MTN : Transcript of annual results on 25 March 2024

MTN Group

FY 2023 Annual Results Presentation

Date: 25 March 2024

Thato Motlanthe

Good afternoon to everybody. My name is Thato Motlanthe. I look after investor relations for the MTN Group and it's my pleasure to welcome everybody who's come to the Innovation Centre at 14th Avenue, and also to welcome all of the people who have joined on the various platforms that we have, particularly the MTNers across our markets obviously who make the results that we put out quite possible.

I think let me just kick off with the usual housekeeping items that we have. Firstly, you should be seeing on the screen our standard disclaimer and safe harbour statement, and that covers this presentation as well as the event that we have here today. Secondly, if you're in the room, you should be able to latch on to our WiFi, and again the details should appear on the screen now. We'll hold it up for a second or two. And then lastly, for those on our social platforms, you can use the hashtag @MTNAnnuals23, and our X handle is @MTNGroup.

For those who've joined us today, we do have refreshments outside, just in case we forget to remind you at the end. And that's just a little bit of an incentive and to thank you for coming through. But if I turn to our year-end review, I think we've navigated a couple of challenging times over the past couple of years, and I think if challenging was a person, it would look a little bit like 2023.

Now, I won't be a spoiler for Ralph and Tsholo's presentation, but I think given the extreme volatility that we've seen in our external environment, you'll see that the financial performance that we're putting out is actually fairly encouraging. So, having seen the environment, I think the flip side of it is that if resilient was a person, it would probably look something like MTN. And in particular, the many faces across our markets, as I said, who make this possible. And I think they've shown extreme dedication, innovation, and commitment to the cause, and it's a very big reason why we're still standing today.

Of course, the stakeholders have walked the journey with us. It's been a rough ride. We do appreciate you sticking with us. And I think it's also appropriate just to give a shout out to our leaders, some of whom are in the room today, including the board, who have given us a a steady hand of guidance and leadership as we've navigated this tough time.

So, as I mentioned, today's presentation will provide a little bit of colour as to how we've performed. Obviously, there's a lot of complexity, so we thank you for your attention as we go through the performance before we get to the Q&A. And I think if you look at the running order of our presentation, it'll be the usual one that we have. First of all, some highlights and operational strategic review from our Group President and CEO Ralph Mupita. Then, Tsholo Molefe, our Group

CFO, will come up and give us a financial overview. And then Ralph will come back up to give us some thoughts on outlook and priorities.

We'll then open up to Q&A in the room. And those who are on the webcast, please send through your questions, and we'll read them out for you. So we can get into the run of the presentation, and with that, it's my distinct pleasure to welcome to the stage our Group CEO Ralph Mupita.

Ralph Mupita

Thato, thanks very much, and extending my own welcome and thanks for all the shareholders, investors and broader stakeholders who are joining us here in 14th Avenue. For those in 14th Avenue, the room is full. It hasn't been this full, I think, probably since COVID. So, it's good to see stakeholders here. And also thanking all of our broader stakeholders who are joining us on various media platforms. And also, like Thato, I'm wanting to thank the MTNers who always give Tsholo and I the pleasure of presenting the results that we are going to share in the next 45 minutes or so.

I also want to acknowledge that our SENS and financial results came out. It's quite a lot to read. So, I trust that you've managed to get through most of it. But what Tsholo and I will try and take you through are the salient items that give you a sense of how the year was in terms of operational and financial performance, but also importantly to give you our sense of the outlook and how we think we will navigate the outlook that presents itself in 2024.

So, going straight through to the highlights, I want to talk about four main themes. The first one has been the point that Thato has raised, which is really that we navigated a very challenging external environment, principally driven by three factors. The one is that we saw inflation remaining quite elevated in most of our markets, and that found its way into the costs, the operating costs, the interest costs on the debt. Tsholo will cover that in more detail.

