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Blurb

Increase in data, voice revenue in 2020 9M failed to impact profit of MTN Nigeria

Even though the telecoms sector was projected to post stellar profits due to increased use of data during the COVID-19, MTN seems to have faltered.

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NCC, MTN’s parent company faults regulator’s recommendation for data price reduction, MTN Nigeria reacts to poor internet as network issues go beyond Nigeria 

MTN Nigeria Communications Plc, the largest telecommunications company on the NSE, posted a reduced profit of N144.24billion for 2020 9M (YoY), despite increased voice and data revenue.

The telecommunications sector was projected by analysts to post stellar profits due to the increased usage of data during the pandemic-induced lockdown, MTN faltered going by its 2020 9M results.

READ: MTN Nigeria posts N975.76 billion revenue for Q3 2020

The profit posted indicates a 3.34% decline from the N149.22billion recorded in 2019 9M, failing to live up to its exploits last year.

A glance at the top-line, however, has placated furrowed brows and created optimism for a strong finish to 2020.

Generating a revenue of N975.76billion is always going to steal the headlines but the big question is how, despite this, did it fail to positively impact profit?

READ: MTN Nigeria’s first quarter blow out result in summary

Voice, data revenues and impact of lockdown

The unprecedented Covid-19 disruptions revealed a lot about the telecommunication sector, with the lockdown-induced shift in the mode of operations for many businesses around the world.

Many organizations adopted a remote-work format, with meetings held virtually and deals concluded in the same fashion – a major boost to telecommunication giants like MTN Nigeria.

The contribution from voice revenue and data revenue to the total service revenue significantly increased this year, while SMS revenue dipped.

READ: Dangote Cement, MTN hit N3 trillion market cap, as GT Bank crosses N1 trillion

MTN Nigeria generated N241.6billion between January to September 2020 from Data alone. This is 24.7% of its total service revenue in 2020 9M and 48.9% of what it generated in 2019 9M.

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It generated a voice revenue of N558.7billion in the period under view, which is 62.3% of its total service revenue in 2020 9M and 57.3% of the recorded value in 2019 9M.

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Now, this is where it gets interesting. Remote work may have begun out of need, but not anymore. Companies and establishments have seen the benefits and are more open to the concept.

READ: GTBank Plc records 1.80% increase in 2020 9M interest income

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Several companies have capitalized on remote work as a cost-cutting strategy, with Amazon disclosing that it saved $1billion on travel during the lockdown.

Whether this decision was reached with safety risk in mind or merely as a cost reduction strategy still bodes well for companies like MTN Nigeria – it guarantees increased data and voice revenue.

The trend is projected to continue since internet-enabled channels allow for easier, faster and efficient communication – Facebook, WhatsApp, Twitter, Telegram, Zoom, amongst others.

READ: Pharma Deko Plc records 1.16% increase in 2020 9M revenues

More individuals, even the aged, are starting to open up to and prefer communication via some of these new channels, as opposed to the old-fashioned short message sending SMS, which recorded a dip in revenue from N10.3billion to N8.3billion in 2020 9M.

Increasing costs gulps impressive revenue

MTN Nigeria’s ever-increasing costs are of serious concern this year. The rise in revenue can be classed as insignificant, since it bears no reflection on profit.

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The double-digits (14%) increase in revenue from N856.55billion generated in 2019 YoY was swallowed completely by its cost, with recorded YoY increase in Finance costs (by 20%), Employee benefits (28%), Other operating expenses (26%), and Direct network operating costs (26%).

READ: May & Baker Nigeria Plc records 8.85% revenue increase in 2020 9M

Need for improvement

This is clearly not the way to go for any company hoping to record improvements to the bottom line annually.

The uncertainty from the pandemic may have warranted decisions that induced some of these costs like the N1billion donation to CACOVID to cushion the impact of Covid-19 in Nigeria.

Still, this is clearly an area where marked improvement is not just necessary but paramount if MTN Nigeria entertains any hope of reaping the fruits from the growth in data by year-end and beyond.

READ: MTN Nigeria records 2.3 million additional subscribers in Q1 2018.

Bottomline

MTN is everywhere you go in Nigeria. Virtually every Nigerian you meet from Ikeja, Lagos to Kafanchan, Kaduna has at least 1 active MTN sim card – some have 2 or more.

Such is the size and spread of the telecom giant in Nigeria and it is well-positioned to maximize the impact of the increased data and voice revenue on its profit as the year advances to a close.

