FSDH Initial Reaction: MTN Nigeria 2Q23 results 
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August 1, 2023/FSDH

Key Performance Highlights:

• MTN Nigeria maintained its robust momentum from last year, posting double-digit growth in 2Q23. The Company recorded a 23.3% YoY revenue growth to N590.6 billion in 2Q23. The service revenue soared 22.7% YoY to N586.7 billion in 2Q23, primarily driven by a 30.4% YoY jump in data revenue to N242.2 billion (41.3% of service revenue), a 17.3% YoY rise in voice revenue to N285.1 billion (48.6% of service revenue), and supported by a 58.6% YoY spurt in digital revenue to N8.1 billion (1.38% of service revenue) and a 7.0% YoY growth in Fintech revenue to N20.9 billion (3.6% of service revenue). Voice revenue rose 17.3% YoY on increased usage supported by revamped voice proposition, customer value management (CVM) initiatives, and increased rural coverage. Data revenue grew by 30.4% YoY on the sustained growth of active data users and increased data usage. Fintech revenue increased 7.0% YoY, led by revenue from core fintech services, partially offset by the cash shortages. It is worth noting that MTN has successfully reopened the NIBSS interface for both inbound and outbound transfers and strengthened its control systems, and now the Company is well-positioned to drive the growth of active wallets and merchant ecosystems as consumer education and commercial activities progress. Digital revenue grew 58.6% YoY, driven mainly by rich media services supported by mobile advertising and content VAS. Furthermore, service revenue from the enterprise business rose by 24.0% YoY, led by the mobile and fixed connectivity services and underpinned by onboarding new customers across all segments.
   
• In 2Q23, the continued effects of foreign exchange unavailability, Naira depreciation, higher CPI index adjustments on lease rental costs, acceleration in the site rollout, and rising energy costs resulted in direct network operating expenses increasing by 29.3% YoY. However, the impact of the higher direct network operating expense was moderated by the cost savings realised from the expense efficiency programme and a disciplined approach to capital allocation. The costs of the Company spurted on a YoY basis with a double-digit increase in almost all categories except value-added services (down 4.0% YoY). Transmission costs vaulted 53.1% YoY, and interconnect costs increased 11.8% YoY. On the other hand, the costs of starter packs, handsets, and accessories jumped 13.6% YoY to N6.7 billion in 2Q23. Moreover, roaming costs (+36.2% YoY), Advertisements (+21.6% YoY), Other Operating Expenses (+4.8% YoY), and Discounts and commissions (+23.8% YoY) increased in 2Q23. Another significant contributor to costs, employee costs, increased 46.8% YoY to N16.4 billion in 2Q23. Resultantly, the Company’s EBITDA rose by 23.6% YoY, while the EBITDA margin increased by 16 bps YoY to 52.8% in 2Q23.
   
• MTNN recorded an operating profit of N214.9 billion in 2Q23, a 24.3% YoY growth from N172.9 billion in 2Q22. The finance income surged 340.2% YoY to N11.7 billion in 2Q23, mainly due to higher interest income on amortised cost investments. However, the finance costs rose 259.8% YoY to N182.1 billion, primarily due to net foreign exchange losses that ballooned to 10.5x to N126.2 billion in 2Q23 as CBN collapsed all FX windows into investors & exporters (I&E) window on 14 June 2023 to allow for a free float of the national currency against the dollar and other global currencies. MTNN’s finance charge was impacted by the devaluation of the Naira from N461.10/$1 in December 2022 to N756.08/$1 in June 2023 following the policy change. The profit before tax was reported at N44.6 billion compared to N125.0 billion in 2Q22, an 64.3% YoY drop. With a slightly higher tax rate of 38.6% in 2Q23 (2Q22: 32.2%), the net profit came in at N27.4 billion (-67.7% YoY), while the earning per share stood at N1.38 per share versus N4.19 per share in 2Q22. In the quarter, capital expenditure (including right-of-use assets) stood at N146.2 billion, marginally down by 2% YoY from N149.2 billion in 2Q22. Consequently, free cash flow vaulted 60.7% YoY to N165.6 billion in 2Q23.
   
• Looking at the subscriber base, the Company’s mobile subscribers increased by 4.0% YoY to 77.1 million (the highest level since the operations commenced in 2001). The active data users jumped 14.2% YoY to 41 million. However, the active fintech subscribers declined 39.1% YoY to 7.0 million, moderated by the impact of the cash shortages. In addition, the Company’s instant messaging platform, Ayoba, continued to gain traction with the addition of over 0.5 million users during the quarter bringing the monthly active users to 7.2 million in 2Q23.
   
• It is worth noting that in 2Q23, the Company’s EBITDA margin was not impacted due to the sudden FX movement because of the nature of its tower contracts which required the Company to make quarterly payments at the beginning of each quarter. The exchange rate is adjusted based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the quarter for others. As a result, the full impact is expected to kick-in in H2. The USD component of operating costs is in the lower 40%. The Company’s sensitivity analysis shows that a 10% movement in the exchange rate would have a direct negative impact of approximately 1.3 percentage points on the EBITDA margin pre any mitigation actions. The impact on finance costs in H2 will depend on variations in the exchange rate during the period.
   
• On 30 June, MTN Nigeria announced an interim dividend of N5.60 kobo per 2 kobo ordinary share has been proposed by the Board of Directors of the Company subject to the appropriate deduction of withholding tax and will be paid on 24 August 2023, to shareholders whose names appear in the Register of Members as at the close of business on 16 August 2023.

 
Market Reaction: Investor reaction to the 2Q23 results was subdued as the stock declined 3.68% to N262.00 versus a 1.10% fall in the All-Share Index on 31/7.

MTN Nigeria Earnings Highlights 2Q23

Source: Company Financials, FSDH