U.S. Markets close in 3 hrs 5 mins

Edited Transcript of MTN.J earnings conference call or presentation 8-Aug-19 10:59am GMT

Q2 2019 MTN Group Ltd Earnings Call

Roodepoort Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of MTN Group Ltd earnings conference call or presentation Thursday, August 8, 2019 at 10:59:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Nompilo Morafo

MTN Group Limited - Group Executive for Corporate Services & Sustainability

* Ralph Tendai Mupita

MTN Group Limited - Group CFO & Executive Director

* Robert Andrew Shuter

MTN Group Limited - Group President, CEO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Chris Willis;All Weather Capital;Analyst

* John Kim

UBS Investment Bank, Research Division - Research Analyst

* John-Paul Davids

JP Morgan Chase & Co, Research Division - Head of South African TMT Equity Research

* Jonathan Kennedy-Good

SBG Securities (Proprietary) Limited, Research Division - Head of TMT Research & Telecommunications Analyst

* Mathibe Hlapolosa

Tamela Holdings (Proprietary) Limited - Associate

* Ziyad Joosub

HSBC, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Nompilo Morafo, MTN Group Limited - Group Executive for Corporate Services & Sustainability [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and a very warm yellow welcome to MTN Group Interim Results Presentation. On behalf of MTN, I have the pleasure of welcoming all of you today. A special mention has to go to our MTN colleagues across our operations that are dialed in via different platforms. It's been 6 months since I started this job, and I must say that in the time that I've been here, I continue to be inspired by the innovative nature that this organization has. We are so innovative that some of you might have noticed that my co-host for today is an MTN chatbot from Ivory Coast called Eva. Eva has already taken you through some housekeeping rules, but I would like to really encourage all of you to Tweet during the session using our hashtag #MTNInterims.

 

Now over to the program. First up, as always, we're going to have our MTN Group President and CEO, Rob Shuter, who will take us through our operational and strategic overview. He will be followed by Group CFO, Ralph Mupita, who will provide a financial review. Rob will return to stage, and then he will give us what he calls a look ahead to the next coming 6 months.

 

After the 3 presentations, then we are going to be ready to take any questions from the floor. On that point, I would like to encourage all members of the media to hold off with the questions because we're going to have a media session that's going to be held at 11:00 at our [core lab]. So if you can just please hold off so that we give other people that are not attending that session a chance to ask questions.

 

We are also streaming live on Twitter and our LinkedIn pages. So you are more than welcome to post any other questions you have via those platforms, we will attend to them accordingly.

 

On that note, it's now over to you, Rob.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [2]

--------------------------------------------------------------------------------

All right. Good morning, everybody. Big welcome from my side as well. Thanks to so many who've joined us here in the auditorium in Johannesburg. Also a big welcome to those that are joining us on the various streaming platforms.

 

I'll take you through quickly our reflections on the first half. So obviously, we published our numbers this morning. Some of you may have had a chance to look at them. There's a lot of numbers on the slide. I'll pick out just a few that I think are really important.

 

Top left, we've got constant currency service revenue growth 9.7%, so just under our medium-term guidance. We have seen trading conditions a bit difficult the first half. I think it's a combination of a more muted South African macro, the repricing of our out-of-bundle data rates. Nigeria, a little bit muted as well with the presidential elections, the cabinet not being formed yet. And of course, in Iran, we have the effect of economic sanctions, which have really impacted the rial and the exchange rate.

 

So the backdrop for this first half is difficult trading conditions. And with that as context, I think constant currency service revenue growth, just a few basis point short of our medium-term guidance is a solid result.

 

On the top right-hand side of the chart, you'll see that EBITDA grew as well over 10%. So that means we've continued to generate these incremental improvements in the group's EBITDA margin. CapEx, revenue growth, just under 10%, very stringent control of our investment program. We're really starting to see that improvement come through in the CapEx intensity ratio, which you'll see for the first half is actually just under 17%.

 

Holdco gearing, net debt to EBITDA for holdco where we have a target range of 2 to 2.5, we've kept that stable at 2.3. And probably one of the more important numbers on this slide, just to the right of that is our adjusted HEPS. So adjusted HEPS is really adjusting for one-off noncash items but also adjusting for this change in accounting standards. So it's a like-for-like under IAS 17. And we have growth of 12,1%. And that's the first time in the last 4 years that we've seen adjusted HEPS growth from MTN Group. So really providing us with some comfort that our plans and our strategies are coming forward. Ralph, of course, will unpack this in much more detail for you in the next section.

 

If you look at the operating review, so quickly to look at the markets and the regions. South Africa, I think, also a challenging first half. So of course, as I said, the macro was a bit soft. We had a promotion, the famous 1-gig promotion, which, in the end, we decided was not really generating economic value. So we pulled that out of the market. A lot of those SIMs have now gone dormant. That's why you see a just under 2 million drop in the total subscriber numbers.

 

If you look at data revenue, it's just under 6%, still pretty okay considering that we're absorbing that repricing. Good progress on the network. Population coverage now the highest of the group, 99% for 3G, 91% for 4G. We have leading P3 tests for the South African network, which means also it is basically the best network in Africa, certainly compared to all the rest of the MTN portfolio.

 

I think good progress still in postpaid. So you'll see that our total postpaid subscribers now back into growth of 5.9 million. That's a combination of consumer, enterprise and machine-to-machine, also driving good growth in postpaid service revenue there in the bottom right. Strong network performance, strong NPS. We have a leading NPS now, and our measure is about 4 percentage points ahead of the competition. So basically, good network, good performance in consumer postpaid, some challenges in prepaid and data with the repricings. And our enterprise business, which was shrinking last year around 11%, that rate has been brought down significantly, and Ralph will unpack that as well.

 

If we turn to Nigeria. I think a really strong performance by Ferdie and the team there, particularly subscriber growth. So that's 3.3 million net adds in H1. So the base up now at 61.5 million. Good growth in active data subscribers to 20,7, pushing out on the network as well. We have 4G coverage in 39 cities. In the half, we finally got approval to use the 800 spectrum that we acquired a few years ago. So we're going to have a big push to expand the LTE coverage now in Nigeria in H2. Strong drivers, also voice up plus 11%, data up 32%. So I think a really good commercial performance from MTN Nigeria and should even strengthen in H2.

 

If we look at our 3 regions. So these are our consolidated subsidiaries now divided into SEAGHA, WECA, MENA. On the left and the right, you'll see that the SEAGHA region and MENA region both growing around 20%. So that is a continuation of the growth rates we saw in 2018. Obviously, they're both lifting up the group's results as well. Remember, if you look at it at EBITDA/revenue contribution, we're basically a group that's 1/3 South Africa, 1/3 Nigeria and 1/3 what you see on this slide. So it's an important contributor as well to the group's revenue.

 

Challenge is in the WECA portfolio. So that portfolio was shrinking last year, 2018, minus 5%. With a very strong recovery in MTN Cameroon, you'll see we've got WECA back into growth. Further improvements expected in the second half. We really need to pull that portfolio up to at least where the overall group's revenue growth is.

