| Wed 29 Aug 2007, 8:34 | | MTN - MTN Group - Reviewed Interim Results For The |
|
MTN
MTN
MTN - MTN Group - Reviewed Interim Results For The Six Months Ended 30
June 2007
MTN Group Limited
Registration number: 1994/009584/06
ISIN code: ZAE000042164
Share code: MTN
REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007
- Highlights of results for the six months to 30 June 2007
- Group subscribers up 20% to 48,2 million from December 2006
- Revenue up 69% to R34,2 billion from 30 June 2006
- EBITDA up 75% to R15,2 billion from 30 June 2006
- EBITDA margin up to 44,4%
- Adjusted headline EPS of 324,7 cents
REVIEW OF RESULTS
MTN Group Limited (MTN Group) continued to deliver a solid performance
in the six months to 30 June 2007. The results of the comparative period
to 30 June 2006 do not include the results of the Investcom acquisition,
which was concluded in July 2006.
MTN Group reports operational performance by region, namely South and
East Africa ("SEA"), West and Central Africa ("WECA") and Middle East
and North Africa ("MENA").
The Group recorded revenue growth of 69% to R34,2 billion (30 June 2006:
R20,2 billion). Excluding the positive effect of foreign currencies
strengthening against the Rand, Group revenue growth would have been
60%.
At 30 June 2007, Investcom contributed 21% to Group revenue and
accounted for 35% of the revenue growth. Nigeria and South Africa were
key contributors recording increases of 51% and 15% respectively for the
six-month period to 30 June 2007. Nigeria`s growth in local currency was
33% and the strengthening of the Naira against the Rand contributing
18%. Nigeria reported high revenue growth due to increased subscriber
numbers and newly introduced competitive offers in the last quarter of
2006.
The Group`s earnings before interest, tax, depreciation and amortisation
("EBITDA") increased by 75% to R15,2 billion when compared to the six-
month period ended 30 June 2006. Excluding the positive effect of
foreign currencies strengthening against the Rand, Group EBITDA growth
would have been 64%. The SEA region contributed 34% to Group EBITDA
growth and WECA contributed 54%, with Nigeria contributing 70% of the
WECA region`s EBITDA. The MENA region contributed 8% of total EBITDA, up
3% from 31 December 2006.
Profit after tax ("PAT`) increased 16,8% to R6,3 billion compared to the
R5,4 billion for the six months to 30 June 2006, notwithstanding the
unfavourable impact of the expiry of the pioneer tax status of the
Nigeria operation.
Basic headline earnings per share ("EPS") rose to 304,2 cents for the
period, 5% above the 289,1 cents for the six months ended 30 June 2006.
Adjusted headline earnings per share increased to 324,7 cents for the
period from 278,5 for the six months ended 30 June 2006.
The Group recorded 48,2 million subscribers at the end of June 2007, a
20% increase from 31 December 2006. This reflects the strong growth
opportunity in the expanded footprint. The former Investcom operations
recorded subscriber growth of 28% to 10,8 million from 31 December 2006,
contributing 22% of Group total subscribers at 30 June 2007. Subscribers
in the SEA region increased by 9% to 17 million, the WECA region by 18%
to 23,2 million subscribers and the MENA region recorded a 63% increase
to 8 million subscribers.
Income statement analysis
Group consolidated revenue increased by 69% to R34,2 billion (30 June
2006: R20,2 billion) largely due to strong subscriber growth.
The acquisition of Investcom accounted for 35% of this growth. Other key
contributors were Nigeria which increased by 51% to R9,7 billion and
South Africa, which increased by 15% to R13,1 billion. Ghana and Syria
generated revenue of R2 billion each.
The Investcom operations revenue increased by 98% to R7,5 billion
compared to the six months to 30 June 2006 (unaudited). These operations
contributed R2,8 billion (18,9%) to WECA revenue and R4,7 billion (92%)
to the MENA revenue for the period under review.
Group EBITDA increased by 75% from 30 June 2006 to R15,2 billion
(30 June 2006: R8,7 billion). 20% of this is a result of the Investcom
acquisition, while revenue growth, positive exchange rate movements and
initiatives to improve operational efficiencies were positive
contributors.
The EBITDA contribution by Investcom was R1,4 billion and
R1,3 billion to the WECA and MENA regions respectively. Excluding
results from Investcom, organic EBITDA growth was 40% to R12,1 billion.
