Airtel Africa PLC

LSE:AAF

Earnings Call Transcript 2023-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Airtel Africa Q1 Conference Call. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to Segun Ogunsanya. Please go ahead, sir.

[Segun Ogunsanya, MD and CEO]

Thank you for joining us on today's call. I'm generally aligned by CFO, Paul Jaideep and our Deputy CFO, our Head of Investor Relations, Pier. We're going to be answering your questions. But first, I would like to provide you with a brief overview of the quarter -- first quarter. We have posted very decent result of our, with group revenues reaching $1.257 million, giving us a year-on-year constant currency growth rate of over 15%. When accounting for the specific challenges from called barring in Nigeria and the lot of commercial revenues from [indiscernible] that we saw last year.

The organic underlying growth is at 19%. Despite the inflationary challenges, we continue to improve our EBITDA margin to 48.8%, giving us an EBITDA for the quarter of $614 million, which is up 15% year-on-year. Before I give the segment performance, I'd like to share the [indiscernible] performance in [indiscernible] of our 3 regions with you. Total revenues across both mobile services and mobile money in our largest segment, Nigeria grew by 18.3% and by 14.1% in East Africa and by 11.7% in Francophone Africa. This year, we begin reporting our business performance for operational segments. All our mobile money activities are now reported as a separate unit. With the performance of our mobile services continue to be reported through our traditional general segments of Nigeria, East Africa and Francophone Africa, but we now exclude our mobile money activities.

We have delivered very strong revenue growth and profit progression across each of these reporting segments just by the admins and combining [indiscernible] previously mentioned. Mobile services revenue account group grew by 14.2. And all of our regional segments for mobile Services posted double-digit revenue growth rates.

Nigeria did 8.3% year-on-year for this quarter is ARPU grew by 11.1%, and Francophone Africa grew by 10.6%. Let me share the performance of our key mobile services with you. Across the group, voice revenues grew by 11.3%. This our revenues grew by 19.8%, and other revenues grew by 10.4%. There are some flavor to be in the movements. Mobile Money revenue grew by 26.5%, driven by group of 26.9% in East Africa and 25.4% in Francophone Africa. We're just starting the mobile money business in Nigeria.

So monthly gross report for now. [indiscernible] by increasing steadily. They are up by almost 9% year-on-year to 131.6 million customers. We added a total of 30.1 million customers are in this quarter. This one of a basic sequential customers to replace for some time with majority of the growth coming in Nigeria and East Africa.

Our group voice revenue growth of 11.3% reflected year-on-year customer growth is 0.9% and employ a growth of 1.8%. We remain very confident that no unique customer transition levels across our footprint in our important countries, combined with every new minutes of usage, means a very low volume for voice revenue to continue to grow. On data, our groups revenue grew 19.8% was a function of good customer growth rate of 9.7% supported by data [indiscernible] of 5%.

This slightly lower down to [indiscernible] good level. Compared to recent quarters, our core data revenue growth is slightly lower likely due to a slowdown in the growth of data usage by customer as well as [indiscernible] particularly due to the main issues we are facing in Nigeria as well as a low in a couple of countries. Other revenues grew by 10.4%. This in spite of the sale of towers in 3 countries, where we stopped accounting for $7 million in total share revenues.

Now I move by money. We posted solid metrics. Our Q1 revenue growth of 6.5% year-on-year. In terms of the transaction growth 26.1% and active customer base growth of 19.7% with ARPU growth of 5.9%. While still strong, discounting good risk remained slightly impacted by the reduced usage effect of [indiscernible] in Tanzania sometime last year, mid of July last year.

Fortunately, the effect of this are now over. We continued our revenue growth through the margin improvement reaching 14.8% this quarter, which is up 17 basis points over Q1 of last year. Inflationary fix, the circular of where are [indiscernible] for our focus on cost reduction on operating efficiencies is setting support margin resilience.