 

You also see that the 3 regions contribute significantly to the group's subscriber numbers. There's around 6 million, 7 million of net adds across these 3 regions alone.

 

So that's a little bit about the portfolio. Turning to strategy. In the full year results and in our Capital Markets Day, we really set out that we are focusing the group on 6 revenue pools. And because we are implementing our digital operator strategy, we can access not only the traditional voice, enterprise data and wholesale, but we can also access at scale the fintech and digital services. So those are the 6 revenue pools we'll talk about, and I have a quick overview on each of them.

 

So voice for MTN Group as a whole grew 4.5% in H1. It's almost a ZAR 40 billion business in 6 months, so still the largest contributor to the group's results. I think our position on it is all said in the heading that we believe for MTN Voice is a growing business. Why is that? Because people penetration is low. There's still population growth in our markets. Usage is still rising. And I think you see that trend continuing on the slide. Base growth of 7.7 million in the half. MOU per subscriber up 6% as we implement our CVM initiatives to stimulate usage and a very big focus on the youth offering. Remember, the demographics of our markets, 60% of the population below 24. We've implemented our segmented youth product and strategy now across 16 of the markets.

 

If I look at data, again, in the heading, it's our core medium-term growth driver. We really see the next 3 to 5 years as the scale adoption of the mobile Internet across our markets. Data revenue, just shy of 20%, obviously subdued also by that repricing in South Africa. So we expect that to recover further in the quarters ahead. It's a ZAR 16 billion revenue business. Similar pattern to voice. You've got subscriber growth, so another 3.5 million subs in the first half. You've got usage growth, 46% traffic growth. There is pricing pressure, but at 20% over the years, that's obviously really being outweighed by this very strong growth in customers and usage.

 

We did well with our smart feature phone. You may remember that we announced that right at the back of last year. We've rolled it out across a number of the markets, sold almost 300,000 of them. So that's a $22 form factor of a basic phone, but it has Internet services, really useful for entry-level customers coming in. And not to stand on our heels, we also will be launching in the next quarter Android low-cost smartphone, and this is a $20 device made by Mobicel.

 

So I was presenting to one of the investors a couple of months ago, and they told me that 10 years ago, I was talking to them about low-cost smartphones. And I remember that 2009 and then a low-cost smartphone was $60. $20 Android go smartphone across the MTN markets, I think, is really exciting.

 

Digital. Digital really is, I guess, 2 stories. On the one hand, you've got our legacy VAS business. And that business is really fading out of our results. And it fades out for 2 reasons because subscribers who are buying these services on basic phones, when they move to smartphones, and you can just download an app and access a weather service, you're not anymore going to pay a small amount of money every month for that service. So the transition from basic phones to smartphones is really over time going to erode that VAS business. And the second thing is that we've really done a lot of optimization of that. We put a lot of controls in, double opt-in, controlling fraud, giving our customers a lot more choice.

 

So the shrinkage in the revenue looks quite severe, minus 43%, but as you see on the slide, there's only really ZAR 1.4 billion left. That's ZAR 1.4 billion of a ZAR 70 billion business. So the old business is fading out. And what we are trying to do on the right-hand side of the slide is to build the new digital businesses with a focus on media, messaging and mobile advertising. I think good progress there as well. We have an enhanced go-to-market plan for MusicTime. We're going to be launching in Nigeria in H2. That was really one of the biggest markets for music streaming.

 

Ayoba. I'm personally very, very excited about Ayoba. It's our own advanced instant messaging platform. We've launched it in 3 markets. The adoption has been really beyond our expectations. More than 300,000 active customers just in the 3 smaller West African markets. That's before we get to Ghana's, before we get to Nigeria's, before we get to South Africa. We made a lot of enhancements to the product as well. It's got obviously instant messaging, pictures. It's got emoticons. We've launched channels on Ayoba now, so enterprise customers can advertise. We're going to integrate payments. We've got local language support. So there really is a big play going on there that I think we're going to have just some fantastic news on that for the full year results with some really significant customer gains.

 

Fintech, major driver of new value creation. You can see revenue growth there, over 30%, ZAR 4.7 billion in H1, similar pattern to data as well. We're growing the users, up at 30 million. We put on 2.4 million of net adds in H1. We're growing the usage. Some staggering figures there. $44 billion of transactions went through our platform in the first 6 months of 2019. 9,000 -- almost 9,200 transactions per minute. The first time we started talking about MoMo in this auditorium, we were at 4,200. So the usage has basically doubled on the platform. And now our attention moves to expanding the countries with the launches in SA, Nigeria, Sudan, and Afghanistan and expanding also to the advanced services.

 

The IO business is now at 4.2 million policies. 2 years ago, we had T-shirts made when they reached 1 million. And I think I only wore it twice, and then there was another one for 2 million. And I think now they decide it's too expensive to make a T-shirt every time we grow our policies there.

 

I think the other big news in the half was we really can now implement Phase 1 of the fintech strategy in Nigeria because we were awarded a super-agent license, which basically allows us to mobilize our prepaid airtime distribution network also for financial services. In time, when we're awarded the payment service banking license, we can also launch the e-wallet and allow customers to use their handsets as well.

 

Turning to enterprise. So enterprise, this is really a segment view. It's a slightly different disclosure to the other categories because the pieces of enterprise are in also voice and data and digital, just remember that. But if we take a segment view of enterprise, you see a growth rate of 6.8%. Remember that we are still in the process of delivering the turnaround of the South African enterprise business. And if I was to set that aside for the moment, enterprise across the rest of the portfolio grew by more than 20%, and a lot of that growth is driven in MTN Nigeria. South Africa, as I said, is improving. We're working a lot on our SME channel strategy. Remember, an enterprise that's about 2/3 of the revenue pool is actually from small and medium-sized enterprises. And then we have to implement not only a direct channel but also an indirect channel.

 

And finally, another big part of what we are doing is we are expanding with the fintech business also for enterprise solutions, so allowing enterprise customers, merchants, retailers to accept mobile money, allowing enterprise customers to push business to person payments. So we've launched that already in 3 of our markets.

 

Finally, looking at wholesale. Our goal there is to build a scale Pan-African infrastructure group. Revenues now on wholesale, ZAR 2.6 billion. So that's not far off double the legacy digital business. That's been growing really in the last couple of years. In fact, you can see revenues more than doubled in the 6 months of this year compared to the 6 months of last year.

 

I think the key point on wholesale, this is where we leverage our infrastructure, submarine capacity, satellite capacity to terrestrial fiber, most of which we built for our own networks and opcos, and we leverage that by selling solutions to other carriers and OTTs. We've now set that up as a completely separate business. It's based in Dubai. We've got a very good guy running it, Fred Schepens, and we formally launched it last month as an operating company. So MTN GlobalConnect is basically opco 22 in the MTN framework.

