MTN (Ghana) – Q3 2021 results conference call transcript

Operator

Good day ladies and gentlemen, and welcome to the MTN Ghana’s 2021 Q3 results conference call. All attendees will be in listen-only mode. There will be an opportunity to ask questions when prompted. If you should need assistance during the call, please signal an operator by pressing * and then 0. Please note that this event is being recorded. I would now like to hand the conference over to Mr Jeremiah Opoku. Please go ahead, sir.

Jeremiah Opoku

Thanks, Judith, and good afternoon everyone, and thank you for joining us today to discuss MTN Ghana’s Q3 performance for the period ended 30 September 2021. I’m Jeremiah Opoku, Investor Relations Manager for MTN Ghana. With me on the call today are Selorm Adadevoh, CEO of MTN Ghana, Antoinette Kwofie, our new CFO who joined MTN on 1st October, Eli Hini, CEO of Mobile Money Ltd, Kobi Bentsi-Enchill, our General Manager of MTN Ghana Finance, and Thato Motlanthe, Group Executive for Investor Relations. Selorm will share an overview of our performance for the third quarter and outlook for the rest of the year before we move on to the Q&A session which will be facilitated by the conference call operator. The call is scheduled for an hour, and if there are any more questions, we may allow five minutes extra time. I will now hand over the call to Selorm. Thank you.

Selorm Adadevoh

Thank you, Jeremiah, and good afternoon everyone and thank you for making the time to join us on this call today. On the call we’ll discuss our third quarter performance and I’ll also touch briefly on our expectations for the rest of the year before we move on to Q&A. In Q3 2021 we maintained momentum from our half year performance underpinned by our diligent execution on Ambition 2025, investment in network and IT systems, and ensuring our people remain a priority in light of the continued effects of the COVID-10 pandemic.

As of 26 October 2021, the official Ghana statistics on COVID-19 showed a rise in the total infections and deaths to 103,000 and 823 respectively. MTN Ghana continues to extend support to cherished customers through our Y’ello Hope initiatives including the zero rating of all mobile money P2P transfers up to a value of ₵100 a day. And we are also running the One More Push campaign to encourage everyone to wear a mask and get vaccinated. We at MTN continue to adhere strictly to all COVID-19 protocols with the aim of safeguarding the health and safety of our people and of our customers. And we also remain committed to Ghanaians and the environment in support of the continuing fight against COVID-19.

Turning to our operational performance for the period, we recorded a 25.4% year on year growth in service revenue driven mainly by data and mobile money. We continue to deliver on our infrastructure modernisation plan and implemented capex related infrastructure projects to expand 4G capacity, 4G coverage and to improve the quality of service for our customers. Over the period we invested a total capex of approximately ₵1.060 billion which includes the rollout of 959 4G sites, the modernisation of 1,543 existing 4G sites, and this helped expand our 4G population coverage by 4.7% to 84.7%. We grew our active subscriber base by 0.4 million quarter on quarter to 25.2 million. This reversed the decline in the last quarter that we experienced. This was supported by our network investment, digital offerings and an improvement in quality of service overall.

Looking at the various business segments, we recorded a 51.9% year on year growth in data driven by increases in our active data subscribers and total data consumed within the period. The contribution of data to service revenue expanded from 29% to 35.1%.

Voice revenue recorded a single digit growth of 2% year on year. This growth in voice continues to be impacted by shifts in customer behaviour towards data and implementation of SMP directives. The contribution of voice to service revenue declined from 42.5% to 34.6% year on year. We expect the trend in the voice segment to continue as a result of continued growth in smartphone penetration and the preference for data services by consumers. However, we expect data growth to compensate for the slower growth in voice.

Mobile money revenue increased by 45.3% year on year supported by increased active users, higher P2P transactional activity and growth in advanced services such as retail, merchant payments, micro loans, insurance and international remittances. The contribution of mobile money to service revenue increased from 19.6% to 22.8% year on year.

We recorded a 23.8% year on year decline in digital revenue which was a result of the continued impact from the application of the principal versus agent account standard across the group in 2020. On a normalised basis digital revenue increased by 14.4% year on year supported by growth in our active digital subscribers.

Reported EBITDA increased by 27.5% year on year with a margin expansion of 1.1pp to 54.4%. This was supported by our continued focus and execution of our expense efficiency programme. Profit after tax growth for the period was 34.0% year on year. As announced last quarter, we paid the interim dividend of 0.03 Ghana Cedi per share, in total an amount of ₵369 million. This payment happened on 14th September 2021.