Group EBITDA margin improved to 44,4% from 42,9% for the six-month
period ended 30 June 2006. This was underpinned by the inclusion of
Investcom`s high margin operations as well as strong margins in Nigeria
of 59% (30 June 2006: 56%). South Africa, Ghana, Sudan and Syria margins
for the six months ended 30 June 2007 were 34%, 52%, 37% and 32%
respectively.
Group depreciation increased by R1,2 billion to R3,2 billion for the
period ended 30 June 2007. Excluding former Investcom operations and MTN
Irancell, depreciation amounted to R2,5 billion that was driven mainly
by additional capital expenditure for the network capacity expansion in
Nigeria where depreciation increased by 26% to R1,5 billion compared to
the six-month period to 30 June 2006. The depreciation charge has also
been unfavourably impacted by the depreciation of the South African Rand
against foreign currencies. The depreciation relating to Investcom
operations was R611 million with Ghana, Syria and Sudan at R151 million,
R247 million and R83 million respectively.
Group amortisation of intangible assets increased by R867 million when
compared to the six months to 30 June 2006. The amortisation relating to
the acquisition of Investcom was R568 million for the six months to 30
June 2007, while MTN Irancell contributed R67 million to this total.
Net finance costs totalled R1,5 billion, which primarily relates to the
financing of the Investcom acquisition.
The Group taxation charge increased by R1,8 billion compared to the six
months ended 30 June 2006. This is mostly related to the end of the
pioneer status tax holiday in Nigeria (R1 billion). The former Investcom
operations contributed R264 million and the balance of the increase is
due to the increased profitability of the rest of the operations.
MTN Group`s effective tax rate increased from 20% to 33% mainly due to
the end of the tax holiday in Nigeria, non-deductible interest relating
to the acquisition of Investcom and amortisation of intangibles.
The Group Board continues to report adjusted headline EPS in addition to
basic headline EPS. The adjustments are in respect of:
The reversal of the positive impact on earnings due to the Nigerian
deferred tax credit. This decreases the adjusted headline EPS by 12,0
cents.
The reversal of the subsequent utilisation of the deferred tax asset
raised during the period of pioneer status increasing the adjusted
headline EPS by 23,5 cents.
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
shareholding at fair value. The net adjustment is an increase in
adjusted headline EPS of 9,0 cents.
Adjusted headline EPS of 324,7 cents for the period compares favourably
to adjusted headline EPS of 278,5 cents for the six months ended 30 June
2006.
Balance sheet and cash flow
The Group`s total assets increased by 9% to R106 billion compared to R97
billion at 31 December 2006. The Group balance sheet has been positively
impacted by the depreciation of the South African Rand against foreign
currencies of non-South African operations within the Group. The foreign
currency translation reserve increased by R217 million.
Property, plant and equipment increased by R3,3 billion from 31 December
2006. This included acquisitions of R6,1 billion across the Group with
R1,8 billion in Nigeria, R1,3 billion in South Africa and R714 million
in Iran.
Exchange rate differences increased values by R385 million, while
depreciation decreased values by R3,2 billion.
Goodwill and other intangible assets have increased by 1% to R40,5
billion from 31 December 2006. The increase was as a result of
capitalisation of the 3G licence and 7,5 MHz frequency spectrum band
licence awarded to MTN Nigeria from December 2006, offset by
amortisation of R1,1 billion.
Current assets increased by R5,9 billion to R26,6 billion. The increase
was mainly due to the increase in other current assets by R2,7 billion
to R13,2 billion and cash balances by R3,3 billion to R13,4 billion. The
movement in trade and other receivables is driven mainly by Nigeria,
which increased by R209 million to R1 billion (interconnect receivables
and prepayments) and Ghana, which increased by R358 million to R671
million. The increase in the Group`s cash balances was after cash
outflows of R6,1 billion for capital expenditure, R2,7 billion for
dividends and R51,9 million additional equity purchase in Botswana.
Of the total borrowings of R34 billion, approximately R19 billion
remained unproductive. The remaining balance of the US$1,25 billion
revolving credit facility, totalling R300 million, was repaid in full by
February 2007. R2 billion of the unproductive debt was repaid during
July and August 2007. The Group`s target is to reduce total debt to 0,4
times EBITDA by the end of 2008.
Operational Review
South Africa
MTN South Africa delivered a stable performance in a very competitive
market increasing its total subscriber base by 7% from 31 December 2006
to 13,4 million at 30 June 2007. The postpaid subscriber base grew by 3%
to 2,4 million subscribers and the prepaid base increased by a 7% to
11,0 million over the six-month period. Low-denomination vouchers have
been a key driver in stimulating usage.
