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Edited Transcript of MTN.J earnings conference call or presentation 2-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Full Year 2016 MTN Group Ltd Earnings Call

Roodepoort Mar 2, 2017 (Thomson StreetEvents) -- Edited Transcript of MTN Group Ltd earnings conference call or presentation Thursday, March 2, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Nik Kershaw

MTN Group Limited - Executive, IR

* Phuthuma Nhleko

MTN Group Limited - CEO & Executive Chairman

* Gunter Engling

MTN Group Limited - Acting Group CFO

* Ferdi Moolman

MTN Group Limited - CEO of MTN Nigeria

* Mteto Nyati

MTN Group Limited - CEO of MTN South Africa

* Ismail Jaroudi

MTN Group Limited - VP of MENA Region

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Conference Call Participants

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* Chris Grundberg

UBS - Analyst

* JP Davids

JPMorgan - Analyst

* Cesar Trion

Bank of America Merrill Lynch - Analyst

* Madhvendra Singh

Morgan Stanley - Analyst

* John Kim

Deutsche Bank - Analyst

* Craig Hackney

Noah Capital - Analyst

* Ziyad Joosub

HSBC Securities - Analyst

* Phillip Short

Old Mutual Equities - Analyst

* Warren Riley

Bateleur Capital - Analyst

* Dimple Gosai

Merrill Lynch - Analsyt

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the MTN Group 2016 year-end results conference. All participants are currently in listen-only mode, and there will be an opportunity for you to ask questions later during the conference. (Operator Instructions) Please also note that this call is being recorded.

I would now like to turn the conference over to Nik Kershaw. Please go ahead.

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Nik Kershaw, MTN Group Limited - Executive, IR [2]

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Hi, good afternoon, ladies and gentlemen. Thanks very much for dialing in. With me here this afternoon, I've got Phuthuma Nhleko, Group CEO and Executive Chairman; Gunter Engling, Acting Group CFO; Ferdi Moolman, CEO of MTN Nigeria; Mteto Nyati, CEO of MTN South Africa; Karl Toriola, who is the Vice President for our WECA region; and Ismail Jaroudi, who is the Vice President for our MENA region.

In the interest of time, I think, everyone would have seen the SENS announcement that went out this morning, we obviously had the detailed results presentation as well. All of that information is on the website. And I think just in the interest of time, instead of getting into all of that again, we can probably just jump straight into questions and answers.

So operator, if you can open that, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) JP Davids, JPMorgan.

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JP Davids, JPMorgan - Analyst [2]

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Hi, good afternoon. I've got two related questions on the South Africa please. And on data and specifically data growth, I guess you've invested a lot in the network through the course of 2017, torqueing up investment into 2017. So to what extent do you expect data revenue growth to accelerate and what sort of initiatives do you have around that into 2017? And the related question is slightly longer term. This morning, you did mention the digital agenda and digital revenue opportunities, can you talk about that specifically for South Africa, outside of data itself selling megabytes, what the sort of digital opportunity is in South Africa? Thank you.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [3]

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Okay, I think that would be appropriate for Mteto to give you some insights on that.

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [4]

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Okay. So, looking at data growth for South Africa, indeed last year, we were no way close to our ambition for data growth. We saw 11.4% year-on-year growth. What our ambition is to get as close as possible to around 30% and we have been driving smartphones, if you can see the growth on the smartphone that reflects our strategy largely around data. And we have moved away from subsidizing any of the 2G smartphones and putting some of that to both 3G and LTE.

And the kind of traction that we're seeing and what we saw, the kind of growth that we saw on the data in the fourth quarter and in January and February is reflecting that we are moving in the right direction to be able to achieve our objectives for data growth, which is in high around 20 plus percent. When it comes to digital, we have recently managed to put together and got an approval of a digital strategy that is centered on a number of key areas; one is mobile financial services; two, we're looking at recreation spot; three, we're looking at connected home, in the connected home drive is very much about leveraging this much delayed assets that we bought, but when using that to the trend connected with the mobile offering, so that we can deliver converged offerings within the South African market.

We also looking at short video offering whereby people can be able to look at either movies and stuff like that of 3 minutes to 5 minutes, in some cases it is too long around 10 minutes. So, these are the initiatives that we're driving. We are also working on a payment solution as opposed to Mobile Money whereby we'll be facilitating the payment of things like electricity, municipality services and a number of services like that. And our view there is very much about getting as much transactions and getting a percentage of those transactions. And you will be seeing a number of these being delivered in the course of this year, starting around April.

