Additional FX loss of N101bn in Q3 crashes MTN’s profit to N18.7bn

MTN Nigeria Plc piled up additional unrealised foreign exchange (FX) loss of N101.4 billion in the third quarter (Q3), which crashed the profit for the quarter from N87.4 billion in the same period last year to N18.7 billion.

The development has raised the FX loss of N131.5 billion the company reported at half-year by 77 percent to N232.8 billion at the end of Q3.

Recognition of the huge FX loss in Q3 follows re-measuring of trade lines the company had used to fund the establishment of letters of credit as some of the outstanding trade obligations matured.

The company’s interim financial report for the nine months ended September 2023, shows that the FX loss changed the its earnings story from 13 percent increase in operating profit at the end of Q3 to a drop of 42 percent in pre-tax profit to N232.5 billion — worse than the 25.4 percent profit drop at half-year.

The telecommunications company was also pressured by direct network operating cost in Q3, which grew by 44.5 percent to N170.6 billion for the quarter — more than double the increase of 21.4 percent in sales revenue to N614.2 billion for the quarter.

Led by the huge FX loss, finance expenses jumped by 192.8 percent to N159.5 billion for the third quarter. The FX loss for the quarter is more than seven times multiplication of an FX loss of N14.2 billion in the same quarter last year.

With increased operating cost in Q3, operating profit ended flat at N186.9 billion for the quarter, much of which was consumed by an enlarged net finance cost of N154.8 billion, leaving pre-tax profit down by 75.7 percent year-on-year to N32 billion.

After-tax profit for the third quarter also fell by 78.6 percent to N18.7 billion.

The company closed the nine months of operations with a turnover of N1,772.9 billion, an increase of 21.8 percent year-on-year. The improvement cut across all the company’s revenue lines and was led by data services.

Revenue from data services overtook earnings from voice services at N748.3 billion compared to N700.6 billion at the end of Q3.

Earnings from data services maintained rapid growth at 36.3 percent — three times ahead of the increase of 11.8 percent in voice-generated revenue.

Revenue from data services has, therefore, extended further its contribution to total revenue from 38 percent at the end of 2022 and from 40.5 percent at half-year to 42.2 percent at the end of the third quarter of 2023 – a sustaining growth from 21 percent in 2021.

Rising costs put margins under increased pressure in Q3. Direct network operating cost keeps growing ahead of revenue and the lead margin increased as it accelerated from 28.3 percent increase at half-year to 34 percent growth at the end of Q3.

The cost increase encroached further on revenue and that depressed the operating profit margin further, from 36.4 percent at half-year to 34.3 percent at the end of Q3.

Operating profit, therefore, slowed down from 19.7 percent increase at half-year to 13.2 percent improvement or N70.8 billion to close at N608.4 billion at the end of September 2023.

The increase in operating profit together with finance income of N21 billion were consumed by the upsurge in finance cost from N145.2 billion in the same period last year, to over N397 billion at the end of the third quarter.

The proportion of operating profit devoted to finance cost grew from 56.4 percent at half-year and from 27 percent in the same period in the preceding financial year to 65.3 percent at the end of Q3.

Pre-tax profit accelerated downward at the end of the review period from a drop of 25.4 percent at half-year to a drop of 42 percent at the end of Q3 to close at N232.5 billion.

After tax profit also increased its pace of decline from 29 percent at half-year to 45.2 percent at the end of September 2023 to close at N147.4 billion.

Net profit margin went down further from 11.1 percent at half-year and 18.5 percent in the same period in 2022 to 8.3 percent at the end of the third quarter in 2023.