2020 Corporate Rating Report - MTN Nigeria Communications Plc - FMDQ
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MTN Nigeria Communications Plc. 2020 Corporate Rating Report
2020 Corporate Rating Report
MTN Nigeria Communications Plc.
Issuer Rating This is a company that possesses very strong financial condition and very strong
Aa capacity to meet obligations as and when they fall due.
Outlook: Stable
Issue Date: 15 July 2020
RATING RATIONALE
Expiry Date: 30 June 2021 Agusto & Co. has reviewed the rating assigned to MTN Nigeria
Previous Rating: Aa+ Communications Plc. (“MTN Nigeria”, “MTN” or “the Company”) to ‘Aa’, on
account of the significant increase in leverage metrics. The rating reflects the
Company’s strong financial condition which is characterised by very good
Industry: Telecommunications
profitability, strong cash flow and experienced and stable management team.
The rating takes into cognisance MTN's strong leadership position in the
Outline Page Nigerian telecommunications industry, broad range of spectrum licenses,
Rationale 1
extensive network coverage, expanding distribution channels, large and
Company Profile 4
Financial Condition 9 growing subscriber base as well as increasing number of active data users.
Ownership, Mgt & Staff 17 Furthermore, the rating considers MTN’s vulnerability to regulatory shocks as
Outlook 19 well as the potential adverse impact of significant changes in consumers
Financial Summary 21
Rating Definitions 24 behaviour (customers are moving to data service from voice, which has a lower
contribution to top line performance) due to the impact of Coronavirus (COVID-
19) on businesses and households.
Analysts:
Ojuru Adeniji MTN Nigeria Communications Plc. is a member of the MTN Group (the Group)
ojuruadeniji@agusto.com – one of Africa’s leading cellular telecommunications company, with strong
presence in 22 countries and over 237 million subscribers. The Company has
Isaac Babatunde continued to enjoy strong technical support provided by MTN Group,
isaacbabatunde@agusto.com
particularly as MTN Nigeria accounted for 30% of the Group’s revenue in 2019.
Agusto & Co. Limited The Company is the largest mobile operator in Nigeria with over 64 million
UBA House (5th Floor) subscribers and 25 million active data users, controlling more than 37% of the
57, Marina Nigerian telecommunications industry’s subscribers and 49% market share of
Lagos the industry’s revenue1.
Nigeria
During the financial year ended 31 December 2019 (FYE 2019), MTN sustained
www.agusto.com its revenue growth trajectory, recording a 13% increase in turnover to ₦1.17
trillion, primarily driven by the rise in voice and data business segments owing
to changes in its pricing strategy. Operating expenses to sales ratio moderated
to 40.7% (2018: 54%), on account of the first-time adoption of IFRS 16 which no
longer recognises rentals on operating leases as part of operating expenses but
rather utilises a right-of-use assets model and the corresponding lease
liabilities. We note that the Company’s operating expenses to sales ratio is low
in real terms (after we factor inflation of 12%). Pre-tax profit recorded a strong
31% growth to ₦294.7 billion, on the back of improved revenues and lower
1 Nigerian Communication Commission as at December 2019
The copyright of this document is reserved by Agusto & Co. Limited. No matter contained herein may be reproduced, duplicated or copied by any means whatsoever
without the prior written consent of Agusto & Co. Limited. Action will be taken against companies or individuals who ignore this warning. The information contained
in this document has been obtained from published financial statements and other sources which we consider to be reliable but do not guarantee as such. The
opinions expressed in this document do not represent investment or other advice and should therefore not be construed as such. The circulation of this document is
restricted to whom it has been addressed. Any unauthorized disclosure or use of the information contained herein is prohibited.MTN Nigeria Communications Plc.
operating costs. Consequently, the Company recorded a pre-tax return on
average assets (ROA) of 28% (2018: 28%) and pre-tax return on average equity
(ROE) of 150% (2018: 127%) both of which are well above our expectations and
above its peers.
In FYE 2019, MTN Nigeria’s operating cash flow (OCF) declined by 25% to
₦214.2 billion, due to the increase in trade receivables, amounts due from
related parties and other debtors and prepayments. The Company’s OCF was
sufficient to cover returns to providers of finance comprising interest and
dividend payment. MTN’s OCF to sales ratio at 18% which we consider
acceptable. When we make adjustment for the final balance of the regulatory
fine paid during the year, the Company's OCF increases to ₦324.2 billion, with
operating cash flow to sales ratio of 28%, well above our benchmark. Agusto &
Co. is of the view that MTN Nigeria has a sustainable cash generating capacity,
given that the bulk of the Company’s earnings are received in advance.
MTN Nigeria has continued to benefit from favourable terms of trade with its
suppliers and customers; as a result, the Company’s spontaneous financing was
more than sufficient to cover its working assets, resulting in a short-term
financing surplus of ₦867.1 billion. As at year end, MTN’s long-term funds were
inadequate to cover long term assets, leaving a long-term financing need which
was covered by short term financing surplus.
As at 31 December 2019, MTN Nigeria’s interest-bearing liabilities rose
significantly to ₦412.5 billion, from ₦175.3 billion the prior year, due to
additional syndicated domestic loans obtained. On a net debt basis, MTN
interest bearing debt increased markedly by 3.2x. As a result, the ratio of IBL
(net of cash & equivalents) to equity rose sharply to 151% from 25% the previous
year, well above our benchmark for corporates in the Aa+ rating category.
During the period under review, the Company’s core interest expense to sales
ratio stood at 4.5% though below the three-year average of 6%, it is above our
2% maximum threshold for companies in this rating category. Despite the
increase in interest bearing debt, MTN’s interest cover of 4.09 times remained
above our threshold of 3 times. While we note the Company’s plan to optimise
its capital structure, we believe capital expenditure (capex) in deployment of 4G
LTE will further deteriorate leverage metrics going forward. Therefore, Agusto
& Co. believes the Company’s leverage ratios will increase by FYE 2020.
In May 2019, MTN became a public limited liability company following its listing
by introduction of 20,354,513,050 ordinary shares of ₦0.02 each on the
Premium Board of the Nigerian Stock Exchange (NSE). During the financial
year, the Company secured a super-agent license from the Central Bank of
Nigeria (CBN) to support its fintech business segment. However, MTN has
applied for a payment service bank license in a bid to drive its fintech business
segment and improve financial inclusion in Nigeria.
