Data rises 49% at MTN
Amid the headlines in MTN's interim results for the first six months of the year lurked huge news for data growth in South Africa. ARTHUR GOLDSTUCK looks beneath the numbers.
MTN Group announced on Wednesday that
its total subscriber numbers across Africa and the Middle East grew by 6.9% to
175-million in the first six months of this year. That was also almost exactly
the rate of growth in its home market, South Africa, which grew by 6.8% to
23,5 million. Overall revenue saw even greater growth - 17.5% - but in South
Africa the curve is flattening, with only 9.5% revenue growth.
The more dramatic number was hidden in
the contribution made to growth by data. While voice revenue - airtime and
subscriptions - grew by a lackluster 5.9%, data revenue exploded, with 49%
growth.
Data now contributes 15.9% to total
revenue in South Africa - compared to 11.6% for the same period a year ago.
Data growth, in turn, is boosted by
massive smartphone growth, and market appetite for more expensive phones:
handset revenue grew 29.1% as customers sought the high end.
As a result, 4,4 million smartphones were active on
the MTN network at 30 June 2012 - up 70.5%. While 11.9 million people had used
data of one kind or another, this does not equate to Internet use, as many data
users are merely downloading the likes of ringtones, games and wallpaper.
The 49% growth in data revenue also matches up to findings by World Wide Worx,
in its new Mobile Internet in South Africa 2012 report, that the average adult
cellphone user's proportion of phone spend on data - versus voice - has
increased by 50% in the past 18 months.
"It’s purely more people wanting to be connected
to the Internet wherever they are and wherever they’re going," said MTN SA MD Karel Pienaar, speaking
to Gadget after the results announcement. "It’s like this Internet
machine that’s consuming people. At the top end, they are less and less able to
afford staying unconnected. For many others, they are less and less willing not
to have Facebook access."
Pienaar pointed out that the average cost of data
across various packages had fallen to 42c per MB, down almost 50% in the past
year, and this had been a major driver.
"So growth is coming from all sides, from
segments that never saw a need, from rural and poor and uneducated and
iliterate users - elements of all these segments are moving into Internet
space. And those that have been using it, are becoming more and more
dependent."
MTN's results also offer muted evidence
for its claims of offering value to the market even while rivals Cell C and 8ta
appear to undercut MTN and Vodacom rates dramatically. While it only grew by
6.2% in the prepaid segment in the last six months, the figure for the past 12
months - in which MTN increased its pre-paid base from 16.2 million to
19,3 million accounts - was 19%. This indicates the high appeal of its MTN
Mahala and MTN Zone offerings, although the slowed growth in the last six
months may well point to a need to compete head-on with the Cell C 99s a minute
flat rate.
The contract customer base grew more
rapidly in the last six months, by 9.4% to 4,2 million.
A sign that the cut in interconnect fees
is helping consumers was revealed in MTN's interconnect revenue decreasing by
15.3% .
Average revenue per user (ARPU) for
contract customers continued to decline, falling to R265. Both increased uptake
of lower value hybrid packages and the demand for telemetry SIM cards - used in
vehicle tracking, gate controls and traffic lights - were blamed for the
decline.
Prepaid ARPU also fell, to R92, on the
back of the interconnect rate cut. Blended ARPU was R123.
On the spending side, MTN invested R1,936
million in modernising its network, largely for 3G coverage and capacity. The
number is expected to be larger in the second half of the year, according to
Pienaar.
The national fibre grid - the
National Long Distance (NLD) networks currently being laid down in
cooperation with Vodacom and Neotel - should be completed by the end of next
year.
So far, 95% of the route from
Johannesburg to Durban trenched and over 50% of the fibre installed. The
Johannesburg to Bloemfontein route trenching is 91% completed while the
Bloemfontein to Cape Town route trenching is 70% completed.
