JSE-listed MTN believes it is on the mend and is seeing the first signs of a turnaround after plunging into the red during what it described as the most challenging year in the company's 22-year history.
With its Ignite initiative and various other strategies in play, MTN hopes to reverse the impact of a series of material regulatory, macroeconomic and political challenges experienced across its regions, which forced the company into a decline during the year ended December 31.
“We think that, not withstanding all the difficulties we have had [during the year under review], we have at least stabilised,” MTN interim chairperson Phuthuma Nhleko said on Thursday, after the group reported a significant loss for year on the back of its hefty Nigerian regulatory fine, foreign exchange losses and charges relating to broad-based black economic empowerment fund MTN Zakhele Futhi, besides others.
Faced with a complex and difficult operating environment, corrective measures consumed much of the company’s focus during the year under review, with MTN concluding the settlement agreement for the Nigerian regulatory fine issued in June 2016, accelerating the growth of new revenue streams and finalising the new senior management, including establishing a “more diverse skill set” on its board.
MTN also concluded a “deep and fundamental” strategic review of the business and its processes to ensure optimal operations, through which the transformation initiative was born.
Launched in the fourth quarter of 2016 in South Africa and Nigeria, Ignite will introduce special measures to accelerate the business and financial performance, with aggressive targets to unlock enhanced agility, sustainability, efficiencies, innovation and profitability.
“Ignite will be rolled out progressively to all operations to ensure a well-coordinated approach throughout MTN, enabling operations to execute their mandates effectively and deliver excellence in customer experience and value propositions,” explained Nhleko.
The anticipated end-result is the creation of a path to accelerate MTN’s revenue growth and diversification through group digital services, the enterprise business unit and tower investments.
Further, the group aims to translate a greater percentage of revenue into earnings before interest, taxes, depreciation and amortisation (Ebitda) and profit; improve the quality and effectiveness of processes; deploy capital more effectively; and ensure the adjustments are sustainable by “striking the right balance between performance and the health of the organisation”.
“Towards the end of 2016, our two largest operations and some of the tier-two operations began to show signs of a turnaround following an extended period of underperformance,” he said.
However, despite a somewhat improved performance in the second half of the year under review, group earnings took a significant hit with basic headline earnings a share contacting 110% to a loss of 77c for the full year to December.
The Nigerian regulatory fine had a 500c negative impact – 455c nonrecurring and 45c related to the interest unwind of the fine – while professional fees related to its settlement shaved some 73c from the earnings.
The per share impact from foreign exchange losses, hyperinflation and the MTN Zakhele Futhi transaction charge amounted to 329c, 37c and 88c respectively.
Headline earnings a share also experienced a 39c a share loss from investments in Africa Internet, Middle East Internet and Iran Internet Group and 122c in losses from the Nigeria tower company mostly owing to foreign exchange losses on dollar-denominated loans.
Ebitda, including the regulatory fine, hyperinflation, the impact of Zakhele Futhi and the tower profits, was down 31% to R40.7-billion. Excluding the one-off costs, Ebitda decreased 13.2% to R51.9-billion.
MTN posted a loss after tax of R3.1-billion in the period under review, compared with the profit after tax of R23.5-billion in the prior year.
Group revenue ticked up a marginal 0.4% year-on-year to R146.8-billion during the 2016 financial year.
Going forward, Nhleko said focus would narrow to the execution of Ignite, the transformation of MTN’s operating model and accelerating growth of new revenue streams.
“With a strengthened management team in place and new initiatives embarked upon, we are confident and are resolved to enhance our competitive position across our markets and meet the aggressive targets set,” he added.
South Africa is expected to deliver a positive growth trend with mid-single-digit revenue growth, an Ebitda margin expansion of between 50 and 100 basis points and a 15% to 20% improvement in Ebitda by 2018.
In Nigeria, where the company still has its sights set on a Nigerian Stock Exchange listing, improvements are expected in terms of the competitive position, despite a weaker economic environment.
“We expect the depreciation of the naira against the dollar to negatively impact the Ebitda margin in 2017 and 2018. However, Ignite initiatives to be implemented over the next two years will partly offset the drag on reported Ebitda by 15% to 20% by 2018.”
MTN Ghana continued its work with the relevant regulators on its localisation transaction, which is expected to be completed during the course of 2017.
Going forward, the repatriation of monies from MTN Irancell is expected to be normalised.
“We expect growth in the Iranian economy to offer significant opportunities to expand our services, particularly in the digital space, and to benefit further from MTN’s strong position and the country’s youthful population,” Nhleko noted.
MTN repatriated R6.3-billion from MTN Irancell up to December 31, and post-year-end, MTN reported that the €468-million in operational dividends of the last five years were paid by MTN Irancell, bringing the total repatriation to €893-million.
MTN declared a total dividend of 700c a share for the 2016 financial year.