M-Cell - Preliminary results for the year ended 31 March 2002
M-Cell Limited
(Incorporated in the Republic of South Africa)
(Registration number 1994/009584/06) ("M-Cell")
a johnnic group subsidiary
Consolidated income statement
31 March 31 March
2002 2001 %
for the years Rm Rm change
ended
Revenue 12 432,0 8 337,3 49,1
Cost of sales (5 081,1) (3 352,6)
Gross profit 7 350,9 4 984,7 47,5
Operating expenses (3 586,1) (2 193,2)
Earnings before
interest,
taxation,
depreciation and
amortisation
(EBITDA) 3 764,8 2 791,5 34,9
Depreciation (1 081,6) (688,5)
Amortisation (341,2) (148,3)
Profit from
operations before
goodwill 2 342,0 1 954,7 19,8
amortisation
Goodwill (592,0) (411,2)
amortisation
Profit from 1 750,0 1 543,5 13,4
operations
Finance costs (447,4) (264,6)
Finance income 130,5 81,6
Share of losses of (4,8) (0,6)
associates
Profit before 1 428,3 1 359,9 5,0
taxation
Taxation (900,2) (585,3)
Profit after 528,1 774,6 (31,8)
taxation
Minority interests 44,5 (61,1)
Attributable 572,6 713,5 (19,7)
earnings
Contibution to
attributable
earnings
Wireless
telecommunications
(MTN)
- South Africa 1 435,0 1 194,3 20,2
- Rest of Africa (258,3) (68,8)
1 176,7 1 125,5 4,5
Satellite (12,1) (1,0)
telecommunications
(Orbicom)
Corporate head - 0,2
office
Basic headline 1 164,6 1 124,7 3,5
earnings
Goodwill (592,0) (411,2)
amortisation
Attributable 572,6 713,5 (19,7)
earnings
Basic headline
earnings per
ordinary share
(cents)
Wireless 72,0 74,6 (3,5)
telecommunications
(MTN)
- South Africa 87,8 79,2 10,9
- Rest of Africa (15,8) (4,6)
Satellite (0,7) (0,1)
telecommunications
(Orbicom)
Basic headline 71,3 74,5 (4,3)
earnings per share
Effect of goodwill (36,2) (27,2)
amortisation
Attributable 35,1 47,3 (25,8)
earnings per share
Dividends per
ordinary share
(cents)
- Interim - 3,0
- Final - 7,0
- 10,0
Dividend cover on
basic headline
earnings (times) - 6,9
Number of ordinary
shares in issue:
- Weighted average 1 632 853 1 508 874
(`000)
- At year-end 1 640 437 1 620 244
(`000)
Summarised consolidated balance sheet
31 March 31 March
2002 2001
as at Rm Rm
ASSETS
Non-current assets
Property, plant and 8 321,6 5 491,3
equipment
Goodwill 10 802,6 11 191,4
Intangible assets 3 732,4 2 870,3
Investments and 347,5 254,7
loans
Deferred taxation 42,1 37,3
Non-current prepaid 43,8 -
tax
23 290,0 19 845,0
Current assets 4 170,1 2 394,8
Bank balances, 1 214,2 808,7
deposits and cash
Other current assets 2 955,9 1 586,1
Total assets 27 460,1 22 239,8
Capital and reserves
Ordinary 15 949,1 14 766,9
shareholders`
interest
Minority interest 820,6 143,8
16 769,7 14 910,7
Non-current 6 216,0 4 595,1
liabilities
Long-term 5 297,8 3 889,2
liabilities
Deferred taxation 918,2 705,9
Current liabilities 4 474,4 2 734,0
Non-interest-bearing 3 996,7 2 258,9
liabilities
Interest-bearing 477,7 475,1
liabilities
Total equity and 27 460,1 22 239,8
liabilities
Net asset value per
ordinary share
- Book value 9,72 9,11
Debt/equity 0,27 0,24
Debt/equity 0,76 0,96
(excluding goodwill)
Summarised group statement of
changes in equity
31 March 31 March
2002 2001
for the years ended Rm Rm
Balance at 1 April 14 766,9 1 923,4
Net profit 572,6 713,5
attributable to
ordinary
shareholders
Dividends (0,4) (162,1)
Share capital issued
at a premium less
share issue expenses 348,9 12 175,5
Share election (113,5) 113,5
reserve
Variation of - (15,8)
interests
Exchange differences
arising on
translation
of foreign entities 374,6 18,9
Ordinary 15 949,1 14 766,9
shareholders`
interest
Segment analysis
31 March 31 March
2002 2001
for the years ended Rm Rm
Revenue
Wireless
telecommunications
(MTN)
- South Africa 9 981,7 7 870,0
- Rest of Africa 2 349,3 377,1
12 331,0 8 247,1
Satellite 101,0 90,2
telecommunications
(Orbicom)
12 432,0 8 337,3
EBITDA
Wireless
telecommunications
(MTN)
- South Africa 3 329,2 2 670,7
- Rest of Africa 439,4 113,5
3 768,6 2 784,2
Satellite (3,8) 10,2
telecommunications
(Orbicom)
Corporate head (2,9)
office (M-Cell)
3 764,8 2 791,5
PAT
Wireless
telecommunications
(MTN)
- South Africa 1 432,7 1 255,0
- Rest of Africa (303,4) (68,8)
