Myanmar Investments International Limited

Interim results to 31 March 2022

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 2022.

As announced on 9 February 2022, to conform with the need to change the Company's year-end to bring it in line with the new Myanmar year end of 31 March the Company will issue 6-month interims for the period to 31 March 2022 and 6-month interims for the period to 30 September 2022. It will then issue a full audited set of financial statements for the 18-month period to 31 March 2023.

Myanmar

After over a year of military rule, Myanmar remains in a deep crisis.

Politically, the military formed State Administrative Council continues to prosecute Aung San Suu Kyi and her party with the court handing down multiple jail sentences on her, former MPs and ministers. Opposition to military rule continues unabated with violent clashes and assassinations being carried out by both the People Defense Forces, a collection of independent and loosely coordinated militia groups, and the more organized Ethnic Armed Organizations daily across the country especially in the northern parts.

After a year of sanctions on key individuals and institutions and limited diplomatic progress, internationally Myanmar is increasingly being isolated with ASEAN now refusing to invite Senior General Min Aung Hlaing to its meetings and many Western countries downgrading diplomatic representation in the country.

Covid lockdown had badly affected businesses and travel but recently the quarantine requirement has been removed. Similar to other ASEAN countries, Covid infection rates have declined, and borders are beginning to reopen. This could lead to an increase in Asian trade, business travel and maybe some tourism.

The Ukraine conflict has, however, increased Myanmar's energy import costs which has been difficult for the government particularly when it has to be paid for in scarce US$. According to a World Food Programme report, by the end of March 2022 fuel prices had increased by 133 per cent. since February 2021. The increase in fuel prices, and the impact of a depreciating currency more broadly, has caused a significant rise in food prices and poverty. Increases in gas import costs, coupled with the poor state of Myanmar's electricity generating infrastructure, has led to frequent electricity power cuts in recent months.

In February 2022, Fitch Solutions forecast that, in addition to the estimated 20 per cent contraction in Myanmar's GDP in 2020/21 (fiscal year is October to September) the real GDP in 2021/22 will further contract by 4.4 per cent. Private consumption will decline because of depleted savings, lack of employment and surging inflation. The United Nation Development Programme predicts that more than half of the population could fall below the poverty line this year.

The shortage of US$ has led the government to fix the exchange rate at 1,850 MMK/US$ although in the black market the rate is round 2,060 MMK/US$. Recent Central Bank announcements continue to restrict the use of foreign currencies including requiring companies to convert holdings into MMK and restricting imports. These restrictions, together with rising inflation, political instability and the poor medium term economic outlook will deter long term foreign investments in the country.

The dire forecast contrasts with the superficial appearance of stability seen in Yangon where traffic jams have returned, and residents have adjusted to life under military rule and a reduction in the ease of withdrawing cash from their bank accounts. It must be remembered that ATM machines only became available in 2013 and only a decade ago when Myanmar suffered from regular electricity brownouts and transactions were primarily in cash. People have simply gone back to the old ways.

There is a possibility that Myanmar has fallen to its lowest point. The Asian Development Bank has forecast a potential per capita GDP growth of 1.9 per cent in 2023. Whilst putting Myanmar at the bottom of ASEAN growth, it is nonetheless a sign that the worst may be over. An election promised for mid-2023, even though unlikely to return the country to normal democracy, could be a turning point.

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 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 Company.

As at 31 March 2022 the Company had two investments in Myanmar:

·   an indirect shareholding of 4.1 per cent in AP Towers Holdings Pte. Ltd. ("AP Towers"), one of Myanmar's leading independent telecom 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 had accepted an offer to sell its shareholding in MFIL. Due to the outbreak of COVID-19 and the change of government on 1 February 2021, the transaction has not been closed yet. On 15 March 2022, the parties signed an agreement to extend the time period for completion of the binding offer to 31 August 2022.

The Directors have determined that MIL's Net Asset Value ("NAV") as at 31 March 2022 was US$13.2 million, or US$0.35 per share.

