MTN NIGERIA COMMUNICATIONS : MTN NIGERIA EARNINGS RELEASE FY 2023

Sensitivity: Public

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

MTN NIGERIA RELEASES AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023

Lagos | Nigeria: 29 February 2024

MTN Nigeria Communications Plc (MTN Nigeria) announces its audited results for the year ended 31 December 2023.

Salient points:

• Total subscribers increased by 5.3% to 79.7 million
• Active data users increased by 12.7% to 44.6 million
• Active mobile money (MoMo PSB) wallets increased by 163.2% to 5.3 million
• Service revenue increased by 22.4% to N2.5 trillion
• Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 12.3% to N1.2 trillion
• EBITDA margin decreased by 4.5 percentage points (pp) to 48.7%
• Loss after tax was N137.0 billion due to net forex loss
• Profit after tax (PAT) adjusted for the net forex loss decreased by 14.3% to N344.5 billion
• Earnings per share (EPS) declined to negative N6.38 kobo (N16.56 kobo adjusted for the net forex loss, down 14.1%)
• Net loss for the year has resulted in a depletion of our retained earnings and shareholders' fund to negative N208.0 billion and N40.8 billion, respectively
• Capital expenditure (capex) increased by 13.2% to N571.0 billion (up 24.5% to N449.3 billion, ex-leases)
• Free cash flow increased by 11.6% to N631.6 billion
• Medium-termguidance and outlook: In light of the ongoing volatility in key macroeconomic variables, particularly the naira exchange rate, we have suspended our medium-term guidance for EBITDA margins. We, however, remain committed to accelerating service revenue growth. We continue to see compelling growth opportunities in the market and remain focused on executing on initiatives that will restore earnings and cashflow growth over the medium term.
• Final dividend: In light of the negative retained earnings, the board did not recommend a final dividend for FY 2023.

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

MTN Nigeria CEO Karl Toriola comments:

Navigating a challenging operating environment

"2023 witnessed a very challenging operating environment characterised by rising inflation, currency devaluation and foreign exchange shortages, complicated by geopolitical disruptions and cash shortages in Q1 arising from a redesign of the naira. These factors created severe

1 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

headwinds for our customers and our business during the year. The inflation rate increased throughout the year, reaching 28.9% in December 2023 - the highest reading in 18 years - with an average rate of 24.5%. This was further exacerbated by higher fuel prices, arising from the removal of the fuel subsidy in May 2023, with the average prices of diesel and petrol up by 66.4% and 257.1% in 2023 to N1,416.8/litre and N600/litre, respectively.

In June 2023, the Central Bank of Nigeria (CBN) adopted a more liberal foreign exchange management system and reintroduced the 'willing buyer, willing seller' model. This has resulted in a 96.7% unfavourable movement in the exchange rate against the US dollar from N461.1/US$ in December 2022 to N907.1/US$ (Nigerian Autonomous Foreign Exchange Market (NAFEM) rate) in December 2023. This development contributed meaningfully to the upward pressure on the cost of doing business in Nigeria, and for MTN Nigeria in particular, significantly increased the costs in relation to our tower leases.

In December 2023, we released an announcement relating to an industry-wide directive issued by the Nigerian Communications Commission (NCC) to operators in the country. This directed operators to implement full network barring on all subscriber lines for which subscribers have not submitted their National Identity Numbers (NINs) and those whose NINs are unverified.

To mitigate the effects of these headwinds on our operations, we continued to invest in our network infrastructure - with a disciplined focus on value-based capital allocation and efficiencies - to enhance capacity and expand coverage. This enabled us to meet the rising demand for data and, coupled with compelling and competitive propositions for our customers, accelerate the growth of our commercial operations.

Creating shared value in our communities

Notwithstanding the elevated volatility in our operating environment in 2023, we maintained our pledge to create shared value in Nigeria, which is a key priority of our Ambition 2025 strategy. From an environmental perspective, we progressed our commitment and work towards achieving net-zero emissions by 2040 through the utilisation of the most up-to-date and efficient technologies. We also formed service partnerships to increase energy and cost efficiencies, as well as to lower carbon emissions. We reduced our cumulative scope 1 and 2 emissions by 21% in 2023 compared to the baseline value determined in 2021.