Secondly, currency devaluations, most notably in Nigeria, where the naira was around ₦462 odd in May of last year. There was liberalisation of exchange rates in June, and by the year end, if you look at the NAFEM, it was over ₦900. So, the closing rate was almost 97% down on the prior year. So, a significant impact that works its way through the P&L and into the balance sheet and more around that.

With regards to currencies, we had the paucity of foreign currency in some of our main markets, making it very challenging for us to upstream dividends and management fees. And as many of the investors will recollect that we did take script dividend both in Ghana as well as in Nigeria in anticipation of the difficulty of upstreaming cash out of those markets.

The final point is really geopolitical tensions that we see more broadly across the world but particularly in our region in Sudan. Sudan has been in a situation of conflict since April of last year and that impacted us. And the dynamics of that, whether it's in service revenue, in impairments and the group effective tax rate, Tsholo will take us through all of that.

Now, notwithstanding that challenging macro, I think we had a very decent and solid commercial execution of the strategy. When we look at usage growth, we saw very healthy usage growth across our markets, notwithstanding the SIM registrations that we had in key markets such as Ghana and Nigeria. We navigated those through to still deliver pleasing user growth and usage growth. And if you look at the underlying volume of traffic across our markets in the two big drivers of growth going forward, data - excluding the JVs that we have, data traffic growth was about 35% - and the fintech transaction volumes were up about 32%, signalling a very healthy set of demand for the services that we offer to our customers.

The third area was really around financial resilience, and we've done a lot of work on the balance sheet over many years to ensure that the business has financial resilience, first to absorb shock, but also to be able to take advantage of the opportunities that we may see in the market. Last year was a year of absorbing the shock, and we drove the expense efficiency programme that we had set out. We have targeted R7 billion to R8 billion of expense efficiencies, and we're well ahead of our target for last year, delivering R2.6 billion against a target of R1.5 billion that we set for ourselves. And then when you look at leverage and liquidity, all looking in very good shape.

The fourth area is really around strategic priorities, executing on our strategy in line to what we've committed to stakeholders. On the fintech side we concluded two agreements with Mastercard. The commercial agreements and the minority investment definitive terms were concluded at the beginning of this year. On the fibre side, we're beginning to push ahead with the structural separation. We are working on Project East2West with Africa50 and started the carve out of some of our markets starting with Zambia last year, structuring a sale and lease back between Baobab with the Zambia Opco.

And the final point is really around portfolio optimisation. We have now exited Afghanistan. We announced our Middle East exit in 2020 and said that phase one would be focused on exiting the consolidated subsidiaries of Syria, Yemen and Afghanistan. And with the conclusion of the deal with the M1 affiliate, we are now out of phase one and have completed that. So, very good progress and we'll cover some of that in a bit more detail in slides to come.

I won't dwell too much on the financial outcomes because Tsholo will take us through that in a lot of detail but pick up some of the key KPIs. Service revenue growth at 13.5%, broadly in line with our medium-term guidance. Sudan, as I mentioned, had ongoing conflict in the market and that detracted from overall service revenue growth at the group level by 0.6%. So, you could have added that back in and the Group ex-Sudan grew at 14.1%, which would have been within our guidance range.

Data and fintech obviously were growth drivers. You must never forget voice. Voice grew 3.3% and still delivers a healthy contribution to our total earnings. On the earning side, you'll see that EBITDA on a constant currency basis grew quite pleasingly at 9.8%. Let's round it up to 10%. So, a lot of the activity in the P&L happened below EBITDA.

And Tsholo will take you through both the tower lease liability related costs and some of them are non-cash unrealised losses as well as finance cost, that's where there is a lot of the strain in the P&L. But above EBITDA, a very solid performance on growth. And by the time you get to adjusted headline earnings, again, relative to the prior period, notwithstanding the tough macro, we delivered 1203 cents on adjusted headline earnings per share.

