Group Assignment 01

Accounting for Managers

PBA4807
(June 2016 intake Semester 2)
(JuneDec2016)

SBL-Group: PTA016B
No.

Surname and Name

1
2
3
4
5
6
7
8
9

GOMBA S MISS
KHUZWAYO HN MISS
KHUZWAYO SA MR
LEBOGE EKD MISS
LEWELE BN MR
MATHENJWA LC MISS
MPAMBANI B MS
RABOTHATA MD MS
SALIH GKS MR

Submission Date: 26 August 2016

Student
Number
79243479
72918632
79228917
77724887
77479106
79229093
77326229
79280404
79238637

Contribution
100%
100%
100%
100%
100%
100%
100%
100%
100%

Group Assignment 01

2016 PBA4807

1. Introduction:
MTN, which was launched in 1994, a leading emerging markets mobile operator,
which is at the forefront of global technological changes, swept the world with its
leadership strategy of integrating its commitments and interests of Shareholders as
well as that of Stakeholders (MTN, 2016).
In year 2000 to 2003, MTN grew as group of subsidiaries and as a parent company;
it invested in other countries. The company became number one telecom brand on
the African continent. MTN connected millions of people across Africa, grew in leaps
and bounds.
As MTN grew, the company had a main vision of taking Africa into a bold, new digital
world. MTN invested billions in state of -the art networks and licences to create
Africas largest and most reliable network, which now connects Two hundred and
eight million people in twenty two countries across Africa and Middle East.
MTN initiated products, aimed to innovate, inspire and empower each and every
customer, whether business or individual, so as to reach the companys potential.
MTN gained momentum and enticed customers with an advanced strategy of
discounted calls, send short messages (SMS), download content and surf at home
standard rates while visiting any MTN operating country. The companys innovative
slogan was, no matter how far apart the company is with its customers, the company
may be accessible to its customers and customers in return may be reachable (MTN,
2016).
MTN received several accolades in 2014; as the company was rated among Five
hundred (500) global companies on corporate sustainability and environmental
impact in Newsweek Green Rankings.
The company was named the only African brand in the 2014 BrandZ Top 100 Most
Valuable Global Brand ranking, for the third consecutive year. MTN was named the
Brand Finance South Africas top brand for second year in a row, and also named
Africas top brand by Brand Finance South Africas Top 50 awards.
MTN Group was named as the only South African company on World Champions list
which is compiled by analysts from American multinational financial services

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company, Citi Group, and reflects global companies dominating their respective
industries. The company won the Nedbank Sustainable Award for its Ready set and
Ready Paysolar powered charging solutions in Rwanda and Uganda.
MTN was then named and respectively admired as the Most Valuable Brand in
Africa, in the 2014 Brand Africa 100 ranking of the most admired and most valuable
brands in Sub-Saharah Africa (MTN, 2016) .
This report aimed at interpreting, analysing and comparing the status and trends for
the MTN Group Limited for the financial year ends 2012, 2013, 2014 and 2015.
The analysis will cover the following ares:

Proftibilty

Liquidiy

Cash flow.

2. Proftibilty:
At the heart of every companys core objective is to make a profit, and have enough
liquidity and cash-flow to run a business. A vertical and horizental analysis are used
to identify trends and staus.
2.1 Analysis:
2.1.1

Horizontal analysis

Percentage change between 2015 and 2014

Percentage change = (Revenue) Amount of change/Base year amount
= (2015-1014)/Base year amount
= (147,063 146,930)
= 133/146,930
= 0,09%
Percentage change between 2013 and 2014.