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JP Davids, JPMorgan - Analyst [5]

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Thanks, just one follow-up, just on mobile financial services, I guess, the Mobile Money product has tried and failed a few times in South Africa. When you're talking mobile financial services, what exactly are you talking about there? Are you talking about the payments that you mentioning now other revenue streams.

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [6]

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So, I'm talking largely things like insurance, loans and things like extra time facilitating the payment of those.

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Operator [7]

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Chris Grundberg, UBS.

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Chris Grundberg, UBS - Analyst [8]

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Thanks very much. I'm just staying on the South African query, I just had one quick one on that. I'm just wondering in terms of the investments you've made and I guess, your back-end systems, the billing engines and on the [light G], how comfortable do you feel that you've got to where you need to be on that in terms of giving the customers the experience they needed. Is there a long way to go within the CapEx that you've called out for South Africa this year? Maybe you can give a feel for how much is kind of you get around those systems versus I think the [radio] or indeed fixed network assets. That is the first question. And then, just as a follow-up on the South African fiber, the home investments, just wondering if you can give us the connection rates on the homes passed there. And then very lastly, just on the tower transaction that you went through in Nigeria, I'm just wondering if you can talk more generally around where you see tower assets within the group over the next few years. Is it something that you naturally have to own or something that if there were an IPO process you would look to sell down or how do you think that sort of plays out over the next couple years? Thanks.

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [9]

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Thank you so much, Chris. We started last year to focus on upgrading our systems and we have done quite a fair amount of those upgrades last year. However, if you look at -- we want to create an infrastructure that is going to help us to be very agile, both for the enterprise business and also the mobile business. We have told that, in 2017, our focus is largely around that. I see towards the end of the year, growth to maybe around October, we should be in a position where I can say comfortable that we put a platform that can take us into the future. Looking at the -- about ZAR1 billion of CapEx on the IT side, close to maybe about, say about 60% of that is the one that is more about transforming this system. The rest is largely about maintaining what we already have.

On the connected home or the fiber to the home, our connection rate at this time is about 15%. We would like to be taking that to close to about 20%, 25%. But right now, that's where we are sitting.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [10]

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Yeah. I think on your question on towers, I mean our position at the moment is that we have rolled out these tower deals in quite a number of countries and I think your issue on Nigeria is -- what's our intention, I think we've recently exercised our rights to flip up into the holding company and I think the view is, notwithstanding that we want to stretch the tower assets as a key objective. On the other hand, it's important as this being a major input and resource into our business that we continue some involvement. As a result, in many of these countries got JV either 50% or 49%. And I think your question was then in future would we sell down? That's not our intention at the moment, but could things change in future, they could.

But we don't see any absolutely radical change in our holdings at the moment. Having said all of that, of course, we always need to ensure that whatever arrangement we have is sustainable and economical and make sense into the future. If whatever reason that doesn't no long becomes a case, then obviously we always have to think about our strategy going forward. So, there is no anticipated radical change at this stage.

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Chris Grundberg, UBS - Analyst [11]

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That's helpful. Thank you.

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Operator [12]

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Cesar Trion, Bank of America Merrill Lynch.

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Cesar Trion, Bank of America Merrill Lynch - Analyst [13]

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Hi, everyone. I have two questions on Nigeria and one on South Africa. So on Nigeria first, I think you still got revenues were up 16% in January. Could you help us understand from what base, so for example, how much did Nigerian revenues decline in 2016. And also did you mean service revenues or is that including handsets. My second question on Nigeria, you're guiding towards margin pressure and you said this is due to FX, I understand that in your budget, you're assuming that the naira will slightly depreciate in 2017. If I assume that the naira will not depreciate in 2017, should I assume that your margins will be flat? And then finally in South Africa the magnitude of EBITDA improvement that you guided towards 2018 is quite meaningful. Could you please give it a bit more specific on the key drivers? Thank you so much.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [14]

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Okay. Shall we start with Nigeria, Ferdi, you want to answer and then touch on South Africa.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [15]

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Okay. So, January 2017, 16% growth. Firstly, we don't do handsets in Nigeria so that growth you are seeing is basically service revenue. In terms of the FX, if the FX remains flat, you will see a slight decline in EBITDA margin during the course of the year. There is a bit of a lag on effect that impacts our EBITDA margin on exchange rates. But you'll see a slight decline going forward. The third question you had was in terms of 2015 revenue.

