mtn nigeria communications plc - fmdq group
TRANSCRIPT
Nigeria Corporate Analysis | Public Credit Rating
MTN Nigeria Communications Plc
Nigeria Corporate Analysis July 2019
Financial data:
(USD’m Comparative) ‡
31/12/17 31/12/18
N/USD (avg.) 305.3 305.6
N/USD (close) 305.5 306.5
Total assets 3,141.1 3,039.9
Total debt 835.9 572.9
Total capital 336.6 683.0
Cash & equiv. 293.2 173.0
Turnover 2,906.1 3,400.5
EBITDA 1,151.3 1,480.7
NPAT 265.6 476.8
Op. cash flow 523.5 927.6
Market share* 38%
Market cap** USD8.7bn/N2.68trn
* Based on Nigerian Communications
Commission’s statistics as at Feb. 2019
**As at 21 May 2019 @ N306.4/USD.
‡Central Bank of Nigeria exchange rates
Rating history:
Initial rating/last rating (June 2019)
Long term: AA(NG)
Short term: A1+(NG)
Rating outlook: Stable
Related methodologies/research:
Global Master Criteria for Rating Corporate
Entities, updated February 2018
Glossary of Terms/Ratio, February 2018
GCR contacts:
Primary Analyst
Adekemi Adebambo
Senior Analyst
Committee Chairperson
Dave King
Analyst location: Lagos, Nigeria
Tel: +234 1 904-9462-3
Website: http://www.globalratings.com.ng
Summary rating rationale
The ratings reflect MTN Nigeria Communications Plc’s ("MTN Nigeria" or
“the Company”) strong market position as the leading provider of cellular
telecommunications services in Nigeria. Cognisance has also been taken of the
well-established brand, broad spectrum of licences and technical support
provided by MTN Group Limited (“MTN”, or “the Group”).
While substantial capital requirements serve as an effective barrier to entry, the
industry faces a high level of regulatory oversight. Positively, the low
cyclicality of core earnings supports a strong sector risk assessment.
Elevated regulatory risk, however, serves to constrain the ratings. In respect of
MTN Nigeria, this is reflected in developments such as the allegation of illegal
repatriation of dividends (resolved confidentially), an ongoing tax dispute and
ramifications of the delayed disconnection of unregistered subscribers. While
the Company’s enhanced enterprise risk protocols will bode positively, this will
need to translate into sustained regulatory compliance track record.
While a sound gross margin reflects rigour in the supply chain and procurement
efficiencies, the reported EBITDA margin was largely distorted (since FY15)
by the adoption of the tower and base transceiver site (“BTS”) lease model,
albeit firm. The normalised EBITDA margin was closer to historical levels,
albeit reflecting moderate compression from imported cost pressures and the
impact of devaluation of the Naira. The rebound in the EBITDA margin in 1Q
FY19 is expected to be sustained over the rating horizon, on the back of
subscriber base growth, enhanced operating efficiencies and the growth in data
and digital services income, inter alia.
To mitigate foreign currency exposure, MTN Nigeria has raised the proportion
of Naira debt to 72%, from a relatively even split Naira and USD debt utilisation
previously. While the reduction in the foreign currency denominated debt is
noted, the Company remains susceptible to currency risk in view of the sizeable
import requirements of the industry, and this curtails the capital risk profile to
an extent.
Positively, earning based gearing metrics remains conservative at 1.2x at 1Q
FY19, and is expected to remain within range for the ratings, over the rating
horizon. Debt service metrics, however, are viewed as moderate in comparison,
and could weaken with the adoption of additional debt.
Operating cash flow coverage of interest-bearing debt is sound, and is expected
to remain robust, albeit this may be tempered by the extent to which
management leverages medium term capex.
MTN Nigeria evidences strong funding flexibility, with concentration mitigated
by relationships with local and international banks as well as export credit
agencies. The liquidity profile has been tempered by the sharp fall in cash
reserves, albeit unutilised facilities covered expiring facilities and capital
commitments above 1x, with Global Credit Rating Company Limited (“GCR”)
expecting coverage of at least 1.3x for FY19.
Factors that could trigger a rating action may include
Positive change: Sustained earnings enhancement, supported by resilient volumes,
cost rigour and improved risk protocols. Favourable resolution of ongoing tax
litigation would further entrench the ratings. Sustained access to debt and equity
capital markets would be positively considered.
Negative change: Higher than forecast gearing, particularly in the light of
significant dividend payout as well as unduly elevated capex, could result in
liquidity strain and impede debt serviceability. Materially adverse socio-political or
regulatory developments would be negatively considered.
