The foreign exchange loss of MTN Nigeria Communications Plc, the country’s biggest mobile network operator, rose to the highest in at least six years in the first three months of 2024, data compiled by BusinessDay shows.
According to the firm’s latest financial statements, its net FX loss widened to N656.4 billion in Q1 from N4.5 billion in the same period of last year as a result of the further devaluation of the naira.
“The operating environment in the first quarter remained very challenging, with rising inflation and continued naira depreciation off an already low base,” Karl Toriola, CEO of MTN Nigeria, said in a statement.
He said the naira depreciated to an all-time low of N1,627/$ at the Nigerian Autonomous Foreign Exchange Market in March, from N907/$ at the end of December 2023, before moderating to N1,309/$ by the end of the quarter.
“Additionally, the inflation rate maintained an upward trajectory, rising to 33.2 percent in March, with an average rate of 31.6 percent in the quarter. To curb inflation, the Central Bank of Nigeria increased the Monetary Policy Rate by four percentage points to 22.75 percent, which has driven up funding costs.”
Toriola noted that these factors have caused significant difficulties for businesses operating in Nigeria, including MTN Nigeria, putting additional pressure on consumers, the cost of doing business, and further foreign exchange losses.
Further analysis of the statement shows that the telco’s finance income dropped to N5.34 billion from N6.63 billion while finance cost surged to N98.7 billion from N45.8 billion.
Net cash generated from operating activities rose to N383.1 billion from N256.3 billion. Net cash flows used in investing activities stood at a negative N173.1 billion from a negative N76.01 billion.
Net cash flow generated from financing activities stood at a negative of N368.6 billion from a positive N36.1 billion. Cash and cash equivalents at the end of the period declined to N191.4 billion from N565.2 billion.
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FX volatility’s impact on earnings
MTN Nigeria’s revenue increased to N752.9 billion in the first three months of 2024 from N568.1 billion in the same period of 2023.
“Our solid commercial operations enabled us to deliver service revenue growth of 32.0 percent which slightly exceeded the average inflation rate in the quarter,” Toriola said. “This growth was led by double-digit growth in voice, data, and digital services; as well as favorable base effects in Q1 2023 arising from the challenge in that period (including the redesign of the naira, which resulted in cash shortages).”
He said EBITDA, however, came under pressure, declining by 1.9 percent. “This was primarily because of a further depreciation of the naira in the quarter, exacerbated by higher general inflation and energy costs.”
Toriola said: “As a result, the EBITDA margin declined by 13.9 basis points to 39.4 percent. The EBITDA margin would have been 51.0 percent adjusted for the naira depreciation effects.
“We continue to pursue our efficiency measures and accelerate efforts to reduce forex exposure to minimise the impact on our business. The further depreciation of the naira in Q1 resulted in a materially higher net forex loss of N656.4 billion (Q1 2023 restated: N4.5 billion), arising from the revaluation of foreign currency denominated obligations.”
The after-tax loss amounted to N392.7 billion from an after-tax profit of N108.4 billion during the period reviewed.
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Capital expenditure
MTN Nigeria’s capital expenditure increased by 49.1 percent to N179.7 billion, while core capex, excluding leases, rose by 84.4 percent to N78.1 billion, with a capex intensity of 10.4 percent.
“The increase in capex reflects the impact of the significant devaluation of the naira amidst forex supply challenges. As a result, free cash flow declined by 35.6 percent to N117.2 billion. In terms of our debt metrics, approximately 47 percent of our debts have fixed interest rates, while 53 percent are floating,” Toriola said.
“We have taken steps to significantly reduce our outstanding short-term trade loans for letters of credit establishment by 41.6 percent to $243.4 million (December 2023: $416.6 million).
“This enabled us to manage our debt mix, of which 56 percent is local currency denominated and 44 percent is foreign currency. Our net debt-to-EBITDA ratio of 1.1 times remains within all our financial covenant levels, supported by a cash balance of N191.3 billion.
“Notwithstanding the near-term pressure, the fundamentals of our business and our cash flow generation remain strong, and we continue to pursue our plans to restore our capital position, supported by our value-based capital allocation strategy,” he said.
MTN Nigeria’s outlook
The CEO said continued elevated inflation and unpredictable foreign exchange rates remain significant challenges for businesses.
“However, we remain focused on sustaining our commercial momentum, accelerating our service revenue growth, unlocking operational efficiencies, and strengthening our balance sheet to improve the profitability of our business,” Toriola stated. “We do, however, also require regulated tariff increases to restore the profitability of the Company.”
“As we navigate the prevailing headwinds to our business, we remain committed to delivering on our growth strategy through superior commercial execution and continued investment, guided by a value-based approach to capital allocation.
“We will drive the operating leverage in our business to restore earnings growth and sustain strong cash flow generation and returns over the medium to long term. We will continue to monitor developments in our operating environment as the year progresses.
“The current state of elevated inflation and unpredictable trends in foreign exchange rates continue to pose significant challenges for businesses,” Toriola said.
“The Federal Government is also implementing several reforms to attract and retain long-term domestic and foreign direct investment in the economy while managing the transitory inflationary effects on households and enterprises through social and economic interventions.”
