| Fri 25 Nov 2005, 16:17 | | MTN Group Limited - Correction of interim results |
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MTN Group Limited - Correction of interim results announcement
MTN Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1994/009584/06)
Share code: MTN
ISIN ZAE000042164
Reviewed interim results for the six months ended
30 September 2005
CORRECTION OF INTERIM RESULTS ANNOUNCEMENT
Shareholders are referred to the reviewed interim results announcement released
on SENS on 23 November 2005. Shareholders are advised that a number of minor
corrections have been made to this announcement. The announcement below
contains the corrections and reflects the announcement made in the press on 24
November 2005 which was correct.
To assist shareholders in identifying the corrections you are directed to the
following lines:
Direct network operating cost and Selling, distribution and other general
adminstration expenses in the Income statement.
Current liabilities and Non-interest bearing liabilities in the Balance sheet.
Effect of inclusion of minorities (now deleted) in the Statement of changes in
equity.
Equity previously reported under SA GAAP in the reconciliation of SA GAAP to
IFRS.
Movement of the paragraph beginning "On the assumption that current market
conditions prevail...." from the commentary under Nigeria to the commentary
under Prospects.
HIGHLIGHTS OF RESULTS
Group subscribers up 32% in six months to 20,6 million
Revenue increased by 25,2% to R17,2 billion
EBITDA increased by 27,6% to R7,2 billion
EBITDA margin increased to 41,7%
PAT increased by 31,2% to R4,5 billion
Adjusted headline EPS increased by 30,8% to 222,5 cents
New investments in Cote d"Ivoire (51%),
Zambia (100%) and Botswana (44%)
Operational data
Subscribers Subscribers ARPU
30 September 31 March % 30 September
2005 2005 change 2005
South Africa 8 961 000 8 001 000 12 R168
Nigeria 7 667 000 5 574 000 38 $23
Cameroon 1 129 000 919 000 23 $17
Cote d"Ivoire 932 000 - - $19
Uganda 895 000 782 000 14 $15
Botswana 445 000 - - $22
Rwanda 256 000 209 000 22 $17
Swaziland 192 000 156 000 23 R149
Zambia 91 000 - - $24
Total 20 568 000 15 641 000 32
Condensed consolidated income statements
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Reviewed Reviewed Audited
(IFRS (IFRS
Restated) % Restated)
Rm Rm change Rm
Revenue 17 180 13 722 25 28 994
Direct network
operating cost (6 043) (5 109) 18 (9 010)
Depreciation (1 569) (1 355) 16 (2 813)
Employee benefits
expense (840) (704) 19 (1 411)
Amortisation of
intangible assets (137) (102) 34 (189)
Selling, distribution
and other general
administration
expenses (3 094) (2 298) 35 (6 574)
Impairment of property,
Plant and equipment (41) - -
Net finance costs (23) (45) (49) (251)
Share of results of
associates 6 11 (46) 18
Profit before tax 5 439 4 120 32 8 765
Income tax expense (977) (718) 36 (1 494)
Profit for the
period 4 462 3 402 31 7 271
Attributable to:
Equity holders of
the company 3 845 2 968 30 6 376
Minority interest 617 434 42 895
4 462 3 402 31 7 271
Earnings per share 231,3 179,0 29 384,2
Diluted earnings
per share 230,1 177,7 29 380,5
Note on calculation
of headline earnings
Net profit
attributable to
company"s equity
holders 3 845 2 968 30 6 376
Adjusted for:
(Profit)/loss on
disposal of property,
plant and equipment 6 (2) (3)
Profit on sale of
treasury shares - (5) -
Profit on sale of
associate - - (4)
Impairment reversed
against loan arising
on disposal of
MTN Cameroon to
reflect net asset
value - - (11)
Impairment of propety,
Plant and equipment 41 - -
Basic headline
earnings 3 892 2 961 31 6 358
Adjustment:
Reversal of deferred
tax asset
(see note 9) (192) (140) 37 (305)
Adjusted headline
earnings 3 700 2 821 31 6 053
Reconciliation of
headline earnings per
ordinary share (cents)
Attributable earnings
per share (cents) 231,3 179,0 29 384,2
Adjusted for:
(Profit)/loss on
disposal of property,
plant and equipment 0,4 (0,1) (0,2)
Profit on sale of
treasury shares - (0,3) -
Profit on sale of
associate - - (0,2)
Effect of disposal of
stake in MTN Cameroon - - (0,7)
Impairment of propery,
plant and equipment 2,4 - -
Basic headline
earnings per share
(cents) 234,1 178,6 31 383,1
Effect of reversal of
deferred tax asset
(see note 9) (11,6) (8,5) (18,4)
Adjusted headline
earnings per
share (cents) 222,5 170,1 31 364,7
Contribution to
adjusted headline
earnings per ordinary
share (cents)
South Africa 109,7 85,4 28 204,1
Rest of Africa 112,8 84,7 33 160,6
Adjusted headline
earnings per share
(cents) 222,5 170,1 31 364,7
Number of ordinary
shares in issue:
- Weighted average
(000) 1 662 605 1 657 996 1 659 670
- At period-end (000) 1 664 082 1 659 886 1 662 497
Condensed consolidated balance sheets
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Reviewed Reviewed Audited
(IFRS Restated) (IFRS Restated)
Rm Rm Rm
ASSETS
Non-current assets 26 256 16 923 19 151
Property, plant
and equipment 19 143 13 733 15 787
Goodwill 1 554 34 33
Intangible assets 2 458 1 873 1 846
Investments and loans 1 939 687 667
Deferred tax assets 1 162 596 818
Current assets 10 358 7 549 10 579
Cash at bank and
on hand 4 825 3 300 5 838
Securitised cash
deposits** 350 599 591
Other current assets 5 183 3 650 4 150
Total assets 36 614 24 472 29 730
EQUITY AND LIABILITIES
Shareholders" equity
Share capital and
reserves 18 565 12 713 16 083
Minority interests 3 169 1 922 2 333
21 734 14 635 18 416
Non-current
liabilities 4 800 4 129 3 715
Borrowings 3 664 3 370 3 019
Deferred tax
liabilities 721 759 696
Other non-current
liability (note 11) 415 - -
Current liabilities 10 080 5 708 7 598
Non-interest-bearing
liabilities 9 108 5 526 7 378
Interest-bearing
liabilities 972 182 221
Total equity and
liabilities 36 614 24 472 29 730
Note on net asset
value per ordinary
share and net cash
(debt)/equity ratios
- Book value 11,16 7,66 9,67
Net cash (debt)/
equity 2% 2% 17%
**These monies are placed on deposit with banks in Nigeria to secure letters of
credit.