Security class Rating scale Rating Rating outlook Expiry date Long term National AA(NG)
Stable June 2020 Short term National A1+(NG)
Nigeria Corporate Analysis | Public Credit Rating Page 2
Company profile
MTN Nigeria is the leading domestic provider of cellular
telecommunications services. Incorporated in November
2000 as a private limited liability company, MTN Nigeria
has converted to a public company in April 2019. Based
on Nigerian Communications Commission (“NCC” or
“the Commission”) statistics as at February 2019, the
Company accounts for 38%1 of GSM subscriber base.
Subsidiaries include XS Broadband Limited (“XS
Broadband”), Visafone Communications Limited
(“Visafone”) and Yellow Digital Financial Services
Limited (“YDFS”). Details of domestic licences are
reflected in Appendix 1.
MTN Nigeria also has the largest distribution network in
the country, with over one million retail points of contact.
It has network coverage2 across 87% of the population and
has largest fibre network in Nigeria (more than 25,800km)
to facilitate 4G and mobile broadband. The investment in
fibre allows MTN Nigeria to monetise excess capacity and
share infrastructure with other operators. Besides voice
telephony, the Company provides a communication and
network backbone which supports financial services,
education, energy, media and entertainment as well as
mobile money and digital opportunities.
MTN Nigeria is a subsidiary of MTN International
(Mauritius) Limited, with the ultimate parent company
being South Africa based MTN. Established in 1994,
MTN has developed into a leading emerging markets
cellular telecommunication services provider with
operations in 21 countries in Africa and Middle East. The
Group provides strong support for MTN Nigeria in
technology innovation, brand management, procurement
and corporate governance. MTN has national and
international scale ratings of Aa3 and Ba1 respectively
from Moody’s (January 2019), and AA and BB+ on
respectively from Fitch (February 2019). MTN Nigeria is
operationally integral to the Group, accounting for 28% of
the subscriber base (FY18) and around a third of revenue
and EBITDA.
Operating environment
The Telecommunication industry in Nigeria is highly
regulated. A number of regulatory issues impacted the
Company’s credit risk profile over the period under
review, with the latest being an allegation by the Central
Bank of Nigeria (“CBN”), in August 2018, that MTN
Nigeria had illegally repatriated USD8.1bn in dividends
between 2007 and 2015. The matter was subsequently
resolved through a confidential agreement and payment of
USD52.3m (being a notional reversal of private placement
proceeds relating to certificates of capital importation
issued without final regulatory approval). This follows a
May 2018 tax dispute, wherein the Attorney General of the
Federation ordered MTN Nigeria to remit unpaid taxes of
USD2bn alleged to be tax arrears on imported equipment
and payments to suppliers. MTN Nigeria contends that it
1 (65.6m) of GSM subscribers, although the Company’s own data places this lower at 60.3m
subscribers (37% market share), with the difference being that MTN Nigeria excludes
subscribers whose only activity was incoming SMS/voice (with no recharge).
is not in default, however, the Company is seeking legal
resolution of the matter.
In addition, the recent domestic listing3 was a commitment
made as part of the settlement for failure to disconnect 5.2
million unregistered SIM cards per an NCC deadline. A
fine of just over N1trn was reduced to N330bn, with the
Company having settled the full amount over a three-year
period, with the final instalment of N55bn paid at end-May
2019.
Economic overview
Real GDP growth improved to 1.9% in 2018 (2017: 0.8%),
supported by improvements in the non-oil sector (mainly
agriculture, information communication technology,
transport support services and manufacturing). However,
growth was constrained by the resurgence of Boko-Haram
attacks in the North-East, clashes between herdsmen and
farmers, and the uncertain domestic political environment.
Moreover, heightened capital outflows due to rising yields
in the United States and United Kingdom were
experienced. As a positive, the inflation rate declined from
a high of 18.7% in January 2017 to 11.4% in April 2019
(March 2019: 11.3%). This has been supported by tight
monetary policy. While the monetary policy rate had been
flat at 14% since July 2016, it was recently reviewed
downward to 13.5%.
Much of the first half of 2019 has been dominated by the
elections. As such, significant policy changes and
implementation are only expected in the second half. Most
corporates are generally expected to register constrained
earnings performance in 1H 2019, before the level of
economic activity picks up in the second half. This level
is, however, dependent on a peaceful post-election
environment, curtailment of security challenges and
improvement within key sectors. In real terms, the nation’s
GDP increased y/y by 2% in 1Q 2019 (1Q 2018: 1.9%) but
contracted by 0.4% q/q.
