Why MTN Lost N575.69BN in Q1 Despite Solid Commercial Momentum

The financial performance of MTN Nigeria defied positive metrics of commercial momentum seen in its operation in the first quarter of 2024.

Instead of posting profit, the telecoms giant ended the three-month operation with a pre-tax loss of N575.691 billion,  representing a massive 453.4% fall into the red region from N162.914 billion pre-tax profit posted in the first quarter of 2023.

Its unaudited financial report for Q1 just released at the Nigerian Exchange Limited (NGX) showed that its loss after tax also plunged abysmally below the green line at N392.694 billion, which is equivalent to 462.2% total collapse from N108.433 billion profit in the Q1 of 2023.

The development is an extension of the huge losses the company reported at the end of its 2023 full-year operations, when it posted a staggering loss before tax of N177.8 billion, a sharp contrast to the pre-tax profit of N518.8 billion recorded the previous year, 2022.

Solid Commercial Operation in Q1

It is however ironic that MTN’s negative close in Q1 occurred amidst a solid commercial momentum driven by increase in its mobile subscribers, data users and usage, Momo wallet users, and Ayoba subscribers.

Collectively, these elements lifted the total revenue of the company by 32.5% from N568.134 billion in the comparative period of 2023 to N752.983 billion in Q1 2024.

MTN maintained solid commercial momentum in its connectivity business and platforms despite a directive by the Nigerian Communications Commission (NCC) that mandated mobile network operators (MNOs) in the country to disconnect telephone lines not properly linked to the national identity numbers (NINs) of customers on their respective networks.

Explained how the directive affected MTN, the chief executive officer of MTN Nigeria, Mr Karl Toriola said: “Although we had to fully bar 8.6 million subscribers in line with the directive, we minimised the net effect of the barred subscribers.”

MTN’s subscriber base as at end of March stood at 77.7 million, a two million decreased compared to Q4, 2023, but a 1.3% uptick relative to Q1 2023.

Specifically, MTN saw upswings across its revenue streams. Its voice revenue increased 14.9% to N318.982 billion; data revenue shot up by 53.4% to N349.514 billion; while revenue from its fintech operations recorded marginal increase of 0.7% to N22.846 billion, fortunes from digital services and other services jacked up significantly by 88.6% and 38.6% to N13.604 billion and N42.429 billion respectively.

In his remark, Toriola further stated that “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. 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”

Drivers of Negative Closing

According to MTN Nigeria, foreign exchange volatility and tough operating environment impacted on its earnings during the period.

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.

Although, MTN’s solid commercial operations enabled it to deliver service revenue growth of 32.0%, which slightly exceeded the average inflation rate in the quarter, Earnings Before Interest, Taxes, Depreciation, and Amortization (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, even as the company continued to pursue efficiency measures and accelerate efforts to reduce forex exposure to minimise the impact on its business.

The further depreciation of the naira in Q1 resulted in a materially higher net forex loss of N656.4 billion compared to a meagre N4.5 billion in Q1 2023, arising from the revaluation of foreign currency denominated obligations.

This led to a loss after tax of N392.7 billion compared to a 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 57.8%), reflecting the underlying resilience of MTN Nigeria’s financial performance under tough conditions.