The 5-point plan to solve MTN’s Nigeria woes

2 weeks ago 92

MTN Nigeria has outlined a five-point strategy to address the network operator’s “negative asset position” in its largest market.

The strategy was outlined to investors at an extraordinary general meeting in Lagos on Tuesday following the release of MTN Nigeria’s quarterly update for the first quarter of 2024 earlier that day. That update showed that retained earnings for the Nigerian operation had deteriorated even further from the position reported at the December 2023 year-end.

Macroeconomic headwinds including high inflation and the devaluation of the naira currency continued to hamper the telecommunications company’s progress in the first quarter of 2024. In its quarterly update released on Tuesday, MTN Nigeria reported losses after tax of ₦392.7-billion (R5.4-billion) for the quarter, with earnings before interest, tax, depreciation and amortisation (Ebitda) down 1.9% to ₦297-billion (R4.1-billion) year on year.

Net losses for the quarter resulted in a further increase in accumulated losses and negative shareholder funds, which stood at ₦599.2-billion (R8.3-billion) and ₦434.7-billion (R6-billion), respectively.

MTN Nigeria said it will seek further discussions with regulators, asking for industry-wide tariff increases to help manage the effects of the challenging market conditions. “Appropriate tariff increases will be necessary to support continued investment and the long-term sustainability of the industry,” said Uto Ukpanah, company secretary for MTN Nigeria.

The second prong in MTN Nigeria’s recovery strategy is a focus on initiatives that will drive margin recovery. One aspect of this is a focus on improving revenue growth, which is on a positive trajectory, having grown by 32.5% year on year to ₦753-billion (R9.9-billion) in the first quarter of 2024.

Cost reductions

The second aspect of margin recovery is improved operational efficiency and cost reductions. This is expected to come via an expense efficiency programme, the effects of which, said group CEO Ralph Mupita, would have an impact on Nigeria’s financial results in the current financial year.

The third prong in MTN Nigeria’s margin recovery strategy involves capex optimisation. The telecoms firm has made significant capex investments in recent years to build network capacity. This also involved the acquisition of additional spectrum.

Read: MTN says it must hike tariffs in Nigeria after naira collapse

Having made these investments, the operator believes it can be less aggressive in its capex spend in the current period. “There is flexibility to optimise capex deployment [which will be] reduced for FY2024 and [we’ll] aim for capex intensity in the upper single digits,” said Ukpanah.

Reducing dollar exposure is MTN Nigeria’s fourth focus area as it attempts to turn its negative asset position around. Critical to this initiative is the reduction of the company’s outstanding letters of credit (LC) obligations incurred as part of its capex requirements, which are foreign-currency dominated.

“The company has utilised the improved liquidity in the foreign exchange market to reduce the balance of LC obligations to US$243.4-million as at 31 March 2024, from $416.6-million as at 31 December 2023. This was funded using restricted cash balances held in naira to support LC obligations,” said Ukpanah.

The final key initiative in MTN Nigeria’s drive to recover its balance sheet is the renegotiation of its tower lease contracts, with the company saying discussions are ongoing. If successful, the restructuring of these contracts should further minimise the company’s currency exposure.

MTN believes that the underlying Nigeria business is sound. However, the negative external factors will persist.

“Based on the company’s assessment of macroeconomic and operating conditions and the initiatives approved by the board, the business will remain in a negative net asset position in 2024 but with improvements expected in 2025,” said Ukpanah. – © 2024 NewsCentral Media