Telecommunication industry overview
Telecommunication and information services contributed
9.5% of the nation’s GDP in 2018 (2017: 8.7%). The
industry is broadly divided into the Fixed and Mobile
segments, with four GSM operators being licenced in
Nigeria namely MTN Nigeria, Airtel Nigeria Limited,
Globacom Limited (“Glo”), and 9mobile.
Table 1: Industry
statistics - GSM
subscribers
February 2019
Subscriber base
(millions) Percentage (%)
MTN Nigeria 65.6 37.8
Globacom 46.0 26.5
Airtel 45.0 26.0
9mobile 16.7 9.7
Total 173.3 100.0
MTN Nigeria is classified as a dominant operator in the
mobile voice segment, and as joint dominant operator in
the upstream segment with Glo. Certain asymmetric
requirements were introduced for dominant operators,
which prevent MTN Nigeria from using its leading
2 with services deployed across 223 cities and more than 10,000 villages and communities
throughout the 36 states of Nigeria and Abuja. 3 20.35billion shares of 2k each were listed on the local bourse at N90 each, placing the
value of the Company at around N1.8trn at the time of listing.
Nigeria Corporate Analysis | Public Credit Rating Page 3
subscriber base to subsidise on-net tariffs at levels lower
than the interconnect rate. In addition, MTN Nigeria’s
pricing plans and promotions have to be approved by the
NCC. Industry revenue is largely prepaid and there has
been stability in voice tariffs due to the price floor
established by the NCC. While pricing for the fast-
growing data segment is still unregulated, the considerable
regulatory oversight constrains the sector risk profile. In
addition, to regulatory limitations, pricing power in the
sector is also constrained by competitive pressure, while
players have to contend with substantial costs of capital
accumulation, technological changes and disruption.
Nonetheless, favourable demographics and relatively low
mobile penetration underpins strong prospects for the
Nigerian telecoms industry. Emerging spectrum trading,
active network sharing and higher broadband penetration
should boost industry growth in the long term.
The NCC allocates frequency licences to mobile network
operators (“MNOs”) based on successful bids and/or
pricing regulations, subject to annual renewal, with the
average tenor of a licence being five-10 years. Spectrum
licence fees usually run into billions of naira and are based
a range of parameters, with a five-year, 2GHz licence in a
Tier 1 region, for example, costing up to N36bn. An annual
operating levy of 2.5% of a MNO’s audited net revenue is
payable to NCC within 90 days after the end of the first
year of the licence and thereafter quarterly payments based
on the licensee’s assessed net revenue.
In order to enhance operational efficiency, MTN Nigeria
transferred mobile network towers to INT Towers during
FY14 and FY15. Under the terms of the agreement, the
towers were transferred at net book value, with 70% of
tower infrastructure transferred. MTN Nigeria will be the
anchor tenant for an initial period of 10 years, renewable
for further five-year terms. INT Towers is wholly-owned
by IHS Holding, in which MTN has a 29% stake. While
this allowed MTN Nigeria to monetise value in its tower
infrastructure, foreign exchange risk remains inherent in
the operating structure, as c.65% of the lease costs are
indexed to N/USD exchange rate.
Corporate governance and shareholding structure
MTN Nigeria’s corporate governance structure complies
with the relevant requirements of the Companies and
Allied Matter Act and the NCC’s Code of Corporate
Governance for Telecommunications Sector. The Board of
Directors comprises one executive director and 13 non-
executive directors. Management has indicated that the
Company is in the process of appointing a second
executive director to comply with NCC requirements.
Board members have very extensive experience covering
diverse sectors of the economy. MTN has a combined
78.8% stake in MTN Nigeria, while Nigerian investors
own 19.4%. The remainder is held by the South African
Government Employees Pension Fund. MTN Nigeria has
a solid management team with a mix of local and
international expertise.
4 Airtime, subscription, interconnect and roaming fees are collectively referred to as
‘Voice’
Table 2: Corporate governance summary
No. of directors 14
Independent non-executives 2
Non-independent non-executives 11 (Including the Chairman)
Executives 1 (The Managing Director)
Frequency of meetings Minimum of quarterly.
Board committees
Audit, Risk Management and Compliance
Committee; Nomination and Governance
Committee; Remuneration, Human Resources and
Social and Ethics Committee
Internal control & compliance Yes, independent reports to Audit and Risk
Committee.
External auditor PricewaterhouseCoopers issued clean audits for all
years under review.
