OPEX, Rising Costs Shrink MTN Nigeria’s Net Profit, Despite 13.9% Revenue Growth

Mobile telephony giant- MTN Nigeria Communications Plc recently presented its unaudited financials for the nine-month ended September 30, 2020, showing a marginal slip in profit before and after-tax, arising from a 25.5% jump in operating expenses, just as the cost of starter-packs soared 81.95% up; and 19.88% in financial costs, despite the 13.9% growth in revenue.

The company also restated its 2019 nine-month unaudited financials.

According to the report presented through the Nigerian Stock Exchange (NSE), revenue rose from N856.549bn to N975.763bn, with voice accounting for N558.701bn or 57.26% of total revenue; as against the previous N533.758bn or 62.31%. Data revenue climbed by N79.348bn or 48.9%, from N162.256bn (about 18.94% of total) to N241.604bn (24.76%), as more people migrated to online meetings and transactions that replaced physical interactions arising from the lockdown to spread the spread of the novel Coronavirus pandemic. SMS revenue dropped to N8.3bn from N10.251bn; interconnect and roaming income stood at N97.013bn from N95.369bn; while other revenue soared from N2.368bn to N8.488bn; among others.

The company reported N63.053bn in “other income,” which did not occur in 2019.

Direct network operating costs jumped to N227.582bn, up by N46.243bn, with BTS leases which relates to the non-lease components such as power and maintenance of the tower lease contracts recognised as an expense in profit or loss as they are incurred, gulped N165.889bn, compared to N125.252bn in 2019; followed by the N35.591bn incurred in network maintenance, from N33.166bn; among others.

Value added services costs stood at N9.261bn from N8.938bn; cost of starter packs, handsets and accessories jumping to N15.589bn from N8.567bn; while interconnect costs increased from N78.602bn to N82.705bn.

Possibly due to the lockdown with no international travels, roaming costs dropped to N1.898bn from N2.935bn; just as transmission costs growth was flat at N4.599bn as against N4.126bn.

Operating profit improved by 7.8% to N307.01bn from N284.726bn in the corresponding period of 2019, while finance income dropped from N17.732bn to N11.94bn. This was caused primarily by the decrease in interest income on amortised cost investments from N8.114bn to N3.578bn; just as interest income on bank deposits fell to N4.596bn from N5.63bn; and foreign exchange gain from N2.998bn in the third quarter of 2019 t N1.706bn.

Finance costs climbed from N89.554bn to N107.356bn, even in the absence of “time value accretion of regulatory fine which the company paid N4.872bn in the corresponding period of 2019. The spike finance costs resulted from the growth in interest expense from interest expense on lease from N48.796bn to N57.931bn; interest expense (borrowing) climbed from N32.403bn to N43.649bn; while foreign exchange loss soared fro N1.668bn to N4.137bn.

According to an explanation by the management, operating profit “was largely impacted by the increase in finance costs as a result of increased borrowings (September 2019: N381bn, September 2020: N509bn) leading to a decline of 0.6% in profit before tax to N211.6bn.

Profit before tax dropped from N212.904bn to N211.594bn; while income tax expense at N67.355bn, up from N63.681b n, left net profit at N144.238bn from N149.223bn, representing earnings per share of N7.09, compared to the N7.33 earned in the corresponding period of 2019.