 

So that's a sort of a whistle-stop tour through the 6 revenue pools. Wanted to talk briefly about the asset realization program. So we put this slide up at the full year results really just to give a bit of a mental model about how we see the assets of MTN Group, and they're in 4 categories. The first column is the consolidated subsidiaries. So that's around 18 markets. The next column is the telco associates. So 3 of our opcos are not consolidated. You see them there, Irancell, eSwatini and Mascom. And then e-commerce and tower company portfolios, both of which we announced as being not long-term core assets for the group going forward.

 

So in the asset realization program where we said we want to deliver at least ZAR 15 billion in the next 3 years, that ZAR 15 billion comes from elements of each of these 4 categories. In the first category, it comes largely from localization transactions and also where we are still working on redeeming the preference shares in Nigeria, and we've made progress there but not fully finalized. They come from the second category where we announced that we were going to sell Mascom. That is still a work in progress. And then they come from the third and the fourth categories.

 

So in the period, we delivered proceeds from categories 3 and 4. We sold our Amadeus and Travelstart businesses, and we also sold our ATC loan to our partner there. Collectively, that generated over ZAR 2 billion of proceeds just in H1. Remember, we only launched this program in March, so that's effectively delivered in Q2. And we remain very optimistic that we will deliver at least ZAR 15 billion in the next few years.

 

So with that as introductory comments, I'll hand over to Ralph, and I'll be back after that. Thank you.

--------------------------------------------------------------------------------

Ralph Tendai Mupita, MTN Group Limited - Group CFO & Executive Director [3]

--------------------------------------------------------------------------------

A very good morning to all of you. Always a pleasure to see you here at our 14th Avenue campus. And also greetings to all of those who are joining us via various media platforms. And as always, a special greetings to the MTNers who are the ones who generate these results that Rob and I have the pleasure of presenting today.

 

So over the next 25 minutes, I'll just want to cover a couple of areas. Firstly, to cover the material items that have impacted our reported results in the period. And those namely being currency movements as well as the adoption of IFRS 16. I'll then highlight the salient items on our group income statements, picking up on key points that I think are notable. And then we'll take you through a review of our 2 largest markets, South Africa and Nigeria. Nigeria has already published results, but I'll amplify some of the key points as they translate into group. I'll return to the income statement and cover again some of the key line items before finishing off with the views on the balance sheet, cash flow, headline earnings per share analysis as well as our new ROE target, how we've progressed in the first half.

 

So let's have a look at our currency movements impacted our reported results. For those of you looking at the table, you'll see that on the left-hand side that the rand was, on average, weaker against the baskets of local currencies of our consolidated subsidiaries. This obviously resulted in the reported growth rates for key KPIs such as service revenue as well as EBITDA coming through higher than the constant currency growth rates. And this is actually a pattern shift from what we've seen in the past 2 reporting periods. In the period, the rand was, on average, 13.1%. As you can see there, weaker against the naira, but it was stable against the cedi.

 

If you stay on the left side of the chart there, you'll also see the approximately 50% depreciation of the Iranian rial against the rand. Now in the first half of last year, we consolidated our equity accounted earnings from Iran on the basis of the CBI rate. And post the implementation of U.S. sanctions in May last year, and this became official in August of last year, we started using the SANA rate. So these periods that were under review has the SANA rate as the basis for translation and has delivered that depreciation of the contribution for Irancell, and I'll talk about that a little bit later.

 

The third aspect of currency movement is really around foreign currency losses and gains. And we experienced foreign currency losses of approximately ZAR 1 billion, and these were largely driven by the Irancell receivable that we have of approximately ZAR 3 billion in Iran. The final point I will raise around currencies is really around -- if you move to the right-hand side of the chart, really around the stronger closing rand versus the U.S. dollar. And the effect of this is that it's slightly reduced the rand amount of dollar-denominated debt at the holding company level. And as we reported at the end of June, the share of dollar-denominated debt at the holdco level relative to rand is now below 50%. You'll all remember that it was closer to 51%, 52%. And at this half, it is 48%.

 

Moving on to the impact of IFRS 16. For those who've had a chance to look at our consolidated interim financial statements, we have provided extensive details on how we've applied the new standard as well as the geographic makeup of where these leases are. The predominance of these leases are in South Africa, Nigeria and Ghana. But what I want to do with this chart is just to give you the major effects on some of the key KPIs and financial statement items.

 

So if we start with the income statement, you'll see that reported EBITDA is ZAR 4.4 billion higher as the lease payments that would have previously gone through operating expenses are capitalized. We now have right of use asset depreciation below EBITDA coming through the P&L as well as an interest expense for the lease liabilities coming through the finance cost line. So overall, we see a 13.6% decrease in headline earnings per share as a result of the adoption of the new standard.

 

If we look at the balance sheet, the effect is that we bring on ZAR 45.1 billion right of use assets and ZAR 45.8 billion lease liabilities. Just looking at the right of use assets, Nigeria comprises about 41% and South Africa 29%. So again, 70% of those leases coming from just our 2 largest markets.

 

From a cash flow point of view, there is a reclassification where lease payments were previously in operating activities and now, obviously are coming through under financing activities.

 

And then in terms of our medium-term targets, and namely the holdco leverage as well as the capital intensity. We continue to track these on an IAS 17 basis. And the financial covenants we have against our holding company debt remain also on an IAS 17 basis as this has been agreed with our lenders. We did have an extensive engagement with our lenders last year, and they preferred that we maintain those financial covenants on the IAS 17 basis. So as a reminder on what those are, we obviously have net debt to EBITDA and interest cover ratio. And in the period, if you look at the net debt to EBITDA, we're at 1.4x versus the limit of 2.5x. And in interest cover, we're at 7.6x against the threshold of 5x.

 

So given the extent of the change of IFRS 16 brings on to our financial statements. As I cover the comparators in terms of how we've performed in the half, I will focus predominantly on comparing on an IAS 17 basis.

 

So let us look at the salient points of our group income statement. And then I guess on the right-hand side of the chart, you will see the growth rate and some of the income statement lines, both on an IFRS 17 -- on an IAS 17 basis as well as constant currency. As Rob has mentioned, we had solid constant currency service revenue growth of 9.7% in the first half led by Nigeria with 12.2%; Ghana, 18.7%; and South Africa at 3.3%. The weaker average rand resulted in these higher -- in the higher reported service revenue growth rates that you see there of 15.7%. So EBITDA increased by 20.3%, and that was supported by a ZAR 1 billion gain on dilution when Jumia listed on the New York Stock Exchange in April. Excluding all the once-off items, EBITDA increased by 15.2% and increased by 10.2% on a constant currency basis.

 

We brought through a goodwill impairment of MEIH, our Middle East e-commerce business, of ZAR 191 million in the half. And walking down the income statement, you can also see a notable change on JVs and associate line, and I'll give more detail on this later in my presentation, which is predominantly the effect of the Iranian rial depreciation on translated earnings into rand.

 

Further down the income statement, you can see a noticeable change on the income tax expense line. The overall result was driven by higher profits before tax in the period. We had higher withholding taxes due to an increased cash upstreaming in the period, and that was offset by the notable -- the nontaxable gain on the Jumia dilution. There's also a material movement in noncontrolling interest line, as you can see on the chart, and this was a result of the change in our shareholding in Ghana post the IPO last year.