Earnings diversification
Airtime and subscription4 has historically accounted for
over 60% of revenue (five-year average: 65%). Although,
the rapid growth in data is expected to see its contribution
rise to c.50% in the long term, from 16% in FY18. MTN
Nigeria is well positioned to provide 4G services with its
wider range of spectrum holdings versus peers, leveraging
an extensive infrastructure/subscriber base. Concentration
risk is inherent in the large trade partner profile, with 45
entities contributing 75% of total sales. As such, MTN
Nigeria intends to extend its reach to include selling
directly to retailers and end-users (through digital
channels).
Table 3: Revenue
diversification
Revenue (N’m) Revenue contribution (%)
FY17 FY18 FY17 FY18
Airtime and subscription 556,577.8 676,381.4 62.7 65.1
Data 116,798.3 165,169.4 13.2 15.9
Short message service 12,622.5 14,270.4 1.4 1.4
Interconnect and roaming 103,566.9 107,182.7 11.7 10.3
Digital 69,410.5 40,706.1 7.8 3.9
Value Added Service 24,015.7 30,540.5 2.7 2.9
Others (handset,
accessories and other rev.) 4,188.8 4,867.5 0.5 0.5
Total 887,180.5 1,039,117.8 100.0 100.0
Financial performance
A five-year financial synopsis and the unaudited three-
month interim results to March 2019 are appended to this
report, while commentary follows.
Table 4: Income
statement (N'm) FY17 FY18 1Q FY18 1Q FY19 YOY %∆
Revenue 887,180 1,039,118 249,223 282,093 13.2
Gross Profit 701,263 841,827 197,813 229,137 15.8
EBITDA* 351,463 452,460 104,283 150,432 44.3
Net interest** (9,485) (18,679) (4,190.7) (21,361) 409.7
Forex & reserving (78,554) (26,092) (4,628) 1,206 n.a
Key ratios (%)
Gross margin 79.0 81.0 79.4 81.2 n.a
EBITDA margin 39.6 43.5 41.8 53.3 n.a
Capex intensity (%)‡ 23.1 20.6 22.9 18.9 n.a
*Excludes provision for regulatory fine and notional reversal of CCIs
**Excludes net forex losses ‡Capex as a percentage of revenue
Turnover continues to be sustained by a strong subscriber
base, albeit some variability has resulted historically from
macroeconomic conditions, as well as operational and
regulatory factors (including the disconnection of
unregistered subscribers). The Company gained additional
Nigeria Corporate Analysis | Public Credit Rating Page 4
6 million subscribers in FY18, translating to a 17% top line
growth to N1trn. The EBITDA margin has reflected
modest variability over the review period. GCR notes that
a part of the distortion in reported EBITDA margin
historically had to do with the BTS lease costs (75% of
direct network costs), although the ‘normalised margin’
was also impacted to an extent by adverse cost pressures.
The strong EBITDA margin reported in 1Q FY19 is
expected to be sustained on the back of subscriber base
growth, enhanced operating efficiencies and the growth in
data services income. Overall, MTN Nigeria’s earnings
margins are firm and in line with those of global players,
with further upside potential based on favourable
demographics.
Table 5: Industry
metrics (%)
MTN
Nigeria
AT & T
(USA)
Vodafone
(England)
China
Mobile
(China)
Etisalat
(UAE)
Vodacom
(RSA)
EBITDA margin* 43.5 35.9 31.6 37.4 49.4 38.1
Op. margin 27.4 15.3 11.2 16.5 24.5 28.1
Net int. cover (x) 15.2 3.3 13.4 n.a 22.3 11.5
Capex intensity 20.6 12.2 17.5 26.1 14.0 15.7
*Based on reported EBITDA
Source: Financial statements, FY18
The Company’s net foreign exchange losses moderated to
N26.1bn in FY18, from N78.6bn in FY17 due to stable
exchange rates and ongoing measures to reduce foreign
currency debt exposure below 40% of debt. After
accounting for net foreign exchange loss and other
expenses, NPBT more than doubled to N221.3bn in FY18
but remained within historical high levels.
Cash flows
Cash generation has been robust and has trended in line
with EBITDA, barring adjustments for unrealised losses,
impairments and other provisions. Cash generated by
operations rose by around N89bn to N445.9bn in FY18,
and further by an annualised 37% as at 1Q FY19. MTN
Nigeria is expected to continue to reflect a well-controlled
working capital cycle, barring shocks such as currency
shortages (which led to a large release in FY16 for
example) Typically, trade partners purchase stock for cash
or on a seven-day credit term. As such, trade debtors have
accounted for less than 5% of revenue over the review
period. However, average trade debtors’ days are pushed
out to a maximum of 15 days. Technical partners, service
providers as well as intercompany transactions are settled
in 30 days, helping to optimise the cash conversion cycle.