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Gunter Engling, MTN Group Limited - Acting Group CFO [16]

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I mean, this is all what you would have seen is that, what we reported on the quarterly disclosure for 2016 is that every quarter for 2016 for Q1, Q2 and Q3, was very much flat. So revenues in Nigeria were essentially flattish month-on-month for the first nine months and then in October, November, December we saw pick up. So, the January wasn't abnormally lower than February or March or anything like that. Obviously, the whole of the 2016 base was naturally lower because of the disconnections we had in October 2015.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [17]

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Cesar, the only other thing we would add when you look at those January numbers, is in absolute terms, the revenue for January was higher than the revenue for December. So, it is real growth that is still happening, not just coming off of the week base.

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Cesar Trion, Bank of America Merrill Lynch - Analyst [18]

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Just on South Africa?

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [19]

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Okay. With regard to the margins and the sustainability of those margins, some of the actions that we took in the second half was, we took a price action, we increased our prices across the Board. We also reduced the number of things that we were giving for free. That certainly improved things. We also, when you're looking at our handsets -- when it comes to subsidizing the handsets, as I've already said, the 2G handsets, we stopped subsidizing those. We also improved when it comes to the mix of the 3G and the 4G or LTE handsets. So far, when I look at as going forward, I would say that we were going to be in line with the guidance that we have provided, which is we exited last year at 32.9%. My sense is that when I look at the business, both even looking at January and February, we should be doing anything close to what we did last year, plus 50 up to 100 basis points. So, that's what we believe we'll be doing in this financial year.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [20]

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Cesar, the second half was also benefitted and I think Gunter mentioned in the presentation, benefited from some currency tailwinds and that's why we're saying that's the 35% that we reported in the second half is not the right base to use, but rather this used full year base to move going forward.

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Operator [21]

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(Operator instructions) Madhvendra Singh, Morgan Stanley.

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Madhvendra Singh, Morgan Stanley - Analyst [22]

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Thanks for the call. Couple of questions, firstly on Nigeria. I wanted to understand, if you are currently negotiating tower leaseback rentals, given that they are still in dollar-denominated, are you trying to get them in local currency? And if that happens, what will be the base generally in terms of -- so basically, will the local currency rental be taking into account the potential devaluation of naira which is there in the market already or you would be looking at current translated number and then taking that as a base? And secondly, in terms of Nigeria base stations, how is the fiberization of the backhaul going on? What percentage is already done and what are the targets and any numbers you can share there? And finally, in South Africa, can you please share the breakdown of the growth drivers between the price increase and the underlying usage growth? Thank you.

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Nik Kershaw, MTN Group Limited - Executive, IR [23]

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Medi, just on the first question around the tower [d-spec] rentals, I mean, what I can say to you is, in all of our markets, we're consistently working on optimizing costs and reducing costs, I think we've said in the past and Gunter mentioned in his presentation, but yes, we expect the currency to weaken, so we will continue to work across all areas of our business around managing those costs. I mean, we certainly can't take for any elements not going into any sort of [d-cell] like what you're looking for.

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Madhvendra Singh, Morgan Stanley - Analyst [24]

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Is it possible to say that whether this, any potential reduction in tower leaseback rental is inbuilt in the guidance or not?

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [25]

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At the moment, it's not possible to comment further than Nik has already done.

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Madhvendra Singh, Morgan Stanley - Analyst [26]

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So, the guidance, you can't clarify, whether the guidance includes any leaseback rental reductions?

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Nik Kershaw, MTN Group Limited - Executive, IR [27]

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Let me just see, look, I think what's -- what I can say, obviously we look at every possible angle we can, but at the moment, we're not going to be able to go into details unfortunately.

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Madhvendra Singh, Morgan Stanley - Analyst [28]

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Okay, the next question. The fiber to base station?

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Gunter Engling, MTN Group Limited - Acting Group CFO [29]

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So just basically on the fiber, the majority of the focus during the course of the last six months was really on basic fiber to [site], major backbone fiber is projected for the first half of this year. And the fiber to site themselves, we didn't roll out the huge amount of fiber to site during the half year, basically because we had some challenges in terms of licenses and allocating contracts to fiber to site rollout.

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [30]

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I missed your question on South Africa, can you please repeat.

