Airtel Africa PLC

LSE:AAF

Earnings Call Transcript 2023-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Airtel Africa Nine Months Results Call. All participants are currently in a listen-only mode and there will be an opportunity to ask questions later during the conference. [Operator Instructions] Also note that this event is being recorded.

I will now hand the conference over to the CEO, Segun Ogunsanya. Please go ahead, sir.

[Segun Ogunsanya, Chief Executive Officer]

Thank you. Thank you for joining us on today's call. I'm joined on the line by our CFO, Jaideep; Deputy CFO; and Head of Investor Relations, Pier. We'll be shortly answering your questions. But first, I'd like to provide you with a very brief overview about some of the performance in the last nine months.

Over this full year, we have reported a strong set of results despite the global macroeconomic backdrop. Revenues went up to $3.9 billion, with a 17.3% growth in constant currency terms. Adjusting this outbound voice call barring, the organic revenue was $0.2060 for the year.

In Q3, the quarter ended December, our constant currency revenue growth was 18%. Despite the inflationary challenges, we are delivered on our mission to maintain steady margins as our EBITDA margin slightly increased to 49%, giving us an EBITDA for the period of $1.9 billion, an increase at constant currency terms of about 17%.

It is important to all that while EBIT did have some FX headwinds over the period, we continue to report double-digit growth of book revenues and EBITDA in reported currency. Before discussing our performance across our two new reporting segments, I'd like to highlight our performance on a regional basis or per regionals, including both mobile services and mobile money.

In Nigeria, we continue to see strong trends in constant currency performance, 21% in the period and 3.4% in Q3. In East Africa, we reported a 16% revenue in constant currency with the France region growing 12.7% in constant currency as well. Let me begin by focusing the performance of the mobile services segment. With strong demand for services across our certain countries, combined with a very attractive consumer-focused acquisition and distribution infrastructure drove a 10% increase in the customer base, with quarterly net additions at the highest level in over eight quarters.

ARPU growth of 5.9%, and across our user base increased for mobile services revenue grew 15.9%. We remain confident that the very low unique customer attrition levels across our footprint, combined with very low usage revenues mean there remains a long runway for both voice and data revenues to grow across all the three regions.

In Nigeria, mobile service revenue grew 21% over the period, while in East Africa and France-speaking market saw almost 30% growth in constant currency. Let me further break down the performance of the Mobile Services segment between voice and data. For voice services, revenue grew up 4.7%, was supported by growth in customer number alongside the further increase in voice ARPU as a result of increasing usage by customer, supporting our view that usage level across African countries remain very low compared to our global peers.

For data services, the expansion of service remained very well across the 40 markets as well. This, combined with also same focus on network coverage and capacity, has contributed to 13.6% growth in data customers. Together, these are customers with ARPU growth compared to constant currency growth of above 22%. Only 17% of our voice customers and 46% of our data customers are using 4G, highlighting the opportunity for sustained growth in data services going forward.

As a result of a very strong revenue performance and despite international pressures, particularly voice calls in Nigeria, mobile services has seen a very encouraging growth of almost 15% in constant currency with continued margin resilience at 49%. The mobile money business continued to see a very strong performance with almost 30% constant currency revenue growth in the period. It is the fastest growing mobile money business across the continent.

We continue to see expansion of our customer base, which increased by 22% as a basic driver of growth. Outside of Nigeria, which is very early in the mobile money journey, the beneficial of the customer base increased almost 85%. With increasing cases and continued customer engagement, transaction value per customer increased at 10% regarding Q3 annualized transaction value of almost $100 billion.

Following these careful launches in Algeria, we continue to focus on building new brands, and we invest in technology and platform to develop growth and confidence in our customer propositions. We will have a view that we invest in the tech platform and systems ahead of revenues is the best strategy for long-term value creation.

Mobile service growth, we continue to see path to resilience despite the very challenging official environment in many of our markets. We have continued to focus on cost reduction and on raising efficiencies to limit the impact of inflationary pressures on our cost fees, resulting in a 20 basis point margin increase over the year in reported currency.