MTN provided the following financial review:
Revenue
Group revenue increased by a healthy
17.5% to R66, 426 million due to solid growth in South Africa, Iran and Ghana
of 9.5%, 29.9% and 19.9% respectively. Nigeria’s reported revenue grew 16.5%.
The average rand: USD exchange rate weakened from R6,80 in the prior period to
R7,89 and this, together with a relatively muted naira : USD exchange rate, had
a positive impact on revenue. On a constant currency basis, Group revenue grew
12.5%. Local currency revenue in Iran and Ghana increased 28.3% and 22.4%
respectively while Nigeria’s local currency revenue grew 4.4%. The contribution
of airtime and subscription revenue reduced to 63.2% from 66.0% in the prior
comparative period while data revenue increased its contribution to 10.0% from
7.0%. This was mainly attributable to strong data growth in South Africa and
Nigeria, which contributed 46.8% and 28.4% respectively to total Group data
revenue. SMS revenue continued to show positive growth and increased its
contribution marginally. This was mainly due to the continued success of SMS in
Iran and South Africa.
Operating costs
Group operating costs increased 17.0% to
R37, 194 million. This was largely driven by higher direct and operating costs
related to network rollout and the cost of handsets and accessories in South
Africa, which increased mainly due to adverse foreign exchange movements and
higher volumes of handset sales. The weaker rand against the operational
currencies had a negative impact on reported operating costs.
Other income
Other income includes the partial
realisation of the previously deferred Ghana Tower Company profit of R19
million to the income statement, the profit from the sale of the Uganda tower
portfolio of R547 million and R145 million relating to the amortisation of the
BICS deferred gain.
EBITDA and EBITDA margin
Group EBITDA, which includes the partial
reversal of the previously deferred Ghana Tower Company profit and Uganda tower
profit, increased 18.2% to R29, 798 million. On a constant currency basis,
EBITDA grew 12.0%. The growth in EBITDA was mainly due to strong organic growth
in South Africa and Iran, which grew local currency EBITDA by 10.5% and 36.4%
respectively. Group EBITDA margin expanded 0.3 percentage points to 44.9%. MTN
Nigeria’s EBITDA margin declined by 2.8 percentage points to 60.5% following
intense pressure on tariffs and higher interconnect costs from an increase in
off-network calls. On a like-for-like basis, when the impact of the partial
reversal of the previously deferred Ghana Tower Company profit and the profit
on the Uganda towers are excluded from 2012 EBITDA and the impact from the
profit on the sale from the Ghana towers is excluded from 2011 EBITDA, the
Group EBITDA margin would have increased 0.2 percentage points to 44.0%. This
was due to tight cost controls and efficiencies in South Africa, Iran, Sudan
and Cote d’Ivôire, which were partly offset by a lower EBITDA margin in
Nigeria.
Depreciation and amortisation
The Group’s depreciation increased 12.0%
to R7, 045 million while amortisation decreased by 2.6% to R1, 112 million.
This was mainly due to continued investment in network infrastructure and some
of the intangible assets relating to the Investcom acquisition in 2006 becoming
fully amortised during the period under review.
Net finance costs
Net finance costs increased mainly due
to foreign exchange losses. Net functional currency gains of R77 million were
recorded, compared to a gain of R414 million in the prior period. A large
portion of the gain was attributable to the conversion of cash balances in
Mauritius, which is a rand reporting entity. Net foreign exchange losses were
approximately R1, 679 million higher than the corresponding period in 2011.
These losses were largely due to the impact of the depreciation of the Syrian
pound on dividends payable (R701 million) and the sharp depreciation of the Sudanese
pound, which impacted loans and current accounts (R880 million).
Taxation
The Group’s taxation charge increased by
18.6% to R7, 522 million from June 2011 and the effective tax rate increased
1.15 percentage points to 38.10%. The higher effective tax rate is mainly due
to the increased Secondary Tax on Companies (STC) related to the higher
dividends paid to shareholders in April 2012 as well as withholding taxes due
to dividend and management fees up-streamed to the Group by its operating
companies.
