FX challenges: MTN plans to hike tariff in Nigeria to boost profitability

There are strong indications that the Nigerian unit of Africa’s biggest telecoms operator, MTN may embark on a tariff increase exercise as well as implement a cost-cutting regime. This is part of efforts to restore the company’s profitability and strengthen its balance sheet after the group company reported a slump in annual profit on Monday.

According to reports, MTN is working with regulators across several markets, including Nigeria, to get approval to increase tariffs for voice and data.

“Given our expense profile in Nigeria, we need some tariff increases to mitigate the cost of running the networks. Our focus is to work with regulators for tariff increases in voice and data as there haven’t been any increases for quite some time in that market,” MTN Group CEO, Ralph Mupita told the press in a chat yesterday to discuss the group’s 2023 financial results.

The challenging operating environment in 2023, marked by rising inflation, currency devaluation, and foreign exchange shortages, posed significant headwinds for MTN Nigeria. Geopolitical disruptions and cash shortages in Q1 compounded the difficulties, with a redesign of the naira exacerbating the situation.

Read also: MTN Nigeria records N177.8b loss in 2023, shareholders funds erased

In addition, Nigeria’s inflation rate rose by 28.9% in December 2023, the highest in 18 years, with an average rate of 24.5% throughout the year. These factors contributed to the depletion of retained earnings and shareholders’ funds to a negative N208.0 billion and N40.8 billion, respectively.

The South Africa-headquartered company said its headline earnings per share (HEPS) – one of the main profit measures – fell by 72.3% to 315 cents in 2023 from a restated 1,137 cents a year earlier. According to the company’s report, the loss is owing to a sharp devaluation in the Nigerian naira, which pushed MTN Nigeria, the group’s biggest business, to a loss after tax of 137 billion naira ($101.48 million) and a negative equity.

“Our view is that if we have two-thirds of inflation as a tariff increase in the next two to three years then it’s a good idea. We will supplement that with cost-cutting initiatives and efforts to minimise our foreign exchange risk”, the CEO added.

In June, Nigeria’s central bank adopted new foreign exchange regulations that MTN said have since led to a collapse in the naira versus the US dollar. The naira stood at ₦462 on 13 June 2023 but was down to ₦907 at the end of December.

Consequently, service revenue for the business in Nigeria went up by 22.1%. This is second only to Ghana (35%) in the group’s operating portfolio. Also, voice and data revenues climbed by 10.2% and 38.6%, respectively.

Although EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) increased by 14.2% EBITDA’s margin fell by 3.6 percentage points to 49.7%.

MTN’s tower cost

A majority of the company’s expenses are driven by contracts MTN Nigeria has with cell tower operators IHS Holdings and ATC. The CEO also said that the company is engaging with these tower companies to renegotiate some of its tower contracts to mitigate further rise in costs due to possible naira devaluations.

Mr Mupita told journalists that the company will embark on a cost optimisation drive to safeguard profitability and cash flows. According to him, this will be underpinned by its FX expense efficiency programme.

The point is to try and minimise FX exposure as much as possible,” Mr Mupita said. He added that the results of a group-wide cost-efficiency initiative should also have a positive impact on the operator’s Nigerian operations in the upcoming reporting period.

He also pointed out that the group’s internal adjustments will remain subject to a hostile macroeconomic environment. “I think on Nigeria, we’re anticipating that we’ll continue to have some macro headwinds. We’re anticipating that the naira will remain volatile for some time”, Ralph Mupita also explained to the press.