MTN NIGERIA COMMUNICATIONS : MTN NIGERIA EARNINGS RELEASE H1 2023

MTN Nigeria Communications Plc

Unaudited results for the half-year ended 30 June 2023

MTN NIGERIA RELEASES UNAUDITED RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2023

Lagos | Nigeria: 28 July 2023

Today, MTN Nigeria Communications Plc (MTN Nigeria) announces its unaudited results for the half year ended 30 June 2023.

Salient points:

• Mobile subscribers increased by 4.0% to 77.1 million
  o Added 1.5 million subscribers in H1 2023
• Active data users increased by 11.5% to 41.0 million o Added 1.5 million active users in H1 2023
• Active mobile money (MoMo PSB) wallets increased by 1.1 million in H1 to 3.1 million
• Service revenue increased by 21.6% to N1.2 trillion
• Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 20.6% to N614.5 billion
• EBITDA margin declined by 0.6 percentage points (pp) to 53.0%
• Profit before tax (PBT) declined by 25.4% to N200.4 billion (up 17.6% to N331.8 billion, adjusted for the unrealised foreign exchange (forex) loss
• Earnings per share (EPS) was down by 29.3% to N6.33 kobo (up 13.4% to N10.66 kobo adjusted for the unrealised forex loss)
• Capital expenditure (capex) declined by 14.4% to N266.8 billion (down 13.8% to N176.3 billion, excluding the right-of-use assets)
• Interim dividend maintained at N5.60 kobo per share from the prior year.

Unless otherwise stated, financial information is year-on-year (YoY, H1 2022 versus H1 2023).

MTN Nigeria CEO, Karl Toriola comments:

Navigating a challenging operating environment

"The operating conditions in the first half of 2023 remained challenging with energy, food, and general inflation at elevated levels. This was due to the ongoing adverse global macroeconomic and geopolitical environment, the cash shortages experienced in Q1, forex volatility and availability and supply chain uncertainties witnessed during the period. As a result, the inflation rate in Nigeria rose to an 18-year high of 22.8% in June 2023, representing the sixth consecutive month-on-month increase in 2023, with an average of 22.2% in H1. To rein in inflation, the Central Bank of Nigeria (CBN) continued its monetary policy tightening, increasing the monetary policy rate by 2pp to 18.5% in H1, and a further 0.25pp increase in July.

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MTN Nigeria Communications Plc

Unaudited results for the half-year ended 30 June 2023

Following the inauguration of President Bola Ahmed Tinubu in May 2023, swift reforms were implemented to remove the fuel subsidy and liberalise foreign exchange management, to bolster investor confidence and drive growth and investment in Nigeria. These policy reforms are expected to be positive for the economy in the medium to long term. However, in the short term, they have created additional financial burdens on consumers and businesses, and these will be fully reflected in the pressures on our margins in H2. As a result, the Federal Government has declared a state of emergency to tackle rising food prices and shortages and cushion the effect on consumers. This is supported by further reforms aimed at creating an enabling environment for businesses to thrive.

We are pleased with the robust commercial and financial performance in H1, delivered against this challenging backdrop. As we navigate these macro headwinds, we continue to invest in our business to further improve the quality of our offering, strengthen our commercial operations and focus on expense efficiencies and disciplined capital allocation to support earnings and cash flow generation. To this end, in May, we leased 900MHz and 1800MHz spectrum covering 19 states from NTEL for a 2-year period to enhance coverage and capacity, a significant milestone in the execution of our Ambition 2025 strategy.

Deepening our focus on ESG

We have made significant strides in our journey toward sustainability by firmly integrating ESG principles into our business strategy. To deepen our commitment, we have appointed a General Manager of Sustainability and Shared Value, who will be instrumental in spearheading the implementation of our ESG strategy, ensuring that it aligns with our organizational vision.

As a testament to our commitment to transparency and accountability, we have chosen to adopt the IFRS S1 and S2 standards for sustainability disclosure at an early stage, thereby proactively embracing a higher level of reporting. Our dedication to ESG principles and sustainable practices will not only benefit our organization but also positively impact the broader communities we serve. In H1, we committed over N482 million to our corporate social investment programs, furthering our work to build sustainable societies.