 

As Rob has mentioned, adjusted headline earnings per share was up 12.1%, which is our measure of the underlying operational earnings improvement and momentum in our business.

 

The Board declared an interim dividend of ZAR 1.95 per share. This is in line with the guidance we gave earlier in the year that we anticipate dividend growth to be at the lower end of our range of 10% to 20%. So that growth there was -- for those who will calculate that that's 11.4% growth on our -- on the dividend.

 

I'll unpack the other key line items of the income statement a little bit later. And so let us look at the performance of our 2 major markets, starting with South Africa. As usual, the chart that you see there looks to trends in service revenue, expenses, EBITDA and CapEx in the period under review. And what you see there, we have service revenue for South Africa of 3.3%, which is below our medium-term guidance. The performance was largely impacted by the decline in our consumer prepaid business, which was down 5.5%. The other impact on service revenue was the growth from Cell C. Given Cell C's liquidity challenges and in accordance with IFRS 15, we did not recognize revenues of ZAR 393 million that would have been recorded otherwise in the first half.

 

Outgoing voice revenue was down 6.6% as voice minutes declined 10.8%. As Rob mentioned, the data revenue was a pleasing 5.6% up, notwithstanding the challenges that came through with the out-of-bundle repricing in the first half. And this was supported by a 15.5% increase in the consumer postpaid data revenue. Core digital revenue declined 34.5% as our VAS optimization in South Africa continued.

 

On the fintech side, we saw revenue, which comprises mostly of extra time, growing a pleasing 21.6% in the period.

 

While still looking at service revenue, here is a bridge view of the contribution of each of the segments within the South African business. As I mentioned earlier, on the consumer prepaid business was down 5.5% in the half after the out-of-bundle tariff repricing as well as the implementation of the ICASA data rules.

 

We continue to track month-on-month recharges to test the resilience of the elasticity of the business as well as the growth on prior year monthly trends. So in February 2019, when we made the major out-of-bundle price changes and also implemented the ICASA data rules, our prior year month-on-month growth was minus 6%. If we move forward in the period and you look at April, that was a minus 8.1%. And then in May, it was minus 4.5%; and in June, minus 2.7%. So what you see there is a clear trend line that although the out-of-bundle pricing is impacting, there is an underlying trend improvement and we remain encouraged with these trends and see prepaid being back to growth on a year-on-year basis in the early part of 2020.

 

Consumer postpaid was up a pleasing 6.9% on the back of net additions of about 104,000 in the period. Wholesale grew very strongly, as you can see in the chart. That's about 134%, and that was driven by the 2 national roaming deals we had with Cell C and Telkom. The Telkom national roaming deal came to an end in June.

 

In enterprise, we continue to execute on the turnaround, and we now have service revenue growth of minus 7.8%, which has improved from the year-end, which you will remember as minus 11.3%. In this period, we stabilized churn and had new enterprise coming on our books. We are confident of the strength and that we will gain further traction in the second half and see the business returning back to positive growth by the end of this year.

 

Then back to expenses, margins and CapEx in South Africa. You can see there that the cost of sales was up 5.7%, and that was largely driven by the increased distribution of 3G and 4G devices to support future data revenue growth. 3G and 4G devices sold increased by 17% and 27%, respectively.

 

OpEx was up 13.6% due to increased network operating expenses, predominantly rent and utilities. We've had additional expenses for generator fuel and security as a result of the load shedding that we experienced earlier in the period.

 

The EBITDA margin declined by 1.9% to 33.3%. And the main drivers of this is the out-of-bundle repricing and the new ICASA data rules that I mentioned earlier on that impacted margins by 1.9% as well as the provision for doubtful debt on predominantly Cell C, which reduced margins by 1%. Devices sold in the period obviously also impacted margins slightly.

 

And if we move to CapEx intensity, you can see there that there is an improvement of 3.5 percentage points as we spent less on CapEx, and this was supported by price book savings we -- that are coming through as well as our smart CapEx as well -- and L900 deployment. For the full year, we estimate that CapEx for South Africa will be within our range and at ZAR 8.6 billion on an IAS 17 basis.

 

Moving on to Nigeria. We recorded a solid 12.2% growth in service revenue, which is ahead of inflation. The core voice market performed very well, growing at 11.4%, and this was a result of base growth, targeted CVM activities as well as attractive segment offers that we've taken to the market, including the youth offering, MTN Pulse. We had solid data revenue growth of 31.8%, and that was driven by very strong increase in active data subscribers of just under 39%. So we now have a total active database of 20.7 million subscribers.

 

The VAS optimization program impacted data -- digital revenue growth, as Rob mentioned earlier, as we continue to build sustainable digital subscriptions. The fintech revenue, which currently comprised of extra time and the bank-led mobile money business, had decent growth of 21.2%.

 

We're very excited about the recently issued super-agent license, which we believe will accelerate the fintech growth as we're able to leverage the distribution that we have from our traditional GSM business.

 

In terms of expenses, these were well contained and below inflation. Cost of sales increased 7.8% driven by high commissions and distribution costs, which were up 9.7%, and national interconnect, which was up 13.8%. The OpEx increased 9.8% driven predominantly by network expenses. We reported an expanded EBITDA margin of 44.6%, and this was supported by stable naira and the operating leverage that came through in the period.

 

For Nigeria, we anticipate that the full year CapEx will be ZAR 8.2 billion on an IAS 17 basis. The Nigerian business declared an interim dividend in July of NGN 60 billion, and we expect the upstreaming of this in the third quarter of this year.

 

So now coming back to the group income statement, what do we see on service revenue? Voice, data, wholesale and fintech were the revenue drivers for the period. Voice revenue increased 4.5% driven by the base growth that Rob spoke about as well as the CVM activities and optimizing the voice tariffs across the markets. Data revenue grew 19.8% on the back of the network expansion, active base growth, increased usage and managing pricing yields in competitive markets. As Rob mentioned, the 42.5% decline in digital needs to be taken in the context. It's always important to note that this is only 2% of total service revenue. But from a trend view, in June, we did record an increase in digital revenue month-on-month. And this is a signal for us that we started to bottom out the VAS optimization and starting to build out new and sustainable digital subscriptions suited for smart feature phones and smartphones.

 

Fintech grew at pleasing 30.7% driven by the base growth of 2.3 million in our MoMo business. And as Rob has mentioned, the insurance business now has approximately 4.2 million policies and is expected to contribute to fintech growth in the future.

 

The wholesale revenue is growing approximately 128%, predominantly driven by the national roaming agreements in South Africa as well as the expansion of MTN GlobalConnect where we've signed up key accounts and grew up application-to-person messaging service through our Yellow platform.