Earnings
Attributable earnings per share (EPS)
increased by 12.7% to 574.5 cents. Adjusted HeadlineEPS increased 14.3% to
537.4 cents from 470.1 cents. Adjusted Headline EPS was lower than Attributable
EPS mainly due to the reversal of the profit from the sale of the Uganda
towers. The depreciation of the Sudanese and Syrian pounds negatively impacted
EPS by 58 cents and 36 cents respectively.
Cashflow
Cash generated by operations increased
26.3% while net cash from operating activities decreased by 13.9%, principally
due to a 35.9% increase in dividends and a 182% increase in tax paid. Cash used
in investing activities increased to R13,730 million mainly due to expenditure
on property, plant and equipment (excluding software) of R8, 688 million, which
was 56.0% higher than the same period last year; intangibles of R1,373 million;
Mauritian fixed deposits of R3, 952 million and pre-payments of R800 million
offset by cash inflows from the proceeds of the Uganda tower sale. Cash used in
financing activities was mainly attributable to MTN Holdings purchasing shares
in line with MTN’s strategy to return cash to shareholders and dividends paid
to minorities.
Capital expenditure
Capex increased 77.7% to R10,144 million
when compared to the same period last year. This was mainly due to an
aggressive rollout programme implemented earlier in the year and the ongoing
focus on critical capex investment programmes across the Group’s operations.
However, capex was lower than anticipated due to long lead times, equipment
delays and slow site approvals by authorities. Importantly, the capex target of
R24,772 million is on track for the year with a significant portion of full
year authorised capex committed to projects. Rollout is expected to accelerate
in the second half of the year.
Assets and liabilities
Assets and liabilities were positively
impacted by the movement in foreign currency exchange rates. Property, plant
and equipment decreased by 1.2% or R834 million to R70,776 million due to
foreign currency translation and depreciation of R7,045 million, partly offset
by capex additions of R10,144 million. Goodwill and other intangible assets
decreased by 9.2% to R31,359 million, mainly due to the foreign currency
translation impact and the unwinding of the intangible assets recognised on the
Investcom acquisition in 2006.
Net debt/cash
Net cash decreased by 22.6% to R7, 654
million from R9,885 million due to the higher dividend paid in April 2012, the
share repurchase and increased capex payments over the six months
to June 2012.
Changes in ownership
MTN increased its shareholding in MTN
Cote d’Ivôire by 3% to 67.7%.
Operational review
South Africa
MTN South Africa delivered a good
performance for the six months to 30 June 2012, increasing its subscriber base
by 6.8% to 23,5 million. This was mainly due to growth in the prepaid segment,
which increased its subscriber base to 19,3 million largely due to strong
promotional campaigns, MTN Mahala and MTN Zone offerings and data services. The
postpaid segment maintained a positive trend, growing its subscriber base by
9.4% to 4,2 million. Competitive data offerings and the continued success of
hybrid packages were the main contributors to post-paid growth. MTN South
Africa recorded market share of 35.5% and value share showed a positive upward
trend, particularly in the prepaid segment.
Total revenue increased by 9.5% mainly
due to a 49.0% increase in data revenue and strong prepaid revenue growth of
15%. Data revenue now contributes 15.9% to total revenue compared to 11.6% in
the prior comparative period. Airtime and subscription revenue showed good
growth of 5.9%, while handset revenue grew 29.1% due to the increase in demand
for higher value phones. At 30 June 2012, there were 11.9 million data users
with 4,4 million smartphones. Interconnect revenue decreased by 15.3% as a
result of the lower interconnect rate. Postpaid average revenue per user (ARPU)
continued to trend downward to R265 due to the increased uptake of lower value
hybrid packages and telemetry SIM cards. Prepaid ARPU decreased to R92 largely
due to the interconnect rate cut and lower marginal prepaid subscribers.
Reported blended ARPU was R123.
