MTN Nigeria squeezes cost to build profit – TheCitizen

MTN Nigeria Communications Plc ran its operations on the cost saving fast track for the second year in 2019, as management worked frantically to recover from the plunge into N80 billion loss in 2015. Management’s recovery and profit rebuilding endeavour gained further momentum in 2019, as profit rose more than three times ahead of turnover.

The strategy of squeezing cost to build profit worked for the company in 2018 when it lifted after tax profit by 80 percent to N145.7 billion with just 17 percent improvement in revenue. The same strategy again enabled the company last year to come quite close to the peak profit figure of N209 billion it registered as far back as 2014.

The 2019 operations closed with a turnover of N1.17 trillion for MTN Nigeria while after tax profit amounted to N202 billion for the year. Revenue was up by 12.6 percent while profit jumped more than three times ahead at 39 percent.

Despite that revenue slowed down from 17 percent rise in the preceding financial year, it is a sustained revenue growth record for the third year running after two years of decline in 2015 and 2016. There was a fundamental boost in business volume with mobile subscribers growing by over 6 million to 64.3 million and active data users rising by 6.5 million to over 25 million.

Mr. Ferdi Moolman, chief executive officer, MTN Nigeria Communications said his company added an additional 68 cities to its 4G population coverage and closed the year with 132 cities having access to the 4G technology.

The strength for the strong profit growth however came more from cost cutting than revenue improvement. Management converted an increased proportion of each naira of revenue into profit and this happened for the second year. Profit margin has stretched out consistently from 9 percent in 2017 to 14 percent in 2018 and further to over 17 percent at the end of 2019 – the highest profit margin in five years.

The boost in the company’s profit capacity was achieved by cost saving at three major cost centres. The biggest of them is direct network operating cost, where the company recorded a drop of 21 percent to N242 billion. Management saved more than N63 billion with the drop in this expenditure line during the year.

The second cost saving centre is other operating expenses, which dropped by 15 percent to N50.7 billion at the end of the year. The company saved more than 9 billion from the drop in other operating expenses.

The third major cost saving area is value added service cost, which recorded a drop of 25 percent to N12.5 billion at the end of the year. The drop represents cost saving of over N4 billion in the year.

There was general cost moderation for the company in the year, as most of the other cost lines slowed down relative to revenue. The difference is that total cost slowed down from 12 percent growth in 2018 to flat in 2019. This enabled the company to convert an increased share of revenue into profit. Operating profit advanced by close to 49 percent to over N395 billion at the end of 2019.

Management’s strategy of keeping costs in check while improving revenue is the critical ingredient for the elevated profit performance MTN Nigeria put up in 2019. On it is built the strength to raise profit well ahead of revenue. The result is enhanced profit capacity, as operating cost margin declined and profit margin extended to the highest mark since the company returned to profit in 2016.

An exception to the moderated cost behaviour is cost of finance, which jumped by 86 percent to over N125 billion at the end of 2019. At the same time, finance income declined for the second year. Huge investing activities as much as N197 billion consumed most of net cash of N205 billion generated from operating activities in 2019. Huge borrowings had to be undertaken in order to repay existing debts and other financing activities.

The company therefore geared up in the year, as equity resources dropped by 34 percent to about N145 billion while balance sheet debts rose by 135 percent to more than N412 billion at the end of the year. These exclude lease liabilities of over N516 billion that were created during the year.

Airtime/subscription is MTN’s main revenue line – accounting for 72.7 percent of turnover in 2019. However revenue growth in the year was driven by data and interconnect/roaming, which grew by 42.4 percent to contribute 18.8 percent of revenue.

Other income dropped from N2.2 billion to N97 million during the review period. In all, the company’s operations gained momentum good enough to maintain the path of recovery at the end of 2019.

Revenue and profit growth accelerated in the final quarter on strong seasonal effect. The company generated an after tax profit of N54 billion or 27 percent of the full year figure in the fourth quarter. The closing after tax profit of N202.1 billion for the 2019 operations is up by 38.7 percent after advancing 80 percent in 2018.

The performance reflects the ability to grow revenue in the year and the success of the company’s cost management programmes. Costs remained generally moderated against an improvement in revenue – which lifted profit capacity higher than any time since 2016.

The company ended the full year operations with earnings per share of N9.93, rising from a diluted figure of N7.16 per share in 2018. The company’s shareholders received an interim cash dividend of N2.95 per their 2 kobo share at the end of half year operations in June 2019. They will get a final cash dividend of N4.97 per share. The total cash dividend of N7.92 per share represents a dividend yield of 7.7 percent and a price-earning ratio of 10.4.

In 2019, the company came quite close to the all-time profit high of N209 billion it posted in 2014. The current year is therefore promising to see a new peak in profit for MTN Nigeria. Management expects that the enhanced operating momentum in the final quarter of last year would be sustained this year.

Expansion of 4G network coverage to deliver high-speed internet services to increased number of users nationwide is the company’s revenue growth driving strategy for 2020. Expansion of service offerings through a planned investment of N600 billion in the next three years is management’s initiative to defend and extend market share and diversify revenue base.

MTN Nigeria is part of a multi-national telecommunications group operating in 21 countries in Africa and the Middle East.

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