Over the year, foreign assumed changes about an advancing part on our reported financials. The biggest drivers of CapEx weakness related to the dilution impact in Nigeria, our largest market; Central Africa, and France, Malawi, Kenya and Uganda. It is partly offset by the acquisition in Zambia Kwacha. Adjusted for these losses within our finance cost line, our key are exceptional items increased 21.6% over the year, reflecting our strong operational execution across the 14 countries in the group.

Briefly, in terms of the balance sheet and cash flow. At the end of December, our leverage ratio was 1.5x EBITDA with net debt of $3.6 billion. The leverage ratio has increased slightly from 1.3x at the end of September 2022, reflecting the recent acquisition of spectrum, particularly 5G spectrum in Nigeria. Our capital allocation policy remains unchanged. Our priority is to continue to invest in this business to ensure we future-proof our operations for sustained growth, and we therefore reiterate our previous stated guidance of between $700 million and $750 million by the current financial year.

We also remain committed about strengthening our balance sheet by reducing further currency debt, while continuing to push that down to data revenue. Earlier this year, we redeemed $450 million of OpCo debt in advance and we will continue to focus on reducing the debt further as we continue to upstream cost from our various OpCos. Over the last nine months, we are further investing in our network to enhance coverage and network quality. Almost 90% of our CapEx is targeted towards growth initiatives. In addition, we have also announced our spectrum footprint across a number of key markets.

In particular, in January, we announced the acquisition of 3.5 and 2.6 gig spectrum in Algeria, which will be used for 5 gigawatts and increased 4G capacity. This spectrum and other acquisitions in Kenya and Zambia, we provide significant capacity first accommodate continuous strong data growth by supporting good 5G rollout and 4G expansion.

Before we open to Q&A, I thought I'd highlight that what I see, what we see to be the five regions where the opportunity of Airtel Africa is so attractive. Number one is a very stronger outlook. Our markets across Africa continue to show significant opportunity for growth, which is reflected in the rapid uptick of both voice and data services. This, while leveraging significant mobile money opportunities, including the rollout of PSB in Algeria, which saw significant confidence on the social media of growth in the coming years.

Secondly, our relentless focus on efficient returns will ensure that the flow-through of revenues will continue to drive profitable growth. Despite the macro environment, we continue to deliver EBITDA margin resilient across the book in the short term.

Thirdly, our confidence in growth which has focused our attention on future, putting the network, and our recent investment spectrum will ensure network reliability for enhanced customer experience and enhance our brand, which is the key to monetizing this growth opportunity.

Number four, our risk mitigation framework. Our corporate governance strategy is in mitigating risk which we're exposed to. Our track record speak for itself how we maintain this vigorous approach to drive continuing shareholder value.

And finally, our sustainability agenda, which is based on a very strong belief that profitability and sustainability are not mutually exclusive. And with that, I would now like to open the line for questions for which I will be joined by Jaideep and Pier.

So Peter, I would like to ask you to start the Q&A session.

[Operator]

[Operator Instructions] Our first question is from Jonathan Kennedy-Good of JPMorgan.

[Jonathan Kennedy-Good, JPMorgan]

First question is on the Nigerian Mobile Money rollout. I know you gave some color in the release around a focus on Lagos for the moment and some discussion around security protocols, et cetera. Just wanted to get the sense on how far we are away from launching a product that looks like your product across Africa and starts to generate revenue growth there.

And then question number two, can you provide us with some insights on the pace of 5G rollout? It seems as though your major competitors are talking more to their 5G aspirations, particularly in Nigeria. So just wanted to get a sense of potential investment in 5G. And then finally, just any heads up that you can give us on further spectrum acquisition? I know it's been a busy year, but I just wanted to know if there was anything obvious that is coming through in the next year.

[Jaideep Paul, Chief Financial Officer]

Sorry, last question. Is it about spectrum? Acquisition. Okay. Let me take the PLD question first. We have spent the 14 months of building a very strong distribution foundation. We've also focused on IT infrastructure and the drive business systems and products to ensure that we can rely on the business model to build us confidence in the brand. We're almost at the end of this process. So the next couple of quarters would not be devoted towards consumer acquisition. We wanted to be very confident that the systems -- escalated systems are the force to prevent fraud and to deliver the customer propositions we want to put out there.