 

Moving on to EBITDA. On this slide, you can see the drivers of group EBITDA, both in absolute terms as well as per margin. Overall, group EBITDA was up 10.2% on a constant currency basis. And as you can see on the chart, the growth was led by the performance of Nigeria and the SEAGHA region. The WECA region started to stabilize despite competitive and operational challenges. The turnaround, as Rob mentioned, in Cameroon, is very encouraging, but we still have work to do in Ivory Coast. The group EBITDA margin improved to 35.6%. Gains in Nigeria and SEAGHA were offset by the lower margins in South Africa.

 

Now let us have a look at finance costs and leverage, starting with the finance costs. The increase in net interest paid was a result of additional bank debt that MTN Nigeria took onto its balance sheet in line with its plan to optimize its capital structure. You can see on the chart, interest expense for lease liabilities of ZAR 2.7 billion were recorded for the period. Net ForEx losses were recorded at the head office, driven mostly by losses of ZAR 363 million on the Iran receivable and ZAR 112 million on the redemption of the Nigeria preference shares. As you can also see, the average cost of debt was stable in the period at 8.4%.

 

Moving across to leverage. At 1.4x, the group leverage benchmarks very well against emerging market peers. The increase in group interest-bearing liabilities is largely driven by the new bank debt in Nigeria that I referred to earlier. The holding company leverage, as Rob mentioned, is unchanged from December at 2.3x and well within our medium-term guidance of 2 to 2.5x. We had high upstreaming in the period as compared to the first half of 2018, upstreaming ZAR 1.3 billion more in the first half.

 

As we look at our share of associates and joint ventures, you can see that the decline is largely because of a lower contribution from Irancell, driven by the market depreciation of the Iranian real that I mentioned earlier. The actual underlying performance of Irancell was actually pretty resilient considering the U.S. sanctions and currency depreciation.

 

Service revenue for MTN Irancell was up 17.8%, and EBITDA margins expanded to 37.2%. And this was on the back of good voice growth in the period and data transmission costs being well contained. The loss share of results in the period is also impacted by the classification of Mascom as an asset held for sale, so no equity-accounted earnings being recorded in the period for that business.

 

The e-commerce group result was also impacted by the fact that Jumia was no longer equity-accounted as of April 2019, so lower losses recorded in the period.

 

Let us now have a look at the statement of financial position. And starting with PPE, you can see on the table that this reduced by 1% in the period as depreciation was higher than the CapEx addition. We committed ZAR 12.3 billion in CapEx, and this was offset by a depreciation of ZAR 13 billion and movements of ZAR 2.8 billion through foreign currency translation reserves. Included in noncurrent assets is our investment in IHS, which we fair valued at the end of the period at ZAR 23 billion.

 

Looking further down the chart, you can see that there's a decrease in the noncurrent assets held for sale as a result of cash upstream for Mascom in the period. Interest-bearing liabilities increased by 6.2%. And again, that is a result of the new bank debt in Nigeria.

 

And further down the chart, you will see other liabilities decreased by 12.1% as we made the final payment of the SIM registration fine in Nigeria of ZAR 4.4 billion. I think it's important to note for those who often ask questions about when do we complete all the conditions of the SIM registration fine, we've done the listing, and the final payment has now been made. So that matter is well behind us.

 

If I move to CapEx, the slide shows that we've had an improvement in the CapEx intensity profile in line with our medium-term targets, as you can see there on the left-hand side of the chart. RAN and transmission accounted for over 3/4 of total CapEx, which is a trend profile we've seen in more recent periods, and we continue to invest in the modernization of our IT system.

 

Although the focus of the rollout is on 3G and 4G deployments, we continue to ensure that in key markets such as South Africa, future RAN and transmission deployments will make us 5G-ready.

 

In South Africa, we are progressing with a multiyear modernization of our network, and we're able to deliver that within the business-as-usual CapEx envelope. Our guidance for the group remains ZAR 28 billion of CapEx for this calendar year.

 

Looking at our holdco net debt profile, there are a couple of points that I would like to highlight. Firstly, as planned, we are seeing an improvement in our debt profile mix, with the share of U.S. dollar debt now below 50%. This is in line with our previously communicated target of rand-to-U.S. dollar debt mix of approximately 60%, 40% in the medium term, obviously with the rand being more predominant. On the left-hand side of the chart, you can see the trend view also of the group and holdco leverage, which is showing an improving profile over the recent past. As part of our capital management framework, we have a clear action plan to execute to ensure that our debt profile is appropriate and resilient to reasonable stress scenarios for currency movements as well as upstreaming risks.

 

We are progressing with the asset realization program. And as Rob has mentioned, in the 3 months since announcing that program, we have delivered ZAR 2.1 billion of the ZAR 15 billion over the next 3 years.

 

The rebased progressive dividend policy will support the stabilization of holding company debt, and we continue to expect dividends to be covered by operational cash flows by 2021. It is important to remind investors of the seasonality of our dividend payments and cash upstreaming to the group.

 

We typically pay 2/3 of the prior year dividend in the first half of a year whilst upstreaming approximately 40% of that U.S. cash to the group. That seasonality, I believe, is an important consideration as you assess the holdco net debt and leverage positions of the group.

 

Moving on to cash flows. Let me take you through some of the key drivers from EBITDA to free cash flow development. In the first half, we saw ZAR 4.9 billion of working capital outflows driven by ZAR 922 million from Benin, which made payments to the authorities for frequency fees. The rest were related predominantly to payments by Zambia, Cameroon, Uganda, in relation to a settlement of vendor liabilities.

 

Included in other operating adjustments is a payment of ZAR 4.4 billion relating to the Nigeria SIM registration fine that I mentioned earlier as well as the CBN resolution payment of ZAR 731 million.

 

In the first half of the year, the group had benefited from the repatriation of dividends in the first half of 2018, dividends from Iran of ZAR 1.3 billion. We had no further dividends repatriated from Iran, and we remain with a receivable of ZAR 3 billion as at the end of the first half of this year.

 

We had cash CapEx of ZAR 13.6 billion as we built our networks, and the financing activity of ZAR 4.3 billion were predominantly driven by activities in Nigeria. Other investments of ZAR 492 million were principally driven by proceeds of ZAR 2.1 billion from the sale of Travelstart as well as the shareholder loan, ATC Ghana, and that was partially offset by a ZAR 1.5 billion decrease in restricted cash in Nigeria.

 

Let us have a look at the headline earnings per share analysis. The table provides a reconciliation of attributable earnings per share through to adjusted headline earnings per share that gives more visibility on underlying operational performance. And as a reminder, we are looking at the comparisons based on an IAS 17 basis. If we start at the top of the table, you can see earnings per share of ZAR 0.286 for the first half of 2019, and working down the table and adjusting for losses and gains accounted for in earnings and mainly the MEIH payment as well as the gain on dilution for Jumia, we end up with headline earnings per share of ZAR 0.234.

 

On divestitures, we have normalized for asset disposals such as Cyprus as well as the reclassification of Mascom and the Ghana reduction in shareholding. And so working through all of that, we get to an operational view of headline earnings per share of ZAR 0.297.

