Myanmar Investments Intl Ltd Interim Results to 31 March 2020 (2520R)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Myanmar Investments International Limited	LSE:MIL	London	Ordinary Share	VGG636111004	ORD NPV

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	0.03	0.0235	0.04				0.00	01:00:00

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

TIDMMIL

RNS Number : 2520R

Myanmar Investments Intl Ltd

29 June 2020

 
 This announcement contains inside   29 June 2020 
  information

Myanmar Investments International Limited

Interim results to 31 March 2020

Myanmar Investments International Limited [AIM: MIL] ("MIL" or the "Company"), the AIM-quoted Myanmar focused investment company, today announces its unaudited interim financial results for the six months to 31 March 2020.

As announced on 2 September 2019, to conform with the need to change the Company's year-end to bring it in line with the new Myanmar year end of 30 September the Company will issue 6-month interims for the period to 30 September 2019 and 6-month interims for the period to 31 March 2020. It will then issue a full audited set of financial statements for the 18-month period to 30 September 2020.

Overview

The Company's shareholders approved a change to the Company's investment objectives at the AGM held on 24 October 2019 and, as a result, the Directors have commenced the process of planning and implementing an orderly disposal of the investment portfolio with the intention of returning surplus cash to shareholders with a view towards an eventual winding down of the business.

As at 31 March 2020 the Company had invested in two businesses in Myanmar:

-- an indirect shareholding of 4.1 per cent in AP Towers Holdings Pte. Limited ("AP Towers"), one of Myanmar's leading independent tower companies ("ITC"). This investment will most likely continue to be held until such time as our joint venture partner looks to create an exit opportunity. At this stage, no discussions are underway and there is no defined timeframe for such an exit.

-- a 37.5 per cent shareholding in Myanmar Finance International Limited ("MFIL") a well-established microfinance company. On 1 April 2020, the Company announced that it has accepted an offer to sell its shareholding in MFIL subject to the purchaser's AGM approving the purchase, lender's consent, and Myanmar regulatory approval.

In addition, the following investment was sold in the period ending 31 March 2020:

-- a 48.8 per cent shareholding in Medicare International Health & Beauty ("Medicare") which is the first full-service chain of modern pharmacy, health, and beauty franchise stores in Myanmar. The Company sold this investment for US$1 million to its main joint venture partner in November 2019.

The Directors have determined that MIL's Net Asset Value ("NAV") as at 31 March 2020 was US$33.2 million, or US$0.87 per share.

The Company has continued to streamline its operations and as a result reduced its overheads. As part of the cost reduction process (mandated by the shareholders), the Company closed its office in Yangon and laid-off its local staff as of 31 March. Henceforth it will operate using consulting arrangements for personnel as required. In the period to 31 March 2020, the core cash-based overheads were US$817,000 including US$115,000 for one-off costs for the closing of the office in Yangon. Excluding these one-off costs, the core cash-based overheads were 5.2 per cent lower on a per share basis than for the same period last year with most of the reductions coming towards the end of that period. By September 2020, the monthly overheads will have reduced significantly more.

As at 31 March 2020, the Company had cash resources of US$2.8 million (2019: US$3.7 million).

AP Towers

Background

AP Towers is one of the largest ITC companies in Myanmar.

The Company swapped its interest in Apollo Towers for an interest in AP Towers in January 2020.

Under this share exchange, MIL's 66.6 per cent subsidiary, MIL 4 Limited ("MIL4") , exchanged its existing 13.7 per cent shareholding in Apollo Towers for a shareholding of 6.2 per cent in AP Towers, of which 4.1 per cent is attributable to MIL.

The share exchange effectively brought Apollo Towers and Pan Asia Towers, another Myanmar ITC, under the common ownership of AP Towers which now manages one of the largest network of towers in Myanmar. Apollo Towers and Pan Asia Towers provide tower and power services to all of Myanmar's mobile network operators ("MNOs") being Telenor, Ooredoo, MPT and the more recently established, Viettel-led consortium, MyTel.

MIL initially invested in Apollo Towers in July 2015 when it led a consortium of investors that invested US$30 million for a 14.2 per cent shareholding in Apollo Towers. It co-invested alongside TPG Growth ("TPG"), part of one of the world's largest alternative asset managers with assets under management of US$104 billion.

MIL4 sits on the board of AP Towers and contributes to the strategy and growth of the company.

Update

-- The Myanmar telecoms sector generally continues to grow. Myanmar's mobile penetration rate continues to grow with estimates currently as high as 107 per cent though this is based on SIM cards and not unique subscribers. Coupled with this is the prevalence of data enabled devices. Smartphones are estimated to account for approximately 80 per cent of the mobile phones in use in the country and data demand drives the need for connectivity. Connectivity requires an extensive network of telecom towers with reliable power. Myanmar currently has 20,000 towers, of which 11,000 are owned by ITCs, and is expected to reach 22,000 towers within the next few years.