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Madhvendra Singh, Morgan Stanley - Analyst [31]

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Yeah, sure. I just want to understand the breakdown between price increase and usage growth in terms of the overall growth for South Africa?

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [32]

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Okay, I would say the price increase probably around 30% to 40%.

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Operator [33]

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Phillip Short, Old Mutual Equities.

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Phillip Short, Old Mutual Equities - Analyst [34]

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Good afternoon guys. I want to clarify something that on one of the slides, we had the [Q3] Nigerian EBITDA margin. On a year-to-date, they're 45%. I just wanted to clarify that it is in fact year-to-date, it's not the average for the year. If it is in fact year-to-date, can you explain what has driven that? Thanks.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [35]

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Phillip, it's (Inaudible) I guess yes to that, given that it's 12 months and the average for the year is basically is the same thing, so it's 45% was the Nigerian margins for the full year. So obviously, the second half margin was around just over 40%.

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Phillip Short, Old Mutual Equities - Analyst [36]

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(Multiple speakers) because I mean, when we're looking at the sales growth that we had January 2017 for the Nigerian for South Africa, so year-to-date there, it seem to initially apply that, that was January as well. (Multiple speakers)

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [37]

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That's right. Sorry. It was for the 2016 period. Apologies that was unclear.

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Phillip Short, Old Mutual Equities - Analyst [38]

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Okay, that's 2016 year-to-date.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [39]

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Yes, so the 2016 margin.

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Phillip Short, Old Mutual Equities - Analyst [40]

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Okay, so I mean can you give some idea from what base we should be working from, I mean, is that that 40.1% given the Q1 2015 naira, I mean going forward if the naira depreciates, will we looking at working downwards from the 40%?.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [41]

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Absolutely yes, so the base case for Nigerian margins is we ended the year and the last quarter was around 40% margin, obviously (inaudible) the currency seems flat, if it depreciates more from this level, it's been on the guidance we've given around that absolutely.

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Phillip Short, Old Mutual Equities - Analyst [42]

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Okay. And then maybe just another question on CapEx in Nigeria. What currency or what exchange rates have you assumed in your CapEx spend in Nigeria and secondly on that, I mean, if you do have a situation because sort of [ZAR400 million]. Are you still going to be spending that amount of CapEx?

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [43]

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Yes. On the first question the average rate that we used was [ZAR363] to the dollar.

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Gunter Engling, MTN Group Limited - Acting Group CFO [44]

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Yes, that's an average rate over the next 12 to 18 months. The answer to the second question is, if the exchange rate runs a lot further, we will have to re-look at the returns that the CapEx gives us because, of course the revenue is in local currency. So, if it's a significant change that would have to be changed on the CapEx numbers as well.

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Operator [45]

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(Inaudible), Goldman Sachs.

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Unidentified Participant [46]

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A couple of questions on Nigeria. Sorry, if you have already answered them. So, can you say the magnitudes of margin erosion in Nigeria (inaudible) devaluation, because, well, I presume you have said in the previous call that Nigeria came around 75% basis point margin contraction on the 10% naira devaluation. So, what was the reason for the high margin contraction in the second half of 2016? So, I presume it was around 800 basis points.

And then also on Nigeria, I think the capital controls, at least at Nigeria and the liquidity stabilizes. What is your current view on the potential volume of the (inaudible) getting out of the county. So even Nigerian business is profitable and assuming no warn off and so what is there cash repatriation potential out of them.

And lastly on Iran, so can you elaborate a bit more on the outlook. So, what is the annual cash repatriation expectation out of this country, assuming a normalized environment. And so, I also looking at the inorganic growth of (inaudible). Thank you.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [47]

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Okay. In terms of the EBITDA margin in H2, I think if you have a look at number one, we rolled a quarter number of parts as well during second half of the year. Those parts was the impact -- get impacted by the FX on the telecom side. So, we rolled out quite a number of parts during H2. We did a quite a number of upgrades during H2 as well. So that also impacted the EBITDA margin. Yes, I think that was main reason.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [48]

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The question I guess on the catch upstreaming is the short answer, at current exchange rates, the operation is still profitable and if we had full liquidity, we would be upstreaming on dividends, but there is no liquidity at the moment.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [49]

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Sorry, I just thought of another issue as well in terms of the EBITDA margin, the recovery we really saw starting in about October, November, December, so for July, August and September, you had additional parts, but the revenue was still fairly flat, so you really have growth in Q4 coming through, so the EBITDA margin could have been higher if that growth was in Q3.