 

So as you can see from the charts, the adjusted headline earnings per share increased to 12.1% in the year, showing the underlying positive operational earnings momentum that Rob mentioned earlier in very tough trading conditions.

 

So let me conclude my presentation by looking at the progress we've made on our return on equity.

 

The chart shows the bridge view of the drivers of return on equity, and this is on an IAS 17 basis. We see that ROE increased from 11.5% to 12.5% driven predominantly by operational earnings from the consolidated subsidiaries, most significantly Nigeria, Ghana and South Africa. The notable drags on ROE were a high group effective tax rate of 37.5%, the lower JV and associate contribution and a movement in NCI driven by the Ghana IPO.

 

Head office expenses, net of finance costs, were well managed and were 12% lower than in the prior year. In this period, we didn't see a material impact coming through from the asset realization program, which we anticipate in the medium term will contribute to the return improvement as we unlock value in the e-commerce and tower investments.

 

On an IFRS 16 basis, that ROE is 11.2%. We do remain comfortable and committed to meeting our ROE target of greater than 20% over the medium term.

 

Ladies and gentlemen, that concludes my presentation. I will hand back to Rob. Thank you.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [4]

--------------------------------------------------------------------------------

All right. Thanks, Ralph. Just a few slides to close. I think the first was just to reaffirm our strategy and our strategic road map for the years ahead. And you've heard us speak before about the 300, 200, 100. Just to remind everybody, we have basically 3 categories of subscribers. We've got our overall base, which includes mainly our voice subscribers, and that you can see up there is now up at 240 million. That's the one that we want to grow to 300 million in the medium term through a combination of population growth, market share, et cetera.

 

The second metric is how many of our subscribers are active on the mobile Internet. So that's now around 82 million, 83 million. We believe in time that will grow to a penetration of 2/3 of the voice space. So that would be the 200. And finally, of those data subscribers, we would like at least half of them to be active on an MTN-provider digital service. That's the 100.

 

So the situation today is 240, 82, and then we've got now 30 million active MoMo customers and we're starting to build the new digital subscriptions.

 

So how are we going to go about that? We really see the strategy as having 3 crucial legs. The first one is on the top left of the slide, that's what we call the evolving telco. And that's basically a strategy to say that, for many years, we've built a network for consumer voice, we're repurposing it for mobile Internet, voice-to-data, and we're also repurposing it to service both enterprise and wholesale customers. We call that the evolving telco. That's a big part of the MTN story, and it's quite similar to some of the more -- the telcos in the more developed markets.

 

But we have 2 other very important parts of the strategy. At the bottom, we have our ambition to be a scale player in financial services, and we've covered that in the results. 14 countries moving to 18, subs have grown, insurance products are growing, looking to launch now in SA and Nigeria, so a big, big push into fintech. And then on the right-hand side of the chart is our ambition to be a scale player in digital services, media messaging, mobile advertising, and you see the progress already now, particularly in advanced instant messaging in the first half.

 

And we call this an integrated strategy to build a digital operator because all 3 elements of this business are sharing 3 very important common infrastructures, and that is one network, one distribution infrastructure built for prepaid airtime being leveraged for mobile net financial services and one registration process. So that as we register customers for GSM, we can also register them for Tier 1 KYC financial services. These 3 things are our critical competitive advantages to be scale players in all of these areas.

 

Financial services companies really struggled to access the customers in scale. In a market like Nigeria, we are registering every month 2.4 million customers for mobile voice. So at the same time, we can register them for Tier 1 KYC, leveraging our distribution, leveraging the network. So that's the digital operator strategy.

 

And it really then translates into our investment case. And the investment case has got these 4 important dimensions. We believe that we are positioned in high-growth markets. Middle East and Africa are some of the fastest-growing markets in the world for our telecommunication services. And we believe we've got the right position in those markets. MTN Group is #1 or #2 in each one of the 21 countries in which we operate.

 

On the right-hand side, we are great believers in the demographic dividend. You saw that in some of the previous charts. Our markets have only 1/3 digital adoption. 1/3 of customers accessing the mobile Internet, it's going to double in the next few years. Similarly, in our markets, only 1/3 of the adult population has access to a formal banking product. That is also going to go to 2/3 largely through the adoption of mobile financial services. Digital service adoption will ride on the back of Internet adoption. And the enterprise and wholesale opportunities are also relatively undeveloped.

 

Bottom left is we believe we can demonstrate an attractive return profile. It's a very simple formula. Executing in the markets and the demographics will drive revenue growth. Leveraging our in-market scale and cross-market scale will drive efficiencies. So the margin should grow faster than the revenue. And the fact that we are going to moderate our CapEx at around ZAR 28 billion or $2 billion a year for the next few years means that cash flow is going to grow faster than margin. And we should really be able to deliver very attractive returns.

 

And finally, on the bottom right, we're well positioned for the long term. We've got our asset realization program to rebalance the portfolio, to continue to improve the leverage and our sustainable dividend policy. In the middle is the BRIGHT strategy, 6 pillars driving the commercial execution in all of the markets.

 

Turning to the medium-term guidance. So we are reaffirming the guidance. It has these critical elements. Service revenue for the group, we target double digit in constant currency, with SA, mid-single-digit, 4 to 6 and Nigeria above 10.

 

I wanted just to put in context our belief that we are committed to these targets and that we're going to see a recovery in H2 and in future years. Very important when you consider the results to remember that there are a number of things that are dragging the service revenue growth that will start to work their way out of the system. Example, digital services. We had ZAR 2.4 billion that dropped by 42% this year to ZAR 1.4 billion. So there's a ZAR 1 billion drag in digital that over time will lap out and will return to growth.

 

We have ZAR 10 billion of service revenue in the WECA region that just grew by 0.5%. The group is growing at 10%. That's another ZAR 1 billion or that's dragging the group's revenue growth and then a combination of factors in South Africa, the enterprise turnaround, data repricing, some of the accounting changes for the Cell C adjustments. So these 3 things alone as we start to get on top of them and move forward is what creates the confidence that we will move forward strongly on the revenue basis.

 

EBITDA margins, incremental margin improvements. You saw that even in the half of the challenges we had. So we're confident there. CapEx intensity come right down to just below 17%. Leverage is stable. Asset realization is on track. Adjusted ROE has improved significantly on an IAS-to-IAS basis. And we're committed again to the dividend policy. So the interim dividend is consistent with our ZAR 5 growing at 10% to 20% going forward.

 

Final slide from my side is just some of the priorities for H2. So for South Africa and Nigeria, each 3 critical areas. South Africa, it's about the prepaid recovery. So we've repriced. We've taken out some of the subscribers that weren't generating economic value. Revenues are dropping around 5%. We really need to show an improvement in prepaid. Obviously, it's heavily dependent on the macro in the market, which, I think as we've seen, is a little bit challenging.

 

Delivering the enterprise turnaround. Enterprise colleagues are in the room. I see [Teddy] is over there. They know that by the end of this financial year, December or so, we need to start showing that our enterprise business has stopped shrinking and is moving back into growth.

