How MTN Nigeria returned to profitability
MTN Nigeria Communications Plc has charted its path back to profitability after three successive quarters of loss. The telco declared a profit after tax of N4.13 billion in the third quarter of 2024.
A Central Bank of Nigeria (CBN) unification of the foreign exchange market in 2023 tumbled the naira from N471/$ in mid-June 2023 to over N1,500 by September. This led to losses in the telecom sector, with Airtel Africa and MTN Nigeria losing N1.29 trillion in foreign exchange losses in 2023.
BusinessDay had earlier reported that telcos were charting a naira-focused path to profitability after suffering foreign exchange losses of $1.56 billion in 2023. Since the end of 2023, MTN and Airtel have reduced their dollar liabilities, decreased foreign loans, bulk-paying for FX-denominated inputs, and renegotiated contracts.
MTN and Airtel reduced their foreign loans to $100 million in June 2024 from $966.6 million in December 2023. In its financial statement for the nine-month period ending September 2024, MTN outlined steps it took to retrace its steps back to profitability.
Read also: Updated: MTN charts path back to profit, declares N4bn for Q3
1. Driving margin recovery: MTN said it made progress in stabilising and recovercing margins by boosting topline growth and enhancing expense efficiencies. This included efforts to reduce operational expenses like its renegotiated contracts with IHS which led to savings of about N54 billion in the period.
2. Optimisation of capital expenditure: The telco said its capex deployment was well-managed with an intensity of 9.8 percent in the nine months. This has enabled it to prioritise available forex liquidity and reduce its exposure to dollar obligations. The statement revealed that (capex) excluding leases was down 27.8 percent to N217.6 billion in the period.
3. Reduction of dollar exposure: The telco has reduced its outstanding trade line obligations to $57 million in September 2024 from $416.6 million in December 2023. While this reduction led to a realised forex loss of N365 billion, it helped to reduce the effect of future naira depreciation.
4. Reviewing tower lease contracts: MTNN noted that its renegotiated tower lease contracts with IHS reduced the dollar-indexed component of the leases linked and removed technology-based pricing, ensuring that payments for new upgrades will be based on tower space and power usage.
It highlighted that the new agreements incorporate an energy cost component indexed to the cost of providing diesel power. “In the current period, the accrued operating expense (OPEX) savings from the effective date of the contract on 1 April 2024 was approximately N54 billion as at the end of September, and free cash flow savings amounted to approximately N45 billion,” it stated.
It, however, stated that it expects to incur higher depreciation and finance costs in the early stages due to the extension of the lease period to 31 December 2032, but the benefits will become pronounced in later years. “Overall, we anticipate recording a net positive impact of between N3.5–4 trillion on PBT over the duration of the contracts, based on current assumptions,” it added.
MTN also noted it remains engaged with authorities to address tariff increases to mitigate the impacts of macro volatility.
Telcos have been pushing for their first upward tariff review in 11 years since 2022. However, people close to the matter at the Nigerian Communications Commission say that the matter is sensitive due to the crucial role of telecom services for everyone. They noted that the regulator is still reviewing the sector’s requests and is trying to ensure that services are as cost-reflective as possible.
