MTN Group Limited. Finance session for sell-side analysts

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Dustin McKenzie
5 years ago
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1 MTN Group Limited Finance session for sell-side analysts

2 AGENDA 1 Finance 2 Tax 3 Associates 4 Business outlook

3 Finance

4 FINANCE 1 Income statement breakdown Depreciation Amortisation Finance cost Minority interest Associates (including towers)

5 Summary consolidated income statement - IFRS For the year ended 31 December ZAR (million) Revenue Other income Direct network and technology operating costs (18 809) (16 354) Costs of handsets and other accessories (10 829) (10 314) Interconnect and roaming (13 102) (13 653) Staff costs (8 587) (8 838) Selling, distribution and marketing expenses (18 412) (17 174) Government and regulatory costs (5 888) (5 734) Other operating expenses (11 433) (9 600) EBITDA before regulatory fine Regulatory fine (9 287) 0 EBITDA Depreciation of property, plant and equipment (19 557) (18 262) Amortisation of intangible assets (3 736) (3 251) Impairment of goodwill (504) (2 033) Operating profit Net finance costs (3 010) (3 668) Net monetary gain Share of results of joint ventures and associates after tax Profit before tax Income tax expense (11 322) (13 361) Profit after tax Attributable to Equity holders of the Company Non-controlling interests

6 Overview FY 2015 vs. FY 2014 excluding hyperinflation 6% 14% 16% Depreciation Amortisation Capex 37% 29% 19% Interest paid Forex losses Share of results from associates and JV s 13% 16% Tax Minorities 6

7 Depreciation Impacted by increase in PPE capex, up 15% to R25 341m Depreciation up 6%, (organic up 6%) Driven by increase in network infrastructure up 22% to R78.6bn - RSA up 25% YoY PPE increased 26% - Cameroon PPE up 141% (101% LC) - Ghana PPE up 28% (13% LC) Nigeria down 11% (9% LC) due to tower sales - Depreciation discontinued in Q for tranche 1 and 2 Estimated useful lives of property, plant and equipment # Years Buildings owned Buildings leased Network infrastructure Information systems equipment Furniture and fittings Leasehold improvements Office equipment Motor vehicles Depreciation (ZARm)* H1-14 H2-14 H1-15 H % +0% % Asset base breakdown / capex (ZARm)* H1-14 H2-14 H1-15 H2-15 PPE Capex Opco % contribution to depreciation increase^ RSA Nigeria Ghana Cameroon Ivory Coast Uganda Other Opco % contribution to network infrastructure increase^ RSA Nigeria Ghana Cameroon Ivory Coast Uganda Other Refer to slide 27 for breakdown of depreciation per opco * Excluding hyperinflation ^ Organic contribution # No changes to depreciation rates or policies 7

8 Amortisation and goodwill Impacted by increase in licences Amortisation up 14%, (organic up 16%) Nigeria up 13% (14% LC) acquisition of 4G licence and NBC spectrum of R3.4bn in H RSA up 28% YoY Goodwill impairment 51% goodwill impairment in Conakry R504m - WACC increased from 13.69% to 16.56% resulting in impairment The following opco s are at risk for goodwill impairment - Yemen (R4 018m) - Afghanistan (R1 656m) - Sudan (R1 190m) - Conakry (R490m) - Syria (R249m) Increase in licences mainly as a result of acquisition of licences and spectrum acquired during 2015* (ZARm) Amortisation period Amortisation p/a (ZAR m) Cameroon Syria Ivory Coast Nigeria 4G licence Nigeria spectrum Visafone Total Amortisation (ZARm)* +0% H1-14 H2-14 H1-15 H2-15 Intangible assets (ZARm)* % % Estimated useful lives of intangible assets # Years Licences Customer relationships Software Other intangible assets H1-14 H2-14 H1-15 H2-15 Intangible assets Capex Refer to slide 27 for breakdown of amortisation per opco * Excluding hyperinflation # No changes to amortisation rates or policies 8

