Airtel Africa PLC

LSE:AAF

Earnings Call Analysis

Airtel Africa's Q1 Highlights

Airtel Africa reported Q1 revenue of $1.16 billion, growing 19% in constant currency but declining 16.1% due to currency devaluation. The EBITDA margin fell to 45.3%, impacted by inflation and reduced high-margin revenues from Nigeria. Despite this, Airtel remains the cost leader in Africa. Key growth areas include mobile services and mobile money, with 28% revenue growth in mobile money. Future opportunities lie in fiber, home broadband, and data centers, leveraging extensive fiber networks and new infrastructure projects. The company also reduced foreign currency debt and aims to maintain robust capital investments and shareholder returns .

Strong Revenue Growth Amidst Volatile Macroeconomic Conditions

Airtel Africa has demonstrated resilience in a volatile macroeconomic environment, achieving a revenue growth of 19% in constant currency terms, reaching $1.16 billion in Q1. However, due to significant currency headwinds, reported revenue actually declined by 16.1%. Despite these challenges, the company managed to uphold strong demand for both GSM and mobile money services, underscoring its robust position in the African market.

Margins Under Pressure from Inflation and Energy Costs

The company's EBITDA margins for Q1 stood at 45.3%, which is lower than previous periods. This decline is attributed to rising diesel prices, especially in Nigeria where prices have surged by more than 70% year-over-year, and a lower contribution from high-margin businesses in Nigeria. Despite these pressures, Airtel Africa remains the most profitable mobile network operator in the continent, thanks to its continued focus on cost optimization and operational efficiency.

Focusing on Cost Reductions and Operational Efficiency

To counteract the impact of inflation and energy costs, Airtel Africa has intensified its efforts on cost reductions and operational efficiencies. The company is investing in renewable energy solutions and optimizing its network design to reduce costs. Contracts renegotiation is also in play to further lower expenses. These initiatives are expected to yield positive results over the next year, ensuring the company maintains its industry-leading EBITDA margins.

Future Growth Opportunities: Fiber, B2B, and Data Centers

Airtel Africa is eyeing significant growth opportunities in the fiber, B2B, and data center sectors. The company has recently activated the 2Africa submarine cable and is leveraging its extensive 77,000 km fiber footprint across the continent. Airtel Africa is also constructing data centers in Nigeria and Kenya, each designed to be 40-megawatt hyper-scale facilities. These initiatives align with the increasing internet penetration, rapid adoption of cloud computing, and soaring demand for digital services across Africa.

Mobile Money: A Key Driver of Financial Inclusion and Revenue

Mobile money remains a pivotal part of Airtel Africa's strategy, showcasing a 28% revenue growth in constant currency terms. The company reported a 15% increase in its customer base and a 29% growth in transaction value, reaching an annualized level of $120 billion. This performance highlights Airtel Africa's role in enhancing financial inclusion across its markets, with continued investments in the mobile money ecosystem and distribution network.

Managing Currency Fluctuations and Reducing Foreign Currency Debt

Currency devaluation remains a challenge, contributing to foreign exchange losses of $136 million, with $122 million stemming from the Naira's depreciation. Despite this, Airtel Africa has made significant strides in reducing its foreign currency debt. The company's market debt in foreign currency has decreased from 48% to 14% within a year, culminating in the repayment of a $550 million bond, rendering the holding company debt-free.

Positive Outlook and Strategic Focus

CEO Sunil Taldar, who took over in July, expressed optimism about Airtel Africa's future. The focus remains on customer acquisition, network investment, and cost-efficient operations to drive sustained growth. The company continues to simplify its product offerings and strives to deliver an exceptional customer experience. The strategic emphasis on expanding 4G networks and transitioning more customers to smartphones is expected to fuel future growth.

Earnings Call Transcript 2025-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Airtel Africa Q1 '25 results. [Operator Instructions] There will be an opportunity to ask questions later during the conference. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Sunil Taldar. Please go ahead, sir.

[Sunil Taldar, executive]

A very good afternoon, and good morning to our colleagues joining from the U.S. and very warm welcome to this call, and thank you for joining us on today's call. For those that may not know me, my name is Sunil Taldar and I've taken over as CEO from the beginning of July.

