MTN : Quarterly update for the period ended 30 September 2019:
MTN Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1994/009584/06)
(Share code MTN)
(ISIN: ZAE000042164)
( " MTN " or " the Group " )
Quarterly update for the period ended 30 September 2019
MTN is an emerging market mobile operator with a clear vision to
lead the delivery of a bold, new digital world to our 244 million
customers across 21 operations. We are inspired by our belief that
everyone deserves the benefits of a modern connected life.
Salient features
- Group subscribers increased quarter-on-quarter (QoQ)
by 3,5 million to 243,7 million
- Active data subscribers increased QoQ by 4,7 million to 87,0
million
- Active MTN Mobile Money customers increased QoQ by 2,2 million to
31,7 million
- Group service revenue increased year-on-year (YoY) by 9,6%
(13,5%**), with earnings before interest, tax, depreciation and
amortisation (EBITDA) margin of 41,1% (35,1%*)
- MTN South Africa service revenue increased YoY by 0,4%, with an
EBITDA margin of 36,6% (33,2%*)
- MTN Nigeria service revenue increased YoY by 12,1%
(25,0%**), with an EBITDA margin of 53,7% (44,7%*)
- Asset realisation programme progressing, advanced
discussions to sell our 49% holdings in the ATC JV's in
Ghana and Uganda, valued at R7bn-R8bn
These results are presented on an IFRS 16 basis adopted on 1
January 2019.
*For comparative purposes IAS 17 numbers are provided. A summary
table later in this announcement provides the impact of IFRS 16 on
the numbers disclosed in these results.
**Reported change in ZAR
Unless otherwise stated, financial growth rates are presented on
a constant currency basis and are YoY (the nine-month period
ended 30 September 2019 versus the nine-month period ended 30
September 2018). Non-financial growth rates are presented QoQ, or
3Q19 vs 2Q19.
Service revenue excludes device and SIM card revenue. Data
revenue is mobile and fixed access data and excludes roaming and
wholesale. Fintech includes Mobile Money (MoMo), insurance,
airtime lending and ecommerce.
Active data users include all subscribers at a point in time who
are part of the RGS90 Subscriber base who, in the 30 days prior
to that point in time had data usage greater than or equal to 5
megabytes. Excluding telemetry (machine to machine) subscribers
based on tariff.
IFRS 15 - Revenue from Contracts with Customers was implemented
with effect from 1 January 2018 and comparative numbers were
1
restated where appropriate.
All prior period financial and non-financial numbers have been
restated for the disposal of the Cyprus operation for
comparability purposes.
2
Group president and CEO, Rob Shuter comments:
" M TN grew service revenue and EBITDA in the third quarter, despite
challenging trading conditions. This was supported by solid
commercial momentum and operational execution in most of our
markets.
The group benefited from strong performances in Nigeria and Ghana,
which generated double-digit service revenue growth and improved
EBITDA margins, driving growth in group service revenue of 9,6%* YoY
and in EBITDA of 11,8%*. The group's EBITDA margin improved by 0.6pp
to 35,1%* on an IAS 17 basis.
The performance of MTN South Africa continued to be impacted by a
weak economy, the implementation of lower out-of-bundle data prices,
new data usage rules and unrecognised roaming revenue from Cell C.
MTN SA continues to account for Cell C roaming revenue on a cash
basis, and payments received since June 2019 have remained on
schedule. A change in the accounting treatment back to recognising
revenue on an accrual accounting methodology, will occur upon
adequate resolution of Cell C's liquidity challenges.
Across the group, we are on track with delivering our strategy. This
is reflected in ongoing voice, data and fintech revenue growth of
4,4%, 21,5% and 30,9% respectively. Digital revenue declined by
46,4% as we continued to optimise our legacy value-added services
(VAS) business. In Nigeria we have achieved a return to positive QoQ
digital revenue growth following completion of the VAS optimisation
in that market.