Condensed consolidated statements of changes in equity
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Reviewed Reviewed Audited
(IFRS Restated) (IFRS Restated)
Rm Rm Rm
Opening balance (as
previously reported) 15 933 10 128 10 128
Impact of IFRS 150 184 184
Restated opening
balance 16 083 10 312 10 312
Net profit 3 845 2 968 6 376
Dividends paid (1 080) (680) (680)
Issue of share
capital 27 16 55
Purchase/Sale of
non-controlling
interests - - (12)
Transaction with
minorities (415) - -
Treasury shares sold - 6 6
Currency translation
differences 105 91 26
18 565 12 713 16 083
Reconciliation of SA GAAP to IFRS
IFRS
transition date
31 March 30 September 1 April
2005 2004 2004
Audited Reviewed Audited
Rm Rm Rm
Reconciliation of
equity
Equity previously
reported under
SA GAAP 15 933 22 256 10 128
Change in accounting
policy under SA GAAP - (9 720) -
Adjustment upon
adoption of IFRS 150 177 184
Equity reported under
IFRS 16 083 12 713 10 312
Equity adjustments
Leases (31) (32) (31)
Property, plant
and equipment 168 220 246
Intangible assets 68 60 53
Other (55) (71) (84)
150 177 184
Reconciliation of
income statements
Net profit after tax
previously reported 7 314 3 334
Share-based payments (17) (6)
Foreign exchange gain 26 86
Property, plant and
equipment (78) (26)
Intangible assets 18 7
Other 8 7
As reported under
IFRS 7 271 3 402
For further detail concerning reconciliations of assets and liabilities refer to
separate IFRS Transition Report.
Segment analysis
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Reviewed Reviewed Audited
(IFRS Restated) (IFRS Restated)
Rm Rm Rm
REVENUE
South Africa 9 830 8 244 17 350
Nigeria 5 870 4 561 9 310
Rest of Africa 1 480 917 2 334
17 180 13 722 28 994
EBITDA
South Africa 3 212 2 697 5 996
Nigeria 3 063 2 348 4 883
Rest of Africa 887 567 1 120
7 162 5 612 11 999
PAT
South Africa 1 822 1 419 3 402
Nigeria 2 284 1 678 3 454
Rest of Africa 356 305 415
4 462 3 402 7 271
Condensed consolidated cash flow statements
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Reviewed Reviewed Audited
(IFRS Restated) (IFRS Restated)
Rm Rm Rm
Cash inflows from
operating activities 4 514 2 960 9 501
Cash outflows
from investing
activities (6 763) (2 749) (6 454)
Cash inflows/(outflows)
from financing
activities 631 (567) (859)
Net movement in cash
and cash equivalents (1 618) (356) 2 188
Cash and cash
equivalents at
beginning of period 5 788 3 543 3 543
Foreign entities
translation
adjustment 144 103 57
Cash and cash
equivalents at end
of period 4 314 3 290 5 788
Notes to the condensed consolidated financial statements
1. Basis of preparation
The condensed consolidated interim financial information ("interim financial
information") as contained in our booklet to be mailed to shareholders 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).
The information contained in the SENS and press announcement constitutes an
extract from the complete interim financial information as referred to in the
previous paragraph. Accordingly, for a full appreciation of the Group"s
financial position at 30 September 2005 and its financial results and changes in
equity for the six months then ended, shareholders are referred to the complete
information as communicated in the booklet.
This is the Group"s first IFRS interim financial information, for part of the
period, in respect of which annual financial statements will be prepared in
terms of IFRS.
The financial year-end for MTN Group and its subsidiaries has changed from 31
March to 31 December. The financial statements for the nine months ending 31
December 2005 will be the Group"s first consolidated IFRS compliant financial
statements.
IFRS 1 - First Time Adoption of IFRS has been applied in preparing this interim
report, and for details of the effects of the transition to IFRS, refer to the
separate Transition Report.
The interim financial information does not include all the information required
by IFRS for full annual financial statements.