I'm joined on the line by our CFO, Jaideep Paul and Head of Investor Relations, Alastair Jones. We will shortly be answering your questions, but first, I would like to provide you with a brief overview of the performance in the first quarter and also give a few initial insights of the business and the opportunity that is available for Airtel Africa to capitalize on. I'm very much looking forward to engaging with you in the future as we report on these ambitions.

Over the last year, macroeconomic environment has remained volatile. However, our focus on delivering against our strategy has enabled us to perform well in constant currency terms to reduce the impact that currency devaluation that has had on our reported results. Revenues in Quarter 1 reached to $1.16 billion, which was a 19% growth in constant currency terms as the demand for our services in both GSM as well as mobile money remains strong.

Given the significant currency headwinds, the reported currency revenues declined by 16.1% over the year. EBITDA margins for Quarter 1 came in at 45.3%, which was driven lower by predominantly two reasons. The first is inflationary pressures across our markets, particularly in rising diesel prices across many of our markets, in particular, Nigeria. Nigerian diesel prices are over 70% higher than this time a year ago.

And secondly, the mix effect of Nigeria, given the lower contribution from -- coming from our larger [ software ], which is a higher-margin business. Just to give things into perspective here, Nigeria used to be upwards closer to 40% contribution of our total business has come down to in early 20s, a high-margin business has a significant impact on overall margin delivery at a group or a total business level, and that is the impact that we are calling out here.

However, it is worth putting this performance into context. Despite all the macro challenges, we have been able to enhance our reputation as one of the cost leaders across the industry. We continue to remain as the cost leader and the most profitable mobile network operator in Africa. And this has been enabled by leveraging our continued success on cost optimization, whilst also retaining our reputation for affordable and reliable services, which has maintained our top line performance and driven increased operational leverage.

Our industry-leading EBITDA margins reflect the very strong execution over the last few years. And it is this in my mind, that gives us a huge confidence to take additional steps by further intensifying our efforts to look at further cost reductions to entrench our strong reputation across the industry. We've already seen some benefits from this new initiative or intensification of our efforts on reducing costs or driving efficiencies with the primary focus on network cost, which is the largest cost element in our business, and particularly energy costs, which remains a significant proportion of our overall cost base.

The deployment of renewable energy solutions, intelligent network design, which allows us to optimize our network and renegotiation of contracts provides me with conviction that further cost reduction measures are still available, and we will continue to deliver on this over the year ahead. I also want to take a moment to talk through the positive outlook for further growth opportunities across our markets. In particular, in the fiber, which is the home broadband business and also the enterprise business. Data center, I see a big opportunity due to increasing Internet penetration, rapid adoption of cloud computing and soaring demand for digital services, I see this as a big future growth opportunity.

The recent activation of 2Africa submarine cable, which combined with our 77,000 kilometer fiber footprint across the continent enables us to unlock significant potential for future growth. And we have this opportunity to leverage our Airtel Africa's relationship with its corporate clients and to offer reliable resilient capacity to our enterprise segment at a scale across the continent and accelerate our growth on the B2B segment.

So, fiber, B2B and data center continues -- is a very large future growth opportunity that we'll be focusing on. As we announced earlier this year, we have broken ground in Lagos as we commenced the construction of a data center in Nigeria with plants advancing for another significant data center in Kenya. On average, both will be 40-megawatt hyper scale design facilities as we become increasingly optimistic on the opportunity this business offers.

Not only is our offering about tapping the shortfall in capacity but is also offering high density, secure and scalable integrated solutions to global hyperscalers, government and enterprise segment. We will leverage, as I said, our relationship with Nxtra business in India to draw on its considerable expertise and relationship with hyperscale players who will be looking to expand across the African continent and also leverage on our relationship with the India business to understand some of the best practices on setting up our go-to-market to service our B2B customers, especially in the large enterprise segment and also in the MSME and the small SME segment. These are just some of the opportunities that reflect my optimism for the year ahead.

Let me now briefly run through the performance over the last quarter. Before discussing our performance across the two main reporting segments, I wanted to highlight our performance on a regional basis including both mobile services and mobile money. In Nigeria, we continue to see strong trends with constant currency growth at over 33% in the period, continuing to reflect strong demand across the market despite the challenging macro backdrop.

In East Africa, we reported over 22% revenue growth in constant currency. The Francophone region continues to see pressure on consumer spend from inflationary and competitive pressures impacting growth, which increased 5.2% points in constant currency.