During the year, MTN expanded its network infrastructure, with the roll-out of
4G LTE technology across major cities in Nigeria, in order to improve network
quality, provide reliable and high-speed internet services. Following the
2 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
growing demand for data services and increasing competition in the data
segment, the Company also adopted a more flexible pricing structure across its
data plans, while offering innovative service bundles to its large and growing
subscriber base. With its wide array of spectrum licenses and 29,000 kilometres
fibre optics (the longest in West Africa), MTN remains a carrier of carriers,
offering backbone support services to other telecom operators, over 100
internet service providers and ICT resellers in Nigeria.
Agusto & Co. notes that physical distancing ideally should result in more voice
calls, however, the weak purchasing power and changing consumer pattern
towards more data enabled way of communicating is adversely impacting voice
revenue which has the highest margin. Nonetheless, we expect data service
revenue contribution to inch up, following the new pricing strategy adopted
across its data plans, increasing ‘work from home’ policy implemented by a
number of corporate organisations induced by the COVID-19 pandemic coupled
with the acceleration in the deployment of 4G LTE in the country. Overall, we
believe margins from the data business segment will come under pressure, on
the back of the increasing competition from not only new small and nimble
internet service providers but also from mainstream telcos.
Going forward, Agusto & Co. believes that MTN is not immune from the
pandemic-induced headwinds, however, the Company is in a better position
than most corporates, underpinned by its cash generating capacity, strong
competitive position owing to its large subscriber base and growing number of
active data users. Therefore, Agusto & Co. hereby attaches a stable outlook to
the rating of MTN Nigeria Communications Plc.
3 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Figure 1: Strengths, Opportunities & Threats
Strengths
• Market leader in the Nigerian telecommunications industry
• Extensive network coverage, with one of the largest fibre networks
in Africa (circa 29,000 km)
• Broad spectrum licenses providing competitive advantage
• Extensive product and service offerings
• Strong brand
• Very good profitability
• Strong cash flow
• Experienced and stable management team
Opportunities
• Growing smartphone penetration in Nigeria
• Nigeria's large unbanked populations presents strong potentials for
growth in the fintech space
• Emerging spectrum trading and active network sharing operations
to provide operators avenue to reduce cost
• Nigeria's low insurance penetration to gross domestic product
• Low broadband penetration in Nigeria
Threats
• Regulatory risks
• Heightening competition in the data space, with new entrants in the
market
• Emerging fintech companies and digital solutions providers could
distort margins and market dynamics
• Changing consumer behaviour in the wake of COVID-19 and
general lull in voice revenue
4 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
COMPANY PROFILE
Background
MTN Nigeria Communications Plc. is the leading mobile operator and foremost provider of GSM cellular
telecommunications services in Nigeria. The Company was incorporated in November 2000 as a private limited
liability company and was granted licence by the Nigerian Communications Commission (NCC) in February 2001 to
undertake building and operating GSM Cellular Network Systems and other related services in Nigeria.
Subsequently, MTN Nigeria commenced full commercial operations in August 2001. The Company currently holds
a Unified Access Service License (UASL).
MTN Nigeria is a member of the MTN Group – Africa’s leading cellular telecommunications company with strong
presence in 21 countries (including the Middle East) accounting for over 251 million subscribers. In 2003, the
Company was one of the first telecom operators to cross the 1 million subscriber base mark in Nigeria. In 2005, MTN
launched its fibre network in a bid to grow its coverage and reached over 10 million subscribers by 2006. The
Company was the first operator to obtain and operate the 3.5G license in Nigeria in 2007. In 2010, MTN Nigeria
commissioned (in partnership with Ericsson) one of the largest Network Switch Centre in Africa capable of handling
calls from up to 8 million subscribers at a time. The Company is the first telecom operator in Nigeria to build 10,000
base transmission stations (the bulk of which have been sold and leased back) and privately owns the longest fibre
optic cable of 29,000 kilometres in Africa.
MTN Nigeria was declared a dominant player in mobile voice and upstream market segment, with over 50 million
subscribers in 2013. The Company acquired 700 MHz spectrum from Nigerian Broadcasting Corporation in 2015 to
help the signal travel longer distances and requiring fewer towers to reach the same geographic area while allowing
MTN participate in digital television space in the long term. In 2016, the Company acquired Visafone
Communications Limited (Visafone), following its plan to utilise the 800MHz spectrum license in the provision of
data services.
In 2019, the Company launched the 4G LTE services in Lagos, Abuja and Port Harcourt using a combination of the
800MHz and 2600MGz spectrum in line with the growing demand for data. MTN established Yello Digital Financial
Services Limited, a wholly owned subsidiary with the focus to operate as a digital and mobile financial service
operator in the same year. However, the subsidiary is yet to commence operations. In 2019, the Company obtained
a super-agent license from the Central Bank of Nigeria in a bid to drive financial inclusion through its large
subscriber base in the country. Although MTN applied for a payment service bank license in order to provide mobile
financial services through its expansive platform, the Company is yet to receive approval from the CBN.
During the financial year ended 2019, the Nigerian Communication Commission (NCC) granted Visafone the
approval to transfer its 800MHz license and spectrum to MTN Nigeria. In July 2019, the Board of Visafone approved
the voluntary winding up of Visafone Communication Limited. The liquidation process is currently on-going and is
expected to be concluded in 2020. In May 2019, MTN became a publicly quoted company following its listing by
introduction of 20,354,513,050 ordinary shares of ₦0.02 each on the Premium Board of the Nigerian Stock
Exchange. During the year ended 31 December 2019, the Company conducted the trial of the 5G technology in line
with its objective to improve network quality and enhance data services.
5 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Figure 2: Evolution of MTN Nigeria
2020
Accelerate the
2018 - 2019 deployment of 4G
LTE across major
Obtained a super cities in Nigeria
2016-2017 agent license
from CBN Leverage its
• Acquired extensive network
2014-2015 Visafone Utilised the coverage and
• Obtained 800MHz wide distribution
• Sold 9,000 spectrum
towers to IHS 2.6Ghz channels to build
2011-2013 spectrum acquired from
• launched mobile a payment
• Reached over license Visafone ecosystem which
50 million financial
2006-2010 services • Launched 4G Listed on the will aid its
subscribers LTE in Abuja, Prmium Board of financial inclusion
• Over 10 million • Acquired
subscribers • Declared Lagos and Port NSE policy
2001-2005 dominant player 700MHz
base Harcourt Tested its 5G
• Incorporated as by NCC in the spectrum from
• Obtained 3G NBC • Launched a technology
a private limited mobile voice value added
liability spectrum and upstream • Launched MTN
license service
company. market Music+ subscription
• First call on • Awarded unfied segments.
license. self-
network management
• Reached over 1 • Commissioned service
million the largest
subscribers switching
centres in Africa
• Launched fibre
network
Ownership Structure
MTN International (Mauritius) Limited is the holding company of MTN Nigeria Communications Plc.’s and its
ultimate holding company is MTN Group Limited - incorporated in South Africa. As at 31 December 2019, MTN
Group through MTN International (Mauritius) Limited is the single largest shareholder accounting for 76.08% equity
stake.