I'm slightly more confident than we are [indiscernible] now, ready for growth returns to bringing customers on board and finding identities that is who we're going to focus upon. But also, Nigeria is slightly different from many of our operating countries. It is idly penetrated with a number of intact companies and advance of their various digital projections. Nevertheless, it's a massive opportunity, and we just want to have the right transition to capture this growth in the country.

On the 5G rollout, we've acquired certainly a number of countries, Tanzania, Zambia, Kenya, Nigeria, of course. We can notice selectable [indiscernible] 5G. I think within the five years' growth in the medium term -- in the short term, about cost opportunities to be in our 4G footprint as selectively launching 5G to come up with opportunities we have in Africa. So just let me summarize is, yes, we have acquired spectrum in a number of countries. Yes, we plan to go down. It's going to be selected in key cities, where we have gone to see no far devices and with no purchasing power to really enjoy the benefits of 5G.

[Segun Ogunsanya, Chief Executive Officer]

On your last question around spectrum, which is the opportunity that is spectrum where this is available at commercially correct price and the 5G is good and needed where we would acquire spectrum. We spent about $500 million or plus $500 million in the last nine months in [banking] spectrum in the number of countries, of course, Nigeria, with data in Kenya, Tanzania, Zambia and Mozambique. So we're not spectrum-shy, but the pricing that they provide in more commercially -- with the commercial opportunities are available in the country before we decide to put money behind this.

[Operator]

The next question is from Dalal Darwich of Goldman Sachs.

[Faisal Azmeh, Goldman Sachs]

This is Faisal Azmeh from Goldman Sachs. Just a quick question on the Nigerian market and how we think about the margins outlook next year. Obviously, this year has been quite exceptional in terms of inflation. How should we think about the margin profile of the particular segments in 2023? And maybe do you have further measures that you can undertake in order to mitigate any additional inflationary pressure? That's my first question. And then my second is just to maybe a follow up on the spectrum question. How should we think about the CapEx profile in January next year? Are we peaking in 2022? And should we start to see some meaningful normalization next year? And how does that play through the balance sheet?

[Segun Ogunsanya, Chief Executive Officer]

Well, let me start with the second question. On just spectrum, we're going to see a smaller, but that's going to be believing by two things. We're going to start investing behind the data centers. We want to build the number of data centers goes in a number of countries. As of now, we invest in our fiber infrastructure, so that would be a driver capacity, we're looking at between $800 million and $825 million, that was similar to the $750 million, I mean for this year. In terms of spectrum, which is your first question, we wanted in the telco, so we do new spectrum for expansion. We do need spectrum for quality, we do need spectrum for coverage, but the price has got to be right.

We look for the right price. We look for the right spectrum. If both mid-commercial positon, we would push money behind it. But at a steady level to high in this current year, these are very unusual. We bought 5G in Nigeria, close to $300 million. We bought spectrum in Tanzania, in Kenya, it doesn't happen like this in many years and that in four, five countries. You've got to put money in the spectrum. And the Nigerian opportunity is a very special one. The 5G came in at almost $280 million, and that's why the income CapEx side in this financial in Nigeria [indiscernible].

[Faisal Azmeh, Goldman Sachs]

Maybe just a follow up on the margins question related to Nigeria, please.

[Jaideep Paul, Chief Financial Officer]

Margin in Nigeria, actions to beat inflationary pressure.

[Segun Ogunsanya, Chief Executive Officer]

Yes, the big driver of challenging in fair price and just to continue. This time last year was little busy, was about 220 [beta] at estimate 800 beta . And unfortunately, energy and business in terms of our cost level compared to [indiscernible] very small. So we do run most of our sites using these power generators, as owned by the telecom with a pass-through cost. So that's been a major, major driver of pressure on EBITDA in Nigeria.