Although the financial statements for the period ending 31 December 2005 will be
MTN"s first published financial statements stating full compliance with IFRS,
MTN has already complied with the following SA GAAP standards that had identical
requirements to the IFRS standards, with effect from 17 July 2000:
IFRS 3 (AC140) (issued 2004) - Business Combinations
IAS 36 (AC128) (revised 2004) - Impairment of Assets
IAS 38 (AC129) (revised 2004) - Intangible Assets
IAS 27 (AC132) (revised 2004) - Consolidated and Separate Financial Statements
The "31 March 2005 IFRS restated" figures have therefore only been adjusted to
comply with the remainder of the International Financial Reporting Standards,
while the "30 September 2004 IFRS restated" have been adjusted to comply with
all International Financial Reporting Standards. Refer to the Reconciliation of
SA GAAP to IFRS for the effects of IFRS-compliance on previously reported
financial statements.
It is important to note that this financial information has been prepared in
accordance with International Financial Reporting Standards that are expected to
be effective at 31 December 2005. These standards are subject to ongoing review
and possible amendment by interpretive guidance from the International
Accounting Standards Board ("IASB") and may therefore be subject to change.
Other changes to the presentation of information may be made in the statutory
annual financial statements.
2. Headline earnings per ordinary share
The calculations of basic and adjusted headline earnings per ordinary share are
based on basic headline earnings of R3 892 million (2004: R2 961 million) and
adjusted headline earnings of R3 700 million (2004: R2 821 million)
respectively, and a weighted average of 1 662 605 000 (2004: 1 657 996 000)
ordinary shares in issue.
3. Independent review by the auditors
These condensed consolidated interim results have been reviewed by our joint
auditors PricewaterhouseCoopers Inc. and SizweNtsaluba, who have performed their
review in accordance with the International Statements of Auditing applicable to
review engagements.
A copy of their unqualified review report is available for inspection at the
registered office of the company.
This report includes an emphasis of matter stating that although the interim
financial information has been prepared in accordance with those IFRS standards
and IFRIC interpretation as adopted for use in South Africa as at the time of
preparing this information, these standards and interpretations may be amended
between the date of this announcement and the finalisation of the annual
financial statements for the period ending 31 December 2005, which are not known
with certainty at the time of preparing the interim financial information.
6 months 6 months
ended ended Year ended
30 Sept 2005 30 Sept 2004 31 March 2005
Reviewed Reviewed Audited
(IFRS Restated) (IFRS Restated)
Rm Rm Rm
4. Capital expenditure
incurred 4 125 3 858 7 576
5. Contingent
liabilities and
commitments Contingent
liabilities 3 749 1 079 1 372
Operating leases 453 634 679
Finance leases 467 312 308
6. Commitments for
capital expenditure
- Contracted for 1 855 2 702 3 144
- Authorised but not
contracted for 1 538 5 424 7 247
7. Cash and cash
equivalents
Bank balances,
deposits and cash 4 825 3 300 5 838
Call borrowings (511) (10) (50)
4 314 3 290 5 788
8. Interest-bearing
liabilities
Call borrowings 511 10 50
Short-term borrowings 461 172 171
Current liabilities 972 182 221
Long-term liabilities 3 664 3 370 3 019
4 636 3 552 3 240
9. Recognition of deferred tax asset
The Group"s subsidiary in Nigeria has been granted a five-year tax holiday under
"pioneer status" legislation. Capital allowances arising 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 relating to these
deductible temporary differences has been recognised in the results to 30
September 2005 in terms of the requirements of IAS 12 - Income Taxes, which
requires a deferred tax asset to be recognised for all deductible temporary
differences to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences can be utilised.
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 credit of R192 million) in addition to basic headline
earnings, to more fully reflect the group"s results for the period.
10. Business combinations
10.1 The acquisition of 51% of Telecel Cote d"Ivoire.
On 1 July 2005, the Group acquired 51% of the share capital of Loteny Telecom,
trading under the name Telecel Cote d"Ivoire. The acquired business contributed
revenues of R186,3 million and net profit of R43,2 million to the group for the
period from 1 July 2005 to
30 September 2005.
If the acquisition had occurred on 1 April 2005, the contribution to Group
revenue would have been R365,7 million, and the contribution to profit would
have been R58 million.
1 July 2005
Details of the net assets Reviewed
acquired and goodwill as at
acquisition are as follows: Rm
Total purchase consideration 1 398
Fair value of net assets acquired 148
Goodwill 1 250
Acquiree"s
Fair value carrying amount
1 July 2005 1 July 2005
The assets and liabilities arising from Reviewed
the acquisition are as follows: Rm Rm
Cash and cash equivalents 41 41
Property, plant and equipment 621 1 031
Intangibles 620 376
Inventories and receivables 109 109
Payables (1 001) (988)
Borrowings (142) (148)
Net deferred tax asset 42 _-
Net assets 290 421
Minority interests (49%) (142)
Net assets acquired 148
Purchase consideration settled
in cash 1 398
Cash and cash equivalents in
subsidiary acquired (41)
Cash outflow on acquisition 1 357
10.2 The acquisition of 100% of Telecel Zambia and 40% of MTN Network Solutions
(Pty) Ltd (NS)
On 1 August 2005, the Group acquired 100% of the share capital of Telecel
Zambia, and on 1 April 2005, the Group acquired 40% of Network Solutions. The
acquired businesses contributed revenues of R48,5 million and net profit of R3
million to the group for the period.
If the Telecel Zambia acquisition had occurred on 1 April 2005 the contribution
to group revenue would have been R89,9 million and the contribution to profit
would have been R8,7 million.