Overall, the variability in operating cash flow arising from
fines is a concern, while the Company’s cash generative
capability is expected to continue to be checked somewhat
by market sensitivities to currency movements and the
industry’s inherent reliance on a high component of
imported capex.
To maintain its market leadership, the Company has made
significant investments in network infrastructure, and
information systems over the review period, with capex
intensity having averaged 20% between FY14 and FY18.
Total capex spend between FY14 and FY18 amounted to
N853.5bn and was largely financed by internally
generated cash. This was followed by a N53.4bn outlay in
5 In line with requirements of the newly adopted IFRS 16 on leases
1Q FY19, with the bulk of the spend relating to network
assets. The immediate capex plan is focused on network
infrastructure (including 4G roll and network
enhancement), with capex intensity anticipated to be
moderate in the medium term. As most of the capex will
be debt financed, this, along with an aggressive dividend
policy, may place pressure on the ratings.
MTN Nigeria distributed around 80% of net income as
dividends, with payments totalling N502.3bn over the
review period. GCR expects MTN Nigeria to have the
flexibility to reduce its dividend payout ratio, otherwise it
could negatively impact our assessment of leverage and
liquidity, which is currently considered to be conservative.
According to management, MTN Nigeria’s target
dividend payout ratio is 80% but will take investment
plans, loan covenants, business outlook, tax regulations
and other factors into consideration.
Funding profile
Table 6: Funding
profile (N’m) FY16 FY17 FY18 1Q FY19
ST debt 100,054.3 119,820.2 143,875.9 153,958.1
LT debt 189,783.3 135,544.9 31,438.3 601,060.0
Total debt* 289,837.6 255,365.1 175,314.2 755,018.1
Cash (146,369.0) (89,565.0) (53,011.7) (54,351.1)
Net Debt 143,468.6 165,800.1 122,302.5 700,667.0
Key ratios (%):
Total debt: EBITDA 73.2 72.7 38.7 125.5
Net debt: EBITDA 36.2 47.2 27.0 116.4
EBITDA: net int. (x) 37.1 24.2 9.6 7.0
Cash: ST debt (x) 1.5 0.7 0.4 0.4
*Includes lease obligations in 1Q FY19 as per IFRS 16 on leases
At 3Q FY18, over 70% of loans were due for repayment
within a 12-month period. In this regard, management
obtained a N200bn seven-year syndicated loan from a
consortium of 12 Nigerian banks, in August 2018. During
1Q FY19, the Company made a drawdown of N100bn
from the local currency medium term facility for working
capital, debt refinancing and capex.
The Company also reported obligations under finance
lease of N503.2bn5 (and an opening balance adjustment of
N515.3bn termed Right of Use Assets and classified under
fixed assets). Consequently, net debt increased
significantly by N578.4bn at 1Q FY19 (inclusive of the
reported lease obligations), while the total obligation
related to drawn facilities amounted to N252bn. MTN
Nigeria intends to float a N100bn Commercial Paper
Programme during 2Q FY19 to finance working capital.
In May 2019, MTN Nigeria signed a N200bn syndicated
term loan contract with a consortium of seven banks. The
loan has a two-year principal moratorium and seven-year
tenor and will be committed towards capex and working
capital requirements. MTN Nigeria is shifting towards
local currency denominated debt to reduce exposure to
foreign currency risk and mitigate its exchange rate
exposure. However, in view of the hard currency
Nigeria Corporate Analysis | Public Credit Rating Page 5
exposures and sizeable import requirements of the
industry, the risk is expected to remain high.
