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2015 'exceptionally difficult year' for MTN

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 03 Mar 2016
Executive chairman Phuthuma Nhleko admits 2015 was MTN's most challenging year in its history.
Executive chairman Phuthuma Nhleko admits 2015 was MTN's most challenging year in its history.

MTN's full-year earnings were hit hard by continued troubles in Nigeria, with the telecoms operator admitting the "unsatisfactory" results were below management's expectations.

Reported basic headline earnings per share (HEPS) declined by 51.4% to 746c for the year ended 31 December 2015. The drop was largely due to a provision of almost R9.3 billion for a pending Nigerian regulatory fine, which had a 402c negative impact on HEPS.

Executive chairman Phuthuma Nhleko says the number is a provision "based on judgement on prevailing circumstances; it is not the number of finality".

He says MTN continues to engage with Nigerian authorities with the hope of reaching an outcome to the pending $3.9 billion (R60 billion) fine "that will be acceptable to MTN".

"Clearly, 2015 was an exceptionally difficult year for the company; I would say the company's most difficult in its history," according to Nhleko.

The company says weak macro-economic conditions, increased market competition, heightened regulatory pressures ? most notably in Nigeria ? and operational challenges in some markets resulted in a "lower-than-expected performance".

After months of negotiations, MTN last month announced it would pay $250 million (R3.8 billion) towards reaching a settlement with Nigerian officials over the pending fine, which was originally handed down in October 2015 at $5.2 billion, but was later reduced by 25%.

Excluding the Nigerian regulatory fine provision, group HEPS declined 25%. In addition, HEPS were negatively impacted by hyperinflation and losses from its investment in African Internet Holdings and Middle East Internet Holdings, as well as the impact of the sale of towers in Nigeria. Without these, HEPS would have only declined by around 14%.

MTN expects to announce a new CEO in the second quarter of 2016, as "the search for a new CEO is well under way, driven by the executive chairman". This after former CEO Sifiso Dabengwa resigned in November.

Nigerian woes

"MTN Nigeria's competitiveness in the market was compromised by the suspension of regulatory services in October 2015," the company says.

"Under the suspension, the Nigerian Communication Commission (NCC) withdrew its approval process for new tariff plans and promotions until certain tariff plans and promotions linked to the 'dominant operator' ruling were removed from the market. MTN Nigeria has complied with these requirements and now awaits the NCC's approval of new tariff plans and promotions submitted."

This hurt MTN's competitiveness in the Nigerian market; however, the company says it continues to engage with the regulator regarding the 'dominant operator' ruling and suspension of regulatory services to find an amicable resolution. This, combined with the disconnection of subscribers in the year, negatively impacted MTN Nigeria's results.

Nhleko says the reinstatement of regulatory services in Nigeria is "absolutely pivotal" going forward.

Data shines

A bright spot in the full-year results was a 30.2% rise in group data revenue to R33.9 billion, offsetting a 5.6% decline in voice revenue.

The group's data traffic also grew by over 100% as it saw an increased take-up of digital services. Data revenue, including digital services, contributed 23% to total revenue.

Group revenue was flat at R146.4 billion, largely due to a decline in voice revenue in Nigeria and a reduction in handset revenue in SA following the industrial action experienced in the first half of the year which led to lower distribution of handsets.

"This was, however, largely offset by an increase in data revenue across the business."

Despite a tough operating environment, the group's subscriber base increased by 4% to 232.5 million. This was despite the disconnection of 10.4 million subscribers on the African continent due to regulatory registration requirements. This was a combination of 6.7 million subscribers in Nigeria and 3.7 million in Uganda.

Lower voice tariffs ? which declined by 25% across operations in the year ? drove a 15% increase in billable minutes. MTN says voice revenue continued to come under pressure as a result of heightened competition and the related use of multiple SIM cards, as well as pressure on consumer spending.

Capex for the year increased 15.7% to R29 billion, while EBITDA decreased 8.6% to almost R60 billion.

The company declared a final dividend of 830c per share, which pushed up the total dividend of 1 310c per share, a 5% increase year-on-year.

"Notwithstanding the challenging operating environment, MTN continued to benefit from its significant scale and footprint."

MTN Irancell delivered a strong performance despite the impact of a slow economy and sanctions. Subscribers increased by 5% to 46 million in a highly penetrated market, and total revenue grew by 11.6%. Data revenue in Iran increased by 90% despite a steep fall in data prices, to contribute 30% to total revenue. This offset a 4% decline in outgoing voice revenue as a result of aggressive competition in the market and data substitution.

MTN SA delivered encouraging results despite operational challenges including industrial action in the first half of the year. Subscribers in SA grew by 9.3% to 30.6 million. The prepaid segment increased by 12% to 25.3 million, while postpaid subscribers dropped by 3.3% to 5.2 million as a result of the low availability of handsets, which normalised in the fourth quarter of the year.

"While 2015 was a difficult year for the group, impacted as it was by challenges in our two key markets, we are hopeful we will see improvements in operating conditions during 2016.

"The new operating structure, together with our strong platform, positions us well to take advantage of the next phase of evolution in the mobile telecoms sector," the company concludes.

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