Tsholofelo Molefe, CA(SA)
Group CFO
MTN has navigated severe macro headwinds in 2023. How did this impact the financials?
The Chairman (Views from our Chairman) and the CEO (Q&A with the President and CEO) outlined our macro-context in 2023. Many market dynamics have been at play for some time, but they intensified in the year. Broadly, our financial performance was impacted by elevated inflation, forex volatility and paucity, and geopolitical instability. Given these headwinds, I am very encouraged by the Group’s resilient financial performance in 2023.
High inflation placed upward pressure on operating expenses, including our tower lease expenses. In Ghana, we had to apply hyperinflation accounting to the results of MTN Ghana. Currency volatility affected our financial performance in terms of the stronger average rand exchange rate versus the currencies of the Opcos that had a negative impact on MTN’s reported growth compared to the growth rate in constant currency. The weaker closing rand rate versus the US dollar and euro negatively impacted our Holdco net debt.
The devaluation of the naira in Nigeria significantly impacted our results, including forex losses of R21.0 billion through the finance cost line in 2023. MTN Nigeria's results also included a restatement of 2022 financial results, reflecting the cumulative net effects of restating the lease liabilities, the deferred tax liabilities, the right-of-use assets, as well as the profit after tax from MTN Nigeria. This had a resultant impact on the Group as we translate into our reported currency, the rand.
This impacted the Group’s 2022 opening balances of retained earnings (restated lower by R2.4 billion) and 2022 profit after tax (restated by R407 million). For 2022 earnings per share (EPS), the impact was 17 cents.
In 2023, we had asset impairments of R900 million for MTN Afghanistan (a remeasurement of non-current assets held for sale) and R746 million for MTN Sudan (a result of warehouse damage from the conflict and hyperinflation). These items impacted our expenses, EBITDA and headline EPS. As mentioned, we are pleased with our overall financial performance and resilience in this context, which positions us well to deliver on our growth and strategic ambitions.
Given these headwinds, how was MTN’s 2023 financial performance?
Group service revenue grew by 13.5%*
Group voice revenue up by 3.3%*
Group data revenue up by 23.0%*
Group fintech revenue up by 21.8%*
MTN South Africa service revenue up by 2.5%
MTN Nigeria service revenue up by 22.1%*
SEA service revenue up by 17.4%*
WECA service revenue up by 13.5%*
MENA service revenue down by 8.7%*
At 13.5%*, service revenue growth to R210.1 billion was in line with our medium-term guidance and was supported by an expansion of 35.0%* in MTN Ghana, 22.1%* in MTN Nigeria, 2.5% in MTN SA and healthy growth in SEA and WECA. Excluding MTN Sudan (where service revenue declined by 12.3%*), Group service revenue increased by 14.1%*.
Data revenue – the largest contributor to Group service revenue – expanded by 23.0%*, driven by more subscribers and greater usage. Voice revenue increased by 3.3%* as voice traffic grew; adjusting for MTN SA – a mature voice market – it was up by 6.3%*. Fintech revenue sustained a strong trajectory and was 21.8%* higher. The momentum in advanced services revenue (up 54.8%*) was particularly pleasing, contributing 20.4% to total fintech revenue, up 4.4 percentage points. In other platforms, we recorded growth of 10.0%*, 23.4%* and 20.6%* for digital, enterprise and wholesale revenue, respectively.
Group EBITDA increased by 9.8%* to R90.4 billion, driven by a solid top line in most markets. It included non-operational items of -R1.57 billion – mostly asset impairment in Afghanistan and Sudan. The EBITDA margin of 41.5%* (2022: 42.7%*) was affected by increased operating expenses resulting from higher inflation and forex devaluation. However, the extent of these impacts was moderated by the delivery of meaningful expense efficiencies (see below for details).
Reported headline earnings per share (HEPS) decreased by 72.3% to 315 cents (2022: restated 1 137 cents), hurt by net non-operational and once-off items of 888 cents – largely hyperinflation adjustments and forex losses stemming from the naira’s devaluation. Adjusted HEPS declined by 9.5% to 1 203 cents, a resilient performance in the circumstances.