The valuation of the two investments has been consistent with the methodology of previous years. However, given the uncertainty regarding the political and economic development in Myanmar, the Directors have applied a portfolio discount of 30 per cent to reflect this uncertainty (30 September 2021 - 25 per cent).

The Company has continued to streamline its operations and as a result reduced its overheads. In the period to 31 March 2022, the core cash-based overheads were US$329,000 which is 2.9 per cent lower than for the same period last year. The Directors intend to reduce costs further as key parts of the Company are shut down or sold to conserve the remaining cash for as long as possible.

The Directors had been considering the option of cancelling the admission of the ordinary shares from the AIM market of the London Stock Exchange in order to seek to reduce operating costs but there was insufficient support for this from shareholders. However, as the current economic and political crisis is now directly affecting the financial performance of our businesses and it looks like Myanmar could remain unattractive to western investors for longer than initially expected, the Directors are going to re-engage with shareholders. The aim is to explore further changes (including reconsidering the de-listing proposal) which would reduce operating costs and cash outflows as much as possible and therefore lengthen the time before the current cash balance is substantially depleted. The alternative to making changes now would be to undertake a modest equity share issue priced at a significant discount to NAV once the Company's cash balance falls to a level that is close to 12 months of forecast cash outflows.

As at 31 March 2022, the Company had cash resources of US$1.4 million (31 March 2021: US$2.1 million).

AP Towers ("APT")

Background

AP Towers is one of the largest Independent Telecom Towers Companies ("ITC") 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 major mobile network operators ("MNOs").

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.

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

Update

·   The Myanmar telecoms sector has grown rapidly since 2015. Myanmar's mobile penetration rate is estimated to be 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.

·  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 leverages the best practices of both companies in providing a full suite of services that are commercially attractive to the customers of both businesses.

·   The Myanmar telecom tower sector, following a period of rapid growth, has continued to slow in the last 24 months in terms of both new towers and new co-locations.

·   Mobile network services in Myanmar have been significantly disrupted since February 2021, primarily as a result of the suspension and restriction of data services imposed by the regulator. AP Towers and other tower and power providers have faced increasing challenges in maintaining the up time of the power services as movement of key suppliers and personnel has been restricted. AP Towers has maintained the safety and security of its staff, whilst continuing to deliver high quality services to all of its customers. Whilst the operating environment has been very challenging, AP Towers has been able to continue to provide a reliable service with high up times, thereby contributing to the continued availability of mobile phone services to the population of Myanmar.

·   As at 31 March 2022, AP Towers had an aggregated portfolio of 3,257 towers, 6,689 tenants and a co-location ratio ("Lease-up-Rate" or "LUR") of 2.05x which is unchanged since 30 September 2021.

·   Based on AP Towers actual results for the 6 months ended 31 March 2022, AP Towers annualised adjusted "run rate" revenue has decreased to US$95.4 million. This represents a decline of 7.0 per cent over the same figure as at 30 September 2021. The annualised adjusted "run rate" EBITDA has decreased to US$75.7 million. This represents a decrease of 11.8 per cent over the same figure as at 30 September 2021.

·   Going forward, AP Towers will, when market conditions allow, be looking to increase the number of tenancies either from new "Build to Suit" towers or from adding co-locations to its existing towers.

·   AP Towers' net debt was US$404.0 million as at the end of March 2022, an increase of US$ 7.8 million since 30 September 2021 and a decrease of US$ 12.8 million since 31 March 2021.

Valuation

As at 30 September 2021 the Directors had assessed that the Company's attributable shareholding in AP Towers, excluding the non-controlling interests attributable to the minority shareholders of MIL 4, was worth US$29.7 million as at that date, using a comparable EBITDA multiple methodology and before applying the portfolio discount.

Applying the same methodology that we used as at 30 September 2021 with updated trading and comparable data, the value of this investment is US$15.5 million, a decrease of US$14.2 million compared with the valuation as at 30 September 2021. This reduction is driven by a combination of a decrease in comparable multiples and a decline in the EBITDA of AP Towers.

This value of AP Towers represents a loss of US$5.3 million over the original cost of the investment.