In building sustainable societies, we expanded internet access to Nigerians by increasing our broadband coverage by 1.9pp to 89.8% as at December 2023. Female representation in our workforce increased to 38.3% by December 2023 (December 2022: 35.6%), marking pleasing progress towards our 2030 goal of 50%. Additionally, we committed N1.7 billion to our corporate social investment programmes through the MTN Nigeria Foundation, which is focused on youth development and national priority projects. As part of our commitment to supporting national priority projects, MTN Nigeria Foundation signed a memorandum of agreement and collaboration with the Private Sector Health Alliance to boost healthcare at the grassroots level through revitalising 52 primary healthcare centres nationwide.

2 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

We achieved a significant milestone with the commencement of the rehabilitation of the 110- kilometre Enugu-Onitsha Expressway under the Road Infrastructure Tax Credit (RITC) scheme. We are pleased with the progress, having reached 17% completion. This is a crucial step towards improving the transportation infrastructure in the region, and it helped to improve the ease of commuting, particularly during the festive season. More broadly, we believe the project will have a transformative impact on the lives of Nigerians and the country's economy once completed. The tax credit arising from this investment will enable us to offset future tax liabilities.

As part of our five-year deal to support the Nigerian Football Federation as the official communications partner, we actively supported the Super Eagles' participation in the 2023 African Cup of Nations competition.

To demonstrate our unwavering commitment to transparency and accountability, we have resolved to be early adopters of the IFRS S1 and S2 standards for sustainability disclosure, which will be incorporated into our 2023 sustainability report. We are excited to lead the way in adopting higher levels of reporting and setting an example for other corporates to follow.

Sustaining our solid commercial momentum

We maintained strong commercial momentum in our connectivity business and platforms, supported by the growth in the user base. We added over 4 million subscribers in 2023, bringing our total base to 79.7 million. We also increased our data subscribers by over 5 million to

44.6 million, which helped to drive total data traffic growth of 44.9%. This reflected the sustained growth in demand for data, supported by our compelling propositions to customers and the consistent investment in the quality and coverage of our network. The additional 2600MHz spectrum we acquired in September 2023 also helped us to deploy additional capacity to our network more efficiently.

The priority in our fintech business was to build robust structures that support the acceleration of wallet adoption and the growth of our merchant ecosystem. This has positioned us to capture significant opportunities in our market and deepen financial inclusion in Nigeria. 2023 presented some challenges to the business, including delays in CBN approvals for some of our commercial initiatives as well as the inability of many prospective customers to meet the NIN requirement for Know Your Customer (KYC). While the development of the business has been slower than anticipated, we are pleased with the progress in building our MoMo PSB wallet base, increasing monthly active users by over 3.3 million in the year to 5.3 million. Our agent network expanded by 103k to 327k, and our active merchant ecosystem, which started in March 2023, reached over 324k merchants by December 2023.

Near-term pressures on earnings

Our solid commercial development enabled us to deliver service revenue growth in line with our previous guidance of 'at least 20%', with topline up by 22.7% in 2023. Pleasingly, this was driven by improvements across all our key revenue lines and supported by bundle optimisation initiatives. Service revenue growth accelerated in Q4 to 25.0% YoY, with data leading the way.

3 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

EBITDA, however, came under severe pressure and recorded slower growth of 12.3%. This was primarily due to the effects of the naira devaluation in the year, exacerbated by higher energy costs and general inflation. EBITDA was also affected by the introduction of VAT on leases (in Q4), as well as a provision relating to the Tax Appeal Tribunal (TAT) decision on the FIRS VAT assessment (also taken in Q4). As a result, EBITDA margin declined by 4.5pp to 48.7%, aligned with the upper end of our guidance range of 47-49%. Adjusting for the naira devaluation effects and the once-off provision for the FIRS VAT assessment, the EBITDA margin would have been 53.5%. The impact of these pressures was moderated by an increased focus on efficiency measures put in place by management.