I won't cover the balance sheet items which I raised a little bit earlier on, but I think at the Holdco level, pleasing to see that the mix of debt is quite favourable. We're down to 23% of the debt stock at the Holdco level is in USD. We've got a small stub of 2024 bonds and the 2026 bonds to deal with. The rest of the debt is in ZAR. So, that profile of managing our liability and currency mismatches relative to the currencies in which we earn revenue, that has improved substantially. Our target was to be below 40%, and we're down to 23%. And many thanks to the finance team for delivery there.

Then on returns, just focusing on three KPIs. Operating free cash flow before spectrum payments, just under R46 billion. And again, part of the narrative that Tsholo and I want to cover is that there are cash and non-cash items that are through the financials, but when you're looking at operating free cash flow, it's fairly robust given the headwinds that we saw. And the ROE is up at 24.4%. As Tsholo will show, we've seen a very steady improvement on ROE over the last five to six years. And the board declared a final dividend for 2023 that will be payable, distributable in April of this year of 330 cents in line with our minimum guidance that we announced last year of 330. More of that a little bit later.

Moving on to the operational and strategic review and as usual, starting with South Africa. In South Africa, the two main stories in the year under review: firstly, loadshedding and the impacts of loadshedding in the year. We had more loadshedding days last year than the year before, coming

to Thato's point around a challenging macroeconomic environment. But we're very pleased that the SA network team and the SA team more generally has done a great job improving network availability in the year.

We invested R10.1 billion of capex, ex leases, and of that R2.6 billion was spent on network resilience, ensuring that we have back-up power across our sites. And we ended the year ahead of schedule with network availability above 95% in total. And for the sites that we had deployed the investment in, actually we're above 98%. So, a lot of work done to deal with the network and ensuring that we're resilient as we anticipate that we could have more loadshedding that could go all the way up to level six and potentially above.

So, it was the right call to make that network resilience, and we're seeing the benefits of that as we lap last year. The first two months of the year have shown us the encouragement that that investment will yield fruit and returns for our investors.

The second point is really around the consumer under pressure, and in particular, in the prepaid segment. And we've seen sequentially an improvement on the prepaid side exiting Q4, much better than we had started Q3 in terms of in particular voice prepaid and that trend we've seen come through. I think what would have been a detractor in the overall service revenue that MTN SA delivered of 2.5%, and some of the base effects that we've seen, particularly on consumer postpaid side, as well as on wholesale.

You well remember that in 2022, for much of the year, Cell C was under a cash basis of accounting, and in Q4, we went to accrual accounting that brought a lump of revenue into Q4 of 2022, creating a bit of a base effect for the wholesale. But we can cover a bit more of that in Q&A if you want to go there. But as I said, we've seen encouraging exit out of Q4 in terms of the South African business.

If we go to Nigeria, Nigeria has obviously released results already. Karl is in the room today to take some of your more difficult questions around Nigeria. But again, the real issues were the macro. Inflation spiking up into the mid-20s in the year, and then the naira devaluation, which was very sharp, and fed its way, in particular, into the operating costs, particularly network operating costs. We also had to contend with the SIM registration in the year. And the beginning of last year, we were dealing with in Nigeria the naira redesign, there were cash shortages, which affected our ability to ramp up both on the GSM side, as well as on the fintech side.

But we are pleased with the sustained investment that we made into the network. We spent about R12.7 billion of capex investment. We secured some additional 2600 MHz spectrum, which really

helped us to deal with the surge in data usage and actually will help us quite a lot in the year ahead. That 2600 MHz spectrum will enable us with the lower capex envelope, as we look at 2024, to sustain sufficient capacity to deal with the growth that we see.

On MoMo PSB, we did the booster acceleration plan in quarter four, and we saw pleasing results, particularly around the ecosystem build-out as well as ending the year with active wallets at 5.3 million. It's a little bit lower than we had anticipated or would have liked, but notwithstanding all the challenges we faced, particularly also at the end of Q4, having to do a revised registration process in Nigeria. We are encouraged by the momentum that we're starting to see in that business.