Myanmar Finance International Limited ("MFIL")

Background

MFIL is one of the leading microfinance operators in Myanmar. As at 31 March 2022, the company had 15 main branches and 3 subbranches. However, over the coming months management has plans to reduce and combine the number of branches. It provides loans of between US$150 and US$5,000 to individuals and small-scale business operators in rural and semi-urban areas in Yangon, Bago, Ayeyarwady and Mon. In October 2020, MFIL was granted a license to operate in the Mandalay region.

MFIL was established as a microfinance joint venture in September 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.

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

A representative of MIL sits on the board of MFIL and works closely with the management and shareholders on strategic and restructuring issues.

Update

·   The microfinance industry has been badly affected by both the Covid lockdown and economic crisis following the military takeover. Economic difficulties have a disproportionately larger negative impact on the low-income segment of society which are borrowers from microfinance institutions.

·   According to an International Labour Organization briefing note in January 2022, the annual employment losses in 2021 amounted to 8 per cent, or 1.6 million jobs lost. A sizeable decrease from a workforce of 20.5 million in 2020.

Key economic sectors suffered considerable impacts. Rural farmers were affected by lower incomes, export reductions and higher input prices, as well as monsoon flooding. Construction, garments, and tourism and hospitality were also among the hardest hit industries in 2021, with year-on-year employment losses reaching an estimated 31 per cent, 27 per cent and 30 per cent, respectively.

·   For 2021/22, both Fitch Solutions and the Asian Development Bank ("ADB") forecast a reduction in GDP although ADB sees signs of stability returning with a possible small growth in 2023. The recent relaxation in covid related quarantine requirements and lifting of border closures should increase trade and travel.

·   Although MFIL's borrowers have not been immune from the continuing economic and political crisis, most continue to demonstrate a strong will to repay even though they have significantly reduced ability.

·   Management therefore continues its policy of reducing the loan book as well as the company's liabilities.

·   As at 31 March 2022, MFIL's loan book has decreased from MMK21.7 billion in March 2021 to MMK14.0 billion and 32,000 clients (down from 49,000) with Portfolio at Risk over 30 days (PAR 30+) of 10.3 per cent. Full provisions have been made to cover potential loan losses.

·   The company continues to maintain a high level of liquidity but also continues to make losses because of provisions, forex losses and the high costs of borrowings when compared to an asset impairment base where part of the loan book is not performing, and also the company's cash holding is effectively generating minimal returns.

·   After the last report at 30 September 2021, MFIL successfully negotiated a one-year extension to all of its loans and had made a prepayment of 25 per cent of the outstanding loan principal. Operating expenses had also been reduced by a similar percentage.

At the time management believed that the cuts were sufficient and would not materially impact the company's network.

·   Although there is significant demand for new loans and very early signs that the economic decline has slowed, management now believes that a sustained recovery in the sector may take longer, and they have decided to embark on a second round of costs cutting and negotiations with all lenders to reduce the company's liabilities further. The strategy is "to go small in order to grow back".

This restructuring is expected to be finalised within the next few months and is likely to result in a smaller MFIL with fewer branches, lower costs and substantially reduced liabilities. A structure that is able to weather further deterioration in the operating environment.

·   The offer for 100 per cent of MFIL from Thitikorn Plc, a Thai finance company, has been extended to the end of August 2022 and is subject to, inter alia, local regulatory approval.

Valuation

As at 30 September 2021, the Directors had assessed the value of the Group's investment in MFIL to be US$2.0 million using the price to book value methodology contained in the Sale Agreement and before applying the portfolio discount.

Applying the same methodology that we used as at 30 September 2021, the value of this investment is US$1.2 million, a decrease of US$0.8 million compared with the valuation as at 30 September 2021.

This value of MFIL represents a loss of US$1.5 million over the original cost of the investment.