As required by IAS 1 (Presentation of Financial Statements) and IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), we reflected the impact of unrealised forex losses on our tower lease contract liabilities, in line with IAS 21 (Effect of Changes in Foreign Exchange Rates) and IFRS 16 (Leases). Refer to note 56 of our audited financial statements for full details. This resulted in a reduction of N73.1 billion in retained earnings at the end of December 2022.

The significant devaluation of the naira in 2023 resulted in a materially higher net forex loss of N740.4 billion (2022 restated: N81.8 billion), reflected within net finance costs, which resulted in a reported loss after tax of N137.0 billion compared to a restated PAT of N348.7 billion in 2022. This has resulted in negative retained earnings and shareholders' equity at the end of December 2023 of N208.0 billion and N40.8 billion, respectively. Adjusting for the net forex loss, PAT would have been N344.5 billion (down by 14.3%).

Notwithstanding these movements, we are pleased to have maintained strong free cash flow generation (up 11.6% YoY to N631.6 billion), demonstrating the underlying strength of our business.

Outlook, medium-term guidance and final dividend

We anticipate a challenging 2024 as we tackle the complexity and ongoing effects of high inflation and elevated forex volatility on our operations. Given the material uncertainty these present in the near term, we have suspended our medium-term guidance for EBITDA margins. We maintain the medium-term guidance for service revenue. In light of the negative retained earnings at the end of 2023, the Board of Directors has resolved not to declare a final dividend for 2023.

Looking forward, we remain focused on sustaining our commercial momentum and accelerating our service revenue growth, improving the profitability of the business and strengthening the balance sheet. Since December 2023, we have progressed constructive discussions with IHS on changes to the existing tower lease contracts that could, if successful, result in improvements that help us mitigate macro risks, including currency. As we execute our strategy, we will continue to invest in the business and unlock efficiencies to drive operating leverage with a focus on reestablishing earnings growth as well as sustaining our strong free cash flow generation and returns."

4 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

Impacts of naira devaluation and restatement of results

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 to improve forex liquidity. This led to a 96.7% movement in the exchange rate since the announcement to N907/US$ (NAFEM rate) at the end of December 2023 as the market seeks an equilibrium level. The significant movement in the exchange rate impacted our operations - mainly our operating expenses and net finance costs.

MTN Nigeria's operations are exposed to foreign currency volatility on its operating and capital expenditure. The most significant of these exposures relates to the tower lease costs, which comprised the bulk of the 45-50% foreign currency exposure in our operating expenses in 2023. The majority of the lease costs are indexed to the US dollar but are invoiced and paid in naira. Our tower lease costs are recognised in line with IFRS 16 and IAS 21, which has had several impacts on our financial performance.

The nature of payment for tower contracts requires quarterly payments at the beginning of each quarter using the applicable exchange rate based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the same preceding quarter for others. The impact of the devaluation on operating expenses arose mainly from N79.8 billion and N8.8 billion increases in lease rental costs and information technology-related costs, respectively. This resulted in a reduction of the EBITDA margin by 3.6pp.

Historically, only realised exchange differences on US dollar-indexed leases were accounted for and included in the "net finance costs" line in the income statement. After the significant devaluation of the naira in June 2023, a review of the relevant lease agreements concluded that the US dollar-indexed portion of the lease liability should be remeasured to the N/US$ spot exchange rate at the end of each reporting period, in line with IAS 21 and IFRS 16 (refer to note 56 of our audited financial statements).

Consequently, on the revised treatment, 2022 net forex losses in "net finance costs" were restated higher by N25.6 billion to N81.8 billion, reducing 2022 PAT from N358.9 billion to N348.7 billion. The restatement resulted in a cumulative reduction of N73.1 billion in retained earnings at the end of December 2022.