-- Apollo Towers and Pan Asian Towers have both built strong reputations in the market for their valuable site locations, operational excellence and strong customer focus. AP Towers will look to leverage the best practices of both companies in providing a full suite of services that are commercially attractive to the customers of both businesses.

-- However, although the broader Myanmar telecom market continues to grow, the Myanmar telecom tower sector, following a period of rapid growth, has continued to slow in the last 6 months. This follows the entry of Myanmar's fourth mobile operator, MyTel, into the market who have pursued a policy of undercutting their competitors. As a result, the other MNOs have taken a more cautious approach to extending their networks and at the same time are focussing more on cost management.

-- As a result, whilst there has still been growth in the demand for both new towers and new tenancies the market has seen a reduction in the rate of growth whilst the other MNOs re-assess their strategies in light of this evolution.

-- Contrary to other industries, the telecoms sector has not suffered greatly due to the outbreak of Covid-19.

-- As at 31 March 2020 Apollo Towers and Pan Asia Towers together had an aggregated portfolio of 3,246 towers, 6,682 tenants representing a co-location ratio ("Lease-up-Rate" or "LUR") of 2.06x. This compares to an LUR of 2.02x at 31 March 2019. Since then towers have increased by 1.9% in towers and tenancies by 4.0%. The majority of that growth took place in the first 6 months of the year, reflecting the slowdown in growth mentioned above.

-- By adding additional tenants to existing towers, the yield on invested capital can significantly improve, making each additional tenant highly accretive in terms of EBITDA and eventually enterprise value. Market analysis for Myanmar points to an expected LUR of 2.2x or higher over the next few years.

-- In our report as of 30 September 2019 we pointed out that if the accounts for Apollo Towers and Pan Asia Towers for the six months to 30 September 2019 were, on a pro-forma basis, to be aggregated and adjusted for non-recurring items, and then annualised to provide an indicative "run rate" they would have shown annualised revenues and EBITDA of US$123 million (including pass through power revenue) and US$72.9 million, respectively. This would have represented an increase of 4.0 per cent and 5.0 per cent, respectively over the six-month period. The adoption of IFRS 16 accounting increases this EBITDA to US$78.2 million.

-- As of 31 March 2020, AP Towers shows for the twelve months to 31 March 2020, revenues, and (adjusted for non-recurring items and the change in accounting for IFRS 16) EBITDA of US$103.7 million (excluding pass through power revenue) and US$78.4 million, respectively. This represents an increase of 11.9 per cent and 3.4 per cent, respectively over the same period last year.

-- Historically reported revenue has included 'pass through' revenue, which is the variable power costs such as diesel and electricity that is contractually recharged to customers at cost. This is a substantial figure that is subject to seasonal variations and other fluctuations. However, as the name 'pass through' suggests this revenue does not contribute meaningfully to profits. Assessing the business with this included in revenue can distort the underlying trend as regards revenue progression of tower leasing, which is responsible for profits. Accordingly, AP Towers is now reporting revenue to shareholders with pass through revenue excluded. Any net gain or loss on pass through, which tends to be small, is reflected in the disclosed profitability. On this basis the revenue to 31 March 2019 was US$92.7 million and in the year to 31 March 2020 this rose to US$103.7 million a growth of 11.9 per cent. Much of this growth was the full year effect of new tenancies and power contracts added in the previous financial year. Revenue for the six months to 31 March 2020 was US$52.8 million, growth of 3.7 per cent over the first half of the year indicating that growth has slowed during the year.

-- Going forward, AP Towers will be looking to increase the number of tenancies either from new "Build to Suit" towers or from adding co-locations to its existing towers. Given its existing undrawn debt facilities, coupled with cash flows from operations, there will be available capital to build further towers over the next few years without the need to seek additional funding.

   --   AP Towers' net debt was US$371.6 million as at the end of March.

-- On 7(th) April 2020 APTH refinanced approximately $140m of mezzanine debt that had originally been raised by Apollo. That has resulted in a significant reduction in the cost of that borrowing that will benefit shareholders going forward.

Valuation

As at 30 September 2019 the Directors had assessed that if the share exchange had been completed by 30 September 2019, the Company's attributable shareholding in AP Towers would have been worth US$32 million as at that date, using a comparable EBITDA multiple methodology .

The share exchange was completed in January 2020.

Using the same methodology as at 30 September 2019 the Directors have assessed the value of this investment to be US$25.7 million. The downward revision in valuation of US$6.3 million compared with the in principle valuation of the AP Towers investments done in 30 September 2019, is mainly attributable to a slightly lower actual EBITDA (adjusted for IFRS 16) of AP Towers than the EBITDA (adjusted for IFRS 16) as at 30 September 2019 (that was based on an indicative "run rate") and a decline of earnings multiples of the comparable companies that we follow. In addition, given the uncertainty due to the outbreak of COVID-19, the Company applied an additional discount factor on this multiple.