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= 146,930/
= 7.03%
Percentage change = Amount of change/Base Year amount
Horizontal Analysis Income Statement
MTN Group Limited results // for the year ended 31 December 2013/15
Summarised consolidated income statement
for the year ended 31 December 2013/15

Increase/(Decrease)
2012

Amount

Rm

2013
Rm

136 495

121 867

14 628

12%

1 327

894

433

48.43%

Direct network operating costs

-18 299

-16 188

2 111

13.04%

Costs of handsets and other accessories

-10 744

-9 590

1 154

12.03%

Interconnect and roaming

-13 816

-13 254

562

4.24%

-8 670

-7 534

1 136

15.10%

Selling, distribution and marketing expenses

-16 362

-15 631

731

4.70%

Other operating expenses

-10 143

-7 927

2 216

28.00%

EBITDA

59 788

52 637

7 151

13.60%

Depreciation of property, plant and equipment

-16 458

-13 791

2 667

19.34%

Amortisation of intangible assets

-2 820

-2 161

659

12.00%

Operating profit

40 510

36 685

3 825

10.43%

Net finance costs

-1 234

-3 790

-2 556

-67.44%

3 431

3 008

423

14.40%

Profit before tax

42 707

35903

6 804

19.00%

Income tax expense

-12 307

-11 835

427

3.61%

Profit after tax

30 400

24086

6 314

26.21%

26 289

20 704

5 585

27.00%

4 111

3364

747

22.21%

30 400

24 068

6 332

26.31%

Basic earnings per share (cents)

1 434

1126

308

27.40%

Diluted earnings per share (cents)

1 427

1 120

307

27.41%

Revenue
Other income

Staff costs

Share of results of joint ventures and associates after tax

Percentage

Attributable to:
Owners of MTN Group Limited
Non-controlling interests

Interpretation
During 2013, MTNs net profit (profit after tax) increased R6 314 million or 26.21%.
This may be due to the revenue that went up by R14 628 million or 12% in 2013.
This increase in profit may be due to a significant decrease in finance costs (2 556

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million or -67.44%) However, Horizontal analysis does not provide information as to

why 2013 was a profitable year and if this trend is likely to continue. We will also
have to look at 2014 and 2015.
In 2015, the net profit (profit after tax) of MTN decreased R14 132 million or -37.5%
in 2015. This may have been caused by a decrease in Interconnect and roaming (-R
551 million or -4.04%) and a decrease caused by staff costs (-R251 million or 2.84%). The EBIDTA also decreased (-R14 066million or -19.22%). This may be due
to the Nigerian regulatory fine in 2015. The operating profit also decreased (R14 317 million or -28.84%). These declines may have been caused by a significant
increase in the other operating expenses (R1 833 million or 19.10%). The net profit
decreased from R6 314 million in 2013 to R14 132 million in 2015.
Horizontal Analysis Balance sheet
MTN Group Limited results for the year ended 31 December
2015
2015
Rm
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Investment in associates and joint ventures
Deferred tax and other non-current assets
Current assets
Non-current assets held for sale

Note

16

Other current assets

Trade and other receivables
Restricted cash
Cash and cash equivalents
Total assets
Total equity
Attributable to equity holders of the Company
Non-controlling interests
Non-current liabilities
Interest-bearing liabilities
Deferred tax and other non-current liabilities
Current liabilities
Interest-bearing liabilities
Trade and other payables
Other current liabilities
Total equity and liabilities

13

218
435
106
702
55 887
35 552
20 294
95 432
10
95 422
15 940
43 570
1 735
43 177
313
867
151
838
146
369
5 469
72 510
52 661
19 849
89 519
22 510
40 484
26 525
313
867

Note
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Investment in joint ventures and associates

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2014
Rm
163
218

Increase/Decrease
Amoun
t
Percentage
55 217

33.83

87 546
36 618
25 514
13 540
90 467
3 848
86 619
9 810
32818
893
43 098
253
685
133
442
128
517
4 925
52 613
39 470
13 143
67 630
13 809
33 234
20 587
253
685

19 156
19 269
10 038
6 754
4 965
-3 838
8 803
6 130
10 752
842
79

21.88
52.62
39.34
49.88
5.49
-99.74
10.16
62.49
32.76
94.29
0.18

60 182

23.72

18 396

13.79

17 852
544
19 897
13 191
6 706
21 889
8 701
7 250
5 938

13.89
11.05
37.82
33.42
51.02
32.37
63.01
21.82
28.84

60 182

23.72

2013
Rm
150
910
92 993
37 751
12 643

2012
Rm
120
199
73 905
36 618
4 645

Increase/Decre
ase
Amount
30 711
19088
1133
7998

Percentage
25.55
25.83
3.09
172.19

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Deferred tax and other non-current assets