In FY 2023, we recorded a forex gain of N93.8 billion (58.3% unrealised) from the revaluation of our financial assets and a forex loss of N834.3 billion (82.8% unrealised) from the revaluation of our financial liabilities. These led to the reported net foreign exchange loss of N740.4 billion in 2023, bringing our "net finance costs" to N951.5 billion, up 341.9%. This resulted in the reported loss after tax of N137.0 billion and a depletion of our retained earnings and shareholders' funds to negative N208.0 billion and N40.8 billion, respectively. Excluding the net forex loss, "net finance costs" increased by 58.1% to N211.1 billion due to higher borrowings costs and interest rates.

5 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

Given the non-cash nature of most of these effects, our free cash flow generation remains robust at N631.6 billion (up 11.6%).

Key financial highlights

Items (in millions)			FY 2023	FY 2022	YoY
		(Restated)
Total Revenue			2,468,847	2,012,272	22.7%
Service Revenue			2,454,745	2,006,184	22.4%
Voice			1,136,953	1,036,684	9.7%
Data			1,069,468	764,821	39.8%
Fintech			86,426	84,396	2.4%
Digital			37,455	22,047	69.9%
Other Service Revenue			124,443	98,236	26.7%

Q4 2023	Q4 2022	YoY
(Restated)
695,898	556,137	25.1%
691,887	553,492	25.0%
302,951	282,909	7.1%
319,943	215,165	48.7%
21,736	23,158	-6.1%
12,740	6,141	107.5%
34,516	26,120	32.1%

Expenses	1,266,318	941,907	34.4%	401,297	266,337	50.7%
Cost of Sales		406,001	341,607	18.9%		116,433	93,373	24.7%
Operating Expenses		860,317	600,300	43.3%	284,864	172,964	64.7%
EBITDA		1,202,530	1,070,365	12.3%		294,601	289,799	1.7%
EBITDA Margin		48.7%	53.2%	-4.5pp	42.3%	52.1%	-9.8pp
Depreciation & Amortisation		428,869	336,202	27.6%		129,366	93,316	38.6%
Net Finance Costs		951,546	215,341	341.9%	575,588	78,335	634.8%
Finance Income		25,815	13,768	87.5%		4,694	5,554	-15.5%
Finance Costs		(236,927)	(147,287)	60.9%	(72,681)	(29,933)	142.8%
Net foreign exchange loss		(740,434)	(81,822)	804.9%		(507,602)	(53,956)	840.8%
PBT	(177,885)	518,822	-134.3%	(410,353)	118,148	-447.3%
Taxation		(40,865)	170,096	-124.0%		(125,970)	38,462	-427.5%
PAT	(137,020)	348,726	-139.3%	(284,383)	79,688	-456.9%
Profit attributable to:
Owners of the company	(133,840)	351,381	-138.1%	(281,931)	81,043	-447.9%
Non-controlling interest		(3,180)	(2,655)	19.8%		(2,453)	(1,355)	81.0%
PAT	(137,020)	348,726	-139.3%	(284,383)	79,688	-456.9%
Capital Expenditure		570,971	504,332	13.2%		165,970	125,330	32.4%
Capital Expenditure excluding Right of Use Assets	449,328	361,033	24.5%	147,951	109,251	35.4%
Capex Intensity		23.1%	25.1%	-2.0pp		23.8%	22.5%	1.3pp
Capex Intensity excluding Right of Use Assets	18.2%	17.9%	0.3pp	21.3%	19.6%	1.6pp
Free Cash Flows		631,558	566,033	11.6%		128,632	164,469	-21.8%
Mobile Subscribers		79.7	75.6	5.3%		79.7	75.6	5.3%
Data Subscribers	44.6	39.5	12.7%	44.6	39.5	12.7%
Fintech Subscribers		14.5	14.9	-2.7%		14.5	14.9	-2.7%
Ayoba Subscribers	8.6	5.2	65.6%		8.6	5.2	65.6%

Operational and financial review

The demand for our services has remained resilient despite the overall challenging operating conditions. Service revenue was up by 22.4%, in line with our medium-term growth guidance, with pleasing growth acceleration in Q4 (up 25.0%). Data was the main driver, with voice growth remaining solid. Our mobile subscribers increased by 5.3% to 79.7 million, underpinned by increased gross connections and churn management initiatives.

