SENS Note - 15 July 2010
MTN - business update and future prospects
 
At the annual general meeting to be held, Chief executive and president, Phuthuma Nhleko will make the following comments regarding the group's performance for the first five months of 2010 in comparison with the similar period for 2009: *The majority of the markets in which MTN operates have continued to show strong subscriber growth to the end of May 2010 despite increasing competition. Group subscribers increased nearly 10% for the 5 months to the end of May 2010. This positive subscriber growth translated to sound revenue growth and profitability in the various local currencies. As the group's non-SA operations contribute in excess of 70% of MTN`s revenue, the continuing strength of the South African currency has again had a negative impact on the translation of these earnings resulting in a marginal reduction in rand reported revenue and EBITDA relative to the same period last year. Had rates been the same as the prior year, revenue and EBITDA would have been meaningfully higher.
  • Group EBITDA margins improved marginally as a result of an increase in margin in its three larger operations, although margin declines were experienced in some of the medium and smaller operations. Margins for the first five months of 2010 have as a result strengthened in comparison with the margins experienced in the second half of 2009.
  • MTN's spend on capital expenditure was lower, partially due to the stronger rand and partially due to slower deliveries. The current capital expenditure levels are anticipated to pick up during the rest of the year to levels closer to those guided in March of this year excluding the impact of the stronger rand.
  • MTN's Nigerian operation recorded sound organic revenue growth albeit at a lower rate than last year falling to the mid to low teens. Future competition is anticipated to increase pressure on revenue growth and EBITDA margin in the medium term although short term profitability remains robust.
  • MTN's operations in Iran have continued to exceed expectations with margin improvement together with a solid growth in market share. There is still limited clarity on the launch of the third operator. South African margins improved in the first half of the year, mainly due to better distribution cost management and lower handset costs. There was also an improvement in MTN's market share although future competition and regulatory impacts remain uncertain. Diversification of revenue from voice to data has continued with strong volume growth.
  • In line with an increased focus on procurement and products, a dedicated function, VP Commercial, has been created at the group level. Examples of products being leveraged across the group include Mobile money which shows strong potential and is now launched in 5 countries with over 2.1 million customers across the footprint. Cost efficiencies will also be driven more effectively from the core.

The activities of MTN have for many years been guided by its vision to be a leader in telecommunications in emerging markets supported by the following key strategic pillars:
  • Participating in the consolidation of the emerging markets telecoms sector and reducing the concentration of MTN's earnings.
  • Leveraging MTN's existing footprint and intellectual capacity.
  • Pursuing convergence and operational evolution.

MTN has delivered on this strategy through the numerous organic and acquisitive opportunities it has invested in to date. However, the board of MTN ("the board") recognises that as the sector continues to mature there are a limited number of value accretive consolidation opportunities left within emerging market telecoms. The group has also invested heavily in infrastructure across all its operations over the past few years. Therefore, the level of capital expenditure investments in infrastructure is anticipated to be lower as emerging markets enter a phase of higher penetration. As a consequence of the sector evolution and MTN's anticipated future cash generation, going forward, the board is able to more easily balance its growth aspirations with that of ensuring improved short term returns to shareholders.

Accordingly, while MTN will continue to evaluate and consider value accretive opportunities, the Group will increase its focus on the following issues:
  • Optimising efficiencies including infrastructure sharing, standardisation of systems and processes, rationalisation of suppliers, cost management and cash optimisation.
  • Monitoring infrastructure investments to ensure appropriate levels of capacity and quality of service, incorporating continued investment in fibre and cable requirements to service evolving voice and data requirements.
  • Continued engagement with regulatory authorities in the development and refinement of the telecommunications sector in its markets.
  • Investigating options to meaningfully improve cash returns to shareholders.
  • Conclusion of the MTN BEE transaction announced earlier.

MTN is well positioned in its markets to compete within a changing competitive and regulatory landscape with a strong focus on cost management as pressure on the revenue line increases. Given the above, the board is investigating options to meaningfully improve cash returns to MTN shareholders and envisage the declaration of a top up dividend at the interim stage as part of a sustainable strategy towards improving the annual dividend payout ratio to MTN shareholders. The information in this business update has not been reviewed or reported on by the group's external auditors. MTN is currently in a closed period and will be announcing its interim results on the 19 August 2010.
 
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