This value of AP Towers represents a profit of US $4.9 million over the cost of the investment and an IRR since

the initial investment in July 2015 of 4.6   per cent.

Myanmar Finance International Limited ("MFIL")

Background

MFIL is one of the leading microfinance operators in Myanmar and provides small loans

(MMK 315,000 or US$205) on average per borrower, but it can be as high as MMK 10 million or

US$6,520 to small-scale business operators in rural and semi-urban areas in Yangon, Bago, Ayeyawady and Mon.

MFIL was established as a microfinance joint venture in August 2014 by MIL and Myanmar Finance Company Limited ("MFC"). In November 2015, the Norwegian Investment Fund for Developing Countries ("Norfund"), the Norwegian development finance institution, also became a shareholder such that the shareholdings today are MIL 37.5 per cent, MFC 37.5 per cent and Norfund 25 per cent, with a total paid up capital of over US$7 million. MIL's total investment cost to date is US$2.7 million.

MIL sits on the board of MFIL and works closely with the management and shareholders in strengthening and growing the business and assisting with securing debt finance.

Update

-- MFIL is a well-established microfinance company that has a positive impact on the lives and economic well-being of its customers.

-- Since inception MFIL has grown to 15 branches in Yangon, Bago, Ayeyawady and Mon. Half of MFIL's loan book is now in the SME segment.

-- At the time of the last report MFIL had completed a restructuring of its operation and had started to expand its loan book. At 30 September 2019, its loan book was MMK21 billion (US$15 million) and this had increased to MMK27 billion (US$19 million) at the end of February 2020.

-- Since mid-March 2020 when COVID-19 started MFIL has significantly reduced its new lending and is currently undertaking a review of its loan portfolio.

-- MFIL remains a strong microfinance company with surplus cash on its balance sheet of over MMK7.4 billion (US$5 million), as at 31 March 2020.

-- Over the last few weeks MFIL has successfully entered into an arrangement with lenders that have loans falling due within 2020 to extend repayment terms to 2021, this coupled with its reduction in lending and strong cash position has given MFIL a high level of liquidity.

-- In the 6 months to 31 March MFIL made a loss of MMK449 million (US$0.3 million) as a result of its negative net interest margin caused by its high level of liquidity.

   --   The microfinance industry has been impacted by Covid-19 as grassroot level clients have been disproportionately affected by the lockdown. This will lead to an increase in non-performing loans.

-- On 1 April 2020 MIL announced that it has accepted an offer to sell its shareholding in MFIL subject to the purchaser's AGM approving the purchase, lender's consent, and Myanmar regulatory approval.

-- The minimum consideration for this transaction will be calculated based on a pre-agreed formula of 2 times the audited book value of MFIL at closing once these conditions have been satisfied. Depending on the speed of recovery from Covid-19 MFIL's book value at closing may have reduced.

-- Subsequent to that announcement, the purchaser's AGM on 23(rd) April 2020 has approved the transaction and the lenders have given their consent. However, because of COVID-19 which, inter alia, has stopped all commercial air travel between Myanmar and Thailand, little progress has been made in obtaining regulatory approval.

-- Assuming a level of normalcy returns over the next few months we expect completion to take place within the next 2 to 4 months.

Valuation

As at 30 September 2019 the Directors had assessed the value of the Group's investment in MFIL to be US$4.4 million using the price to book value methodology.

Using the same methodology as at 31 March 2020 the Directors have assessed the value of this investment to still be US$4.4 million.

This value of MFIL represents a profit of US $1.7 million over the cost of the investment . This equates to an IRR since the initial investment in September 2014 of 11.9 per cent.

Medicare International Health & Beauty ("Medicare")

Background

Medicare is the first full-service chain of modern pharmacy, health, and beauty franchise stores in Myanmar.

MIL established the business in 2017 together with Medicare Vietnam, Vietnam's leading pharmacy, health, beauty and personal care retail group and Randy Guttery, an industry veteran with significant experience leading Asian-based retail concepts. The business is now the largest such chain in the country and is reputed to be the largest employer of trained pharmacists in the country.

As at 30 September 2019 Medicare had 22 modern franchised stores on the streets and in the shopping centres of Yangon with a further one under construction. Medicare provides the growing customer base at its franchised stores with a very broad range (4,500 SKUs) of international quality products at affordable prices.

As at 30 September 2019, MIL had invested US$2,145,000 for a shareholding of 48.8 per cent.

Disposal

Given the Company's strategy of looking to realise its investments, coupled with Medicare's continued operating losses that need funding as well as the capex needed to get Medicare to achieve critical mass, the Directors concluded that it was preferable to exit from this investment sooner rather than later.