What I would do is, we continue to work with the telcos, but to larger partners we're working with PTC and IHS. We look for -- situations, whereby they progressively combat the NIV they use for the site from diesel into lithium battery and solar power it cost money. And we're looking at various, I mean, win-win positions that would [indiscernible] them to invest more in such environmentally-friendly energy sources. And at the same time, reduce any cost of power, and we look for ways to share the cost of this investment. We're talking to our two partners on how we can minimize the impact of where the strategies, and our cost profile in the largest market will increase, I believe opportunity is very low.

[Operator]

The next question is then from Rohit Modi of Citi.

[Rohit Modi, Citi]

Firstly, on the OpEx, does you want any impact of devaluation on your OpEx in Nigeria? And do you see any potential impact going forward? [indiscernible] any potential devaluation now higher margin part looking forward? Can you share any more details on mobile terms of what kind of agent network you've got so far? And are there any kind of challenges that you're facing in terms of rolling out the mobile money services anytime soon? Thirdly, just a question on -- apologies if it's already been reported. What kind of ARPU uplift we see from 3G to 4G in Nigeria? And what most of your 4G, what your data subscribers are on 4G?

[Segun Ogunsanya, Chief Executive Officer]

You're going to have to repeat the last question, I didn't get the last question. Just for the last one on migration from 3G to 4G. What was it?

[Rohit Modi, Citi]

Okay. [indiscernible] and then maybe you will come back to the third one.

[Jaideep Paul, Chief Financial Officer]

[indiscernible] and I come back to this one to the question of the 3G 4G to clarify your course around each.

[Segun Ogunsanya, Chief Executive Officer]

Okay. So on the specific question with reference to the devaluation impact in the OpEx, if I understand it correctly, so our OpEx, the composition of the U.S. dollar complement into OpEx is very minimal. It doesn't have too much impact in our margin as well as OpEx if the devaluation happens.

Now we cannot predict the devaluation impact if it is linked to the fuel price or not, because so far, we haven't seen that devaluation, it's the least in Nigeria. But it's -- obviously the fuel price further goes down, that of course is the pressure on the margin. But otherwise, devaluation, we don't have to impact in the OpEx because we have been able to bring down the foreign currency-related OpEx to a very, very minuscule level over the past few years.

Our main risk is -- of devaluation is actually in the CapEx side because that's where maximum point currency vendors or foreign currency bills have to be paid. So that's one element. The second element is on finance lease obligations.

And the third element is on external debt, which is data point [culture] debt, which is there at the OpCo level. So these are the three areas where the devaluation really impacts our -- and that's what you see in the derivative and foreign exchange fluctuation cost, which is sitting as a part of finance cost.

[Pier Falcione]

On PLP, we don't have any external factor making it difficult for us to launch. So we're just following the temporary data that can work for us in all of our countries, by being very deliberate on the IT infrastructure, then by deliberate on systems and distribution to be sure that they [indiscernible] cost of acquisition that would be big growth as the only data is making up as we see really now, but I'm very confident that following two, three quarters, you will see very, very quick assertion of our PLP business in Nigeria. That is one.

[Segun Ogunsanya, Chief Executive Officer]

I believe your last question is around the 3G and 4G. Of course, we like to migrate all customers from 3G to 4G. The average ARPU for a 3G customer is about $2.9 and for a 4G customer is more than [indiscernible], which is why we look for various [indiscernible] customers migrate for 2G to 4G from 3G to 4G.

We're also very conscious of investment using the product expansion. I see in Africa maybe leap from 2G to 4G, not from 2G to 3G, which is why we're working on a number of tools to really have a quality migration from 2G to 4G [indiscernible] 2G to 3G, given the wide difference between 3G customer in terms of ARPU and a 4G customer.

[Operator]

[Operator Instructions] Our next question is from Madhvendra Singh of HSBC.

[Madhvendra Singh, HSBC]

Three questions, hopefully, short. On your CapEx trend for the quarter, it seems like run rate has fallen further. So wondering why the CapEx is this low. And does this CapEx also include spectrum payment? Or this is purely the equipment CapEx, if you could give some color there?