9 Finance cost net interest head office Finance cost decreased 17% to R3 005m impacted by 37% decline in net interest paid Net debt increased to R31 635m from R4 543m* MTN Mauritius impacted by interest charged on unpaid dividend of R8 158m and loan receivable of R2 128m from Iran with effect from 25 August 2015 Other primarily relates to interest earned on tower companies Net interest paid external (ZARm) +570% -49% -83% (92) (121) (111) (123) (371) (27) (111) (154) (153) (214) H1-14 H2-14 H1-15 H2-15 MTN Holdings MTN Mauritius investments MTN Mauritius Dubai Head Office Other (189) Head office borrowings ZAR m (13 139m) Head office cash Euro 42m (113m) ZAR 2 223m (3 610m) USD 1 422m (561m) USD 324m (892m) * Detail on net debt, refer to slide 30 Detail on borrowings, refer to slide 31 9

10 Finance cost net interest Nigeria Nigeria decrease in net debt by R5.1bn YoY - Net interest bearing liabilities increased to R26bn (2014: R25bn) due to ZAR & Naira weakening against USD Net interest paid external (ZARm) +15% -46% % Current investments increased by R3bn (USD97m) to R7.6bn (USD493m) o Treasury bills with fixed interest rates of 12.9% to 15.8% (2014: 10.8% to 14.5%) R6.8bn (2014: R3.5bn)¹ H1-14 H2-14 H1-15 H2-15 Interest expense Interest income o Foreign currency fixed deposits with fixed interest rates of 3.5% to 4.3% (2014: 2.0% to 2.8%) R428m (2014: R1.1bn)² o Commercial paper with fixed interest rates of 13.5% to 13.6% R374m (2014: nil)¹ Nigeria borrowings USD 432m (604m) USD 99m (312m) Nigeria cash Euro 5m (6m) Naira 251bn (282bn) Naira 1 779bn (889bn) 1. Denominated in Naira 2. Denominated in USD Detail on borrowings, refer to slide 31 10

11 Finance cost forex Mauritius Net forex loss up 29% to R1 409m impacted by depreciation of local currencies Mauritius forex gain of R348m Net forex losses/(gains) H1-15 H2-15 YTD 15 H1-14 H2-14 YTD 14 Mauritius 253 (601) (348) 104 (441) (337) ZAR (million) Euro USD IRR XAF UGX Other Realised loss/(gain) Unrealised loss/(gain) Mauritius 331 (9 614) (469) (348) Long-term loan - Iran (213) (213) Long-term loan - Dubai 527 (237) (237) Dividend - Iran (1 487) (1 487) Dividend - Cameroon (195) (166) Dividend - Uganda 638 (8) (8) Long-term loan - Nigeria TowerCo Head-Office (MTN BV) (2 320) (2 320) Bank and cash (175) (22) (197) Inter-company debtors (135) (441) (576) Investment (11 601) Revolving credit facility (10 364) Borrowings - Dubai Other 331 (39) (157) 26 (131) (105) Total USD:ZAR 2015: (2014: 11.55) IRR:ZAR 2015: (2014: 2 342) 11

