MTN’s largest business aims to grow revenue by at least a fifth even as high inflation, elevated interest rates and cash shortages continue to be risks on operations.
“We will continue to monitor our trading environment as the year unfolds and manage the near-term effects of inflation and foreign exchange rates on the business,” MTN Nigeria CEO Karl Toriola said as the unit reported earnings for the first quarter of 2023.
With these risks in mind, the mobile operator says it continues to target service revenue growth of “at least 20%” and earnings before interest, tax, depreciation and amortisation (Ebitda) margin guidance of 53%-55% in the medium term.
Like many other countries around the world, Nigeria — MTN’s largest market — has had its economy battered by rising living costs, especially on fuel, which has worked to reduce disposable incomes for consumers.
Nigeria’s inflation rate rose to a 17-year high of 22% in March, its third consecutive month-on-month increase, with an average of 21.9% in the quarter.
To curb this, the Central Bank of Nigeria (CBN) ratcheted up lending rates to 18% in the quarter.
“In addition, supply chains were compounded by exchange rate volatility and the availability of foreign currency needed for capex,” said Toriola.
Even then, MTN was able to report growth for the period.
Service revenue rose 20.5% to 565.9-billion Nigerian naira (about R22.57bn). This was supported by mobile subscribers rising by 1.1-million, or 9.4%, to 76.7-million.
Ebitda grew 17.7% to 302.7-billion naira while capital expenditure fell 25.8% to 120.5-billion naira.
MTN experienced similar economic headwinds in Ghana, its other major west African operation.
The local currency depreciated 28.4% against the US dollar in the quarter, but gained some value in early April, the company said.
“The macroeconomic outlook for the remainder of 2023 remains uncertain with elevated inflationary pressures, currency devaluation risks, sovereign debt sustainability risks and volatility in fuel prices,” said MTN Ghana.
Forecast from the World Bank indicate that Ghana’s inflation for the year will sit at 29.4%. This is expected to have a negative impact on consumer spend and the cost of doing business.
Company management says it will focus on cost management strategies to mitigate the impact. This includes renegotiation of contract terms, placing a hold on noncritical expenditure, fast tracking the use of digital channels and the implementation of environmentally friendly cost-effective energy/power solutions among others.
Service revenue for the Ghana outfit grew 23.2% to 2.9-billion Ghanaian cedi (about R4.51bn). This was driven partly by mobile subscribers up 1.4% to 27.4-million with active mobile money users rising 15.9% to 13.4-million.
Ebitda rose 16.4% to 1.6-billion cedi, with capital expenditure at 1.1-billion cedi.
One of the ways Ghana’s government was able to claw some funds for state coffers is through the introduction of taxes and levies for mobile money services, a new revenue stream that has proven lucrative for mobile operators.
As voice revenue and data margins fall, squeezed by public pressure and regulations, mobile operators have been investigating other ways to create revenue streams from their large customer bases.
But the growth of mobile money has seen regulators starting to introduce controls or taxes on these platforms. MTN is already dealing with mobile money taxes in Ghana, Benin and Cameroon, while Vodacom is feeling the effects of such moves in Tanzania.
Over the past year, MTN reported being hit by implementation of a 1.5% levy on mobile money transfers from May 1 last year, despite a continued rise in users. The country’s finance ministry reduced the levy to 1% from January.
MTN narrowly escaped paying a R13bn tax bill in Ghana three months ago. With state finances in disarray, the tax assessment was seen by some as a shakedown by a cash-strapped government.
Ghana is MTN’s third-largest business.
After taking an initial dip in morning trade, MTN’s share recovered to close 0.99% firmer at R128.32.
gavazam@businesslive.co.za