On acquisition
date
Details of the net assets acquired and Reviewed
goodwill as at acquisition are as follows: Rm
Total purchase consideration 351
Fair value of net assets acquired 25
Goodwill 326
Acquiree"s
Fair value carrying
on acquisition amount on
The assets and liabilities arising Reviewed acquisition date
from the acquisition are as follows: Rm Rm
Cash and cash equivalents 13 13
Property, plant and equipment 91 91
Intangibles 25 -
Inventories and receivables 20 20
Payables (47) (30)
Borrowings (98) (98)
Net deferred tax assets 21 30
Net assets acquired 25 26
Purchase consideration settled
in cash 351
Cash and cash equivalents in
businesses acquired (13)
Cash outflow on acquisition 338
11. Other non-current liability
The other non-current liability arises out of an arrangement whereby a minority
share holder of a subsidiary company has the right to put additional shares in
the subsidiary to MTN in a future period.
12. Material events
During September 2005 MTN acquired a 44% indirect interest in Mascom Wireless
Botswana (Pty) Limited (Mascom) for R837 million. The investment is accounted
for as an associate. One of the indirect shareholders in Mascom alleges that the
seller of a 20% indirect stake in Mascom to MTN did not follow the correct pre-
emptive process. MTN Group legal advisors are monitoring the matter and are
confident that the matter will be resolved favorably.
13. Post-balance sheet events
Subsequent to 30 September 2005, MTN has acquired a 49% interest in Sherkate
Khademate Ertebati-E-IranCell (IranCell Telecommunication Services Company)
(IranCell). In accordance with the rules and regulations of the second GSM
licence tender process, the Minister of Communications and Information
Technology of the Islamic Republic of Iran called for payment of EURO 300
million, being the up-front licence fee. This payment was made to the Ministry
of Communications and Information Technology of the Islamic Republic of Iran
(`the Ministry") on 21 November 2005. The Ministry is currently in the process
of issuing the licence to IranCell.
REVIEW OF RESULTS
MTN Group Limited (MTN Group) achieved a strong increase of 30,8% in adjusted
headline earnings per share (adjusted headline EPS) to 222,5 cents (30 September
2004: 170,1 cents (restated)). Revenue increased by 25,2% to R17,2 billion (30
September 2004: R13,7 billion) while earnings before interest, tax, depreciation
and amortisation (EBITDA) rose to R7,2 billion (30 September 2004: R5,6 billion
(restated)) and adjusted profit after tax (PAT) to R4,2 billion (30 September
2004: R3,2 billion (restated)). These reflected increases of 27,6% and 30.8% in
EBITDA and PAT, respectively, compared to the six months to 30 September 2004.
The reported adjusted headline EPS and adjusted PAT exclude the beneficial
financial effect of the deferred tax asset recognised by MTN Nigeria
Communications Limited (MTN Nigeria). Basic (unadjusted) headline earnings per
share rose to 234,1 cents representing a 31,1% increase compared to 178,6 cents
(as restated) for the corresponding period last year.
During the period under review MTN Group successfully concluded acquisitions in
Cote d"Ivoire (51%), Zambia (100%) and Botswana (44%) in line with its strategy
of consolidating its position as the leading provider of telecommunications
services in developing markets. The investment in the Botswana operation is
currently accounted for as an associate and it"s subscribers have been included
in the Group"s subscriber numbers.
As at 30 September 2005, the new operations including Botswana, accounted for 1
468 000 subscribers, being 7% of the Group"s 20,6 million subscriber base. The
full financial benefits of these acquisitions have not impacted these half year
results because the results of these operations have only been reflected from
the date of acquisition.
The overall contribution by the operations outside South Africa increased to 43%
of revenue, 55% of EBITDA and 112,8 cents of adjusted headline EPS. As a
significant proportion of the Group"s revenue and profits is generated outside
South Africa, the fluctuation of the functional currencies of our international
operations against the rand continues to affect the Group"s consolidated
results. Of most relevance is the value of the Nigerian Naira which has remained
relatively stable against the Rand during the six months under review compared
with the average rate for the comparative period in the previous year.
International Financial Reporting Standards
The Group is, for the first time, reporting its financial results in accordance
with International Financial Reporting Standards (IFRS). Results for the
comparative period in the previous financial year and for the year ended to 31
March 2005 have been restated. The conversion to IFRS has had a limited effect
on the Group"s results. Adjusted headline EPS reported for the six months ended
30 September 2004 increased by 4,3 cents to 170,1 cents. The adoption of IFRS
resulted in a change in the functional currency of MTN Mauritius from US$ to
rand. The exchange gains and losses that arise as a consequence of this change
are now recognised in the income statement as opposed to in reserves. These
include differeces arising on translation of US$ shareholder loans granted to
the operating companies as well as the translation of the assets and liabilities
of MTN Mauritius denominated in foreign currencies. This change resulted in an
increase of 3,5 cents in adjusted headline EPS for the six months ended
September 2004.
Income statement analysis
Group consolidated revenue increased by 25,2% to R17,2 billion (30 September
2004: R13,7 billion). Excluding the contribution from new acquisitions, revenue
has increased by 22,3% against the comparable period in the previous year. MTN
South Africa continues to record good growth in a maturing market, with revenue
increasing by 19,2% to R9,8 billion, while MTN Nigeria"s revenue growth of 28,7%
to R5,9 billion was achieved despite the negative effects of the highly
competitive tariff environment.