During the period there was an unwinding of an agreement with a specific
on-biller which resulted in the migration of approximately 46% of the
326 000 postpaid subscribers linked to this on-biller being migrated
back to prepaid. Most of the remaining subscribers will be migrated
before year end.
Average revenue per user ("ARPU") in the postpaid segment decreased to
R435 from R487 in December 2006 and prepaid ARPU decreased to R87 from
R94, both decreases owing to continued penetration into lower-usage
segments. As expected, blended ARPU decreased 9% to R149 from R164 at 31
December 2006 as the operation penetrated deeper into the lower usage
segment.
Network enhancement during the review period included the commissioning
of 134 new 2G base transceiver stations ("BTSs") and 359 3G BTSs. Going
forward there will be increased focus on investing in the 2G, 3G and
transmission network.
The second quarter of 2007 saw the launch of the brand revitalisation
campaign "Go" which has been successful in increasing brand awareness.
The MTN data proposition is gaining momentum with a 58% increase in data
revenue to R1,2 billion. This was due to competitive pricing and an
increased 3G rollout.
Nigeria
MTN Nigeria increased its subscriber base by 14% to 14 million since 31
December 2006. Subscriber growth slowed in the second quarter due to
capacity and quality constraints. The capacity and quality is being
addressed with a ramp-up in infrastructure rollout.
During the period, ARPU declined from US$18 to US$16, which is
consistent with increased penetration into the lower segment of the
market.
The strong EBITDA margin was due to the sustainability of the cost
structure achieved over the last year.
MTN Nigeria maintained its leading market position due to a strong brand
preference and an effective value proposition. During the period, a
number of products and innovations were launched, such as the Blackberry
service for both prepaid and postpaid customers.
By the end of June 2007, 84 BTSs were rolled out. 111 BTSs were
integrated during the month of July. The installation of the Lagos Metro
and Niger-Delta`s fibre optic cabling is nearing completion and will be
commissioned in the second half of the year. The integration and
commissioning of IP/MPLS backbone to service corporate customers has
significantly increased capacity. A select 3G rollout will commence
before year-end.
MTN Nigeria was awarded a 15-year 2 GHz spectrum licence on 1 May 2007
for US$150 million for the delivery of 3G services.
Effective 31 December 2006, the operation acquired a 100% shareholding
in a cabling and radio telephone services provider, VGC
Telecommunications.
Iran
MTN Irancell soft launched commercial operations with postpaid services
on 21 October 2006.Prepaid services were launched in January 2007. The
period under review is the first full six months of operation. During
the period, MTN Irancell recorded net additions of 1,8 million
subscribers with 1,98 million subscribers at 30 June 2007. Growth in
subscriber numbers is stabilising with 3,2 million active subscribers
recorded at 20 August 2007.
ARPU increased from US$9 in December 2006 to US$10 resulting from
improvements in the quality and capacity of the network, thereby
stimulating usage.
During the period, MTN Irancell has increased its brand awareness and
launched a number of new products. These included the prepaid product,
IRR50 000 airtime voucher, GPRS, MMS and customer care over the internet
and via the call centre.
The operation has significantly increased its distribution channels in
all 30 provinces of Iran, with over 3 900 dealers and service centres in
180 cities.
Following a slow network rollout in 2006, the network has been
significantly enhanced and now has sufficient capacity to service 6,5
million subscribers. There were 1 109 live sites at 30 June 2007
compared with 361 sites as at December 2006 and coverage of 191 cities
and 26 of the 30 provincial capitals. The population coverage was at
approximately 40% compared to 16% as at December 2006.
Ghana
MTN Ghana recorded an exceptional increase in subscriber numbers for the
period from 2,6 million in December 2006 to 3,4 million. This was
underpinned by strong operational execution of the network rollout,
distribution, promotional campaigns and new product offerings. This has
resulted in market share increasing from 52% in December 2006 to 54% at
30 June 2007.
ARPU decreased from US$17 for the six months to 31 December 2006 to
US$16 for the six months to 30 June 2007, primarily due to the
acquisition of lower-end customers.
Network enhancement continued during the review period with the
installation of 328 new BTSs, bringing the total to 1 270. At 30 June
2007, geographical coverage was 31% and population coverage was 71%.
MTN Ghana made further progress in expanding its distribution channel.
Three major distributors have been added to the network and the
decentralisation of distribution points from head office is progressing
well. There has also been a significant increase in Electronic Voucher
Distribution ("EVD") vendors to 31 451 vendors from 12 808 in December
2006.