Foreign Exchange changes at a vast impact of $23 million on constant currency revenue and $8 million on underlying EBITDA for the quarter. This is slightly driven by the evaluations of the same traffic out front by 13.2%, the Nigeria again by 1.8%, the Kenya [indiscernible] and the Malawian Kwacha by 11.2%, partially offset by acquisition in the Zambia Kwacha of 23.4%.

In terms of balance sheet and cash flow, by the end of June, our leverage ratio was 1.3x on the line EBITDA with net headline adjusted about $30 billion. And in Q1, we generated operating free cash flow of $473 million, which is about $44 million more than in Q1 of last year. This is largely due to the growth in EBITDA. After the quarter ended in July, we announced the settlement of the cash tender offer to redeem $450 million of the $1 billion of 5.35% senior notes that are in June 2024.

We paid $462.6 million out of our cash results to complete this early redemption. We continue to execute on our strategy to reduce external foreign currency debt at good levels. A couple of further strategic and opportunity announcement to highlight this quarter. Perhaps, the most significantly and news item is the operationalisation of Mobile Money in Nigeria in this quarter.

This follows the licenses we received for both payments [indiscernible] and Super-agents. We are not delivering the service capability across Nigeria, and we are very encouraged by the progress we're making. Still on Nigeria and financially NIN, SIM linkage challenge. We are collected about information for 40.7 million of active customers. Revenues for these active subscribers who have not yet liked here NIN where they have seen among about 7% of total revenues from Nigeria and about 30% of total revenues for the group. As we expected, SIM registration has accelerated and there we've seen some SIM consolidation irresponsive implementation of the policy of the federal government not allowed with no need to make from course.

We've also missed [indiscernible] from acquisitions. Recently, we did chip making DRC, succeeding in Kenya. This traditional spectrum licenses provides significant capacity for continued strong data growth. If suppose, 4G expansion for both mobile data and fixed wireless on broadband capability, while allowing us to roll out 5G in the future. As expected, we reported some addition this quarter and the growth trends for good design mobile money.

We remain mindful of the globalization impacts on our cost base. Nonetheless, we are very confident of sorting [indiscernible] growth ahead of the market and demonstrating EBITDA margin resident this year. Longer term, and more fundamentally, the opportunities for sustainable portable group testament benefited markets for mobile employees is up on mobile money services to remain very attractive, and we are confident of continuing to develop on a good strategy.

And with that, I would like to open the line for questions for which I will be joined by Jaideep or Pier. Operator, I'll now ask, over to you to please open and manage the Q&A session. Thank you.

[Operator]

[Operator Instructions] The first question comes from Jonathan Kennedy-Good from JPMorgan.

[Jonathan Kennedy-Good, JPMorgan]

A couple from me. Just on Nigeria, have you managed to extract cash or cash dividends from the country in support of the debt repayment you just made? So that's question one.

And then question two on the margin compression in Nigeria. Can you give us some color as to what drove that? My sense would be that lower voice growth together with fuel prices passed on from the tower companies may have driven this. And just wondering if there's any kind of marketing costs associated with the Mobile Money launch in that number as well?

And then finally, if you could give us a view on what a 10% move in the Naira and the fuel costs would do and how those would impact margin? If you do know those kind of metrics, that would be helpful.

[Segun Ogunsanya, MD and CEO]

I'll take the first 2 questions, and Jaideep will talk about the 10% movement in the currency. In terms of cash disruption from Nigeria, we managed to repatriate of about $150 million, $160 million in the last quarter. We continue to find ways of [indiscernible] Nigeria whenever possible. But also remember, we do have a very huge requirements for Naira in the countries. Nigeria is the largest market. We continue to invest in distribution in Network. We continue to buy spectrum. So whenever possible and decided, we do take money but we still have a very huge requirement for Naira. Nigeria is the largest market. On the margin compression, it came mainly from foreign not the main driver. We were increasing flat from our $300 million actually about $7 million than the same increase in price of not the major driver of the compression we see in the margin for the group, and it's been driven by what is happening in Nigeria. Jaideep want to explain the 10% movement in currency and in the pattern reverse

[Jaideep Paul, CFO]

So can you please -- 10% fuel price increase in Nigeria has an impact of margin reduction of approximately 1 percentage. So overall at Africa level, the impact is about 1%. In fact, what you see for Nigeria, the margin has gone down from about 54%, 55% to around 52%. And this entire impact is coming because of the fuel price increase at an Africa level, overall Africa level, that impacts about 1%.

