MTN’s domestic business hurt by Cell C write-off
MTN Group’s SA business reported lower margins in the first half of 2019 after being forced to write off as much as R393m owed by struggling rival Cell C for network roaming services.
The group’s shares fell as much as 4.6% to R107.55 on Thursday morning.
MTN SA’s half-year performance was affected by new regulations aimed at curbing out-of-bundle tariffs and “adjustments required due to delayed payments under the network roaming agreement with Cell C”, the group said.
The mobile operator said it had not recognised revenue of R393m it was owed by Cell C for the period.
“We are evaluating a sustainable solution to the agreement with Cell C,” MTN said.
The operators said earlier this week they were broadening their roaming agreement, which took effect from October 2018.
MTN Group CEO Rob Shuter said on Thursday morning a wider agreement would help Cell C to be “sustainable”, and that benefits were expected “on both sides”. A firm agreement was expected to be reached in coming months.
Cell C, which has struggled to make consistent profits since it became SA’s third mobile operator in 2001, is grappling with a hefty debt burden.
In late June, S&P Global Ratings downgraded Cell C’s debt for the second time in less than three months to reflect that a default was now “a virtual certainty”.
This came after the network operator delayed some repayments on its R1.4bn airtime-backed facility. A consortium of investors led by billionaire businessperson Jonathan Beare has agreed to take a minority stake in Cell C to help its financial position, but the deal is yet to be finalised.
Shuter said Cell C’s prospects were “looking increasingly positive”, given the extended agreement with MTN and "good progress on their own funding arrangements”.
He said the amounts owed to MTN by Cell C were still retrievable, despite payments being delayed beyond the first half.
MTN said service revenue in SA increased by 3.3%, but earnings before interest, tax, depreciation and amortisation (ebitda) grew just 0.2% to R7.5bn as margins fell.
Shuter warned that the long-delayed spectrum auction process in SA would probably be on hold until regulators decided how much spectrum was needed for the wholesale open-access network, an entity the state wants to set up to boost competition.
Meanwhile, Shuter said MTN Group’s overall performance in the six months to end-June was “solid”.
Group profit after tax rose to R5.3bn from R4.9bn a year before.
The group lost subscribers in SA, but added 7.7-million overall, taking its subscriber base to 240-million.
Group service revenue grew by 9.7% on a constant-currency basis, and ebitda, excluding once-off items, rose 10.2% as margins improved.
The group raised its interim dividend by 11.4% to 195c a share.
MTN’s share price has recovered after being rocked by demands from regulators in Nigeria. The operator has resolved a dispute with the country’s central bank, but is yet to settle a disagreement over allegedly unpaid taxes with the auditor-general.
The case is due to be heard in court in October, with MTN insisting it has not committed an offence.
Shuter said discussions with regulators had slowed as Nigerian President Muhammadu Buhari was yet to appoint his new cabinet.
In Iran, a major market in MTN’s portfolio that has been hit by renewed US sanctions and high inflation rates, the group’s operations "recorded a pleasing result given the challenges the business faced", MTN said. Service revenue grew by 17.9%.
MTN raised R2.1bn in the second quarter by selling assets including Travelstart. It plans to raise R15bn over three years through disposals.