Let me begin by focusing on the performance of the Mobile Services segment. The strong demand for services across our footprint, combined with our attractive consumer-focused proposition resulted in an 8.6% growth in our customer base, which, combined with ARPU growth of 7.8% resulted in constant currency revenue growth of over 17%, with Nigeria growing over 33%, East Africa by almost 20%, while Francophone region was up 3.6%.

Demand for voice services continues to remain robust. However, data remains a very large and a key opportunity for us. The young and aspiring population across our footprint, combined with our widespread 4G network continues to support a further increase in Smartphone penetration by almost 5% over the year. This combined with a 25% increase in data usage per customer to 6.2 GB has resulted in strong data revenue growth of 26.4% in constant currency. Usage remains, however, low in a global context. So, we expect to see growth remain at an attractive level.

The mobile money business continued to see a strong performance with over 28% constant currency revenue growth in the period. Financial inclusion across many of our markets remained low, and we see mobile money as a key facilitator of increased adoption of financial services. Supporting economic growth and transformation, a 15% growth in customer base and a 29% growth in transaction value to an annualized level of $120 billion reflects the continued enhancements we made to the mobile money ecosystem and continued investments into the distribution network. Particularly, the exclusive channels, which clearly differentiates our offerings.

Below the EBITDA line, our results were once again impacted by foreign exchange fluctuations, with the Naira continued to weaken in the quarter. Across the group, currency devaluation resulted in derivative and foreign exchange losses of $136 million, of which $122 million related to the Naira devaluation, which has been classified as an exceptional item. EPS before exceptional items came in at 2.3 cents.

A key development during the quarter was the repayment of our HoldCo bond of $550 million, which matured in May 2024. This is once again a continuation of our strategy to reduce external foreign currency debt. A year ago, 48% of our market debt was in foreign currency, which has now been reduced to only 14% at the end of June. Following the payment of our pay down of almost $830 million of foreign currency debt. I think we've stayed committed on this particular agenda and today, at a HoldCo level, we are debt-free.

Our capital allocation policy remains unchanged. Our priority is to continue to invest in the business to ensure we future-proof our operations for sustained growth, and we, therefore, reiterate our previous tax guidance of $725 million to $750 million for this financial. In addition, we remain committed to a positive shareholder return policy with the AGM approving our final dividend of full year '24 of 3.57 cents and the continuation of our $100 million buyback program.

Now a little bit about my personal experiences, I joined the business in middle of October. And in the last 8, 9 months have managed to travel to 10 out of our 14 operating countries. And having visited most of our markets since I've joined Airtel, I'm very convinced of Airtel Africa's unique position to capture the opportunities on offer across the continent. Our purpose of transforming lives is clearly being delivered as we continually invest in the markets to enable increased financial and digital inclusion, which is fundamental to driving economic prosperity across communities.

The first priority for the group is to put the customer first and ensure we offer a great customer experience. To do this, we need to continue to simplify the products on offer and provide best-in-class network experience at an affordable level. Because delivering great customer experience across all our touch points will be our differentiating factor as compared to the competition across our markets. And that remains a big area of focus, and we want to put customer right at the front and center of everything that we do.

I expect to see continued migration of customers from feature phones to Smartphones and the expansion of our 4G network, continuing to deliver sustained growth momentum in the future. Offering additional services to our customers in the form of mobile money will further help our growth ambitions, and this remains a fantastic area of growth potential, which we will continue to tap.

I will remain focused on ensuring our investments into both the new and the existing business streams continues to be in a way that maximizes returns available to all our stakeholders. I do think that execution seen to date across the business provides a foundation for future success. The ability to unlock and deliver on the significant growth potential I've alluded to, is possible because of the strong capital structure we currently have in place. The outlook for Airtel Africa is very, very compelling, and I look forward to executing on this and our overall strategic priorities in the coming years.

And with that, I would now like to open the line for questions for which I'm joined by Jaideep. Operator, I now hand it over to you to facilitate the Q&A session, please.

[Operator]

Thank you, sir. [Operator Instructions] The first question we have is from Cesar Tiron of Bank of America. Please go ahead.

[Cesar Tiron, analyst]

I have three, if that's okay, but they're very easy. The first one would be on Francophone Africa. Can you please explain the key reason for the pressure on margins? Is that also diesel or was the diesel just explaining the pressure on Nigeria? Second question, can you please elaborate a little bit more on your efficiency program because obviously, your margins are already quite high in most of the markets. So how large could this be? And then the third question would be related to Nigeria. What progress have you made in your discussions with the local authorities related to any potential changes to tariffs?