Moving on to the Markets business, the other third of the company, again, very pleasing results we're seeing in both the SEA and WECA regions. Data and fintech are sustaining the growth there. You see service revenue growth all in the mid-teens, data revenue growth also kind of mid-20s for both SEA and WECA. Very pleasing growth from markets such as Uganda in the SEA market. They came out with their results pretty recently. Again, sustained growth on both data and fintech. And you see that SEA's contribution of fintech service revenue to total is about 28%, showing what the potential is over the medium term as more of our customers on the GSM side also take on the fintech services.

Also, on the WECA side, Ghana, a very pleasing set of results. Ghana faced a lot of headwinds in the last two years, so it's quite pleasing that Selorm and team have navigated the last two years of headwinds, firstly from the declared SMP with all the restrictions that come with being declared the dominant operator, but also the macro environment that came through in Ghana. But pleasingly, we're starting to see inflation decelerate into the mid-20s, having gone as high as into the early 40s in periods past.

On the MENA side, obviously MENA from a consolidated point of view was basically Afghanistan and Sudan. Thereon, in Sudan, as I mentioned, really challenging operating environment. And actually, the majority of the team is out in Egypt because the conflict doesn't enable our team to be based back in the headquarters at Khartoum. So very, very challenging operating conditions. And Tsholo will take us through the financial conditions there.

And then in our investment in Irancell, you see that the earnings grew at just under 28% and the Snapp business there continues to grow, just shy of five million daily rides in Iran, having been up from 3.7 million in that market.

If I move on to the fintech ecosystem, again, the ecosystem continues to develop and expand very pleasingly. The service revenue growth of just shy of 22% was underpinned by the transaction volume that I mentioned earlier on, but also the transaction value. We're seeing close on to US$272 billion of transactions through the platform, cash-in-cash-out transfers, P2P, but also the advanced services are starting to contribute.

Most pleasing has been the merchant ecosystem development, which has expanded very healthily during the period. Two big partnerships that we secured in the year. The first one was Ericsson, where we extended our partnership to include a focus on our advanced services. Our advanced services in the year actually grew, as Tsholo will talk about, close on to 55%. So, that's payments and e-commerce, banktech, and remittance are coming off relatively low bases but growing exceptionally fast.

So, the contract we've entered into with Ericsson, which came with a bit of capex into last year, so you'll see our capex envelope is slightly more elevated than you would have thought of about R38 billion, it ended up at R41 billion. And that's a once-off capex in recognition of the new contract that we've signed that will enable us to push ahead with advanced services and take a lot of our solutions up in the cloud.

The second one we've spoken about quite a bit, which is the Mastercard relationship. Commercial execution now underway in the SEA region - that's where we're going to start things - but ultimately take it across all our markets, as well as the minority investment that they took at up to US$200 million for a valuation of US$5.2 billion. And, as I'll mention later, we're continuing with our work towards further minority investment into that fintech platform.

If I talk about the portfolio transformation, maybe a few key messages really around localisation and the portfolio transformation. We didn't progress with the localisation, particularly in Nigeria, given the macro, but we continue with work around Ghana, Uganda and Cameroon as we look forward. And as I mentioned, on the exits, we have concluded on Afghanistan. We are engaged on the work for the two Guineas. That has not been concluded. We remain in engagement with Telecel there. And as and when we make progress, we'll update you.

The other area, as I mentioned, our focus is minority investments into our platforms. We've already demonstrated that with fintech. We are actually looking at the other platforms, fibre and even ayoba. We don't talk a lot about ayoba, but ayoba has a very pleasing performance, just under 36 million customers using that platform daily, and many of them in markets we don't have a footprint, like the DRC and in Egypt and in Tanzania. So, we're beginning to start the process of building within our micro channels, the opportunity for monetisation, such as ad revenues. So, with

that as a strategy, we're beginning to explore now a lot more in terms of minority investments into those three platforms.

Coming into the shared value, again, I won't cover all the detail that we have on this chart. Much of this detail is in our SENS that we shared earlier today, but a few big callouts on our decarbonisation journey on Scope 1 and Scope 2. And these are measures that are on the SBTi framework. So, we're down 13.1% when we exclude the SA towers sold to IHS. So, that's very good progress in the period that we've just reported.