Solid commercial and financial momentum

We continued to expand our mobile subscriber base with the addition of 1.5 million in H1, bringing our subscribers to over 77 million. This was supported by our churn management initiatives and interventions to ramp up gross connections. In Q2, we implemented the minimum age requirement for SIM registration from 16 to 18 years, which impacted the run rate of gross connections and active data subscribers in the quarter.

To support the rising data traffic on our network and expand our base further, we prioritised enhancing the capacity and coverage of our 4G and 5G networks. In H1, our total data traffic

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Unaudited results for the half-year ended 30 June 2023

increased by 45.6%., 4G traffic constituted 82.5% (up by 5.2pp) and 5G constituted 21% on all 5G-colocated clusters.

Within our fintech business, active wallets rose by 1.1 million in H1 to 3.1 million with our total number of registered MoMo PSB wallets now at over 22 million demonstrating the underlying momentum in the ecosystem. Our fintech business remains a key priority for us as we continue to put structures in place to support the execution of our growth strategy and scale the fintech ecosystem in line with our Ambition 2025 strategy. In this regard, we are ramping up commercial activities to stimulate increased engagement and activity. We are expanding our consumer education and awareness initiatives and providing more advanced services across our fintech verticals, to accelerate the growth of active wallets and the merchant ecosystem.

The progress we made driving our commercial operations underpinned the solid growth in service revenue and EBITDA margin in line with our medium-term guidance. Our service revenue rose by 21.6% led by double-digit growth in voice, data and digital services. Our ability to maintain service revenue growth and unlock efficiencies through the disciplined execution of our expense efficiency program led to a 20.6% growth in EBITDA while the EBITDA margin was 53%, down marginally by 0.6pp.

Our margins were impacted by higher energy prices and rising costs, but the impact was moderated by provisions in our tower contracts and the timing of the forex harmonisation. Notwithstanding, we will continue to execute our commercial strategy with a focus on unlocking efficiencies and driving operating leverage to support growth in earnings, cash flow, and returns over the medium term.

At the Annual General Meeting held on 18 April 2023, shareholders approved a scrip dividend option as an alternative form of shareholder return to a cash dividend. The 641,047,053 ordinary shares created have been approved by the Corporate Affairs Commission (CAC) and awaiting final regulatory approval for the shares to be credited to the respective Central Security Clearing System (CSCS) accounts of qualified shareholders. These shares will qualify for the interim dividend, bringing the issued shares of the Company to 20,995,560,103 as approved by the CAC on 8 May 2023.

In line with our dividend policy, the Board of Directors has approved an interim dividend of N5.60 per share to be paid from distributable net income (prior year interim dividend, N5.60). The qualification date is 16 August 2023."

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MTN Nigeria Communications Plc

Unaudited results for the half-year ended 30 June 2023

Impacts of the foreign exchange liberalisation

On 14 June 2023, the Central Bank of Nigeria announced changes in the Nigerian forex operations which required the immediate collapse of all segments of the market into the investor and exporter (I&E) window and reintroduced the 'willing buyer, willing seller' model. This led to an approximately 60% movement in the exchange rate, since the announcement, to N756.24/US$ at the end of June 2023 as the market seeks an equilibrium level.

The liberalisation of the forex regime and removal of the fuel subsidy provide a clear pathway to the return of international capital into our capital markets, and foreign direct investment which will drive economic activity in the medium term, improve the operating environment, and are net positive for our longer-term outlook.

The immediate impact on our results for H1 was the unrealised forex losses included in our net finance charges. There was no material impact on the EBITDA margin due to the nature of our tower contracts which require us to make quarterly payments at the beginning of each quarter. The exchange rate is adjusted based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the quarter for others. As a result, the full impact is expected to kick-in in H2.

The USD component of operating costs is in the lower 40%. Our sensitivity analysis shows that a 10% movement in the exchange rate would have a direct negative impact of approximately 1.3pp on the EBITDA margin, pre any mitigation actions. The impact on finance costs in H2 will depend on variations in the exchange rate during the period.

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