MTN: Telecommunications

THE COMPANY: MTN is a multinational telecommunications company, headquartered in South Africa, with operations in 21 countries across Africa and the Middle East. MTN’s offerings include voice services via 2G or GSM networks and data through 3G networks.

Incorporated in 1994 under the name M-Cell, the company was second in South Africa to be awarded a mobile license, commencing commercial operations in June of 1994. Having established itself in South Africa, M-Cell expanded its footprint by obtaining licences in Swaziland, Uganda and Rwanda in 1998. In 2000 M-Cell started operations in Cameroon following the acquisition of Camtel. M-Cell acquired a licence in Nigeria in 2001, and started building its radio transmission backbone in 2002. Subsequently, Nigeria has become the company’s growth engine, contributing 39% to group EBITDA in 2011. It was in October of 2002 that the company was rebranded to MTN.

Phuthuma Nhleko joined MTN in 2001 as chairman and was promoted to group president and CEO in 2002, leading the company for nine years. A civil engineer by trade, Nhleko was a senior member of the Standard Corporate and Merchant Bank corporate finance team. Before Nhleko took the helm at MTN, the company was only present in six countries. Under Nhleko’s tenure, MTN expanded across the continent and the Middle East through a series of acquisitions. In 2005, the company acquired interests in operators in the Republic of Congo, Iran, Botswana, Zambia and Côte d’Ivoire. MTN acquired the entire share capital of Investcom in 2006 for R33.5bn ($5.5bn), expanding to an additional 10 countries (Benin, Cyprus, Ghana, Guinea Bisssau, Liberia, Sudan, Syria, Yemen, Afghanistan and Guinea), making the group one of the world’s largest emerging markets telecommunications players. MTN recorded 165m subscribers across its operations in 2011.

MTN reported strong numbers in the second half of 2011. Significantly, group organic revenue growth accelerated to 10% from 9.4% in the first half of the year, despite increasing competition and a slower economic backdrop. The second half of 2011 saw constant currency growth of 6.3% in Nigeria, having been at 13.1% in the first six months, resulting from aggressive price competition and weaker market net adds due to SIM registration. However, growth in MTN’s other core markets was robust and beyond expectations, and the company increased its payout ratio to 70% (from 65%) and confirmed that it will engage in share buybacks.

DEVELOPMENT STRATEGY: Nhleko stepped down as CEO of MTN in March 2010. This decision was closely followed by two failed merger attempts with India’s Bharti Airtel. Sifiso Dabengwa was appointed as his successor. Dabengwa was with the group for 11 years, having managed both the Nigerian and South African units. The new chairman has steered the focus of the company away from mergers and acquisitions (M&A), but the company has stated that M&A opportunities will still be considered in the future.

MTN’s medium-term strategy is focused on maintaining and improving its market positions and strengthening its position in data services in all markets. The company is targeting 2012 group subscriber growth of 12.3%, having worked towards 12% in fiscal year 2010 results and delivering 16.2% in 2011. Cost optimisation initiatives are increasingly becoming a company priority. These initiatives have only recently been implemented on a centralised basis. MTN has stated its full commitment to returning cash to its shareholders, and, given its strong cash flow generation and net cash position, MTN seems likely to continue delivering on shareholder returns through 2012.

MTN’s strong market positions and growth profile is thanks to its historical investment. Despite a step up in shareholder remuneration, the company confirmed accelerating investment in core markets. In Nigeria, this is likely to extend its existing network advantage, positioning it to leverage increasing voice penetration and GDP growth. In our view, the company’s strong fundamentals and exposure to GDP and voice penetration growth will support its sector-leading growth profile.