[Segun Ogunsanya, MD and CEO]

Just to put what Jaideep has said. We continue to work with the tower companies to mine in part of fleet business in Nigeria. We're working with them to move some of the united sources from diesel to battery power and solar power. We also worked out some sort of caution in a remediated to minimize the total impact of diesel amongst in the split of partnership.

So some of those are that mitigated fully and part of the increase in the price of diesel on our business in Nigeria. Not only in Nigeria, if you are [indiscernible] in East Africa, do we experience this increase in oil cost. But fortunately, in those countries, we are less dependent on diesel power that we are in Nigeria because the grid is quite available in to East African countries.

[Jonathan Kennedy-Good, JPMorgan]

Great. If I may follow on. The cash that you took out of Nigeria, what rate did you get that out at?

[Segun Ogunsanya, MD and CEO]

Traditional market rates, I mean, with -- what is usual in the market, yes.

[Jonathan Kennedy-Good, JPMorgan]

Okay. So that's kind of the central bank rate around $420 million.

[Segun Ogunsanya, MD and CEO]

Yes. Yes.

[Pier Falcione]

Quarter reporting, we don't provide market base for strategic structure that we use. But it's not the $420 million market rate for the CBR.

[Operator]

The next question comes from Madhvendra Singh from HSBC.

[Madhvendra Singh, HSBC]

So I actually didn't hear the FX rate quite clearly, the line isn't that good, if you could repeat what was the average FX rate for the cash upstream from Nigeria? That's just a follow-up. And then my couple of questions.

Firstly, on the Nigerian SIM NIM registration issue, it seems like there is a bit of slowdown in terms of registering those SIM cards, the exposure is still at 7% of the overall Nigerian revenues. That's the number I think we heard even during the last announcement. So if you could shed some light on whether there has been a slowdown in registering those unregistered SIM cards in the recent period? And what does that mean for the $9 billion revenue outlook. So that's the first question.

And secondly, overall group data revenue growth of just shy of 20% in the latest quarter. So what's your view on that? Are you happy with this growth rate in data revenues? And is there any specific reason why it has gone below 20%? And would you expect it to accelerate in the coming period?

[Segun Ogunsanya, MD and CEO]

Let me start with the main issue, Nigeria. I'm not going to give the figures, and I would not disclose what if it goes, I mean. In terms of numbers, we buy about 13.6 million customers when the instructions came for us to stop them from their taking outgoing phone calls. This [indiscernible] with to sell that sell this and able to [indiscernible]. So the 13.6 million about 5.3 million submitted the subsequent. So 8.3 left never [indiscernible] been able to reconnect 8.3 million customers to phone services. Probably 5.3 million customers to submit [indiscernible], we've reconnected about 2.5 million out of them. So the balance again when it can be [indiscernible] be correct.

And this is not unique to us. I believe in an industry problem that when begin our finalist submitted value to verify that it means. So only about 2.3 customers out of 5.3 sometimes be finally on value for our services. That's where we are. We've seen some simply consolidation across the country. Traditionally, people have on 2, 3 SIM cards. So I believe some customers are choosing to transfer use to the primary SIM. We've also seen increase in ARPU coming from customers transact to our network annually.

We've got to watch this for the next quarter, and we wouldn't be able to come back to more definitely answer is when we will not be able to get discussion back or not. It is a very unfortunate situation. We manage in it. We recommend the need for this to be done by the government, given security concerns. We continue to work with the new legislation wherever whereas [indiscernible] for everyone.

