WEBVTT - MTN CEO Ralph Mupita Talks Inflation, Naira

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Empty and chief executive Officer Ralph Mupita joining us today. Ralph,

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<v Speaker 2>thanks so much for being with us today. So I

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<v Speaker 2>wanted to start with what you noted in the earnings report,

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<v Speaker 2>which was macro headwinds that the company is dealing with,

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<v Speaker 2>one of which pretty big headwind is currency volatility. I mean,

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<v Speaker 2>how is the company thinking about protecting itself going forward

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<v Speaker 2>from this because it's happening in a few different markets

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<v Speaker 2>that you operate in.

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<v Speaker 1>Yeah, look, I mean our underlying performance from our point

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<v Speaker 1>of view was very strong and resilient. You know, we

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<v Speaker 1>look at, you know, how is the business actually developing

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<v Speaker 1>in terms of subscriber growth, What is the traffic we're

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<v Speaker 1>seeing in our network, What is the transaction values and

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<v Speaker 1>volumes you see on the fintech platforms. Those have been

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<v Speaker 1>strong and very encouraging. And when we look at that

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<v Speaker 1>kind of underlying performance, you know, pretty much across most

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<v Speaker 1>of from it's kind of basically trending in line with expectations.

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<v Speaker 1>The two main challenges that we faced in the period.

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<v Speaker 1>One is the very sharp devaluation of the Naira. The

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<v Speaker 1>Narra ended last year nine h seven versus the US

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<v Speaker 1>dollar in this half is average fifteen hundred, so quite

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<v Speaker 1>a lot of volatility. But between Q two and even

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<v Speaker 1>up to now, the NARRA has been actually fairly stable

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<v Speaker 1>and on a more recent forecast via Standard Bank Group

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<v Speaker 1>Securities forecasts, you know, the pressure on the narrow is

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<v Speaker 1>is projected to abate somewhat as inflation. Expectations are that

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<v Speaker 1>inflation in Nigeria should start to come down and that

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<v Speaker 1>rate tightening cycle in Nigeria will remain and therefore take

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<v Speaker 1>pressure off the NARRAW you know, going forward. So you know,

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<v Speaker 1>if you exclude the narrow impact in particular, actually were

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<v Speaker 1>a very decent top line growth would have had a

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<v Speaker 1>decent set of earnings growth off. So the underlying business

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<v Speaker 1>remains strong, and you know, we see growth as our

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<v Speaker 1>best way to protect kind of the earning stream over

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<v Speaker 1>the next the medium term to kind of restore positive

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<v Speaker 1>earnings growth, you know, for the whole business. But the

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<v Speaker 1>main issue has been the NIROD evaluation.

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<v Speaker 2>Yeah, and in particular with that, Ralph, I mean that

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<v Speaker 2>Nigeria accounts for nearly a third of the company's earning.

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<v Speaker 2>So are there things that you're thinking about doing as

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<v Speaker 2>you sort of a wait for the volatility to debate.

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<v Speaker 1>Look coming on the volatility side, I think it's much

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<v Speaker 1>more near a term, so it's not medium to long term.

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<v Speaker 1>As I mentioned, you know, inflation cycle is anticipated to

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<v Speaker 1>kind of peak in Q three, maybe a little bit

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<v Speaker 1>into Q four and start trending down. If I use

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<v Speaker 1>standard bank forecasts on inflation, Nigeria should be somewhere like

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<v Speaker 1>in the early twenties from the kind of early thirties.

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<v Speaker 1>So that moderation, you know, should also relieve some cost

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<v Speaker 1>pressure in the next couple of quarters. But the underlying

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<v Speaker 1>growth in Nigeria is very healthy. The one big issue

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<v Speaker 1>we remain focused on is really around you know, some

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<v Speaker 1>teriff increase relief that will need expensive been growing you know,

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<v Speaker 1>quite sharply, so we've been engaged with authorities around a

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<v Speaker 1>tarraff increase, which we should then support the restoration and

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<v Speaker 1>growth of earnings. But beyond Nigeria, in South Africa, you know,

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<v Speaker 1>we had a decent set of results. Our service revenue

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<v Speaker 1>was up three point three that's a business that we

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<v Speaker 1>think has the potential to go four to six percent,

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<v Speaker 1>you know, given the capex that we've put into that business.

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<v Speaker 1>So South Africa can step up a bit more in

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<v Speaker 1>the near term in terms of its own top line

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<v Speaker 1>growth and its earnings contribution. The rest of the portfolio,

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<v Speaker 1>Garna has been growing actually very very strongly. Uh in

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<v Speaker 1>Ghana you know, continues to grow you know, both data

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<v Speaker 1>and fintech businesses in a well all above you know,

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<v Speaker 1>forty percents on those bearers. So there's a portfolio effect

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<v Speaker 1>of the other markets that can also grow. And the

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<v Speaker 1>fintech business in the period grew very strongly twenty seven

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<v Speaker 1>percent service revenue growth, the EBIDA margin growth, the EBIDA

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<v Speaker 1>margin delivered by that business has also been very very strong.