Looking at the regulatory landscape, the National Communications Authority, the NCA, through the telecom operators is embarking on a six-month nationwide SIM re-registration exercise using the Ghana national ID card as the sole card for this purpose. This exercise will run from October 1st, 2021 to 31st March 2022. MTN has begun this exercise and remains committed to support the government to register all existing and new subscribers on our network.

As announced in the previous quarter release, MTN Ghana implemented the directive from the NCA on phase one of the on-net off-net price differential removal and default tariffs for voice, data and SMS from 1st August 2021. Phase two is scheduled to be implemented on November 1st, 2021 to extend beyond the default tariffs to cover promotional offers and special offers. Including the above remedy, we have implemented all three of the seven SMP remedies defined to date by the regulator. We will update the market on the implementation of the remaining four directives as discussions with the NCA progresses.

Now turning to our outlook. We expect to maintain the business momentum through the last quarter of the year. We will continue to expand 4G coverage and improve our network to further enhance subscriber growth and customer experience. In addition, we will progress the execution of the expense efficiency programme and our prudent approach to managing cost to deliver on our commitment of margin expansion.

We will continue to support our employees, our customers and communities as we deliver against our Ambition 2025 focus areas for the year in order to capture long-term growth opportunities and create sustainable value for all our stakeholders. I will now hand over to the conference call operators for questions and answers, and I look forward to interacting with you over the next one hour. Thank you very much.

Operator

Thank you very much, sir. Ladies and gentlemen, at this time if you’d like to ask a question you’re welcome to press * and then 1 on your touchtone phone or the keypad on your screen. If you decide to withdraw your question, you are welcome to press * then 2 to exit the question queue. Just a reminder, if you would like to ask a question you are welcome to press * and then 1. The first question comes from Jonathan Kennedy-Good of JP Morgan.

Jonathan Kennedy-Good

Good afternoon and thanks for the opportunity to ask questions. The first one is on selling, distribution and marketing expenses. I just wanted to check. It looked like there was 24% or 25% growth in that fairly large Opex line. I’m just trying to understand whether there were any once-offs there or it was due mainly to the pandemic base of last year and trying to get a handle on what we should expect growth to be like in that expense line going forward. And then on the implementation of phase two of the regulation on on-net off-net pricing, how do you expect that to impact voice revenue? Would it be substantial pressure on the voice line, or could growth be maintained?

Selorm Adadevoh

Okay. Thank you for your questions. Let me start off with the first one which is the distribution and marketing expense line. This is abnormal for this year. This year is our 25th anniversary, and as part of our 25th anniversary we’ve had various programmes which have shifted our expenditure against patterns. So that spike you see or that abnormal you see in Q3 is as a result of the 25th anniversary. This should normalise, so no major concerns there.

In terms of phase two of the SMP on-net off-net, I believe the last time we spoke I shared our estimate at the time to be about 1% impact on total revenue. The current implementation we’re undergoing may increase that number slightly, maybe somewhere around 1.2% to 1.5% in terms of the total SMP impact on that. But until we’ve implemented it and seen what the trends are, it’s a bit difficult to be very specific. We are here assuming things around how customers will react in terms of elasticity and all of that. But I’m fairly confident we should land somewhere in that range for the SMP on-net off-net as far as the expectations are.

Jonathan Kennedy-Good

Great. Thank you.

Operator

Jonathan, does that conclude your questions?

Jonathan Kennedy-Good

Yes, it does. Thank you.

Operator

Thank you very much. The next question comes from Preshendran Odayar of Nedbank.

Preshendran Odayar

Good afternoon everyone. Congratulations on your results and thank you for the opportunity to ask some questions. Sorry, I’ve got four. I hope they’re not too long. The first one is around the new SIM registration procedures. Would that pose any challenges to meet the March 2022 deadline? And are there any subscribers at risk that you guys know about? And linked to that, what would the revenue impact be if those subscribers had to be disconnected?

Secondly, I noticed you reiterated your timeline to have the localisation of 25% of the telco and 30% of the mobile money business by the end of the year. Can you just give us an update on your progress to date? I think the last time we spoke there was an employee share scheme that helped on the localisation of the sell down. I think there was only about 8% or 10% that still needed to be done for the telco. So just an update on that. And, what progress you’ve made on the MoMo localisation would be much appreciated.

The last two. I noticed you are still also zero rating your P2P transfers under ₵100. What is the revenue impact of this? The last time we spoke, which was at interim, it was roughly around ₵6 million per month. So how has that transpired with the increase in mobile subs? And the last one is I don’t know if you can tell us how much of your 45% increase in MoMo revenue would be attributable from integrating MoMo into the MTN Ayoba during the period. I know there was some integration in there. That seemed quite positive. Is there anything that could be attributable from that integration in your MoMo revenue? Thanks very much.

Selorm Adadevoh

If you can just repeat that last question, it wasn’t too clear.

Preshendran Odayar

Sure. I believe you integrated MoMo into the MTN Ayoba platform during the period. So how much of your 45% increase in MoMo revenue could you, if possible, attribute to that integration?

Selorm Adadevoh

Okay. Got you. All right, let me start with that one. To be honest Ayoba is still quite young and we’ve seen quite some interesting behaviours. But at this point I think any revenue attribution would be a little premature. So that amount is quite low, so we can ignore that for purposes of materiality at this point. The whole essence is to build a behaviour, and at some point we will see a lot more significance around that behaviour.

The second question let me start from the top in terms of SIM registration. The second question was on SIM registration and whether there is risk on the March 2022 deadline. Absolutely there is risk. This is a major undertaking. And as you can imagine, once this starts there are a number of key things we must bear in mind. For starters, the national ID database currently has somewhere between 15 million and 16 million registered customers. It’s unclear to us how many of those are within each network. But there are plans underway to expand the scope and the registration points to increase those numbers to closer to 20 million. Maybe somewhere between 18 and 20 million will be the expected number by the end of March.

The second element here is our rate of registration and re-registration. There are still some teething issues we are dealing with around how to validate integrations with the national ID authority. We believe all of these will be taken into consideration on the timeline. But at this point our primary objective is for the base of NIA, which is national ID card registered subscribers, to maximise the registration of our customers within that base as quickly as possible.

We have declared a few stations that will be doing registrations in areas where we don’t have stores and operational centres, because it would take too long to travel to us. So, these are some of the plans we are putting in place. These will happen nationwide starting from November. We are also investing a little bit more in devices so that we can have as many agents put on the ground who can go around registering customers and doing the validation real-time as well. There are a number of things we are putting in place to be able to do that. We’ve already developed some technical solutions as well that will facilitate the faster registration.

There is a lot of work that is going on. But there is absolutely risk. It will be a bit difficult to give numbers at this point because the exercise just started. But so far there have been some challenges with the integrations, not just for MTN. This is an industry thing. I’m quite sure once those are resolved we’ll have a better sense of the rate of registration and what the real risk means. But so far, we are definitely ahead in terms of our market share registrations. We will continue to put the focus that side to minimise the risk at the back end.

On the second question on localisation and where we are with that, in terms of Scancom localisation – which is up to 25% – I believe the last time we said we were at 17.5%. That percentage hasn’t changed. However, we are at advanced stages in discussions with various elements of the plan to execute that. There is some risk in getting to the end of the year at just about the 25% mark for Scancom, so we are working to the wire on this one. But today we have very good commitments which will suggest that it’s a manageable ambition for us to get to that 25% mark.

On the 30% to mobile money there is a dependency on getting to 25% on the parent company and achieving an additional 5%. The focus there is achieving that additional 5% on the assumption that Scancom achieves the 25%. We do think that that will be quite a challenging feat at this point. We continue to work with various offers on the table and interest, but the timing will be quite challenging. Again, we’re having chats with the central bank on the different options that we have there, and we will update you on that process. But overall, I would say we’ve made quite some good progress even though we haven’t crossed any major milestones. We are very close to some milestones in the coming weeks. And we look at this process as quite positive from that perspective.

The third question was on the free P2P and how much revenue that represented in the quarter. A total revenue of about ₵45 million was the free P2P if we had charged for those transactions specifically for Q3, only the Q3. And it’s about the same amount, about ₵35 million to ₵40 million in Q1 and Q2, and about ₵45 million in Q3. Thank you very much.

Preshendran Odayar

Sorry, Selorm, just a quick one. In the first half of the year it was around ₵34 million impact for the whole year. Are you saying in just this one quarter it was ₵45 million? That’s a big jump then. It is more than double.

Selorm Adadevoh

So in Q1 it was ₵34 million. In Q2 it was about ₵40 million. That total was about ₵73 million. In Q3 it is ₵45 million. So I think you have your numbers mixed up.

Preshendran Odayar

Okay, cool. Thank you very much. Appreciate it.

Selorm Adadevoh

You’re welcome.

Operator

Thank you. The next question comes from Jake Ward of Ashmore Group.

Jake Ward

Hi Selorm. I just have a couple of questions on the active MoMo subscriber base. Just looking through the quarterly release the total active MoMo subs has remained a bit unchanged since the back end of 2020, around the 10.6 million level. I’m just wondering what you think has caused that slowdown in getting new active subscribers, and perhaps touching on the strategy that you may have in place to address that. And if you can also remind us how you as MTN define an active subscriber here.

Selorm Adadevoh

Okay. Thank you very much. Yes, if you look at the numbers, we have hovered around the 10.5 million or 10.6 million mark for multiple quarters. Just to emphasise, as we came out of Q1 we saw a declining trend into Q2 which was quite concerning in terms of MoMo subs. We saw a 1.9% decline in Q2 over Q1. In terms of Q3 we’ve seen a reversal of that trend with about a 1% growth in MoMo subs over Q2. Of course, that means we still have some deficit to get to the Q1 levels. But the positive news is that the reversal is happening, and we must continue to build off that foundation. The reasons for the decline in the first place were several different things. The most impactful one was a pilot to implement IDs on cash outs, so people requiring IDs to cash out cash from us. This was done in partnership with the central bank, or at least in alignment with the central bank. And there were considerations for IDs on cash out to become a requirement for the entire industry. That determination has not yet been done. We have had discussions with the central bank on the steps forward and no conclusions have arrived at this point. But there is a positive to all of this. We have also seen some impact to all of this on our efforts in trying to minimise and mitigate and fight fraud. There is that element which was the initial objective of all of this. Okay. The second component of the benefit from this activity was the reduction in fraud or at least management of fraud. We’ve seen quite some good improvement as a result of this initiative plus other initiatives we’ve put in place. But going forward in Q4 we have a full plan on how to accelerate and be more aggressive on subscriber acquisition, and we are executing on that plan, so I’m positive that we will get through the rest of the year with some positive trends in terms of new mobile money subscribers and growth in the total subs for MoMo. Thank you.

Jake Ward

Just a quick follow-up on my last question. Are you able to disclose the number of MoMo subscribers who aren’t active? Is that very different from the number you report? I can’t recall your definition of active. Is it one transaction per month?

Selorm Adadevoh

Yes, so active is a revenue generating activity in 30 days or at least one revenue generating activity in 30 days.

Jake Ward

Okay. That makes sense. And just one final one if I may then. If people are taking advantage of the free P2P at this time, am I therefore correct in saying that they wouldn’t show up because it’s not a revenue generating transaction?

Selorm Adadevoh

No, the fact that you’re not charging doesn’t make it a non-revenue-generating activity. P2P is the revenue generating activity, so they will show up.

Jake Ward

Great. Thank you very much.

Operator

Thank you. The next question comes from Kuda Kadungure of Kela Securities.

Kuda Kadungure

Afternoon guys. Thank you for hosting the call. I just have a few questions. On mobile money what was your revenue mix over the third quarter for MoMo? And then if you can just maybe give us an insight into the volatility around your MoMo commissions. There was quite a substantial growth over first quarter, second quarter – understandably as a result of zero rating – and then some notable pullback in the third quarter. And then on the data side of things how many active 4G subscribers are currently on your network and how much data was consumed over the nine months?

Selorm Adadevoh

Okay. Thank you very much. Let me start off with the MoMo commissions because that’s quite an intricate one which I will probably spend a few minutes on, and I will come back to active 4G customers and data consumption – I will check if we have those numbers here – and then the revenue mix as well. In terms of the commissions we’ve been looking at our commission trend for a while now. I think there have been questions here on investor calls on the dilution of the EBITDA margin. This came up last quarter as well.

What we’ve discovered is that there were some transactions which were manipulated by a set of agents and merchants that are on our network. And through the extensive exercise our revenue assurance team and mobile money team have done, we’ve been able to put a lid on those activities. What that has meant is a portion of our commissions which would have been paid out in previous months will no longer be paid out. The effect of that started in July, so you would see an improvement in commissions despite continued revenue growth. And that results in margin expansion for the quarter.

We’ve been looking at our commissions trend in the last quarter and we’ve identified some discrepancies in agents and merchant’s behaviour that resulted in significant increase in our commissions overall. Through the work that our revenue assurance team and the mobile money team have done, we’ve put a lid on this behaviour and manage to arrest the situation with a number of initiatives that we’ve put in place. What this has meant is that a portion of our commissions which would have been paid out in previous months is no longer being paid out because we’ve noticed the trend and the undeserved earnings of commissions through this scheme, and as a result of that we’ve seen lower commissions in quarter three and the higher EBITDA Margin and higher EBITDA numbers for that same period. And we’re confident we can maintain this trend going forward and that this trend better reflects the commission revenue ratio of the business. So we should see a lot steadier EBITDA and commission rate going forward as a percent of revenue. That’s why you see the change in commission trend as well as EBITDA trend for Q3. That’s the main reason. I will pause to see if there are any other questions on that, otherwise I’ll go to revenue mix and the other questions you had.

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MTN Ghana Q3 2021 Results transcript

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