South Africa: MTN hit by strong rand

Mergers, Acquisitions and Financial Results

Africa's largest cellular operator, MTN, was hit by the continued strength of the rand in the first half of the year, which wiped R4.7 billion off the top line. The company this morning reported its results for the six months to June and said revenue grew a percent, to R56.5 million, on the back of strong growth in SA and Iran. However, this was offset by negative growth in rand terms in Ghana and Syria, and no growth in Nigeria.

On a local currency basis, growth was “healthy”. Nigeria improved 13.1%, Ghana 11.9% and Iran grew 28.2%. Revenue from the South African operation was 5.9% higher, while Iran gained 12.1%.

CEO Sifiso Dabengwa, presenting his first set of results since taking over from Phuthuma Nhleko in April, says the continued strong rand “damned” the first half results, as 68% of the company's income comes from countries outside of SA.

Stripping out the conversion of African and Middle Eastern countries into local currency, the company would have reported revenue growth of 9% in constant currency, says Dabengwa.

Earnings before interest, tax, depreciation and amortisation would have been 14% higher in constant currency, Dabengwa adds. Instead, this measurement only improved 4%.

CFO Nazir Patel says the key factor affecting the company's results was the impact of the rand, as there was about a 10% swing in the value of the local currency compared with a year ago. Flattening the currency differences on a year-by-year basis, revenue would have been 9% higher, at R61.2 billion.

MTN SA saw revenue move from R17.1 billion a year ago, to R18 billion, in the first half of the year. In Nigeria, revenue improved 7.1% in local currency, to 373.5 billion naira, but this gain was wiped out when converting naira to rands for reporting purposes.

Ghana grew revenue 13.5%, to 600 million cedi, but experienced an increase in network operating costs, which were 51.9% higher, because of hikes in the cost of rent and utilities.

Revenue in Iran was 28.2% higher in local currency, to 15.7 billion rial, while revenue in Syria moved 0.4% higher, to 20.7 billion Syrian pounds.

Subscribers across the group grew 7.5%, to 152.3 million, and MTN expects to add another 20.1 million, up from the previously expected 18.4 million additions, during the rest of the financial year. The bulk of these additions will come from Iran and Nigeria.

In the first four months of the year to April, the group grew its base 5%, adding 7.4 million subscribers to reach 149 million. Since then, MTN says, the base has surpassed 150 million subscribers as it heads towards its target of adding 18.4 million more users this year.

Dabengwa says the environment has become more competitive, and the company will have to reconsider its financial and operating frameworks “extensively” to keep a strong position in all its markets. Maintaining market share is a priority, he adds.

Locally, MTN SA grew its subscriber base 5.1%, driven by growth in the prepaid segment, to a total of 19.8 million users. MTN has about 35% of the local market and says this figure is stable. MTN cut off 340, 842 SIM cards after the RICA deadline on 30 June. Dabengwa says some of these subscribers have “started coming back”.

In Ghana, the company grew its subscriber base 9.6% and kept its market share of 53%, despite aggressive competition. Nigeria grew subscribers 4.8%, to 40.5 million, but lost market share because it was slow to react to increased competition. Dabengwa says some of its packages were as much as 60% higher than its competitors, a situation it has addressed.

MTN also faced political unrest at some of its operations, which caused a slight deterioration in performance, says Dabengwa. The company continued operating, despite the political upheaval. The countries that were affected by political uncertainty included Ivory Coast, Yemen and Syria. Dabengwa says these operations performed “reasonably well” and the company did not experience any damage to property or loss of staff.

MTN Iran grew subscribers 8.2%, to 32 million, and maintained market share.

MTN, which launched in 1994 as South Africa's second mobile operator, is present in Afghanistan, Benin, Botswana, Cameroon, Cote d'Ivoire, Cyprus, Ghana, Guinea Bissau, Guinea Republic, Iran, Liberia, Nigeria, Republic of Congo (Congo Brazzaville), Rwanda, SA, Sudan, Swaziland, Syria, Uganda, Yemen and Zambia.