The group added 3,5 million subscribers in the third quarter, making
progress in building the digital operator with the addition of 4,7
million active data users and 2,2 million Mobile Money (MoMo)
subscribers. We have recorded 515 000 monthly active users on our
Ayoba messaging platform, now launched in five markets namely South
Africa, Uganda, Ivory Coast, Cameroon and Congo Brazzaville. We have
commenced scaling our MoMo agency network in Nigeria under our
super-agent licence with 66 282 agents now registered. We continue
to engage the Central Bank of Nigeria on our application for a
payment service bank licence.
MTN remains committed to delivering on our asset realisation
programme, which aims to simplify our portfolio, reduce risk,
improve returns and realise capital of at least R15 billion over a
three-year period."
The group's results are presented in line with the group's operational
structure. This is South Africa, Nigeria, the Southern and East Africa and
Ghana (SEAGHA) region, the West and Central Africa (WECA) region and the
Middle East and North Africa (MENA) region and their respective underlying
operations.
3
The SEAGHA region includes Ghana, Uganda, Zambia, Rwanda, South Sudan,
Botswana (joint venture equity accounted), eSwatini (joint venture equity
accounted) and Business Group.
The WECA region includes Cameroon, Ivory Coast, Benin, Congo-Brazzaville,
Liberia, Guinea-Conakry and Guinea-Bissau.
The MENA region includes Iran (joint venture equity accounted), Syria,
Sudan, Yemen and Afghanistan.
The operation in Cyprus was disposed of and is no longer included in the
results effective 4 September 2018. Although Iran, Botswana and eSwatini
form part of their respective regions geographically and operationally,
they are excluded from their respective regional results because Iran ,
Botswana and eSwatini are equity accounted for by the group.
4
MTN South Africa
MTN South Africa recorded service revenue growth of 0,4% in
difficult trading conditions. If an accrual basis of accounting
was applied to Cell C roaming revenue, MTN South Africa would have
recorded service revenue growth of 3,5%. Overall subscribers
reduced slightly by 0,3 million QoQ, ending the quarter with a
base of 28,9 million.
Service revenue growth was negatively affected by a 4,6% YoY
decline in consumer prepaid service revenue for the nine months to
September 2019. This was impacted by out-of-bundle (OOB) data
tariff reductions and ICASA's End User Subscriber Service Charter
regulations (which came into effect on 1 March 2019) against the
backdrop of a challenging economic environment.
The trend in consumer prepaid revenue in the September 2019
quarter was encouraging, with the decline in the three months
moderating to 2,7% YoY compared to a 5,1% YoY decline in the three
months to June 2019. We remain focused on returning to growth,
supported by stabilising trends in voice and improvements in data.
In the third quarter, data revenue showed encouraging YoY momentum
with a return to positive growth recorded compared to a YoY
decline in the second quarter ended June 2019.
We discontinued the 1GB acquisition promotion in prepaid,
targeting distribution efficiencies, and this resulted in a 0,4
million QoQ reduction in subscribers in the quarter to a closing
base of around 23 million. We anticipate a normalisation of the
base and customer profile by the first half of 2020.
The consumer postpaid business delivered service revenue growth of
5,8% YoY in a highly competitive market. Net subscriber additions
of 80 620 QoQ were relatively muted, reflecting the tough trading
environment and lower acquisition volumes as we continued to
implement stricter vetting rules aimed at reducing credit risk and
enhancing subscriber quality. We recorded positive momentum in
postpaid data traffic, which increased by nearly 31% YoY in the
nine months to September 2019.
Wholesale revenue grew by 59,4% YoY, and included Telkom roaming
revenues for the first six months (Our network roaming agreement
with Telkom came to an end on 28 June 2019) as well as Cell C
roaming revenues for the first four months of the year. As a
result of delayed payments from Cell C during the first half, we
reassessed revenue recognition criteria and at end June 2019 we
recognised Cell C revenue on a cash basis in compliance with IFRS
15 Revenue from Contracts with Customers. For the nine months to
September 2019, we continued to recognise this revenue in line
with the treatment at June 2019.
Cell C has fulfilled all its commitments in line with the revised
payment plan agreed after MTN's interim period-end. We remain in
discussion with Cell C regarding a revised roaming agreement.