EBITDA increased by 27,6% to R7,2 billion and, mainly as a result of the
increased contribution to the Group"s results by the international operations,
EBITDA margin increased from 40,1% to 41,7%. MTN South Africa maintained an
EBITDA margin of 32,7%, consistent with that of the comparable period in the
previous financial year. MTN Nigeria continued to deliver a strong EBITDA margin
of 52,2%, with the remaining international operations, excluding new
investments, recording EBITDA margins of between 46% and 54%.
Depreciation and amortisation charges increased by 17,1% from R1,5 billion to
R1,7 billion, driven mainly by the sizeable capital investment linked to the
continuing network rollout in Nigeria. The amortisation of intangible assets
acquired in Cote d"Ivoire and Zambia, contributed R16 million to the Group"s
amortisation charge.
Net finance costs declined from R45 million to R23 million for the six months to
30 September 2005. Foreign exchange gains of R52 million (2004: R90 million)
were recorded in the period, excluding which, net finance costs would have been
R75 million (2004: R135 million). Finance costs remained low due to the positive
net cash position of the Group.
Taxation increased by 36,1% to R1 billion, which included R135 million of STC in
respect of the dividend paid in July 2005. The Group"s effective tax rate
remains lower than the applicable average statutory rate, primarily as a result
of MTN Nigeria being within its five-year tax holiday period granted under
pioneer status, and the consequent effect of the increase in the Nigerian
deferred tax asset resulting from temporary differences on capital allowances.
The Group"s adjusted headline EPS increased by 30,8% to 222,5 cents. South
African operations contributed 109,7 cents or 49% of these earnings,
representing an increase of 28% on the first six months of the previous
financial year. Adjusted headline EPS derived from international operations
increased by 33% to 112,8 cents.
Balance sheet and cash flow
The Group"s total assets have increased by 23,2% to R36,6 billion compared to
the restated R29,7 billion at 31 March 2005. Long-term borrowings increased to
R3,7 billion (March 2005: R3,3 billion), while short-term borrowings increased
to R972 million (March 2005: R220 million).
At 30 September 2005, the Group had cash on hand of R5,2 billion including
securitised cash deposits of R350 million against letters of credit in Nigeria.
R2,3 billion of the cash on hand is in South Africa. Group net cash (including
securitised cash deposits) decreased from R3,2 billion at 31 March 2005 to R539
million at 30 September 2005. This is largely attributable to the R1,1 billion
dividend payment and the acquisitions in Cote d"Ivoire, Zambia and Botswana at a
total consideration of R2,6 billion, to some extent offset by operating cash
generation in South Africa and Nigeria.
Operating cash flow of R4,5 billion (before dividends) was generated, with free
cash flow (operating cash inflows before dividends less capital expenditure) of
R0.4 billion being generated notwithstanding the major investment of R4,1
billion in fixed assets. MTN Nigeria invested R2,2 billion in property, plant
and equipment, representing 58,6% of the Group"s capital expenditure during the
six months under review. It is currently estimated that a total of R7,5 billion
will be invested for the nine-month period to 31 December 2005.
OPERATIONAL REVIEW
MTN South Africa continues to achieve strong subscriber growth in both the
postpaid and prepaid segments with subscribers totalling
8 961 000 at 30 September 2005. The prepaid component of the subscriber base
increased by 12% (811 000 net connections) during the six months under review to
7 421 000, representing 82,8% (31 March 2005: 82,6%) of the total subscriber
base. The postpaid base increased by 11% from 31 March 2005 closing the period
at 1 540 000 subscribers.
As expected, blended ARPU for the six-month period declined by 9% to R168.
Postpaid and prepaid ARPU experienced decreases to R544 (March 2005: R576) and
R90 (March 2005: R97) respectively. These ARPU decreases were the result of
continued penetration into lower usage segments. Included in the total of
postpaid subscribers are 247 000 My Choice Top-up subscribers, who generate
significantly lower ARPU than average postpaid subscribers.
MTN South Africa launched broadband (3G and EDGE) services in
June 2005. 3G coverage is currently available in the key metropolitan centres,
while 31% of the South African network is EDGE enabled. This provides customers
with high-speed access to MTN South Africa"s data offerings as well as video-
based services.
Data contributed 6,3% (2004: 5,5%) towards total revenue excluding handset
revenue. As expected, because of the slower adoption of new services, the
majority of data revenue is still being generated by SMS.
During August 2005, MTN Banking, a joint venture with Standard Bank, was
launched in South Africa to leverage the strategic mobile banking opportunity.
The Group acquired the remaining 40% in MTN Network Solutions, a first-tier
internet service provider, to better position itself in a converged
telecommunications environment. This investment is now accounted for as a
subsidiary.
MTN Nigeria increased its subscriber base to 7 667 000, a 38% increase since
March 2005. The strong growth in subscriber numbers is fuelled by continued
strong demand for telecommunications services and low connection fees. The
tariff environment has remained very competitive, particularly in the reseller
market. As expected, blended ARPU has declined to US$23, with marginal ARPU
levels at approximately US$16.
MTN Nigeria continues to hold the largest share of the Nigerian market with an
estimated 47% market share. The focus of the operation remains maintaining
network quality standards while increasing coverage in the rapidly expanding
market.
MTN Nigeria"s network rollout is proceeding as planned with the commissioning of
335 new base stations and two new switches during the six months. Total capital
expenditure for the period was R2,2 billion. All profits generated by the
business have been reinvested into the Nigerian operation.