[Sunil Taldar, executive]

Thank you for asking those questions. Can I request you to repeat your question number three, please.

[Cesar Tiron, analyst]

Yes. So, what progress if any, have you made in your discussions with the Nigerian authorities relating to a potential change in tariffs, increasing prices?

[Sunil Taldar, executive]

Thank you very much. So let me respond to your first question on margins on Francophone. We've seen some pressure on Francophone margins, primarily arising out of 2 or 3 factors. The first being overall inflation that we are experiencing across our footprint. And that is increasing the pressure on our network cost, and that has resulted in further impact on our EBITDA margins for Francophone.

Other than this, something which is very specific to Francophone in Quarter 1, ‘25 EBITDA was impacted by increase in regulatory charges in some of our Franco countries, specifically in Gabon by roughly $2 million and MAT related expenses in one of our large markets, which is DRC and this, combined with a relatively overall slowdown in our top line growth has had some impact on the EBITDA margin for Francophone.

Moving on to your next question on efficiency program, which is what you're saying that our EBITDA margins are already healthy, and we are the cost leader that's how I understood your question, that what are the further opportunities? What we've done is we've actually intensified our efforts and we very genuinely believe that there are future cost reduction opportunities or opportunities to drive efficiency in our business.

As I said, we have intensified our efforts in some of the areas, predominantly in the area of reducing network costs. And within network, it is primarily on reducing fuel costs, which is where we've seen a significant impact of cost increase. And what are some of the actions that we are taking or some of the areas that we've identified? First and foremost is in the area of optimizing our network utilization and design. The second is, as I said, introducing energy-saving initiatives, for example, solarization of sites, using lithium-ion batteries across our network to reduce network costs, and in certain areas, which it is about renegotiations of key contracts.

While we do this, we are consciously aware that we do not touch any of our growth spends so that either our growth or the customer experience is not impacted at all. And the way I see it is, given the macro environmental headwinds and challenges. In the first quarter, we've managed our -- relatively managed our cost better. And I have full confidence in our ability to execute better. And I remain fairly confident that from here onwards, as we intensify our efforts and execute the way we execute, and we've demonstrated our execution capabilities in delivering growth ahead of market. I remain confident that we will be able to deliver on our cost efficiency and cost reduction program as well.

Moving to your third question on Nigeria price increase. On the price increase front, we continue to engage with NCC and with other authorities in Nigeria to seek price increase. And this is something that we've been at it for some time and our attempt is to at least cover inflation. Having said that, while it is very important for us to continue to engage with the regulator and seek for price increase. But that is not the only effort that we are putting in to remain profitable in Nigeria, which is our pretty large business.

Our focus is actually on acquiring customers, making sure that we deliver great customer experience, continue to stay invested in Nigeria through intensifying our network investments, our go-to-market efforts and delivering great customer experience to drive top line growth. That remains a key area of focus. But having said that, we remain engaged and we are fairly -- we remain engaged with the regulator to get a price increase in Nigeria.

[Operator]

The next question we have is from Madhvendra Singh of HSBC.

[Madhvendra Singh, analyst]

So just three short questions from my side. Firstly, just extending on the price hike question in Nigeria and I remember [indiscernible] relying on other levers of growth rather than just price hike [indiscernible].

[Unknown Executive]

Can you repeat your question?

[Madhvendra Singh, analyst]

Just asking on the price hike point in Nigeria. I remember the previous CEO also talked about other levers of growth rather than just price hikes. Do you think you have enough of those levers of growth to, let's say, regain the lost revenues in dollar terms? And how quickly you think you can recover and go back to the previous dollar run rate of revenue and EBITDA in the market? So that's the first one.

And then secondly, just also picking up on your progress on the mobile money units IPO plans, if you could share where we are on that process? And how confident you are of meeting the timeline there?

And then finally, on your CapEx plans as well, because of the currency devaluations and you still maintain your overall CapEx plan, given that you're not really getting the price hikes you want, at least not in the short run. Do you think it is still fair to keep investing at the same [indiscernible] CapEx or would you rather wait out the period where you're not getting the price hike and maybe resume investing when you have a certain reversal of the, let's say, regaining of the dollar earnings base, especially in Nigeria?