12 Finance cost forex payables Net forex loss up 29% due to the depreciation of local currencies against USD Nigeria Naira depreciated 8% YoY USD 3rd party borrowings R6 679m and USD 3rd party payables R1 244m Ghana Cedi depreciated 19% YoY USD 3rd party borrowings R349m Zambia Kwacha depreciated 72% YoY USD 3rd party borrowings R724m offset by USD bank and cash R351m South Sudan South Sudanese pound depreciated 509% YoY (vendor financing) Sudan Euro 3rd party borrowings R1 721m; USD 3rd party borrowings R714m and USD interco payables of R733m Other primarily relates to forex exposures in tower companies Net forex losses/(gains) H1-15 H2-15 YTD 15 H1-14 H2-14 YTD 14 Nigeria 769 (57) ^ Ghana 81 (6) (3) 155 Dubai 36 (21) Zambia RSA 77 (207) (130) South Sudan Sudan (75) (3) (1) (4) Other 247 (37) ZAR (million) Net exposure asset/(liability) Euro USD Other Forex (gains) / losses Nigeria (8 622) 27 (8 617) (32) 712 Ghana (390) 8 (400) 2 75 Zambia (373) 3 (371) (5) 303 South Sudan (733) - (739) Sudan (3 593) (2 221) (1 369) (3) 138 ^ Nigeria recorded forex losses of R596m in the month of February 2015 when the naira weakened 12.4% against the dollar 12

13 Profit attributable to minority shareholders ZAR (million) Nigeria Tower Sale Nigeria Ivory Coast Benin Cameroon Other Total Profit after tax vs. minorities (ZARm) profit 2015 profit minorities 2015 minorities Tower sale Nigeria Ivory Coast Benin Cameroon Other Financial summary of subsidiaries with material minority shareholders* Nigeria Ivory Coast Benin Cameroon ZAR (million) Summarised income statement Profit before tax Income tax expense (4 264) (5 360) (313) (587) 1 1 (635) (852) Profit after tax % ownership interest held by minority shareholders Profit attributable to minority shareholders (%)

14 Share of results of joint ventures and associates after tax (IFRS) ZAR (million) H1-15 H2-15 YTD 15 H1-14 H2-14 YTD 14 Change % Iran Swaziland (2) Botswana BICS Tower companies (64) (782) (846) (92) (194) (286) (196) - Ghana 22 (22) - (3) (31) (34) NM - Uganda¹ (149) (152) (301) (89) (98) (187) 61 - Nigeria² 63 (608) (545) - (65) (65) NM Share of results of telco joint ventures and associates after tax excluding hyperinflation Iran Hyperinflation (2015: Depreciation of assets written up) Share of results of telco joint ventures and associates after tax including hyperinflation (9) 362 (2 130) (1 768) (197) (434) (638) (60) Digital Group (324) (299) (623) - (124) (124) AIH (249) (169) (418) - (94) (94) MEIH (42) (87) (129) - (30) (30) IME (33) (43) (76) NM Share of results of joint ventures and associates after tax (937) (74) 1.Includes share of net interest expense of R53m (2014: R50m) and forex losses of R261m (2014: R70m). Shilling:USD 2015: (2014: 2 760) 2.Includes share of net interest expense and forex losses of R409m and additional depreciation on towers sold of R279m. NGN:USD 2015: (2014: ) 14

15 Iran hyperinflation impact Iran out of hyperinflation June 2015 Iran hyperinflation accounting was applied to June 2015 Impact post June 2015 limited to amortisation and depreciation of PPE / intangible assets and realisation of costs on inventory and prepaid expenses that were historically written up by an inflation factor No monetary gain was realised and revenue and interest income was not inflated post June 2015 Inflated amortisation and depreciation impact future earnings over the useful lives of the inflated assets The impact on the Group s share of results from Iran for the six months ended 31 December 2015 amounted to a loss of R2 129m The full impact will be reversed by 2033 Breakdown of hyperinflated income statement December 2014 ZAR (million) Non hyperinflated I/S Hyperinflation Hyperinflated assets I/S EBITDA Depreciation Amortisation Operating profit (1 175) Interest (1 556) (209) (1 765) Equity income 1-1 Monetary gain/loss Profit before tax Tax (155) Profit after tax Breakdown of hyper-inflated assets Non hyperinflated assets Hyperinflation Hyperinflated assets ZAR (million) Dec 2015 Dec2014 Dec 2015 Dec2014 Dec 2015 Dec2014 Non current assets PPE Land and buildings Network infrastructure Information systems equipment and furniture and fittings Office equipment Motor vehicles Other Intangible assets Licences Software Customer relationships Current assets Prepayments