During the year, the Board of Directors at the extraordinary general meeting of MTN Nigeria passed a resolution to
subdivide the ordinary shares from ₦1 each to two kobo (2k) each. This became effective with the listing of the
Company's shares by introduction on the Nigerian Stock Exchange (NSE). The subdivision led to the increase in the
ordinary shares to 27,850,000,000 from 557,000,000 shares. In January 2019, a special resolution was passed to
delink the ordinary shares of the Company from the preference shares.
Following the delinking of the ordinary shares from the preference shares, the 4,500,000 Class B ordinary shares
have been renamed ordinary shares by way of a special resolution passed by the Board of Directors. Upon the listing
on the NSE, the Board of Directors in April 2019 approved the redemption of the preference shares as required in
the Group's Memorandum and Articles of Association. The par and premium value of the preference shares of
402,590,263 was classified to a redemption account from share capital and share premium. The redeemable
preference shares valued at $399.59 million (equivalent of ₦148.19 billion) were redeemed in December 2019. In
line with the Companies and Allied Matters Act, 2004 (CAMA), the nominal amount of the par value of the
redeemable preference shares of ₦239.4 million was reclassified out of retained earnings to a Capital Redemption
Reserve Fund.
As at year end, the Company had three wholly-owned subsidiaries comprising XS Broadband Limited, Visafone
Communications Limited and Yello Digital Financial Services Limited. MTN Nigeria together with the three
subsidiaries are referred to as the MTN Nigeria Group.
6 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Figure 3: Ownership Structure of MTN Nigeria
MTN Group
MTN Nigeria
Communications Plc
Visafone Yello Digital
XS Broadband
Communications Financial
Limited
Limited Services Limited
Board Composition and Structure
A 15-member Board of Directors, comprising 13 non-executive directors, two executive directors, out of which three
are independent non-executive directors, governs MTN Nigeria Communications Plc. Dr. Ernest Ndukwe is the
Chairman of the Board– appointed in September 2019, while Mr. Ferdi Moolman is the Chief Executive Officer.
Subsequent to the Company’s listing on the Nigerian Stock Exchange, Mr. Michael Ajukwu, Mr. Muhammad K.
Ahmad, Abubakar B. Mahmoud, Andrew Alli, Dr. Omobola Johnson and Mrs. Ifueko M. Omogui Okauru were
appointed to the Board in September 2019 to replace the founding Board members who retired. Dr. Pascal Dozie,
Mr. Gbenga Oyebode, Col. M. Sani Bello, Mr. Babatunde Folawiyo, Chief Victor Odili and Mallam Ahmed Dasuki
retired from the Board September 2019. Subsequent to year end, Mr. Modupe Kadri was appointed Executive
Director and Chief Financial Officer in March 2020 as a replacement for Mr. Adekunle Awobodu who left the
Company.
Table 1: Current Directors
Name Designation Nationality
Dr. Ernest Ndukwe, OFR* Chairman Nigerian
Mr. Ferdi Moolman Chief Executive Officer South African
Mr. Modupe Kadri** Executive Director (Chief Financial Officer) Nigerian
Mr. Michael Ajukwu* Independent Non-Executive Director Nigerian
Mr. Muhammad K. Ahmad, OON* Independent Non-Executive Director Nigerian
Mr. Abubakar B. Mahmoud SAN, OON* Non-Executive Director Nigerian
Dr. Omobola Johnson* Non-Executive Director Nigerian
Mr. Andrew Alli* Non-Executive Director Nigerian
Mrs. Ifueko M. Omoigui Okauru* Non-Executive Director Nigerian
Mr. Paul Norman Non-Executive Director (representing MTN Group) South African
Mr. Rhidwaan Gasant Independent Non-Executive Director South African
Mr Karl Olutokun Toriola Non-Executive Director (representing MTN Group) Nigerian
Mr. Rob Shuter Non-Executive Director (representing MTN Group) South African
Mr. Ralph Mupita Non-Executive Director (representing MTN Group) South African
Mr. Jens Schulte-Bockum Non-Executive Director (representing MTN Group) German
Source: MTN Nigeria Communications 2019 Annual Report. *Appointed September 2019; **Appointed March 2020
The Board currently has four standing Committees namely; Board Audit Committee, Risk Management and
Compliance Committee, Remuneration, Human Resources and Social and Ethics Committee, Nomination and
7 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Governance Committee. The Board Statutory Audit Committee is chaired by Mr. Rhidwaan Gasant (independent
non-executive director) and supported by four non-executive directors and three shareholder representatives. Dr.
Omobola Johnson chairs the Risk Management and Compliance Committee, supported by five other non-executive
directors. Mr. Michael Ajukwu is the chairman of the Nomination and Governance Committee while the
Remuneration, Human Resources, Social, and Ethics Committee was chaired by Chief Victor Odili prior to his
retirement from the Board in line with the code of Corporate Governance.
Operational and Technical Structure
MTN Nigeria Communications Plc. holds a Unified Access Service License (UASL) obtained in 2006 with an expiry
date of 31 August 2021. This license permits MTN to provide full bouquet of services possible on existing spectrum.
The Company also holds the following licenses:
Table 2: List of MTN’s Licenses
Licenses Year Obtained Expiration
3G Spectrum Licence (3G) to receive frequency 1 May 2007 30 April 2022
1920-1930MHz (transmit frequency 2110-2120
MHz)
Universal Access Service License (including 2006 15-year term and renewable for
International Gateway) another five years
Wimax 3.5Ghz Spectrum received 2007 Annually
Digital Terrestrial TV Broadcasting License with 27 May 2015 26 May 2020 and automatically
700 MHz spectrum renewable for another 5 years
Microwave Spectrums 8GHz-26GHz Annually
Digital Mobile License (now extended as 5 February 2001 31 August 2021
900MHz & 1800MHz Spectrum Licenses)
International Submarine Cable & Landing 1 January 2010 31 December 2030
Station Licence (WACS)
800MHz Spectrum Licence (via Visafone 30 December 2015 31 December 2025
acquisition)
Spectrum 2.6GHz 1 August 2016 31 July 2026
Other Information
In October 2015, the NCC imposed a fine of ₦1.04 trillion relating to the timing of the disconnection of 5.1 million
subscribers. Subsequently, the Company and NCC reached an agreement, with a regulatory fine of ₦330 billion as
full and final settlement to be paid in seven instalments. MTN paid ₦220 billion in five instalments between 2016
and 2018 while the final tranche of ₦110 billion was paid during the period under review.
