Despite the substantial FX losses incurred by MTN Nigeria in FY 2023, approximately 83% of that amount remains unrealized.
This was a submission of Modupe Kadri, the Chief Financial Officer of MTN Nigeria in an interview with Nairametrics. Kadri clarified that these losses were not in cash and suggested that if the Naira were to regain its value, there could be a reversal of these losses.
- Kadri noted, “Though the losses appear to be huge, they’re unrealized so if the Naira recovers, that will be reversed. 83% of that amount is unrealized, which means it is non-cash. If the government get the policies right, we should be able to see a recovery from those reserves.”
Furthermore, Kadri highlighted that the reported losses in the 2023 financial year by multinationals operating in Nigeria were indicative of a macroeconomic issue requiring governmental intervention.
In FY 2023, MTN Nigeria posted an FX loss of N740.4 billion. Just like MTN Nigeria, Airtel Africa in its nine-month financial results reported a $748 million foreign exchange loss due to the devaluation of the Naira from N461/$ in June 2023 to N952/$ in December 2023.
Other multinationals were also affected by the Naira devaluation which resulted in sharp declines in their profit profiles in 2023.
For example, Nigerian Breweries reported a net loss of N153.3 billion on foreign currency transactions which resulted in a pre-tax loss of N145.2 billion in FY 2023.
Despite foreign exchange exposures, Q1 2024 results may not be so bad
When asked about the projected impact of the continued Naira devaluation on the company’s Q1 2024 financial results, Kadri noted that it’s too early to make projections however, he allayed fears about the company’s financial state in Q1 2024.
He noted that between 70 and 75% of MTN Nigeria’s operating expenses were from its tower contracts and that payments for the tower contracts are made based on the applicable rates at the start of the quarter.
Thus, he noted that the tower contracts for Q1 2024 were paid at N905/$ which was the applicable exchange rate at the start of the year.
- “Even in Q1, Naira has run to N1500 or N1600, the tower contracts were paid at N905, which was at the start of the year.”
Losses made are not affecting our tax payments
Answering the question about the group’s tax contributions despite the losses accrued. He highlighted that Nigeria’s tax system doesn’t recognize unrealized losses hence the group has to account for income taxes and VAT, which is a further addition to the group’s cost profile.
- According to Kadri, “Over the years, MTN has remained tax-compliant, it was listed as one of the top 20 tax-compliant organizations… However, the government should be more interested in how much industries would make to remain profitable so they can get their taxes.”
- He added, “Even though our cost profile has gone up, it’s not affecting the VAT to the government, it’s just additional cost to us.”
Kadri highlighted the new 7.5% VAT on tower leases which was contained in the Finance Act 2023, noting that this is “an additional 7.5% cost which we have to carry, and we can’t pass on to end-customers.”
What you should know
In its financial statement for FY 2023, MTN Nigeria reported a N2.47 trillion revenue, representing a 22.7% growth in revenue. However, with an accrued net foreign exchange loss of N740.4 billion, the group recorded a pre-tax loss of N177.9 billion.
This loss led to a wipeout of the group’s shareholders’ funds as its accumulated loss now stands at N208 billion. As expected, the loss has impacted MTN’s ability to pay final dividends for 2023. And Kadri notes, “The focus for us right now is to ensure we fix the negative reserves”.
