements of the Group for the
year ended 31 December 2006 which have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and in compliance with the
Listing Requirements of the JSE Limited and the South African Companies Act
(1973), on a consistent basis with that of the prior period.
The financial year-end for MTN Group and its subsidiaries was changed from 31
March to 31 December in the previous period. The financial statements are
therefore for the 12 months ended 31 December 2006, with the comparative results
for the 9 months ended 31 December 2005.
2. Headline earnings per ordinary share
The calculations of basic and adjusted headline earnings per ordinary share are
based on basic headline earnings of R10 628 million (December 2005: R5 984
million) and adjusted headline earnings of R10 246 million (December 2005: R5
626 million) respectively, and a weighted average of shares of 1 752 304 867
(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.
12 months 9 months
ended ended
31 December 31 December
2006 2005
Audited Audited
Rm Rm
Net profit attributable to company`s 10 610 5 866
equity holders
Adjusted for:
Loss on disposal of property, plant 40 27
and equipment
Profit on sale of subsidiary - (23)
Impairment of property, plant and (22) 114
equipment
Basic headline earnings 10 628 5 984
Adjusted for:
Reversal of deferred tax asset (650) (332)
Reversal of put option in respect of
subsidiaries
- Fair value adjustment 120 (19)
- Finance costs 301 97
- Minority share of profits (153) (104)
Adjusted headline earnings 10 246 5 626
Reconciliation of headline earnings
per ordinary share (cents)
Attributable earnings per share 605,4 352,7
(cents)
Adjusted for:
Loss on disposal of property, plant 2,3 1,6
and equipment
Profit on sale of subsidiary - (1,4)
Impairment of property, plant and (1,2) 6,9
equipment
Basic headline earnings per share 606,5 359,8
(cents)
Effect of reversal of deferred tax (37,1) (20,0)
asset
Effect of reversal of put option 15,3 (1,6)
entries
Adjusted headline earnings per share 584,7 338,2
(cents)
Contribution to adjusted headline
earnings per
ordinary share (cents)
South and East Africa 289,5 181,7
West and Central Africa 325,8 155,0
Middle East and North Africa 2,7 (0,9)
Head office companies (33,3) 2,4
Adjusted headline earnings per share 584,7 338,2
(cents)
Number of ordinary shares in issue:
- Weighted average (000) 1 752 305 1 663 209
- At period-end (000) 1 860 268 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. Capital allowances arising on capital expenditure
incurred during this period may be carried forward and claimed as deductions
against taxable income from the sixth year of operations onwards. A deferred tax
credit of R650 million (December 2005: R332 million), excluding minority
interests relating to these deductible temporary differences, has been
recognised for the year ended 31 December 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 fully reflect the Group`s results for the period.
Put option in respect of subsidiaries
The implementation of IFRS requires the Group to account for a written put
option held by a minority shareholder of one of the Group subsidiaries, which
provides them with the right to require the subsidiary to acquire their
shareholdings 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 shareholders.
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 audit by the auditors
These condensed consolidated results have been audited by our joint auditors
PricewaterhouseCoopers Inc. and SizweNtsaluba VSP, who have performed their
audit in accordance with the International Standards of Auditing.
A copy of their unqualified audit report is available for inspection at the
registered office of the company.
31 December 31 December
2006 2005
Audited Audited
Rm Rm
4. Capital expenditure incurred 9 778 6 732
(including software)
5. Contingent liabilities and
commitments
Contingent liabilities 911 781
Operating leases 837 331
Finance leases 592 638
6. Commitments for property, plant and
equipment
and intangible assets
Contracted for 3 268 2 902
Authorised but not contracted for 13 163 10 039
7. Cash and cash equivalents
Bank balances, deposits and cash 9 961 7 222
Call borrowings (953) (58)
9 008 7 164
8. Interest-bearing liabilities
Call borrowings 953 58
Short-term borrowings 3 439 1 042
Current liabilities 4 392 1 100
Long-term liabilities 28 587 7 505
32 979 8 605
9. Other non-current liabilities
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 basis with movements in fair value being recorded in the
income statement.
10. Business combinations
10.1 The acquisition of 100% of Investcom LLC
On 4 July 2006 the Group acquired 100% of the issued share capital of Investcom
LLC for a consideration of US$5,5 billion settled in cash and shares. The cost
of acquisition was settled through an issue of corporate paper in the South
African bond market and a US$ and ZAR-denominated bank facility. 183 210 084 MTN
Group shares were issued and $3,7 billion cash settled out of the new facilities
raised above.
The acquired businesses contributed revenues of R5 987 million and net profit of
R792 million to the Group for the period ended 31 December 2006.