[Sunil Taldar, executive]

Thank you Maddy, for asking those questions. Let me just start with addressing your first question, which is on price hike. I will not repeat my answer to say that we continue to engage with the authorities and the regulator to seek a price increase. Having said that, your other question that you're asking on Nigeria is do we see that Nigeria will continue is a big growth opportunity. Let me just answer it in two parts.

First and foremost, we've demonstrated that Nigeria remains a very, very strong opportunity and in our growth of 33% across voice, data is a strong demand petition of the fact that Nigeria remains a very large opportunity. And if we execute right, we acquire our customers ahead of competition. We deliver a great experience to our customers. We will continue to grow our business in Nigeria. So that is one.

We remain optimistic on the growth potential of Nigeria. Having said that, we retain a very, very judicious approach to our CapEx investment strategy in order to maximize our revenue growth. The CapEx investment in Nigeria, we continue to remain optimistic, and we will continue to invest to expand our coverage, to expand -- to cater to a great experience to our customers, because some of the opportunities that we see in Nigeria, they remain what they were.

The first is it is still a very large category penetration opportunity in Nigeria. It's still a very large land grab opportunity that we will continue to go after. And for that, wherever we need to expand our network coverage, we will continue to expand our network coverage.

The second is Nigeria is a very, very large -- offers us a very large upgrade opportunity. We've seen close to 25% increase in our data consumption in Nigeria. And that is one opportunity that we continue to -- if you look at our consumption per customer in Nigeria is about 29% in this quarter, which indicates that it still is a very, very large upgrade opportunity that we will continue to pursue. And for that, if we need to invest behind our capacity sites, we will continue to invest. And so far, whatever that we have seen is our revenue per site continues to grow even after making additional investments.

Having said that, these opportunities, which is customer acquisition opportunity, upgrade opportunity from 2G to 3G to 4G, that remains. There are two other opportunities, which is what I spoke about at an overall context remains a very large opportunity in Nigeria, which is our fiber and our home broadband. We have deployed 5G sites in Nigeria, which gives us enough data capacity to go after home broadband business, and that is one action that we've taken, and our initial results are very, very positive.

Second is, as I said, B2B remains a very large opportunity. And Nigeria is first country where we very recently did our groundbreaking ceremony for our first very large close to 40 kilowatt of data center because we see that this market is absolutely ready and this data center should be operational by FY '26. So, we remain committed to Nigeria. And we also, at the same time, continue to monitor that our capital investment continues to give us returns.

Now coming to the third question on mobile money IPO. We made a commitment that we will do an IPO within 4 years of our first transaction, and we remain committed to that promise. We are, at this point in time, working towards making sure that we meet the deadline, and we will share progress as we come closer to the time lines.

[Madhvendra Singh, analyst]

And just one follow-up. Given the current market conditions. Do you think that achieving similar level of EBITDA multiples on a potential IPO would be possible? Or do you see some rift to that?

[Jaideep Paul, executive]

So Maddy, honestly, we'll have to discuss this as we progress. This is at the very initial stage. We are -- from an organization, from governance, compliances, where we want to list, those decisions are currently under discussion at various levels. So, as we progress further engagement with the bankers, once we finalize everything, obviously, then this question will be better answered. At this moment, it will be all guess. So, we would not like to speculate on that at this moment. But yes, as we progress through the year, probably some during either Quarter 2 or Quarter 3, as we come closer, we'll definitely address this question.

[Madhvendra Singh, analyst]

That is very helpful. Thank you very much.

[Operator]

The next question we have is from Rohit Modi of Citi.

[Rohit Modi, analyst]

Just three from my side. Firstly, I know you don't give the guidance on revenue, but if you can share anything around how you look at the Francophone revenue growth trajectory from here, given there has been a substantial slowdown this quarter. Do we expect same kind of momentum for the rest of the year in Francophone or you think things might improve from here?

Secondly, your sales and marketing as a percentage of revenue has increased and also seems like has been putting a pressure on margin. Is that something that you're investing more to get that kind of revenue growth? And if that's the case, which other markets where you think sales and marketing cost is going up particularly?

Thirdly, you commented around fiber being an opportunity. If you can give us any color around do you expect to invest more into fiber in the future? And are there any specific markets where you see this kind of opportunity shaping up?