As previously reported identifying the most appropriate mechanism to broaden the
Nigerian shareholder base continues to receive attention and further
announcements will be made once a firm decision has been reached.
MTN Cameroon increased its subscriber base to 1 129 000, a 23% increase from 31
March 2005. ARPU has declined to US$17 for the period, driven by the connection
of lower usage subscribers and a weakening of the CFA against the US$. MTN
Cameroon has maintained market leadership in a highly competitive trading
environment with an estimated market share of 54%.
MTN Cote d"Ivoire, trading as Telecel Cote d"Ivoire, recorded 932 000
subscribers as at 30 September 2005, with an estimated market share of 47%. ARPU
for the three months ended 30 September 2005 was US$19. The acquisition by the
Group of the 51% controlling interest, for R1,398 billion, became effective on 1
July 2005.
MTN Uganda increased its mobile subscriber base to 895 000, a 14% increase from
31 March 2005. ARPU decreased to US$15. The company has maintained its leading
market position.
MTN Rwanda increased its subscriber base to 256 000, a 22% increase from 31
March 2005. ARPU of US$17 was recorded. Following the privatisation of Rwandatel
and the concomitant issue of a second mobile licence, competition is expected to
arise.
MTN Swaziland increased its subscriber base to 192 000, a 23% rise from 31 March
2005, with ARPU of R149 being achieved.
MTN Zambia recorded 91 000 subscribers as at 30 September 2005, with an ARPU of
US$24. The acquisition of the 100% interest for R311 million became effective on
10 August 2005. It"s intended that 10% of the equity in this business will be
placed in the local market.
Mascom Wireless Botswana Limited recorded approximately 445 000 subscribers on
30 September 2005, with an ARPU of US$22. The acquisition of the 44% equity
interest for R837 million became effective on 29 September 2005. The investment
has been accounted for as an associate.
As at 1 April 2005 all subscriber numbers reported are based on active
subscribers (subscribers who have made or received a revenue-generating call
during the last 90 days).
PROSPECTS
The Group"s vision is to be the leader in telecommunications in developing
markets. The Group currently has operations in nine countries across Africa. In
order to further consolidate its position on the continent and to diversify its
investment portfolio, the Group will continue to explore value-enhancing
expansion opportunities in Africa and the middle east. Business opportunities
complementary to the core mobile telephony business will also be pursued.
On the assumption that current market conditions prevail, the board expects that
the Group will continue to show good subscriber growth and maintain a strong
market position in all of its operations. Capital expansion programmes in
Nigeria and South Africa are expected to provide further subscriber and revenue
growth.
The Group has changed it"s financial year end to 31 December, and will be
reporting on the results for the nine months ending 31 December 2005 in March
2006.
With the change in year end, the board will review the dividend policy at the
end of the nine months reporting period taking into consideration expansion
opportunities.
POST-BALANCE SHEET EVENTS
IranCell
Subsequent to 30 September 2005, MTN has acquired a 49% interest in IranCell
Telecommunications Services Company (IranCell), the preferred bidder for the
second GSM licence in the Islamic Republic of Iran. In accordance with the rules
and regulations of the second GSM licence tender process, the Minister of
Communications and Information Technology of the Islamic Republic of Iran (the
Ministry) called for payment of EURO 300 million, being the up-front licence
fee. This payment was made to the Ministry on 21 November 2005. The Ministry is
currently in the process of issuing the licence to IranCell. Iran"s population
is estimated at 69 million. With a current mobile penetration of approximately
11%, the Iranian market represents an exciting growth opportunity for MTN, and
will be the Group"s first entry into the middle east
Cautionary announcement
MTN Group has issued a cautionary announcement on 20 October 2005 in respect of
negotiations which if successfully concluded could have a material affect on the
price of MTN"s securities. Such cautionary announcement was withdrawn on 23
November 2005.
For and on behalf of the board
M C Ramaphosa P F Nhleko
(Chairman) (Group Chief Executive Officer)
Fairland
23 November 2005
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.
Registration number:1994/009584/06 ISIN code: ZAE 0000 42164 Share code: MTN
Directorate: M C Ramaphosa (Chairman), P F Nhleko* (Group CEO),
D D B Band, S L Botha*, I Charnley*, Z N A Cindi, R S Dabengwa*,
P L Heinamann, M A Moses, R D Nisbet*, J H N Strydom, A F van Biljon *Executive
Company Secretary: S B 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,
1 Woodmead Drive Woodmead Estate, PO Box 2939, Saxonwold, 2132
E-mail: investor_relations@mtn.co.za
These results can be viewed on our website at www.mtn.co.za
IFRS transition report
This document is presented to provide users of the published interim financial
information for the six months ended 30 September 2005, with an analysis of the
effects on MTN Group Limited and its subsidiaries of adopting International
Financial Reporting Standards ("IFRS").
This financial information does not comprise statutory financial statements
within the meaning of Section 286 of the Companies Act, 1973.
It is important to note that the financial information contained in this
document, has been prepared in accordance with the transition provisions of IFRS
1 (First-time adoption of International Financial Reporting Standards), and
other relevant standards and is based on the final application of IFRS that are
expected to be effective at 31 December 2005. These standards are subject to
ongoing review and possible amendment by interpretive guidance from the
International Accounting Standards Board ("IASB"), and as such the financial
information contained herein may therefore be subject to change.
