Severe Macroeconomic Headwinds Overshadow MTN Nigeria Performance –CEO
MTN Nigeria Plc earnings plunged again due to negative impacts of the naira fluctuations. The telecom posted about N600 billion in losses in the first quarter of 2024, with negative shareholders’ funds.
In the first three months financial scorecard, the telecom company noted customers decline as a result of regulatory directive on National Identification Numbers and Subscriber Identity Module (NIN-SIM) linkage. Commenting, MTN Nigeria CEO Karl Toriola said severe macroeconomic headwinds overshadow a strong operating performance.
“The operating environment in the first quarter remained very challenging, with rising inflation and continued naira depreciation off an already low base. The naira depreciated to an all-time low of N1,627/US$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM) in March, from N907/US$ at the end of December 2023, before moderating to N1,309/US$ by the end of the quarter.
“Additionally, the inflation rate maintained an upward trajectory, rising to 33.2% in March, with an average rate of 31.6% in the quarter. To curb inflation, the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) by 4pp to 22.75%, which has driven up funding costs.
“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 (forex) losses.
“During the quarter, we also continued to manage the effects on our business of the industry-wide directive of the Nigerian Communications Commission (NCC) for a full barring of subscriber lines not linked to their National Identity Number (NIN) – the NIN-SIM directive.
“This impacted the development of our user base across all of our key business units (voice, data and fintech) in Q1 2024. We implemented the directive on subscribers who did not submit their NIN and those with more than five lines linked to an unverified NIN”.
Toriola added that to provide more time for the subscribers with less than five lines linked to an unverified NIN to complete the necessary verification exercise, the NCC has extended the 15 April deadline to 31 July 2024.
“Despite these challenges, we remain committed to serving our customers and accelerating the growth of our commercial operations with a disciplined focus on value-based capital allocation and expense efficiencies”, he added.
MTN Nigerian CEO stated that the company delivered service revenue growth of 32.0%, which is higher than the average inflation in Q1, demonstrating the underlying strength of our business model.
However, this was insufficient to offset the negative impact of the macroeconomic factors mentioned above, which resulted in a large decrease in earnings before interest tax depreciation and amortization (EBITDA) margin and a significant further net loss after tax, he added.
“It is imperative that the industry be granted sizeable, regulated tariff increases to ensure the future sustainability of the Sector. Sustained solid commercial momentum despite pressures on earnings.
“We maintained solid commercial momentum in our connectivity business and platforms despite the NCC’s directive. Although we had to fully bar 8.6 million subscribers in line with the directive, we minimised the net effect of the barred subscribers, and our total number of subscribers only decreased by 2 million in Q1, closing with a total of 77.7 million subscribers.
“This demonstrates the effectiveness of our customer value management (CVM) initiatives, which helped us to retain affected customers and reduce churn, as well as to drive gross connections.
“Active data subscribers declined marginally by approximately 78k to 44.5 million. Notwithstanding these headwinds, we recorded increased activity within the base, with voice traffic rising by 5.1% and data traffic by 40.6%.
“This is a result of the consistent growth in demand for data and voice, supported by our attractive offers to customers and continuous investment in network quality and coverage. We remain focused on our fintech priority to build robust structures that support the acceleration of wallet adoption and the growth of our merchant ecosystem”.
Q1 was also challenging for the business, mainly due to the NIN requirement for KYC validation, impacting approximately a million active wallets, according to the telecom chief.
Toriola said this affected the development of the business in the period, resulting in a decline in the active MoMo PSB wallet users by 566k in Q1 to 4.8 million.
However, the increased activity within MTN Nigeria fintech ecosystem spurred transaction volume growth of 25.6% year on year, demonstrating momentum within the ecosystem, according to him.
He emphatically stated that foreign exchange volatility impacts on earnings.
“Our solid commercial operations enabled us to deliver service revenue growth of 32.0%, which slightly exceeded the average inflation rate in the quarter.
“This growth was led by double-digit growth in voice, data, and digital services; as well as favourable base effects in Q1 2023 arising from the challenge in that period (including the redesign of the naira, which resulted in cash shortages).
“EBITDA, however, came under pressure, declining by 1.9%. This was primarily because of a further depreciation of the naira in the quarter, exacerbated by higher general inflation and energy costs. As a result, the EBITDA margin declined by 13.9pp to 39.4%.
“The EBITDA margin would have been 51.0% 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.
“This led to a loss after tax of N392.7 billion compared to a restated PAT of N108.4 billion in Q1 2023. This has resulted in negative retained earnings and shareholders’ equity at the end of March 2024 of N599.2 billion and N434.7 billion, respectively”.
However, adjusting for the net forex loss, MTN Nigeria profit after tax would have been N47.1 billion, down by 57.8%, reflecting the underlying resilience of its financial performance under tough conditions, CEO concluded.