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<v Speaker 1>So when you look at the portfolio, I think you'll

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<v Speaker 1>see different parts of the portfolio, you know, contributing to

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<v Speaker 1>the overall group results. And as I said, in Nigeria,

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<v Speaker 1>they still pent up demand and growth that we see

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<v Speaker 1>for both the core connectivity business and our fintech business.

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<v Speaker 2>Right Ralph, just sticking on the other parts of their portfolio.

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<v Speaker 2>Also in Iran, on on the earnings report, you noted

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<v Speaker 2>the uncertainty around what is happening in Iran, especially with

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<v Speaker 2>with sanctions from other countries. I mean, are there plans

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<v Speaker 2>to adjust or speak with authorities there. How is that

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<v Speaker 2>affecting the rest of the group.

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<v Speaker 1>No Iran, We've continued to manage Iran in the same

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<v Speaker 1>way over the last five years, since the years sanctions

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<v Speaker 1>came in. We haven't been able to get you know,

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<v Speaker 1>any of the dividends in that market out. You know,

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<v Speaker 1>obviously the Swift financial system is not open to Iran

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<v Speaker 1>you know flows, so you know, the accumulated dividends that

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<v Speaker 1>we are on lending the company in Iran is about

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<v Speaker 1>three billion, So we don't anticipate to see any upstreaming,

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<v Speaker 1>you know, coming out of Iran. But what we reported

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<v Speaker 1>was that the earnings grew thereby you know, over eighty percent,

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<v Speaker 1>and that's a very healthy clip for earnings growth in Iran.

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<v Speaker 2>Are there markets, Ralph that you're potentially considering exiting MTN

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<v Speaker 2>is considering exiting. I mean, we talked about around potentially

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<v Speaker 2>the challenges that are there, but there's also been some

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<v Speaker 2>challenges with Sudan as well, and that's another geopolitical story

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<v Speaker 2>that's having an effect on the company. Are you thinking

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<v Speaker 2>about potentially exiting either of those markets?

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<v Speaker 1>So the market we've announced we've done the exit on

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<v Speaker 1>it is Afghanistan. So we've completed the exit of Afghanistan

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<v Speaker 1>in February and now we've done Guinea Bissal So Guinea

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<v Speaker 1>Bissa is done, so what we're working with. We have

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<v Speaker 1>an offer from tellusl to acquire Guinea Conacrey. So those

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<v Speaker 1>are the markets where we have exit plans in execution.

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<v Speaker 1>So that is challenging for sure. The ongoing conflict makes

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<v Speaker 1>it very difficult for us to be able to provide

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<v Speaker 1>consistent connectivity. Some sites do come down as a consequence

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<v Speaker 1>of the conflict there. You know, we continue to best

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<v Speaker 1>we can to keep that network up, so we are

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<v Speaker 1>putting you know, more sites back on air to enable connectivity.

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<v Speaker 1>There's been a massive dispersion of the population of Sudan

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<v Speaker 1>and it is really you know, tragic what's actually happening there.

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<v Speaker 1>You know, kids nineteen million children not going to school

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<v Speaker 1>since April of last year. So, I mean, these effects

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<v Speaker 1>are very profound. So in Sudan we're continuing to manage

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<v Speaker 1>best we can. We've have had the impacts, you know,

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<v Speaker 1>the impayment we took and also the impact we've seen

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<v Speaker 1>on growth. But you know, the exit plans as formally communicated,

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<v Speaker 1>the only other market we're looking at right now is getting.

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<v Speaker 2>Conacree okay, okay, So no plans in the near term

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<v Speaker 2>for Sudan at this point, no plans, Okay, no plans, Ralph.

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<v Speaker 2>Before we let you go, I wanted to know what

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<v Speaker 2>you envision the business looking like in the next few years.

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<v Speaker 2>Obviously there's a lot of macro headwinds that you can't

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<v Speaker 2>anticip paid how it's going to affect the business. But

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<v Speaker 2>how are you how are you thinking about it and

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<v Speaker 2>your growth strategy over the next few years.

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<v Speaker 1>Yeah, we believe that in the market that empty and

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<v Speaker 1>operates in, we've got two main engines of growth that

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<v Speaker 1>are structural because of pent up demand. The one is data.