Current assets
Non-current assets held for sale
Current assets
Other current assets
Restricted cash
Cash and cash equivalents

14

Total assets
Total equity
Shareholders equity
Non-controlling interests
Non-current liabilities
Interest bearing liabilities
Deferred tax and other noncurrent liabilities
Current liabilities
Interest bearing liabilities
Other current liabilities

12

12

Total equity and liabilities

7 613
75 911
1 281
74 630
32 808
2 222
39 600
226
821
119
771
114
438
5 333
49 066
34 664
14 402
57 984
11 361
46 623
226
821

9 055
55 875
1 373
54 502
26 522
5 272
22 708
176
074

-1442
20036
-92
20128
6286
-3050
16892

-15.92
35.86
-6.70
36.93
23.70
-57.85
74.39

50747

28.82

92 887

26884

28.94

89 006
3 881
32 713
21 322
11 391
50 474
10 762
39 712
176
074

25432
1452
16353
13342
3011
7510
599
6911

28.57
37.41
49.99
62.57
26.43
14.88
5.57
17.40

50747

28.82

Interpretation:
When looking at the total assets, MTN has become bigger in 2015, from R253 685
million in 2014 to R313 867 million in 2015. In 2012 it had total assets of R176 974
million and in 2013 the assets had increased to R226 821 million. There was a great
increase on investment in joint venture and associates in 2012-2013 from, R4 654
million to R12 643 million which is 172.19% increase.

In 2014-2015 MTNs

continued to increase its investment in joint ventures and associates by R10 038
million or 39.34%.

2.1.2 Vertical Analysis

We use vertical and horizontal analysis to analyse the profitability of MTN. To
calculate the percentage operating profit/gross profit relative to revenue for MTN will
be the following:
Financial Year 2013:
Vertical Analysis % = Income statement item/Total revenue
= Operating profit/Revenue
= 41, 152/137,270

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= 29,98%
Financial Year 2014:
Vertical Analysis % = Income statement item/Total revenue
= Operating profit/Revenue
=49,645/146,930
=33,79%

Financial Year 2015:

Vertical Analysis % = Income statement item/Total revenue
= Operating profit/Revenue
=35,328/147,063
24,02%

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Interpretation:
For MTN, in 2013, the vertical analysis percentage shows us:

Other Income was 0.97% of revenue as compared to 0.73% in 2012 and in 2015 it was
5.72% as compared to 5.40 in 2014.
Other operating expenses were -7.43% of revenue in 2013 as compared to -6.50% in
2012 and -7.77% in 2015 as compared to -6.53% in 2014.
Prof after tax was 22.27% of revenue in 2013 as compared to 19.76% in 2012 and
16.03% in 2015 as compared to 25.66% in 2014. This shows a decrease in profit. This
may be due to amortisation of goodwill, net monetary gain, Nigeria Regulatory fine that
was not there in 2012 and 2013. The Nigeria Regulatory fine was only in 2015. This
could have also contributed to the decrease on profit.

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2.1.3 Gross profit Margin and Operating profit Margins:

The following table shows profits percentage for the years 2013, 2014 and 2015:
Year end Dec 31

2015

2014

2013

Gross Profit Margin (Sales-COGS)/Sales

44%

47%

43%

Operating Profit Margin (EBIT/Sales)

23%

32%

29%

Net Profit Margin (Net Profit/Sales)

15%

24%

22%

Margin)

0,08

0,15

0,13

Return on Equity (Net profit/Share Equity)

0,16

0,28

0,25

Return on Investment (Total Assets Turnover xNet Profit

Interpretation:
Gross profit Margin measures the difference between the revenue generated and the
cost of making the product or the service. Gross profit margin indicates how much
sales revenue remains to meet other expenses and required profit. Sales revenue
can changed in relation to cost of goods sold. In 2013 MTN product made 43% of
profit after accounting for the cost of goods sold, 47% of profit made in 2014 and
43% profit made in 2015.
Operating Profit margin measures the ability of the firm to generate profit from its
operations. In 2013, the average MTN product made 29% of product for every rand
sold, 32% product made in 2014 and 23% product made in 2015.The operating
margin in 2014 was higher than 2015 and 2013, The Companys cash for each rand
of revenue left over was higher in other years, but started to decline in 2015.