1 129,3 1 186,2
Satellite (12,1) (2,6)
communications
(Orbicom)
Corporate head (589,0) (409,0)
office (goodwill)
528,2 774,6
Summarised consolidated cash flow statement
31 March 31 March
2002 2001
for the years ended Rm Rm
Cash inflows from 2 893,9 2 772,8
operating activities
Cash outflows from (3 640,5) (4 663,7)
investing activities
Cash inflows from 702,4 2 329,8
financing activities
Net
(decrease)/increase
in cash
and cash equivalents (44,2) 438,9
Cash and cash
equivalents
at beginning of year 803,7 380,4
Foreign entities 116,8 (15,6)
translation
adjustment
Cash and cash 876,3 803,7
equivalents at end
of year
Notes
1. Basis of accounting
These consolidated condensed annual financial statements are prepared in
accordance with South African Statements of Generally Accepted Accounting
Practice ("GAAP") and Schedule 4 of the South African Companies Act. The
accounting policies are consistent with those used in the annual financial
statements for the year ended 31 March 2001.
As disclosed in the interim results announcement for the six months ended 30
September 2001, the group decided to apply the allowed alternative treatment
as permitted by paragraph 22 of Statement of GAAP AC 112 - The Effect of
Changes in Foreign Exchange Rates, relating to those exchange differences
that result from a severe devaluation of a currency and against which there
is no practical means of hedging. The application of this allowed
alternative treatment resulted in certain exchange differences, amounting to
R50,0 million, arising out of the translation of foreign currency loans
obtained to acquire certain licences, being included in the carrying amount
of the relevant asset. At the time of preparing the interim results
announcement, it was considered that this approach was the most appropriate.
However, subsequent to the publication of the interim results for the six
months ended 30 September 2001, it has been determined that paragraph 22 was
intended to cater for situations where a country experiences a significant
economic crisis resulting in measures such as a debt stand-still.
In view of the fact that the afore-mentioned situation does not apply to the
circumstances under consideration within the M-Cell Group, it has been
decided not to adopt this alternative treatment in the annual financial
statements for the year ended 31 March 2002. In line with the decision of
the directors to continue, as in prior years, to classify Mobile Telephone
Networks International Limited as a foreign entity, as opposed to a foreign
operation, the R50 million previously included in the carrying value of
intangible assets has been taken directly to non-distributable reserves (ie
foreign currency translation reserve).
2. Comparatives
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
3. Earnings per ordinary share
The calculation of basic headline earnings per ordinary share is based on
attributable earnings before goodwill amortisation of R1 164,6 million
(2001: R1 124,7 million) and a weighted average of 1 632 852 938
(2001: 1 508 874 016) ordinary shares in issue.
No fully diluted earnings per ordinary share, in respect of debentures and
options convertible into ordinary shares, have been disclosed as the
potential dilution is not considered to be material.
4. Preliminary results
These year-end results have been reviewed by our auditors
PricewaterhouseCoopers Inc., who have performed their review in accordance
with South African Statements of Generally Accepted Auditing Standards
issued by the South African Institute of Chartered Accountants. The
auditors` review report will be available for inspection at the company`s
registered office with effect from 13 June 2002.
5. Listing requirements
This preliminary announcement has been prepared in compliance with the
Listings Requirements of the JSE Securities Exchange South Africa.
6. Corporate governance
The company subscribers to the principles of good corporate governance,
details of which will be included in the annual financial statements.