[Sunil Taldar, executive]

Thank you very much for asking those questions. First and foremost, let me address the point that you raised around growth slowdown in Francophone markets. The way I see it is if you look at Francophone markets, the underlying some of the metrics of the business continue to point that our business remains healthy. And the reason why I'm saying this is as follows.

The first and foremost, if I look at our base growth, which is a fundamental driver of growth for our business, it remains very healthy at about 10% points plus. So, our base is growing at 10% points. Our data consumption continues to grow at about 23% points in Franco markets. So, if I look at -- which is a very key indicator of how our customers are engaged with us. Having said that, despite, say, some of these underlying metrics, we've seen some slowdown in our growth rates in Francophone markets. This is primarily because of two reasons.

First and foremost is Francophone markets are experiencing very high inflation. And what has happened is, despite a 10% increase in base growth and roughly about 23%, 24% increase in data consumption, our revenue has come down. It is primarily because of our ARPU has come down by about 5% at an overall level, which is what is slowing down the growth rate in Franco markets. And this ARPU slowdown is, as I said, is because of two reasons.

First and foremost is the impact of inflation. Some of the Franco markets are our biggest Franco market, which is DRC, is experiencing high levels of inflation, which is resulting into some amount of titrating in consumption and which is the impact that we are also seeing in some of the other markets. That is one.

The second is there is -- it's also a market where we are seeing very high competitive activity, which is bringing the ARPUs down. So, this is what is contributing to the slowdown of growth rates in Franco markets. And the way I see it is we would have liked for Franco to deliver better growth rates than what we have delivered in the first quarter. Having said that, I remain confident in the Franco market's ability to turn around and deliver better growth rates.

And this confidence is primarily coming from the point of view of the fact that our underlying metrics and one of them key being is our base growth, which remains in double digit. Which gives me enough confidence and that is the reason we continue to stay positive on Franco and we continue to make required investments in our network and our GTM capabilities so that we continue to acquire customers and continue to give great experience to our customers. So that's your first question.

On the S&D side, which is what you're saying is our S&D expenses.

[Jaideep Paul, executive]

So our sales and marketing cost has moved up to 12.9% of the revenue as compared to 10.3%. So, the question is why it has gone up. So first, let me address this, that as per IFRS standard, it's more of an accounting thing. As per IFRS standard, every year, we have to do the evaluation of the life of customer in our network. And accordingly, some of these expenditures are deferred.

So, what happened last year to this year, there is an improvement in the life of customer in the system. So earlier, it was, let's say, 12 months, now it has gone up to 18 months. Therefore, the deferment adjustment has to do every year, once in a year, we have to do that adjustment. So that adjustment has resulted into roughly an impact of $10 million and $11 million accounting adjustment, while the cash outflow remains same. There is no change in the cash outflow.

So, this one-time thing you have seen in Quarter 1, that impact, and that's why you are seeing the expenditure as a percentage of revenue has gone up. But that then doesn't change. Still there is a further change in the life of customer in the network, which can only happen when the further improvement of churn happens, and it is a once-a-year activity, which we do.

[Sunil Taldar, executive]

And now let me just very quickly answer your third question, which is on fiber opportunity. The way I would approach this is a home broadband and enterprise opportunity. And we remain very, very confident on what we have seen. From a home broadband point of view, what we are doing is we are testing. We first start with FWA because having invested in 5G capacities, we are today able to service our customers through our FWA CPE, which is Consumer Premises Equipment and deliver the required speeds and the experience and the response from the market has been very, very positive.

And as the demand grows, wherever we need to deploy fiber, we will deploy fiber. And the second is from an enterprise point of view, we remain confident that this is one segment, which is very, very large and attractive and wherever fiber investments are required, we'll make the requisite fiber investments to service our enterprise customers and meet their data and speed requirements.

So, from an opportunity point of view, it's a large opportunity. We are right now investing in our infrastructure and also GTM capabilities to be able to service this demand in this market segment.

[Operator]

The next question we have is from John Karidis of Deutsche Bank.

[John Karidis, analyst]

So firstly, Sunil, good luck in your stewardship of Airtel Africa. Secondly, my questions, first of all, in Nigeria three months ago, MTN Nigeria, its Chief Executive said that they are facing in his words, existential issues. And as part of that, they're also cutting their CapEx very significantly. So, my question is have you seen any change in competitive intensity and/or do you expect a change in competitive intensity given their existential issues?