 

And of course, the Fintech launch in SA, which we plan for H2.

 

Nigeria, I touched on a few of these things. In the first half, we secured the 800 spectrum band, which is a critical band for 4G deployment. It gives you a cost-effective coverage layer. And so we're going to be expanding that significantly, moving on fintech, and also, as I said, launching, particularly, Ayoba and MusicTime in H2.

 

5 other items: the WECA turnaround, good progress in Cameroon; we need to see a step change in Ivory Coast, that's the second-largest opco that is dragging the revenue there; some regulatory matters still to be addressed; scaling the digital services, not just in Nigeria, but across the rest of the portfolio; continue with our asset realization program; and finally, I think, a very exciting initiative that we'll be launching, a pan-African MTN campaign, which is celebrating the role that MTN is playing in the market supporting the national agenda, what we call the MTN 4 Good campaign, and you'll see that on your screens in the next couple of months.

 

So I hope that was helpful. And I'll ask Ralph to come up and join me, and we'll take some questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [1]

--------------------------------------------------------------------------------

We've got a -- we've got the mics. On no account can JP ask the first question.

--------------------------------------------------------------------------------

John-Paul Davids, JP Morgan Chase & Co, Research Division - Head of South African TMT Equity Research [2]

--------------------------------------------------------------------------------

No. It always is.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [3]

--------------------------------------------------------------------------------

Unbroken streak.

--------------------------------------------------------------------------------

John-Paul Davids, JP Morgan Chase & Co, Research Division - Head of South African TMT Equity Research [4]

--------------------------------------------------------------------------------

Well, we have to break the streak. You did it, you did it. Right, well, I'll go for it anyway. It's JP Davids here from JPMorgan. Two questions on South Africa, please. Firstly, on Cell C. So yesterday, Blue Label put out an announcement talking about a roaming agreement. I assume that's an extended roaming agreement. So can you provide a little bit of color around that and how you're thinking about treating Cell C for the second half of the year given that agreement? That's question one. Question two, just coming back to prepaid. So I understand the pressures around out-of-bundle, et cetera, but can you talk specifically about voice? Do you think that's largely a function of the macro environment or largely a function of your competitive positioning in the market? So what's going to drive the recovery there in the voice prepaid segment?

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [5]

--------------------------------------------------------------------------------

Okay. So I think starting with the first one. I think the fact that Cell C have had some operational and cash flow issues is well known in the market, and they've made announcements on that. We onboarded them as a national roaming customer in October last year. And I think that has better -- done very well in the last 6 months or so. So what was announced yesterday is that we've signed a terms of agreement to expand that national roaming contract to even to a further level. I think that will be positive for them in creating a more sustainable position where they can manage in a better way their CapEx and their OpEx, be positive for us as well. But it's going to take a couple of months to get all of those agreements in place. And a more sustainable Cell C obviously would help on our side in terms of the IFRS rules for accounting for revenue, et cetera. So we're hopeful that things will look better in H2 on that front.

 

I think on SA prepaid voice, it's a combination of factors, and I'm not sure you could isolate any particular area. We have much lower usage than the competition. So we are hoping that, in time, our CVM activities will build up again the minutes of use. I think that will help. I think a more competitive positioning in the starter pack, what we call the entry offer, will help to rebuild the base as well. And then, of course, as you know, data revenue is a key part of prepaid revenues. And with customers now having to opt in for data and the pricing dropping, in time, that should fuel customer growth and activity growth. So we're confident that in the next few quarters, barring an even more troubled economic scenario, we should see a better performance in SA prepaid.

--------------------------------------------------------------------------------

Ralph Tendai Mupita, MTN Group Limited - Group CFO & Executive Director [6]

--------------------------------------------------------------------------------

Yes, I mean, just on Cell C accounting, and I think Rob picked up on the key points. We have taken a prudent and appropriate treatment for the first half, but I think it's important to note that for the May invoice, we did get paid post the end of the period. So I think that's an important point there that that invoice did get paid as well as looking at July. But for the half, I think that the treatment that we took was appropriate.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [7]

--------------------------------------------------------------------------------

Good. Jonathan?

--------------------------------------------------------------------------------

Jonathan Kennedy-Good, SBG Securities (Proprietary) Limited, Research Division - Head of TMT Research & Telecommunications Analyst [8]

--------------------------------------------------------------------------------

I'm Jonathan from Standard Bank. Could you share with us how much revenue you actually did recognize around the Cell C contract during the half? And if I look at it, so you've impaired some amounts and you've not recognized other revenue. Presumably, your legal right to pursue that number remains unchanged. And at what stage would you consider either switching Cell C off or taking an equity stake or some kind of approach to resolving the matter? Then just on the second question, outside of South Africa, in Ethiopia, obviously some news float around, moving towards a licensing process there. How would you plan to fund entrants into that market if you've won? And would it include an equity issuance to fund it?

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [9]

--------------------------------------------------------------------------------

And these are your easy questions. Look, I think Cell C's operational challenges have affected our accounting in H1. And as you said, it's basically driven by IFRS. So if some payments are delayed, you need to put some provisions through. And if you can't demonstrate evidence that all invoices can be paid in time, then you have to partially not recognize that. We believe that the situation for Cell C is looking increasingly positive. A, we have our short-form agreement, which if implemented will, I think, significantly assist them. And b, they are making good progress on their own funding arrangements. So I think that would bear in the first -- in the second half.

 

And for what's been invoiced, that's all due and payable and collectible. It's really just accounting of it that has made us set some of that aside.

 

On Ethiopia, I think there's a lot of water to run under the bridge there. I mean it is an exciting market in terms of population and opportunity. We have some broad strokes of how the privatization would work, but there's no detail. The process hasn't been announced. So we're analyzing it. We've got advisers. And we don't see, at this stage, a need for any kind of equity issuance to fund that. If you look at our asset realization program, the headroom in our facilities, so no, that's not on the cards. Okay. Who's -- yes, John?

--------------------------------------------------------------------------------

John Kim, UBS Investment Bank, Research Division - Research Analyst [10]

--------------------------------------------------------------------------------

John Kim, UBS. Two questions, please. First, specific to South Africa. On regulation, recent news flow from the comms minister. Best guess estimate as to what timeline would be for spectrum allocation at this point and what the key sticking points are. Is it conditions to license? Is it time delays around WOAN and newer entrants? And barring new spectrum allocation, when would we start to see densification or CapEx intensity rise in SA to support your traffic volumes? Second question, specific to Nigeria. Post the Bharti Africa sub IPO, are you seeing any change in pricing behavior, competitive dynamics, particularly around the data side?

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [11]

--------------------------------------------------------------------------------

Okay. So I think, firstly, on the spectrum issues. Remember that in South Africa, we signed a national roaming deal with Liquid at the end of last year. That -- the network is being deployed, and that will enable our customers to roam on their network and their 1800 frequency. So that's taken a lot of pressure off our more immediate needs for spectrum. And so certainly for the next few years, we think we are in a decent position. And we wouldn't see the CapEx spiking. I mean the network is already quite dense. So bear in mind, we basically built a network without low band spectrum for LTE already.

