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No pain, no gain: ‘MTN’s dream financial performance owes much to hard work and relentless investments’

Rob Shuter, President and CEO of MTN Group
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BusinessDay’s publisher, Frank Aigbogun, had the chance of speaking with Rob Shuter, President and CEO of MTN Group, moments after the Telecommunication giant published what was a stellar financial result for 2018. Shuter gave insights into the performance, spoke of the need to better tell the story of the company’s impact in Nigeria, as well as shared his expectations for 2019.  Excerpts:

Ahead of a coveted listing on the Nigerian Stock Exchange before June 2019, MTN Nigeria became the first Nigerian company to post revenues in excess of a trillion naira in 2018. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) margin was a healthy 43.5 percent, data and fintech revenue surged a combined 72 percent to 6.5 billion rand and subscriber base grew 11.3 percent to 58.2 million as at December 2018 from 52.28 in 2017 (Now 66.7million as at February 2019, according to NCC data).

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Congratulations on what was easily a brilliant performance last year. MTN Nigeria posted revenues of N1.04 trillion, the largest of any listed Nigerian company. How would you rate your performance? 

I think we had a good year despite the difficulty in being successful in our industry. We had good subscriber growth as well as good revenue growth.
We also have our costs within control and I think we have a very good platform for years to come. But of course, we must never be complacent. We must keep on working.

Revenue from data services performed very well, rising some 40.1 percent.
I was wondering how you made that happen in a very competitive environment. 

As you know, the data revenue is now about 20 percent of the Group’s revenue and it’s becoming quite significant and I think what we have tried to do is make sure that we roll out better data coverage. I’ll say that is  absolutely an important part of it.

We also made sure to get the right price points for customers.

However, we know there is a lot of untapped demand for data services if you can just get network for the customers.

We had a revenue growth of around 20 percent, yet data adoption is still low in most markets we operate including Nigeria. The average across all of the markets we operate is around a third, which is pretty much the case in Nigeria as well. When we look at our data customers versus potential customers, we are excited because data will be a growth area for years to come.

Recently, each time you hear about MTN, It’s about one case here or another case there, so when the results were announced, it was a pleasant breather. Looking back, do you think you have overcome your peculiar challenges in some of your markets whether it is Nigeria or Uganda and what lessons have you learnt?

That is a tough question. The Group is complex, and we have 21 markets which would soon be 20 with the disposal we announced.

What you often see in our markets is that we face challenges particularly around the time of a license renewal which tends to come say every 10 or 15 years, or when an election is around the corner.

Generally if I look at the issues we faced, they tended to be around license renewal time or election time.

Of course, we also need to take on ourselves the responsibility to invest in stakeholder management so as to have the right connections all the way through. We are working on that and I feel that in the future we shouldn’t be surprised by anything.

That is one thing I would really like to change- to have the right kind of relationships that we discover early on if they are issues or concerns, and we have time to deal with them in a controlled fashion.

Some of our troubles in Nigeria last year, with the Central bank, spiralled into a public event and it became very complex to work towards a solution. It was a very difficult period for our people and our investors.

While I think there will always be situations to resolve, bearing in mind the complexities of the Group, the whole lesson would be to ensure we build the right kind of relationship and structures, so that it never again is as difficult as it has been in the last one year.

Before we return to relationship management and having the right structures in place, can you give assurances that the planned listing by introduction of the Nigerian unit will go on as you have planned? Or will there be a reason to foresee a delay?

I cannot see why there will be any significant delay.
We have complied with the regulatory requirements for listing on the premium board. We already have the 20 percent minority in the company. We needed to do a capital restructuring because we have a complex structure which links preference shares with ordinary shares, but we will rather list the ordinary shares which will be much simpler for everybody.

I think the team on ground have made good progress in getting us ready for listing and the only thing I forsee could slow us down is something administrative and considering how far we are into the process, I think that is unlikely. A listing in May will be a good outcome.

If everything goes well, can you put a definite timeline on the listing?

I’m always trying to give myself a little bit of wiggle room so that is why we say we want to get the listing behind us by the end of the first half of 2019. The first half ends 30th of June, so ideally May time would be a good outcome and that is not too far away.

You personally announced some months ago in South Africa that MTN will be seeking a license to become a Payment Service Bank (PSB), where are you in that process? 

 

We did apply for the Payment Service Banking license late last year around when the time the Central bank started accepting applications. I don’t recall the exact date but I can remember it was towards the end of October and we put out our application in November.

I think the CBN has been very responsive. We got comments back in short order that required us to go back with further submissions, which we did. In all, we feel the new licensing regime is faithful for what it was set up to achieve. The next step is to get an approval in principle.

Then we can register the company, return to the CBN with proof we have put all our affairs in order and then start trading. We hope also to get through with this in the first half of the year.

How do you propose to go forward once in operation as a PSB? Will you be collaborating with an existing bank or would MTN go it alone?

The PSB framework allows us to basically issue e-money and have mobile wallets on our systems. It allows us connect directly into the national payment system, which is a very important part. It means we can hold deposits from customers, but we have to deposit the aggregate money in Treasury Bills.

So, because the PSB is actually a bank regulated by the Central bank, it is not going to require a partnership to be successful. But our mobile money business across Africa are normally done on what we call “open platform basis”. That way, there is interconnectivity with other players in the industry, as we are believers in interoperability.

We will be open to interconnecting with other players as we do in other markets where we brought other financial service providers on the platform, whether its people wanting to do small loans, deposits or insurance.

However, while we will have partners in the ecosystem, we will do somethings on our own because we are also a bank.

Drawing inferences from what has happened in markets like Ghana, how do you think this will impact your Nigerian business going forward? 