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Nik Kershaw, MTN Group Limited - Executive, IR [50]

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Just on the Iranian cash upstreaming, clearly we're not going to give guidance on the profitability for Iran for the year ahead, but if you look at historic numbers, I guess it was in the range of around $200, but obviously that will change going forward depending on what the currency does and how the business performs. You will also see in the detailed financials -- in the financials -- in the details we noted, there is a loan outstanding, which is due in September this year, so clearly that would obviously be something that we would look to upstream and get that settled as well in this year.

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Operator [51]

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John Kim, Deutsche Bank.

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John Kim, Deutsche Bank - Analyst [52]

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Hi, everybody. If we could go back to Nigeria, I have a couple questions there. Qualitatively, when you think about H2 of this past year, where was CapEx deployment versus target guidelines, however you think about it, whether it is sites deployed, fiberization, within the site base, how much is fiberized today and what is the goal there? And lastly on smartphones, can you give us a sense of the mix between the 3G and 4G handsets in the existing base? And near-term potential called over the next two to three years to put people on the 3G and 4G? Thanks.

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Gunter Engling, MTN Group Limited - Acting Group CFO [53]

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Okay. In terms of the CapEx guidance for H2, the issue that really -- the challenge that we faced in H2 was the ability to fund the equipment itself, so although we had a lot of equipment on order, we couldn't ship, because we had to finalize funding agreements and this was in line with the challenges we were facing on the currency side. In terms of fiber rollout, we didn't do a lot of fiber rollout for the same reasons. We targeted about 300 to 400 plus fiber rollout for the quarter, for the H2 and as I've said earlier, we had some challenges around the fiber, which we believe largely resolved. So, we will start picking that up. In terms of the smartphones, we had about, let's say, 34 million to 35 million smartphones in Nigeria, of which only about between 1.7 million to 2 million are actually LTE enabled devices. So, the LTE devices in terms of Nigeria penetration is actually pretty low. In terms of LTE rollout, the major challenge we are operating now is actually to bring those devices onto the network and this is more or less around some swaps to make sure we have the 4G some available in the handsets.

In terms of strategy going forward, it's really difficult to look at two, three years strategy around handsets given the current volatility of the exchange rate. Because you can imagine, this is a big impact on the cost of handsets. But what we are pushing into the market, our modified devices, we have quite a number of these devices on order and we will be pushing these devices into the market. What is (inaudible) modified device, you normally attract 1 to 1.5 to maybe 2, LTE handsets along with that device, if not more.

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Operator [54]

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Craig Hackney, Noah Capital Markets.

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Craig Hackney, Noah Capital - Analyst [55]

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Thank you. I had some issues with the webcast this morning. So, I apologize if you addressed these earlier. Just looking at the dividend for FY 2017, can you just give an indication of what sort of cash upstreaming assumptions would underpin net that dividend payments or if there is any risk that they may not be met. And then just regarding Iran, we look the noise is coming out of the Trump administration, are you seeing a risk of going back to sanctions regime that we still say 12 months ago. And then just finally in Nigeria, what is the status of the investigation into the alleged illegal cash repatriation from Nigeria? Thank you.

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [56]

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Well, I think, let me say that, I appreciate that you didn't get the web because you have asked questions that we've answered this morning, but we are very happy to oblige and give more color on those points. I think, let me answer the first two questions and then I'll ask Gunter to talk about the third, which is the dividend and I'll just give my opening line on that one.

I think as I indicated, this morning, we obviously watched the geopolitical sort of movements and things that may affect our operations. We would like to believe that we can never say that there can't be a review that is negative, but certainly our sense is that it's unlikely that everything would be rolled back, there may be discussions about how things get improved. So, I don't think we are at the best place to make political speculations, but our fundamental view is that what is in place, we by and large stay in place.

I think as far as your second question was on CCIs in Nigeria. Yes, I think we did address that this morning to say that we just repeat again that we are absolutely comfortable that there is nothing unlawful on towards that MTN did to repatriate dividends out of Nigeria over many years. And in fact, this morning we did reaffirm in the SENS announcement that the Central Bank in Nigeria has reinstated our certificates of capital importation, clearly discussions in the Senate and so on are not for us to comment about. But as far as we are concerned, we can take money in and out of Nigeria, provided this currency, because all our CCIs have been reaffirmed to be valid by the Central Bank.