Table 7: Debt profile Loan
type
Currency Interest
rate
(%)*
FY18
(N'bn)
1Q
FY19
(N’bn)
Maturity
Facility D - local
banks
Syndicate
d term
loan
NGN 15 85.3 86.3 Nov. 2019
Facility E – First Rand
Bank and two others
Syndicate
d term
loan
USD 4 9.9 9.7 Apr. 2019
Facility F1 and F3 -
KFW equipment
financing facility
Export
credit
facility
USD 3 8.9 4.4 Aug. 2019
Facility F2 – KFW
equipment finance
Export
credit
facility
USD 2 5.9 2.9 Aug. 2019
Facility G - Chinese
banks syndicated
equipment finance
Export
credit
facility
USD 5 9.0 5.9 Dec. 2019
Facility J and J1 -
Credit Suisse
Buyers
credit term
loan
USD 8 27.0 25.1 Feb/June
2022
Facility H- KFW/
Citi Bank
Buyers
credit
term loan
USD 3 21.2 17.7 Mar. 2022
Local Banks Loan
Import
finance
facility
NGN 6.5 8.1 - 6 months
revolving
Facility M- Local
Banks Commercial
Syndication Loan
syndicated
term loan NGN 15 - 100.0 Jul. 2025
Total 175.3 251.8
*All the loans (except facility F2) carry floating interest rates which are benchmarked
against NIBOR or LIBOR as applicable.
The earnings based gearing metric remained conservative
at 1.2x at 1Q FY19 and is expected to trend within range
for the ratings, over the rating horizon. While MTN
Nigeria has historically earned substantial interest
income, supporting robust debt service, it has had to
contend with the rising cost of funding amidst continued
contraction of hitherto sizeable liquid assets. Thus, the
cash debt service declined to 24.2x in FY18 (FY17:
37.1x). Including the cost related to leases, cash interest
cover is misaligned to the very conservative gearing, and
is much more vulnerable to sensitivities arising from
changes in the debt profile and/or EBITDA. Operating
cash flow coverage of interest bearing debt also remains
robust, at well over 1.5x at FY18, although this will be
tested by the extent to which management will leverage
its infrastructure spend over the medium term.
In respect of liquidity, MTN Nigeria presently has a local
currency loan limit of N729.3bn and a global USD loan
limit of around USD825m. Of this, committed and
unutilised balances are N200bn (in local currency loans)
and USD40m. Accordingly, committed unutilised
facilities and unrestricted cash covered interest bearing
debt and capital commitments above 1x in 1Q FY19.
GCR expects the Company to maintain coverage of at
least 1.3x over the next 12 months (including full
coverage of the commercial paper).
Nigeria Corporate Analysis | Public Credit Rating Page 6
MTN Nigeria Communications Plc
(Naira in millions except as noted)
Present Year end: 31 December 2014 2015 2016 2017 2018 1Q 2019‡
Statement of comprehensive income
Turnover 824,806.8 807,448.8 793,673.0 887,180.5 1,039,117.8 282,092.9 EBITDA* 484,791.8 443,490.0 396,156.5 351,462.8 452,460.4 150,432.4 Depreciation (150,418.6) (140,407.2) (143,738.9) (150,466.6) (167,862.7) (56,563.9) Operating income* 334,373.2 303,082.7 252,417.6 200,996.2 284,597.7 93,868.4 Net finance chargeso (27,385.1) (18,782.9) (14,558.1) (9,485.0) (18,679.0) (21,360.7) Other gains/losses inc. fair value movements (10,938.9) (11,991.1) (91,140.5) (78,554.1) (26,092.1) 1,206.2 Other operating income/expense including fine** (5,442.8) (284,643.7) (20,067.8) (5,067.5) (18,484.0) (3,617.6) NPBT 290,606.4 (12,334.9) 126,651.2 107,889.7 221,342.6 70,096.3 Taxation charge (81,579.5) (67,955.0) (37,850.9) (26,819.4) (75,656.7) (21,654.9) NPAT 209,026.9 (80,289.9) 88,800.3 81,070.2 145,685.9 48,441.4