The Office of the Attorney General of the Federation (AGF) and Minister for Justice in May 2018, initiated an asset
recovery investigation exercise against MTN Nigeria with respect to outstanding revenue due to the Federal
Government of Nigeria of ₦242 billion and US$1.3 billion. MTN Nigeria filed a suit at the Federal High Court, Lagos
in September 2018 challenging the alleged liability in response to the ultimatum issued by the AGF on 20 August
2018. Subsequent to 2019 year end, the Attorney General of the Federation and Minister of Justice formally
withdrew the demand for ₦242 billion and US$1.3 billion alleged revenue indebtedness against MTN Nigeria. The
AGF referred the matter to the Federal Inland Revenue Service (FIRS) and Nigeria Customs Service (NCS) with a
view to resolving contentious issues. Subsequently, the Company has withdrawn its legal action against the AGF
and the court struck out the matter in January 2020.
8 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
The external auditors Messrs PricewaterhouseCoopers having served for more than ten years were not re-
appointed at the Annual General Meeting (AGM) held in April 2019, in line with the Nigerian Code of Corporate
Governance (NCCG) which provides that audit firms may be retained for no longer than ten years continuously. As
a result, Messrs Grant Thornton Nigeria (Chartered Accountants) were appointed by the Board to fill the casual
vacancy to carry out the statutory audit for the financial year ending 31 December 2019. Management has disclosed
that the Company has appointed Ernst & Young to carry out the 2020 audit exercise.
As at 31 December 2019, MTN Nigeria had total assets of ₦1.5 trillion (2018: ₦942.8 billion). The Company
generated turnover of ₦1.17 trillion and recorded profit after tax of ₦205.3 billion during the financial year ended
31 December 2019.
Background – MTN Nigeria Communications Plc as at 31 December 2019
Authorised Share Capital: ₦557 million
Paid-up Capital: ₦407.09 million
Shareholders’ Funds: ₦161.3 billion
Registered Office: 4 Aromire Road, Off Alfred Rewane Road, Ikoyi, Lagos
Principal Business: Telecommunication
Auditors: Grant Thornton
Source: MTN Nigeria Communications Plc. 2019 Annual Report
9 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
FINANCIAL CONDITION
ANALYSTS’ COMMENTS
PROFITABILITY
During the financial year ended 31 December 2019 (FYE 2019), MTN Nigeria’s topline rose by 13% to ₦1.17 trillion,
on the back of the growth in voice and data segments. Further analysis of revenue revealed that the voice business
segment remained the mainstay accounting for 72.5% of revenue, while recording an 8.4% growth year on year
(yoy). The increase in the voice segment is due to the 10.5% upsurge in subscriber base to 64.3 million, with the
addition of first-time users to the pool of subscribers. Agusto & Co. notes that circa 15 million Nigerians are without
sim cards, coupled with an annual population growth of 3%; Nigeria still portends a growth haven for the Company.
Therefore, we note MTN is well-positioned to benefit from subscribers’ acquisition, given its wide network coverage
and availability, easy access and expanded recharge channels, roll-out of more rural sites as well as improving
pricing regime have continued to support the growth of the voice revenue.
In the FYE 2019, the data services segment recorded the highest growth at 42.4%, accounting for 18.8% of MTN's
revenue (2018: 14.9%), fuelled by the strong 34.9% rise in active data users to 25.5 million. We note that the
significant growth in data services comes on the heels of the adoption of a more flexible pricing structure across
data plans, introduction of the Company's smart feature phones to the market, enhancement of service bundling
and growing data penetration in the country. In addition, revenue from data services ramped up due to the
extended 4G coverage, following the unlocking of the 800 Mhz spectrum license acquired from Visafone as well as
the user sim upgrade to 4G from 3G providing reliable and high-speed internet services to consumers. We believe
the COVID-19 pandemic will lead to growth in data consumption, following the increasing demand for home
connectivity owing to the work from home concept as well as the rise in virtual schooling. Thus, we expect data
services to inch up in the near term.
Figure 4: Breakdown of Revenue by Business Segments Figure 5: Year-on-Year Growth by Business Segments
2018 2019 60%
42%
5% 40%
Others 23%
5%
15%
20% 8%
Fintech 3%
3% 0%
Voice Data Digital Fintech Others
Digital 2% -20%
0%
-40%
Data 15%
19%
-60%
Voice 75%
73% -80%
-77%
0% 20% 40% 60% 80% -100%
The fintech business segment which comprises cash transfers, airtime /data sales, cash deposit and withdrawal,
airtime lending, bill payments and e-commerce recorded a 23.3% growth to account for 3% of MTN’s revenue. The
growth is due to the expanding agency network, given that the Company has over 108,000 registered agents on its
10 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
2
platform. In addition, we believe that the low banking penetration ratio at 17.7% will continue to support the
Company’s foray into providing fintech services in Nigeria. In the third quarter 2019, MTN Nigeria obtained a super-
agent license from the Central Bank of Nigeria (CBN) in line with the Company's plan to develop an ecosystem of
payments in the country. MTN has applied for a payment service bank license to drive fintech business segment in
line the Company's strategic objective to build a digital ecosystem of telecom services enabled by fintech while
leveraging its large customer base and wide network coverage.
During the year ended 31 December 2019, MTN Nigeria’s average revenue per user (ARPU) inched up marginally to
₦1,519 from ₦1,503 the prior year, on the back of the strong growth in subscriber base. The Company’s ARPU is
higher than Airtel Networks Nigeria Limited (Airtel – which is considered a major operator in the Nigerian
telecommunications industry) ₦1,0443 and estimated industry average of ₦1,142.5 in the same period. Overall,
Agusto & Co. expects the voice business segment to continue to dominate MTN’s revenue profile in the near to
medium term. Nonetheless, we recognise that the revenue from the voice segment could be tempered by the
adverse impact of COVID-19, particularly as more Nigerians switch to data-based calls and other data driven mode
of communication. We expect revenue from data business segment to maintain strong growth trajectory, on the
back of favourable demographics, the changing nature of work owing accelerated by the COVID-19 pandemic and
MTN's large capital expenditure on the roll-out of 4G LTE plus.
