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Forex woes hit MTN Nigeria, Airtel Africa



Forex woes hit MTN Nigeria, Airtel Africa

Forex woes hit MTN Nigeria, Airtel Africa

Foreign exchange (forex) volatility has significantly impacted the operations of MTN Nigeria and Airtel Africa, leading both telecommunications giants to post substantial losses after tax. MTN Nigeria reported a staggering loss of N392.7 billion, while Airtel Africa faced an $89 million loss, primarily driven by severe forex headwinds. These included a $549 million exceptional loss net of tax following the Nigerian naira devaluation in June 2023 and the Malawian kwacha devaluation in November 2023. According to their unaudited results for the quarter ended March 31, 2024, and the year ended March 31, 2024, respectively, the financial strain is evident.

MTN Nigeria: Impact and Response

MTN Nigeria’s profit after tax (PAT), adjusted for the net forex loss, declined by 57.8% to N47.1 billion. The net loss for the quarter further exacerbated its accumulated losses, leading to negative shareholders’ funds of N434.7 billion. The company’s capital expenditure (capex) surged by 49.1% to N179.7 billion, highlighting efforts to enhance infrastructure despite economic challenges.

Karl Toriola, CEO of MTN Nigeria, pointed out that severe macroeconomic headwinds overshadowed the company’s strong operating performance. “The operating environment in the first quarter remained very challenging, with rising inflation and continued naira depreciation off an already low base,” Toriola said. The naira’s depreciation to an all-time low of N1,627/US$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM) in March, from N907/US$ at the end of December 2023, significantly impacted operations.

Airtel Africa: Financial Strain and Strategic Moves

Airtel Africa also faced significant financial strain due to forex volatility. The company reported a broadly flat capex at $737 million, deferring some data centre investments. Additionally, it invested $152 million in license renewals and spectrum acquisitions, including $127 million for the Nigerian 3G license renewal. The Nigerian naira’s devaluation from 461 per US dollar in March 2023 to 1,303 per US dollar in March 2024 drastically affected reported revenue and EBITDA, which fell by $1,042 million and $554 million, respectively.

Olusegun Ogunsanya, the outgoing Chief Executive Officer of Airtel Africa, emphasized the growth potential in the markets despite the challenges. “The growth opportunity that exists across our markets remains compelling, and we are well-positioned to deliver against this opportunity,” Ogunsanya noted. He highlighted the importance of reducing exposure to currency volatility and improving margins to counteract the adverse effects of currency devaluation.

Forex Challenges and Regulatory Impacts

The devaluation of the Nigerian naira has been a significant factor in the financial difficulties faced by both companies. Toriola elaborated on the broader economic issues, including rising inflation, which hit 33.2% in March, and the Central Bank of Nigeria’s (CBN) increase in the Monetary Policy Rate (MPR) to 22.75%, driving up funding costs. “These factors have caused significant difficulties for businesses operating in Nigeria, including MTN Nigeria, putting additional pressure on consumers and the cost of doing business,” he said.

Additionally, MTN Nigeria had to manage the effects of the Nigerian Communications Commission’s (NCC) directive for a full barring of subscriber lines not linked to their National Identity Number (NIN). This directive impacted the development of their user base across all key business units (voice, data, and fintech).

Maintaining Commercial Momentum

Despite these headwinds, both MTN Nigeria and Airtel Africa are committed to maintaining commercial momentum. Toriola noted that MTN Nigeria delivered service revenue growth of 32.0%, demonstrating the underlying strength of its business model. However, the negative impact of macroeconomic factors led to a significant decrease in EBITDA margin and a further net loss after tax.

“We maintained solid commercial momentum in our connectivity business and platforms despite the NCC’s directive. Although we had to fully bar 8.6 million subscribers in line with the directive, we minimized the net effect of the barred subscribers, and our total number of subscribers only decreased by 2 million in Q1, closing with a total of 77.7 million subscribers,” Toriola said.

Strategic Focus and Future Outlook

Both companies are focusing on strategic initiatives to mitigate the impact of forex volatility and economic challenges. MTN Nigeria is investing in network quality and coverage, with a strong emphasis on data and voice services. Despite a challenging quarter, the company recorded increased activity within its user base, with voice traffic rising by 5.1% and data traffic by 40.6%.

Similarly, Airtel Africa is concentrating on de-risking its balance sheet and reducing its exposure to currency volatility. Ogunsanya emphasized the company’s rigorous approach to capital allocation and the reduction of US dollar debt across the business. “Facilitating this growth has been, and will remain, fundamental to our performance,” he said.

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