MTN Group Limited
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Challenging political and macroeconomic conditions
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MTN navigates a landscape shaped by varied macroeconomic and geopolitical forces. In 2023, these challenges included elevated inflation, rising interest rates significant forex volatility and rising energy expenditure. These were intensified by South Africa's power grid issues and the sharp depreciation of the Nigerian naira, adversely impacting investor confidence through currency devaluation, growing debt service burdens, and increased regulatory scrutiny. Foreign currency denominated capex commitments and Holdco debt in foreign currencies introduce further financial challenge. Moreover, forex shortage, particularly in Nigeria, impacts cash upstreaming planning.
Geopolitically, MTN's operational context is influenced by conflicts such as the Russia-Ukraine war and Middle East tensions, which bear consequential risks for global diplomacy and commerce, potentially driving up energy prices and disrupting global supply chains. The prospect of national elections across several MTN markets in 2024 raises concerns over physical security and social stability, essential for the protection of employees and customers and the achievement of strategic aims. In addition, regional instability poses direct and indirect challenges. The anticipated further depreciation of the naira in 2024 is likely to trigger another inflationary wave, underscoring the critical impact of macroeconomic and geopolitical risks on MTN's strategic objectives to deliver services, drive growth and maintain financial health.
To address macroeconomic uncertainties around inflation, interest rates and currency volatility, MTN will continue Ambition 2025 initiatives relating to expense efficiencies and containment.
Macro and geopolitical impacts on global supply chains reinforce the importance of initiatives to reduce supplier concentration risk and to modernise network elements better in the face of catastrophic supply chain shocks.
In the telco sector in general there is opportunity to enhance the positioning of our products and services as critical to national infrastructure and digital human rights.
Increased regulatory pressure
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MTN operates in a highly regulated sector with regulatory decisions and policies shaping our operating environment. Like all telcos globally, MTN has to comply with sector regulations and laws. These include licence obligations, regulatory prescriptions, data privacy and governance laws, quality of service (QoS) performance indicators, SIM registration and KYC requirements. Recent macroeconomic and geopolitical developments have resulted in more pronounced regulatory risks such as capital management and sanctions in some markets. MTN prioritises compliance with various laws and regulations as part of our corporate governance framework. We have a proactive regulatory approach supported by cross-functional collaboration.
Continued regular engagement with relevant policymakers, including regulators and industry bodies on existing and emerging regulatory matters, leveraging our strong regulatory compliance culture.
Remain an active participant in regulatory policy design and advocacy, working with policymakers and industry bodies such that we anticipate market developments and help shape the African regulatory ecosystem.
Cyber and information security risks
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Cybersecurity is a priority as cyber-attacks become more sophisticated.
A cyber-attack aimed at MTN could lead to service interruption and the infringement of personal and confidential data. This could lead to significant business interruption and expose MTN to reputational damage, and also negatively impact subscribers.
Deployment and optimisation of integrated and scalable security capabilities to drive a mature security posture.
Increased tax-related uncertainty
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Taxation laws are dynamic and influenced by domestic and international tax reforms. Significant tax risks currently encompass increased transfer pricing audit activity and the implementation of global tax reforms known as the OECD's Base Erosion and Profit Shifting initiative incorporating the Pillar 1 and Pillar 2 reforms. The increase in tax audits, along with macroeconomic and geopolitical pressures, often lead to revenue authorities' intensified scrutiny of multinational enterprises. This poses additional challenges as MTN strives to balance tax operational compliance and strategies with heightened scrutiny of prolonged audits.
The dynamic tax landscape presents MTN with an opportunity to lead in tax transparency and compliance and proactive assessment of the impact of Pillar 2 on the MTN Group.
By proactively engaging with revenue authorities and investing in team upskilling, MTN can navigate audit pressures effectively, aligning with ethical business practices and gaining a competitive edge.
Strategy and execution
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Our rapidly evolving industry and diverse markets elevate risks, including the complexity of establishing a cohesive strategic vision and ensuring organisational alignment. MTN is also required to recognise and capitalise on market-specific opportunities. Executing complex strategies, such as segmenting off a fintech operation, necessitates advanced programme and project management, along with agile change management. Strategy risk involves the potential of strategic plans not achieving their intended outcomes, possibly due to misalignment with broader objectives or market dynamics. Execution risk, in contrast, refers to the obstacles in realising these strategies or resource misalignments.