 

I think in terms of the paper or the guidance that's come out from the minister, it's positive that it basically confirms what we call the hybrid model. That spectrum will be allocated both to the WOAN and to the operators. But it's still not clear how much spectrum will be available for the operators, and it's not clear what the process is going to be to set up the WOAN. So we're engaging with the ministry to understand all of that. But simple logic is until a decision is made on the spectrum for the WOAN, you can't make a decision on how much is left for the industry and you can't commence with the auction. So I think the setup and the decisions around the WOAN is the most likely thing that would delay that. And the third question was?

--------------------------------------------------------------------------------

John Kim, UBS Investment Bank, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Pricing behavior, competitive dynamics in Nigeria...

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [13]

--------------------------------------------------------------------------------

Competitive dynamic in Nigeria. Look, I think it's a very competitive market. You've got 9mobile. You've got Glo, very aggressive on voice. Airtel has really been pushing out on its subscriber numbers. They've been pretty aggressive on data. We've been really hoping to see a stabilization in data pricing, which is already pretty low. But we have made some pricing moves now to more match where Airtel are to not give away too much of the share of net adds in the market. And in the last few months, I would say it's been stable at a pretty high level of competitive intensity. So no major shifts pre-IPO to post-IPO. We are slugging it out to roll out the data networks and bring the data customers on board, and we're slugging it out now on 4G as well. Okay. Right at the back, on the left, yes?

--------------------------------------------------------------------------------

Mathibe Hlapolosa, Tamela Holdings (Proprietary) Limited - Associate [14]

--------------------------------------------------------------------------------

Mathibe from Tamela. Mine is from a Nigeria perspective. Post-IPO and post payment of whatever debt was outstanding or penalties that are outstanding, have you considered now effectively selling down your stake in the listed Nigeria?

--------------------------------------------------------------------------------

Ralph Tendai Mupita, MTN Group Limited - Group CFO & Executive Director [15]

--------------------------------------------------------------------------------

Yes, I mean, I'll pick that question up. I mean as you've mentioned, we've done the listing introduction. We always said that we would contemplate a further -- a sell down once we've resolved the AG matter and I think end-market conditions being conducive. So that is still our plan in the medium term, but we still need to get through the AG matter. And I think we would also like to ideally be in a position where the PSB licenses have been issued. So the commitment has not changed, but the AG matter, in particular, is one that we would like to have resolved.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [16]

--------------------------------------------------------------------------------

Cool. Anything -- yes?

--------------------------------------------------------------------------------

Chris Willis;All Weather Capital;Analyst, [17]

--------------------------------------------------------------------------------

Chris Willis from All Weather. Could you guys just please unpack the expense growth in SA? I mean it looks quite high at about double inflation, specifically, OpEx at 13.5%. And then, secondly, on the new debt issued in Nigeria, what currency is that in? And would the naira having not depreciated while you're kind of seeing the rand and the cedi having done quite big moves, I mean, what's your view on being able to hedge that exposure on the Nigerian debt?

--------------------------------------------------------------------------------

Ralph Tendai Mupita, MTN Group Limited - Group CFO & Executive Director [18]

--------------------------------------------------------------------------------

Yes. So let's just start with the second question. It's pretty much local naira facilities. They've got a program that the business is looking to have, in total, NGN 400 billion raised with local institutions. So I mean, that's the point on your -- on that question.

 

On the question of the OpEx, as you said, it's 13.6% in South Africa. We've got it expanded in the big network. As you all remember, the last couple of years we've been putting down more CapEx than probably the #1 operator. We've come down from ZAR 11.5 billion. And this year, as I said, we were anticipating about ZAR 8.6 billion. So we do have a big network, and that big network does have costs that come through from a rent and utilities perspective. And that big network allows us to not only serve our own customers but to take through the national roaming agreements previously we've had with Telkom as well as with Cell C.

 

So -- but going forward, for sure, we would look to have that OpEx growth obviously in line with inflation or below. But in the spirit, it was a little bit up. And as I mentioned, there were also some extraordinary expenses that we took on in terms of fuel at the time that we had the blackouts in South Africa.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [19]

--------------------------------------------------------------------------------

Very good. I think we should take the last question there from...

--------------------------------------------------------------------------------

Ziyad Joosub, HSBC, Research Division - Analyst [20]

--------------------------------------------------------------------------------

Ziyad from HSBC. Could you just maybe give us a bit more insight into the acceleration, the prepaid trends in South Africa, the minus 8%, high as reaching minus 2%, is that all driven by out-of-bundle elasticity after you catch out-of-bundle pricing? Is this all driven by data? Or just more detail on what's actually driving that.

--------------------------------------------------------------------------------

Ralph Tendai Mupita, MTN Group Limited - Group CFO & Executive Director [21]

--------------------------------------------------------------------------------

We gave you a lot of detail already. So I mean, I think the point that we were trying to make is just we said previously that when we removed or reduced out-of-bundle pricing in a market like Nigeria, we were able to lap out after about 9 months. So in just under a year, we were able to lap out. And the thing that we watched at that stage or the business watched was what is the recharge resilience. If somebody in South Africa can only recharge ZAR 100 per month, they're going to recharge ZAR 100. And so we watched that recharge resilience and then month-on-month, where that growth rate is. So what I was trying to show is in Feb, when we introduced those -- the ICASA data rules as well as bring the out-of-bundle to ZAR 0.29, you saw a dip of minus 6%. April, it deepened to minus 8%. And then in May, it starts coming back, minus 4.5%; in June, minus 2.7%. So that's the trend lines we see. I think that's from a trend point of view. As we said, we see that coming back to growth in the first part of 2020.

--------------------------------------------------------------------------------

Robert Andrew Shuter, MTN Group Limited - Group President, CEO & Executive Director [22]

--------------------------------------------------------------------------------

And we've cut out-of-bundle tariffs in pretty much all of the markets now, and the trend's quite similar. But soon, the recharges recover. So even if the data consumption is the same, then that spend goes into voice or SMS, and then over time the elasticity comes through.

 

Data consumption levels across our markets are still relatively low. 1/3 of the customers, if you strip out Iran, they're only using around 1.5 gigs a month. You've got to believe in 3, 4 years' time, you'll have 200 million customers using 2 or 3 gigs. The data story is a 5x, 7x kind of growth in traffic. And South Africa, still even in here has a more advanced market relatively undeveloped from a data perspective. Less than 50% of the base is active on data, and the consumption is still not that high. The pricing has been nicely rebalanced. So we've just got to give it a couple of quarters, and I think we'll see a strong performance.

 

Very good. Well, thank you, everybody, for attending and the colleagues on all of the electronic media. And we look forward to catching up with you again at the full year results. Thank you.

--------------------------------------------------------------------------------

Ralph Tendai Mupita, MTN Group Limited - Group CFO & Executive Director [23]

--------------------------------------------------------------------------------

Thanks, everybody.