By Prince Osuagwu

MTN Group at the weekend released the results for its year ended 31 December 2012 business activities, saying that Nigeria operations will account for more than forty per cent of group capital expenditure (CAPEX) in 2013. The company however said that notwithstanding significant challenges, the result reflected solid progress in growing subscribers, revenue and EBITDA.  It noted that the year was characterised by the continued global economic slowdown, increasingly competitive mobile markets as well as regulatory and political challenges.

Challenges
Reacting to the negative impact of Nigeria operations, MTN Nigeria’s Corporate Services Executive, Mr Akinwale Goodluck, admitted that the Nigerian operation experienced a challenging first half of 2012 mainly due to aggressive price competition driven by bonuses on recharge, freebies and other promotional activities. He also admitted that following significant capital expenditure, the network quality improved during the second half of 2012, adding that together with new value propositions, this enabled MTN Nigeria to regain some market share.

The total subscriber base increased by 13.9% to 47,4 million even though market share was down 2,5% to 47,5% for the year. The report indicated that total revenue in Naira in 2012 was flat compared to the prior year notwithstanding the increase in subscribers. Reported revenue in rand was positively impacted by the relatively weak rand rate against the naira, with the average naira/rand exchange rate 10.66% stronger over the year. Revenue in rand grew by 10.9% to R38,7 billion compared to R34,8 billion in 2011.

Akinwale Goodluck

The EBITDA margin however dropped by 3,4 percentage points to 58,3%, mainly because of flat revenue and higher operating costs. The operating environment was characterised by the decline in the effective tariff, the increase in promotional free minutes and an increase in interconnect costs, driven by an increase in off-network traffic.
Data revenue (excluding SMS) increased by 111,6% (247,8%) in naira supported by the availability of affordable data-enabled devices (both GPRS and 3G). During the year a total of 3,8 million smartphones and 201k dongles were active on the network.

This was achieved through partnerships with independent device resellers, free SIM cards, and data bundle offers, as well as the refitting of service centres to make them device oriented.  MTN Nigeria also saw strong growth in Blackberry subscriber revenues. During 2012, capital expenditure of R13 733 million was capitalised. MTN Nigeria rolled out 1 414 2G sites and 1 175 3G co-located sites and successfully implemented a large network swap and modernisation programme.

It could be recalled that the regulator imposed fines during the year on the four GSM operators for poor quality of service. These fines were subsequently paid and more realistic key performance indicators were negotiated with the regulator. But Goodluck noted that the fine paid by MTN Nigeria was not part of the reason the operation’s earnings dropped.

Prospects
In outlining its prospects, the Group said that after a challenging 2012, it was well positioned for 2013. “We expect to deliver continued organic growth in both revenue and EBITDA and anticipate reaching the milestone of 200 million subscribers by mid-year. The recovery in the performance of our key Nigerian operation is expected to continue throughout 2013. This together with a lower tax rate and the benefits of the substantial network investment made in 2012 across all operations, which is to be continued in 2013, is likely to support growth in reported earnings in 2013. We continue to explore value accretive M&A activities.

Voice
Over the past year, billed traffic volumes increased 24,6% while voice revenue grew 4,0% on a constant currency basis as tariffs continued to decline. Voice revenues now account for 63,0% of total revenue, down from 65,2% in the prior year due to the relative growth of other revenue streams. With Group weighted mobile penetration just over 70%, and people penetration below 60%, we still expect to see continued growth in voice revenue over the medium term.

Data and related services
Growth in our data and related service revenue remains a key focus for the Group, with this expected to be an important revenue driver as the rate of increase in voice penetration slows and competition intensifies.

In 2012, data was a strong performer, with data revenues *58,5% (80,0%) higher and data traffic on MTN’s network 65,9% higher at 30 521 TB. While South Africa remains the main driver of data revenue, contributing 43,9% of the total, the *111,6% (247,8%) local currency (“LC”) growth in Nigeria highlights the growing contribution from data across operations. MTN Mobile Money has also started to gain traction and we expect to see a much improved contribution in 2013.

ICT evolution
Towards the end of 2012, we concluded the integration of the South African MTN Business function into MTN South Africa. This will allow for a more holistic solution offering to our clients, designed to improve efficiencies and deliver consistent quality. We continue to focus on integrating our broader ICT business across all markets and our ongoing infrastructure investment will allow us to leverage our key products and services across the MTN footprint.