My second question is second or three by the way, mobile money in Nigeria. I know you guys are building the business. At what point do we start putting any numbers in our Excel spreadsheet for revenue in mobile money, Nigeria. Is it a quarter away, two years away, and [indiscernible]. So, anything you can say there would be great.

And then thirdly, a question that doesn't have anything to do with the first quarter, but maybe Jaideep would oblige me as we try to get our brains more focused on the mobile money ahead of the IPO. Last time around, when you gave us a pie chart of all the different services that contribute to mobile money revenue to remind you things like cash out, mobile recharges, P2P services. Can you help us understand the profitability of each of those revenue streams relative to the average mobile money profitability, please?

[Sunil Taldar, executive]

Thank you very much for those questions and also your best wishes. Let me first respond to the first question that you asked, which is the comment that you've made on the MTN's existential issues, I will not comment on that. But let me just try and address the key question that you asked is we have not seen any reduction in the competitive intensity in Nigeria, be it from MTN or any other operator for that point of view.

And therefore, a simple and straight answer is there is no reduction in competition intensity. Having said that, as far as we are concerned which is what I was responding to the other question to say, we remain focused on the opportunities that Nigeria has to offer across both our GSM as well as the mobile money business.

On the GSM, and both the categories that are the services that we offer, as I said, there is a massive opportunity for, first and foremost, it's a penetration opportunity. The second is an upgrade opportunity. And this opportunity of penetration, and I will talk about upgrade when I'm talking about mobile money is what do I mean by upgrade. It remains equally attractive when it comes to the mobile money business in Nigeria.

Having said that, Nigeria is relatively a more mature markets when it comes to the overall mobile money market. And therefore, right now, what we are focused on is making sure that we acquire customers, and we have a base of 50 million customers, a large number of those customers are Smartphone customers. So therefore, we have a right to win with these customers. And what we need to do is we need to build a very strong ecosystem and make sure that our platform and our services that we offer are very attractive for our customers. We give them great experience on our platform, and that's what we are focused on.

At what point in time we start to monetizing these services on this customer base? I think it is very difficult for me to put a number, which I guess you're expecting here, whether it is 1 Quarter or a few years, very difficult. But our efforts are to say this is a large opportunity. We have an existing relationship with 50 plus million customers in Nigeria. Of these customers, there's a large number of customers are 4G customers.

Therefore, they are the customers, if we engage with them, give them the right experience, they will give us an opportunity to serve them not only for cash out or cash in, but across the ecosystem, and that is where our focus right now is in building those capabilities and making sure that our customers remain engage. And then we'll start to help you to put some numbers as you said on an Excel sheet.

That, I guess, is your first two questions. And the third, I think, was what you pointed out for Jaideep, and I'll hand it over to Jaideep now.

[Jaideep Paul, executive]

So obviously, in the half year when we come with the full presentation we'll discuss about this in detail, but I'll give you a snapshot of what is happening. Obviously, cash out still contributes a large part of the revenue as a -- cash out as a market. So, 48% of the revenue comes out of the cash out, cash out commission, which yield -- and the yield for that is roughly about 2%. And if I do the net of cash in commission, then obviously, it comes down to approximately 1.2%, 1.3%. Because cash in we don't charge anything to the customer. Cash out we do charge to the customer and pay commission to the agent.

So, the net-net, the cash in, cash out net of will be about 1.2%, 1.3% in. For rest of the transaction, for example, P2P contributes roughly about 12% of the revenue. There is no payout for that. And the yield for P2P is roughly about 0.5%. Yield for bill payment merchant is roughly about 1.8%, 1.9%, and there is no cash payout for that. And that contributes roughly about bill pay and margin all put together. It contributes about 14% of the revenue.

And the recharge commission because Airtel Money does a significant amount of recharge for the GSM entity. And here, 13% of their revenue comes from the recharge commission. And that yield and the yield for that is roughly between 6.5%, 7%. So broadly, and there are other revenue stream, which contributes about 12%, 13% of the total revenue, and the yield for that, it varies from bucket to bucket but it's not very significant.

