MTN cements emerging markets leadership with 40 million subscribers

By Ben Nakomo

The MTN Group has announced that its annual results for the financial year ended 31 December 2006 have continued to show strong growth in Group revenue and subscriber base. MTN recorded a 73% increase in subscribers, world wide, to 40 million, firmly establishing the Group as the emerging markets leader. The MTN Group has also declared a dividend of 90 cents per share in light of a strong free cash flow generation coupled with its strong financial position. This is the highest dividend ever declared by MTN. MTN was founded in 1994, and as at March 2006, MTN Group had over 24 million subscribers. In Cameroon, MTN faces stiff competition from Orange SA and CAMTEL SA.

MTN uses segmental reporting to reflect the performance of the Group within 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 the company’s footprint across Africa and the Middle East 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 LLC and increased subscriber numbers. Excluding the R6 billion revenue impact from Investcom, the year-on-year growth in Group revenue would have been 32%. The Southern region was the largest contributor at 49% followed by WECA and MENA at 41% and 10% respectively.

The Group's earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 53% to R22 billion when compared to the prior comparable 12-month period ending 2005. Excluding the R2,4 billion impact of Investcom, the year-on-year growth in Group EBITDA would have been 36%. The SEA region contributed 39%, which is lower than its higher revenue contribution given its lower EBITDA margins. WECA contributed 52% 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.

Subscribers in the SEA region increased by 27% to 16 million, the WECA region by 80% to 20 million and MENA recorded five million subscribers. 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 grew 38% in the six-month period from July 2006, reflecting the lower base and greater growth opportunities in these relatively under-penetrated markets. The first quarter of 2007 has shown faster subscriber growth for MTN Irancell as it improves on coverage, distribution and brand awareness. By 25 March 2007, MTN Irancell had recorded more than one million subscribers, commissioned 588 BTS stations and covered 49 cities.

The MTN Group’s balance sheet transformed substantially following the acquisition of 100% of Investcom LLC as well as additional shares in MTN Uganda and MTN Nigeria as well as other acquisitions during the year. These acquisitions had a material impact on the balance sheet of the Group, resulting in a cash outflow of R28.7 billion, as well as the issue of more than 189 million new shares with corresponding increases in intangible assets and long-term borrowings.

Says MTN Group President and CEO, Mr Phuthuma Nhleko: “I am pleased with our performance in 2006. Our subscriber growth is strong and reflects well on our expansion efforts, especially the acquisition of Investcom LLC. The continued increase in EBIDTA margin is a positive outcome of the operational efficiency initiatives we have undertaken in the last two years. The solid growth of the Investcom operations in the last six months is consistent with our strategy of applying operational efficiencies in low penetration, high growth markets.

“Our focus for 2007 includes, among others, driving regional synergies, taking advantage of opportunities within the value chain and improving operational efficiency through our least-cost operator strategy. Bedding down the Iran operation remains material to the Group’s performance.”

At the end of December 2005, MTN Group recorded revenue of R27,2 billion, and as at December 2005, MTN Group had 11 operations. On conclusion of the Investcom LLC acquisition, MTN Group will have operations in 21 countries in Africa and the Middle East. By end of 2005, MTN Group had invested in excess of R32.1 billion in communications infrastructure and employed 8.360 staff members