READ: GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues

Ekene Onyeama is a Chartered Accountant currently plying one of the Tier one Banks in Nigeria. He started out his career at Ideascorp Limited, a private company in the hospitality industry where he served as the accountant before switching to banking. Ekene enjoys analyzing companies. He likes to write and is very excited by company valuations. He can be reached on Twitter @Ekenergy_

1 Comment

1 Comment

  1. FitnessPhreek

    December 14, 2020 at 1:25 pm

    Interesting read, though I won’t say that that the rise in revenue can be classed as insignificant, because even if it looks like it bears no reflection on profit, the margins would have been lower w/out the rise in revenue in the first place. Thank you for sharing Ekene, I’m happy to be expanding my reading horizons with your articles.

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Blurb

Total Plc must quickly move past one of its toughest year yet

Total Plc’s revenue plummeted by 30% in 2020 compared to 2019.

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Total Nigeria caught in the oil demand and lockdown saga

The reliance on and importance of PMS – gas and diesel in Nigeria cannot be overplayed. The deplorable state of our electricity ensures at the very least that oil companies like Total plc stay in business. Afterall, what business or household can thrive without power?

2020 has been shocking. The sort of year wherein businesses suffer shortages in the shadow of plenty and the oil sector is no exception. The performance of oil particularly, in 2020 was dreadful, to say the least. Total plc as a case in point suffered severe cutbacks in revenue from all of its operating heads. The general consensus is that this poor return is clearly product of the instabilities experienced through the course of the year. Covid-19 did wreak havoc on lives and livelihood necessitating various restrictions within the country. The restrictions meant decreasing activities which as a consequence upset travels, the operations of businesses and individuals. For Total Plc it meant just one thing – DWINDLING TURNOVER.

Total plc has hitherto been a leader in its sector. They generate revenue from three major expenditure heads namely Network, General Trade and Aviation.

Sales from Network refers to the turnover total generates from sales to service stations. General Trade refers to revenue obtained from its sales to corporate customers excluding aviation. Aviation, as the name implies refers directly to revenue obtained from its business with customers in the aviation industry.

Revenue generated from these segments coupled with proper cost monitoring has hitherto placed Total Plc at the summit as industry leaders. However, this year tells a different tale.

Total Plc’s revenue plummeted by 30% in 2020 compared to 2019. The company made N292billion in 2019 and N204billion in 2020 FY. The respective operating segments each suffered some responsibility on this. Sales from Network (its most fruitful revenue source) made only N143billion in FY 2020 whereas it made 205billion in 2019, that’s 30% reduction. Aviation and General Trade weren’t spared. Aviation dropped 54% from N26billion to N12billion while General Trade was only able to generate N49billion against N61billion in 2019.

These poor records were always going to reflect in closing figures at FY and pile further misery on investors who have endured what seems a horrid year. Total Plc finished with a position 1.5% worse off than they did in 2019 at N2.2billion. But to their credit, the extent of reduction was pleasantly a far-cry from what the differences in revenue had suggested. This is due to proper handling of expenditure heads particular finance costs.

Total Plc recorded N2.9billion as finance expenditure in repaying interest on loans and overdraft, compared to the N7.9billion it made in interest payments for year 2019. This singular factor amongst some others made for a more presentable finish to this year’s campaign. The slow but steady restart of activities offers the inclination that improvements are at the very least an expectation this year. We will see from first quarter results.

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Blurb

CBN’s Open banking regulation creates opportunity to usher in the next big FinTechs

Through Open Banking regulations, FinTechs can now help you to view all your bank accounts in one central location.

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The Central Bank of Nigeria (CBN) continues to enhance the payments and financial markets infrastructure in Nigeria by facilitating innovations which produce exciting and world-leading payment services and solutions.

What exactly is Open Banking?

In its simplest forms, the objective of Open Banking is to have a payments and markets infrastructure which provides end-users with the ability to review ALL their banking and financial information in a CENTRAL location.

This is regardless of how many bank accounts they use, and which financial institution is used.

As an example, almost everyone in Nigeria has two or more accounts. You receive funds in multiple accounts and make expenditure across the same multiple accounts. When you need to track inflows, outflows, check your balances, reconcile customer payments etc., you must log into the separate banking products just to perform mundane clerical tasks.

READ: CBN approves new license categorizations for payment systems

Consequently, from an end-user perspective (think MSMEs, entrepreneurs, HNWI etc.), keeping track of your various inflows, outflows, balances, and due liabilities across all your suite of banking products is simply time-consuming.