Further details on this matter are given later in this trading
update.
5
The recovery in the enterprise business continued, with the
decline in service revenue slowing to 7,0% YoY in the nine months
to September 2019, compared to a 7,9% decline in June 2019. For
the three months to September 2019, the YoY decline was 5%. We are
focused on further improving this trend, supported by reduced
churn, strong growth in the enterprise business base with
significant contract wins across the large enterprises and public
sector segments. We expect these interventions to impact
positively on the next few quarters as we target a return to YoY
growth in the fourth quarter.
On an IAS 17 basis, MTN South Africa's EBITDA margin was 33,2%, a
decline of 1,3 percentage points (pp) resulting from the reduction
of OOB tariffs and higher handset costs as we sold more higher-
value 3G and 4G devices to enable our data growth efforts. The
expansion of our network footprint also increased associated
running costs. Payments received from Cell C in the quarter were
applied entirely against outstanding debtors, resulting in a
reversal of the impairment raised at the interim stage.
MTN Nigeria
MTN Nigeria delivered a solid performance in a competitive
environment, increasing service revenue by 12,1% YoY, in line with
our medium-term guidance of double-digit growth. This was driven
by growth in voice and data revenue.
Voice revenue grew by 10,1% YoY, supported by subscriber growth
and our customer value management (CVM) initiatives. At the end of
the quarter, MTN Nigeria recorded 61,6 million subscribers, up 0,1
million QoQ. We were required to undertake a SIM re-registration
process, which resulted in a disconnection of about 576,000 active
subscribers, negatively impacting base growth.
We continued to focus on maintaining our commercial momentum in
Nigeria, recording data revenue growth of 35,3% YoY in the nine
months to September 2019, which was driven by a 75,1% increase in
data traffic over the same period; an acceleration from the 67%
traffic growth in the six months to June 2019. This came on the
back of increased active data users on our network as we recorded
1,6 million more QoQ active data users, closing the quarter with
22,3 million users.
The acceleration in data traffic was assisted by the access to
additional 800MHz spectrum, granted in April 2019, as well as the
ramp-up in our 4G footprint, increasing our population coverage to
over 35% at September 2019, from 28,6% at June 2019. This
supported growth in the number of 4G devices and subscribers on
our network.
Our fintech business continued to expand, delivering revenue
growth of 21,7%. We note the granting by the Central Bank of
Nigeria (CBN) in September of three approvals-in-principle for
payment service banking (PSB) licences. We continue to engage with
the CBN regarding our application for a PSB licence.
In the interim, we continue to roll out basic financial services
6
under our super-agent licence. We currently have 66 282 registered
agents and target a total of 100 000 agents by the end of the
year. The super-agent licence allows us to leverage our
established distribution channels to offer basic banking products
including person-to-person money transfers. A PSB licence will
enable us in time to offer a broader and deeper range of mobile
financial services.
MTN Nigeria reported an EBITDA margin of 44,7% on an IAS 17 basis,
on the back of good revenue growth, effective cost management and
the benefits of our VAS optimisation initiatives.
In August 2019, MTN Nigeria declared dividends of which MTN Group's
portion amounting to c$116 million was upstreamed.
Southern and East Africa and Ghana (SEAGHA)
The SEAGHA region continued to deliver strong results, with all
operations contributing positively to service revenue growth of
22,3%. Data and fintech revenue increased across the region and we
recorded a 1,0 million QoQ increase in subscribers to 47 million.
Ghana is the largest market within SEAGHA and performed strongly,
delivering local currency service revenue growth of 22,7% YoY
supported by resilient growth in voice, data and mobile financial
services. The EBITDA margin improved by 4,0pp to 41,5% on an IAS 17
basis.
West and Central Africa (WECA)
The WECA region delivered encouraging results, with service
revenue increasing by 1,9%, an improvement from the 0,5% recorded
in the first half. MTN Ivory Coast continued to record revenue
declines, mainly as a result of competitive pressures, although
the rate of decline is moderating. In Cameroon, the operating
environment remained challenging, with conflict in the Northwest
and Southwest regions. Total WECA subscribers increased by 0,8
million QoQ to 34,6 million.
