Nigeria’s protracted forex market challenges hurt MTN profits
MTN Nigeria's profit is being harmed by the weak naira, the telco said yesterday, as it released earnings for the nine months ending 30 September.
According to MTN Nigeria, the deregulation of forex management in June 2023 led to a 68.5% increase in the exchange rate from N461/$1 in December 2022 to N777/$1 by the end of September, resulting in greater business costs.
According to the company, the significant movement in the exchange rate since the liberalisation of the forex market, resulted in higher forex losses with a knock-on effect on net finance costs, up 174.4%.
Karl Toriola, CEO, MTN Nigeria, said: “Consequently, profit before tax (PBT) declined by 42.0%. Excluding the impact of the forex loss, PBT rose by 8.6%.
“The effective tax rate was up by 3.8pp to 36.6%, driven mainly by the 0.5pp increase in the education tax rate to 3%, in line with the 2023 Finance Act.
“Overall, profit after tax (excluding non-controlling interest) declined by 45.2%, but would have been up by 5.2%, excluding the forex loss.”
Given the protracted forex challenges in the market, MTN Nigeria said, it “utilised trade lines to fund the establishment of confirmed irrevocable letters of credit for its network capex investments to sustain revenue growth.”
Toriola explained: “Our recognised forex loss for the nine months to September 2023 was 77% higher than the amount reported in H1 2023 where we measured all the trade lines after offsetting the naira-denominated cash cover that was provided to the banks. Following further analysis and review, we have remeasured all our trade lines to correctly exclude the naira-denominated cash cover that was provided to the banks.”
This, he added, resulted “in the recognition of additional unrealised forex loss on outstanding matured trade obligations, as at 30 September 2023 of N87.5 billion. Similarly, our net finance costs for H1 2023 would have increased by N73.9 billion to approximately N295.1 billion.”
According to Toriola: "The operating conditions in the first nine months of 2023 remained tough. This was in line with expectations following the removal of the fuel subsidy, the currency devaluation due to the liberalisation of foreign exchange management and the impact of the 2023 Finance Act.
“In the near term, consumer spending power has been diminished by the upward pressure on overall inflation. This was exacerbated by ongoing volatility in the global macroeconomic and geopolitical environment.”
As a result, the inflation rate in Nigeria rose to 26.7% in September 2023, representing the ninth consecutive month-on-month increase in 2023, with a year-to-date average of 23.3%.
“In the efforts to curb this trajectory, the Central Bank of Nigeria maintained its monetary policy tightening, increasing the monetary policy rate by 2.25pp to 18.75%. This is supported by the Government's reform programmes aimed at creating an environment that enables businesses to thrive,” he said.
“We remain focused on executing our commercial strategy, unlocking efficiencies, and driving operating leverage to support growth in earnings, cash flow, and returns over the medium term.
“However, the scale of the impact on the business of rising inflation and currency devaluation necessitates an increase in regulated tariffs. We are engaging with the authorities through the relevant regulatory bodies to achieve this objective.”