The operation introduced new products and innovations, which included
the launch of Me2U, international call-back and international top-up
services, which increased international call traffic.
Sudan
MTN Sudan increased its subscriber base by 43% from December 2006,
recording 457 000 net connections to 1,5 million subscribers at
30 June 2007. MTN Sudan increased its market share marginally to 27%
from 25% as at 31 December 2006.
Subscriber acquisitions in the first quarter of 2007 were slightly
hindered due to technical challenges experienced during the migration to
the new billing system. In June 2007, the Sudan operation was
successfully rebranded MTN Sudan. A number of products were also
launched in the second quarter of 2007, which included a prepaid per
second billing campaign.
ARPU decreased from US$16 for the six months to 31 December 2006 to
US$15 for the six months to 30 June 2007.
During the period, the operation rolled out 372 additional BTSs.
Population and geographical coverage increased from 36% to 42% and 2% to
3% respectively when compared to December 2006.
Syria
MTN Syria delivered a stable performance, recording a 16% increase in
subscriber numbers to 2,6 million from 2,2 million in December 2006.
ARPU declined from US$22 for the six months to December 2006 to US$20 in
the period under review. This was due to an increase in mobile
penetration from 26% at 31 December 2006 to 30% at 30 June 2007.
MTN Syria continued to focus on improving the coverage in the major
cities and providing coverage in the rural and coastal areas. 124 BTSs
were rolled out in the six months to 30 June 2007.
PROSPECTS
A consolidation of earnings is still expected in 2007 due to MTN Nigeria
being taxed from 1 April 2007 following the expiration of its pioneer
status and the initial dilutionary impact of the Investcom acquisition.
The Group`s leadership position in mostly high growth emerging markets,
provides a solid platform to grow our subscriber base. The provision of
appropriate products and excellent service to our customers remains a
priority. We remain focused on enhancing the quality of our network and
ensuring that we are well placed to benefit from a rapidly converging
telecommunications market. We will also continue driving operational
synergies, improving the Group`s cost base and pursuing strategic
expansion opportunities.
For and on behalf of the Board
MC Ramaphosa PF Nhleko Fairland
(Chairman) (Group President and CEO) 28 August 2007
Operational data 30 June 2007
Subscribers ARPU
(`000)
Southern and East Africa 16 952
South Africa 13 412 R149
Uganda 1 869 USD11
Botswana 663 USD14
Rwanda 486 USD13
Swaziland 320 USD18
Zambia 202 USD11
Middle East and North Africa 8 025
Syria 2 592 USD20
Iran 1 983 USD10
Sudan 1 523 USD15
Yemen 1 301 USD10
Afghanistan 527 USD11
Cyprus 99 USD39
West and Central Africa 23 180
Nigeria 14 036 USD16
Ghana 3 392 USD16
Ivory Coast 2 161 USD14
Cameroon 1 954 USD14
Benin 569 USD15
Guinea Republic 393 USD15
Congo Brazzaville 281 USD18
Liberia 253 USD19
Guinea Bissau 141 USD18
Total MTN Group 48 157
Condensed consolidated income statements
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed % Audited
Rm Rm change Rm
Revenue 34 206 20 209 69 51 595
Direct network (3 620) (1 563) 132 (4 628)
operating costs
Cost of handsets and (2 425) (1 595) 52 (4 135)
other accessories
Interconnect and (4 747) (2 814) 69 (7 178)
roaming
Employee benefits and (1 560) (935) 67 (2 453)
consulting expenses
Selling, distribution (4 535) (3 442) 32 (7 949)
and marketing expenses
Other expenses (2 119) (1 199) 77 (2 839)
Depreciation (3 210) (2 009) 60 (5 030)
Amortisation of (1 099) (232) 374 (1 289)
intangible assets
Net finance (1 490) 338 (541) (1 427)
(costs)/income
Share of results of 5 21 (76) 23
associates
Profit before tax 9 406 6 779 39 14 690
Income tax expense (3 101) (1 383) 124 (2 591)
Profit for the period 6 305 5 396 17 12 099
Attributable to:
Equity holders of the 5 555 4 804 16 10 610
