Inflation, currency volatility impact MTN Group revenue

Inflation and volatile local currencies in key markets were some of the biggest challenges MTN Group had to grapple with in 2023.

This emerged when MTN, Africa’s biggest mobile operator by subscriber count, today published its integrated report for the year ended 31 December 2023.

The report reveals MTN Group, which operates in 19 markets, now has 295 million subscribers, with 137 million active data users.

At the end of 2023, the JSE-listed company’s market capitalisation was approximately $11.4 billion.

According to Ralph Mupita, MTN Group CEO and president, the macro-economic environment was challenging in 2023.

Mupita notes there are a few factors worth highlighting in this regard; particularly devaluation of the naira against the US dollar, which was the strongest headwind to the company’s business. MTN Nigeria is the telco’s biggest market.

In March, the group published its full-year 2023 financial results, revealing the Nigerian naira volatility had eaten into the telco’s profitability.

The telecoms provider announced headline earnings per share (HEPS) of 315c per share (cps), down 72.3 per cent from a restated R11.37 a year earlier, while adjusted HEPS fell 9.5 per cent to 1 203cps for the financial year.

“Despite these effects, we are encouraged by the solid underlying operational momentum and momentum of the business, as well as progress in key strategic initiatives,” says Mupita.

“We believe we are well-positioned to continue delivering on our growth ambitions over the medium-term.”

Cost of doing business

Mupita points out that the blended inflation rate across the firm’s markets remained elevated, averaging 16.7 per cent from 15.1 per cent in 2022.

“This put pressure on our customers’ spending power, which impacted demand for services. Higher inflation also directly impacted our business by increasing the cost of doing business, as well as higher interest rates, as central banks intervened to curb inflation, which increased our cost of debt,” he adds.

Mupita stresses that the company noted a peak in the inflation cycle in some of its markets, such as South Africa, Ghana and Uganda.

“We expect slowing inflation to be more supportive of our medium-term outlook.”

Compounding the effects of inflation, local currencies were volatile, with limited availability of hard currency, especially in Nigeria, says the CEO.

 

He explains that in 2023, the US dollar appreciated by 97% against the naira, resulting in a closing rate of N907/$ at the end of the year (December 2022: N461/$).

“This had the biggest impact on our business in the year. This followed the liberalisation of exchange rates in the country in June 2023.”

According to Mupita, notwithstanding the macro-volatility and challenges, MTN maintained a resilient performance in 2023, with solid underlying operating momentum.

“Despite the adverse effects of various SIM registration regulations, we expanded the customer base to 295 million across 19 markets.

“Amid sustained high demand for data and fintech services, we increased the number of active data subscribers by more than 9% to 150 million – half the total subscriber base.”

Mupita reveals that data traffic on MTN’s networks, excluding joint ventures (JVs), grew by more than a third (or by just over a quarter, including JVs).

He points out that data usage improved to more than 6.1GB per user per month (or 8.6GB including JVs).

“To sustain this growth, as well as network coverage and quality, we deployed capex (excluding leases) of R41 billion.”

Active MoMo users for the company increased by 5% to 72.5 million – a quarter of the total customer base.

The volume of fintech transactions increased by around a third to 17.6 billion, with the value of transactions up 47.4% to $272 billion, driven by the growth of advanced services, including payments, bank-tech and remittance solutions.

Group service revenue grew by 13.5% to R210.1 billion and earnings before interest, taxes, depreciation and amortisation (EBITDA) was up by 9.8% to R90.5 billion.

Mupita says it is worth highlighting the notable headway in 2023 made by MTN South Africa on its network resilience.

He states that by year-end, MTN SA had improved the availability of its network to 95% in even the higher stages of load-shedding, with availability up to around 98% on sites where resilience was implemented.

“In fintech, we are excited about the partnership agreements secured with Mastercard, particularly the commercial agreements, which we expect will support the accelerated growth of the business. Early in 2024, we concluded the definitive agreements for Mastercard to invest up to $200 million for a minority equity stake in MTN Group fintech at a valuation of $5.2 billion.

“We also gained traction with the structural separation of the fibre business in 2023, with Bayobab, securing regulatory clearances and new fibre operating licences in markets like Uganda, Côte d’Ivoire and Central African Republic.”

Mupita adds that Bayobab acquired the fibre network of MTN Zambia in a sale and lease back arrangement, while the work to progress Project East2West was commenced in partnership with infrastructure investment platform Africa50.

Middle East exit

“In our priority to simplify and transform the portfolio, we finalised the sale of MTN Afghanistan, which completed the group’s planned exit of consolidated subsidiaries in the Middle East. We also accepted an unsolicited offer, subject to conditions precedent, including regulatory approvals for MTN’s equity interests in MTN Guinea-Bissau and MTN Guinea-Conakry.

“We made good progress in advancing key sustainability initiatives and achieving our strategic priority to create shared value. Overall, we believe the strides we continued to make in our strategy execution position the business well to weather the current volatility in the short-term and deliver on our growth ambitions over the medium- and long-term.”

He notes MTN SA will focus on completing its network resilience programme in the short-term to sustain improved network availability.

The subsidiary will, thus, explore avenues to drive further resilience and power efficiencies in its network.

“We will focus on commercial initiatives in MTN SA to drive growth, including sustaining prepaid momentum and acceleration of the device strategy to support our data ambitions. While we expect the latter to temporarily slow the recovery profile of MTN SA’s EBITDA margin in the short-term, it will support medium-term growth and profitability.

“With a keen focus on efficiencies, MTN SA will prioritise returning top-line growth and the EBITDA margin to targeted medium-term ranges over time.”