Airtel Africa Plc

Good day, ladies and gentlemen, and welcome to the Airtel Africa nine-month results call. All participants are currently in listen-only mode, and there will be an opportunity for you to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star and then zero. Also note that this event is being recorded. I will now hand the conference over to the CEO, Shagan Ogunsanya. Please go ahead, sir.

Thank you. Thank you for joining us on today's call. I'm joined on the line by our CFO, Jaydeep, and our Deputy CFO and Head of Investor Relations, Pierre. We'll be shortly answering your questions, but first, I would like to provide you with a very brief overview of the performance in the last nine months. Over the period, 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 for Nigerian voice called Barin and Sela Hotawath, the organic revenue growth was 20.6% over the period. In Q3, the quarter ended December, our constant currency revenue growth was 18%. Despite the inflationary challenges, we have delivered an ambition to maintain stable margins as our EBITDA margin slightly increased to 49%, giving us an EBITDA for the period of $1.9 billion, an increase in constant currency terms of over 17%. It is important to highlight that while we did see some effects over the period, we continue to report double-digit growth of both revenues and EBITDA in reported currency. Before discussing our performance across our two main reporting segments, I'd like to highlight our performance on a regional basis, our three regions, including both mobile services and mobile money. In Nigeria, we continue to see strong trends with constant currency growth of almost 21% in the period and 23.1% in Q3. In East Africa, we reported more than 16% revenue growth in constant currency, with the Francophone region growing 12.7% in constant currency as well. Let me begin by focusing on the performance of the mobile services segment. The strong demand for services across our 14 countries, combined with a very attractive consumer-focused proposition and distribution infrastructure, drove a 10% increase in the customer base, with quarterly net additions at the highest level in over eight quarters. Up a grade of 5.9%, and the customer base increase supported mobile services revenue of 15.9%. We remain confident that the very low unique customer penetration levels across our footprint combined with very low usage levels mean there remains a long-run way for both voice and data revenues to grow across all the three regions. In Nigeria, mobile services revenue grew 21% over the period, while in East African and Francophone markets saw almost 12% growth in constant currency. Let me further break down the performance of the mobile services segment between voice and data. For voice services, revenue growth of 12.7% was supported by growth in customer number alongside a further increase in voice output as a result of increasing usage per customer, supporting our view that usage level across African countries remain very low compared to our global peers. For data services, the penetration of service remain very low across the 40 markets as well. This combined with a sustained focus on network coverage and capacity has contributed with 13.6% growth in data customers. data customer and data output growth contributed to a constant currency revenue growth of over 22%. Only 70% of our total customers and 46% of our data customers are using 4G, highlighting the opportunity for sourcing growth in data services going forward. As a result of the very strong revenue performance, and despite the financial pressures on our cost base, particularly fuel costs in Nigeria, mobile services in Sibida has seen a very encouraging growth of almost 15% in constant currency with continued margin resilience at 49%. The mobile money business continues to see 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 the principal driver of growth. Outside of Nigeria, which is very early in the mobile money journey, the penetration of customer base increased almost 35%. With increased use cases and continued customer engagement, transaction value per customer increased 13%, resulting in Q3 annualized transaction value of almost $100 billion. Following the PSB launch in Nigeria, we continue to focus on building the brand, and we invest in technology and platform to develop trust and confidence in our consumer propositions. We remain of the view that to invest in the tech platform and systems ahead of revenues is the best strategy for long-term value creation. Overall for the group, we continue to see margin resilience despite the very challenging operating environment in many of our markets. We have continued to focus on cost reduction and operating efficiencies to limit the impact of inflationary pressures on our cost base, resulting in a 20 basis point margin increase over the year in reported currency. Over the year, foreign exchange changes have had an advanced impact on our reported financials. The biggest drivers of FX weakness related to the valuation impact in Nigeria, our largest market, Central African franc, Malawi, Kenya, and Uganda, This is partly offset by their position in the Zambia question. Adjusting for their first losses within our finance line, our EPS, before 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 1.5 times bigger, 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 the business to ensure we future-proof our operations for sustained growth and we therefore reiterate our previous keepers' guidance of between $700 million and $750 million for the current financial year. We also remain committed to further strengthening our balance sheet by reducing foreign currency debt while continuing to push debt down to the OCO level. Earlier this year, we redeemed $450 million of OCO debt in advance, and we will continue to focus on reducing this debt further as we continue to upstream cash from our various subcourts. Over the last nine months, we have prioritized investment in our network to enhance coverage and network quality. Almost 90% of our capex is targeted towards growth initiatives. In addition, we have also enhanced 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 Nigeria, which will be used for 5G rollout and increased 4G capacity. This spectrum and other acquisitions in Kenya, DRC, Tanzania, and Zambia will provide significant capacity for us to accommodate continuous strong data growth by supporting both 5G rollout and 4G expansion. Before we open to Q&A, I thought I would highlight that what I see, what we see, to be the five reasons why the opportunity at Airtel Africa is so attractive. Number one is the very strong growth outlook. Our markets across Africa continue to show significant opportunity for growth, which is reflected in the rapid uptake of good voice and data services. This, overlaid with a significant mobile money opportunity, including the rollout of PSB in Nigeria, gives us significant confidence on the sustainability of growth in the coming years. Secondly, our relentless focus on efficiencies and returns will ensure that the flow-through of revenues will continue to drive profitable growth. Despite the macro environment, we'll continue to deliver immediate margin resilience across the globe in the short term. Thirdly, Our confidence in the growth outlook has focused our attention on future-proofing the network, and our recent investment in Spectrum will ensure network reliability, further improve customer experience, and enhance our brand, which will be key to monetizing this growth opportunity. And number four, our robust risk management framework, our corporate governance strategy, is aimed at mitigating risk, which we're exposed to. Our track record speaks for itself, and we maintain this vigorous approach to drive continued 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'm going to be joined by Jadeve and Pierre. and I invite you to start the Q&A session.

