Growth in revenue and subscribers sees MTN up dividend

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JIMMY MOYAHA: Now from one of our favourite hotel providers to one of our favourite connectivity providers, MTN. They reported group results [for the year to end-December 2022]. Group earnings were strong, their return on equity was strong. They even paid a dividend. Despite all of the good news, the share price was down more than 10% at one stage today.

I’m joined on the line by their CFO, Tsholo Molefe. Good evening Tsholo, and thanks so much for taking the time.

Was the market too harsh on you? I had a look at the results. I had a look at the numbers, you paying out a dividend of R3.30. Income reserves are still an improvement on last year, but the market didn’t seem too happy.

TSHOLOFELO MOLEFE: Yes. Good evening, Jimmy. I think it’s a difficult one. We’ve been very clear that we guided the market, even from last year, on a minimum dividend of R3.30. I think the dividend from our perspective is really a capital-allocation decision.

We are focused on investing in our networks and growing a platform business. That’s number one in terms of our capital-allocation framework.

The second thing for us is to continue to deleverage the whole core balance sheet faster. We would like to settle the US dollar-denominated euro bonds. It is important for us to do so.

The dividend to shareholders is a key component of our capital allocation framework, and it ranks number three on the priority order.

I know there would be mixed feelings from shareholders about – did we pay less, were we conservative, but we think that it was the right decision for us to make.

Of course, we would be seeking to reward investors at a later stage when we see that conditions in markets that we operate in outside South Africa are also changing. We operate in uncertain markets like Nigeria and Ghana, and so that’s also a consideration that we take into account when we look at whether there’s sufficient cash to reward our shareholders.

JIMMY MOYAHA: Absolutely. Now, something you mentioned earlier, Tsholo, is around the fact that you as a group have prioritised infrastructure investment, and infrastructure investment has increased to some 17%-odd, with quite a bit of that also coming into South Africa. The obvious aim there is to ensure that customers receive a better service as a result. To that end you’ve been able to get down the cost of communication for customers quite significantly.

TSHOLOFELO MOLEFE: Yes, that’s correct. I missed all of that. The cost to communicate has come down. We’re seeing inflationary pressures in markets, not just in South Africa, and it’s not possible to pass through the impact of inflation to customers – what do we do then?

We are very focused on expense efficiencies. We delivered R2.7 billion this year, and we see that as an ongoing effort.

We certainly increased our capital expenditure to R38 billion in the year, and it was really to accelerate the growth that we are seeing in 3G, 4G. But we’ve also added more sites on 5G in South Africa.

But certainly in South Africa the key focus will be on improving the network due to the load-shedding impact.

JIMMY MOYAHA: Let’s look at some of those international markets before we dig into the impact of Eskom. The recent – well for some it might be recent, for others of it was longer ago – renewal of the Rwandan licence and the amortisation of that, that’s really impacted the Rwandan side of the business. But of course the impact is set to be temporary until that amortisation cost is accounted for. Has something like that and the other infrastructure plans and the development plans contributed towards the group subscribers increasing, because that was up more than 5%?

TSHOLOFELO MOLEFE: I think if you just stay with Rwanda, in Rwanda we saw really stellar performance around the mobile business. I think the payment services went up just over 200%. I think the ecosystem also went up just over 100%. So we saw an eco uptake just on the mobile financial services.

We do operate in markets where we have to think about these licence regimes from regulators across [the] market, and I think we understand that regulators have different rules in that regard. So it is something that sometimes you may not have planned for. But because we want to continue to operate in those markets, we certainly have to take it in.

I think the growth, of course, in our subscriber base really also came from Nigeria, where in the past year we saw sort of moderated growth due to the number-barring of subscribers there due to the name registration issues. So we saw a recovery in the year relating to that. But I think across markets [there was] very good growth on the subscriber base.

It really talks to the investments that we’ve been making. There is quite a lot of opportunity for growth in those markets. In some markets you still have a 75% pop[ulation] coverage, and smartphone penetration at about 55% or so. So that presents an opportunity in markets like … the Western and Central Africa region markets, including Ghana, Nigeria and then the south-eastern Africa markets as well.

JIMMY MOYAHA: Now, all of these investment plans – R9 billion invested in South Africa is obviously aimed, one, at improving the service but two, mitigating the impact of load shedding. How severe was that impact? It had to have been north of a couple of million.

TSHOLOFELO MOLEFE: Certainly.

We reported today that the impact of load shedding on the South Africa performance was just over R690 million.

That’s about R640 million in revenue losses, followed by just the increased costs, but also the vandalism in South Africa of the sites with batteries, etc.

And so we’ve had to add in additional security costs to just protect some of those sites.

So all of these things, of course, add up. And we’ve seen at Ebitda [earnings before interest, taxes, depreciation, and amortisation] level an impact of R695 million. That was about a 1.2 percentage-point impact on the Ebitda margin of South Africa.

JIMMY MOYAHA: Yes, that’s not a very good number – R600 million-plus as a result of load shedding, R600 million that would’ve been in profits otherwise, or redistributed to some other areas of the business that could have really used that money.

Before I let you go, Tsholo, we can’t talk investment and not look at the business units that are doing well and look at what MTN’s plans might be. I mean, the fintech business showed an increase in revenue of about 8.6%. Are there plans to unbundle that? Can we expect the MoMo [Mobile Money] business to be separately listed at some point in future?

TSHOLOFELO MOLEFE: I think where we are right now is that we are pretty much complete with the structure of separation of our fintech business. We have received offers from strategic partners.

What are we looking for in a strategic partner? We’re really looking for partners that will bring the technology know-how to help us scale and grow the business across our vertical in the insure tech vertical, the bank tech payments, and e-commerce as well as remittances.

So that’s essentially what we are looking for. As I indicated, we should be able to communicate [on this] over the next couple of months. We obviously are still reviewing these offers and we should be able to communicate in a month or two on which partner we would be going for. But I think it’s important to highlight that we were never looking for a financial partner. That was not secondary to our objective. But the important thing is what these partners bring from a commercial operational perspective.

JIMMY MOYAHA: Speaking of strategic partnerships, are you guys still interested in Telkom? I have to ask because the Telkom conversation went very quiet. The Telkom share price went up to R55 when you were interested, and then backed down to R35 when you weren’t. Is that something that’s still on the cards?

TSHOLOFELO MOLEFE: We are not in discussions with Telkom at the moment. Strategically we are looking for partners that would assist the business, particularly from a fibre perspective. So it is something that obviously we were looking for at that point in time. Discussions did not go as planned at the time, so at this point we are not in discussions. But we continuously look at [things] from a fibre-strategy perspective.

Particularly in a market like South Africa, we are very clear that to scale and grow the business we will have to look at bolt-on acquisitions.

But at this point in time we are not talking to Telkom or anyone for that matter.

JIMMY MOYAHA: Well, we’ll definitely keep a close eye on that, because I think [in] the Telkom deal, there was some merit to that, especially around the infrastructure side of Telkom’s business. But I’m sure that whatever MTN does next is in an effort to improve its service to customers and we are all grateful for that.

That’s all we have time for, though. Thank you so much, Tsholo. That was Tsholo Molefe, who is the CFO of MTN, just giving us a sense of their numbers, their performance, their plans going forward and their thoughts on why the market was still down more than 10% despite such good numbers from them.