MTN Rwanda's profit after tax fell sharply by 61.4 per cent year-on-year to Rwf749 million in the first quarter of 2024 due to a large depreciation charge on right-of-use assets such as leased equipment and lower-than-expected core earnings, according to the company’s latest financial statement.

The company’s earnings before interest, taxes, depreciation and amortization (EBITDA), a metric for earnings from core operations, was under pressure in quarter one, declining by 10.4 per cent to Rwf24.2 billion.

EBITDA margin, which reflects profitability from core operations as a percentage of revenue, dipped by 5.4 percentage points to 40.1 per cent. This means that for every dollar of revenue, the company’s profit from core operations has shrunk by 5.4 cents compared to the previous year.

Performance was similarly impacted by higher costs related to foreign obligations in the US dollar due to the Rwandan Franc depreciation. The franc depreciated by 15.5 per cent year-on-year in the first quarter of this year.

The obligations are related mainly to the maintenance and transmission costs incurred on paying foreign vendors such as Huawei and Ericsson who are paid in US dollars.

"As we continue to expand our 4G network, we incur costs because we deal with foreign vendors. Given that the Rwandan franc has depreciated by more than 15% against the dollar in Q1, we feel the impact in the costs,” Mark Nkurunziza, MTN Rwanda’s chief financial officer told The New Times.

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MTN Rwanda’s service revenue increased by only 2.3 per cent to Rwf59.8 billion while total revenue grew by just 1.7 per cent to Rwf60.4 billion in the same period, impacted by the cut in mobile termination rates (MTR).

Excluding the impact of MTR, service revenue growth would have been 8 per cent, the company said.

The change of rules in MTR was introduced last year by the Rwanda Utility and Regulatory Authority (RURA), which dictated that telecommunication companies would not get paid for calls received on their network from other networks in Rwanda for a period of one year.

RURA introduced new interconnection rules in August last year saying it was a step in the right direction to end the long-standing high charges among telecom operators.

This is not the first-time interconnection rates were revised. Previously RURA revised down interconnection rates to level the playing field for the telecommunication market.

Operators with fewer subscribers in the past showed concerns about the previously higher interconnection rates made on rival’s network, saying the dominant player was using this rate as an unfair competition tool in the telecom market.

But MTN executives say this is eating into their profit margins since MTR translates to about 18 per cent of the firm’s overall voice revenues. A 23.3 per cent decline in voice revenue in Q1 is attributed to these rules.

If the rules are kept in place even after one year, Nkurunziza asserted that it would hurt their ability to deliver more taxes to the government, regulatory fees, and the economy.

"We would then have to look at other revenue streams to bridge this gap and make up for the lost revenues,” he noted.

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MTN optimistic

Despite the headwinds, MTN saw its total subscribers, data connectivity and mobile money business segments grow.

"Our commercial and operational momentum helped to deliver a relatively resilient financial performance, driven by strong growth in our platform business, and a muted performance in our connectivity business,” Mapula Bodibe, MTN Rwanda’s CEO said in a statement.

Data traffic increased by 30 per cent while active data subscribers increased by 13.6 per cent to 2.5 million, as a result of the consistent growth in demand, as well as the continuous investment in network quality and coverage, whilst data revenue contracted 0.2 per cent.

MTN completed the modernization of 140 network sites in different parts of the country during the quarter. Although this is good news, their capital expenditure was 27.2 per cent down to Rwf9.4 billion in the same period.

The firm recorded a 16.8 per cent growth in Mobile Money (MoMo) subscribers as the base crossed the 5-million mark for the first time in the quarter. MoMo revenues deliver double-digit growth of 31.5 per cent.

MTN’s total subscribers grew 7 per cent year-on-year to 7.4 million in the period under review.

"There's still room for growth, especially for active data subscribers and mobile money. That's an area that we continue to push. Once we have a growing base that would bring in sustainability in terms of the business model,” Nkurunziza noted.

To stabilize and improve their commercial performance, the CFO highlighted that there are a few products in the pipeline that will boost performance, and that the priority was to be as efficient as possible.

"In terms of our costs, the priority is to spend wisely to maximise productivity,” he noted.

Last week, BK Capital initiated coverage of MTN with a price target of Rwf250, from the current Rwf170 per share at which its stock was trading at on the Rwanda Stock Exchange (RSE), while affirming its Buy rating on the stock.

Analysts were bullish on the stock price of MTN, saying it is likely to increase in the future to reach Rwf250, a 48 per cent potential upside. With a Buy Rating, they recommend investors to buy MTN shares.