I think on the third question, on the dividend, I mean, we said in principle that we are looking at the ZAR7 unless there is some major unforeseen material deterioration in our key markets. I mean that I guess would tell you that by and large we are comfortable, but Gunter you want to comment a bit more or --

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Gunter Engling, MTN Group Limited - Acting Group CFO [57]

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Yes, (inaudible) just give you some very big picture numbers, if you're just thinking a 12-month period, so from 1 January 2017 to 31 December, we got in the EUR468 million that we spoke about in Iran, so that has paid ZAR6.5 billion, we get from our Tier-2 and Tier-3 of course, we get about ZAR7 billion annually, that's the run rate for the last three years, very close to that. Then we've got the loan outstanding from Iran that's June and September this year. We've got the sale of the 35% stake in Ghana and not that that's needed for the cash flows, but I am just giving you some cash is coming in, and if you add other bits here and there, but if you add ZAR6.5 billion plus ZAR7 billion plus ZAR2 billion from Iran, you're sitting with ZAR15 billion, ZAR16 billion you got [ZAR7] dividend is ZAR12.5 billion, so you can sort of see and that's the big picture numbers, but I mean you can sort of give a sense of those numbers.

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Operator [58]

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Warren Riley, Bateleur Capital.

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Warren Riley, Bateleur Capital - Analyst [59]

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Hi guys, thanks for the call. Just one question on your Nigerian guidance. You've guided to upper-single digits revenue growth in the year ahead, just looking at the Jan and Feb run rates and the double-digit inflation we see in Nigeria. I'm just trying to square up how you get to up a single-digit revenue growth? Can you just give me additional guidance on that?

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [60]

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Okay. I guess, that's the main point is that when you look at the January numbers, we do have to take into account that the base from last year was lower -- the January numbers had all of the disconnections from Q4 and most of those from Q1 as well. So as, of course, we go through the year, the base also starts increasing. So, I think that's one of the main reasons why we do think that the [ZAR16 billion] can't be used to extrapolate for the full year.

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Gunter Engling, MTN Group Limited - Acting Group CFO [61]

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But if we deem it appropriate, we will change the guidance up or down through moving forward.

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Operator [62]

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Ziyad Joosub, HSBC.

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Ziyad Joosub, HSBC Securities - Analyst [63]

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Just another one on Nigeria, please. It seems like your outgoing voice in local currency, the decline improved in the second half of 2016. And the comps are actually a bit tougher then. Could you maybe just give a bit of color on where you see voice, outgoing voice revenue hiked or grow. It's about minus 4% now. Is that the sort of level that you guys expect going forward? Or what you've seen in January at least?

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [64]

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Yes. I guess looking forward, that's probably what one would see. But what you have to be careful of is, remember, we've got aggressive data strategy with LTE. So, one would probably see a decline in voice and some of the voice moving to the OTT side. But what is also quite important is the quality of the network, as it has been improving as well. So, that's on the other hand, would contribute to improvement in voice or an increase in voice also. So, I guess if you take those issues and you just extrapolate it, you'd probably see the same pattern going through towards the end of the year as what we've seen in Jan.

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Ziyad Joosub, HSBC Securities - Analyst [65]

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Excellent. And do you, maybe just have a view in quarter two, quarter three, you should start lapping the data price was right. Would you expect the data revenue to accelerate then? Is that quite --?

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Ferdi Moolman, MTN Group Limited - CEO of MTN Nigeria [66]

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Look I expect data revenue to continue growing in any case, right. I think even if you look at data as a percentage of our revenue and you go back, I think 15 months or so, you'll see data was, I think as of the connection -- data connection fee in any case, data connectivity was about 12% to 13% of our revenue, we are sitting at about 9% to 10% now and it's recovering, there is a continuous recovery. So, I expect the data to grow towards the end of the year and to continue growing. The other issue again is that we are investing a lot of money on the network side, so there is some congestion at the moment on the data especially on the 3G network, but as we start investing, that will start loosening up as well and I anticipate further growth on the data side.

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Ziyad Joosub, HSBC Securities - Analyst [67]

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Okay. So essentially, if you get data growth north of 30% like and it wouldn't be a surprise for you, but some of that will be a cannibalization of voice.