3 Liquidity
Liquidity is the ability of the company to meet its short term obligations.

3.1 Analysis:
3.1.1 Quick ratio

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The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a
company to pay its current liabilities when they come due with only quick assets.
Quick assets are current assets that can be converted to cash within 90 days or in
the short-term. Cash, cash equivalents, short term investments or marketable
securities, and current accounts receivable are considered quick assets.

Quick ratio = (Cash + cash equivalents + short term investments+ current

receivables)/current liabilities
2013

2014

2015

39600/57984

43098/67630

79482/89519

20

0.63

0.88

Interpretation:
There was an appreciation in the companys liquidity ratio. The company increased
from 0.68 to 0.88 between 2013 and 2014, this shows that the companys cash
equivalent was available for them to use in that time.

3.1.2 Current Ratio

This is the standard measure of any businesss financial health. The current ratio
measures the ability of the firm to pay its current bills. The ratios are derived from the
figures on the balance sheet. It tells whether a company has enough assets to cover
its liabilities.

Current ratio = current assets /current liabilities

2013

2014

2015

76573/57984

90467/67630

95432/89519

1.32

1.34

1.066

Interpretation:

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The analysis of MTN shows that the company had 32% cash to pay for their
laiblities at any given time.

3.1.3 Liquidity Ratio:

Liquidity ratios measure the ability of a firm to generate enough short term cash to
pay short term liabilities.

BALANCE SHEET/ FINANCIAL POSITION

Year end Dec 31
Non - current assets
Non - current assets held for sale
Current assets
Other current assets
Trade and other receivables
Restricted cash
Cash and cash equivalents
Total assets

R
R
R
R
R
R
R
R

2015
218 435
10
95 422
15 940
43 570
1 735
34 177
313 867

Non - current Liabilities

Current Liabilities
Total Equity
Total Equity and Liabilities

R
R
R
R

72 510
89 519
151 838
313 867

Year end Dec 31

Current Ratio (CA/CL)
Quick Ratio (CA-INV)/CL

R
R
R
R

2014
163 218
3 848
86 619
42 628

R
R
R
R

2013
150 910
1 281
74 630
32 808

R
R
R

893 R
43 098 R
253 685 R

2 222
39 600
226 821

R
R
R
R

52 613
67 630
133 442
253 685

49 066
57 984
119 771
226 821

Liquidity Ratio
2015
1,07
0,89

2014
1,28
0,65

R
R
R
R

2013
1,29
0,72

Interpretation:
With the above results, in 2013 MTN was able to pay its current liabilities 1.29 times
with is current assets and 0.72 times with current assets less inventory. The money
can be quickly turned into cash, or is already cash that is available in the
companythis indicates that the quick asset are more than quick assets to pay for its
liabilities/If the quick ratio is high, it may indicate the companys inefficiency in using
short term assets.The more quick ratio available, it will mean that the company might

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consider using the money to buy more assets that will be turned into profit.This could
also signal lack of inventory to reach demand.

4 Cash flow:
4.1 Cash Flow Statement
MTN Cash flow Statements
Year ended Dec 2012 Dec 2015
(All numbers in millions of R's)

Net cash generated from operating activities

Cash generated from operations
Dividends paid to equity holders of the company
Dividends paid to non-controlling interests
Dividends received from associates and joint ventures
other operating activities
Net cash used in investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Movement in investments and other investing activities
Net cash from financial activities
Proceeds from borrowings
Repayment of borrowings
Other financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange gain/(losses) on cash and cash equivalents
Net monetary gain/(loss) on cash and equivalents

SBL-Group: PTA016B

2015
13 122
57 598
-23 506
-5 777
577
-15 770
-34 290
-21 312
-10 412
-2 266
8 101
23 384
-14 802
-481
-13 067
43 072
3 860
34 139

