MTN earnings up despite Nigeria forex losses

MTN’s earnings per share for the first half of 2023 are expected to increase between 10% and 20%. However, significant forex losses from its Nigerian operations negatively impacted MTN’s headline earnings per share.

The telecommunications giant released a trading update for the six months ended 30 June 2023 today.

According to the update, MTN expects to report an increase in earnings per share (EPS) of between 10% and 20% (or 45 cents to 89 cents). 

The company reported an EPS of 445 cents for the corresponding six-month period ended 30 June 2022, which translates to a range of 490 cents to 534 cents for the reporting period. 

The company said its EPS includes impairment losses that mainly relate to:

• Property, plant and equipment and associates of 13 cents (June 2022: 25 cents)
• An impairment loss on remeasurement of disposal groups of 21 cents (June 2022: 52 cents) 
• A net profit on the disposal of South African towers and other assets of 3 cents (June 2022: 16 cents)

MTN also reported an expected increase in headline earnings per share (HEPS) between 0% and 10% (or 0 cents to 51 cents). 

The company previously announced that the deferred tax income on the disposal of some of its South African towers of R1.1 billion was not included in the H1 2022 HEPS reconciliation but correctly processed within earnings and basic EPS. 

HEPS reported in H1 2022 was consequently restated with a reduction of 61 cents to 506 cents.

MTN said its HEPS were negatively impacted by “some non-operational and once-off items of approximately 207 cents (June 2022: 94 cents) for the six-month period”. 

These include:

• Hyperinflation excluding impairments of 38 cents (June 2022: 2 cents)
• Foreign exchange (forex) losses of 169 cents (June 2022: 88 cents) 
• An IFRS 2 charge arising from the MTN Ghana localisation transaction of 0 cents (June 2022: 4 cents)

The company’s forex losses resulted from volatility in forex rates in two of its key markets: South Africa and Nigeria.

Of the 169 cents of forex losses, 128 cents is from Nigeria, of which approximately 95 cents was incurred in June 2023. 

In June, the Nigerian Central Bank allowed the Naira to weaken by more than a third in an attempt to unify the country’s multiple exchange rates and to lure foreign investment to shore up liquidity in an economy struggling with dollar shortages.

This caused a lack of forex reserves in the country, which is set to impact local companies with large Nigerian operations, like MTN and MultiChoice.

Given the limited forex reserves in MTN’s Nigerian and Ghanaian markets, the company elected for scrip dividend options for the FY 2022 dividends from MTN Nigeria and MTN Ghana in the reporting period. 

MTN shareholders will, therefore, be given the choice to receive dividends at a later date or to receive additional shares instead of dividends. Scrip dividends are often used when issuers have too little cash available to pay a cash dividend but still want to pay their shareholders.

For MTN Nigeria, the ordinary shares created from the scrip dividend election have been approved by Nigeria’s Corporate Affairs Commission. The company is awaiting final regulatory approval for the shares to be credited to the respective Central Security Clearing System accounts of qualified shareholders. 

For MTN Ghana, the allocation was completed towards the end of June 2023. Therefore, the impacts of the election of the scrip dividend options will not be seen in the H1 2023 results. 

“They will, however, be accretive to attributable earnings once all allocations are finalised, although this negatively impacts cash upstreamed to the Group,” MTN reported.

“These effects, particularly rand depreciation against the US dollar and election of the scrip dividend options, have thus also impacted the GGroup’sholding company (Holdco) leverage in the period, which is anticipated to be towards the upper end of the guidance range of ‘less than 1.5x’.”