Statement of cash flows Cash generated by operations 524,084.6 530,027.1 149,821.1 357,305.6 445,905.8 151,698.7 Utilised to increase working capital 1,140.0 10,448.2 286,543.6 (72,336.6) (8,418.0) (34,265.4) Net interest paid (25,815.3) (36,249.9) (28,692.4) (36,264.2) (22,420.1) (20,740.4) Regulatory fine paid 0.0 0.0 (80,000.0) (30,000.0) (110,000.0) (55,000.0) Taxation paid (66,743.9) (90,177.1) (80,258.8) (58,876.8) (21,607.4) 0.0 Cash flow from operations 432,665.4 414,048.4 247,413.4 159,828.0 283,460.3 41,693.0 Maintenance capex‡ (139,362.5) (127,825.8) (143,738.9) (150,466.6) (167,862.7) (53,372.8) Discretionary cash flow from operations 293,302.9 286,222.5 103,674.5 9,361.4 115,597.6 (11,679.8) Dividends paid (238,860.8) (101,828.9) 0.0 (50,000.0) (38,612.6) (73,000.0) Retained cash flow 54,442.1 184,393.7 103,674.5 (40,638.6) 76,985.1 (84,679.8) Net expansionary capex 0.0 0.0 (23,440.2) (54,543.1) (46,282.3) 0.0 Investments and other (36,435.5) (174,379.2) (47,612.2) 92,990.9 9,882.9 19,160.1 Proceeds on sale of assets/investments 44,028.5 49,673.0 2,137.6 551.1 652.5 210.5 Shares issued/Deposit for share 0.0 0.0 0.0 0.0 0.0 0.0 Cash movement: (increase)/decrease (61,289.6) 5,164.8 57,184.2 58,013.4 38,698.7 (1,414.8) Borrowings: increase/(decrease) (745.4) (64,852.3) (91,944.0) (56,373.6) (79,936.8) 66,724.0 Net increase/(decrease) in debt (62,035.0) (59,687.5) (34,759.8) 1,639.8 (41,238.2) 65,309.2
Statement of financial position Ordinary shareholders interest^ 171,161.8 (20,973.0) 68,153.0 102,835.9 209,336.3 184,771.6 Outside shareholders interest 0.0 0.0 0.0 0.0 0.0 0.0 Pref shares and conv debentures 0.0 0.0 0.0 0.0 0.0 0.0 Total shareholders' interest 171,161.8 (20,973.0) 68,153.0 102,835.9 209,336.3 184,771.6 Short term debt 63,794.2 86,405.0 100,054.3 119,820.2 143,875.9 153,958.1 Long term debt 329,672.9 250,479.7 189,783.3 135,544.9 31,438.3 601,060.0 Total interest-bearing debt 393,467.1 336,884.7 289,837.6 255,365.1 175,314.2 755,018.1 Interest-free liabilities 412,448.2 666,961.6 658,799.5 601,390.8 547,073.0 497,555.9 Total liabilities 977,077.0 982,873.3 1,016,790.1 959,591.8 931,723.6 1,437,345.6 Fixed and intangible assets (licence and software) 548,257.9 577,184.7 626,142.3 701,024.9 716,375.6 1,238,053.6 Investments and other 27,014.4 26,882.6 26,862.9 17,150.5 19,493.0 16,052.6 Cash and cash equivalent 207,654.2 200,674.3 146,369.0 89,565.0 53,011.7 54,351.1 Other current assets 194,150.5 178,131.7 217,415.9 151,851.5 142,843.2 128,888.2 Total assets 977,077.0 982,873.3 1,016,790.1 959,591.8 931,723.6 1,437,345.6
Ratios Cash flow: Operating cash flow : total debt (%) 110.0 122.9 85.4 62.6 161.7 22.1 Discretionary cash flow : net debt (%) 157.8 210.1 72.3 5.6 94.5 neg
Profitability: Turnover growth (%) 3.9 (2.1) (1.7) 11.8 17.1 8.6 Gross profit margin (%) 80.5 79.4 76.5 79.0 81.0 81.2 EBITDA : revenues (%)* 58.8 54.9 49.9 39.6 43.5 53.3 Operating profit margin (%) * 40.5 37.5 31.8 22.7 27.4 33.3 EBITDA : average total assets (%) 61.1 57.2 47.9 40.5 51.7 53.2 Return on equity (%) 112.3 neg 376.4 93.0 93.3 98.3
Coverage: Operating income : gross interest (x) 6.6 5.4 5.8 4.0 7.0 3.7 Operating income : net interest (x) 12.2 16.1 17.3 21.2 15.2 4.4
Activity and liquidity: Trading assets turnover (x) 1,062.1 1,744.0 neg neg neg neg Days receivable outstanding (days) 9.9 11.2 8.2 5.2 5.1 5.3 Current ratio (:1) 1.1 0.9 0.7 0.4 0.3 0.3
Capitalisation: Net debt: equity (%) 108.6 neg 210.5 161.2 58.4 379.2 Total debt: equity (%) 229.9 neg 425.3 248.3 83.7 408.6 Net debt: EBITDA (%) 38.3 30.7 36.2 47.2 27.0 116.4 Total debt: EBITDA (%) 81.2 76.0 73.2 72.7 38.7 125.5
‡Depreciation used as a proxy for maintenance of capex expenditure.
*Excluding provision for regulatory fine **Includes provision for regulatory fine of N275.1bn in FY15, write-back of N20.3bn in FY16 and payment of N19.2bn to CBN in FY18 oExcluding net foreign exchange loss
^net of goodwill ‡three-month unaudited management accounts to March 2019
Nigeria Corporate Analysis | Public Credit Rating Page 7
Appendix 1 – Details of MTN Nigeria’s licences
*2G, 3G, 4G all refer to the generation of the technology being used for communication. These technologies were developed to take advantage of different spectrum bands.