Introduction
MTN Group Limited ("MTN") is currently listed on the JSE Securities Exchange of
South Africa ("JSE"), and historically has prepared and reported consolidated
financial statements under South African Statements of Generally Accepted
Accounting Practice ("SA GAAP").
In terms of the revised JSE Listing Requirements, MTN is required to prepare its
financial information in accordance with International Financial Reporting
Standards ("IFRS") for financial years commencing on or after 1 January 2005.
MTN is required to comply with IFRS for the nine months ended 31 December 2005
(being the new financial year end which historically was 31 March), including
appropriate IFRS comparative information. In terms of IFRS 1 (First Time
Adoption of International Financial Reporting Standards), MTN is also required
to prepare an opening balance sheet on the first day of the comparative period
(MTN"s effective date of transition to IFRS), which is 1 April 2004.
As such, MTN has prepared:
A consolidated IFRS compliant opening balance sheet as at 1 April 2004;
Reconciliations of equity as previously reported under SA GAAP with equity as
reported under IFRS at 1 April 2004, 30 September 2004 and 31 March 2005;
Reconciliations of net income as previously reported under SA GAAP with net
income as reported under IFRS for the year ended 31 March 2005 and for the 6
months ended 30 September 2004; and
Consolidated IFRS interim financial information for the six months ended 30
September 2005, together with IFRS comparative financial information for the six
months ended 30 September 2004.
MTN will also prepare consolidated IFRS financial statements for the nine months
ending 31 December 2005, together with IFRS comparative information for the year
ended 31 March 2005.
Basis of preparation of IFRS information
MTN has undertaken a detailed conversion project across the Group in managing
the transition to IFRS and to prepare the financial information outlined in this
report.
MTN will adopt the requirements of IFRS for the first time for the purpose of
preparing financial statements for the 9 months ending 31 December 2005.
The standards adopted will be those issued by the IASB as at 31 December 2005,
including interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC), as applicable to MTN.
The financial information in this document has been prepared on the basis of the
statements that are currently effective together with expected amendments that
will be applicable as at 31 December 2005. Future group financial information
prepared on the basis of IFRS may differ from the information contained herein
for the following reasons;
Further standards and interpretations may be issued that are applicable for 2005
reporting or which are applicable to later accounting periods, but with an
option to adopt for earlier periods; and
IFRS is currently being applied in many other countries for the first time and
contains many new and revised standards. Therefore, different practice may
develop with regard to interpretation and application of the standards.
Detailed explanations of all significant accounting policy changes in order to
effect IFRS compliance are set out in note 5. Note 6 details the changes to
previously published SA GAAP financial statements in terms of the transition to
IFRS.
Although the financial statements for the period ending 31 December 2005 will be
MTN"s first published financial statements stating full compliance with IFRS,
MTN has already complied with the following SA GAAP standards that had identical
requirements to the IFRS standards with effect from 17 July 2000.
IFRS 3 (AC140) (issued 2004) - Business combinations
IAS 36 (AC128) (revised 2004) - Impairment of Assets
IAS 38 (AC129) (revised 2004) - Intangible Assets
IAS 27 (AC132) (revised 2004) - Consolidated and Separate Financial Statements
3. Transitional arrangements
In converting from SA GAAP to IFRS, IFRS 1 requires full retrospective
application of IFRS. However, the statement allows for a number of exceptions
and exemptions from retrospective application of IFRS. The group transitional
elections are set out below and MTN has elected to apply the following
exemptions from full retrospective application of IFRS in preparing its first
IFRS financial statements:
3.1 Business Combinations
Business combinations (including acquisitions) recognised before 17 July 2000
(MTN"s effective date of transition to IFRS 3) have not been restated. As a
result the carrying amount of goodwill is the depreciated amount on 17 July 2000
and previously recognised amortisation of goodwill and goodwill previously
eliminated against reserves are not re-stated.
3.2 Cumulative translation differences
MTN has elected to set the previously accumulated cumulative translation
differences for all foreign operations recognised separately in equity, to zero
as at 1 April 2004.
3.3 Share-based payments
The cost of share options issued prior to 7 November 2002 and the cost of share
options issued after 7 November 2002 which vested prior to 1 January 2005 have
not been recognised in the income statement.
3.4 Exemption from restatement of comparatives for IAS32, IAS39 and IFRS4
MTN has elected the exemption not to restate comparative financial information
relating to the financial year ended 31 March 2005 for IAS32, IAS39 and IFRS4.
MTN has applied SA GAAP rules to insurance contracts, derivative financial
assets, financial liabilities and to hedging relationships for the 31 March 2005
comparative period.
3.5 Decommissioning liabilities included in respect of property, plant and
equipment
MTN has elected the exemption not to account for changes in existing
decommissioning, restoration and similar liabilities in respect of in ppe
changes in such liabilities that occurred before 1 January 2004.
MTN has elected to measure the decommissioning, restoration and similar
liabilities included in the cost of property, plant and equipment as at the date
of transition to IFRS in accordance with IAS37. To the extent that the liability
is within the scope of IFRIC1, the amount that would have been included in the
cost of the related asset when the liability first arose, was estimated by
discounting the liability to the acquisition date of the related asset using its
best estimate of the historical risk-adjusted discount rate that would have been
applied for that liability over the intervening period.
