Is MTN Nigeria in Financial Trouble?

The telecommunications giant, MTN Nigeria, has recently reported a shocking loss before tax of N177.8 billion for 2023, a stark contrast to the pre-tax profit of N518.8 billion recorded in the previous year. 

This unexpected turn of events has raised eyebrows and sparked discussions about the financial stability of MTN Nigeria. But is MTN Nigeria truly in financial trouble, or is this just a temporary setback?

What led to the financial downturn

MTN Nigeria attributed this massive loss to a significant foreign currency loss of N740 billion, up from N81 billion in 2022. This marks the company’s first-ever loss since it became a quoted company in Nigeria. The loss has led to a wipe-out of shareholders’ funds, raising concerns about the company’s financial health.

The company pointed to operational changes in the Nigerian foreign exchange market, including abolishing the segmented/parallel structure by the Central Bank of Nigeria (CBN) in June 2023, as a major factor contributing to the loss. The adoption of an official exchange rate of N907.11/$1 as of 31 December 2023 suggests that the loss could widen further if the current exchange rate between the naira and dollar persists.

Despite the financial setback, MTN Nigeria reported a revenue increase of 22.69% year-on-year, with operating profit and finance income also showing growth. However, the net foreign exchange loss and a substantial increase in finance costs have overshadowed these positive figures.

The impact of the loss on shareholders

The net loss for the year has resulted in a depletion of MTN Nigeria’s retained earnings and shareholders’ fund to negative N208.0 billion and N40.8 billion, respectively. This has understandably caused concern among shareholders, especially as the company’s stock value has experienced a significant decline.

Furthermore, MTN Nigeria has communicated that due to the substantial currency devaluation and its repercussions on retained earnings, it will not propose a final dividend payment for the year ending December 31, 2023. This decision, although prudent, adds to the worries of shareholders who rely on dividends as a return on their investment.

The bigger picture

It’s important to note that MTN Nigeria’s financial struggles are not isolated. The company has cited a challenging operating environment characterized by rising inflation, currency devaluation, and foreign exchange shortages. These economic conditions have created severe headwinds for businesses in Nigeria, and MTN Nigeria is no exception.

The company has also highlighted the impact of higher fuel prices and the liberal foreign exchange management system introduced by the CBN, which has significantly increased the cost of doing business in Nigeria.

So, is MTN Nigeria in financial trouble? While the company is certainly facing significant financial challenges, we might look at the broader economic context. MTN Nigeria remains a major player in the telecommunications industry, with a strong subscriber base and continued revenue growth.