In terms of the data revenue growth year is marginal in lower where it used to. To cleared for this. One is still in NIN Nigeria. We buy some chunk giving those customers that we bought from user based services, this is start using the data services, so that affected the data revenue. It's also based on changes in pricing in the Franco countries to just make data at the smartest prices of some of our [indiscernible]. And Finally, in a few countries in East Africa, we responded to competitive pressure by lowering prices to maintain our franchise. These are the definitely reasons why we saw lower growth in data revenue in this quarter.

[Operator]

Madhvendra, do you have any further questions?

[Madhvendra Singh, HSBC]

I just wanted the clarification on the FX rate used for upstreaming the cash from Nigeria, if you could share the average rate?

[Segun Ogunsanya, MD and CEO]

Jaideep, why don't you...

[Paul Jaideep]

Yes. So we mentioned in the previous question that we'll not be able to give you the exact rate. Obviously, it is not central bank rate. We have used many instruments and options for upstreaming the money. So unfortunately, we'll not be able to give you the exact average rate or any specific answer for that.

[Operator]

The next question comes from Cesar Tiron from Bank of America.

[Cesar Tiron, Bank of America]

I have three questions, please. The first one would be on the deterioration of revenue growth in Nigeria by about 600 basis points versus the previous quarter. How much of the deceleration do you attribute to the new registration? And why do you think you haven't seen a significant pickup in data growth to offset some of the issues with the voice blocking calls? That's the first question.

The second question would be on the margin pressure on Nigeria. So of course, you said that this is because of the fuel cost. I just wanted to understand what level of fuel cost does your Q1 major margin pricing? So basically, another way to ask the question, how much delay is there from the tower operators passing on to the company that increase in fuel cost? And therefore, is your Q2 margin going to be lower than the Q1 margin in Nigeria.

And the third question, sorry, I just have to go back on this FX rate that is used to upstream cash from Nigeria. I think we do need a little bit of guidance from you because I think the calculation is very easy since if you are seeing the number of dollars that are being upstreamed from the country. And we can't guess this number. There's a parallel market rate which is close to 700 and a central bank rate which is very close to 420. So I think if you're not disclosing the number, we should probably then conclude that the number is very close to the parallel market rate. I do think we need a little bit of help from you on that.

[Segun Ogunsanya, MD and CEO]

In terms of the rate, it's not close parallel market rate, it is 700 or so but to do from what I, that we don't watch the parallel market rate. But I am confident say to you that is not repatriate dividend of money as parallel market rate.

To your second question on the deterioration in revenue, we should get some [indiscernible] by the way. It's a decent good figure. And if you normalize this with the loss of Westar's maybe it's up approximately net $10 million, that's what it is, $10 million per month. And that's the only reason why the growth rate went down to 18% from 24% in the previous quarter. So all the losses came from the voice revenue that we lost from the airline impacted customers of super phone costs. Data revenue grew a big part of this, but just wasn't sufficient to return also a traditional to 24% , 25% we have seen in Nigeria.

On the fuel impact, we have 2 major partners for tower cost in Nigeria, one of them at the delay of the quarter, the other is the secondary in the quarter. But what we have done it is to work with these 2 partners, to make sure that impact is not completely partner to us. [indiscernible] forces to renegotiate how much of the fuel increase is going to report to us. And we told we had some guarantees of additional sites that will conclude one of the partners.

The second thing we have done is to actively according the conversion of some of the new sites from diesel power to bring our sources to solar. And so from inflates increase the level of party power that is sufficient to get our outages. Those are we have done and this minimizes the impact of the well, I mean on our bottom line. We also look at some other expenses on the various expenses that we are taking out. These are estimates that will not impact our revenue. It's a tough one. It's just impossible to continue offsetting part of 150% increase in the price.

[Operator]

[Operator Instructions] The next question comes from Myuran Rajaratnam from MIBFA.

