MTN Nigeria: From Slowdown To Downturn.
MTN Nigeria Communications Plc faced increased operating challenges in the second quarter that extended its first-quarter profit slowdown into a drop in the second quarter. Profit had slowed down from 39 percent advance at the end of 2019 to 5.6 percent improvement in the first quarter of 2020.
The slowdown proceeded to a drop of 15.6 percent in the second quarter, which caused a year-on-year decline of 4.7 percent at half-year. The communications company also lost some speed on revenue growth from close to 17 percent in the first quarter to 12.5 percent at half-year. That still looks good enough in the environment of economic lockdown.
Further loss of profit capacity in the second quarter has halted the company’s two-year profit recovery process. The problem remains with costs, which is led by cost of finance. Finance expenses keep rising rapidly for the second year, having jumped by 86 percent to over N125 billion in 2019.
At N72.5 billion at the end of half-year, finance cost rose by 26 percent year-on-year and claimed over 35 percent of operating profit for the period. The company raised its already huge debt profile further in the second quarter with total borrowings shooting up from N410 billion at the end of March to N524 billion at the end of June 2020.
Finance lease facilities are even much bigger at N535 billion and account for the biggest share of the company’s interest expenses at N37 billion. Finance income continued to disappoint with a drop of over 27 percent to N7.6 billion. Net finance cost therefore grew by 38 percent to N65 billion over the period.
The developments left profit capacity further down at half-year with profit margin declining from 15.5 percent in the first quarter to 14.8 percent. Profit margin had reached a five-year peak record of 17.3 percent at the end of 2019.
The company’s management could not maintain the firm operating cost management programs it enforced in the first quarter. Some operating expense lines encroached on revenue during the second quarter, which slowed down operating profit from 18.6 percent growth in the first quarter to 8 percent at half-year.
MTN Nigeria Communications closed half year operations with a turnover of over N638 billion – a slowdown from 16.7 percent in the first quarter to 12.5 percent at half-year. The company’s main income line is airtime/subscription but data is a major driver of revenue growth at an increase of 49 percent year-on-year to N154 billion.
Value-added services also grew by 33.5 percent to almost N22 billion at the end of half-year. Other revenues multiplied more than three and half times to N5.6 billion over the review period.
Operating costs accelerated in the second quarter, as revenue growth slowed down. Direct network operating cost accelerated from 18 percent in the first quarter to 24 percent at half-year. The cost of handsets and accessories jumped by 68 percent to N9 billion and employee benefits grew by 28 percent to over N19 billion.
Operating expenses slowed down from over 32 percent growth year-on-year in the first quarter to 22 percent to N30.8 billion. This could not however counter the rising expenses, leading to a slowdown in operating profit from 18.6 percent in the first quarter to 8 percent to N204.5 billion at the end of June 2020.
An increase of 26 percent in finance costs to N72.5 billion and a drop of 27.6 percent in finance income to N7.6 billion led to a rise of 38 percent in net finance expenses. That claimed more than all the increase in operating profit. Pre-tax profit therefore declined marginally at half-year to N139.6 billion against an increase of 8.9 percent in the first quarter.
After-tax profit amounted to a little below N95 billion for MTN Nigeria Communications at the end of first half. This is a decline of 4.7 percent compared to an increase of 5.6 percent in the first quarter.
The proportion of the naira of revenue converted into profit declined further in the second quarter from the first quarter mark. The net profit margin went down from 15.5 percent at the end of the first quarter to 14.8 percent at half-year.
The company ended half year operations with earnings per share of N4.66, down from N4.89 per share in the same period last year.
The company is expected to keep revenue growing reasonably but rising costs are likely to stand in the way of growing profit this year. The cost of finance is likely to keep rising, as management keeps adding to the balance sheet debts
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