If the acquisitions had occurred on 1 January 2006, the contribution to Group
revenue would have been R10 328 million and the contribution to profit would
have been R1 069 million. These amounts have been calculated using the Group`s
accounting policies and by adjusting the results of the subsidiary to reflect
the additional depreciation and amortisation that would have been charged
assuming the fair value adjustments to property, plant and equipment and
intangible assets had applied from 1 January 2006, together with the
consequential tax effects.
The goodwill is attributable to an expanded footprint and a significantly larger
population under-coverage. Low penetration levels and economies of scale provide
enhanced prospects.
Details of the net assets acquired and On
goodwill acquisition
date
are as follows: Rm
Total purchase consideration 33 339
Fair value of net assets acquired (10 173)
Goodwill 23 166
The assets and liabilities arising the Fair value on Acquiree`s
acquisition are as follows: acquisition carrying
date amount on
acquisition
date
Rm Rm
Cash and cash equivalents 3 175 3 175
Property, plant and equipment 3 600 3 986
Intangibles 8 140 4 156
Inventories and receivables 2 096 2 096
Payables (3 151) (3 151)
Borrowings (1 085) (1 085)
Net deferred tax assets (1 272) (136)
Net assets acquired 11 503 9 041
Minorities (1 330)
Fair value of net assets acquired 10 173
Purchase consideration 23 941
Cash and cash equivalents in (3 175)
businesses acquired
Cash outflow on acquisition 20 766
10.2 The increase of MTN Uganda shareholding to 97,34%
The shareholding in MTN Uganda was increased in two tranches in July 2006 from
52,01% to 97,34% converting the joint venture operation into a fully
consolidated subsidiary of the Group.
The acquired businesses contributed revenues of R1 164 million and net profit of
R223 million to the Group for the period ended
31 December 2006.
If the acquisitions had occurred on 1 January 2006, the contribution to Group
revenue would have been R1 462 million and the contribution to profit would have
been R179 million. These amounts have been calculated using the Group`s
accounting policies and by adjusting the results of the subsidiary to reflect
the additional depreciation and amortisation that would have been charged
assuming the fair value adjustments to property, plant and equipment and
intangible assets had applied from 1 January 2006, together with the
consequential tax effects.
The goodwill is attributable to the profitability of the acquired.
On
acquisition
date
Details of the net assets acquired and Rm
goodwill are as follows:
Total purchase consideration 1 577
Fair value of net assets acquired (947)
Goodwill 630
The assets and liabilities arising Fair value on Acquiree`s
from the acquisition are as follows: acquisition carrying
date amount
Rm Rm
Cash and cash equivalents 35 35
Property, plant and equipment 439 439
Intangibles 974 11
Investment in subsidiary 1 1
Inventories and receivables 71 71
Payables (50) (50)
Borrowings (146) (146)
Net deferred tax assets (352) (72)
Net assets acquired 972 289
Minorities (25)
Fair value of net assets acquired 947
Purchase consideration 1 577
Cash and cash equivalents in (35)
businesses acquired
Cash outflow on acquisition 1 542
11. Post-balance sheet events
Subsequent to year-end the Nigerian Communications Commission confirmed that MTN
Nigeria had been successful in securing a 3G licence. As an auction was not
required, the minimum reserve price of USD150 million was settled.
The 3G spectrum and licence are yet to be issued.
12. Net asset value per ordinary share and net (debt)/cash equity ratios
At At
31 December 31 December
2006 2005
Audited Audited
Net asset value (Rand) 20,80 11,84
Net (debt)/cash equity (53,8%) (4,5%)
Registration number: 1994/009584/06
ISIN code: ZAE0000 42164
Share code: MTN
Directorate: M C Ramaphosa (Chairman), P F Nhleko (Group President and CEO)*, R
S Dabengwa*, R D Nisbet*, D D B Band, K P Kalyan , A T Mikati, M J N Njeke, M
Ramphele, A H Sharbatly, J H N Strydom, A F van Biljon, J van Rooyen, P L Woicke
*Executive
Company Secretary: S B Mtshali, 216 14th Avenue, Fairland, 2195. Private Bag
9955, Cresta, 2118, RSA
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, Marshallton, Johannesburg, 2001. PO Box 61051, Marshalltown,
2107
Joint auditors: PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill, 2157
Private Bag X36, Sunninghill, 2157 and
SizweNtsaluba VSP, 1 Woodmead Drive, Woodmead Estate. PO Box 2939, Saxonwold,
2132
E-mail: investor_relations@mtn.co.za
Our financial results can be viewed on our website at: www.mtn.com
Date: 29/03/2007 08:00:03 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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