Headwinds in two key markets drag down MTN in the first half

MTN’s two biggest markets dragged down its performance for the six months to June as profits were hit by a strike in SA and currency fluctuations, a weak economy and aggressive competition in Nigeria.

Earnings per share were down 10%.

Analysts expect this trend to continue this year.

But the group plans spending the remainder of its R29bn capital expenditure budget expanding and upgrading its network — mainly in Nigeria and SA, where rivals like Etisalat and Vodacom have grown market share through competitive packages.

In Nigeria, MTN has been unable to acquire sites for expansion of its network infrastructure. Moreover, competitors had better signal quality while MTN’s high-end customers were unable to attain high internet speeds.

In SA, a strike reduced contract customers by 1.7% to 5.3-million as those up for renewals and potential new customers were unable to get new devices because of the supply-chain disruptions at its warehouse. But the strike has ended and MTN is tackling the backlog.

MTN Group CEO Sifiso Dabengwa said although it was a challenging period in Nigeria, the company managed to maintain its 49% market share and the network problems would be resolved by the end of the year.

He said the next six months “won’t be easy but we expect positive growth”. Low single-digit growth was expected from SA.

Farai Mapfinya, head of equities at JM Busha, said local issues were purely operational and there was not much information in the results to point to a sustained recovery in the second half.

“In Nigeria, we think there will be some recovery on the operational front and results in local currency will improve somewhat. However, we think the currency weakness will still have a negative impact on the actual reported numbers at the full year.”

Revenue for the first half of the year was down 4.9% to R69.2bn, dragged down by currency fluctuations.

MTN expects it will take until next year to free its $1.1bn profits trapped in Iran following nuclear agreements Iran reached with the US and other countries to lift sanctions.

MTN chief financial officer Brett Goschen said there were still a number of processes that would have to be finalised. But the group felt more positive, and if sanctions were lifted now, it would be able to repatriate its money possibly by next year.

MTN yesterday reported a 10.3% decrease in headline earnings per share for the six months to June to 654c.

Revenue also declined, while its total subscriber base rose 3.4% to 231-million.

The group described the performance of the six months to June as challenging because of regulatory and weak macroeconomic conditions.

MTN has reduced its new customer forecast for this year by 700,000 to a total of 16.7million by the end of the year following subdued performance from its key markets.

In SA, where it suffered from a strike by its employees, MTN reduced its targeted additional subscribers to 1.8-million from 2.4-million. It ended June with 28.5-million South African subscribers, an increase of 1.8% from March. This means it got beaten by Vodacom during the June quarter, which increased its customer numbers by 3.7% to 33.3-million. In Nigeria, MTN aims to add 5-million customers, up from 4.75-million that it was forecasting in March, as it expects to improve its network coverage and signal.

MTN increased its Nigerian subscribers by 4.9% to 62.8million subscribers. But revenue declined 9% to R24.6bn.

Irancell, which showed a marginal growth of 0.5% in subscribers to 44.1-million at the end of June, could have 1.6million new customer additions by the end of the year.

MTN said the slower net additions in customers in the six months to June were largely due to a delay in obtaining a new number range and regulatory requirements on registration.

During the period, Irancell invested R3.7bn in capital expenditure and would continue to focus on network rollout including fibre. Ghana, Cameroon, Cote d’Ivoire and Sudan together recorded the group’s highest revenue growth.

MTN expects the large and small operations, which include Botswana, Zambia and Benin, to maintain the growth trajectory of the six months to June.

Vestact said in a recent report the countries and territories in which MTN traded were in high growth, “although tricky from a regulatory point of view, never mind politically speaking”.

Farai Mapfinya, head of equities at JM Busha, said MTN’s performance was in line with expectations, only because “we downgraded our expectations” in recent months.

“Key for us was to gauge the outlook and see how management have reacted to mitigate the challenges first in the first half. On that front, we think not nearly enough has been done to turn around the performance in the second half of the financial (year),” he said.

Data revenue continues to grow with the interim period showing a 21.3% rise to R15.4bn. The lower tariffs together with lower termination rates and pressure on consumer spending negatively affected voice revenue growth resulting in a 4.9% decline in total revenue for the period.

Aslam Dalvi, investment analyst at Kagiso Asset Management, said while the extent of decline in voice revenue was disappointing, data performance across the group was strong.

CEO Sifiso Dabengwa said that despite tough conditions, during the remainder of the year there would be a strong focus on active subscriber management and providing more competitive voice and data offerings to highvalue customers.

“We will continue to increase data revenue by encouraging uptake through increased smartphone penetration and new pricing strategies,” he said.

The key “is to improve data speeds. We are still in line to meet market requirements.”