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<v Speaker 1>I mean now we have about sixty percent odd of

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<v Speaker 1>our customers are using smartphones, means the balance is still

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<v Speaker 1>using two G capable phones, so the growth rate in

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<v Speaker 1>a data adoption remains very strong. So we see that

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<v Speaker 1>as fueling growth. On the fintech side, many Africans are

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<v Speaker 1>excluded from you know, financial services as we know it,

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<v Speaker 1>and we've been building a platform there of you know,

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<v Speaker 1>more modern services including remittance, bank tech payments, and e commerce,

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<v Speaker 1>and that's actually fueling growth as I said, the growth

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<v Speaker 1>rates that we see there on these advanced services has

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<v Speaker 1>been about fifty eight percent growth in the period. So

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<v Speaker 1>those two in particular going to fuel growth, and we

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<v Speaker 1>anticipate that in going forward you'll still see growth driven

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<v Speaker 1>by data and fintech. I think what you're going to

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<v Speaker 1>see more and more is you know, you know, carving

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<v Speaker 1>out the infrastructure, particularly around fiber, and you know, creating

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<v Speaker 1>an opportunity of co investment with third parties to accelerate

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<v Speaker 1>you know, investment in infrastructure. We're not using our own

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<v Speaker 1>balance sheet. We're going to focus on partner capital there

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<v Speaker 1>as well. But I think the three drivers of growth

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<v Speaker 1>will be the connectivity business driven by data, the fintech business.

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<v Speaker 1>As we move into more advanced services, and infrastructure in

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<v Speaker 1>particular fiber and data centers and there you're going to

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<v Speaker 1>need partnerships, you know, to be able to create these

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<v Speaker 1>also open access platforms and also leverage our partner capital.

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<v Speaker 1>There's no space now balance sheet to fund all that growth,

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<v Speaker 1>but we can see the opportunity with a much more

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<v Speaker 1>partnership model. That's how we see the business going forward.

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<v Speaker 2>Does that sort of speak to as well to the

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<v Speaker 2>IHS partnership with with MTN. I mean, is that sort

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<v Speaker 2>of getting past the previous issues that the two companies had.

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<v Speaker 2>Is that part of the future growth strategy that you're

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<v Speaker 2>thinking of.

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<v Speaker 1>No, the way we think about infrastructure, you know, you know,

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<v Speaker 1>many companies look at a telco infrastructure and they you know,

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<v Speaker 1>have the tower co, the fiber and the data centers

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<v Speaker 1>as you know, different verticals. We've sold most of our

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<v Speaker 1>towers already and they're all sitting in our investment in

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<v Speaker 1>HHS with a twenty six percent shareholding. So in the

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<v Speaker 1>way we think about infrastructure, you know, there's no tower

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<v Speaker 1>companies there. It's mostly on the fiber and the data

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<v Speaker 1>center side. I mean, so what we are focused on is,

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<v Speaker 1>you know, how do we get you know, to see

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<v Speaker 1>value being truly reflected in the IHS share price. We

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<v Speaker 1>think the market undervalues that business, but I mean it's

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<v Speaker 1>for the management team there to demonstrate by execution the

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<v Speaker 1>business remains fundamentally undervalued. So at these current share prices,

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<v Speaker 1>you know, for us, you know, we're not looking to

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<v Speaker 1>sell out of IHS. You know, at the current share price,

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<v Speaker 1>we think the business is more valuable than this, and

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<v Speaker 1>you know, the governance issues that we've had in the past.

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<v Speaker 1>As we communicated last week, we're looking to amicably resolve them,

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<v Speaker 1>particularly now that the major contract renegotiations in Nigeria and

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<v Speaker 1>particularly have now been closed. That's been a successful set

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<v Speaker 1>of discussions, and so we'll move into discussing the governance

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<v Speaker 1>issues over the next while ahead. You know, myself and

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<v Speaker 1>Sam Darwish we'll be talking around those and you know,

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<v Speaker 1>will take proposals to our respective boards in due course.

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<v Speaker 2>Are you expecting the market then to value the company

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<v Speaker 2>at sort of somewhat closer to what you're expecting or

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<v Speaker 2>do you think this might continue a little bit longer.

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<v Speaker 1>Look, it's difficult to say. I mean, there are you know,

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<v Speaker 1>I think part of the impact on the ch share

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<v Speaker 1>price is also the uncertainty or what the market may

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<v Speaker 1>see as uncertainty around Nigeria. Can you get currency, can

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<v Speaker 1>you get hard currency? Whereas the narrare going to find

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<v Speaker 1>its level. So I think there are some uncertainties that

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<v Speaker 1>you will see into the CH share price, which you

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<v Speaker 1>see similarly into the MT and group. I think also

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<v Speaker 1>you know, is you know has got you know, has

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<v Speaker 1>got a particular debt profile and maturity profile. I guess

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<v Speaker 1>the market is looking at that. But I think the

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<v Speaker 1>governance concerns, if they are addressed amicably, I think will take,

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<v Speaker 1>you know, quite a bit of uncertainty about the long

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<v Speaker 1>term prospects of the company. So I think the market,

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<v Speaker 1>you know, we'll see a conclusion on governance issues very favorably,

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<v Speaker 1>you know, uh, you know particularly uh you know that

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<v Speaker 1>these are it will be agreed between ih s UH

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<v Speaker 1>and the mt and Group.

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<v Speaker 2>Ralph Mapita, mt N Chief executive Officer, I really appreciate

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<v Speaker 2>your time today, Ralph