MTN South Africa recorded a slight
increase in EBITDA margin to 35.4% due to tight cost controls. This was partly
offset by higher handset costs due to the impact of the weaker rand and
increase in volumes of handset sales. A lower interconnect margin following the
reduction in the interconnect rate in March this year also had a negative
impact on the EBITDA margin. This was partly mitigated by promotions increasing
on-network traffic to 65% compared to 60% in the prior comparative period.
Capex for the period amounted to R1,936
million. MTN continued to modernise its network and focus on 3G coverage and
capacity. The 3G population coverage is now 56%. During the period, 146 2G
sites and 446 3G co-located sites were added, bringing the total number of 2G
sites to 6,772 and 3G co-located sites to 3,600. Fibre rollout remains a
priority with 95% of the National Long Distance (NLD) route from Johannesburg
to Durban trenched and over 50% of the fibre already installed. The
Johannesburg to Bloemfontein route trenching is 91% completed while the
Bloemfontein to Cape Town route trenching is 70% completed. The qualification
criteria for Long Term Evolution (LTE) spectrum is still being finalised by the
Minister of Communications who has embarked on a process to address the high
demand frequency bands in South Africa.
Nigeria
MTN Nigeria experienced a challenging
first half mainly due to aggressive pricing competition during the second
quarter, driven by a multitude of bonuses on recharge, freebies and other
promotional activity. The Nigerian market performance was also negatively
impacted by a slower economy and the removal of fuel subsidies, which have led
to lower consumer spending on telecommunications. It is estimated that only 25%
of the gross additions in the market were first time subscribers. The other 75%
was mainly attributable to rotational churn and multi SIM cards in the market.
The company grew its subscriber base by 3.7% to 43,184 million. While market
share declined slightly to 48%, MTN has maintained its value share and captured
more than 50% of first time users in the market
Total revenue in naira grew by 4.4 %.
This was driven mainly by a 11.5% increase in interconnect revenue and a 130%
increase in data revenue, which benefited from innovative data offerings,
improved 3G coverage and an increase in the number of smartphones. At the end
of June 2012, MTN Nigeria had 2,6 million smartphones on its network and over
479,685 dongles. Airtime and subscription revenue decreased by 4.4%, a function
of lower consumer spending and a reduction in effective tariffs. SMS revenue
declined by 9.3% largely due to the substitution effect of instant
messaging. Reported ARPU declined by 4% to USD 9.3 while local currency
ARPU declined 2% due to economic challenges.
MTN Nigeria EBITDA margin decreased 2.9
percentage points to 60.5%. This was as a result of lower revenue due to lower
tariffs, a lower interconnect margin due to an increase in off-network calls
and increased transmission costs related to higher data volumes, the
introduction of WACS and the provision in data capacity. Power costs continue
to reduce, albeit off a high base, due to base stations being powered by more
fuel efficient hybrid systems.
Capex for the period amounted to R4,432
million. MTN Nigeria continued to enhance the quality and capacity of the network
as well as expand 3G coverage. At the end of June, 554 2G sites and 562 3G
co-located sites were added bringing the total number of 2G sites to
7,611 and 3G co-located sites to 2,636. 3G population coverage improved to 35%
from 28% in the previous comparative period. Capex in the first half was
substantially in line with target and is expected to accelerate in the second
half of the year. The regulator recently imposed fines on the four GSM
operators for poor quality of service. These fines have been paid and more
realistic KPI’s have been negotiated. MTN Nigeria is confident that it will be
able to achieve the new KPI’s.
There remains no clarity on the deadline
for SIM registration although the regulator continues with the harmonisation
process to form a central database for registration. The percentage of
subscribers registered by MTN was 80% at the end of June 2012.