31 March 31 March
2002 2001
for the years Rm Rm
ended
7. Interest-
bearing
liabilities
Call borrowings 337,9 5,0
Short-term 139,8 470,1
borrowings
Current 477,7 475,1
liabilities
Long-term 5 297,8 3 889,2
liabilities
5 775,5 4 364,3
8. Capital 3 355,7 2 219,0
expenditure
incurred
9. Contingent
liabilities and
commitments
Local currency 181,6 98,9
guarantees (ZAR
equivalent)
Operating 724,7 907,1
leases
Commitments for
capital
expenditure
- Contracted 876,0 259,7
for
- Approved but 5 790,7 1 941,2
not contracted
for
10. Cash and cash
equivalents
Bank balances, 1 214,2 804,9
deposits and
cash
Loans to
affiliated
companies
receivable on - 3,8
demand
Call borrowings (337,9) (5,0)
876,3 803,7
Commentary
OVERVIEW
M-Cell Limited`s ("M-Cell") revenue increased to R12 432,0 million,
representing a significant 49,1% increase over last year. The successful
launch of MTN Nigeria Communications Limited ("MTN Nigeria") during the year
was a major contributor to this increase. The total number of capable
subscribers rose by 36% to 4 774 000. Earnings before interest, tax,
depreciation and amortisation ("EBITDA") increased by 34,9% to R3 764,8
million. The Group EBITDA margin declined from 33,5% to 30,3% due mainly to
the start-up of MTN Nigeria. Basic headline earnings per share ("Headline
EPS") declined by 4,3% to 71,3 cents, which was in line with the Group`s
expectations due to the anticipated losses in Nigeria in its first year of
operation.
Key highlights and corporate transactions during the financial year under
review were:
- June 2001 - Acquisition of 60% of Citec (Proprietary) Limited ("Citec"), a
tier one internet service provider ("ISP") for a purchase price of R12,3
million. Citec has recently been renamed MTN Network Solutions (Proprietary)
Limited ("MTN Network Solutions")
- August 2001 - Launch of a cellular network in Nigeria through MTN Nigeria,
in which M-Cell currently holds a 77,5% interest
- October 2001 - Increase of M-Cell`s interest in MTN Uganda Limited ("MTN
Uganda") by 2% to 52% for a purchase price of US$2,6 million
- Acquisition of 36% of Leaf Wireless (Proprietary) Limited for a purchase
price of R15 million, a technology and content partner which has supplied
content to MTNICE since its inception and has developed several applications
for the portal
REVIEW OF RESULTS
Revenue increased by 49,1% from R8 337,3 million to R12 432,0 million.
Revenue from the South African operations of Mobile Telephone Networks
Holdings (Proprietary) Limited ("MTN Holdings") grew by 26,8% and
contributed 80% of total Group revenues. MTN Nigeria, which only launched
operations in August 2001, exceeded expectations and contributed revenue of
R1 316,5 million.
Total EBITDA increased by 34,9% to R3 764,8 million. The EBITDA margin of
the Group declined from 33,5% to 30,3%. This is as a result of a slight
EBITDA margin decline from 33,9% to 33,4% in the South African operations
due to competitive pressures, and a lower EBITDA margin of 18,7% recorded by
MTN`s African operations compared to last year`s 30,1% as a result of the
impact of the Nigeria start-up.
Net finance costs for the Group increased by 73% to R316,9 million,
primarily due to the interest incurred for the full year on the debt raised
for the investment into Nigeria. The net offshore borrowings of MTN
International of US$214,1 million are unhedged since current South African
Reserve Bank ("SARB") exchange control regulations prevent this. During the
year, M-Cell was allowed by SARB to contribute the maximum investment
allowance of R750 million plus an additional 10% of the residual investment
value for its investment into Nigeria. A further US$20 million was
externalised in terms of a SARB approved offshore placement of shares (asset
swap) during January 2002. The Group continues to explore avenues to reduce
its unhedged dollar exposure.
Headline EPS were negatively impacted by the start-up losses and increased
interest expense relating to the Nigerian investment, and declined by 4,3%
to 71,3 cents compared to last year`s 74,5 cents. The South African
operation contributed 87,8 cents to headline EPS, an increase of 10,9% on
last year, which was offset by the negative impact of 15,8 cents from the
African operations.