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2014
27 132
64 628
-20 527
-4 289
508
-13 188
27 132
-19 563
-3 828
-3 147
2 639
30 603
-25 620
-2 334
3 780
39 577
-182
43 072

2013
27 025
59 708
-16 187
-2 195
27 025

2012
20 062
51 105
-14 919
-693
994

27 025
-24 568

20 062
-20 741

6 264

-5 280

13 454
22 539
3 584
39 577

33 074
-1 105
22 539

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50000

MTN Group Cash Flow patterns 2012-2015

40000
30000
20000
10000
In Rand millions

0
2012

-10000

2013

2014

2015

-20000
-30000
-40000
CFO

CFI

CFF

Cash decreas and \increas

Loss and Gain

EXECUTIVE SUMMARY

Analysis of change of revenue was done on MTN Group financial statements over a
three year period, 2013, 2014and 2015. However for change of revenue the focus
was based on 2013 to 2014 and 2014 to 2015. Analysis of 2013 financial statement
was analysed with the ratio relating to changes.
2014 and 2015 considered for analysis of other profitability ratios which do not focus
on changes within a year. 2013 was not considered in this regard to avoid having
three results for one ratio. As guided by the mark allocation, the requirement was not
to provide more or less information.
In respect of the analysis conducted, though revenue decreased between 2014,
2015, and EBITDA decrease MTN Group reflects as a company that

has a

meaningful revenue growth that is expected from data sales and will continue to find
increasing relevance in upcoming results. Meaningful revenue growth is expected
from data sales and will continue to find increasing relevance in upcoming results.
MTN benefits from access to low penetration markets where internet being accessed
from the palm of your hand is an increasing commonplace. Data revenue is expected
to contribute around 17% of total group revenue.

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MTNs share price has been under pressure, particularly in the latter part of the year
as a falling oil price has weighed negatively on the Nigerian economy and in turn
hampered sentiment surrounding businesses domiciled therein. The oil producing
nation is where the MTN Group generates roughly a third of its revenue, with the
largest portion of its underlying earnings (EBITDA around 48%) historically (FY
2013) being realised from within the region.
In the reporting period, the MTN Group has concluded the sale of more than 9000 of
its cell phone towers in Nigeria to IHS Holdings. In a partnership agreement with IHS
Holdings, MTN has retained 51% ownership whilst still leasing the towers. The deal
hands over operational control to the tower specialist (IHS Holdings) and shared
infrastructure with other mobile communication providers. The transaction will have
resulted in a capital injection which has boosted the Groups attributable earnings per
share.
Reporting back to the South African (JSE) listed holding company, unfavourable
exchange rates as the Naira weakened (forced in part by the Nigerian Central Bank
to combat a falling oil price) would have further inhibited the earnings growth to the
aforementioned guided range. The South African operations of MTN have found a
saturated market environment equate to a competitive pricing environment as
providers compete aggressively on call rates (especially prepaid). Being the second
largest mobile provider in South Africa has also resulted in a further revenue
setbacks due to the ICASA imposed mobile interconnect rate asymmetry (IG, 2016).
In conclusion on whether to invest in the company, based on the previous
calculations and analysis of financial statements from 2013 to 2015, MTN Group is
Africa's biggest telecoms firm; with a guaranteed increase opportunity of shares
specifically to black empowerment ownership.
MTN looks set to have had more challenging years faced with a difficult economic
climate. The company remains well poised in low penetration, high populous
markets, set to capitalize on future growth from the products and services offered
which now become essential utilities rather than luxuries. In the current market
environment, where investors are searching for yield, the MTN Group should
continue to offer a healthy dividend in excess of 5% (IG, 2016)

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6 References:
Harrison, W., Horngren, C. T., & Suwardy, T. (2015). Financail Accounting. Harlow: Pearson.
IG. (2016). zashares.news. Retrieved 8 24, 2016, from IG: www.ig.com/zashares.news
MTN. (2016). GROUP LEADERSHIP. Retrieved 8 23, 2016, from MTN: www.mtn.co.za

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