company
Minority interests 750 592 27 1 489
6 305 5 396 17 12 099
Earnings per share 298,6 288,3 4 605,4
(cents)
Diluted earnings per 286,2 286,0 - 589,1
share (cents)
Dividend per share 90,0 65,0 65,0
(cents)
Condensed consolidated balance sheets
At At At
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed % Audited
Rm Rm change Rm
ASSETS
Non-current assets 79 330 36 338 118 76 282
Property, plant and 33 954 23 897 42 30 647
equipment
Goodwill 27 082 3 131 765 27 017
Other intangible 13 442 4 256 216 13 088
assets
Investments in 78 77 1 73
associates
Financial assets - 351 (100) -
held at fair value
through profit and
loss
Loan and other non- 2 439 2 792 (13) 2 852
current assets
Deferred income tax 2 335 1 834 27 2 605
assets
Current assets 26 574 19 413 37 20 635
Cash and cash 12 744 9 666 32 9 961
equivalents
Restricted cash** 622 290 114 130
Financial market - 2 611 -
instrument
Other current 13 208 6 846 93 10 544
assets
Total assets 105 904 55 751 90 96 917
EQUITY AND
LIABILITIES
Shareholders`
equity
Share capital and 43 207 27 754 56 38 696
reserves
Minority interests 3 826 3 819 - 4 033
47 033 31 573 49 42 729
Non-current 28 661 11 418 151 34 203
liabilities
Borrowings 24 531 7 991 207 28 587
Deferred income tax 2 753 1 733 59 2 778
liabilities
Other non-current 1 377 1 694 (19) 2 838
liability
Current liabilities 30 210 12 760 137 19 985
Non-interest- 20 287 11 507 76 15 593
bearing liabilities
Interest-bearing 9 923 1 253 692 4 392
liabilities
Total equity and 105 904 55 751 90 96 917
liabilities
**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 12 months
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed Audited
Rm Rm Rm
Opening balance 42 729 23 096 23 096
Net profit 5 555 4 804 10 610
Dividends paid (2 702) (1 083) (2 500)
Issue of share capital 14 18 9 532
Transaction with minorities 200 - (1)
Purchase of non-controlling - (290) (1 686)
interests
Minorities` share of 750 439 1 489
profits and reserves
Shareholders` revaluation 259 296 86
reserve
Share-based payments 11 9 36
reserve
Cash flow hedging reserve - 1 900 (54)
Currency translation 217 2 384 2 121
differences
47 033 31 573 42 729
Condensed consolidated cash flow statements
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed Audited
Rm Rm Rm
Cash inflows from operating 9 408 5 430 17 622
activities
Cash outflows from investing (7 170) (3 812) (38 606)
activities
Cash in /(out) flows from 41 (146) 18 993
financing activities
Net movement in cash and 2 279 1 472 (1 991)
cash equivalents
Cash and cash equivalents at 9 008 7 164 7 164
beginning of period
Cash acquired through - - 2 895
acquisitions
Foreign entities translation 9 913 940
adjustment
Cash and cash equivalents at 11 296 9 549 9 008
end of period
Segmental analysis
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed Audited
Rm Rm Rm
REVENUE
South and East Africa 14 556 12 036 26 586
West and Central Africa 15 053 8 169 21 208
Middle East and North Africa 4 575 - 3 756
Head office companies 22 4 45
34 206 20 209 51 595
EBITDA
South and East Africa 5 163 4 142 9 346
West and Central Africa 8 162 4 352 11 355
Middle East and North Africa 1 163 (27) 1 117
Head office companies 713 194 595
15 201 8 661 22 413
PAT
South and East Africa 2 638 2 224 5 119
West and Central Africa 4 633 2 857 7 489
Middle East and North Africa 389 (76) 182
Head office companies (1 355) 391 (691)
6 305 5 396 12 099
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 Listing Requirements of
the JSE Limited and the South African Companies Act (1973), on a
consistent basis with that of the prior period.
2. Headline earnings per ordinary share
The calculations of basic and adjusted headline earnings per ordinary
share are based on basic headline earnings of R5 660 million (June 2006:
R4 816 million) and adjusted headline earnings of R6 040 million (June
2006: R4 640 million) respectively, and a weighted average of 1 860 430
(June 2006: 1 666 091) ordinary shares in issue.