Reviewing the Group balance sheet, total assets increased by 23,5% to
R27 460,1 million. Net borrowings increased by R1 billion primarily due to
the devaluation of the Rand. The gearing ratio, being net interest-bearing
debt as a percentage of total equity (after reversing out the goodwill asset
of R10 802,6 million) is at 76%, which is acceptable considering the current
expansion into Africa.
REVIEW OF OPERATIONS
MTN SOUTH AFRICA
Mobile Telephone Networks (Proprietary) Limited ("MTN") and M-Tel
(Proprietary) Limited ("M-Tel") (together "MTN South Africa") recorded
satisfactory results for the financial year despite the slightly negative
economic conditions and the entrance of the third mobile operator in
November last year. The sharp depreciation of the Rand has also negatively
impacted on operating costs.
During the financial year, MTN South Africa`s strategy has been to focus on
subscriber value rather than volume. This strategy involves stimulating
usage by the existing subscriber base, the retention of high-value customers
through innovative additional service offerings and rendering excellent
service. In addition, MTN South Africa targeted the underserviced small and
medium enterprises ("SMEs") sector and the corporate market through a range
of relevant data services. As a result, a healthy 12% increase was recorded
on the post-paid subscriber base which increased from 760 000 to 852 000
subscribers. Average revenue per user ("ARPU") for this segment increased to
R561 per month.
In the prepaid market, competitive activities increased as a result of
discounting of starter packs and handsets. MTN South Africa made a strategic
decision not to aggressively compete in the low-end segment of the prepaid
market and as a result experienced slower growth in this segment.
Nevertheless, the capable prepaid base increased by 23% to 3 025 000
subscribers while ARPU has reduced year on year to R105. The year-on-year
blended ARPU decreased to R208, a decline of less than 9% from last year.
Although still at an infancy stage, data services contributed a total of
R312,0 million to revenue, representing 3,1% of MTN South Africa`s revenue.
During the year, MTN announced the launch of DataFast, a business solutions
product which allows customers to access data at higher speeds than
competing networks. Furthermore, over 99% of the network has been upgraded
to support General Packet Radio Service. ("GPRS"). This will provide a
mobile link directly to the Internet and increase data speeds to 44 kbs
initially, thereby making it an ideal tool for remote access of corporate
Local Area Networks ("LANs"). The introduction of GPRS services will further
consolidate MTN`s position as the leading innovator in the value-added
services arena.
MTN INTERNATIONAL
MTN Nigeria turned in a strong performance for its first eight months of
operation. Demand was far stronger than had been anticipated and a total of
327 000 subscribers were connected by year-end, compared to an initial
business plan forecast of 174 000 subscribers. The network now operates in
11 cities, with the key markets being Lagos, Port Harcourt and Abuja. To
date 183 base stations have been commissioned since the launch of the
network.
Total revenue of R1 316,5 million was recorded, with ARPU levels of
approximately US$60, excluding connection fees. A small EBITDA loss of R25,3
million was incurred, which was significantly better than the initial
business plan projections.
MTN Cameroon recorded subscriber growth of 234% in the current year to 224
000, from 67 000 last year. The EBITDA margin turned positive during the
year under review to 19%, but ARPU levels were below expectations. A total
loss of R39,9 million was recorded for the year.
Subsequent to the year-end, in compliance with the licence undertaking, the
Group disposed of 30% of MTN Cameroon to its Cameroonian partner, Broadband
Telecom. This was sold at the original cost of the investment plus
carrying costs. A funding arrangement has been entered into with our local
partners.
MTN Uganda Limited ("MTN Uganda") increased its subscriber base by 48% from
the previous year to 222 000 subscribers by year-end. With revenue
contribution to
M-Cell of R462,0 million and an EBITDA margin of 45%, MTN Uganda continues
to be a strong performer.
Rwandacell S.A.R.L ("MTN Rwanda") increased its subscriber base by 77% from
the previous year to 69 000 subscribers, while MTN Swaziland recorded 55 000
subscribers at year-end, an increase of 67% from the previous year. Both
operations continue to perform well.
STRATEGIC INVESTMENTS
The Strategic Investments portfolio comprises the Group`s investment in
Orbicom, MTN Network Solutions (60% owned) (formerly Citec) and Airborn.
This division was formed to identify and exploit opportunities in the mobile
and Internet arenas.
For the year under review, Orbicom`s revenue increased by 12% to R101,0
million. The Electronic Funds Transfer ("EFT") system in Ghana became
operational on 1 June 2002.