By adopting our coherent and well-executed strategy, we at MTN position ourselves to become a future-ready organisation that excels in execution while adhering to our core value and commitment to digital and financial inclusion in Africa.
This is key for MTN as we advance our Ambition 2025, ensuring alignment across our operations and fostering a culture of excellence.
Such a strategy not only amplifies MTN's market presence but also catalyses our journey toward innovation and sustainable growth, turning strategic intent and operational efficiency into key drivers for long-term success and shared value.
Supply chain
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MTN is navigating a complex supply chain risk environment impacted by trade volatility, geopolitical tensions, and the aftermath of the epidemic. We are dealing with rising expenses brought on by increases in the price of raw materials and disruptions in logistics. The situation in the Red Sea is especially urgent because Houthi rebel activities are endangering vital shipping routes, most notably the Suez Canal, which is a vital conduit for international trade and communication networks. The re-routing of ships around southern Africa considerably lengthens transit times and raises shipping costs, which may influence the price of imported telecom equipment and overall industry inflation. The possible risk of sabotage of undersea global internet cables in the Red Sea could lead to disruption of data and financial communications between Europe and Asia. Inflation and currency devaluation in our markets poses further risks to supplier payments. These kinds of circumstances emphasise the need for sophisticated risk management and the development of all-encompassing contingency plans to deal with possible delays in procurement, spikes in costs, and the requirement for adjustments in logistics. To add to the complexity, the everchanging landscape of cybersecurity threats and regulatory requirements highlights the necessity for a flexible and robust supply chain strategy to maintain operational dependability and consistent service.
MTN has an opportunity to succeed in supply chain robustness as a result of our experience with the Red Sea interruption and broader supply chain vulnerabilities.
By turning these challenges into strategic opportunities, MTN can improve our own sourcing and logistics approach and position ourselves as the industry leader in supply chain resilience for telecommunications.
This proactive approach enables the introduction of new supply routes, strategic supplier relationships and reinforced risk mitigation strategies, all of which can result in improved operational effectiveness and reduced exposure to supply chain constraints.
Ultimately, these developments may result in important advantages including lower costs, more dependability and a stronger position in the market, reaffirming MTN's dedication to quality and resilience in a challenging global environment.
Liquidity and funding
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Apart from generating profitable returns, it is vital for Opcos to generate sufficient cash and have optimal capital structures to fund capital-intensive programmes and repatriate earnings to the Group.
Execution risk on our ARP or an inability to secure sufficient liquidity for upcoming maturities heightens refinance risk. The availability of hard currencies in Nigeria and Ghana remain a key challenge, impacting the amount of cash upstreamed to Holdco.
Cash upstreaming supports improved Holdco liquidity and leverage. Local currency funding and diversified investor base provide stable source of liquidity. The disinflation trends and expected decline in interest rates will reduce the cost of raising funds. Further repayment of dollar debt will improve our currency mix of debt.
Compliance
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Navigating diverse compliance requirements across multiple markets within evolving and complex regulatory landscapes adds to the challenge of staying ahead of developments while ensuring compliance.
Additionally, anticipating and responding to geopolitical events, economic downturns and public health crises requires agility and resilience to effectively maintain compliance.
Through proactive risk analysis and strategic compliance planning, MTN is able to stay ahead of evolving regulatory developments.
Network and spectrum cost and availability
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The lack of sufficient spectrum hampers our QoS and strategic execution, with rising costs affecting our pricing and profitability. It is essential to have timely access to enough appropriate and cost-effective spectrum, along with technology-agnostic licensing.
MTN's success hinges on robust network performance and reliability. Disruptions pose severe risks, making substantial capacity planning and resilience crucial to accommodate increasing demand.
Sharing spectrum with other operators to increase spectral resources utilised by MTN and improve our performance.
Partnership with low earth orbit satellite players to augment existing terrestrial network and increase broadband coverage in unconnected areas.
Focus on growing our private network deployments across our markets working with the Enterprise teams.
ESG issues
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Sustainability is a vital part of any organisation, as it has a bearing on customer choices, employee preferences and investment decisions.
Integrating sustainability and ESG considerations is paramount for long-term success. Forward-thinking leaders are reshaping their businesses to mitigate risks, seize opportunities and drive positive impact.
For MTN, ESG risks revolve around environmental impact, data privacy and governance compliance. These are influenced by carbon emissions, data security and regulatory complexities, partially affecting tariffs. By extension, tariffs contribute to the cost of digital access.
Addressing these risks is crucial for preserving trust, sustainability and long-term value.