We continued investing in network capacity expansion, with R63.6 billion of capex on an IFRS 16 basis, a 12.0% increase. Capex (ex-leases) was up by 7.6% to R41.1 billion, including a hyperinflation impact of R1.0 billion and R2.7 billion of capitalised costs of the renewed Ericsson Converged Wallet deal in fintech. Capex intensity (ex-leases) was 18.6%, just above our medium-term target range of 15 to 18%.
Group operating free cash flow decreased by 6.1% to R38.5 billion. Adjusting for licence renewals and spectrum acquisition, it was R45.9 billion. ROE (adjusted for non-operational items, including hyperinflation) increased by 0.2 percentage points to 24.4%, reflecting the resilience of our business in a volatile environment.
Expense efficiencies again exceeded target. Where were key wins and tell us about EEP 2.0?
Using a base of 2020, we had previously set ourselves a three-year target of unlocking at least R5 billion in expense efficiencies. By the end of December 2022, we had realised savings of R6.4 billion.
We focused on efficiencies and, in 2023, exceeded our target for the year of R1.5 billion by recording savings of R2.6 billion. These gains were led by MTN SA, WECA, MTN Nigeria and SEA. Most came from general and administration functions; network and IT; followed by sales and distribution, and marketing.
In the year, the ratio of total costs to revenue edged up to 58.6% from 57.4%, clearly illustrating the challenges of the operating environment. Given that macro-headwinds to our business remain, we are now busy with phase two of our expense efficiency programme – EEP 2.0 – with plans to save costs of R7 billion to R8 billion over three years starting in 2024.
Among the areas we are targeting are a review and renegotiation of our major contracts, including our tower lease contracts; decommissioning of legacy IT and simplification of those contracts; and an optimisation of commission structures, as well as distribution channels.
Savings realised by area
Savings realised by region
MTN’s financial resilience has been key to mitigating the risks of the operating environment. What have been the challenges, and areas of progress and focus?
Over the past few years, we have worked hard – and with success – to strengthen our balance sheet to absorb shocks in our operating environment and provide the flexibility to capture opportunities and implement our strategic priorities. The business has benefited from faster deleveraging and de-risking of the Holdco balance sheet, focused on reducing non-rand debt. And I have already highlighted the key role of expense efficiencies, which remain critical in the period ahead.
At the end of 2023, the Group's net-debt-to-EBITDA ratio of 0.4x (2022: 0.3x) and net interest cover of 6.4x were well within covenant thresholds of 2.5x and of no less than 5.0x, respectively. At 1.4x (2022: 0.8x), Holdco's leverage was within the guidance of 1.5x and compared favourably to the 2019 level of 2.2x. It was supported by R13.4 billion in cash upstreamed from operations. However, the leverage was negatively affected by the rand’s depreciation, the effects of forex losses from our Eurobonds, as well as our election for scrip dividends from MTN Nigeria and MTN Ghana for FY 2022, the latter decision taken amid scarce forex in those markets. Other impacts were drawdowns from head office facilities, particularly in supporting MTN SA’s network resilience programme.
In the year, we raised R24 billion in Holdco loan facilities to refinance maturing debt, manage the debt maturity profile and bolster Holdco liquidity. As part of our work to deleverage non-rand debt at the Holdco through a cash tender offer, we early redeemed US$353 million of the MTN 2024 Eurobonds, bringing the total redeemed to date to US$1.2 billion. The Holdco debt dollar:rand ratio improved to 23:77, well within our target of keeping debt denominated in foreign currencies to below 40%. We ended 2023 with a healthy Holdco liquidity position of R44.1 billion in cash and committed facilities.
Is MTN’s capital allocation framework still appropriate in the period ahead?
Given the fundamental changes in our macro-environment, in 2023 we spent a lot of time looking at the framework to test it for continued relevance ahead. We concluded that it remains the right one, certainly in the near term. It is designed to help us deliver on our strategy, ranking the allocation of capital to ensure the best returns for the business and providing shareholders with an appropriate return on investment.
Continuing to prioritise investment in the growth of our networks and platforms, for 2024 we target capex (ex-leases) of R35 billion to R39 billion, based on current currency assumptions. Stabilising the leverage remains important, and we plan to settle more of our remaining Eurobonds in the period ahead. We will also maintain prudent management of our liquidity position.
As part of total shareholder return, the dividend remains critical. For FY 2024, in line with our dividend policy, the Board anticipates paying a minimum ordinary final dividend of at least 330cps after announcing full-year results in March 2025.