MTN Nigeria Communications Plc gained further operating speed in the final quarter of 2020 after an upturn in the third quarter strengthened revenue and dressed up profit.
The communications company turned around its earnings story for the year from a 3.3 percent profit decline at the end of the third quarter to a slight improvement at full year.
The company’s audited financial report at the end of December 2020 shows that growth accelerated in both revenue and profit in the final quarter. The final quarter accounted for about 28 percent of the full-year turnover and roughly 30 percent of the year’s closing profit.
With the gain in earnings momentum, the company pushed up revenue growth from less than 14 percent at the end of the third quarter to 15 per cent at full year. Also, profit headed off the declining records in the interims but closed flat against the 40 per cent growth record in the preceding financial year.
MTN Nigeria Communications posted a record turnover of N1.35 trillion at the end of the 2020 operations – the largest revenue figure among Nigeria’s listed companies. The figure represents a year-on-year growth of 15 per cent, improving from the increase of 12.6 per cent in turnover in 2019.
Airtime/subscription is the main revenue source for the company and contributed 57 per cent of the turnover figure for the year. Its share of total revenue however dropped from 62 per cent in the preceding financial year.
Boosted by the economic lockdown of last year, data provided the drive for revenue growth – rising by more than 51 percent in the year. Value-added services also grew rapidly at 25 percent and interconnect and roaming services improved by 10 percent.
Costs slowed down further in the final quarter, as revenue improved, which provided room for the enhanced profit performance recorded during the period. The company stepped up from a 7.5 percent improvement in operating profit at the end of September to 8.5 percent growth to close to N427 billion at full year.
The improvement in operating profit however could not flow down to the bottom line. It was consumed by rising finance expenses, reinforced by declining finance income. Tax expenses added a further strain during the period, leaving the bottom line flat at N205 billion.
It is nevertheless some progress made from a profit drop at the end of the third quarter. This is further to a significant recovery in the third quarter, as the economy emerged from economic lockdown.
Generally, the key expense lines of the company grew well ahead of revenue – which built operating pressure that hindered profit improvement in the year. Against the increase of 15 per cent in revenue, direct network operating cost – the company’s biggest expenditure line, grew by almost 26 per cent to over N310 billion at the end of 2020.
The cost of handsets and accessories rose by 61 percent to over N20 billion while employee benefits grew by more than 47 percent to N45 billion.
Also, finance expenses remained a big challenge for the company, as it grew rapidly for the second year. The company paid roughly N144 billion in finance expenses at the end of the 2020 financial year which is an increase of about 18 percent in the year.
The increase in finance expenses was reinforced by a drop of 21 per cent in finance income to nearly N16 billion over the period. This pushed up the growth in net finance expenses to 25 per cent to stand at N128 billion at the end of the year.
Management devoted as much as 30 per cent of operating profit to meet net finance expenses at the end of December 2020, rising from 26 per cent in 2019. The company’s huge balance sheet debts expanded further at the end of 2020 by 26 per cent to N521 billion.
Also, total finance leases expanded by over 30 per cent to close at N642 billion at the end of the year, accounting for 55 per cent of the finance expenses at the end of the period.
The strong growth in net finance expenses consumed a good part of the increase in operating profit, leading to an improvement of just 2.6 per cent in pre-tax profit to roughly N299 billion. The company’s after-tax profit of N205 is a flat growth on the N203 billion profit figure it posted in 2019.
The challenge for the company in the year is that costs grew generally ahead of revenue. This undermined profit capacity with a net profit margin down from 17.4 percent in the prior financial year to 15.2 per cent at the end of 2020 operations.
The company earned N10.08 per share in 2020, stepping up from N9.99 per share in 2019. It has announced a final cash dividend of N5.90 per share, having paid an interim cash dividend of N3.50 per share last year.