MTN Nigeria Communications said its subscriber base declined by two million when compared with its fourth quarter (Q4) 2023 due to the implementation of the National Identity Number and Subscriber Identity Module (NIN-SIM) directive of the Federal Government.
According to its unaudited results for Q1 which ended March 31, 2024 released yesterday, it said total subscribers however increased by 1.3per cent to 77.7 million.
Speaking on the telco’s performance, its CEO, Karl Toriola, said severe macroeconomic headwinds overshadow the company’s strong operating performance.
According to him, during the quarter, the company also continued to manage the effects on its business of the industry-wide directive of the Nigerian Communications Commission (NCC) for a full barring of subscriber lines not linked to their NIN – the NIN-SIM directive.
“This impacted the development of our user base across all of our key business units (voice, data and fintech) in Q1 2024. We implemented the directive on subscribers who did not submit their NIN and those with more than five lines linked to an unverified NIN. However, to provide more time for the subscribers with less than five lines linked to an unverified NIN to complete the necessary verification exercise, the NCC has extended the April 15 deadline to July 31, 2024.
“Despite these challenges, we remain committed to serving our customers and accelerating the growth of our commercial operations with a disciplined focus on value-based capital allocation and expense efficiencies. As a result, we delivered service revenue growth of 32.0per cent, which is higher than the average inflation in Q1, demonstrating the underlying strength of our business model.”
However, this was insufficient to offset the negative impact of the macroeconomic factors mentioned above, which resulted in a large decrease in the EBITDA margin and a significant further net loss after tax. It is imperative that the industry be granted sizeable, regulated tariff increases to ensure the future sustainability of the Sector.”
Highlight of the report showed that active data users increased by 8.0per cent to 44.5 million but declined by 78,000 when compared that of last year while active mobile money (MoMo PSB) wallets increased by 48.7per cent to 4.8 million but declined by 566000 when compared with same period last year due to the NIN requirement for Know Your Customer (KYC) validation.
Its service revenue increased by 32.0per cent to N747.3 billion while earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 1.9per cent to N297.0 billion.
EBITDA margin decreased by 13.9 percentage points (pp) to 39.4per cent while loss after tax was N392.7 billion; profit after tax (PAT) adjusted for the net forex loss declined by 57.8per cent to N47.1 billion; earnings per share (EPS) declined to negative N18.63 kobo (N2.34 kobo adjusted for the net forex loss, down 55.6per cent); net loss for the quarter resulted in a further increase in our accumulated losses and negative shareholders’ funds to N599.2 billion and N434.7 billion, respectively; capital expenditure (capex) increased by 49.1per cent to N179.7 billion (up 84.4per cenr to N78.1 billion, excluding leases); while positive free cash flow of N117.2 billion (down 35.6per cent from N182.1 billion in Q1 2023)
He said: “The operating environment in the first quarter remained very challenging, with rising inflation and continued naira depreciation off an already low base. The naira depreciated to an all-time low of N1,627/US$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM) in March, from N907/US$ at the end of December 2023, before moderating to N1,309/US$ by the end of the quarter. Additionally, the inflation rate maintained an upward trajectory, rising to 33.2per cent in March, with an average rate of 31.6per cent in the quarter.
“To curb inflation, the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) by 4pp to 22.75per cent, which has driven up funding costs. These factors have caused significant difficulties for businesses operating in Nigeria, including MTN Nigeria, putting additional pressure on consumers, the cost of doing business and further foreign exchange (forex) losses.”
He however said the company sustained solid commercial momentum despite pressures on earnings.
“We maintained solid commercial momentum in our connectivity business and platforms despite the NCC’s directive. Although we had to fully bar 8.6 million subscribers in line with the directive, we minimised the net effect of the barred subscribers, and our total number of subscribers only decreased by 2 million in Q1, closing with a total of 77.7 million subscribers. This demonstrates the effectiveness of our customer value management (CVM) initiatives, which helped us to retain affected customers and reduce churn, as well as to drive gross connections. Active data subscribers declined marginally by approximately 78k to 44.5 million.
“Notwithstanding these headwinds, we recorded increased activity within the base, with voice traffic rising by 5.1per cent and data traffic by 40.6per cent. This is a result of the consistent growth in demand for data and voice, supported by our attractive offers to customers and continuous investment in network quality and coverage.
“We remain focused on our fintech priority to build robust structures that support the acceleration of wallet adoption and the growth of our merchant ecosystem. Q1 was also challenging for the business, mainly due to the NIN requirement for KYC validation, impacting approximately a million active wallets. This affected the development of the business in the period, resulting in a decline in the active MoMo PSB wallet users by 566k in Q1 to 4.8 million. However, the increased activity within our fintech ecosystem spurred transaction volume growth of 25.6per cent YoY, demonstrating momentum within the ecosystem.”
He said foreign exchange (forex) volatility impacted on earnings, saying: “Our solid commercial operations enabled us to deliver service revenue growth of 32.0per cent, which slightly exceeded the average inflation rate in the quarter. This growth was led by double-digit growth in voice, data, and digital services; as well as favourable base effects in Q1 2023 arising from the challenge in that period (including the redesign of the naira, which resulted in cash shortages).
