MTN Nigeria Plc Overstates Profit in 2022 –Financials
Telecommunication Company, MTN Nigeria Plc, has revealed that its profit for the financial year 2022 was overstated, details from its audited financial statement posted on the Nigerian Exchange revealed.
The company posted a net loss after tax of N137 billion, a development attributed to large net forex losses. In 2022, MTN Nigeria told the Nigerian Exchange it made about N359 billion as net profit. However, it said in its latest release that the amount was lower after some adjustments.
According to MTN Nigeria Plc, the devaluation of the naira has had a material impact on the company’s financial position, resulting in the reported loss and depleted reserves.
On 14 June 2023, the Central Bank of Nigeria announced changes in the Nigerian forex operations, which required the immediate collapse of all segments of the market into the investor and exporter (I&E) window and reintroduced the ‘willing buyer, willing seller’ model to improve forex liquidity.
MTN Nigeria Plc said this led to a 96.7% movement in the exchange rate since the announcement to N907/US$ at the autonomous FX market at the end of December 2023 as the market seeks an equilibrium level.
“The significant movement in the exchange rate impacted our operations – mainly our operating expenses and net finance costs”, management said in a note published on the Nigerian Exchange.
MTN Nigeria’s operations are exposed to foreign currency volatility on its operating and capital expenditure, the note explained further. It said the most significant of these exposures relate to the tower lease costs, which comprised the bulk of the 45-50% foreign currency exposure in our operating expenses in 2023.
Management added that the majority of the lease costs are indexed to the US dollar but are invoiced and paid in naira, saying its tower lease costs are recognised in line with IFRS 16 and IAS 21, which has had several impacts on financial performance.
“The nature of payment for tower contracts requires quarterly payments at the beginning of each quarter using the applicable exchange rate based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the same preceding quarter for others.
“The impact of the devaluation on operating expenses arose mainly from N79.8 billion and N8.8 billion increases in lease rental costs and information technology-related costs, respectively”.
This resulted in a reduction of the EBITDA margin by 3.6 percentage points, the company said. MTN Nigeria said historically, only realised exchange differences on US dollar-indexed leases were accounted for and included in the “net finance costs” line in the income statement.
After the significant devaluation of the naira in June 2023, the company said a review of the relevant lease agreements concluded that the US dollar-indexed portion of the lease liability should be re-measured to the spot exchange rate at the end of each reporting period, in line with an appropriate standard.
Consequently, on the revised treatment, 2022 net forex losses in “net finance costs” were restated higher by N25.6 billion to N81.8 billion, reducing 2022 profit after tax from N358.9 billion to N348.7 billion.
According to MTN Nigeria, the restatement resulted in a cumulative reduction of N73.1 billion in retained earnings at the end of December 2022.
In 2023, the report said the company recorded a forex gain of N93.8 billion (58.3% unrealised) from the revaluation of its financial assets and a forex loss of N834.3 billion (82.8% unrealised) from financial liabilities revaluation.
These led to the reported net foreign exchange loss of N740.4 billion in 2023, bringing MTN Nigeria Plc’s “net finance costs” to N951.5 billion, up 341.9%.
The telecom company said this resulted in the reported loss after tax of N137.0 billion and a depletion of our retained earnings and shareholders’ funds to negative N208.0 billion and N40.8 billion, respectively.
It said excluding the net forex loss, MTN Nigeria PLC’s net finance costs increased by 58.1% to N211.1 billion due to higher borrowing costs and interest rates. #MTN Nigeria Plc Overstates Profit in 2022 –Financials