Figure 6: Operating Profit Margin
During the financial year ended 31 December 2019,
MTN Nigeria’s cost of sales to revenue ratio remained 45%
38.5%
largely unchanged at 20.7% (2018:20.1%), on the 40%
35% 33.2% 31.9%
back of the enlarged revenue base. Operating
30% 28.1%
expenses moderated by 17%, following the first-time 25.9%
4
adoption of IFRS 16 which no longer recognises lease 25% 22.5%
rentals as part of operating expenses. The Company 20%
recorded an operating profit margin (OPM) of 38.5% 15%
higher than Safaricom Plc. (Safaricom is the leading 10%
telecom operator in East Africa) of 35.4% and well 5%
above our benchmark. Unaudited accounts for the 0%
three months ended 31 March 2020 (Q1 2019) shows 2019 2018 2017
that MTN reported an operating profit margin of MTN Safaricom Agusto Benchmark
34%, on the back of impairment charge on obsolete
network assets and increase in lease rental costs due to the Company's accelerated rollout of 4G sites across the
country. We expect the Company's OPM to dip moderately in 2020 following rising inflationary pressures and
heightening competition in the telecoms market but remain healthy above the industry average,.
In the FYE 2019, MTN recorded other expenses of ₦102.8 billion, mainly arising from the recognition of finance
costs component on lease liability owing to the first-time adoption of IFRS 16 and increase in discounts &
commissions and advertising expenses. During the year ended 31 December 2019, MTN's interest expense to sales
ratio inched up to 4.5%, but remained below the three-year average of 6%. Despite the increase in finance costs,
pre-tax profit rose significantly by 31% to ₦294.7 billion, accounting for 25.2% of revenue from 21.7% the previous
year. Notwithstanding, Agusto & Co. notes that the Company’s PBT margin is lower than Safaricom’s 36.3% but
well above the industry average of 16% and our benchmark. Following the growth in pre-tax profit, the Company’s
2 Agusto & Co. Research
3
Airtel’s ARPU $2.9 as at 31 December 2019, using exchange rate of $/₦360. Source: Airtel Africa Limited’s annual report
4 The standard rather utilises a right-of-use assets model and lease liabilities based on the discounted payments required under the lease, taking
into account the lease term as determined under the new standard
11 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
profitability ratios trended upwards, with pre-tax return on average assets of 28% and pre-tax return on average
equity of 150%, both well above our expectations. We recognize the adverse impact the Covid 19 has had on
businesses and household and we do not expect MTN to be immune from this. Nonetheless, the Company is in a
better position than most companies operating in the country. In our opinion, MTN’s profitability is good and
sustainable in the near term.
Figure 7: Pre-tax Return on Average Assets (ROA) Figure 8: Pre-tax Return on Average Equity (ROE)
MTN Safaricom MTN Safaricom
60% 160% 150%
51%
49% 140% 127%
50%
44%
120%
105%
40%
100%
30% 28% 28% 80% 68% 68% 65%
20% 60%
20%
40%
10%
20%
0% 0%
2019 2018 2017 2019 2018 2017
Subsequent to year end, the Company’s unaudited management accounts for the three months ended 31 March
2020 indicate stability in MTN's earnings, recording revenue of ₦329.2 billion, representing a 16.7% growth over
the previous corresponding period, largely supported by voice and data growth. Furthermore, profitability ratios
though dipped moderately, with annualised ROA of 17% and ROE of 102% respectively, both ratios remained higher
than our expectation. MTN intends to sustain this performance, leveraging its wide range of spectrum licenses
which allows the Company scale-up its 4G coverage, utilising its wide and innovative product offerings as well as
extensive distribution network to provide more affordable data to its large and growing subscriber base. MTN plans
to ramp up its super-agent network by expanding the service offerings to deepen its market reach.
12 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
CASH FLOW
MTN Nigeria Communications Plc's ability to generate cash flow is underpinned by its favourable terms of trade
with its customers and suppliers, given that sales are largely on advance or cash basis, in line with the structure of
Nigerian telecoms industry which is predominantly a pre-paid market5. Nonetheless, the Company engages in
credit sales to eligible trade partners (bulk buyers)6 for a period of up to seven days. MTN Nigeria requires its eligible
trade partners to provide an approved bank guarantee from one of the Company’s approved banks in a bid to ensure
trade receivables are collected in a timely manner. In addition, MTN conducts background checks utilising the
services of credit bureaus to ascertain the credit status of eligible trade partners to minimise credit losses. As at
year end, MTN Nigeria’s average trade receivables days stood at 7 days, which is in line with the Company's
stipulated credit period for eligible trade partners but just above 6 days recorded the prior year while average trade
creditor days inched up to 41 days (2018: 31 days).
In the financial year ended 31 December 2019, MTN Nigeria's operating cash flow (OCF) dipped by 25% to ₦214.2
billion, on account of the increase in trade receivables from the Company’s bulk distributors, amounts due from
related parties and other debtors and prepayments. MTN's OCF was adequate to meet returns to providers of
finance of ₦185.3 billion, comprising interest payment (₦52.3 billion) and dividend payment (₦133 billion). During
the same period, the Company's net operating cash flow of ₦28.8 billion was insufficient to cover current portion
of long-term debt of ₦32.4 billion and estimated mandatory capital expenditure, but this was financed with
borrowings.
Figure 9: Operating Cash Flow to Sales Ratio
In the FYE 2019, MTN Nigeria's operating cash flow
as a percentage of sales trended downwards to 18%
60%
from 27% the prior year and lower than the three-
50%
year average of 24%. Although the Company's OCF 50%
to sales ratio is lower than Safaricom of 50%, it is still 40% 40%
within our expectation for companies in the 40%
telecommunications industry. During the year 27.4% 27.3%
30%
ended, MTN made the final payment of the
regulatory fine imposed by the Federal Government 18.3%
20%
in 2015. Given that the regulatory fine is one-off and
non-recurring, when we add back the final balance 10%
paid in 2019, the Company's OCF increases to ₦324.2
0%
billion, with operating cash flow to sales ratio of 28%, 2019 2018 2017
well above our benchmark for telecommunications MTN Safaricom Agusto Benchmark
companies. As at year end, the Company reported a
principal payback period of 1.3 years, supported by its large cash position. Subsequent to year end, MTN Nigeria
reported operating cash flow of ₦176 billion for the three months ended 31 March 2020, with OCF to sales ratio of
53%, well above year end. Overall, Agusto & Co. considers MTN Nigeria Communications Plc’s cash flow profile to
be strong, largely supported by a strong and sustainable cash generating capacity as well as favourable terms of
trade.