“EBITDA, however, came under pressure, declining by 1.9per cent. This was primarily because of a further depreciation of the naira in the quarter, exacerbated by higher general inflation and energy costs. As a result, the EBITDA margin declined by 13.9pp to 39.4 per cent. The EBITDA margin would have been 51.0per cent adjusted for the naira depreciation effects. We continue to pursue our efficiency measures and accelerate efforts to reduce forex exposure to minimise the impact on our business.
The further depreciation of the naira in Q1 resulted in a materially higher net forex loss of N656.4 billion (Q1 2023 restated: N4.5 billion), arising from the revaluation of foreign currency-denominated obligations. This led to a loss after tax of N392.7 billion compared to a restated PAT of N108.4 billion in Q1 2023. This has resulted in negative retained earnings and shareholders’ equity at the end of March 2024 of N599.2 billion and N434.7 billion, respectively. However, adjusting for the net forex loss, PAT would have been N47.1 billion (down by 57.8per cent), reflecting the underlying resilience of our financial performance under tough conditions.”
Notwithstanding the economic headwinds the business faces, MTN Nigeria continues to invest in the country and the development of its communities.
He said as part of the company’s commitment to support national priorities and foster sustainable societies, it has commenced the process of revitalising 52 primary health centres across Nigeria. This initiative is being carried out to further the memorandum of agreement and collaboration between the MTN Nigeria Foundation and the Private Sector Health Alliance to enhance healthcare delivery at the grassroots level.
‘We have also commenced the second phase of the Y’ellopreneur programme, an MTN Foundation initiative focused on reducing women’s unemployment in Nigeria. The programme provides intensive business training to 1000 female entrepreneurs and offers a N3 million loan to 150 participants, promoting entrepreneurship.
The Foundation has recently initiated a fellowship program for teachers to equip them with skills to improve student learning. This program has successfully onboarded 3,533 teachers. The Foundation is supporting Nigerian youth by offering a web-based platform called Digital Skills for Digital Jobs, which enables them to acquire relevant digital skills. Currently, 580 individuals are enrolled in this program.
“As part of our commitment to the development of sports, we began sponsoring MTN CHAMPS in partnership with the Sports Media and Management company, Making of Champions. This initiative aims to inspire young athletes, encourage participation in athletics, and ultimately contribute to the growth of sports. Over 7,000 athletes from 375 schools in Nigeria participated in a successful season one, while season two is already underway and open to all budding athletes across the continent,” Toriola said.
On outlook, he said continued elevated inflation and unpredictable forex rates remain significant challenges for businesses. However, the company remains focused on sustaining its commercial momentum, “accelerating our service revenue growth, unlocking operational efficiencies, and strengthening our balance sheet to improve the profitability of our business. We do, however, also require regulated tariff increases to restore the profitability of the Company.”
Toriola outlined steps to address the negative capital position; grow revenues faster, repair margins, as well as rebuild reserves to strengthen our balance sheet position, include:
“Regulated tariff increase – We are deeply engaged with the authorities, through our industry body, on tariff increase to manage the effects of the challenging operating conditions. Importantly, appropriate tariff increases will be necessary to support continued investment and the long-term sustainability of the industry. This will support our commercial interventions in our work to accelerate topline growth.
“Driving margin recovery – We will focus on initiatives to accelerate revenue growth and improve operational efficiency, with a disciplined focus on our expense efficiency programme and value-based capex allocation.
“Optimise capex – Given the consistent and extensive investment we have made in our network over the past few years, including the acquisition of additional spectrum, we have built up the flexibility to optimise our capex deployment.
In this regard, we plan to reduce capex (excluding leases) for FY 2024 and aim for a capex intensity in the upper single digits.
We will optimise latent capacity and implement radio planning strategies in order to minimise any potential impacts and disruptions to our network quality. This will ensure that we continue to provide our customers with reliable connectivity and support our growth ambitions.
“Reduce US$ exposure – We are focused on reducing the various exposures our business has to US$ volatility. One key area is the Company’s outstanding letters of credit (LC) obligations, which contribute to the volatility in our earnings through FX losses reported in our income statement. These obligations were raised in support of our capex requirements which are largely foreign currency denominated.
“In this regard, we have utilised the improved liquidity in the FX market to reduce the balance of outstanding LC obligations to US$243.4 million as at 31 March 2024, from US$416.6 million as at 31 December 2023.
“This was funded through the use of restricted cash balances that are held in naira to support our LC obligations. As we optimise capex, we will be able to minimise the further buildup of these balances and will continue to deploy resources to reduce these US$ obligation exposures.
“Review of tower lease contracts – We are considering strategic options to manage our tower lease contracts. As previously reported, we are engaged in constructive discussions with key towerco service providers regarding changes to the existing tower lease contracts.
“If successful, these negotiations could result in improvements that will help us to mitigate macro risks impacting our business, including FX. This would supplement our aforementioned initiatives to accelerate the recovery profile of our earnings and restore our net asset position faster.
“If the discussions do not yield the desired outcomes, the business will continue to drive the operational and commercial strategies we have outlined. We believe that the strategies will enable us to improve our profitability and trade out of the negative net asset position over time.
“We will continue to evaluate the conditions and developments in our operating environment and evolve our approach to address the negative capital position as required. We have obtained the necessary accommodations from our lenders, as pertains to any impacts on our loan agreements in regard to the restatement of our financial statements. We also have in place accommodations relating to any potential breaches in our covenants occasioned by the major currency devaluation and the resultant negative net asset position. This will enable us to continue executing our strategy and implement the interventions we have outlined,” Toriola said.