Revenue
Groupnoted that revenues increased 10,9% to R135 112 million, supported by solid organic growth in South Africa (+7,1%) and although Nigeria had a difficult year **(-0,8%) a number of operations continue to outperform with strong** organic revenue growth: Iran (+26,1%), Ghana (+21,3%), Uganda (+16,2%), Sudan (+28,3%) and Ivory Coast (+17,0%). Group data revenue increased *58,5% and was an important driver of total revenue growth.

EBITDA
Group EBITDA increased 7,0% to R58 564 million which includes R586,6 million related to the profit on tower deals. EBITDA excluding the profit on tower sales was R57 978 million, with an EBITDA margin of 42,9%. The growth in EBITDA was supported by solid organic growth in South Africa (+6,5%) and particularly strong results from Iran, Ghana, Uganda, Sudan and Ivory Coast where organic EBITDA growth was 30,8%, 22,6%, 22,4%, 58,5% and 13,2% respectively.

After a challenging year, Nigeria reported a decline in EBITDA of 6,2%. A number of once-off costs resulted in an approximate R1,0 billion reduction in head office EBITDA. The key components of this cost relate to the Turkcell lawsuit and the Hoffmann Commission; Iran tax-related charges and forex costs; and costs related to the new shared services initiative. The combined impact of these on the EBITDA margin was approximately 0,7%.

Depreciation and Amortisation
Group depreciation increased by 11,8% to R14 860 million and amortisation increased by 10,3% to R2 386 million, mainly due to the increased investment in property, plant and equipment in South Africa and Nigeria.

Net finance costs
Net finance costs were R4 157 million, an increase of R2 575 million on the previous year, due to the effects of net forex and functional currency losses. The weakness in the Syrian pound, which declined 60% over the year, resulted in a loss of R1 507 million related to the dividend payable, while the dividend due from Iran resulted in a loss of R1 191 million with a further R243 million related to the revaluation of Iran tax balances following the decline in the Iranian rial in the last quarter. Iran incurred additional forex losses of R567 million, while vendor financing and current accounts in Sudan resulted in a forex loss of R373 million.

Taxation
The Group’s taxation charge decreased by 6,8% to R12 913 million and the effective tax rate decreased 1,9 percentage points to 34,9%. The lower tax charge and effective tax rate was mainly due to a deferred tax credit movement and the discontinuance of STC in South Africa during the year.

Earning
Attributable earnings per share (EPS) increased 0,6% to 1 126,4 cents. Headline earnings per share (HEPS) increased 1,9% to 1 089,1 cents from 1 068,6 cents. The depreciation of the Syrian pound, Iranian rial and Sudanese pound impacted reported HEPS by 82,0 cents, 79,3 cents and 17,2 cents respectively.

Cash Flow
Cash inflows from operating activities remained flat principally due to the 27,3% increase in dividends paid to equity holders and 51,9% increase in taxation paid offsetting the 15% increase in cash generated by operations. Expenditure on property, plant and equipment (excluding software) of approximately R22 billion was 52,9% higher, which contributed significantly to the cash outflow in investing activities. Cash outflows  on financing activities were mainly attributable to MTN Holdings purchasing 16 million shares in the MTN Group on the open market for R2,1 billion.

Capital expenditure
Capex increased by 69,9% to R30 101 million as we focused on capital investment across the Group. The pre-ordering of capex equipment for the 2013 rollout resulted in a R2,0 billion year-on-year increase in inventory and ‘work in progress’. The weakening in the rand increased capex by R1 379 million. If there had been no change in currency rates during the year, capex would have been R28 722 million.

Assets and Liabilities
Assets and liabilities were negatively impacted by the depreciation in the Iranian rial, Syrian pound and Sudanese pound. Property, plant and equipment increased 8,2% due to the higher capital expenditure in the second half of 2012. Current assets decreased 8,3% mainly because of decreases in cash balances. Interest-bearing liabilities have remained substantially in line with the previous year.

Cash balance
Net cash decreased by 53,0% to R5 519 million from R11 817 million, largely a result of increased dividend payments, capital expenditure and share buy-backs. At year end, the MTN Group reported net cash of approximately R7 034 million in Iran and Syria.