MTN Group Ltd., Africa’s leading wireless service provider in terms of revenue, has disclosed a sobering projection -its full-year profit is expected to significantly decline, potentially plummeting by 90% for the fiscal year 2023.
This bleak outlook is primarily attributed to the adverse effects of currency devaluations, particularly in Nigeria, on the company’s financial performance.
As the continent’s largest telecommunications operator, MTN Group faces considerable challenges in navigating the economic landscape, with currency fluctuations exerting substantial pressure on its profitability. The devaluation of Nigeria’s currency, in particular, has presented a formidable obstacle, necessitating a reassessment of the company’s financial strategies and operational tactics to mitigate potential risks and sustain its market position.
This announcement underscores the complexities and uncertainties inherent in the telecommunications industry, especially in regions where economic volatility and currency instability are prevalent.
Fintech Telex recalls that the Nigerian Naira experienced a significant depreciation of 49% in the year 2023. In the current year, this trend has continued, with the currency witnessing a further weakening of 44%. This places the Naira as the world’s worst-performing currency against the US dollar, following closely behind the Lebanese pound, as per data tracked by Bloomberg.
The persistent decline in the value of the Naira underscores the challenges posed by economic instability and currency volatility in Nigeria, necessitating careful navigation and strategic planning by businesses operating within the country. This ongoing trend emphasizes the importance of monitoring and adapting to currency fluctuations to mitigate financial risks and sustain business operations in a dynamic economic environment.
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How Naira devaluation Affects MTN Group’s profit
Did you know that about a third of the group’s profit comes from the West African Nations? The telecommunications giant boasts an extensive customer base of approximately 77 million users in Nigeria, underscoring its significant market presence in Africa’s most populous nation.
Over the years, MTN has established itself as a key player in Nigeria’s telecommunications sector, historically deriving approximately one-third of its earnings from this dynamic market. This substantial customer base not only highlights MTN’s widespread reach but also emphasizes the critical role that Nigeria plays in contributing to the company’s overall financial performance. Hence, why the depreciation of the Naira poses a threat to MTN Group.
Peter Takaendesa, head of equities at Mergence Investment Managers confirms this when he said,
“Most of the naira weakness will affect 2024, more than 2023, and it will take some time for MTN to recoup cost pressure from the consumer given regulatory restrictions in Nigeria.”
It’s worth noting that the company reported losses exceeding $80 million after its fiscal year in 2023. The primary catalyst for this downturn is attributed to the devaluation of Nigeria’s currency, the Naira.
The devaluation of Nigeria’s currency, the Naira, has led to an increase in both operating and net finance costs for MTN Nigeria. As a result, this has a notable impact on the overall financial performance of the MTN Group for the fiscal year 2023.
MTN anticipates a significant decline in earnings per share (EPS), projected to fall within the range of -90% to -70%. This forecast translates to a range of -R9.64 ($0.505) to -R7.5 ($0.393) per share. By comparison, the reported EPS for the fiscal year ending December 31, 2022, was R10.71 ($0.562) per share.
Similarly, MTN expects a decrease in headline earnings per share (HEPS) within the range of -80% to -60%. This decline is equivalent to -R9.23 ($0.484) to -R6.92 ($0.362) per share, compared to the reported HEPS of R11.54 ($0.604) for fiscal year 2022.
Despite these challenges, the MTN Group board reassures investors and maintains investor confidence. They have expressed their commitment to declaring a dividend consistent with previous guidance. The board intends to declare a minimum ordinary final dividend of R3.3 ($0.173) per share for fiscal year 2023.