MTN Network Solutions has consolidated its position as a provider of high-
quality Internet access products and services, and in the process has
created a highly efficient and scaleable national Internet Protocol ("IP")
network.
Airborn markets MTN`s technologies internationally. The partnership with
Italian company Wind through systems integrator Aliasnet has continued to
evolve. Although achieving a user base of over 7 million, mtnsms.com was
forced to discontinue its free sms messaging service as a result of the
introduction of charges on international signalling links. A new fee-paying
service will be launched shortly.
PROSPECTS
The Group forecasts that the addressable market in South Africa will expand
to 14 million subscribers within the next five years, reflecting a more
mature market. This will result in slower growth than previously
experienced. With increased focus on value and customer retention, MTN South
Africa expects to grow its revenue in line with the overall market, while
improving its margins. With the capital expenditure to revenue ratio
expected to be below 10% for the forthcoming year, the South African
operations are projected to generate significant free cash flow.
Over the past year, the contribution to revenue from operations outside
South Africa has increased from 4,5% in 2001 to 18,9%. This is in line with
the Group`s stated objective of deriving in excess of 35% of its revenue
from operations outside South Africa within the next two years.
MTN Nigeria has established itself as the core of M-Cell`s Africa strategy.
With an estimated market potential of 10 million subscribers by 2010, it is
expected that the Nigerian operation will become a significant contributor
to M-Cell`s revenue and EBITDA in the forthcoming year. However, the
Nigerian operation is not expected to earn a profit after tax during the
next financial year.
While taking cognisance of the Group`s current expansion into Africa and the
related funding requirements, coupled with the existing exchange control
limitations, the Group will continue to explore further opportunities on the
continent in line with its vision of being the leading provider of
communication services in Africa.
It is forecast that earnings per share should resume its growth trend in the
forthcoming year, assuming a continued strong performance by MTN Nigeria.
In May 2002 the Government of South Africa issued the Invitation to Apply
("ITA") for a 51% interest in the Second Network Operator ("SNO"). The Group
is currently evaluating a response to the ITA.
Subsequent to year-end, the board announced that Mr Phuthuma Nhleko will
succeed Mr Paul Edwards as Chief Executive Officer of the Group with effect
from 1 July 2002. Mr Paul Edwards will continue to assist the Group on a
consulting basis.
The Board is pleased to announce that Mr Cyril Ramaphosa has been elected as
the new non-executive Chairman of M-Cell.
DIVIDEND
As a result of the increased funding requirements for the Group`s expansion
into Africa, the directors believe that it is in the best interest of
shareholders to utilise retained earnings to minimise the level of
borrowings. As a result, the Board of Directors has decided to continue
their decision not to declare a dividend at this point in time. This will be
reviewed on an ongoing basis to optimise shareholders` value.
SHAREHOLDER MATTERS
During the year under review, Johnnic Holdings Limited ("Johnnic"), M-Cell`s
parent company, has undergone extensive group restructuring. Johnnic now
holds a direct interest of 36,6% in M-Cell. Johnnic and Transnet concluded a
voting pool arrangement in terms of which Johnnic and Transnet pool their
votes on matters material to M-CelI.
Over the past year some of the three-year financing structures for the black
economic empowerment groupings ("BEEGs") in M-Cell were closed out.
M-Cell`s free-float of shares, which are shares easily available for
trading, increased significantly from 16% last year to over 38%.
For and on behalf of the Board
P F Nhleko P Edwards
(Non-executive chairman) (Chief executive officer)
12 June 2002
Johannesburg
Directors: P F Nhleko (Chairperson) - D D B Band - I Charnley - Z N A Cindi
- R S Dabengwa - P Edwards* - P Heinamann - C R Jardine (Alternate: L C
Webb)
R D Nisbet - M C Ramaphosa (Alternate: J R D Modise) - PL Zim *British
Company secretary: M M R Mackintosh
Transfer secretaries: Mercantile Registrars Limited - 11 Diagonal Street -
Johannesburg 2001 - PO Box 1053 - Johannesburg 2000
Registered office: 3 Alice Lane - Sandown Ext. 38 - Sandton, 2146 - Private
Bag 9955 - Sandton 2146
These results can be viewed on the website at http://www.m-cell.co.za
E-mail: investor_relations@mtn.co.za
Date: 12/06/2002 05:57:30 PM Produced by the SENS Department
|