Thank you very much, sir. Ladies and gentlemen, if you do wish to ask a question, please press star and then one on your touchtone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw your question, please press star and then two to remove yourself from the queue. Our first question is from Jonathan Kennedy-Good of J.P. Morgan. Please go ahead.

Good afternoon, and thanks for the opportunity to ask questions. 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. I just wanted to get the sense on Lagos 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 insight on the pace of 5G rollout? It seems as though one of your major competitors is talking about 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 speculation. I know it's been a busy year, but just wanted to know if there was anything obvious that is coming through in the next year. Thank you.

Sorry, your last question. Is it about spectrum acquisition? OK, let me take the question first. We have spent the first few months on building a very strong distribution foundation. We've also focused on IT infrastructure and the right business systems and processes to ensure that we can rely on the business model to build trust and confidence in the brand. We're almost at the end of this process. So the next couple of quarters will not be devoted towards customer acquisition. We wanted to be very confident that the systems, especially the IT systems, are robust enough to prevent fraud and to deliver the customer propositions we want to put out there. I'm slightly more confident that we're at that sweet spot now where the focus returns to fraud. bringing customers on board, expanding our agent base. And over the next two quarters, that is what we're going to focus upon. But also, Nigeria is slightly different from many of our 14 countries. It is highly penetrated with a number of fintech companies, and the banks have their various digital propositions. Nevertheless, it's still a massive opportunity, and we just want to have the right foundation to capture this growth in the country. On the 5G rollout, we've acquired spectrum in a number of countries, Tanzania, Zambia, Kenya, Nigeria, of course. We're going to do selective rollout of the 5G. I still believe that 5G is good in the medium term. In the short term, our focus will continue to be on expanding our 4G footprint and selectively launching 5G to capture opportunities in high-income neighborhoods, knowing fully where the very low footprint of fiber broadband in Africa is. so to just tell me summarize this yes we've acquired spectrum in a number of countries yes you plan to go down it's going to be selectable at in key cities where we recognize enough devices and enough purchasing power to really enjoy the benefits of 5g on your last person around spectrum we keep looking for opportunity versus spectrum where it is available at commercially correct price if the pricing is good and the need is there, we would acquire Spectrum. We spent about $500 million, close to $500 million in the last nine months in buying Spectrum in a number of countries. Of course, Nigeria, we did buy in Kenya, we bought in Tanzania, in Zambia, in Congo. So we're not Spectrum shy, but the pricing must be right. It must be commercially with the commercial opportunity available in the country before we decide to put money behind it.