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Gunter Engling, MTN Group Limited - Acting Group CFO [68]

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Maybe let me just give you a couple of comments to help you work with some of those numbers. So if you remember last in October 2015, the rules changed around bundle data and the whole market saw data revenues fall off quite significantly. So, our data revenues went backwards all the way through to March 2016 and March 2016 through to January 2017, we've seen base essentially month-on-month improvements in data and certainly for January 2017 versus January 2016, data revenue for the month alone was up materially more than that.

So, data growth year-on-year, but look at only January now, but certainly the first part of the year it was quite low and then in the second half of the year from July onwards, things started to normalize. You will see very hard data growth for the first half of the year.

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Ziyad Joosub, HSBC Securities - Analyst [69]

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Excellent, thanks very much.

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Operator [70]

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JP Davids, JPMorgan.

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JP Davids, JPMorgan - Analyst [71]

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Hi, two quick follow-ups. First one on Ghana and other sort of big period ahead for CapEx there. Can you tell us what the sort of savings you're getting from the tower companies for that market, so what would have CapEx been if the tower companies haven't existed in Ghana? And then separately, are you expecting any big spectrum payments or license renewals in 2017 that we should consider? Thanks.

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Ismail Jaroudi, MTN Group Limited - VP of MENA Region [72]

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Okay. On Ghana, the CapEx savings normally (inaudible) towers will be anywhere between 20% and 30%. This of course depend significantly on the number of new towers that you put in place. So, that's the savings that we have from the tower co model in terms of the absence of deploying tower infrastructure. As a whole, Ghana's CapEx was recently heavy because of the launch of LTE, we put on there 475 sites on LTE in June onwards and we're the only operator to have LTE in the market.

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JP Davids, JPMorgan - Analyst [73]

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(Inaudible) any spectrum payments coming up --

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Ismail Jaroudi, MTN Group Limited - VP of MENA Region [74]

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For Ghana, it's very no, there is no spectrum payments.

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Nik Kershaw, MTN Group Limited - Executive, IR [75]

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JP was that a generic question, was that specifically for Ghana on the -- generic question.

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JP Davids, JPMorgan - Analyst [76]

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No, it was a group wide question.

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Nik Kershaw, MTN Group Limited - Executive, IR [77]

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I don't think they [own] a big spectrum payments coming up in the short term note.

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Ismail Jaroudi, MTN Group Limited - VP of MENA Region [78]

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We've had a fairly heavy 24 months.

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Operator [79]

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Cesar Trion, Bank of America Merrill Lynch.

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Cesar Trion, Bank of America Merrill Lynch - Analyst [80]

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Just getting back to those Nigerian margins. Is that sure to believe that actually we haven't seen as you seem to subject to the Iran's (inaudible) question, we haven't seen all the impact -- negative impact on the Nigerian margins from the FX, because some of the contracts with the tower companies don't reset on the monthly basis, probably the, there we set on the quarterly basis, on a half yearly basis, is that one of the reasons? And then second, I'm still confused on the margin in Nigeria that you should use as a base for the forecast, even if I (inaudible) adjust the Nigerian margin that you reported, even the Nigerian margin for H2, 43.8% if I adjust the cost incurred for the reconnection of optic fibers, was it -- all of these costs to H charge? Thank you.

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Gunter Engling, MTN Group Limited - Acting Group CFO [81]

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Cesar, just I think, I'm discreetly I think certainly to confirm the right base to be using for your margins going forward for Nigeria is 40%. I think the -- obviously we look at month-on-month cost, I think some of those costs for reconnecting subscribers that's -- there's been an ongoing project around that stuff and everything that said wasn't [hoard] in the second half, some of it was in the previous half as well, because this happened in October 2015. So, I think that -- realistically that the 40% base case for Q4 is the right base going forward. And I think as far as the one of the reasons why the margins fell more in the second half, then we had -- then people had anticipated, one was the currency and then two is also the lag effect of some of the resets, but I think by far most of those costs are now in the base of the Q4 numbers.

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Operator [82]

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Kwena Moloko, Bank of America.

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Dimple Gosai, Merrill Lynch - Analsyt [83]

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Hi, this is Dimple from Merrill Lynch. I just have a quick question on the outlook from South Africa. You guys are guiding margins of around 15% and 18% or so. So, I didn't understand where that was coming from, because my understanding is the risk in [SAS] book quite high versus data is high, so where is that? Is that only on the back of the cost efficiency programs or do you see organic underlying growth?