Middle East and North Africa (MENA)
The MENA region recorded a pleasing performance in the quarter,
with service revenue up by 21% (excluding MTN Cyprus from the
prior year comparison). This was supported by solid growth in data
revenue. Subscribers (excluding Iran) increased by 0,8 million QoQ
to 25,8 million.
MTN Irancell delivered a solid performance considering the re-
introduction of US sanctions: service revenue grew in constant
currency at 21,1% YoY, with the EBITDA margin declining by 1,0pp
to 34,6% on an IAS 17 basis on the back of high inflation in the
market. MTN Irancell is a joint venture that is equity accounted
in our results.
Update on Cell C roaming agreement
In the 2019 interim results announcement, MTN reported that we had
reassessed the revenue recognition criteria relating to the
network roaming agreement with Cell C following delayed payments
7
and, as a result, did not recognise revenue amounting to R393
million.
In addition, we recognised an impairment of Cell C receivables
amounting to R211 million after taking into account cash received
subsequent to the 30 June 2019 reporting period.
The group received R451 million from Cell C during the 3rd quarter
which represents all amounts due from Cell C in accordance with
the agreed payment plan. These receipts were not recognised as
revenue but applied against the outstanding debtor's balance and
this resulted in a reversal of the R211 million impairment loss
recorded at 30 June 2019.
Subsequent to the end of the third quarter, the group received a
further R291 million from Cell C, which will first be applied to the
outstanding debtor's balance with the remainder recognised as
revenue in Q4 based on the consideration received.
As at 30 September 2019 the unrecognised revenue amounted to R817
million.
The group will continue to recognise revenue based on non-refundable
consideration actually received on roaming services delivered to
Cell C and will only revert to recognising revenue as and when the
services are rendered when it is considered probable, as guided by
IFRS 15, that the group will collect all the consideration that it
is entitled to in terms of the roaming agreement. This will require
Cell C's liquidity challenges to be adequately resolved.
Portfolio optimisation and asset realisation programme
We continue to make progress on the asset realisation programme
that we announced in March 2019. The programme aims, over the next
three years, to simplify our portfolio, reduce risk, improve
returns and realise capital of at least R15 billion. This figure
excludes our investment in IHS, which we fair valued at R23
billion at end-June 2019.
In the first half, we realised a total of R2,1 billion through the
sale of our shareholder loan in ATC Ghana to American Towers (ATC)
for R900 million as well as the sale of our interests in
investment fund Amadeus and its associated holding in Travelstart
for net proceeds of R1,2 billion.
Following ATC's announcement of its acquisition of Eaton Towers, we
are in advanced discussions to sell our 49% holdings in ATC Ghana
Interco and ATC Uganda Interco to ATC, subject to the completion of
ATC's acquisition of Eaton Towers and relevant approvals. Should the
transaction be completed, we anticipate the valuation would be in
the range of R7 billion - R8 billion, and expect proceeds to be
received in Q1 2020.
The post-IPO lock up period for our 18.9% investment in Jumia
th
Technologies AG expired on 9 October 2019. Jumia's American
Depositary Share (ADS) price as at 29 October 2019 was $6.46,
valuing our stake at R1.4 billion.
We also continue to work on the redemption of MTN Nigeria
preference shares for a consideration of US$315 million. We expect
8
this to be finalised after the necessary regulatory processes are
completed.
We previously announced our acceptance of an unsolicited offer for
the disposal of our 53% shareholding in Mascom Wireless Botswana
(Mascom) to Econet International Limited. As certain conditions to
the transaction were not met, a decision was reached during the
third quarter to terminate the planned disposal. The accounting
treatment for Mascom will thus revert to being equity accounted as
a joint venture for the 2019 financial year, from being classified
as a non-current asset held for sale since 1 December 2018. Equity
accounting will be applied retrospectively as from the date of its
classification as held for sale. The equity accounted earnings
relating to Mascom amounted to R331 million for the nine months
ended 30 September 2019 and includes earnings of R81 million
relating to 2018 that was not previously recognised as a result of
the classification as a non-current asset held for sale.