Second question is around the FX in Nigeria. Have you been able to take any cash out of Nigeria recently in 2023, especially? And if you could give the rate at what you have been able to get it out? And finally, in Nigeria, how is your discussions going with the regulator around price increases? Is that -- is there any clarity on time line around it? Should we expect something maybe after elections?

[Segun Ogunsanya, Chief Executive Officer]

I'm going to start with the question on pricing. I certainly have said [indiscernible] our growth is not built on site. We have a formula, we use the customer base group and user group to drive revenue. That's a lot most to say with the pricing. Of course, if we do have opportunity to pricing improve in data and et cetera and consider value pricing [indiscernible], in government of our strategy of growing revenues by A, increasing the customer base; B, for customer driving usage, these are the two clear pillars that we use. We have a variety of promos, a variety of price points that I showed and we continue to drive usage by not focusing on stricter pricing too that I look forward. And you can see in our Q3 performance in Nigeria driving growth.

If I go to your second question regarding remittances from Nigeria. I don't want you to look across the [indiscernible] business. We operate in 14 countries and with the upstream $800 million in the first nine months of this financial year. [indiscernible] $200 million, in East Africa about $270 million and French-speaking Africa, that's $1.5 million by basically easy for last quarter and this contracted to portfolio, West Africa, East Africa, Nigeria, French-speaking, others. I mean, are we concerned by the fact that it's slightly more difficult to [indiscernible] out of Nigeria? We are. [indiscernible] But Nigeria is our largest market, we need for investment in Nigeria. We just bought spectrum, silicon 5, 2.6 [indiscernible] catering to ARPU spectrum very soon. So that's actually a large appetite for [indiscernible] used in Nigeria as well. So we're not so worried.

Of course, the models are distributing easier for our CapEx vendors to make it easier for pilot. But that's kind of the challenge that I mentioned at a fast period of about $200 million from Nigeria in the first nine months of our financial year. That should be the experience of all the things we put in place to get the right level of remittances out of Nigeria and out of our 13 countries.

[Pier Falcione]

So on the CapEx part of it, our CapEx guidance for the full year remains at the same level of between $700 million and $750 million. Low spend in the current quarter, what you see due to the phasing of the material received, not that every quarter because there is a lag time between the order placed, order received and deployment. So that sometimes gets distorted because of multiple reasons, but overall level CapEx will remain as per our earlier guidance.

[Madhvendra Singh, HSBC]

And does that include the spectrum spend as well, that guidance?

[Pier Falcione]

No. No. Spectrum is not part of this $700 million, $750 million. This is only we're talking about the tangible CapEx, the network CapEx, the IT CapEx, sales and distribution-related CapEx, real estate and those kind of things. Spectrum is not part of this $700 million, $750 million guidance.

[Madhvendra Singh, HSBC]

Right. And if I could ask also another question on the voice revenue trends during the quarter, 14% growth almost. That is very strong growth for voice revenue. So if you could give some color whether this is a sustainable rate in your view?

[Segun Ogunsanya, Chief Executive Officer]

[indiscernible] my product demand about the very low level of unique penetration in our footprint in certain countries where we are good, it's a fair testimony of the very long run we are available for us to grow voice revenue. That is 1 data point. The second data point is just the absolute minutes consumed by the customer network, it is relatively small. This quarter, we took 277 minutes from 240-something in the last quarter, companies in [indiscernible] 600 minutes per person per month.

I'm sure most have gone much higher than that. You can see that pick up between where we are and where the economies were. So I firmly believe that I mean, we will continue to grow our voice revenue by expanding the customer base, bringing a lot more between the digital work. And at the same time, primary usage, network as function. Those are the things we continue to increase our voice revenue. And I'm very, very optimistic that I mean we see a long run rate to capture very good potential in the 14 countries where we are based.

[Operator]

[Operator Instructions] We do have a question from Cesar Tiron of the Bank of America.

[Cesar Tiron, Bank of America]

Just want to check on the cash from all markets, not just for Nigeria. Can you please say how much it was for each of the past three quarters? Not for nine months, but for each quarter.

[Segun Ogunsanya, Chief Executive Officer]

Jaideep?