As a result, the Company agreed with the owners of Medicare Vietnam, its main joint venture partner, to sell this investment for US$1 million in November 2019. This represented a loss of US$1.1 million

on the cost of the investment which largely reflects MIL's share of the operating losses to date. The Company had booked US$1.5 million as its s hare of results of this joint venture (equity method). Therefore, the sales price of US$1 million represents a gain on the disposal of this investment of US$0.4 million.

As at 30 September 2019 this investment had been valued by the Directors at US$1 million.

Financial Performance

Unaudited Financial Statements

The unaudited financial statements for the six months to 31 March 2020 are attached at the end of this announcement. They have been prepared in compliance with IFRS and have been reviewed by the Company's auditors, BDO LLP, in accordance with The International Standard on Review Engagements 2410.

Profit and Loss

For the six months to 31 March 2020, MIL's unaudited consolidated profit after tax was US$0.86 million, compared with a loss of US$1.05 million in the same period last year.

This is principally represented by:

   --   the overheads associated with running the Company's business (US$713,000); 
   --   one-off costs for closing the office in Yangon (US$115,000); 
   --   the Company's share of MFIL's losses (US$123,000); 
   --   net profit on Medicare's disposal (US$186,000); 
   --   transaction costs (US$30,000);

-- the non-cash impact of the share-based payments arising from the Company's Employee Share Option Plan ("ESOP") (US$11,000); and

   --   the gain on re-evaluation of the investment in AP Towers (US$ 1,667,000).

Within this the cost of MIL's cash-based overheads (i.e. excluding one-off costs, the joint venture results, transaction costs, share based payments and re-evaluation gains) was US$702,000 compared to US$733,000 for the six months to 31 March 2019, a reduction of US$31,000 or 4.2 per cent. On a per share basis this has dropped from 1.94c to 1.84c, a reduction of 5.2 per cent.

Net asset value

The Directors have determined that MIL's Net Asset Value ("NAV") as at 31 March 2020 was US$33.2 million, or US$0.87 per share. This is comprised of:

-- the investment in AP Towers, the telecommunication tower business, of US$25.7 million, excluding the non-controlling interests, determined using a comparable EBITDA multiple methodology;

-- the investment in MFIL, the microfinance business, of US$4.4 million, determined using a comparable price to book value methodology;

   --   cash and other net assets/liabilities of US$3.1 million.

In accordance with the Company's stated policy, the Company's investments have been determined by reference to the prevailing International Private Equity and Venture Capital Guidelines.

Summary of NAV

The NAV valuation of US$33.2 million is a net increase of US$806,000 (2.5 per cent) from US$32.3 million over the six-month period to 31 March 2020. This is mainly attributable to:

-- the fact that the AP Towers investment, under the revised valuation is US$1,667,000 higher than the previously held Apollo Towers investment (as at 30 September 2019); and

   --   overheads and transaction costs of US$861,000.

In the attached financial statements, the NAV attributable to shareholders differs from the above stated value of US$33.2 million due to the following adjustments:

 
                                     US$ millions 
 NAV per the financial statements            31.3 
 MFIL (1)                                     1.9 
 NAV per the Directors' valuation            33.2 
                                    =============

Note 1: In accordance with IFRS 11 Joint Arrangements, the investment in MFIL is accounted for as an investment in a joint venture using the equity method. Whereas in accordance with the Group's Valuation Policy the Directors' valuation for MFIL is determined by reference to the International Private Equity and Venture Capital Guidelines.

Working Capital

As of the date of this announcement the Group has adequate financial resources to cover its working capital needs for the next 12 months.

Commenting on the Interim Results, Nick Paris, Managing Director of Myanmar Investments International Limited, said "Your Company continued to focus on implementing the change of investment objective that was approved at the AGM in October 2019. As a result, no new investments have been or will be made and steps are being actively taken to sell the existing investments when opportunities arise at acceptable prices. This process commenced with the sale of Medicare to our Joint Venture partner and continued with the agreement to sell MFIL. Our operating costs are kept under constant review to seek to minimise our cash burn to return surplus capital to our shareholders."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

For further information please contact:

 
Nick Paris                          Michael Rudolf 
 Managing Director                   Chief Financial Officer 
 Myanmar Investments International   Myanmar Investments International 
 Ltd                                 Ltd 
 +95 (0) 1 387 947                   +95 (0) 1 387 947 
 nickparis@myanmarinvestments.com    michaelrudolf@myanmarinvestments.com 
 
  Nominated Adviser                   Broker 
  Philip Secrett / Jamie Barklem      William Marle / Giles Rolls 
  / Seamus Fricker                    finnCap Ltd 
  Grant Thornton UK LLP               +44 (0) 20 7220 0500 
  +44 (0) 20 7383 5100

For more information about MIL, please visit www.myanmarinvestments.com

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME