Good day ladies and gentlemen and welcome to MTN Nigeria’s First half of 2020 results conference call. All participants 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 conference call is being recorded. I would now like to hand the conference over to Mr Chima Nwaokoma. Please go ahead sir.
Chima Nwaokoma :
Hello everyone, thank you for joining this call to discuss MTN Nigeria’s half year 2020 results. My name is Chima Nwaokoma. I’m responsible for investor relations in MTN Nigeria. With me on this call are Ferdi Moolman, who is our Chief Executive Officer, Mazen Mroue, Chief Operating Officer, and Modupe Kadri, Chief Financial Officer. On the MTN Group side we have Ralph Mupita, Group Chief Financial Officer, and Thato Motlanthe, Group Investor Relations Executive.
Ferdi will provide you with an overview of the business performance in H1, while Modupe will cover some Financial highlights. Thereafter, we will move on to the Q&A which will be facilitated by the conference call operator. Just to remind everyone, our results were announced last Wednesday and a version of the announcement is on our website www.mtnonline.com/investors. I will now hand over to Ferdi to give us an overview of the business. Thank you.
Good afternoon everybody. Welcome to the call from wherever you’re phoning in From. Just on a personal note, I hope all of you are well and safe and that you and your families are coping with the challenges we are all facing.
To start off, let me provide you a little bit of background in terms of Q2. Q2 is generally characterised as seasonally slower compared to Q1 of every year. This is mainly due to the rainy season, and this year we also had Ramadan in Q2. Then, towards the end of Q1, we had the devaluation of the CBN exchange rate. The CBN rate devalued by about 18%. This was a devaluation From around ₦306 to ₦360, and you will see how that impacted us in Q2 as we go on with the presentation.
We saw an increase in VAT rate in the middle of Q1. The rate was increased from 5% to 7.5% and the VAT base was broadened to capture certain products. It’s important for you to note that VAT in Nigeria is not the same as if is in many other countries. You are limited in terms of what input VAT you can claim back against the output VAT in Nigeria. Generally, for most of the expenses we incur VAT on, we can’t claim back against input VAT.
Then as all of you know, there was COVID which had a major impact in Q2 with the implementation of a phased lockdown in Nigeria, which ultimately impacted the entire country. So, whenever you look at the results, it’s important just to take note of these five characteristics.
Despite the challenging environment, we were able to maintain a healthy growth on the subscriber numbers. We added 6.8 million subscribers in the last six months and we ended half year at 71.1 million RGS — revenue generating subscribers. This was achieved on the back of a number of initiatives, including the extension of our sales and distribution infrastructure which is a project that we’ve been working on since Q4 of last year.
We now have 29 million active data subscribers. These are subscribers that use more than 5MB per month. In the last six months, we added 3.8 million data subscribers. The work we have done to expand the user base of our digital products and services has started to yield positive results. The number of digital subscriptions has more than doubled and we had 1.6 million digital subscriptions at the end of H1.
I’m also very excited to say that we’ve been working hard on growing our mobile money agent network and we’ve doubled that in this last quarter. We now have 220,000 mobile money agents in the market. Consequently, we’ve also seen a very good increase in our mobile money subscribers. In the last quarter, we increased the mobile money subscribers by 1.6 million bringing the total number of subscribers who have used our super-agent network to 2.2 million. The performance in the subscriber numbers provides a solid foundation to build from as we hope the lockdown restrictions will further be relaxed towards the end of the year.
How did these impact headline earnings? On the service revenue side, we were able to maintain our double digit growth which was at about 12.6%.
Over and above the general impact the lockdown has had on service revenue, there are two specific issues that l would like to highlight. The first is the free SMS we provided during the three months of lockdown in Q2 as part of our Y’ello Hope initiative. The Y’ello Hope initiative is part of our palliative response to support the vulnerable in the society during COVID. So, there was no significant SMS revenue in Q2.
The second is that we have been faced with some pressure on certain of our wholesale products, and we now account for some of these products on cash basis. If you just do a top line calculation, you will notice that if we didn’t have these two issues, the revenue growth would have exceeded 13% on a year on year basis.
As the lockdown was implemented in Q2, we saw a change in the subscriber behaviour. This was generally characterised by a drop in voice traffic and higher demand for data. Nevertheless, we still saw growth of 2.8% on the voice revenue. Data revenue increased by 57.6% and this was obviously supported by the change in behaviour that we saw and an increase in the data subscriber numbers. We saw a higher usage of data per subscriber. We saw our smartphone penetration growing and we also had an increase in our 4G population coverage.
Digital revenue continues to grow. Just be aware that if is off quite a small base, but we are continuously seeing growth. We saw a 121% growth in the digital revenue. We are still cautious in our marketing initiatives on these products since they are notorious for some challenges when you get to the subscription process. But, so far, For the last two quarters, everything has gone well.
Modupe will unpack in more detail the evolution of our expenses and margins, but l would just provide you a high level view in terms of some of the pressures we faced in the market. The devaluation of the CBN exchange rate I referred to in my opening statement had an impact on our expenses. We’ve always indicated that a 10% devaluation in currency would have a 1% impact on our margins on IFRS 16 basis. This materialised in the quarter.
The increase in the VAT also had an impact on costs and margins. In addition, the new financial regulation, which was issued in February of this year, broadened the VAT base for certain products that were previously exempted. So, there were some expenses that we picked up there as well.
We had quite a number of COVID palliatives during the quarter. Over and above the free SMS we gave away, we donated towards an initiative that is driven by private sector and spearheaded by CBN. This is called the CACOVID initiative to which most businesses contributed. The CACOVID rolled out quite a number of isolation centres and are now going to move into a phase where they will provide food for the vulnerable in society. Our contribution to this was ₦1 billion. And then of course with the pressure of COVID and the environment itself, as I said earlier, we now account for some of our wholesale revenue on cash basis. We also needed to impair some wholesale debtors during the course of the quarter as well. Due to the external pressures in Q2, we saw a softening in our margins with EBITDA levellin