Our Voice revenue increased by 9.7%, benefitting from the mobile subscriber base growth and increased usage on the back of our customer value management initiatives and revamped voice propositions. However, growth in Q4 was 7.1% from a high base in the prior year.

6 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

We recorded pleasing growth of 39.8% (up 48.7% in Q4) in data revenue supported by a revamp of our data bundle offerings - particularly in Q4 - as well as the significant investment in our network coverage and capacity. Our 4G network now covers 81.5% of the population, up from 79.1% in December 2022, and 5G at 11.3%. On the back of these initiatives, smartphone penetration rose to 55.6% (up 3.1pp YoY), underpinning data usage (GB per user) growth of 29.1% to 8.6GB. As a result, we recorded a 44.9% growth in data traffic, with the 4G network accounting for 81.8% of the total traffic (up 0.6pp YoY) and 5G at 5.2%.

We expanded home broadband penetration to support the growing use cases for digital adoption, leveraging our 5G fixed wireless access devices, mobile broadband solutions, and fibre-to-the-home connectivity. We added over 800k subscribers in 2023, bringing our home broadband subscribers to over 2 million. Our infrastructural strength, technology mix and partnerships position us to capture a significant share of market opportunities.

Fintech revenue increased by 2.4%, led by Xtratime (our airtime lending product), which rose by 2%. However, despite the challenges from the NIN requirement for KYC introduced in Q4 by the CBN, we added 3.3 million active wallets in the year to 5.3 million. This helped to drive MoMo PSB revenue, which rose by 8.1%.

The growing adoption and increased activity within our fintech ecosystem spurred transaction volume growth of 49.2% YoY. We also now have over 326k MoMo agents, up 46.0% YoY, and over 324k merchants since we started to build out our merchant ecosystem in March 2023. While the overall development of fintech has been slower than anticipated, these milestones mark solid and important progress in scaling our business, particularly the advanced services within our MoMo ecosystem.

Our digital business has continued to gain traction on the optimisation of our digital service offers and improved customer journey and partnerships. These underpinned the growth in the active user base of our digital services, with rich media subscriptions excluding ayoba up by 57.2% to approximately 8 million. Our instant messaging platform, ayoba, recorded a 65.6% growth to 8.6 million active monthly users. We continue to drive the onboarding of new partners within our digital ecosystem and expand the bouquet of service offerings to sustain the growth of the business. Overall, service revenue from digital services was up by 69.9%.

Service revenue from the enterprise business rose by 44.2% due to increased uptake of our services as we addressed the communication and ICT needs of businesses and public sector institutions. Mobile and fixed connectivity services were the main revenue drivers, driven by the onboarding of new customers across all customer segments and increased usage, with expanded offerings in new verticals. We are taking the lead by extending our play into non-core services, such as Cloud, Unified Communications, and IoT applications, leveraging our growing

7 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

5G footprint and positioning us to capture future opportunities. In addition, we are actively engaging the regulators to resolve the USSD dispute with banks.

Our disciplined capital allocation and strong operational execution have helped us to maintain revenue growth momentum, cushioning the effects of rising cost pressures. The combined effects of naira devaluation, higher general inflation and energy costs, and the introduction of the 2023 Finance Act VAT on tower leases resulted in higher operating expenses (opex). This was exacerbated by the N30.2 billion additional provision FIRS VAT assessment, leading to a 52.4% increase in opex. Excluding these effects, opex increased by 13.1%, below the average inflation rate and a testament to the work done to drive expense efficiencies. Although constrained by macro headwinds, our expense efficiency programme delivered N11.5 billion in cost savings in 2023.

Consequently, EBITDA grew by 12.3% with a 4.5pp decline in EBITDA margin to 48.7% (Q4 2023: 42.3%). Adjusting for the effects of naira devaluation (3.6pp) and the provision for FIRS VAT assessment (1.2pp), the EBITDA margin for FY 2023 would have been 53.5% (Q4 2023: 54.1%). Also affecting the performance were the VAT on the tower leases (0.7pp) as well as the impacts of higher CPI and energy costs, which reduced underlying EBITDA margin by 1.7pp and 0.5pp, respectively.

