MTNN stands between balancing corporate governance and profit making

MTNN stands between balancing corporate governance and profit making

MTN Nigeria has been in the eyes of the storm for quite a while now. It has been different issues per season, for a seeming unending period but the show is still on.

As one of the best performing corporate entity in the telecommunication industry, MTN Nigeria is a force to reckon with and for breaking the rules, the group knows how to walk around in a dark room.

The group key performance metric is sound; but its corporate governance stance is always in doubt. Historically.

Perhaps, present reality may affect the future behaviour as well as performance of the beautiful bride of the Broadstreet investors.

MTN Nigeria, due to change in its legal identity now caught between breaking the codes and making profits.

In terms of fundamentals…

The telecommunication giant has it. MTN Nigeria possess the largest distribution network with a fibre network coverage of over 25,800 kilometers.

In the telecommunication industry, analysts said that MTN Nigeria is the dominant operator with 38.9% market share and over 60.3 million subscribers.

The group possesses the largest share of active data users (38%) in the industry with over 20.4 million active data users.

According to the company, 20 million Nigerians live in places where MTN is the sole network provider.

“For MTNN, It is all about cost and benefits of breaking a code. You don’t break the rules for fun of it”, some analysts told BusinessHallmark.

How MTN Nigeria performed in 2018

In 2018 audited statement, MTN Nigeria made N1.04 trillion in revenue. That is 17.13% more than N887.18 billion the group raked in 2017.

It was observed that ahead of the listing, the 2017 account was restated for material error due to changes in accounting policy related to Implementation of the international Financial Reporting Standards.

And then, the group profit rested at N145.685 billion in 2018 as against N81.07 billion in 2017.

The breakdown of the group earning sources shows that revenues from airtime and subscriptions accounted for more than 65% of its earnings capacity in 2018.

This was followed by about 16% from data services. Also, interconnect and roaming services contributed more than 10% to the group sales in 2018.

From airtime and subscriptions, the group raked in N676.381 billion in 2018 as against N556.577 billion in 2017.

That represents 21.53% year on year increase in voices services.  Customers’ demands for data services surged by 41.41% in 2018 from N116.798 billion in 2017 to N165.169 billion.

What that means is that both data service combine with airtime and subscriptions accounted for about 81% of the group’s earning in 2018. In 2017, it was about 76%.

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MTN Nigeria generates revenue from providing mobile telecommunication services, interconnect and roaming services as well as from sales of mobile devices.

It would be particularly interesting to know that the listing was forced on MTNN as part of negotiated deals after the group was fine some N1 trillion for regulatory infractions.

The penalty sum would have wiped off 5-10 years of profit from the group.

From the group profit, direct network operating cost came handy at N305.519 billion in 2018, having increased by 13.85% from N268.358 billion in 2017.

Telecommunication industry, as much as it is a capital intensive business is also cost driven. The list of periodical cost seems un-ended as the financial statement shows.  

The list range from value added service, interconnect costs, roaming, transmission, discount and commission, advertisement, employees and other related operational cost.

Meanwhile, claims against the group assets dropped. In 2018, the group total liabilities slide to N722.387 billion from N856.755 billion in 2017 as restated.

The reduction in the telecommunication group liabilities came on the back of repayment of its borrowed funds.

The group borrowing went down by more than 331% from N135.544 billion to N31.438 billion in 2018.

But MTN Nigeria Plc short term borrowings expanded by the year end in 2018. The group closed its restated account in 2017 with total short term borrowings that rested at N119.820 billion.

By the end of financial year 2018, the carrying value of its short term borrowings grew by 20% to N143.875 billion.

This may not be unconnected with the fact that it recorded declined in trade and payables account.

Which means that the group paid some of its suppliers, same time when its cash resources were locked down in receivables having increased to N38.617 billion from N33.425 billion.

Weak corporate governance, practices

On 20th October, 2015, the Nigerian Communications Commission imposed a fine related to timing of disconnection of 5.1 million MTN Nigeria subscribers. The firm initial denied wrongdoing but behind the door negotiated a deal with NCC.

On June 10, agreement was reached between MTNN and NCC in the sum of N330 billion as full and final settlement of the fine to be paid in seven (7) instalments.

This is in addition to list the company’s share on the bourse.

From N1.022 trillion in January 2017, MTNN total assets was restated to N969.607 billion same year before it closed financial year 2018 at N941.739 billion. 

The group shareholders’ funds grew from N112.851 billion in 2017 to N219.352 billion at the end of financial year 2018.

The massive increase was garnered on the back of trend in retained profit.

It was observed that from restated amount in 2017, the group retained profit grew more than 3 times to N154.201 billion in 2018 from N47.21 billion in 2017.

