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Tayo Busayo, Abuja
DAILY COURIER - The foreign exchange (forex) volatility in the country has taken a huge toll on the MTN Nigeria and Airtel Africa’s operations as both service providers posted huge losses after tax. While MTN posted a loss after tax of N392.7 billion, Airtel Africa recorded a loss after tax of $89 million, primarily impacted by significant forex headwinds, resulting in a $549 million exceptional loss net of tax following the Nigerian naira devaluation in June 2023 and first quarter 2024, and the Malawian kwacha devaluation in November 2023, according to MTNN unaudited results for the quarter ended March 31, 2024 and Airtel Africa’s results for year ended 31 March 2024 respectively.
MTN said its profit after tax (PAT) adjusted for the net forex loss declined by 57.8per cent to N47.1 billion with net loss for the quarter resulted in a further increase in its accumulated losses and negative shareholders’ funds to N599.2 billion and N434.7 billion, respectively.
The report also showed that MTN’s capital expenditure (capex) increased by 49.1per cent to N179.7 billion (up 84.4per cent to N78.1 billion, excluding leases).
Airtel Africa said its capex was broadly flat at $737million and was below our guidance largely due to a deferral in data centre investments. “In addition, we invested $152million in licence renewal and spectrum acquisitions, including $127million for the Nigerian 3G licence renewal,” the telco with presence in 14 countries on the continent, said.
During the period under review, the Nigerian naira devalued significantly from 461 per US dollar in March 2023 to 1,303 per US dollar in March 2024. The impact of the naira devaluation on reported revenue and EBITDA for the year ending 31 March 2024 was $1,042million and $554million respectively. As the currency devaluation occurred at various stages during the year, revenue and EBITDA in the reporting period does not reflect the full year impact. As a result, the next financial year reported currency results will continue to reflect the currency headwinds experienced during FY’24. If the closing rate of 1,303 NGN/USD were to be used to consolidate the results of the Group for the year ended 31 March 2024 reported revenue would have declined further by $603million to $4,376million (16.7per cent YoY decline) as opposed to the 5.3per cent decline reported. Similarly, EBITDA would have declined further by $324million to $2,104million (18.3per cent YoY decline) as opposed to the 5.7per cent decline reported, with an EBITDA margin of 48.1per cent (Q4’24: 46.4per cent).
CEO at MTN Nigeria, Karl Toriola said severe macro-economic headwinds overshadowed a strong operating performance.
“The operating environment in the first quarter remained very challenging, with rising inflation and continued naira depreciation off an already low base. The naira depreciated to an all-time low of N1,627/US$ 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 33.2per cent in March, with an average rate of 31.6per cent in the quarter.
“To curb inflation, the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) by 4pp to 22.75per cent, 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. However, 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,” he said.
He said 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. “As a result, we delivered service revenue growth of 32.0per cent, 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 the EBITDA margin and a significant further net loss after tax. It is imperative that the industry be granted sizable, regulated tariff increases to ensure the future sustainability of the Sector,” he had said.
Also speaking on the trading update, outgoing Chief Executive Officer at Airtel Africa, Olusegun Ogunsanya, said the opportunity to grow the market remains compelling.
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“The growth opportunity that exists across our markets remains compelling, and we are well positioned to deliver against this opportunity. We will continue to focus on margin improvement from the recent level as we progress through the year.
“The consistent deployment of our ‘Win with’ strategy supported the acceleration in constant currency revenue growth over the recent quarters which has reduced the impact of currency headwinds faced across most of our markets. This strong revenue performance is a reflection not only of the opportunity that is inherent across our markets, but also the resilience of our affordable offerings despite the inflationary pressure many of our customers have experienced.
“Facilitating this growth has been, and will remain, fundamental to our performance. The investment in our distribution to catalyse growth, and the technology required to support this growth has been key. Furthermore, our rigorous approach to de-risking our balance sheet and our capital allocation priorities has materially reduced the risks that the currency devaluation has had on our business. Key initiatives include the reduction of US dollar debt across the business and the accumulation of cash at the HoldCo level to fully cover the outstanding debt due. We will continue to focus on reducing our exposure to currency volatility. At the beginning of March, we launched our first buyback programme reflecting the strength of our financial position,” Ogunsanya said.
MTN said it remained committed to sustained solid commercial momentum despite pressures on earnings.
Toriola said: “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 5.1per cent and data traffic by 40.6per cent. 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. 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 our fintech ecosystem spurred transaction volume growth of 25.6per cent YoY, demonstrating momentum within the ecosystem.”
On forex volatility impacts on earnings, he said the telco’s solid commercial operations enabled it to deliver service revenue growth of 32.0 per cent, 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 1.9per cent, 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 39.4per cent. The EBITDA margin would have been 51.0per cent 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, PAT would have been N47.1 billion (down by 57.8per cent), reflecting the underlying resilience of our financial performance under tough conditions,” he said.