Great. Thank you so much.

The next question is from Dalal Darwish of Goldman Sachs. Please go ahead.

Hi, this is Faisal Ozme 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 that particular segment 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 kind of maybe a follow-up on the spectrum question. How should we think about the CapEx profile generally 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? Thank you.

Let me start with the second question. On next year's spectrum, we're going to see a smaller peak, but that's going to be driven by two things. We're going to start investing behind the data centers. We want to build a number of data centers telco-agnostic data centers in a number of countries. We also plan to invest in a fiber infrastructure. So that would drive KPEX up slightly. We're looking at between $800 and $825 million for next year, versus $750 million for this year. That is the plan. In terms of spectrum, which is your first question? Yeah. we once again we tackle so we do a new spectrum for expansion we do a new spectrum for quality we do this 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 meet commercial expectation we would put money behind it but i don't expect the level to be as high as it's been in this current year this is very unusual we bought 5g in nigeria close to 300 million dollars We bought Spectrum in Tanzania, in Kenya, in Zambia. It doesn't happen like this in many years that in four or five countries, you're going to put money behind Spectrum. And the Nigerian opportunity is a very special one. The 5G came in at almost $280 million, and that's why the intangible capex went up significantly in this current financial year. I don't expect similar levels of spending in the next financial year behind Spectrum.

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

Margin in Nigeria and actions, if you have any actions to mitigate inflationary pressures. The major driver of the margin challenge in Nigeria is around the fuel price.

And just to set the context to me, this time last year, a liter of diesel was about 320 naira. As I speak, 800 naira. And unfortunately, energy and diesel is one of our cost drivers, compounded by the fact that grid availability in Nigeria is very small. So we do run most of our sites using diesel power generators. Towers are owned by the Tawako, but it's a possible cost. So that's been a major, major driver of pressure on EBITDA in Nigeria. What are we doing? We continue to work with the Tawakos. We've got two larger partners. We're working with ATC and IHS. We're looking for win-win situations whereby they progressively convert the energy they use for the site from diesel into lithium battery and solar power. This costs money. We're looking at various win-win propositions that would encourage them to invest more in such environmentally friendly energy sources. And at the same time, reduce the 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 fuel, especially diesel, on our cost profile in the largest market, where grid availability is unfortunately very low.

Thank you very much. The next question is then from Rohit Modi of Citi. Please go ahead.

Thanks for taking my question. Just a couple of questions. Firstly, on your OPEX, does you have any impact of Naira devaluation on your OPEX in Nigeria? And do you see any kind of potential impact going forward? Any potential devaluation will have a higher margin impact going forward? Secondly, could you share any more details on the mobile money side in terms of what kind of agent network you've got so far? And are there any kind of challenges that you are facing in terms of rolling out the mobile money services? Thirdly, just a quick question. Apologies if it's already been reported. What kind of ARPU uplift do you see from 3G to 4G in Nigeria? And what percentage of your data subscribers are on 4G?

Thank you. You're going to have to repeat the last question again. I didn't get the last question. I got one on Fx, one on PSD, but the last one on migration from 3G to 4G. What was it?

Right, can you please repeat the last question? Okay, Rod, you are cutting out.

We're going to answer the first two questions, and then maybe you will come back with the third one. The question on FX, I would like to get it.

Please give us a call, and I'll come back to the issue on the BSB. And I'll take the question on the 3G, 4G, if you clarify your thoughts around it.