16 Tax

17 TAX 1 Tax legislation 2 Tax integrated report 3 Group tax 2015 vs Effective tax rates 5 Total tax contribution 6 STC vs. dividends tax

18 Highlighted changes to tax legislation South Africa The deletion of section 6quin in 2015 MTN lobbied for non-deletion Benin Introduction of development tax of 2% indirect tax on turnover with effect from September 2015 Additional cost to company The impact of the development tax is approximately R94m (USD6m) based on Q forecast turnover for Benin Nigeria Commission services tax ( CST ) is the proposed additional indirect tax levied at 9% of telecom services Typically CST is borne by the subscriber, however due to subscriber affordability constraints, the tax is likely to be absorbed by telcos impacting EBITDA The estimate possible impact of CST, using Q forecast turnover (excl. handset revenue), is R5.6bn (USD356m) 19

19 Extract: 2015 tax integrated report (Group) Uncertain tax positions Governed by the MTN tax risk management ( TRM ) policy TRM is part of MTN s broader governance framework For details on MTN s approach to tax, please refer to the 2015 Tax Integrated Report IAS 37 requirements consideration The relevant tax provisions and/or contingencies are disclosed to the external auditors, the Group audit committee and the Group board Contingent liabilities due to uncertain tax exposures in various tax jurisdictions where the Group operates amounted to R865m 20

20 Group tax 2015 vs Normalised Group effective tax rate (GETR) of 32.6% (FY 2014: 31.1%) Reported group effective tax rate of 32.4% (FY 2014: 26.2%), impacted by hyperinflation, tower transaction proceeds - The tower profits were R7.4bn in 2014 and contributed to a decrease of 4.1% of GETR Nigeria fine provision increased reported effective rate by 11.1% Withholding tax 4.4% (FY %): The actual withholding tax (WHT) was lower R1.6bn (R1.7bn in 2014) but higher effective WHT% due to lower profit before tax in 2015 compared to 2014 Current tax Lower profit before tax Prior year overprovision of current tax liability on handset revenue treatment Deferred tax income statement MTN RSA reclassification of current tax to deferred tax due to revision of handset revenue treatment MTN Cameroon prior year adjustment due to decrease in corporate tax rate Manco decrease in provisions for bonuses Tax (ZARm) % % H1-14 H2-14 H1-15 H2-15 Current tax WHT Deferred tax 21

21 Effective tax rates Opco Standard tax rate % 2015 % 2014 % Comments Group Mainly due to provision of R9.3bn that was raised for the regulatory fine by the Nigerian Communications Commission MTN SA Group Largely due to notional interest expense on intra-group guarantee provision for bond taken out by MTN Mauritius Investments MTN Nigeria Attributable to higher exempt income due to a higher income from FGN bonds and treasury bills (NGN16.3bn vs. NGN5.6bn in 2014) and higher Section 29(9) of CITA allowance (NGN37.9bn vs. NGN22.8bn in 2014) and decrease in PBT 22

22 Total tax contribution Opco ZAR (million) Group Corporate income tax, customs duties, excise duties, VAT, payroll taxes, stamp duty, property rates, operating licence fees, education tax, dividends tax, withholding tax and local government permits and other MTN SA Group Corporate income tax, VAT, customs duties, payroll taxes, operating licence fees, municipal rates & taxes and withholding tax * MTN Nigeria Corporate income tax, customs duties, VAT, payroll taxes, operating licence fees, withholding tax, dividends tax education tax and other various fees to the NCC * *Includes a reallocation of VAT paid which was previously treated as VAT refund 23

