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MTN Downgrades Medium-Term Margin Target for South Africa on Power Outages

MTN Downgrades Medium-Term Margin Target for South Africa on Power Outages

Mobile network operator MTN Group (MTNJ.J) on Monday lowered the medium-term profit margin target for its South African business due to crippling power outages that have inflated its operating costs, sending its shares down 6%.

State electricity utility Eskom is implementing the worst rolling blackouts on record, leaving households in the dark for up to 10 hours a day.

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The telecom industry is having to crank up diesel generators to power its vast towers, roll out additional back-up batteries and increase security at these sites to protect them from vandalism and theft, additional costs that are putting pressure on their margins.

The blackouts not only impacted network availability for MTN but also business functions which hampered its customers’ ability to recharge and upgrade their packages, the carrier said.

The effects of the power outages on its topline and costs resulted in an estimated negative impact of 695 million rand ($38.23 million), or 3.4%, on MTN South Africa’s earnings before interest, tax, depreciation and amortization (EBITDA), MTN added.

This was for the year ended Dec. 31.

As a result, MTN revised the EBITDA medium-term margin target for MTN South Africa, its second-biggest market by revenue, to 37%-39%, down from 39%-42%.

Overall, the carrier, with 289.1 million subscribers across 19 African markets, reported EBITDA growth of 14.3%, with group service revenue up 15.3% at 196.5 billion.

With the power outages not expected to let up any time soon, Group Chief Executive Ralph Mupita told reporters that the operator will need more back-up power and therefore aims to complete the upgrade of sites without backup batteries by the end of May.

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“(Post the battery rollout phase) … we’re going to move away from just battery deployment and bring quite an extensive network of generators to ensure the resilience (of the network),” Mupita said.

To support this, MTN South Africa will deploy capital expenditure of about 9 billion rand for 2023, with some of it earmarked for other growth initiatives.

MTN has also received offers for minority investments in its group fintech business and hopes to finalise process by May, Mupita added.

Reuters

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