Reconciliation between net profit attributable to the equity holders of
the company and headline earnings
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed Audited
Rm Rm Rm
Net profit attributable to 5 555 4 804 10 610
company`s equity holders
Adjusted for:
Loss on disposal of 32 6 40
property, plant and
equipment
Impairment (reversal) of 73 6 (22)
property, plant and
equipment
Basic headline earnings 5 660 4 816 10 628
Adjusted for:
Reversal of deferred tax (223) (283) (650)
asset
Reversal of the subsequent 436 - -
utilisation of deferred tax
asset
Reversal of put option in
respect of subsidiary
- Fair value adjustment 132 (8) 120
- Finance costs 111 177 301
- Minority share of profits (76) (62) (153)
Adjusted headline earnings 6 040 4 640 10 246
Reconciliation of headline
earnings per ordinary share
(cents)
Attributable earnings per 298,6 288,3 605,4
share (cents)
Adjusted for:
Loss on disposal of 1,7 0,4 2,3
property, plant and
equipment
Impairment (reversal) of 3,9 0,4 (1,2)
property, plant and
equipment
Basic headline earnings per 304,2 289,1 606,5
share (cents)
Reversal of deferred tax (12,0) (17,0) (37,1)
asset
Reversal of the subsequent 23,5 - -
utilisation of deferred tax
asset
Reversal of put option in 9,0 6,4 15,3
respect of subsidiary
Adjusted headline earnings 324,7 278,5 584,7
per share (cents)
Contribution to adjusted
headline earnings per
ordinary share (cents)
South and East Africa 141,6 224,8 289,5
West and Central Africa 237,2 124,3 325,8
Middle East and North 12,4 (4,6) 2,7
Africa
Head office companies (66,5) (66,0) (33,3)
324,7 278,5 584,7
Number of ordinary shares
in issue:
- Weighted average (000) 1 860 430 1 666 091 1 752 305
- At period-end (000) 1 861 208 1 666 948 1 860 268
Adjusted headline earnings adjustments
Deferred tax asset
The Group`s subsidiary in Nigeria had been granted a five-year tax
holiday under "pioneer status" legislation. On 31 March 2007, MTN
Nigeria exited "pioner status", and from 1 April 2007 became subject to
income tax in Nigeria. A deferred tax asset of R2,7 billion was created
during "pioneer status" in respect of capital allowances on capital
assets that are only claimable after the company comes out of "pioneer
status". The above has resulted in the commencement of the reversal of
the deferred tax asset. Shown as an adjustment of R436 million to the
adjusted headline earnings figure.
A deferred tax credit of R223 million (June 2006: R283 million),
excluding minority interests relating to deductible temporary
differences, has been recognised for the period ended 30 June 2007 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 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
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 accrued 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; and
(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; and
(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 2410. A copy of their unqualified review report is
available for inspection at the registered office of the Company.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Reviewed Reviewed Audited
Rm Rm Rm
4. Capital expenditure 6 256 3 290 9 778
incurred
5. Contingent liabilities
and commitments
Contingent liabilities 610 1 030 911
Operating leases 1 490 777 837
Finance leases 608 625 592
6. Commitments for property,
plant and equipment and
intangible assets
- Contracted for 7 022 4 913 3 268
- Authorised but not 8 446 6 140 13 163
contracted for
7. Cash and cash equivalents
Bank balances, deposits 12 744 9 666 9 961
and cash
Call borrowings (1 448) (117) (953)
11 296 9 549 9 008
8. Interest-bearing
liabilities
Call borrowings 1 448 117 953
Short-term borrowings 8 475 1 136 3 439
Current liabilities 9 923 1 253 4 392
Long-term liabilities 24 531 7 991 28 587
34 454 9 244 32 979
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 right 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. Financial market instrument
The financial market instrument relates to fair value movement on the
foreign exchange contracts and currency options in respect of the
Investcom transaction. This has been treated as a cash flow hedge.
11. Post-balance sheet events
On 12 July 2007, the government of Benin suspended the current licence
of MTN Benin and another mobile operator. The government has proposed
amendments to the licence conditions including a significant increase in
licence fees.
MTN management has been in ongoing discussions with the authorities in
Benin to obtain clarity on the status of the current licence. MTN
management has obtained positive legal confirmation on the validity of
its existing licence.
The value of the net assets of this operation at 30 June 2007 was R1,6
billion, which is inclusive of goodwill of R845 million and intangibles
of R260 million. MTN holds 75% equity in the Benin operation.
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.
These results can be viewed on www.mtn.com
Registration number: 1994/009584/06
ISIN code: ZAE 0000 42164
Share code: MTN
Directorate: MC Ramaphosa (Chairman),
PF Nhleko* (Group President and 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, 20 Morris
Street, Woodmead East, 2146
PO Box 2939, Saxonwold, 2132
E-mail: investor_relations@mtn.com
Date: 29/08/2007 08:34:50 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
