MTN Reports $357m Loss, Slashes Dividend

MTN Group Ltd, Africa’s biggest mobile phone operator reported a $357 million half-year loss on Friday and cut dividend payouts, following regulatory fine in imposed on the operators by the Nigerian Communications Commission (NCC) and underperformance in its South African home market.

Founded with the South African government’s help after the end of apartheid in 1994, MTN agreed in June to pay a 330 billion naira ($1.05 billion) fine in a settlement with Nigerian authorities for missing a deadline to cut off unregistered SIM cards from its network.

MTN said the fine, a third of the initial penalty, wiped off 10.5 billion rand, 474 cents per share, from headline earnings, South Africa’s main measure of profit that strips out certain one-off items.

The Group’s headline loss came in at 4.9 billion rand ($357 million), or 271 cents per share, in the six months to end-June. This compared with headline earnings of almost 12 billion rand, or 654 cents per share, a year earlier.

The company, which has more than 230 million subscribers, cut its dividend by almost 50 percent to 250 cents per share for the half year.

MTN has said its Nigerian business would pay the fine in local currency. The penalty was worth $1.7 billion when it was announced, but the naira has fallen sharply since then, cutting the equivalent dollar value by about $500 million.

The company also said the results were affected by unfavourable currency swings, underperformance in its home market and in Nigeria, where it had to cut off another 4.5 million SIM cards to comply with the local regulator’s user registration requirement.

The report by MTN read:
“MTN continued to operate in a challenging environment for the six months ended 30 June 2016. The financial performance for the period reflects the confluence of a number of material issues, which created the ‘perfect storm’. The Group has made strides towards resolving these challenges although many of these factors fall outside of its control.

“The Group’s reported results were significantly impacted by the Nigerian regulatory fine. On 10 June MTN Nigeria resolved this matter with the Federal Government of Nigeria (FGN) and agreed to pay the FGN a total cash amount of 330 billion Nigerian naira (US$1,671 billion, using the exchange rate prevailing at the time) over three years in a full and final settlement. This was agreed in addition to complying with certain other regulatory conditions imposed as part of the settlement reached.

“The 50 billion naira (US$250 million) paid in good faith and without prejudice by MTN Nigeria on 24 February 2016 forms part of the monetary component of the settlement, leaving a balance of 280 billion naira (US$1,418 billion, using the exchange rate prevailing at the time) outstanding. In June 2016 the first scheduled payment of 30 billion naira (US$124 million) was made. The remaining cash payable at 30 June 2016 amounted to 250 billion naira (US$882 million).

“The Group has accrued the present value of 280 billion naira (US$1,418 billion, using the exchange rate prevailing at the time), which in total had a negative impact of R10 499 million on reported earnings before interest, tax, depreciation and amortisation and impairment of goodwill (EBITDA) and a R8 632 million negative impact on the Group’s reported headline losses, or 474 cents on reported headline losses per share. The reported impact on the Group’s statement of cash flow for the period amounted to R5 870 million, which equates to the 80 billion naira paid during the period.

“During the period, R1 324 million costs were incurred on a range of professional services relating to the negotiations that led to a reduction of R34 billion in the Nigerian regulatory fine to 330 billion naira (US$1,671 billion, using the exchange rate prevailing at the time). The board has exercised its judgement and approved the quantum of the professional fees incurred taking into account global benchmarks and the value delivered culminating in the final settlement of the Nigerian fine.

“Apart from the Nigerian regulatory fine, the depreciation of local currencies against the US dollar had a substantial impact on the Group’s results. This resulted in foreign exchange losses amounting to R3 606 million during the period. MTN South Sudan reported an impairment on property, plant and equipment (PPE) of R259 million** (using a Rand/ Sudanese pound exchange rate of 0.376). When the impairment write-off is presented on an organic basis the impairment amounts to R2 632 million* (using a rand/Sudanese pound exchange rate of 3.837). This organic impairment write-off had a significant negative impact on organic EBITDA.

“The Group’s underlying performance was impacted by weak macro-economic conditions affecting consumer spending, the withdrawal of regulatory services in MTN Nigeria from July 2015 until May 2016 and disconnections of subscribers related to subscriber registration requirements, mainly in Nigeria. MTN Nigeria disconnected the last batch of 4,5 million subscribers in February 2016. MTN Uganda and MTN Cameroon were also impacted by subscriber registration requirements. This resulted in significant free minutes provided for subscriber re-registration campaigns, contributing to a 12,2%* decline in the effective voice tariff. The Group’s performance was further impacted by aggressive price competition and under-performance of MTN South Africa.