MTN sees strong growth despite Nigerian forex hit

Telecommunications giant MTN reported a 7.1% headline earnings per share (HEPS) increase for the first half of this year, negatively impacted by significant forex losses from the company’s Nigeria operations.

MTN released its interim results for the six months ended 30 June 2023 today, which showed solid growth.

In H1 2023, MTN’s EBITDA increased by 13.5%. However, the company’s EBITDA margin in constant currency terms, which also excludes the effects of once-off items, narrowed by 0.5 percentage points to 44.0%, reflecting the impacts of elevated inflation on operating expenses. 

Before once-off items, MTN’s EBITDA margin was 43.6% compared to 45.3% in June 2022. The H1 2023 figure included a number of non-operational items totalling a net -R539 million. 

“This comprises a gain on the sale of South African towers of R53 million, the impairment of Afghanistan fixed assets of R385 million and the impairment of Sudan fixed assets of R207 million,” the company said. 

The H1 2022 margin also included a number of non-operational items totalling a net -R259 million. 

“This comprised a gain on the sale of South African towers of R261 million, impairment of Afghanistan fixed assets of R435 million and a Ghana IFRS 2 charge of R85 million.” 

MTN’s basic earnings per share increased by 14.8% to 511 cents (H1 2022: 445 cents), “supported by strong operational results”. 

The company’s EPS in June 2023 includes impairment losses of 13 cents that mainly relate to property, plant and equipment and associates, an impairment loss on remeasurement of disposal groups of 21 cents offset by a net profit on the disposal of its South African towers and other assets of 2 cents. 

MTN’s HEPS increased by 7.1% to 542 cents (H1 2022 restated: 506 cents). 

Its HEPS was negatively impacted by some non-operational and once-off items of approximately 207 cents (H1 2022: 94 cents) for the six-month period, MTN said. 

These include:

• Hyperinflation excluding impairments of 38 cents (H1 2022: 2 cents)
• Forex losses of 169 cents (H1 2022: 88 cents)
• An IFRS 2 charge arising from the MTN Ghana localisation transaction of 0 cents (H1 2022: 4 cents) 

MTN said the naira float – the liberalisation of the forex rates in Nigeria – resulted in a substantial depreciation of the naira against the US dollar, which had a meaningful impact on the company’s results. 

On 14 June 2023, the Central Bank of Nigeria announced changes in the Nigerian forex operations that required the immediate collapse of all segments of the market into the investor and exporter window and reintroduced the “willing buyer, willing seller” model. 

This led to an approximately 60% movement in the exchange rate since the announcement, to ₦756.24/ USD at the end of June 2023 as the market seeks an equilibrium level. 

“The liberalisation of the forex regime and removal of the fuel subsidy provide a clear pathway to the return of international capital into MTN Nigeria’s capital markets, and foreign direct investment which will drive economic activity in the medium term, improve the operating environment, and is net positive for our longer-term outlook,” the company said. 

“The immediate impact on MTN Nigeria’s H1 results was the unrealised forex losses included in net finance charges. There was no material impact on the EBITDA margin due to the nature of the tower contracts, which require quarterly payments at the beginning of each quarter.”

“The exchange rate is adjusted based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the quarter for others.” 

As a result, the full impact is expected to be in H2, MTN said, adding that the US dollar component of operating costs is in the low 40% range. 

“Our sensitivity analysis shows that a 10% movement in the exchange rate would have a direct negative impact of approximately 1.3 percentage points on MTN Nigeria’s EBITDA margin before any mitigation actions. 

“The impact on finance costs in H2 will depend on variations in the exchange rate during the period.”

Within the aforementioned 169 cents of forex losses, 128 cents from Nigeria, of which approximately 95 cents was incurred in the month of June 2023 – the month of the naira float. 

Adjusted HEPS increased by 24.8% to 749 cents due to improved operational results. 

MTN said it continued to invest in the capacity of its networks in H1 2023, investing capex of R33.8 billion on an IFRS 16 reported basis, which is 19.1% higher year-on-year. 

In the period, MTN rolled out 1,469 3G and 1,759 4G sites.

In line with the company’s policy, MTN did not declare an interim dividend for H1 2023. However, it said the board of directors anticipates paying a minimum ordinary final dividend of 330 cents per share for FY 2023.

The market has responded well to the company’s results and news that Mastercard agreed to take a minority stake in MTN’s financial-technology business, which the company values at $5.2 billion (R98.7 billion).

MTN’s share price is up more than 9% on the JSE this morning at 10:20.