Now imagine a product/service that allows you click on one simple dashboard and you see ALL your inflows, outflows, balances, and liabilities ACROSS ALL BANKS.

That is the aim of open banking. The implementation of Open Banking requires adoption of common standards for technology use, agreements on data sharing and regulatory guidelines.

READ: CBN orders banks to accept travel documents, refugee ID for transactions

PWC has more on the case for open banking

Who else has open banking?

Most advanced countries already have a form of open banking in place (UK, UK, Europe, Japan, Singapore, China). However, in Africa Nigeria continues to pioneer innovative payments infrastructure solutions.

Imperva has more on where else Open Banking is already in place

Benefits and Opportunities

The ability for end-users to view consolidated information about ALL their financial products across ALL authorized providers in a single location will yield productivity benefits for end-users whilst creating new opportunities for service providers.

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Specifically, MSMEs; Sole-Entrepreneurs who leverage the output/solutions from Open banking will benefit from the convenience of having a consolidated view of their banking activities (i.e., balances, inflows, outflows etc.). Furthermore, the reduction of time-consuming manual and administrative efforts required during reconciliations will be a productivity benefit.

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For Service providers, financial institutions will be able to sell more products (including cross-sell opportunities) as they gain more insights into their customers and worry less about overwhelming their customers with new accounts.

READ: Investment banking fees earned in Sub-Saharan Africa hits a six-year low of $523.7 million in 2020

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Think about platforms being able to suggest what insurance products or type of savings accounts your customers qualify for given the consolidated view of customer net worth.

One interesting opportunity is the potential for credit growth. A consolidated view of a customer’s net worth should allow Financial Institutions better analyze the creditworthiness of potential clients. Thus, align CBN’s financial inclusion objectives with its desire to increase credit to the real sector.

What happens next?

For those excitedly asking what happens next, i.e. when do these products start becoming widely available and easily accessible? The answer appears to be soon, especially as the CBN has finally published a regulatory framework.

Successful implementation of Open Banking is wholly dependent on collaboration between Technology providers (FinTech), Financial Institutions and the Regulator (CBN).

  • From a Technology perspective, as mentioned before the capability already exists globally. Also from a Nigerian perspective the Open Banking Foundation of Nigeria has been a strong advocate.
  • From the Financial Institutions perspective, SOME banks already have shown willingness to partner with FinTech to deliver a “LITE” version of Open banking.

READ: US moves against misuse of cryptocurrencies, to employ new financial technologies

As an example, Banks currently send SMS text messages which applications such as REACH APP can analyze and transform for insightful expense tracking.

  • Finally, from the Banking Regulator perspective, the CBN release of a regulatory framework outlines how the CBN intends to supervise participants in this sector.

Specifically, the highlights of the open banking regulatory framework, the CBN aims to

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a) Provide standards for the safe utilization and exchange of data and services. ,

b) Define data access levels (i.e. what bank data can be shared and who can get it)

  • There are four data categories of what can be shared (PIST, MIT, PIFT, PAST)
  • Each category of data is assigned a risk rating (Low risk, moderate-risk, high and sensitive-risk data)
  • There are also four (4) groups of participants who can get your data (Tier 0, 1, 2 and Tier 3)

READ: $945 million worth of BTCs options expiring this week

c) Establish scope of financial services

  • In scope, for now, are Payments/remittance services; Collections and disbursement services; Deposit-taking; Credit; Personal Finance advisory and management; Treasury management; Credit ratings/scoring; Mortgages; Leasing/Hire-Purchase at this time.

In other words, the key stakeholders are now ready, and we simply await the collaboration necessary to deliver the desired outcome.

Why this matters

As part of its financial inclusion goals, as well as, payments system vision strategy (PSV 2020; PSV2030), CBN continues to welcome financial technology providers (FinTech) as key participants into the payments infrastructure in Nigeria.

  • Recent entrants into this Payments infrastructure include Mobile Money Operators (MMOs such as PagaTech, eTranzact), as well as Payment Solutions Service Providers (PSSPs such as Paystack, Flutterwave).
  • Each category of participants within the Payments infrastructure is preceded by the CBN releasing a regulatory framework. (as examples since 2010, we have seen Agent Banking Framework, Super Agents framework, Regulatory Framework for Mobile payments services in Nigeria amongst others).
  • So, the recent announcement of an Open Banking Regulatory Framework created a buzz as it signals new entrants and new services are in the pipeline for the average consumer of banking services.

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