5
Telecom users pay in advance prior to using the service
6 Eligible trade partners must have purchasedon cash only basis for a minimum of six months and have turnover of ₦200 million within the past
six months.
13 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
FINANCING STRUCTURE AND ADEQUACY OF WORKING CAPITAL
As at 31 December 2019, the Company's working assets stood at ₦92.5 billion, up from ₦77.2 billion the previous
year. The growth in working assets is mainly due to the increase in trade debtors, amounts due from related parties,
other debtors and prepayments. As at year end, MTN Nigeria's working assets consists of restricted cash7 (41%),
trade debtors (26%), other debtors & prepayments (17%), amount due from related parties (16%) and inventory
(1%).
Figure 10: Short term financing surplus ₦’Billion
As at 2019 year end, the Company's spontaneous 867.1
900
financing (non-interest bearing liabilities) rose sharply
by 79% to ₦959.6 billion, on account of the lease 800
liabilities relating to its network infrastructure 700
comprising towers, base stations and other telecom 600
505.8
equipment leased from infrastructure companies. As at 500 457.6
31 December 2019, MTN's spontaneous financing
400
comprised other creditors & accruals (69%), deferred
300
taxation (12%), taxation payable (7%), advance payment
& deposits from customers (5%), provisions (3%), trade 200
creditors (3%) and amounts due to related parties (2%). 100
The Company’s spontaneous financing was more than 0
sufficient to finance working assets, leaving a short- 2019 2018 2017
term financing surplus of ₦867.1 billion as at year end.
Following MTN Nigeria's favourable terms of trade with customers and suppliers, the Company has consistently
recorded financing surplus which we consider at par with the telecommunications industry8, particularly as
customers make advance payments for voice and data services. Therefore, we expect MTN to continue to record
financing surplus going forward.
Figure 11: Working capital surplus/ (deficiency) ₦’Billion
As at 31 December 2019, the Company's long term
160
assets stood at ₦1.27 trillion, up from ₦747.4 billion, due 136.7
to the recognition of right of use assets for the 140
underlying assets (network infrastructure and 120
information systems) in line with IFRS 16. As at year end, 100
MTN Nigeria’s long-term funds amounting to ₦541.3 80
billion, consists of long term borrowings (70%) and 60
40.3
equity (30%) were insufficient to finance long term 40
assets, thus leaving a long-term financing need of 20
₦730.4 billion. The Company’s short-term financing 0
surplus was adequate to cover the long-term financing 2019 2018 2017
-20
need Agusto & Co. believes that MTN's financing -40 (25.6)
structure requires improvement as the Company
continues to use short term financing surplus to fund long term financing need. We however note that this is
synonymous with the telecoms industry. Subsequent to year end, we note that the Company raised ₦100 billion
commercial paper to fund its working capital needs. Although this funding type is short term, we are of the view
7 Which represents deposits for letters of credit, collateral against repayment on borrowings & placement of minimum capital with Central Bank
of Nigeria for payment service bank license.
8 Safaricom Plc posted a short-term financing surplus of Shs19.4 billion and long-term financing surplus of Shs4.2 billion in the financial year
ended 31 March 2019.
14 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
that the Company requires long term funds, to close the funding gap and eliminate the mis-match in the financing
structure in the near term. Going forward, Management has disclosed plans to raise long term funds to refinance
its bank borrowings.
LEVERAGE
As at 31 December 2019, MTN Nigeria's total liabilities stood at ₦1.37 trillion, representing a significant 93% growth
from the prior year, due to the increase in non-interest bearing liabilities. As at year end, non-interest bearing
liabilities (NIBL) accounted for 70% of MTN Nigeria’s total liabilities while interest bearing liabilities (IBL)
represented the balance of 30%. As at year end, NIBL rose considerably by 79% to ₦959.6 billion, due to the
introduction of lease liabilities related to network infrastructure utilised by the Company. MTN Nigeria's NIBL
comprised other creditors9 (69%), deferred taxation (12%), taxation payable (7%), advance payments and deposits
from customers10 (8%) and others (8%).
As at 31 December 2019, the Company's interest bearing liabilities more than doubled to ₦412.5 billion, from ₦175.3
billion, on account of additional commercial bank loans obtained. As at FYE 2019, IBL consists of long-term
borrowings (92%) and current portion of long-term borrowings (8%). MTN's financing strategy focused on local
funding in order to reduce foreign exchange exposure and mitigate the impact of exchange rate volatility on its
financial performance. As a result, MTN Nigeria’s local currency exposure from a consortium of commercial banks
accounted for 92% of interest-bearing liabilities while foreign currency (FCY) borrowings for export credit agency
backed facilities from a number of foreign banks and export development agencies represented the balance of 8%
(2018: 51.3%).
MTN Nigeria secured a ₦200 billion local currency term loan syndicated from a consortium of commercial banks in
May 2019, with a 7-year tenor and moratorium of two years. The facility has a variable interest rate linked to an
average 3-month Nigerian Interbank Offer Rate (NIBOR)11 plus a margin of 1.75%. The proceeds of the term loan
were utilised mainly to fund capital expenditure for the acquisition of a number of the Company's network
infrastructure to improve the network service quality as well as fund working capital. As at year end, outstanding
balance on the Company’s local syndicated facility amounted to ₦378.6 billion with an effective interest rate of
14.85% (2018: 17%).
As at year end, the ratio of IBL (net of cash & equivalents) to equity worsened to 151% from 25% the prior year, on
the back of the significant increase in interest bearing debt as well as the decline in equity, following the redemption
of MTN's preference shares12. The Company’s IBL to equity is significantly above our expectation of 45%. Following
the rise in interest expense, interest cover dipped to 4.09 times (2018: 6.41 times), less than our expected range of
between 6 to 8 times for companies in this rating category. As at 31 December 2019, the Company’s ratio of net
debt to total assets (excluding cash) stood at 16%, up from 6% the prior year. In the financial year ended 31
December 2019, the Company's interest expense trended upwards by 29% ₦52.3 billon, due to the substantial
increase in borrowings, as a result, interest expense to sales ratio inched up to 4.5% (2018: 3.9%). We note that MTN
Nigeria’s ratio of interest expense to sales was higher than Safaricom’s 0.2%, and our expectation of less than 2%.