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [84]

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No, sorry, I think just be clear, what we had guided was is that over the next two years, we anticipated EBITDA in South Africa to increase between 15% to 20% from the current base, not the absolute margins, but the absolute EBITDA number. From a margin perspective and revenues we have said mid-single digit revenues and EBITDA margins growing between 50 and 100 basis points.

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Dimple Gosai, Merrill Lynch - Analsyt [85]

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And that's all on the basis of cost efficiency programs, so what's --.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [86]

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No. It is a combination of two things, the both cost efficiencies, but we'll see an opportunity for us to continue to drive the topline. So, it's a combination of the two things.

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Operator [87]

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Madhvendra Singh, Morgan Stanley.

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Madhvendra Singh, Morgan Stanley - Analyst [88]

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So, I was just wondering about the margin sensitivity in Nigeria. The new guidance is 2 percentage impact on margin for every 10% move. If you compare with the previous guidance, it was 75 basis points for every 10% move. So, what drove this change in the guidance for the margin sensitivity?

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Gunter Engling, MTN Group Limited - Acting Group CFO [89]

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So, Medi, there were two things; one, the currency has moved more than 50%. So all things been equal. You would have had a bigger impact anyway because your base is not changed, from a dollar base relative to your naira base. And then secondly, we obviously continued with our aggressive network rollouts and with the network rollout, obviously you've got a lot of least cost to talk companies, et cetera, and the percentage of dollar costs within those is much higher than the rest of the base. So, that's really driven the higher percentage going forward.

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Madhvendra Singh, Morgan Stanley - Analyst [90]

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Is it possible to share the percentage of dollar cost now in the overall mix?

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Gunter Engling, MTN Group Limited - Acting Group CFO [91]

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What you can do is you can take a sense of our second half numbers again, you can look at the revenue and the margins, and then you can obviously work out based on what we've got it off with the impact of 10% move in. In simplistic terms, if you got 40% margins and a 10% move means, that's you are going to get a 2% impact on margin. Then you can calculate that FX actually we have 60% costs that would mean 20%, 20% of those 60% would be in dollars, so effectively a third of your current cost basis in dollars at the moment.

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Madhvendra Singh, Morgan Stanley - Analyst [92]

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Okay, thank you.

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Gunter Engling, MTN Group Limited - Acting Group CFO [93]

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And we've got time for one last question.

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Operator [94]

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Ziyad Joosub, HSBC.

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Ziyad Joosub, HSBC Securities - Analyst [95]

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Could you maybe comment on the spectrum in Nigeria, the Visafone spectrum being released and also the NCC recently stated that you should have larger spectrum and see what's available, how is your view on spectrum changed post management's visit in Nigeria. And then also maybe if you have this information, value-added services as a proportion of Iranian data in H2 if you could share that number please? Thank you.

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Mteto Nyati, MTN Group Limited - CEO of MTN South Africa [96]

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Okay in terms of the Visafone spectrum, let me just be clear that we can use the spectrum, but we can only use it as Visafone. The distinct differences that I can't move the 16 million subscribers from MTN on to that 800 spectrum. So, we can still sell on Visafone, but it is as Visafone, and the two values if we can unlock and move the 16 million roll on to the spectrum.

We're busy talking to the regulator about this, there are processes in place. At this point in time, I wouldn't like to give an indication as to when we believe we can unlock that spectrum, but there is different discussions taking place. In terms of broader spectrum that we have, I mean, I think probably 2015 or so, I'd say we'd had a real challenge with spectrum, but we now have 800 spectrum, we have the 2,600 spectrum. So, we have more than enough spectrum that we can use. But obviously spectrum is -- in our guidance so if additional spectrum becomes available and if we think we can monetize it, we would obviously look at it.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [97]

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On the Iran value-added services, it's around 13% to 15% of revenue.

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Ziyad Joosub, HSBC Securities - Analyst [98]

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13% to 15%.

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Phuthuma Nhleko, MTN Group Limited - CEO & Executive Chairman [99]

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Yes.

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Ziyad Joosub, HSBC Securities - Analyst [100]

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Thank you. Thanks a lot.

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Nik Kershaw, MTN Group Limited - Executive, IR [101]

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Thanks very much everyone and so we will speak to you again at the quarterly results. Thank you.

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Operator [102]

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Thank you very much sir. Ladies and gentlemen, you may now disconnect your lines.