MTN tightens credit criteria to deal with bad debt

By Ujuh

MTN is set to run with stricter credit criteria in South Africa after the mobile phone giant suffered significant increase in bad debt in the country of its birth.

This is reflected in MTN Group’s results for the year ended December which showed the business losing some profit margin partly due to increased bad debt.

MTN generates a significant portion of its revenue from a credit based business model. This is the so-called contract arrangement with customers. The arrangement where customers use air time and pay later is also called post-paid segment of the market and stand alongside the pre-paid segment.

MTN said its earnings (EBITDA) margin declined by 2.6 percentage points largely as a result of lower interconnect revenue, and increased provisions for impairment of trade receivables. The group’s trade receivables amounted to R616 million at the end of December 2014 up from R289 million in the previous year.

The group said “Stricter credit criteria have been implemented to ensure this level of bad debts does not reoccur.”

The bad debt situation forms on the back of a well-known high indebtedness of the South African consumer. The financial strain of South Africans was well portrayed in the collapse of the biggest micro lending bank in the country, African Bank.

MTN South Africa has 28 million subscribers a figure achieved after 8.9% growth during 2014. This is after MTN recorded 2.7 million net additions in the second half versus the 430 496 net disconnections recorded in the first half of the year.

The group reported that the pre-paid subscriber base increased by 9.1% to 22.6 million users. The group added that the post-paid segment delivered a significantly improved performance, reporting net subscriber additions of 414 251 for the year. While significantly smaller in number of subscribers post-paid segment comes with a much higher average revenue per user.

MTN revenue in South Africa declined by 3.9% to R38.9bn during the 2014 financial year. The group said this was mainly a result of a 36% decline in interconnect revenue due to lower mobile termination rates (MTRs).

At universal level which covers 22 countries, MTN Group produced 7.5% growth in subscribers to 223.4 million. Total revenue rose 6.4% to R146.1 million.

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