MTN’s N50bn interest expenses slows profit in Q2

MTN Nigeria Plc experienced a change of direction from moderated interest expenses in the first quarter to a high rise of 52 percent to N50 billion in the second quarter. The increase represents an additional N17.4 billion in interest expenses in the second quarter, which slowed down after tax profit from N97 billion in the first quarter to N84.8 billion in the second.

The telecommunications company’s interim financial report for the half year ended June 2022 shows that sales revenue numbers improved from N471 billion in the first quarter to N479 billion in the second, adding up to N950 billion turnover for the six months of operations.

It is however a slowdown in revenue growth from 22 percent in the first quarter to 18 percent quarter-on-quarter in the second quarter. That still keeps the company on target for a full year turnover expectation in the region of N2 trillion in 2022.

Driven by generally rising interest rates, interest expenses and other rising costs claimed increased proportions of the revenue and weakened net profit margin from 20.6 percent in the first quarter to 17.7 percent in the second.

Interest expenses grew from over N40 billion in the first quarter to N50.6 billion in the second quarter, summing up to N90.7 billion finance cost at half year. Adding to the pressure is a drop of 44 percent in finance income in the second quarter compared to an outstanding growth in the first quarter.

Net finance expenses changed direction from a moderated increase of 18.6 percent to N35.7 billion in the first quarter to a towering growth of 68.4 percent to N48 billion in the second quarter.

Other cost increases that impinged on profit margin in the second quarter include amortization of intangible assets, which multiplied more than five times to N12 billion. Marketing cost rose by 67 percent quarter-on-quarter to N8.3 billion, close to four times the increase of 18 percent in sales revenue for the quarter.

Also, the cost of handsets and accessories advanced more than five times over the same period toN5.9 billion in the second quarter. This reflects the effect of external dependence in a depreciating local currency environment.

Inflation-driven other operating costs also grew well ahead of sales revenue at about 29 percent quarter-on-quarter to N25.5 billion.

Data services continue to lead revenue growth for the third year running at an increase of 51 percent to N185 billion in the second quarter. This compares to the N163 billion data services income of in the first quarter.

Revenue from voice services declined slightly to N203 billion for the second quarter, down from 4.7 percent increase in the first quarter. This is a signal that voice services’ dominance of the company’s earnings isn’t going to hold for long.

The share of data income in MTN’s total revenue has expanded further from 34.5 percent in the first quarter and from 30 percent in the same period last year to 38.7 percent in the second quarter.

This is a sustaining increase from below 19 percent at the end of 2019 to 24.7 percent in 2020 and further to 31 percent at the end of the 2021 financial year.

The company’s half year position shows that data services provided over N348 billion or 36.6 percent of the revenue for the period. This is a marked growth of over 52 percent year-on-year, providing the upside force for a 20 percent increase in revenue year-on-year to N950 billion at half year.

MTN Nigeria closed the half year operations with an after tax profit of N181.6 billion, which is a year-on-year growth of 28 percent. While the company lost profit margin from 20.6 percent in the first quarter to 17.7 percent in the second, its half year position improved from 17.9 percent to 19.1 percent on year-on-year reading.