MTN Nigeria sees 16% dip in Q2 profit as virus takes toll

MTN Nigeria recorded a 16 percent decline in profit in the second quarter of 2020 as the telecommunication giant reeled from the COVID-19 induced economic shock.

Although revenue increased by 8.4 percent to N308 billion in the second quarter of 2020 from N284 billion a year ago led by a surge in data and voice revenues, the Telco’s operating costs jumped by 35.6 percent to N80 billion in the period from N59 billion a year ago, which ultimately led to the 16 percent decline in profit after tax to N42 billion, according to the company’s financial report published Thursday.

The Telco’s half year results also showed a reduction in profit after the Q2 performance dragged earnings.

“Following a strong first quarter, we experienced a challenging operating environment in the second quarter characterised by COVID-19 induced lockdowns and the broader macro-economic impact it has had,” said Ferdi Moolman, the company’s CEO.

“4G network service was expanded at a much slower pace because of lockdown constraints,” Moolman said.

“In addition to this, the combined effect of Nigeria’s foreign exchange rate adjustments, the 2.5% increase in value-added tax and the associated costs of COVID-19 initiatives have impacted margins,” Moolman said.

As a result, growth in EBITDA was 8.2 percent in H1, while EBITDA margin declined by 2.0 percentage points to 51.3% and profit before tax and EPS declined by 2.0% and 4.7%, respectively.

MTN joins a long list of Nigerian companies to have taken a hit ninth second quarter of the year from the adverse fall-out of the COVID-19 pandemic on economic activity.

“Our response to the global pandemic and its impact was focused in four broad areas, namely social, commercial, network and supply chain as well as funding and liquidity considerations.
In terms of the social impact, health concerns, along with the restriction on movement and lockdown of certain parts of the economy, impacted our peoples’ working routine, “ MTN Nigeria said in a statement sent to BusinessDay.

To address this, the telco implemented work from home initiatives and intensified health and safety measures, made various contributions through initiatives including support for the Federal Inland Revenue Services’ (FIRS) revenue acceleration efforts with an early payment of its taxes ahead of established deadlines.

Despite the challenges year so far, MTN results show that the telco has managed to maintain double-digit service revenue growth of 12.6% for H1, driven by strong growth in key revenue lines.

Data revenue rose by 57.6% supported by an increase in data users and traffic. Revenue from digital and fintech services rose by 121.8% and 29.6% respectively, while voice revenue growth was 2.8% amidst a change in traffic pattern following the lockdowns. However, costs also increased leading to an overall decline in profit before tax and earnings per share.

In the first half of the year, MTN also achieved 6.8 million in net additions, to connect over 71.1 million customers to its network in Nigeria. The telco also connected 3.8 million new users to the internet, bringing our active data subscribers to 29 million. It’s mobile money service (MoMo) subscribers increased by 1.6 million to 2.2 million, the majority of which were in Q2.

In line with its dividend policy, MTN’s Board of Directors approved an interim dividend of N3.50 kobo per share to be paid out of distributable net income.

“From a commercial perspective, demand for data and digital services grew significantly, but we saw a decline in demand for voice services as our customer base, especially in the mass market segment, our largest, was impacted by the economic constraints caused by lockdowns in the country. The acceleration in data and digital revenue only partially offset the decline in voice revenue. As lockdown restrictions have eased, we have seen an encouraging recovery in voice revenue,” Moolman said.

“With regards to our network and supply chain, the movement restrictions and scarcity of foreign exchange affected site rollout. We have mitigated these effects through building up inventories of critical spares as well as closer control and management of our supply chain.
Our funding and liquidity remain well-managed, supported by strong cash flows and approved headroom facilities. Our headroom to leverage is comfortably within banking covenants and are able to meet our operational, investment and financial requirements and obligations,” he said.

MTN’s foreign currency exposure is within manageable limits, with 95% of its debt in local currency, so that its balance sheet can withstand currency volatility.

However, further impacts of COVID-19 are very uncertain and will depend on the evolution of the virus throughout the remainder of the year, any reinstatement or intensification of lockdowns and any other economic impacts caused by the global situation.

For its operations, MTN Nigeria recorded a 15.6% growth YoY in its mobile subscriber base to 71.1 million, providing support for voice revenue. Voice revenue, accounted for 67.9% of service revenue and up by 2.8%, remained in growth in H1 in an environment where the effect of lockdowns impacted traffic, particularly in April and May.

“Encouragingly, we have started to see a recovery following the gradual easing of lockdown,” the company said I’m it’s statement.

Data revenue, made up 24.2% of service revenue, continued to grow, achieving 57.6%. This was realised through increased data subscribers, improved 4G penetration and enhanced network capacity to support traffic growth due to the lockdown. Data traffic rose by 141.2% YoY (27.2% QoQ) and usage (MB per user) by 76.6% (23.3% QoQ).

MTN added 4.0 million new smartphones to its network in H1, bringing smartphone penetration to 43.5% of its base.

In H1, digital offerings recorded a growth of 121.8%. The uptake of MTN’s digital products and services continued to improve and the telco’s efforts to expand the active user base for digital business seems to be yielding positive results.

“We redefined how we account for the active user base to capture unique paid subscriptions and we have seen this number more than double in H1 to 1.6 million,” Moolman said.

Fintech revenue increased by 29.6%. MTN Xtratime, its airtime lending service continued to drive fintech revenue growth.

Enterprise business revenue grew by 4.1%. However, growth turned negative during Q2 (-9.0% QoQ) because of the economic impact of the lockdown on the businesses it supports.

Operating expenses rose by 24.1%. This had a knock-on effect on EBITDA, which rose by 8.2%, despite a 12.6% increase in service revenue with EBITDA margins declining to 51.3%, while capital expenditure, excluding right of use assets, was N76.0 billion in H1, reflecting a decline of 20.9% as site rollout was at a slower pace due to port congestion, movement restrictions and scarcity of foreign exchange, although this started to pick up in Q2.

PBT declined by 2.0% due to an increase in finance costs resulting from higher borrowing. During the period, a N100 billion Commercial Paper was issued at a blended rate of 5.74% per annum.

Overall, PAT and EPS declined by 4.7% a piece, reflecting an increase in taxation mainly due to lower investment allowance and exempt income.

MTN is confident that the early trends emerging from the easing of lockdown restrictions indicate a steady normalisation of its revenue mix. However, it remains unclear how this will continue to evolve for the remainder of the year given the ongoing uncertainties presented by the COVID-19 pandemic, including its potential effects on the economy and customers.

“While we expect the operating environment to remain challenging, we will continue to build on our operational and financial resilience, and execute on our strategy to position the business to sustain growth over the medium-term,” the company said.