In a challenging third quarter, MTN Nigeria Communications Plc reported a loss after tax of N514.9 billion for the nine months ending September 30, 2024, primarily due to the ongoing economic struggles facing Nigeria. The telecom giant’s financial performance was significantly impacted by the devaluation of the naira, a decline in subscribers, and an inflationary economy.

Financial Performance and Forex Challenges

While MTN did achieve a Q3 profit after tax of N4.1 billion, this figure, adjusted for net forex losses, reflected a considerable drop of 59.2%, bringing MTN’s adjusted Profit After Tax (PAT) to N118.5 billion. The loss highlights the complex financial environment faced by many companies in Nigeria as they grapple with the implications of the weakened naira and foreign exchange (forex) volatility.

In earlier half-year results, MTN reported a loss of N519.1 billion. This slight improvement in Q3 reflects efforts to stabilize finances, yet the challenges persist. MTN Nigeria CEO Karl Toriola described the results as “resilient” but acknowledged that the devaluation of the naira and high inflation rate were significant obstacles. With Nigeria’s inflation averaging 32.8% during this period, up from 24.5% in 2023, and the Central Bank of Nigeria (CBN) raising the Monetary Policy Rate by 8.5 percentage points to 27.25%, MTN faced increased operational costs and financing challenges.

Decline in Subscribers and Revenue Impact

MTN’s subscriber base dropped by 0.9% to 77.0 million, a result of regulatory policies such as the National Identification Number-SIM (NIN-SIM) linkage, which led to the deregistration of numerous Subscriber Identity Modules (SIMs). This linkage, initiated to improve national security and identify fraud, had a short-term impact on the telecom industry, particularly on customer retention and subscriber base growth. Although the NIN-SIM policy aligns with broader efforts to promote transparency, the loss of subscribers has weighed on MTN’s revenue from voice and SMS services.

In contrast, MTN experienced a 5.1% increase in active data users, rising to 45.3 million. This growth is attributed to increased demand for internet services as Nigeria undergoes a digital transformation, with more individuals and businesses relying on mobile data for day-to-day activities. However, despite the rise in data users, MTN saw a 21.8% decline in active mobile money (MoMo PSB) wallets, down to 2.8 million, reflecting both the regulatory landscape and challenges in encouraging mobile money adoption amid economic instability.

EBITDA and Operational Margins

MTN’s Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) also declined by 5.3% to N860.2 billion, while the EBITDA margin narrowed by 14.9 percentage points to 36.3%. This decrease in EBITDA margin underscores the impact of rising costs and exchange rate losses, further exacerbating MTN’s operational struggles. The company’s increased debt and currency depreciation have notably eroded profitability, affecting overall margins and profitability ratios.

Currency Depreciation and Debt Challenges

MTN, like many Nigerian companies, has struggled with the aftershocks of the CBN’s decision in June 2023 to float the naira. The exchange rate skyrocketed from N461.1 per dollar in December 2022 to N907.1 by the end of 2023, triggering higher import costs and foreign debt repayment challenges for businesses reliant on forex. MTN reported a net forex loss of N740.4 billion in 2023, a sharp increase from N81.8 billion in 2022, reflecting the severe impact of the currency’s depreciation on the company’s balance sheet.

Measures for Financial Stability: Commercial Paper Issuance

As a response to these financial pressures, MTN has launched a new commercial paper issuance, aiming to raise N50 billion under its N250 billion Commercial Paper Issuance Programme. This issuance is part of MTN’s debt-market strategy to address short-term financing needs and improve liquidity in the face of rising operating costs. The Series 11 and 12 issuances are targeted at shoring up MTN’s working capital, with funds directed toward mitigating currency fluctuations and easing the burden of forex obligations.

MTN’s ongoing strategy in the debt market is a proactive attempt to tackle liquidity issues and enhance capital adequacy. However, the effectiveness of this approach will depend largely on Nigeria’s economic recovery and any further interventions by the CBN to stabilize the currency.

The Impact of Macroeconomic Trends and Telecom Industry Outlook

MTN Nigeria’s Q3 results are reflective of broader macroeconomic trends. Nigeria’s economy continues to be heavily influenced by oil price fluctuations, political uncertainty, and regulatory changes. The country’s reliance on oil revenue means that currency stability is often tied to global oil markets, affecting forex reserves and exchange rates. In this volatile environment, companies such as MTN find themselves exposed to risks beyond their control, including fluctuating currency values and high interest rates.

The telecom sector in Nigeria has seen substantial growth over the past decade, with MTN holding a leading position. The expansion of 4G coverage and introduction of 5G in Nigeria have bolstered data usage, making the telecom sector one of the few areas of consistent growth. However, the current economic challenges, combined with regulatory pressures, are likely to test the resilience of telecom companies in the short to medium term.

The Role of Digital Transformation and Regulatory Reforms

Despite these economic challenges, MTN remains committed to driving digital transformation in Nigeria. The growth in active data users indicates a positive trend, with increased internet adoption facilitating digital financial services, online education, and e-commerce. MTN’s recent investments in network infrastructure, such as expanding 5G services, are expected to support long-term growth and create new revenue streams as Nigeria’s digital economy expands.

However, MTN’s performance is also closely tied to regulatory developments. The Nigerian Communications Commission (NCC) continues to enforce the NIN-SIM linkage, impacting SIM registration and re-registration processes. This policy, while aimed at enhancing security, has added administrative hurdles for telecom operators, particularly in retaining subscribers who may be unable or unwilling to complete the registration process. MTN has emphasized the need for policies that balance national security with business growth, advocating for a regulatory framework that supports telecom expansion and innovation.

Investor Reactions and Market Outlook

The ongoing financial and operational challenges faced by MTN Nigeria have had a ripple effect on investor sentiment. Shareholders are concerned about the company’s declining profitability and exposure to forex losses, which could impact dividends and capital returns in the near term. Analysts are also keeping a close eye on MTN’s commercial paper issuance and other debt-management initiatives to assess the company’s ability to navigate its liquidity constraints.

Given MTN’s position as a market leader in Nigeria, its performance serves as a bellwether for the telecom industry in the country. Should MTN successfully mitigate its forex risks and capitalize on the growth in data demand, it could strengthen investor confidence and improve its financial standing.

Future Prospects and Strategic Initiatives

Looking forward, MTN is prioritizing cost-cutting measures, network efficiency, and further investment in digital services to reduce its vulnerability to forex fluctuations and inflation. The company is exploring partnerships and technology innovations that could enhance service delivery and expand its footprint in the Nigerian market. Additionally, MTN’s emphasis on mobile money services aligns with Nigeria’s financial inclusion goals, and the company aims to increase MoMo adoption as economic conditions stabilize.

MTN’s resilience amid Nigeria’s economic headwinds will depend largely on its capacity to adapt to the evolving regulatory landscape and respond to shifts in consumer demand. The telecom company remains cautiously optimistic, with plans to leverage data growth and digital innovation to offset declining traditional voice revenues.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

6th November, 2024