Good progress on broadband as well as diversity. And on both, for sure we can always do better, so we're pushing ourselves. But we've also been able to see that the average cost to communicate across many of our markets is down approximately 9%. And in that EVA framework of the value that we have been able to deliver across our markets, a pleasing R159 billion relative to the same period last year.

Before I pass on to Tsholo to take us through the financials, and I'll come back to discuss outlook and priorities, again, we're constantly marking ourselves against the targets that we set ourselves. The one key area that's in the red there is really around SA service revenue. As I said, the main area of detraction there has been around the base effects that we saw, particularly around wholesale, given that we moved Cell C to the accrual base of accounting, as well as the new contract that we signed. And some of those benefits for Cell C would have come through in Q4 of last year.

Most pleasing in SA - where we've had a real challenge for two years plus - this has really been about the consumer prepaid, where we're starting to see improvements, particularly around voice. Quarter four voice deceleration was minus 9% on prior year. In the previous quarter, it was minus 12%. So, we're seeing a steady improvement with regards to that. But Tsholo will take you through more of the financials and I'll be back to cover the outlook as well as our priorities. Thank you.

Tsholo Molefe

Thank you very much, Ralph, and a very good afternoon to everyone joining us for the results today. And I think as Ralph shared with you, we operated in a very tough macro context. So, I'm really encouraged by the financial performance that was resilient under these circumstances. And it really gives me pleasure to present to you the financial performance for the year under review.

So, before I take you through the details of our financials, I think it's important to just highlight some of the significant items that have impacted on our results. Firstly, as we indicated, FX

volatility in the markets, we operated in a very challenging macroeconomic environment. We saw elevated levels of inflation, and this really had a significant impact on our operating costs in particular. But also, the naira devaluation had a significant impact on our finance charges, with FX losses of about R21 billion, which I will share with you later.

And in addition to that, as we experienced high inflation, we had blended average inflation for the group of 16.7%, and this also impacted on our operating costs, including our tower lease expenses as well. We also had to apply hyperinflation accounting to our Ghana results this year. We reported previously as well that MTN Nigeria's results included a restatement of 2022 financial results, and this really reflected 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 a Nigeria perspective, and therefore having an impact on the Group as well as we translate in our reported currency, which is into ZAR.

At a high level, this impact on the Group result was on the 2022 opening balances of retained earnings, which was restated lower by about R2.4 billion, and on the 2022 profit after tax restated by about R407 million. And in terms of 2022 earnings per share, we saw an impact of 17 cents per share. Lastly, we also recorded the asset impairments in particular on Afghanistan of R900 million, which was a remeasurement of non-current assets held for sale. We also saw an impairment on MTN Sudan as well, R700 million, particularly due to the damage to the warehouse with the conflict happening there, but also the hyperinflationary impacts as well. So, these items have obviously had an impact on our expenses, our EBITDA, as well as headline earnings per share.

So, if I can move on to the details of our results, we're starting with the salient points on our group income statement. You'll notice that we delivered a service revenue growth in constant currency at 13.5%, which was in line with our medium-term guidance. It is important to note, however, that we were able to deliver service revenue growth if we exclude the impact of Sudan at 14%. EBITDA before once off items increased by almost 10% in constant currency and this was really driven by a solid top line across most of our markets. However, we saw high opex growth, as I indicated, really putting pressure on our EBITDA margins, with margin dilution of about 1.2 percentage points to 41.5% in constant currency. I think Ralph mentioned it from a reported perspective, EBITDA margin at 40.9%.

On reported currency basis, you'll see depreciation also increasing by almost 20% with the effects of hyperinflation from Ghana. But also, the growth was really due to capex additions, including accelerated 4G site rollout in Nigeria, spectrum acquisitions during the year, as well as the depreciation of SA towers' right of use assets, which were not depreciated last year as they were held for sale.