9 Includes lease liabilities which measured at the presentvalue of lease payments to be made over the lease term and are discounted using MTN
Group’s incremental borrowing rate.
10 Relates to contract liabilities which are payments received in advance from sales of recharge cards and on Subscriber Identification Module
(SIM) cards deferred up to the point of usage by the subscribers and point of activation on the network respectively. Contract liabilities are
recognized as revenue when the subscribers’ use the airtime for network services such as voice, SMS, data, digital services.
11 Nigerian Inter-Bank Offered Rate at 6% as at May 2020.
12 The redeemable preference shares of $399.59 million were redeemed on 30 December 2019.
15 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Overall, MTN Nigeria’s leverage metrics has deteriorated and is higher than our benchmarks in its previous rating
category.
Figure 12: Interest Expense to Sales Ratio Figure 13: Net Debt to Total Assets
14% 80%
12.7%
12% 70%
60%
10%
50%
8%
40%
6%
4.5% 30% 26.0%
3.9%
4% 18.0%
20% 15.9%
2% 10.0% 9.9%
0.5% 0.7% 10% 6.0%
0.2%
0% 0%
2019 2018 2017 2019 2018 2017
MTN Safaricom Agusto Benchmark MTN Safaricom Agusto Benchmark
Management has disclosed plans to diversify its funding sources and optimise funding costs while mitigating
exposure to market risk relating to borrowing activities. In May 2020, the Company raised ₦100 billion commercial
paper, with series 1 of ₦20 billion at 4.78 for 182 days and ₦80 billion for 270 days at 5.74% to fund its working
capital needs while taking advantage of the low interest rate regime in the money market. Overall, we expect
average funding costs by the FYE 2020 to moderate by about 200 basis points, supported by the monetary policy
authorities’ stance to lower interest rates in the country especially in the light of COVID-19 pandemic and the impact
on the economy. Agusto & Co. expects the Company’s leverage metrics to remain high, on the back of MTN’s
planned capital expenditure in deploying 4G across key cities in Nigeria which we anticipate will be largely funded
by debt. We expect coverage ratio to dip moderately, following the impact of additional leverage coupled with
industry-wide shrinking margins in the data business segment, on account of growing competition.
16 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
OWNERSHIP, MANAGEMENT & STAFF
As at 31 December 2019, MTN Nigeria had an authorised share capital of ₦557 million, of which ₦407.09 million
were issued and fully paid. The Company has recently transitioned to become publicly quoted on the Nigerian Stock
Exchange, following its listing by introduction on the Premium Board of the NSE. As a result, MTN has over 4,000
shareholders, with MTN International (Mauritius) Limited holding 76.08% equity stake while the remaining shares
are held by other investors.
The Company is governed by a 16-member Board of Directors, with Dr. Ernest Ndukwe as the Chairman while Mr.
Ferdi Moolman is the Chief Executive Officer. The Board comprises 12 non-executive directors, two independent
non-executive directors and two executive directors. MTN Board of Directors maintains four sub-committees (Audit
Committee, Risk Management and Compliance Committee; Nomination and Governance Committee; and
Remuneration, Human Resources, and Social and Ethics Committee). During the year, some of the founding Board
members retired and were replaced by Messrs Michael Ajukwu, Muhammad K. Ahmad, Abubakar B. Mahmoud,
Andrew Alli, Dr. Omobola Johnson and Mrs. Ifueko M. Omogui Okauru.
MTN Nigeria’s executive management team comprises 17 members, with seven members reporting directly to the
Chief Executive Officer while the other 10 report to the Chief Operating Officer. We are of the view that the
management team have vast experience in the telecommunications industry, particularly as most have been in the
Company or within the MTN Group for over 10 years.
As at 31 December 2019, the Company had a staff strength of 1,870 employees (2018: 1,698 persons) on its payroll
working in Network Group (21%), Finance (17%), Customer Relations (16%), Sales & Distribution (12%), Enterprise
Solutions (9%) and others (25%). In the year under review, MTN Nigeria’s average cost per employee stood at ₦16.4
million, up from ₦15.9 million the previous year. In the same period, operating profit before contribution (after
deducting staff costs) per staff inched up to ₦257 million, from ₦174.2 million the prior year. In our opinion, MTN
Nigeria has a good staff productivity level as revenue contribution per staff is 15.7 times the average staff cost.
Management Team
Mr. Ferdi Moolman is the Chief Executive Officer of MTN Nigeria Communications Plc, a position he has held since
2015. Prior to his appointment, he was the Chief Financial Officer of MTN Nigeria until 2014. Mr. Moolman has held
several executive positions within the MTN Group namely Chief Financial Officer and Chief Operating Officer at
MTN Irancell in 2007 and 2009 respectively. He is a seasoned financial and accounting expert with many years of
experience working with leading organisations such as PricewaterhouseCoopers, Europ Assistance and Super
Group. Mr. Moolman holds a Bachelor’s Degree in Commerce from the University of South Africa and another
degree in Accounting Science from the University of Pretoria. Mr. Moolman is a certified accountant with the South
African Institute of Chartered Accountants (SAICA).
Mr. Mazen Mroue is the Chief Operating Officer (COO) of the Company following his appointment in August 2018.