4. Business Combinations and Goodwill
The following standards were already effective under SA GAAP during the
financial year ended 31 March 2005:
IFRS 3 (AC 140) - Business Combinations
IAS 27 (AC 132) - Consolidated and Separate Financial Statements
IAS 36 (AC 128) - Impairment of Assets
IAS 38 (AC 129) - Intangible Assets
MTN has elected to retrospectively apply these standards under SA GAAP with
effect from 17 July 2000, being the date on which MTN acquired the remaining 23%
minority interest in MTN Holdings (Pty) Limited from Transnet Limited.
The adoption of IFRS 3 required simultaneous adoption of IAS 36 and
IAS 38. MTN"s effective date of transition to IFRS remains 1 April 2004.
Initially MTN accounted for the excess of the purchase price over the book value
of the minority interest relating to the acquisition by the MTN Group of the
remaining 23 % interest in MTN Holdings (Pty) Limited from Transnet Limited,
which amounted to R11.6 billion, as goodwill on the balance sheet and was
amortising it through the income statement over 20 years.
During the year ended 31 March 2005, MTN changed its accounting policy to treat
minority shareholders as equity participants with effect from 17 July 2000, and
therefore any purchase/sale of minority interests would be accounted for as
equity transactions and recorded directly in equity as opposed to being recorded
as goodwill or credited to the income statement.
This resulted in a goodwill reduction of R 9,5 billion on the MTN balance sheet
with an equal reduction in shareholder"s equity on 17 July 2000 and accordingly
at 1 April 2004.
These standards require that MTN apply the same principles to all acquisitions
from 17 July 2000 onwards, of which the following are most significant:
Recognition of assets and liabilities on acquisition at fair value.
MTN is required, for each acquisition on or after 17 July 2000 on each
acquisition date, to allocate the cost of the business combination by
recognising the acquiree"s identifiable assets, liabilities and contingent
liabilities that satisfy the recognition criteria, at their fair values at the
appropriate acquisition dates.
This will include the identification and accounting for intangible assets such
as licences, subscriber bases, customer relationships, trademarks, brands, etc.
These will be amortised over their estimated expected useful lives.
Calculating goodwill as being the difference between
The net fair values of the assets, liabilities and contingent liabilities, and
The purchase consideration including direct acquisition costs.
As previously required in terms of SA GAAP (from 17 July 2000) goodwill shall be
subject to an annual impairment review, or more frequently where indicators of
impairment exist, as opposed to the amortisation method applied prior to 17 July
2000.
5. Significant Accounting Policy Changes
The most significant changes in accounting policies are set out below. The
effects of these changes are disclosed in the schedules to this Transition
Document (as outlined in paragraph 6 below), and cross referenced to the
relevant note.
5.1 Property, Plant and Equipment. (IAS 16)
The following adjustments have been accounted for retrospectively in order to
comply with this standard:
Identification of each significant part (component) of each item of property,
plant and equipment ("PPE") which has a significantly different useful life;
For each financial year-end, reviewing and adjusting where necessary, the useful
lives and residual values of each asset;
Inclusion of dismantling, removal and restoration costs as part of the cost of
PPE;
Inclusion of costs directly attributable to bringing the asset to the location
and condition necessary for its intended use; and
Recalculation of depreciation after taking the adjustments outlined above into
account.
5. 2 Foreign Exchange. (IAS 21)
In terms of the standard an entity"s "functional currency" is defined as the
currency of the primary economic environment in which the entity operates.
MTN Mauritius, the Group"s wholly owned Mauritius-based holding company used to
operate with US Dollars as its functional currency. Given the changes in its
structure over the years, as well as its operating model, MTN Mauritius is now
regarded as a direct and integral extension of MTN"s South African operations.
Accordingly, its functional currency has been changed from US Dollars to South
African Rand.
On consolidation this has resulted in exchange gains and losses on its dollar
denominated assets and liabilities being accounted for in the income statement,
as opposed to being included in the foreign currency translation reserve, as
previously reported.
Cumulative translation differences of R 1,5 billion were classified as a
separate component of equity on the MTN balance sheet at 31 March 2004. IFRS 1
allows the option to `reset" this to zero on the date of transition to IFRS,
being 1 April 2004, which the MTN Group has opted to apply.
5.3 Share-based Payments. (IFRS 2)
This standard requires a charge to be raised in the income statement relating to
certain share based payments which had not vested at 1 January 2005, as well as
cash-settled awards still outstanding at 1 January 2005. MTN operates certain
share option and other employee benefit schemes which give rise to share-based
payments.
IFRS 1 (First Time Adoption of IFRS) provides an exemption (refer to paragraph
3.3) in terms of which MTN has elected to limit its retrospective adoption to
awards granted after 7 November 2002, which had not yet vested on 1 January
2005.
The various share option and long term incentive schemes in operation within MTN
have been classified either as equity or cash-settled, and accounted for
accordingly.
The income statement charge arising from each tranche of options issued is based
on fair value and spread over the vesting period. An independent valuation of
the main option tranches granted has been obtained from Alexander Forbes.
5.4 Leases. (IAS 17)
The standard gives guidance on leases of land and buildings and as such where
the buildings meet the criteria for capitalisation separately from the land, the
components have been split and accounted for accordingly.
As far as operating leases are concerned, in respect of those which include
fixed escalation clauses, the straight-line method has been adopted. In these
cases, monthly expense is equal to the total amount of lease payments divided by
the total lease period months.
Date: 25/11/2005 04:18:14 PM Produced by the JSE SENS Department