Spectrum auction in South Africa
In July 2019, South Africa's Minister of Communications issued a
policy direction on the issuing of high-demand spectrum and
licensing of a proposed wholesale open access network (WOAN). The
regulator ICASA continues to work on the auctioning rules and on
defining the spectrum licensing process for both the proposed WOAN
and the existing operators, including MTN, who will be invited to
participate in an auction to obtain high-demand spectrum licences.
We continue to engage with the Minister and ICASA on the release
of further high-demand spectrum, including the 5G bands, which
will further enable the drive to lower the cost of data.
Tax dispute between MTN Nigeria and the Attorney General of
the Federal Republic of Nigeria
The hearing on the Attorney General of the Federation matter was set
down for hearing on 29 October 2019. The matter was adjourned to 30
and 31 January 2020 for commencement of trial. MTN maintains that it
has complied with its tax obligations and will continue to defend
this position vigorously.
Uganda licence renewal
We continue to engage with Ugandan authorities on renewing our
licence. An extension has been granted until the end of 2019.
Outlook
Looking ahead, we remain focused on executing our BRIGHT strategy
to deliver sustainable growth in our operations and simplify our
portfolio to reduce risk and improve returns.
In South Africa, we are making progress in our turnaround
initiatives against a challenging macro and competitive
environment, with improving trends in enterprise service revenue
during the third quarter which we expect to continue and target a
return to positive YoY growth in the fourth quarter. We expect OOB
tariff reductions and end-user regulations to weigh on consumer
9
prepaid revenue until early 2020 when the effects of these will
lap out of the base; in the meantime we are making further
progress in lowering churn and stabilising the quality of the
base.
Wholesale service revenue in South Africa will be impacted into
the year-end by the rolling off of our roaming agreement with
Telkom which ended in June 2019. As we recognise Cell C roaming
revenue on a cash basis, this will also impact service revenue
growth in the fourth quarter. We are focused on completing a
broader roaming agreement with Cell C by year-end, which would
help return our wholesale business to a more sustainable footing
beyond the current financial year. Wholesale revenue in the fourth
quarter of 2019 will measure against a strong base in the fourth
quarter of 2018 that included both Telkom and Cell C roaming
revenue.
In Nigeria, we have seen an acceleration in data revenue growth
since gaining access to additional 800Mhz spectrum and supported
by expanding our 4G footprint. We currently have 4G services
across 80 cities and plan to have covered an additional 122 cities
by the end of the year. We remain focused on expanding our super-
agent licence distribution and target having 100 000 agents
licensed by the end of 2019 as we execute on our Mobile Money
ambitions in Nigeria. We are confident in maintaining service
revenue and EBITDA growth in line with our medium-term guidance.
We remain committed to our medium-term guidance and dividend
policy, including asset realisation of cash to the holding company
of R15 billion over a three-year period (excluding IHS).
10
The financial information on which this quarterly update is based,
including constant currency information, has not been reviewed and reported
on by MTN's external auditors. Constant currency information has been
presented to illustrate the impact of changes in currency rates on the
group's results. In determining the change in constant currency terms, the
current financial reporting period's results have been adjusted to the
prior period average exchange rates determined as the average of the
monthly exchange rates. The measurement has been performed for each of the
group's currencies, materially being that of the US dollar and Nigerian
naira. The constant currency growth percentage has been calculated based on
the current year constant currency results compared to the prior year
results. In addition, in respect of MTN Irancell, MTN Sudan, MTN South
Sudan and MTN Syria, the constant currency information has been prepared
excluding the impact of hyperinflation. The economies of Sudan, South Sudan
and Syria were assessed to be hyperinflationary for the period under review
and hyperinflation accounting was applied.
The full financial results are available on the company's website at:
https://www.mtn.com/investors/financial-reporting/quarterly-trading-update/
Fairland
31 October 2019
Lead sponsor
JP Morgan Equities (SA) Proprietary Limited
Joint sponsor
Tamela Holdings Proprietary Limited
11
Date: 31/10/2019 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS. |
