Is MTN losing grip?


Last week, MTN was voted Africa’s most admired brands – an honour it shared with Dangote Group of Companies. Quick News Africa takes a brief look at the African telecommunications giant and wonders if it is taking a fall or bidding its time.

MTN is one of Nigeria’s admirable, inspiring success stories and it is not difficult to see why. It has recorded many firsts and made itself the only one to beat its many records. With respect to many other communications companies within the country, it is first among equals.

It may have lost the operating steam that lifted profit more than three times ahead of revenue in 2019. The position reversed in the first quarter of the current year with revenue growing three times ahead of profit. The company’s high-profit recovery momentum seen for the second year in 2019 has faded.

This does not mean the communication company is down on its luck. No. Inspite of this, it is advancing strongly in terms of revenue growth and has recorded a fourth straight year of increased turnover. Revenue is accelerating at a year-on-year growth of close to 17 percent from less than 13 percent improvement at the end of last year. This should be a good thing.

Like all businesses, cost is an issue here. The company is grappling with cost; cost of finance, of course.

In 2019, the company recorded an 86 per cent (N125 billion) jump in finance expenses and consumed about 32 per cent of operating profit. At the end of Q1, finance cost stood at roughly N41 billion (25 per cent) year-on-year and claimed more than 36 per cent of operating profit for the quarter.

As a big player in the credit market, at the end of March 2020, the company had total borrowings of N410 billion at the end of March 2020. This figure is slightly down from the 2019 closing level but interest expenses on the borrowings alone doubled at the end of the first quarter.

The biggest component of the company’s interest expenses is the cost of finance lease facilities – that stood at over N558 billion at the end of the first quarter. Another major component is the foreign exchange loss of nearly N5 billion in the first quarter.

The disappointing performance of finance income added to the strain on the bottom line in the first quarter. A drop of 34 percent in finance income to N5.7 billion extended the negative impact of the rise in finance expenses. Net finance cost grew by 47 percent to N35 billion over the period.

The development weakened profit capacity in the first quarter with profit margin down from the five-year peak record of 17.3 percent at the end of 2019 to 15.5 percent.

The company remains firm with its operating cost management programmes. Generally, operating expenses were in check during the first quarter and some cost-saving enabled operating profit to grow ahead of revenue at 18.6 percent to over N111 billion.

MTN Nigeria Communications closed the first quarter operations with a turnover of over N329 billion, which is a year-on-year increase of 16.7 percent. It is maintaining last year’s revenue structure in which airtime/subscription is the main income line while revenue growth is driven by data – which rose by 59 percent year-on-year.

However interconnect/roaming, which was the second revenue growth driver last year, has been overtaken by value-added services – which grew by 34 per cent to over N11 billion at the end of the first quarter.

Operating costs remained generally moderated in the first quarter against the improvement in revenue. But all three major cost lines that dropped last year are on the rise this year. Direct network operating cost grew by 18 per cent to over N70 billion from a 21 percent drop at the end of last year.

Operating expenses, which dropped by 15 percent in 2019, grew by more than 32 percent year-on-year to N17 billion in the first quarter. Also, value-added service cost, which dropped by 25 percent last year, increased slightly in the first quarter of the current financial year.

Most of the other cost lines of the company remained moderated relative to revenue. This enabled management to neutralise the cost increases and raise operating profit ahead of revenue at 18.6 percent to over N111 billion at the end of March 2020.

An increase of 25 percent in finance costs to N40.7 billion and a drop of over 34 percent in finance income to N5.7 billion claimed more than all the cost savings in operating profit. Pre-tax profit, therefore, improved at a much slower rate than operating profit at 8.9 percent to N76 billion.

After-tax profit amounted to a little over N51 billion for MTN Nigeria Communications at the end of the first quarter. This is an increase of 5.6 percent over the closing profit figure in the same period in 2019.

The company converted a reduced proportion of each naira of revenue into profit in the first quarter. The net profit margin went down from 17.3 percent at the end of 2019 to 15.5 percent at the end of March this year.

The company ended the first quarter operations with earnings per share of N2.51, improving from N2.38 per share in the same period last year.

The outlook for the company for the year indicates that the healthy revenue growth seen in the first quarter is likely to be maintained. Operating costs are expected to stay moderated and further cost savings are likely in the course of the financial year. However, the cost of finance may accelerate in the coming interims and constrict profit margins further.

There is one thing MTN has enjoyed since it went mainstream, to claim most of the accolades available: it always bounces back. Investors and all those who voted the company as one of the continent’s best brands will be hoping for it to be around for much longer.

Besides the unexplainably high tariffs and speedy data, amongst other sour points with their customers, there is a lot of good stuff about MTN Communications.
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