23 Secondary tax on companies vs. dividends tax Secondary tax on companies (STC) Used to be borne by companies on dividends declared at 10% Repealed in March 2012 and dividends tax was introduced Dividends tax South Africa Became effective on 1 April 2012 Levied at 15%, subject to double tax agreement ( DTA ) relief, on the amount of any dividend paid by any company other than a headquarter company Payable to SARS one month after payment of dividend Borne by shareholders Nigeria In terms of the DTA between South Africa and Nigeria, it is levied at 7.5% This is borne by the shareholder Payable to the Nigerian tax authorities soon after payment of dividend When the company declares a dividend that is more than taxable profits, the excess portion is also taxed at 30% This is borne by the company (i.e. MTN Nigeria) Payable to Nigerian tax authorities after submission of annual income tax return 24

24 thank you

25 Appendices

26 Depreciation and amortisation breakdown Depreciation ZAR (million) H H YTD 2015 H H YTD 2014 Reported % Organic % South Africa Nigeria (11) (9) Ghana Cameroon Ivory Coast Uganda Other Head office companies Total Iran (49%) Amortisation ZAR (million) H H YTD 2015 H H YTD 2014 Reported % Organic % South Africa Nigeria Ghana (8) (2) Cameroon 180 (77) (65) (53) Ivory Coast Uganda Other Head office companies Total Iran (49%)

27 Depreciation and capex: SA and Nigeria Depreciation (million) H H YTD 2015 H H YTD 2014 South Africa (ZAR) Nigeria (ZAR) Nigeria (NGN) Capex (million) H H YTD 2015 H H YTD 2014 South Africa (ZAR) Nigeria (ZAR) Nigeria (NGN) Towers held for sale Q Tranche 1 sold on 31 December Tranche 2 sold on 1 July

28 PPE capex breakdown Capex: PPE ZAR (million) H H YTD 2015 H H YTD 2014 Reported % Organic % South Africa Nigeria (44) (46) Large opco cluster Ghana Cameroon Ivory Coast (34) (31) Uganda Syria Sudan (42) (49) Small opco cluster Yemen (60) (65) Benin Afghanistan Congo B Rwanda (11) Zambia Liberia (19) (34) Conakry Cyprus (25) (23) Bissau Business Group NM South Sudan Head office companies and eliminations Total Iran

29 Net debt Net interest bearing liabilities (ZARm) % +5% % H1-14 H2-14 H1-15 H2-15 Cash and cash equivalents (ZARm) Head Office Nigeria Other +13% -20% % H1-14 H2-14 H1-15 H2-15 ZAR (million) Cash and cash equivalents* Interestbearing liabilities Intercompany eliminations Net interestbearing liabilities Net debt/(cash) 2015 Cash and cash equivalents* Interestbearing liabilities Intercompany eliminations Net interestbearing liabilities Net debt/(cash) 2014 South Africa (26 918) - (1 507) (22 382) - (1 828) Nigeria Ghana (230) Cameroon (2 877) Ivory Coast Uganda (86) (576) Other (8 277) (915) (6 130) (3 429) Head office companies (27 378) (17 406) Total (62 573) (45 918) *Includes restricted cash and current investments 30

30 Borrowings from largest contributors ZAR (million) Nominal interest (%) Interest payment MTN Holdings Syndicated term loan facility (ZAR) variable Quarterly Syndicated term loan facility (ZAR) variable Semi - annual Revolving credit facility (ZAR) variable Quarterly Domestic medium term notes (ZAR) fixed Semi - annual Bilateral term loan facility (ZAR) variable Quarterly Revolving credit facility (ZAR) variable - General bank facility (ZAR) fixed Monthly MTN International Mauritius Revolving credit facility (US$) variable Quarterly MTN (Mauritius) Investments Senior unsecured notes (US$) fixed - Total MTN Nigeria Syndicated term loan facility (NGN) variable Annual Syndicated term loan facility (US$) variable Semi-annual Export credit facility (US$) fixed and variable Semi-annual Export credit facility (US$) fixed - Vendor finance facility (US$) variable Semi-annual Export credit facility (US$) fixed - Export credit facility (US$) fixed - Export credit facility (US$) variable - Export credit facility (US$) variable - Total