In the first 3-months in 2019

In the first quarter of 2019, MTN average revenue per user (ARPU) improved by 1.1% year on year to N1,510.

What this means is that the telecommunication company made at least N1510 per subscribers in the first quarter. The telco firm total subscribers increased by 3.6% to 60.3 million. 

In addition, data subscribers improved by 5.6 million to 20.4 million in the first quarter, data is the fastest growing segment, with a revenue share of 26.0%.

MTN Nigeria is the undisputed leader with market share by subscribers and value of 39.0% and 50.0% respectively.

Looking at the income statement, it would be observed that the telecommunication company’s revenue increased by 13.2% year on year to N282 billion in the first quarter of 2019, driven by voice (74.9%), data (16.6%), Fintech (2.9%) and Digital (1.0%) revenues.

However, there are other areas where MTN Nigeria is generating revenue apart from voice, data and the like. In the period, other sources accounted for 4.5%.

In terms of earnings capability, MTN Nigeria’s earnings before interest, depreciation and amortization, EBITDA, margin increased to 53.3% in the first quarter compare with 41.8% in the comparable period in 2018.

Obviously, before it comes to market. Down the line, MTN profit after tax (PAT) rose to N48.4 billion in the first quarter of the listing from N32.2 billion in the comparable period in 2018.

This translated to a PAT margin of 17.2% while MTN effective dividend pay-out is 80.0%. That means, only 20% of the after profit were retain as undistributed.

Meanwhile, MTN Group plans to issue commercial paper worth an estimated N200 billion in 2019.

You see? There is a signal, albeit positive for a company that is coming to the market by way of introduction and unwilling to raise fresh funds but chose to go for fixed interest source of funds.

This is just to say; “we don’t want our interest to be diluted – yet”. The fundamental is strong, and so is its numbers.

But, is MTNN familiar with ethics, code of corporate governance?

Future would tell how responsible is MTNN Plc’ in terms of corporate governance, ethics and best practices. That would ultimately determine investors’ sentiment because future fine may come heavier.

Historically, MTNN has not proved to be a responsible organisation. Unlike before the listing, now its activities would be closely monitored.

Investors, analysts and regulators would be very much interested in the company’s affairs now.

The management has to familiarize with listing requirements, ethics and code of corporate governance. The telecommunication company’s rating in the past in this regard cannot be envied.

It is the only company that has ever been fined in trillion naira in Nigeria. This pose some challenges to the management.

Any break in corporate governance code now would be sanctioned by the regulators.

The Securities and Exchange Commission, The Nigerian Stock Exchange but honestly Central Bank of Nigeria would not have much say on the company’s activities going forward.

Better still, the burden of regulations has shifted to the SEC, NSE and perhaps investors by offloading and reloading of their baskets.

It is already happening. MTNN has been alleged to have breached listing code. MarketForces Africa is also well informed that regulators are investigating the issue.

By the fact of the case, MTNN breached 20% floatation rate using the Premium board on the bourse.

Creating artificial scarcity is tantamount to controlling both demand and supply end – economists don’t and won’t subscribe to that.

Meristem Securities limited noted that MTN Nigeria presents a compelling investment opportunity given its market leadership, competitive advantage and the growth prospects available.

The company however has a history of infractions with various regulatory authorities in Nigeria, most notable being its encounters with NCC, CBN and the Attorney General of Nigeria.

Nonetheless, the company has made efforts to settle these disputes and has also strengthened its corporate governance framework to mitigate this risk going forward.

What does estimate look like?

It has been estimated that MTN Plc would reach 47 million new mobile subscribers by 2023, with mobile penetration projected at 91.8% for Nigeria.

Also, the firm’s smartphone penetration is expected to increase to 95 % in the same period from 47% in 2018, according to data provided by Afrinvest.

Another upside to MTN is the fact that low data penetration and 4G coverage presents opportunities for data revenue growth.

This is apart from the fact that the low level of banking penetration is expected to support Fintech revenue.

Analysts said that MTN Nigeria enjoys an outstanding return record with return on equity (ROE) and return on assets (ROA) of 90% and 17% respectively, comfortably sits among the best in the market and these should enable it to command a premium when it eventually lists on the exchange.

Its medium-term dividend pay-out target of 80% should also provide prospective shareholders with very attractive returns upon completion of its listing.

“Through its method of listing, MTN Nigeria didn’t raise new capital rather, existing shares of the company are being admitted into the exchange.

This implies that new investors can only trade shares of MTN if existing shareholders are willing to sell their holdings.

This poses some liquidity constraints on the stock and is bound to drive prices upwards. However, the company has indicated plans to carry out a full public offer in the future, pending favourable market conditions” Meristem Securities limited stated.

MTNN stands between balancing corporate governance and profit making

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