[Myuran Rajaratnam, MIBFA]

I have one question. I'm looking at your data usage per customer in Nigeria, and that grew year-on-year about 19% to 4.6 gigabytes per customer per month. I just want to understand a little bit more on portals. You have a couple of moving parts in Nigeria. One is the SIM consolidation issue and the data usage dropping a little bit because people are consolidating their voice usage on the SIM as well as better voices. The second is, obviously, there's inflationary impacts and the affordability issue.

And the bit that I really want you to maybe talk to is that in the past, you've said that is the heavy users, maybe for one or better expression at the higher end of the pyramid, if you like. that are the intensive data users in Nigeria, whereas voice is more across the pyramid. And these sort of users may not be necessarily affected by inflationary impacts as well as the SIM consolidation issue and affordability issues. So I just wanted to hear how you are seeing this high use, high end users or high intensive users. How are they behaving on the network given the conditions on the ground in Nigeria specifically. Thank you.

[Segun Ogunsanya, MD and CEO]

I decide you say customer than [indiscernible] no matter use smart phone and what we have seen is an increase in the data usage per customer from those customers. The customers we know are basically the lower range that ones who do not [indiscernible] focusing in the rural areas. We don't have access to centers where they can register for SIM. Overall, if you look at the increase in the data usage per customer, it is mainly driven by smartphone users. Traditionary smart phone users are the more [indiscernible] customer. So yes, we see [indiscernible] customers who consume data on smartphones, we see an increased penetration of smartphone per user smartphone in our network in the last quarter. And that's one of the key drivers of the increasing you've seen. This is offset by some of the lower end customer [indiscernible] from the NIN issue.

[Myuran Rajaratnam, MIBFA]

Sure. And if I can just follow up on that. Is it fair to say that these high-end users are not impacted by affordability issues, their trends are similar to what you've seen in the past.

[Jaideep Paul, CFO]

Yes. I can give you some data point on that. For example, the 4G smartphone users, the data usage last quarter was approximately 6.4 GB , 6.5 GB, which has gone up to now 7.5 GB, right? So for the high-end users who are using 4G, they have been constantly increasing their usage. Specifically, the 4G data usage.

[Myuran Rajaratnam, MIBFA]

Just to confirm, it's the quarter-on-quarter number that you quoted there, right?

[Jaideep Paul, CFO]

Yes. I'm saying quarter four, which was January to March. That quarter, the high-end users, which is the 4G user basically, they were using average 6.4 GB. That has gone up in quarter one, which is the current quarter to 7.5 GB.

[Operator]

[Operator Instructions] The next question comes from Rohit Modi from Citi.

[Rohit Modi, Citi]

Just 2 questions from me. I have 3 follow-up questions. One on NIN registrations. You mentioned 5.3 million subscribers actually summited NIN and 2.5 million are connected. Does that mean rest of the 3 million subscribers will be connected over next quarter or even like the subscribers are gone? You might not be connecting them again. Secondly, on margin evolution, I understand, in the first quarter, you have a deterioration in Nigeria and other 2 regions kind of offset the margin deterioration.

How do we look at it for the rest of the year, given there is a change in commentary in terms of how margin, how you expect margin to be for the rest of the year? How do we see, do you see the same kind of situation for rest of the quarter where you see deterioration in Nigeria will be more than offset by other regions?

[Segun Ogunsanya, MD and CEO]

Let me clarify the 5.3 million customers of who submitted the NIN. Out of this, 2.3 million of them are been on part [indiscernible] that submitted, we're able to verify with the data base of the government. The balance of €3 million, we have not been able to verify the details with the information in the database of the government. What did no money to is to go back and register with new KYC data we now continue to citizen giving us what are the tablet details in the [indiscernible] database.

So the continued they are not completely lost of few group, I think, 100,000, 200,000 of this 3 million customers being connected. So the figures keep changing as customers go back [indiscernible] new verified data is, they will be able to reconnect them. So the figures keep moving. In terms of the [indiscernible], we don't give guidance. But I mean we remain encouraged by the fundamentals of our business. If you look at Nigeria, look at East Africa, look at Francophone Africa, we see that a very large number of people who are not connected through any SIM card. Even when they are connected, we usually get a thing very, very low. And in terms of our mobile money business, the penetration with [indiscernible] has been low.