It is important to say that the Payment Service Bank really is a separate business. It will need to be set up as a separate company with a separate board and separate regulatory framework. So we obviously need to respect that.

But there are, of course, major synergies with the core mobile business.
We are already leveraging the customer base, distribution and the agent network. From the core mobile business, once we have customers that do their mobile business with us as well as carry out their mobile financial services with us, I think those customers will be much stickier. By combining the core mobile business with financial services, what will be very helpful for customers is that once they are active with the mobile money account, they can use that account to buy airtime. It makes it easier for the customers and is good for the telco because it opens up a new channel.

MTN is probably trending at the very top now that the Nigerian unit has become a one trillion naira business, what lessons have you learnt in the past that would help you as you enter this new era and how do you ensure you come out of it better than you have in the past?

You know, I’ve only been in the Group for two years, so I’m also one to be humbled by our achievements but I still need to learn about the markets. The time I have been in Nigeria, I have always loved doing my business and visiting the country. I like the vibe and the hustle and I think we have been successful in Nigeria but importantly, we have also been successful for the people and the country as a whole.

We have built a fantastic infrastructure under difficult circumstances. When we go back far enough to the time that MTN decided to come and buy license, there were many others that did not.

I think one of our challenges going forward is to reinforce that we are a part of the country and part of the national agenda, as well as being a partner for progress. We need to do a better job explaining the underlining economics of the business.

We need to do that explaining because, every N100 that we get from the customers, the first N60 goes into running the business in Nigeria. That’s why we have a 40 odd percent EBITDA margin, and even after that, we have to pay interest and taxes. After those, we are then left with N20 or N30, most of which goes into the network. From our numbers, you can see that investment in the network in Nigeria is around 8-9 billion South African Rand in a year.
At the end of the day, the dividend we pay is only a fraction of the revenues collected in the market because ours is a very expensive business to run.

Despite that, I feel very comfortable that pretty much across the portfolio, we are doing a lot in  job creation, wealth creation, in paying our taxes, we have been investing in infrastructure. But I don’t believe we have impactfully told that story and it’s one of the challenges we have.

What we must do as we move towards the listing is to find a way to really tighten up on our core narrative so people see us as partners in the Nigerian society for progress, rather than perhaps another bunch of South Africans taking a whole lot of money out of Nigeria.
I think that is not helpful for us and I don’t think it’s real.

You know one of the things that was really interesting in Nigeria in the last few months of last year was that many people weren’t aware that MTN Group is 60 percent owned by UK and American investors.

That means people that are investing in MTN are often the people that Nigeria is talking to, for example, to raise offshore debt during Eurobond roadshows. So we are actually owned by international investors and so our fortunes are often tied to the fortunes of the country.

It is truly a challenge when despite employing thousands of Nigerians and paying taxes and other fees to the Nigerian government, that MTN is perceived as just another South African company that has little or no positive impact in Nigeria. However, why is it then, Rob, that you do not have a Nigerian on the group board?

Again I can only plead my 23 months on the job and the fact that the board composition is really a task for the chairman and the nomination committee.

I don’t sit on the nomination committee. I get asked this question often and I do believe that MTN Group would be better served to have more representation from its large markets, particularly West Africa and East Africa and I’m hopeful that the board looks at this in the shorter term. I think it is important and a really valid question which I think I could help a lot.

What’s your hope for your Nigerian unit, the figures we have seen today are indeed very inspiring, and the payment service bank is one way to go, what else would be happening in the Nigerian space from the MTN Group?

For me, the one thing that was important for the good year we had in 2018, was that we invested all the way through 2015, 2016, 2017 and I think it’s a really important point that during the tough times that Nigeria went through, we were probably the only operator that continued to invest in scale.

You know it was a difficult situation we were in, with the depreciation of the naira and the effect on capital expenditure. But you there is no reward without hard work and investment.

I think that principle is very much what we see for the future as well. This is a very capital intensive industry. We are going to see huge load on this network, as more Nigerians adopt internet services. If you jus think that 30 percent of the subscribers today are using the internet and using say a gig or a gig and half per a month and in two years or three years’ time, it’s 60 percent, using 2 or 3 gig per month, you can see that the pure math of it shows it’s going to be exponential on the network.

So my first dream for the country is that we continue to invest to the cycle so we can offer great service to customers and we can be part of what the country needs to be successful. This is super important for me.

I think the second thing is a complete focus on the experience of the customers. I do believe we are a group that has done so much good in the market which we are in, but we don’t yet have the trust of the consumer and to win the trust of the consumer, we have to prove that we are on their side. We have to give them good service at a fair price. We also need to ensure that they see us involved in their social lives and their communities.

We have to feel different, but we have to be viewed as a company that is pro-customer and I don’t believe we are looked at in that way today as an industry, so that is one big shift we will like to see.

The third big shift is that we have such a unique opportunity to participate in the services that customers use their internet connection for.

Most of what happens around the world is that the telcos ended up providing the data, distributing smart phones but then most of the things that you did on your phone was using other services, like Facebook, WhatsApp, Google etc. We believe that there is a real opportunity for operators like ourselves to also build very locally-relevant services that are going to appeal to customers as part of our co-offering. As part of our services, we can talk about building a digital operator.

A digital operator is one that is both operating the network and participates in the digital services. Mobile money is a key example of a digital service. So is music streaming, instant messaging, mobile advertising and others.
I think if we would continue to invest and be relevant, with the customers on our side, and doing things they are looking forward to and dreaming about then I think we would be successful going forward.

Apart from the difficult meetings you have had with Nigerian government officials or other stakeholders when you come to Lagos and other parts of Nigeria, which Nigerian food do you enjoy the most?

I have become fond of the “Jollof” I must say and I quite like the snails although the last portion I had was very spicy and I was still regretting it the next day.

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