Okay, so...

So on your specific question with reference to the devaluation impact in the OPEX, if I understand it correctly, so our OPEX, the composition of the US dollar component into OPEX is very minimum. It doesn't have too much impact in our margin as well as OPEX if there is 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 relation established in Nigeria. But if obviously the fuel price further goes down, that, of course, creates pressure on the margins. But otherwise, pure 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 miniscule level over the past few years. Our main risk is of devaluation is actually in the CAPEX side, because that's where maximum foreign 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 their foreign currency debt, which is there at the OPCO level. So these are the three areas where the devaluation really impacts hard. And that's what you see in the derivative and foreign exchange fluctuation cost, which is sitting as a part of finance cost.

On PSB, we don't have any external factor making it difficult for us to launch. we're just following a template that we recognize work for us in all of our countries by being very deliberate on the it infrastructure being very deliberate on systems and distribution to be sure that i mean we're ready to offer customer propositions that would be risk proof that is the only thing that is a making it appear as if we're slowing rolling out, but I'm very confident that over the next two, three quarters, you're going to see very, very quick acceleration of our PhD business in Nigeria. That is one. I believe your last question is around the 3G and 4G. Of course, we like to migrate a lot more customers from 3G to 4G. The average app for a 3G customer is about $2.9. And for a 4G customer, it's more than twice, about $6.5, which is why we look for various teams to encourage customers to migrate from 2G to 4G, from 3G to 4G. And we're also very conscious of the investment we're putting behind them in further 3G expansion. I see in Africa maybe a big leap from 2G to 4G, not from 2G to 3G, which is why we're working on a number of schemes to really encourage the migration from 2G to 4G directly rather than take an intermediate step of going from 2G to 3G, giving the wide difference between a 3G customer in terms of APU and a 4G customer.

Thank you so much. Thank you. Ladies and gentlemen, just a reminder, if you wish to ask a question, please press star and then one. Our next question is from of HSBC. Please go ahead.

Yes, hi, thanks for taking my question. Three questions, hopefully short. On your K-test trend for the quarter, it seems like the run rate has fallen further. 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 there any clarity on timeline around it? Should we expect something maybe after elections? Thank you.

I'm going to answer in reverse order. I'm going to start with the question on pricing. I said in the last discussion we had that our growth agenda is not based on pricing. We have a formula. We use customer-based growth and usage growth to drive revenue. That's a lot more sustainable than pricing. Of course, if you do have the opportunity to take pricing, we do. We did in Nigeria in November, and the regulator asked us to revise the pricing. We've done so. Despite that, we've grown revenue in Q3 by almost 23%. It shows the resilience of our strategy of growing revenues by, A, increasing the customer base, B, focusing on driving usage. Those are the two clear pillars that we use. And we have a variety of products, a variety of products, price points that ensure that we continue to drive usage by not focusing on the street every price increase that has worked for us and you can see in our kill three performance in Nigeria driving the growth that you see if I go to your second question about remittances from Nigeria I don't want you to look at us as a Nigerian business we operate in 14 countries and we've actually upstream 800 million dollars in the first nine months of this financial year across the 14 countries where we operate in nigeria we've been able to upstream about 300 million dollars in east africa about two seven million dollars and in french speaking africa about 210 million dollars so that a very wide portfolio makes it i mean easy for us overcome challenges in any one country that's the beauty of our portfolio west africa east africa nigeria french speaking i mean Are we overly concerned about the fact that it's slightly more difficult to get money out of Nigeria? We are. Is it a disaster? No. But Nigeria is the largest market. We do have need for investment in Nigeria. We just bought Spectrum 3.5, 2.6. We're going to renew 2.1 Spectrum very soon. So there's actually a large appetite for Naira use in Nigeria as well. So we're not too worried. Of course, a little more dollar availability will make it easier for Capex vendors to be paid, make it easier for dividends to be repatriated, but the best part of this challenge is that I can mention we actually repatriated over $300 million from Nigeria in the first nine months of our financial year. That shows the resilience of all the things we put in place to get the right level of remittances out of Nigeria and out of our other 13 countries.

