MTNN’s Strong Revenue Growth overshadowed by soaring costs and Forex losses in FY23

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FSDH Initial Reaction: MTN Nigeria FY23 results 
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March 1, 2024/FSDH Research

Key Performance Highlights:

  • In FY23, the economic landscape was significantly shaped by escalating inflation, sharp currency devaluation, foreign exchange shortages, and geopolitical disturbances. Despite this challenging operational environment, MTNN recorded a revenue growth of 22.7% YoY, reaching N2,468.8 billion. Demand for services remained resilient during the year, with Mobile subscribers increasing by 5.4% to 79.7 million, supported by increased gross connections and churn management initiatives. With the mobile penetration rising to 55.6% (up 3.1pp YoY), MTNN’s 4G network now covers 81.5% of the population (FYE22:79.1%). The Company recorded a services revenue growth of 22.4% YoY to N2,454.7 billion in FY23, driven by Data and Voice. The growth in Voice was primarily driven by mobile subscriber base growth, increased usage on the back of customer value management initiatives and revamped voice propositions. Further, Data Revenue growth was primarily attributable to a revamp of the data bundle offerings, particularly in 4Q23, and the significant network coverage and capacity investment. The Fintech business also experienced modest growth of 2.4% YoY, led by Xtratime (the airtime lending product). The digital business continued to gain traction on the back of the optimization of digital service offers and improved customer journeys and partnerships, with the active user base excluding Ayoba up by 57.2% to ~8 million.
  • The combined effects of naira devaluation, higher general inflation and energy costs, and the introduction of the 2023 Finance Act VAT on tower leases resulted in elevated operating expenses. Despite these headwinds, the EBITDA increased 12.3% YoY to N1,202.5 billion, aided by the Company’s efficient cost management. However, EBITDA margin contracted by 448 bps YoY to 48.7%. Operating profit moderately increased 5.4% YoY to N773.6 billion in FY23, negatively impacted by higher depreciation and amortization from increased site rollout and the spectrum licenses acquired. The liberalization of the forex market in June 2023 led to a significant devaluation of the naira from N461/$ in FYE22 to N907.1/US$ in FYE23. Consequently, in FY23, forex loss was N740 billion (FY22: N81.8 billion), with Net finance costs increasing by 341.9% to N951.5 billion, further fuelled by higher borrowings and interest rates. The Company reported an income tax credit of N40.9 billion (FY22: N170.0 billion expense), primarily due to the reported loss before tax and the derecognition of deferred tax assets from Y’ello Digital Financial Services (YDFS). Overall, MTNN reported a Loss after tax of N137.0 billion in FY23, compared to a Profit of N348.7 billion in FY22. Note that after adjusting for the net forex loss, naira devaluation in opex, and the one-off provision for the FIRS VAT assessment, PAT recorded would be N421.9 billion in FY23. MTNN recorded a loss per share of N6.38 versus earnings per share of N16.76 in FY22. Net loss during FY23 resulted in a depletion of retained earnings and shareholders fund to negative N208.0 billion and N40.8 billion, respectively.
  • During 4Q23, revenues jumped 25.1% YoY to N695.9 billion, with growth across all segments except Fintech. The surge in operating costs resulted in a marginal rise in EBITDA to N294.6 billion from N289.8 billion in 4Q22. However, Operating profit declined by 15.9% YoY to N165.2 billion. The significantly higher Net foreign exchange losses and increased finance costs led to a Loss after tax of N284.4 billion, compared to N79.7 billion profits in 4Q22.
  • Despite these headwinds, the Company generated a free cash flow of N631.6 billion, up 11.6%. Capital expenditure increased by 13.2% to N571.0 billion, reflecting the impact of the currency devaluation. The substantial rise in Net debt led to an increase in the net debt to EBITDA ratio from 0.32x to 0.7x. Due to the growing uncertainty in the macroeconomic environment, particularly the naira exchange rate. MTNN has suspended its medium-term guidance for EBITDA margins. However, the ongoing momentum in service revenues is expected to continue. The board did not recommend a final dividend for FY23 due to negative retained earnings.
  • NCC’s directive on NIN-SIM registration: In December 2023, the NCC issued an industry-wide directive requiring full barring of subscriber lines not linked to their NIN. Since the directive, MTNN has approximately 19 million lines going through the verification process, of which 4.3 million have been verified as of February 28, 2024. The Company also disconnected approximately 4.2 million lines, for which the subscribers did not submit their NIN. Several of these lines were low-value subscribers, minimizing the revenue impact.

Market Reaction: Investor reaction to the FY23 results was lackluster as the stock declined 9.96% to N200.70 versus a 1.23% loss in the All-Share Index on 1/3.

MTN Nigeria Earnings Highlights FY23

Source: Company Financials, FSDH

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