[Jaideep Paul, Chief Financial Officer]

I think for each quarter, I mean we don't give -- we don't have the information for every quarter. What I've done is to give you a very top line of $800 million. We've said in the last nine months, and this came from a variety of countries. It is spread between Nigeria and parts of our $300 million; East Africa, I mentioned about $267 million; and from French [indiscernible] of the top line spread between the three different regions and amounts we've taken out in the last nine months. We gave you part out of Nigeria and good country region.

[Cesar Tiron, Bank of America]

Do you disclose the information, at least then for the nine months and the 1H or not?

[Segun Ogunsanya, Chief Executive Officer]

Sorry, say that again, please?

[Cesar Tiron, Bank of America]

Do you disclose the information for 1H and nine months? I just wanted to try and figure out how much cash you upstream from these markets in the past three months, please.

[Segun Ogunsanya, Chief Executive Officer]

Only for last three months, you don't want for the nine months?

[Cesar Tiron, Bank of America]

Yes, please.

[Segun Ogunsanya, Chief Executive Officer]

Just give us a second.

[Jaideep Paul, Chief Financial Officer]

So we -- so for example, just in -- so this quarter, it was roughly about $150-odd million, between $150 million and $160 million.

[Cesar Tiron, Bank of America]

And the figure for nine months was $900 million?

[Jaideep Paul, Chief Financial Officer]

$800 million. $800 million for nine months and about $300 million in -- from Nigeria, and that means another $500 million from the rest of the countries.

[Operator]

The next question is from Mike Steer of ABR.

[Unidentified Analyst]

Congrats for the results. Just focusing on Nigeria. I was wondering if you have any more information on your customer profile in Nigeria. Basically, the split between high income and low-income customers. And then the second one is around tower contracts. My understanding is you have kind of two general contracts, one is oil inclusive and the other one is energy pass-through. All your contracts energy pass-through? Or do you have the split between the two? And could you give us that split if possible?

[Jaideep Paul, Chief Financial Officer]

For the energy contract, both of them are pass-through that it will give you more flavor as to the prices between each of the data. Both of them are pass-through in terms of credit cost. For the profile of our customers of [indiscernible] and Nigeria, if I use the type of uncertainty as a positive for EBITDA high end, as I think now about 20% of our customers use 4G phones. About 15% use the 3G phones, and about 65-odd percent use 2G phones, mainly antique rural areas. So as we split some of the 4G phones is slightly more affluent than the personal 3G phone. And of course, the great majority of population is still on their 3G phone around 65% so as we grow their partialization of our customer base, and different ARPU come out from different business.

[Pier Falcione]

So on ARPU contract, we have the agreement of the contract, which is fixed based on the consumption. So consumption of grid power side, non-grid power side, there are multiple mix of profile on the sites. And based on that, the quantity on the fuel consumption is fixed, and this is also linked to the second tendency, first tendency, and so on and so forth. So it is not a straightforward kind of thing that it is comparable. And obviously, the price -- and the price is linked to the market price of the fuel. So the base price which was fixed in the contract, and then there's an increment, which is linked to the fuel price rise.

So that's the way this whole calculation happens and, therefore, effectively in a very simplified way, if I explained it is a pass-through cost. And the only way it can get minimized is, as CEO mentioned in the beginning that we are in touch with the tower focus, see all the future sites should come with the alternative source of energy so that we can reduce that impact if further increase in the diesel price happens. And also, we are looking at conversion of some of the existing sites, especially where the grid power amenability is quite poor, those are the places we are first looking at if we can put up an alternative source of energy to bring down this cost.

[Operator]

Ladies and gentlemen, we have no further questions in the queue. Sir, would you like to make some closing comments?

[Segun Ogunsanya, Chief Executive Officer]

Just to thank everyone for joining us this afternoon. I look forward to speaking to you again, and hopefully, meeting many affiliates this year. Thank you. Have a good afternoon.

[Pier Falcione]

Thank you.

[Operator]

Ladies and gentlemen, that then concludes today's event, and you may now disconnect your lines.