31 Types of business income taxes NB: These are rates are per the domestic tax legislations but are subject to various double tax agreements applicable to MTN Group Direct tax Country Corporate tax Dividend tax WHT (Royalties) WHT (Interest) WHT (Service fees) ETR% Borne by company Borne by shareholder Borne by recipient Borne by recipient Borne by recipient Afghanistan 20% n/a* 20% 20% 7% 21.4 Benin 30% 15% 12% 15% 12% -0.1 Botswana 22% 7.5% n/a** 15% n/a** 7.5 Cameroon 33% 16.5% n/a** 16.5% 15% 52.4 Congo 30% 20% 20% 20% 20% 3.2 Cote d Ivoire 30% 12% 20% 18% n/a** 24.4 Cyprus 12.5% 0% 0% 0% 0% 13.1 Ghana 25% 8% n/a** 8% n/a** 32.1 Guinea Bissau 25% 10% 25% 10% 25% 28.7 Guinea Conakry 35% 10% 15% 10% 15% Iran 25% 0% n/a** 3% n/a** 19.5 *No dividend tax however 20% on dividends **Not applicable to MTN Group as there is no agreement 32

32 Types of business income taxes continued Country Corporate tax Borne by company Dividend tax Borne by shareholder Direct tax WHT (Royalties) WHT (Interest) Borne by recipient Borne by recipient WHT (Service fees) Borne by recipient ETR% Liberia 25% 15% 15% 15% 15% 22.8 Nigeria 30% 10% n/a* 10% n/a* 25.8 Rwanda 30% 15% n/a* 15% 15% 32.1 South Africa 28% 15% 15% 15% 0% 28.6 South Sudan 20% 10% n/a* 10% n/a* Sudan 30%** 0% 15% 15% 15% 20.1 Swaziland 27.5% 15% n/a* 10% 15% 29.2 Syria 14.7% 0% n/a* 7.5% 3% 13.2 Uganda 30% 15% 15% 15% 15% 30.1 Yemen 50% 0% 10% 10% 10% 49.9 Zambia 40% 15% 20% 15% 20% 43.7 *Not applicable to MTN Group as there is no agreement **Corporate tax holiday until April

33 Types of business revenue taxes NB: These are rates are per the domestic tax legislations but are subject to various double tax agreements applicable to MTN Group Indirect tax Country VAT CST NHIL Excise duty Borne by consumer Borne by consumer Borne by consumer Borne by consumer Afghanistan 0% n/a n/a n/a Benin 18% n/a n/a n/a Botswana 12% n/a n/a n/a Cameroon 19.25% n/a n/a 2% Congo 18.9% n/a n/a n/a Cote d Ivoire 18% n/a n/a n/a Cyprus 19% n/a n/a n/a Ghana 15% 6% 2.5% n/a Guinea Bissau 17% n/a n/a n/a Guinea Conakry 18% n/a n/a n/a Iran 9% n/a n/a n/a 34

34 Types of business revenue taxes continued Indirect tax Country VAT CST NHIL Excise duty Borne by consumer Borne by consumer Borne by consumer Borne by consumer Liberia 18% n/a n/a n/a Nigeria 5% n/a n/a n/a Rwanda 15% n/a n/a n/a South Africa 14% n/a n/a n/a South Sudan 18% 0% 0% 0% Sudan 14% 0% 0% 0% Swaziland 0% n/a n/a 13% Syria 30% n/a n/a n/a Uganda 18% n/a n/a 12% Yemen n/a* n/a n/a n/a Zambia 16% n/a n/a 15% *No VAT however 10% of turnover 35

MTN Group Limited Results presentation for the six months ended 30 June 2017

MTN Group Limited Results presentation for the six months ended 30 June 2017 Disclaimer The information contained in this document has not been verified independently. No representation or warranty express