How Currency Pressure Weakens MTN Nigeria 2023 Third Quarter Margins

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MTN Nigeria Communications Plc, released its third quarter unaudited results for the period ended September 30, 2023, showing a decrease in standalone EPS to N0.93 against N4.22 that was reported same period in 2022, the dip in earnings was driven mainly by higher expenses and a marked expansion in net finance costs.

Revenue grew by 21.4% , underpinned by a broad-based increase across the voice 7.7% , data 38.9%, digital 65.3%, fintech 1.4% and others 14.3% channels.

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Quite notably, data surpassed voice as the largest contributor to revenue, contributing 45.5% of the total outturn in the period. Management alluded that the revamp of data bundle offerings and an increase in its smartphone penetration amid sustained investments to expand coverage, capacity and enhance customer experience underpinned the impressive growth in data revenue.

The growth in voice revenue was delivered mainly through an increased usage of MTNN’s voice propositions and a growing base. Pertinently, MTNN’s subscriber base grew to 77.60 million as at nine months of 2023, with the addition of 2.00 million subscribers.

During the quarter, total expenses grew by 36.0%, owing to (1) higher lease rental costs given the impact of the currency devaluation and highly inflationary environment and (2) energy costs.

Consequently, EBITDA margin 582bps declined to 47.8%, falling short of management’s medium-term key performance guidance. EBITDA margin declined by 240bps to 51.2%.

Net finance costs of 190.2% rose markedly as a significantly higher foreign exchange loss of N101.38 billion against N14.24 billion in 2022, influenced a 192.8% growth in finance costs.

The higher FX loss balance points to the impact of the currency devaluation on MTN’s finance charge. Meanwhile, finance income grew markedly by 311.5%.

Pre tax profit declined by 75.7% to N32.08 billion, following an effective tax rate of 41.8% , profit after tax stood at N18.68 billion.

As envisaged, the impact of the currency devaluation was significantly felt in the third quarter 2023 operating and profitability margins, given the adjustment of MTNN’s tower contracts costs to a higher reference rate.

Even as the market watchers expect MTNN’s key fundamentals to remain strong for the rest of the year, they believe the impact of the currency devaluation will remain an inhibiting factor to profitability expansion.

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