Depreciation and amortisation increased by 27.6%, mainly due to increased site rollout and the spectrum licences we acquired. We rolled out 9,589 4G sites and 1,945 5G sites that cover all the states in the country and acquired an additional 2600MHz spectrum, supporting the growth of data.

Net finance costs increased by 341.9% to N951.5 billion due to increased borrowings, higher interest rates and a significant devaluation of the naira from N461/$ in December 2022 to N907.1/US$ in December 2023. This was a result of the liberalisation of the forex market in June 2023. Consequently, forex loss was N740 billion (FY 2022: N81.8 billion), while finance costs were up by 60.9% to N236.9 billion. The underlying net finance cost, excluding the forex loss, increased by 58.1% to N211.1 billion.

The effective tax rate decreased by 9.8pp to 23.0%, driven mainly by the reported loss before tax and the derecognition of deferred tax assets from Y'ello Digital Financial Services (YDFS). Overall, we recorded a loss after tax of N137.0 billion.

Adjusting for the net forex loss, PAT would have been N344.5 billion (down by 14.3%). Further adjusting for the impact of naira devaluation in opex and the once-off provision for the FIRS VAT assessment, PAT would have been up by 3.8% to N421.9 billion.

Capex increased by 13.2% to N571.0 billion, reflecting the impact of the currency devaluation. Our core capex, ex-leases, rose by 24.5% to N449.3 billion, with a capex intensity of 18.2%, in line

8 | P a g e

MTN Nigeria Communications Plc

Audited results for the year ended 31 December 2023

with our target level. The increase in capex also reflects our continued investment in the resilience of our network. In addition, we generated strong free cash flow, which grew by 11.6% to N631.6 billion.

Our debt metrics remain within all our financial covenants, with a net debt-to-EBITDA ratio of

0.7 times and a cash balance of N299.2 billion. Approximately 48% of our debts have fixed interest rates, while 52% are floating. These debts are 55% local currency denominated and 45% foreign currency, including short-term trade loans for letters of credit establishment. Overall, our balance sheet remains strong with sufficient headroom to withstand macro volatility, supported by our value-based capital allocation strategy.

Update on regulatory and other matters

NCC's directive on NIN-SIM registration

In December 2023, the NCC issued an industry-wide directive requiring full barring of subscriber lines not linked to their NIN. Since the directive, we have approximately 19 million lines going through the verification process, of which 4.3 million have been verified as at 28 February 2024. We also had approximately 4.2 million lines disconnected for which the subscribers did not submit their NIN. Several of these lines were low-value subscribers, minimising the revenue impact. We are actively engaging the authorities to accelerate the NIN verification process. We have also increased our engagement with the affected customers, providing various channels for verification to minimise service disruption.

Allocation of managed network sites to ATC

We have reallocated the leases for tower services of approximately 2.5k network sites due to expire in 2024 and 2025, for which IHS Nigeria Limited (IHS) currently provides tower services. ATC Nigeria Wireless Infrastructure Solutions Limited (ATC) will provide tower services for those sites at the expiration of the IHS contract. This is part of our proactive initiatives to improve network cost efficiency. Also, it will further diversify our site portfolio and align with renegotiating tower agreements, ensuring terms that will help cushion the business from the volatility in our trading environment.

A legal action instituted at the Federal High Court in Lagos by the Human and Environmental Development Agency (HEDA) in November 2023 resulted in an interim injunction, on environmental grounds, to prevent ATC from erecting or installing any mast near sites belonging to IHS. It further restrains MTN Nigeria from using such a mast if it is already built. MTN has challenged the injunction, and the case has been adjourned to a later date to be advised by the court. We are optimistic that the matter will be speedily resolved, and the sites will be transitioned smoothly in a way that minimises service disruptions.

Tax tribunal ruling on VAT assessment

In 2018, the Attorney General of the Federation and Minister of Justice (AGF) demanded approximately US$2 billion in tax arrears from the Company. In 2020, the AGF withdrew its demand against the Company and referred the matter to FIRS for resolution. After a series of

9 | P a g e