Iran
MTN Irancell delivered a strong
performance increasing its subscriber base by 10.4% to 38,3 million in a highly
penetrated market. This growth was largely due to the company’s attractive
value proposition and improved network quality. Despite competition and an
increasingly challenging economy, MTN Irancell increased its market share to
47%
Total rial revenue grew by 28.3% for the
six months to 30 June 2012. This was mainly due to a 24.7% increase in airtime
and subscription revenue and a 36.1% increase in SMS revenue, which benefited
from promotions. Wimax performance continues to improve and the company will
stand to benefit from its 3G offering when the third mobile operator‘s
exclusivity on 3G comes to an end in May 2013. Reported ARPU decreased by 6%
while local currency ARPU increased by 6% due to a better quality network,
assisting increased minutes of use.
MTN Irancell recorded an increase in
EBITDA margin to 44.7%. This was due to efficiencies and good cost control,
which largely countered the impact of a high inflationary environment,
particularly on fuel, electricity and imported goods.
MTN Irancell continued to invest in its
network, with MTN’s 49% share of capex for the six months at R418 million. MTN
Irancell improved the quality and capacity of its network, adding 249 sites and
bringing the total number of 2G sites to 7 889. The rollout of some projects
has been slower than anticipated because of delayed equipment delivery and the
impact of sanctions on certain equipment. Population and geographic coverage
increased to 81% and 24% respectively. At the end of June 2012, the company had
231 000 Wimax customers.
Ghana
MTN Ghana delivered a strong performance
with subscribers increasing by 5.9% to 10,76 million despite aggressive
competition. This performance was largely due to attractive segmented
promotions across the product portfolio and a well-managed pricing strategy. A
stronger economy also assisted growth. As expected, market share declined to
51% as a result of the entry of a new mobile player into the market.
Total cedi revenue increased by 22.4%.
This was mainly driven by an 18.8% increase in airtime and subscription
revenue, which benefited from promotions driving usage and spend. Data revenue
grew by 193%, albeit off a low base, due to handset and data promotions. The 3G
market is becoming increasingly competitive with the five mobile operators all
investing considerable resources to upgrade or expand their 3G networks. This
is partly driven by the rising demand for broadband services and the increasing
usage of smartphones.
MTN Ghana’s EBITDA margin dipped
slightly from 38.7% at 30 June 2011 to 37.7% due to increased rent and
utilities from the leasing of the 400 towers previously sold. The 2011 EBITDA
margin excluded the profit from the sale of the towers. Reported ARPU decreased
10% although local currency ARPU increased 4%.
MTN Ghana continued to improve the
quality and capacity of the network as well as increase its 3G coverage and
capacity. During the six months it rolled out 62 2G sites and 21 3G co-located
sites bringing total 2G sites to 2,318 and co-located 3G sites to 749. Capex
for the period amounted to R273 million, which was below target due to project
delivery issues. Corrective actions have been put in place and MTN Ghana is
confident that it will meet its capital expenditure targets by the end of the
year.
Syria
MTN Syria increased subscribers by 3.3%
to 5,91million despite a very challenging socio-political environment impacting
the economy and the ability to operate. Market share decreased slightly to
45.5% from 46%.
Total Syrian pound revenue increased by
12.0% driven by airtime and subscription revenue, which grew by 8.8%. The MTN
proposition, which includes promotions, multiple communication channels and
reliable systems and processes, has underpinned MTN Syria’s performance. Data
revenue increased by 39% and SMS revenue increased by 37%, largely due to
smartphone and bundle promotions.
The tough economic environment impacted
consumer spending and resulted in a decline in local currency ARPU of 3%.
Reported ARPU declined by 27% following the depreciation of the Syrian pound
against the USD.
Despite rising electricity and fuel
prices, MTN Syria showed only a slight decrease in its EBITDA margin to 23% due
to tight cost controls.
MTN Syria continued to operate the
network under the basis of the “Build Operate and Transfer arrangement”. The
timing of the conversion of the BOT into a free hold licence has been impacted
by the current political situation in the country. Capex for the period
amounted to R241 million.
* Follow Arthur on Twitter on @art2gee
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