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MTN Nigeria: Opportunities, challenges as COVID-19 headwinds stoke Nigeria’s digitalisation embers

Across Nigeria, and the rest of the world, the cost of the novel coronavirus pandemic is still being counted as some businesses in sectors like hospitality and aviation approach a precipice, while a few others like those in technology have been dealt softer blows.

For MTN Nigeria, the country’s biggest mobile phone service provider, there have been gains and costs from the spillover effects of the pandemic, showing how Telcos are not only faced with unique opportunities but also challenges amid the coronavirus outbreak.

In light of extensive socialdistancing measures put in place to curb the spread of COVID-19 in Nigeria, businesses across industries in the key affected states activated their business continuity plans and employed or accelerated the adoption of digital technology to enable remote working, supporting data revenue of service providers.

MTN Nigeria, for instance, recorded a double-digit surge in data revenue in the first quarter of 2020.

The 59.2 percent year-on-year increase in data revenue, which made up around 22.6 percent of service revenue (~N328bn) in the quarter, indicated a 12.3 percent growth from Q4 2019.

The revenue increase followed a 130.4 percent yearon-year growth in data traffic supported by the addition of 1.7 million active data users and increased 4G population coverage in the period.

Read also: MTN Cuts Spending Plan to Preserve Cash Amidst Virus Pandemic

During the quarter 1.6 million new users drove active base for digital subscription to 3.8 million users, and revenue growth by 63.7 percent (8% Q/Q).

Also, 4.2 million new subscribers were added to MTN network of now 68.5 million users, driving voice revenue up by 7.4 percent.

While the total lockdowns in key states like Lagos, Abuja and Ogun (now being eased whilst a nation-wide interstate lockdown is in place) supported data revenue, Telcos face supply-chain and cost risks from the reduction in mobility in the country and across borders and risks emanating from decline earnings of their customers.

MTN Nigeria said post-lockdowns, it has witnessed a voice traffic decline due to a slowdown in economic activities and weakening in workers’ earning capacity.

“Voice revenue has experienced an immediate impact from the current macro disruptions, based on early trends, especially in the mass market segment,” the Telco noted. “Although we have witnessed growth in data revenue, it does not fully offset the decline in voice revenue.”

Also, the Telco reported an increase in cost arising from exchange rate adjustment and significant operational challenges and supply chain disruptions due to the lockdown.

“The remainder of the year will be shaped by the impact of these developments which remains highly uncertain at this time,” said Ferdi Moolman, MTN Nigeria’s CEO in a commentary on the result.

Despite the unprecedented challenges, MTN Nigeria showed resilience across most of its revenue segment even several developments in the quarter including the increase in VAT from 5 percent to 7 percent adversely affected both revenue and costs.

While MTN Nigeria noted a rise in different categories of expenses, digital revenue rose 63.7 percent and Fintech revenue, from services like Mobile Money (Momo), jumped 36.1 percent with the Momo agent network expanding by 70,000 agents to a total of 178,000 agents’ strength nationwide in the quarter.

Fintech revenue was up 36.1 percent year- on- year due to increased adoption of MTN Xtratime, an airtime lending service.

Momo agents processed over 5.6 million transactions (volume) of which 80 percent were airtime vending. Notably, transaction fees for all money transfers using Momo agent network were suspended for an initial one-month period from March 23 as part of the Y’ello Hope Package.

EBITDA grew 15.3 percent to N173.5bn with EBITDA margin moderating by 0.6 percent points to 52.7 percent.

Profit before tax rose 8.9 percent to N76.3 billion and profit for the period increased by 5.6 percent to N51.146bn in Q1.

Outlook for 2020

MTN said it is moderating its near-term outlook due to highly uncertain external factors and given the impact of the virus on the exchange rate and oil price.

In response to the fallout from the novel coronavirus outbreak, MTN Nigeria said it has put in place measures to minimize the temporary disruption in the supply chain on operational capacity and has deployed additional resources to upgrade the capacity of its network and expand population coverage.

MTN Nigeria said it is currently diversifying funding strategies, has strong free cash flow and has approved loan facility headroom to meet financial obligations.

Read also: Lagos could lose almost N133bn everyday if it implements a total lockdown

The Telco noted that in line with existing banking covenants, there is headroom to leverage the balance sheet optimally for strategic investments.

In addition, it said major credit exposures are from trade partners but are secured by bank guarantees which enable the trade partners to improve sales turnover even during the period of lockdown.

Notable, MTN Nigeria’s balance sheet carries low foreign currency exposure with debt split 92% in local currency compared to 8% in foreign currency, a move that enables the company to withstand currency volatility.

For 2020, MTN said outlook would be measured but it is well placed to withstand the macroeconomic and social turmoil.

The company said it would continue to monitor and analyze developments and their potential impact on the business, implementing mitigating interventions.

MTN Nigeria said it would continue to invest in the network to provide adequate capacity and resilience.

Analysts say they expect MTN’S Voice revenue to remain strong for the year especially on the moves by the Telco to deepen its reach in rural areas, while segments like Data and Fintech will remain upbeat with a possible PSB license this year as a plus.

MTN contributed a billion naira as part of a private sectorled coalition, CACOVID, to assist the FG in curbing the pandemic while it rolled out other initiatives targeted at individuals and customers.

Market performance

Shares of MTN Nigeria have gained 4.29 percent this year to trade at N109.5 per share as at the close of trading on Friday. In comparison, the broader market measured by the NSE All-share Index has declined by around 11 percent since the start of the year.

MTN Nigeria shares dipped to as low as N90 a unit in late March, at the onset of the lockdowns in select states, but has since then gained roughly 22 percent.

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