**MTN may choose not to renew any of the licences provided 12 months advance notice is given to the NCC
^Annual licence fees for spectrum licences are based on frequency regulation pricing formula ∞Renewal fees for the 800MHz spectrum will be based on the frequency fees and pricing regulation in force at the time of renewal
Visafone 800MHz Licence On 31 December 2015, MTN Nigeria acquired 100% share capital of Visafone Communication Limited network for N43.8bn. Although, the acquisition was authorised by NCC, the regulatory body subsequently issued a statement and clarified that the transfer of shares of Visafone to MTN did not automatically mean the transfer of the subsidiary’s 800MHz spectrum licence citing Section 38 of Nigeria Communications Act, 2003. Following protracted engagements with the regulator, NCC held a Public inquiry on the matter in June 20186, and has recently (in April 2019) approved the transfer of the 800MHz spectrum to MTN Nigeria. This positive development should enhance the Company’s market leadership, as its large subscriber base can now have the benefit of the spectrum. The Company expects that its 4G/LTE coverage will reach 24 states in Nigeria by end 2019.
6 Competitors were opposed to the transfer citing that the spectrum would create stronger dominance and monopoly
Details of MTN Nigeria’s
licences Cost Date of Grant
Licence
Tenor(years) Expiry Date Renewal Options/terms Characteristics/uses
Digital Mobile Licence (now
extended as 900MHz &
1800MHz Spectrum Licences)
N20.72bn 1 September 2016 4 31 August 2021 2 extensions secured:
- 10th February 2015 to
31st August 2016 (N2.2bn
paid)
- 1st September 2015 to
31st August 2021
(N18.6bn paid)
- Operational licence and Spectrum
Licence;
- Authorises 2nd generation mobile
services
-Mobile voice/SMS, basic data
(GPRS).
Unified Access Service Licence
(UASL)
N114.6m 1 September 2006 15 31 August 2021 Initial 10-year tenor
5-year extension secured
in 2007 to match tenure of
2GHz Spectrum licence
(3G)
-Operational licence and Spectrum
licence
-Authorises 2nd Generation mobile
services
- Mobile voice/SMS, basic data
(GPRS)
2GHz Spectrum Licence (3G) USD150m 1 May 2007 5 30 April 2022 Automatic renewal by
NCC in the 1st instance;
further renewals
discretionary
- Spectrum Licence for 3rd generation
(3G) services
-Enables high-speed data services
(voice/video calls, live data streaming
etc.)
International Submarine Cable
& Landing Station Licence
(WACS)
USD220.5m 1 January 2010 20 31 December 2030 Eligible for renewal for 10
years at NCC’s discretion
-Authorises MTN to set up and
maintain a landing station for
transmission of international traffic
-Authorises carriage of both MTN/3rd
party traffic
800MHz Spectrum Licence -
Visafone acquisition
USD220m 1 January 2015 10 31 December 2030 Eligible for renewal for 10
years at NCC’s discretion
-Spectrum licence for 4th Generation
4G/LTE) services
-Broadband spectrum
-Enables voice calls over IP-based
networks, Video calling, streaming
and downloading etc
Pay TV Digital Terrestial TV
Broadcasting Services (with
700MHz Spectrum)
USD171m
(N34.1bn)
12 August 2015 10 11 August 2025 Initial term of 5 years with
an additional term of 5
years subject to renewal
formalities
Licence has been regularised for
provision of telecommunication
services
2.6GHz Spectrum N18.9bn 1 August 2016 10 31 July 2026 Eligible for renewal Spectrum licence for 4th Generation
4G/LTE) services
-Broadband spectrum
-Enables voice calls over IP-based
networks, Video calling, streaming
and downloading etc
Nigeria Corporate Analysis | Public Credit Rating Page 8
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings expire in May 2020. MTN Nigeria Communications Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The credit rating/s have been disclosed to MTN Nigeria Communications Plc The information received from MTN Nigeria Communications Plc and other reliable third parties to accord the credit rating included: - 2014-2018 audited annual financial statements, - budgeted financial statements for the years 2018 to 2023, - three-month unaudited management accounts to March 2019, - enterprise risk management framework, - a breakdown of facilities available and related counterparties, - a completed rating questionnaire. The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE. CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE. Copyright © 2019 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.