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 restated where appropriate. All prior period financial and non-financial numbers have been restated for the disposal of the Cyprus operation for comparability purposes.
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. 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.
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.
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 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 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.
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: www.mtn.com/investors/financial-reporting/quarterly-trading-update/