He has over 20 years work experience in the telecommunications and Information & Communications Technology
industry. Mr. Mroue joined MTN Ghana as a business support manager in 1998 and rose to become Chief
Information Officer and Head of Enterprise Business until March 2011. He was appointed Chief Executive Officer
(CEO) of MTN Liberia in 2011 and CEO of MTN Uganda from 2012 to 2014. Mr. Mroue served as COO of MTN
17 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Irancell between July 2014 to July 2018 and served concurrently as Non-Executive Director for MTN Cyprus from
2015 to July 2018. He began his career in 1996 as a Systems Engineer with Network Computer Systems,
Lebanon. In 1996, Mr. Mroue obtained a Masters’ Degree in Engineering, Computer, Intellectual Systems and
Networks from the National Aviation University and is certified in Leadership Development and Finance from
Harvard Business School and INSEAD respectively. He is a member of the board of the MTN Nigeria Foundation
(Limited by Guarantee)
Mr. Modupe Kadri is the Executive Director and Chief Financial Officer (CFO) following his appointment in March
2020. He is the immediate past CFO at Scancom Plc. (MTN Ghana). Mr. Kadri joined MTN Nigeria in 2007 as the
General Manager Financial Operations and held various positions within the finance division of the Company. In
August 2014, he joined MTN Ghana as the Chief Financial Officer and was appointed Executive Director in April
2016, a position he held until 29 February 2020. Prior to joining MTN, Mr. Kadri worked at Lafarge Africa Plc where
he held various positions in the West African Portland Cement (WAPCO) Plc. subsidiary including financial
controller and business development manager. He began his professional career at PricewaterhouseCoopers (PwC)
where he work for more than a decade. Mr. Kadri holds a Bachelor of Science degree in Economics and a Master of
Science in Management, both from the University of Lagos, Nigeria and is a Fellow of both the Association of
Chartered Certified Accountants (ACCA) and Institute of Chartered Accountants of Nigeria (ICAN). He was part of
MTN’s Global Advancement Programme (GAP) in 2012 and has attended various leadership programmes at the
Columbia Business School, INSEAD and IMD Business School where he is an alumnus of all three. Mr. Kadri sits on
the Board of various companies including Scancom PLC, MobileMoney Limited and Hajj Mabrur Ventures Limited
(Nigeria).
Other members of MTN Nigeria’s management team include the following:
Table 3: MTN’s Executive Management Team
Name Position
Mr. Randy Bikraj Chief Information Officer
Mr. Mohammed Rufai Chief Technical Officer
Mrs. Lynda Saint-Nwafor Chief Business Enterprise Officer
Mr. Rahul De Chief Marketing Officer
Mr. Srinivas Rao Chief Digital Officer
Mr. Cyril Ilok Chief Risk & Compliance Officer
Mrs. Esther Akinnukawe Executive, Human Resources
Mr. Tobechukwu Okigbo Executive, Corporate Services
Mr. Adekunle Adebiyi Executive, Sales & Distribution
Mrs. Uto Ukpanah Company Secretary
Mr. Ugonwa Nwoye Executive, Customer Services
Mr. Olubayo Adekanmbi Executive, Transformation Office
Mr. Ibe Etea Head, Internal Audit
Mr. Kolawole Oyeyemi General Manager, Customer Experiences
Mr. Usoro Usoro General Manager, Mobile Financial Services
18 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
OUTLOOK
The 2019 financial year was characterised by many 'firsts' for MTN Nigeria Communications Plc. The Company
became the first telecommunications operator listed on the Premium Board of the Nigerian Stock Exchange. The
Company is the first telecom operator to have a super-agent license from the CBN and the first telco to conduct a
trial of the 5G technology in three key regions in Nigeria. During the year, MTN successfully made the final payment
of the 2015 regulatory fine while the Attorney General of the Federation withdrew the case against the Company.
Despite the regulatory issues, MTN Nigeria continued on its growth trajectory, recording a 13% increase in revenue
to ₦1.16 trillion, bolstered by voice, data and fintech business segments. As a result, MTN maintained its market
leadership position in the telecommunications industry, with a wide range of spectrum licenses, extensive network
coverage, controlling 49% of the industry's revenue13 and 37% of market share of subscribers.
Following the approval and unlocking of its 800 MHz spectrum license, the Company made significant investments
in its network infrastructure and aggressively deployed 4G plus technology across major cities in Nigeria which
supported the strong growth in the data business segment, allowing for improved network quality and coverage.
Agusto & Co notes that this strategic move is in line with MTN Nigeria's focus to record strong growth in revenue
from data business segment. We expect the voice business segment’s contribution to revenue to taper downwards,
given that voice is approaching the mature stage of the industry life cycle coupled with the changing dynamics of
the work owing to the Coronavirus pandemic. Therefore, Agusto & Co. expects growth in data business segment to
remain strong in the near to medium term., but may not compensate for loss of revenue from voice in the near
term.
Management has disclosed its medium term guidance of the Company's financial performance, with revenue
growth to remain at double digit while improving profit margins. MTN will continue to pursue its BRIGHT strategy
centred on six key pillars including consumer voice mobile, VAS & hardware (voice), consumer mobile & fixed data
(data), digital, fintech, enterprise and wholesale business segments. The Company intends to accelerate the
deployment of low cost 4G technology to reach more consumers at the bottom-of-the-pyramid, with the use of the
MTN smart feature phone which is a low-cost and affordable smartphone while leveraging its wide array of
spectrum licenses.
MTN Nigeria plans to ramp up its fintech business segment following the receipt of its super-agent license and
expand the service offerings to build an ecosystem of payments, leveraging its large subscriber base, wide network
coverage and growing number of mobile money users. Agusto & Co. notes that fintech penetration and adoption
in Nigeria is low, with a banking penetration ratio of 17.7% and only 41 million Nigerians have a bank verification
number (BVN), but with over 184 million subscriber base in the country, therefore we believe the Company has
strong potential to drive financial inclusion in the country. Subsequent to year end, MTN entered a joint venture
agreement with an insurance company to deliver insurance products and services leveraging the Company's large
and growing subscriber base and telco infrastructure. With insurance penetration low at 1% of gross domestic
product14, Agusto & Co. believes that the opportunities in this segment is enormous if executed properly. Going
forward, MTN will remain a strategic business to Nigeria as it is a carrier of carriers, continuously providing
infrastructure to support other telcos and internet service providers for the enterprise and wholesale business
segment.
13 Market share of the telecommunications total revenue in 2019
14 Agusto & Co. Research
19 2020 Corporate Rating ReportMTN Nigeria Communications Plc.
Overall, we expect profitability to remain good, utilising its wide range of spectrum licenses, supported by its
extensive distribution network and innovative product offerings. Agusto & Co. expects cash flow to remain strong
and working capital to be adequate, on the back of the favourable terms of trade with customers given that the
telecoms industry is a pre-paid market. We expect leverage metrics to remain above our threshold for companies
in its previous rating category, due to rising debt profile utilised in funding capital expenditure for the acquisition of
new network infrastructure in the deployment of 4G LTE across the country. Agusto & Co. recognises the adverse
impact of the Covid-19 pandemic on businesses and households and we do not expect MTN to be immune from
this. Nonetheless, we believe the Company is in a better position than most companies operating in the country.
Agusto & Co. expects the overall financial condition of the Company to remain strong, underpinned by its cash
generating capacity and strong profitability levels. Based on the aforementioned we have attached a stable outlook
to MTN Nigeria Communications Plc.
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