MTN Nigeria Moves to Address N434bn Hole in Shareholders’ Equity

MTN Nigeria in an Extraordinary General Meeting (EGM), held on 30^th April, 2024 outlined steps to address the Group’s negative net asset position.

MTN Nigeria reported negative retained earnings and net asset position of N208 billion and N40.8 billion, as at December 2023, driven mainly by the net foreign exchange losses of N740 billion reported in the period (85.9% of which was unrealised).

The further depreciation of the naira in Q1 resulted in a materially higher net forex loss of N656.4 billion (Q1 2023 restated: N4.5 billion), arising from the revaluation of foreign currency denominated obligations.

This led to a loss after tax of N392.7 billion compared to a restated PAT of N108.4 billion in Q1 2023. This has resulted in negative retained earnings and shareholders’ equity at the end of March 2024 of N599.2 billion and N434.7 billion, respectively.

Shareholders’ equity is equal to a firm’s total assets minus its total liabilities. These figures can all be found on a company’s balance sheet.

MTN Nigeria stock has underperformed the broad market in 2024 returning -20% year-to-date, compared to the NGX which is up +32%.

Steps to address the negative capital position as part of MTN Nigeria’s approach to grow revenues faster, repair margins, as well as rebuild reserves to strengthen its balance sheet position will include:

Regulated tariff increase

MTN Nigeria is deeply engaged with the authorities, through the industry body, on tariff increase to manage the effects of the challenging operating conditions. Importantly, appropriate tariff increases will be necessary to support continued investment and the long-term sustainability of the industry. This will support our commercial interventions in our work to accelerate topline growth.

Driving margin recovery

The Company focus on initiatives to accelerate revenue growth and improve operational efficiency, with a disciplined focus on its expense efficiency programme and value-based capex allocation.

Optimise capex

Given the consistent and extensive investment made in MTN Nigeria’s network over the past few years, including the acquisition of additional spectrum, there is flexibility to optimise capex deployment. In this regard, CAPEX will be reduced (excluding leases) for FY 2024 and aim for a capex intensity in the upper single digits. The Company will optimise latent capacity and implement radio planning strategies in order to minimise any potential impacts and disruptions to its network quality. This will ensure that the Company continues to provide its customers with reliable connectivity and support its growth ambitions.

Reduce US$ exposure

MTN Nigeria is focused on reducing the various exposures the business has to US$ volatility. One key area is the Company’s outstanding letters of credit (LC) obligations, which contribute to the volatility in earnings through FX losses reported in MTN Nigeria’s income statement. These obligations were raised in support of capex requirements which are largely foreign currency denominated.

In this regard, the Company has utilised the improved liquidity in the FX market to reduce the balance of outstanding LC obligations to US$243.4 million as at 31 March 2024, from US$416.6 million as at 31 December 2023. This was funded using restricted cash balances that are held in naira to support LC obligations. As CAPEX is optimised, these balances will be minimised and the Company will continue to deploy resources to reduce these US$ obligation exposures.

Review of tower lease contracts

MTN Nigeria is considering strategic options to manage its tower lease contracts. As previously reported, constructive discussions are on with key towerco service providers regarding changes to the existing tower lease contracts. If successful, these negotiations could result in improvements that will help the Company to mitigate macro risks impacting its business, including FX.

This would supplement the aforementioned initiatives to accelerate the recovery profile of its earnings and restore net asset position faster.

If the discussions do not yield the desired outcomes, the business will continue to drive the operational and commercial strategies outlined. MTN Nigeria believes that the strategies will enable it to improve profitability and trade out of the negative net asset position over time.

The Company will continue to evaluate the conditions and developments in its operating environment and evolve its approach to address the negative capital position as required. MTN Nigeria obtained the necessary accommodations from its lenders, as pertains to any impacts on loan agreements in regard to the restatement of the Company’s financial statements.

The Company also has in place accommodations relating to any potential breaches in its covenants occasioned by the major currency devaluation and the resultant negative net asset position. This will enable it to continue executing its strategy and implement the interventions outlined.

Based on the Company’s current 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, with improvements expected in 2025.

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