But the significant portion is cash out. And over the period, if you see there's a change in the mix. The cash out has started coming down from which used to be about 60% a year, year and half back, that has started coming down. And the bill pay merchant that started going up because -- and therefore, you see the growth continues because there is a better yield in the merchant and bill pay ecosystem. So that's broadly the mix, but we will definitely come back and discuss this in detail when we come for the half year, and we make the presentation to all of you.

[Operator]

The next question we have is from Tracy Kivunyu of SBG Securities.

[Tracy Kivunyu, analyst]

Thank you very much for the opportunity to ask questions. So, my first question is on your lease contracts. Could you give us the percentage of sites that would be renewable next year? I think in the next financial year, I think you did mention in the first quarter that we do see some potential for contract increases in FY '26. And if you could also indicate if this lease [indiscernible] ATC that can be helpful?

Second, for the fuel price [ existing ] in Nigeria, we already see some impact in the fourth quarter of last year. So, what was the bottom potent change in fuel prices in the country? And then the last question is on the DRC most related expenses. If you could indicate what impact that was. If you could quantify it on the Francophone EBITDA margin?

[Jaideep Paul, executive]

So the first question, if I understood there was a little problem of -- on the voice. But if I understood it correctly, you want to know about the renewal of the lease contract in certain countries. Is that correct?

[Tracy Kivunyu, analyst]

Correct. Yes.

[Jaideep Paul, executive]

So as we mentioned earlier that next year, there are about between, next year and subsequent year between, let's say, 18 to 24 months or rather I would say 12 to 18 months, the lease renewal is due in about four countries, four, five countries. And all these four, five countries are either ATC, IHS or Helios, depending on which country is falling due when.

So, a large part of these leases will be coming for renewal in this period. But the terms and conditions and what will be the construct of those contract, etc., will be known to even us as we currently are engaging with our tower cos where for contract renewal and obviously, the commercials will be coming out after those negotiations and will be better off probably in Quarter 4 of this year to be able to communicate much better in terms of the construction and what I mean in more detail.

Your next question was quarter-on-quarter fuel price increase. Fuel price in Quarter 4 has gone up to almost 1,400 plus Naira a liter in Nigeria. I'm specifically talking about Nigeria, which is now in Quarter 1 we are looking at in the range of $1,150 to $1,200. Now as per the contract, our contract obligation, there is one quarter in lag this impact comes. So, Duarter 4 diesel cost increase, the impact has come in Quarter 1. And Quarter 1 is the average rate, which will be applicable when we get the diesel price bill or diesel bill from the tower co. in Quarter 2. It's a one quarter lag in most of the contract. So, what we are seeing in Quarter 1, the impact which has come in Quarter 4, and then there is a marginal drop in the price in Quarter 1, which will come in Duarter 2. So, if diesel price further doesn't go up in the next few weeks, then we expect to see a stability or a slight reduction probably on the diesel cost as we go to Quarter 2.

What will happen in Quarter 3, Quarter 4, if the price remains at this level, then we don't expect at least the rate increase impact in the OpEx as we go forward if diesel prices stabilized at let's say, $1,150, $1,200. On the MAT, MAT is -- in two countries, the MAT has triggered, minimum alternate tax. As you know that in these countries, there is a rule or law that if the countries have become tax loss, the countries are not tax profitable or tax loss, then minimum alternate tax, which is a percentage of revenue between 2% to 3% of the revenue that comes as a minimum alternate tax, which has to be paid.

Unfortunately, minimum alternate tax as per accounting standard is not considered as a tax line item, but it is part of OpEx. Between DRC and Nigeria, this impact has come from January to June, so six months impact, about $5.2 million between these two countries. DRC is roughly about $2 million and balance is Nigeria. This impact has come in Quarter 1, and this will continue at about $2 million, $2.5 million per quarter as we go forward between these two countries as it is not expected based on the current trend that these two countries will become or, of course, will become tax profitable in this year. So, this will continue for this year.

However, when these countries become tax profitable, then the minimum alternate tax will not be coming in the OpEx. And then the corporate tax at the applicable corporate tax rate, this will come into in the P&L under the tax line item.

[Operator]

Ladies and gentlemen, we have reached the end of the Q&A session. And I would like to hand back to Sunil for any closing remarks.

[Sunil Taldar, executive]

If there are no more questions, I would like to thank you all for joining this call, and I look forward to speaking to you again and hopefully meeting with many of you later this year. Thank you once again.

[Operator]

That concludes today's conference. Thank you for joining us. [Operator Instructions].