Portfolio discount

The change of government has increased the uncertainties and risks of investing in Myanmar which is compounded by the current paucity of information. These risks could include, but not be limited to:

·    reduced investor interest in a trade sale of assets or in an IPO;

·    increased domestic regulatory uncertainties;

·    a material and sustained decline in economic activity impacting investment and consumer demand;

·    severe reduction in liquidity in the financial system;

·    a volatile foreign exchange rate;

·    prolonged political crisis paralyzing the country's administrative capacity;

·    increases in the number of demonstrations, strikes and violence;

·    enhanced COVID-19 risks;

·    potential broader international sanctions.

Given the uncertainties and risks in Myanmar, the Directors have decided to apply a valuation discount of 30 per cent on the company's entire portfolio as at 31 March 2022 which compares to the 25 per cent discount that they applied as at 30 September 2021. This change reflects the ongoing uncertainty about the exit opportunities from our investments and will be reviewed regularly.

The impact on MIL's carrying value of the investments after applying the portfolio discount are:

APT:

This discount reduces the value of this investment to US$10.9 million, which is US$11.4 million lower than at September 2021.

This valuation of AP Towers represents a loss of US$9.9 million over the cost of the investment.

MFIL:

This discount reduces the value of this investment to US$0.84 million, which is US$0.66 million lower than at September 2021.

This valuation of MFIL represents a loss of US$1.8million over the cost of the investment.

Financial Performance

Unaudited Financial Statements

The unaudited financial statements for the six months to 31 March 2022 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 2022, MIL's unaudited consolidated loss after tax attributable to the owners of the Company was US$12.4 million, compared with a loss after tax of US$5.3 million in the same period last year.

This is principally represented by:

·   the overheads associated with running the Company's business (US$333,000);

·   the write down to fair value less cost to sell on non-current asset held for sale of the investment in MFIL (US$660,000); and

·   the fair value loss of the investment in AP Towers (US$11.4 million).

Within this, the cost of MIL's cash-based overheads (i.e. excluding transaction costs and re-evaluation losses) was US$329,000 compared to US$339,000 for the six months to 31 March 2021, a reduction of US$10,000 or 2.9 per cent. On a per share basis this has dropped from 0.89¢ to 0.86¢, a reduction of 2.9 per cent.

Net asset value

The Directors have determined that MIL's Net Asset Value attributable to the owners of the Company ("NAV") as at 31 March 2022 was US$13.2 million, or US$0.35 per share. This is comprised of:

·   the investment in AP Towers, the telecommunication tower business, of US$10.9 million (which equals 66.67 per cent of US$16.3 million), excluding the non-controlling interests, determined using a comparable EBITDA multiple methodology and applying a portfolio discount of 30 per cent;

·   the investment in MFIL, the microfinance business, of US$0.8 million, determined using a comparable price to book value methodology and applying a portfolio discount of 30 per cent;

·   cash and other net assets/liabilities of US$1.5 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$13.2 million is a net decrease of US$12.4 million (48.4 per cent) from US$25.6 million as at 30 September 2021. This is mainly attributable to:

·   the fact that the AP Towers investment, is valued US$11.4 million lower than as at 30 September 2021);

·   the reduction of the valuation of MFIL by US$660,000 compared with September 2021; and

·   overheads and transaction costs of US$333,000.

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 "The last 6 months have again been challenging for the Company. The combined effects of the military takeover in February 2021 and of the impact of the Covid virus have now had a direct impact on both of our investments. We have been consistent with our valuation methodology but the slowdown in their financial results has led to significant reductions in our valuation of them. In addition, the Directors have increased the portfolio valuation discount to reflect an increase in the uncertainty of when we might be able to sell our investments and at what price. The result is a reduction of 48.4 per cent in the Company's NAV. We are managing the Company cautiously and conserving cash, but its success is heavily dependent on seeing an improvement in the economic conditions within Myanmar. Meanwhile we intend to re-engage with shareholders to consider possible changes including the de-listing of our shares which would reduce our cash outflows as much as possible. This is necessary in order to preserve our cash and avoid the need to undertake a share issue priced at a discount to NAV in order to ensure that our cash balance does not fall below the critical going concern level of 12 months of forecast outflows."

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

For further information please contact:

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