Wednesday March 9 2016

Slow economy, weak Shilling affect MTN profits

By Jonathan Adengo & Mark Keith Muhumuza


The slowing economy and depreciating Shilling have seen MTN Uganda register a drop in profitability in 2015.
The company financial results released last week reveal that net profit dropped by 23 per cent from Shs229b to Shs177b, with the bulk of the drop coming from the effects of the weak Shilling. The Shilling depreciated by 17 per cent in 2015, according to Bank of Uganda (BoU). According to Mr Mike Blackburn, the chief financial officer, MTN Uganda, the weak Shilling wiped at least Shs25 billion (about 14 per cent) off their net profit.

“We have foreign exchange denominated expenses in our operations that are mainly in United States dollars. For instance, we have rental charges in dollars. This increased our operating expenses by Shs15 billion,” Mr Blackburn told Daily Monitor on the sidelines of a press conference to announce the MTN Uganda results.

The bulk of the firm’s income comes from people using the services paying in Uganda Shillings. When the Shilling depreciates, MTN needs more Shillings to pay for the same amount of dollars.
Additionally, MTN revealed it has liabilities – including loans – and equipment that resulted in foreign exchange losses of Shs10 billion. “Our profit would have been much higher than what we reported at the end of 2015. The depreciation of the Shilling impact on our profit is normal as we are in Uganda for the long term,” Mr Blackburn added.

In the last two years, the depreciation has totalled 27.5 per cent, wiping billions of balance sheets of companies including Umeme.
Dr Fred Muhumuza, an economist and senior researcher at the Ministry of Finance, said businesses are most likely going to register a drop in profitability. “The depreciation of the Shilling is one of the factors affecting profitability, however, low demand is another,” he said.

He added: “Whenever Bank of Uganda raises the interest rate, it leads to reduction of demand in the market which in turn slows down growth investment and also the profitability of companies.”
MTN’s drop in profitability was also attributed to less growth in revenue especially from the voice segment of the company which contributes almost 67 per cent of the income of the telecom. Revenue from voice calls dropped to Shs883.2 billion from Shs905.6 billion in 2014.

“The weak macroeconomic environment in most markets resulted in lower consumer spending in 2015,” Brian Gouldie MTN Uganda CEO told reporters in Kampala last week.

The One Network Area, which resulted in calls from Kenya, Rwanda and South Sudan halving also impacted on the income of MTN. Mr Gouldie also said the regulatory requirements to switch off unregistered simcards affected their financial performance.
Subscriber numbers fell from 11.5 million for the period ending September 30, 2015, to 8.9 million for the year ended December 2015.