MTN Takes R695-Million Hit From Load Shedding

Load shedding is the term used by South Africa's state-owned energy company Eskom to describe planned power outages. They have become more frequent since 2007 and often leave many in the dark for up to eight hours each day.

It helps reduce power demand by disconnecting a portion of the grid (or feeder) that supplies power to that area. This helps maintain an even balance between supply and demand, keeping your electricity grid running smoothly.

Ebitda

MTN South Africa's operations were hit by Eskom load shedding to the tune of R695 million, or 3.4% of Ebitda (earnings before interest, tax, depreciation and amortisation) for the 12 months ended 31 December 2022.

MTN reported that it had upgraded battery backup solutions on more than 80 percent of its sites, though the outages were expected to persist. It plans to finish upgrading all sites without backup batteries by May 31 and will deploy additional power generators as a precautionary measure.

It reported that the virus impact in its three largest markets had altered revenue patterns, with data revenue surging as people were ordered home by governments, roaming revenue decreasing due to reduced international travel and voice revenue coming under strain. Fintech revenue had also taken a hit due to discounted pricing and restrictions on movement as deals' value diminished.

The group, which boasts 289.1 million subscribers across 19 African markets, saw service revenue grow 15.3% during the six months ending June. Adjusted headline earnings per share increased by 27.5% to 278,5 cents (30 September 2005: 218,4 cents restated).

Overall service revenue rose 3.6% due to a 13.1% improvement in data, driven by digital services and strong growth across enterprise and wholesale revenue. This propelled Ebitda margin up to 39.2% but would have been lower if an one-off gain on tower sales by South Africa business were excluded.

Nigeria, which contributed R6,4 billion in revenue to the group during this period, saw service revenue grow by 8.9% as digital and fintech revenues surged 22.1% and 26.6%, respectively, the company reported. Ghana, with a population of 10 million people, experienced strong growth in data and voice services with service revenue up 5.9% over last year due to strong demand.

MTN recently unveiled a number of priorities for its business. These include completing the integration of Investcom, realizing synergies from that acquisition, and repaying debt used to finance it. Furthermore, the company is looking at ways to broaden its shareholder base.

Earnings before interest and tax

MTN has suffered a financial loss of R695-million due to load shedding in South Africa. This amount amounted to 3.4% of Ebitda, the group's earnings before interest, tax, depreciation and amortisation for the year ending December 31 2022.

MTN South Africa noted that load shedding was having a detrimental effect on their network, as well as certain business functions and support systems. Furthermore, power cuts are having an effect on availability - the company noted.

However, the telco still managed to post a strong result in Q1, with service revenue up 4.6% according to medium-term guidance. Furthermore, they are making progress on their expense efficiency program which should contribute towards further margin expansion.

MTN reported in its report that its data traffic and fintech transaction volumes had grown, reflecting a structurally higher demand for data and fintech services in the market, according to Mupita.

The growth in Fintech revenue was spurred by MTN's Payment Services Bank (PSB), which was granted a license last year in Nigeria. Through their mobile money wallets, customers can access various services like bill payments, loans and money transfers using their mobile money wallets.

MTN has reported strong financial results for the third quarter of 2022, despite challenging macroeconomic and geopolitical conditions across Africa. Its operations in Ghana, Nigeria, South Africa and Uganda have continued to perform strongly despite these challenging conditions.

MTN Prepaid in South Africa experienced service revenue growth of 1.2%, largely driven by data growth. This was partially offset by a decline in voice revenue caused by periods of load shedding.

MTN South Africa managed to expand their subscriber base despite the difficulties, rising from 62 000 subscribers in 2021 to 17,2 million. This marked the highest monthly subscription increase in five years but at a slower pace than 2021 had experienced.

Telco postpaid business has experienced a slowdown in subscriber growth due to economic pressure and competition, leading to a smaller share of total postpaid subscriptions for the period.

MTN Group continues to seek appropriate expansion opportunities, in order to diversify its earnings and strengthen its position. Due to its relatively low level of debt, the company can confidently evaluate potential acquisitions.

Earnings per share

MTN Group has seen its operational costs spiral due to Eskom's rolling blackouts, costing the company R695-million in 2018. Executive for Corporate Affairs Jacqui O'Sullivan revealed that MTN was spending up to R100 million per three days of load shedding and investing in diesel generators to maintain operations during power outages.

MTN's total service revenue rose 3.6% to R41.8-billion, with data accounting for 45.6% of it and enterprise (business) service revenue up 17.5% due to an 11.18% surge in data traffic volume. Fintech revenue surged 8.6% to R17.3-billion due to continued high demand for data and financial services.

Ebitda (earnings before interest, tax and depreciation) rose 12.4% to R90.8-billion due to an expense efficiency program which generated savings of R2.7-billion across Nigeria and South Africa.

MTN's return on equity increased by 3.8 percentage points to 23.4% and its dividend was 10% higher at 330c per share despite a challenging macroeconomic environment featuring high inflation, interest rates, pressure on disposable income and weak local currencies across 19 markets.

It was helped by strong growth in total subscribers, who increased 6.1% to 289.1-million. This growth was led by data and mobile money users which both rose more than 12% respectively to 137-million and 69-million.

MTN made significant investments in its network infrastructure and information technology this year to extend coverage and enhance user experience. Furthermore, it opened 1 570 fifth-generation (5G) sites across South Africa and Nigeria.

MTN Group is a leader in mobile telecommunications services throughout southern Africa. The company provides data, voice and SMS, digital/fintech solutions, wholesale operations, interconnect and roaming capabilities; additionally it sells mobile devices.

MTN has earned an Earnings Quality Ranking (EQR) of "high". This rating measures how accurately past earnings forecast future profits; the higher EQR, the better a company's earnings quality.

Cash flow

Eskom's power utility, Eskom, is finding load shedding to be an expensive venture. Estimates suggest the country spends around R695-million annually on fuel to run generators during rolling blackouts. MTN, for example, reports using 2,000 generators at present - each using a substantial amount of diesel.

MTN Group Ltd's Executive for Corporate Affairs Jacqui OSullivan estimates the company is using up to 400,000 litres of diesel per month to keep its fleet of generators running during stages four and five load shedding. She adds that the problem has become so dire that MTN is inviting businesses to supply backup power generators in order to help offset fuel costs.

The MTN Group provides telecommunications services throughout South Africa and several other countries such as Nigeria, Ghana, Ivory Coast, Cameroon and Uganda. Furthermore, they offer data and business solutions.

Recent results from MTN reveal a 3.6% annual revenue increase. This was driven by an increase in subscribers by 4.4% and the addition of 1.5 million new customers, along with 13.1% growth in data revenue. Furthermore, service revenue reached its highest point since 2007.

This is a testament to the company's efforts to enhance customer experience. This included introducing mobile TV, banking on-the-go, various apps and new price plans.

Another landmark was the launch of MTN Mobile Money, a mobile wallet that allows users to make peer-to-peer payments and top up their phones from bank accounts in Africa or the Middle East. This was made possible through MTN Group Limited's acquisition of a mobile money technology company in 2016.

MTN Mobile Money has recently launched in Tanzania and plans to roll out their solution across Indonesia and Pakistan as well. This demonstrates the value of providing alternative payment methods in markets where traditional banking systems remain unavailable.