Yes, we also made ways coming from inflation, especially from fuel. But in terms of top line growth, we feel very confident that there are huge opportunities in Africa also continued to grow our top line in double digits, very strong double digits. That's my demise that we are in this first quarter.

[Operator]

Rohit, do you have any further questions?

[Rohit Modi, Citi]

Just one more question. I just wanted to get more color in terms of how you see the mobile money launched in Nigeria panning out, what kind of traction do you see? And is there any kind of guidance that you can give us in terms of subscriber base for this year?

[Segun Ogunsanya, MD and CEO]

We launched, we did a soft launch in May, selected locations in the country. On 28th of June, we did the total country launch and just about a few days into July, and it is. But once again, we're very confident about capabilities to monetize the mobile money opportunity in Nigeria with greater infrastructure, we have the right distribution on touch points, we have the right products. Are now being a strong opposition firstly. And what we're going to do a couple of months, but just one month or so, I don't want to give any guidance after one month of launching the new products.

[Operator]

The next question comes from Mike Steer from Avio [ph].

[Unidentified Analyst]

Just focusing on Nigeria, could you please remind me of your spectrum holdings in each frequency then? And then a second question, how much capacity can your network hold in terms of data traffic and how much of that capacity is being used? Just trying to assess how much runway data traffic sales has led to grow there?

[Segun Ogunsanya, MD and CEO]

In terms of spectrum holding, I don't give you a top level. We asked a probably 900, about 1,500, 900 and 1800, we have 15 meg, in 2,600 we have 20 meg and in 2,100 we got about 10 meg.

[Unidentified Analyst]

Perfect. And then just on the capacity side of the network?

[Segun Ogunsanya, MD and CEO]

In terms of ultra capacity, I'm able to give that figure now, but I can share how much of it is being used to show the interim we have. I think currently made about 35%, 40% utilized in terms of capacity, and it is almost 60% that give us opportunity for future growth in customer usage.

[Operator]

[Operator Instructions] The next question comes from Ali Hussain from FIM Partners.

[Ali Hussain, FIM Partners]

This is a very basic question, and perhaps I'm not getting it right. When I look at your total subscribers in Nigeria, you've actually increased from the quarter, yet you had the NIM registration. Is the total number reflective of active subscribers or not? Or is there a difference in classification? Just want to clarify that.

[Segun Ogunsanya, MD and CEO]

Just customer that to, there is still good to [indiscernible] data is been able to send SMS message. They are only unable to make phone calls. They are able to receive call, but can not make phone calls. So that's some money from the loss, subscribers coming from or going [indiscernible].

[Ali Hussain, FIM Partners]

So if I were to look at that $46 million number, how many of those can actually make voice calls right now?

[Segun Ogunsanya, MD and CEO]

About 37 million to 38 million of them are able to make phone calls. All of them might be able to make phone calls. All of them able to data sessions.

[Jaideep Paul, CFO]

Just to add, Ali, our active base, the way we defined our active base, which is based on 30 days revenue generation activity. That means there has to be some revenue-generating activity within a rolling 30-day period, right? And that is this subscriber base, whatever we have given is based on that definition. So there is no change in the definition.

[Operator]

Segun, we have no further questions in the queue at this time. Do you have any closing remarks before we conclude?

[Segun Ogunsanya, MD and CEO]

Yes. Thank you, everyone. Just on to our everybody that the long-term opportunities for us remain very attractive. While we remain mindful of currency devaluation and repatriation risk, we continue to work actively to mitigate all of our material risk and speaking or partner of our [indiscernible] Despite increasing challenges from global inflationary pressures, we will continue to target revenue growth way ahead of the market, as we work on making a margin very resilient in this financial year. Thank you.

[Operator]

Thank you very much. Ladies and gentlemen, that does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.