So on the CapEx part of it, our CapEx guidance for the full year remains at the same level of between $700 and $750 million. Lower spend in the current quarter, what you see is 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. And does that include the spectrum spend as well, that guidance? No, no, spectrum is not part of this $750 million. This is only we are talking about The tangible capex, the network capex, the IT capex, sales and distribution related capex, if there are little bit of real estate and those kind of things. Spectrum is not part of this $750 million guidance.

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

If you refer to my introductory remarks about the very low level of unique sin penetration in our footprint in 14 countries where we operate, it's a clear testimony of the very long run we are available for us to grow voice revenue. That is one data point. The second data point is just the absolute minutes consumed by every customer. It's relatively small. This quarter, we took it to 77 minutes from 240 something in the last quarter. Comparatively, in India, it's over 600 minutes per person per month. I'm sure it must have gone much higher than that. You can see that long gap between where we are and where similar economies are. So I firmly believe that we're going to continue to grow our voice revenue by expanding the customer base, bringing a lot more people into the digital world, and at the same time, driving usage, network expansion. Those are the things we're doing to continue to increase our voice revenue. And I'm very, very optimistic that we've still got a long, long, long way to capture the growth potential in the 14 countries where we operate.

Thank you very much.

Thank you. Ladies and gentlemen, again, if you would, you should ask a question. Please press star and then one on your touchtone phone or on the keypad on your screen. We will pause a moment to see if we have any further questions. We do have a question from Cesar Tieron of the Bank of America. Please go ahead.

Yes, good afternoon, everyone. Thanks for the call and the opportunity to ask questions. Just wanted to check on the cash upstream from all markets, not just from Nigeria. Can you please say how much it was for each of the past three quarters? Thank you so much. So not for nine months, but for each quarter. Thank you.

Sorry, what? Asking for each quarter. I mean, we don't give, or we don't have information for every quarter. What I've done is to give you a very top-line view of $800 million. We've seen it in the last nine months, and this came from a variety of countries. It spread between Nigeria, where we took out over $300 million. East Africa, I mentioned, about $200 million. $67 million and from French Franco territories, $110 million. That's the top line spread between the three different regions and how much we've taken out in the last 39 months. Nigeria is a single country. It's very clear how much we'll be able to repatriate out of Nigeria, being a single country region.

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

Sorry, say that again, please.

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

Only for the last three months. You don't want for the nine months. Yes.

Yes, please.

I didn't want to just just just give a second.

Give a second. So we. So, for example, just give me a chance.

So this quarter, it was roughly about 150 million odd million dollars, between 150, 160 million dollars.

Thank you so much. And the figure for nine months was 900 million?

800, 800 million dollars for nine months. And about 300 million dollars from Nigeria. And that means another 500 from the rest of the countries.

Great. Thank you so much. That is very helpful. Thank you so much.

Thank you. The next question is from Mike Steer of Avior. Please go ahead.

Hi, guys. Congrats on the results and thanks for the questions. 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 an energy pass-through. Are all your contracts energy pass-through, or do you have a split between the two? And could you give us that split if possible? Thanks.

For the energy contract, both of them are pass-through. That will give you more flavors to the differences between each of them. But overall, both of them are pass-through in terms of energy cost. For the profile of our customer base in Nigeria, if I use the type of handset they use as a proxy for either low or high-end, as I speak now, about 20% of our customers use 4G phones. About 15% use 3G phones, and about 65% use 2G phones, mainly in the rural areas. So that's the split. A person with a 4G phone is slightly more affluent than a person with a 3G phone. And of course, I mean, the great majority of population is still on 2G phones, around 65%. So that's a broad categorization of a customer base and different approval. come out from different segments.

So on our contract, we have the agreement of the contract, which is fixed based on the consumption. So consumption of grid power site, non-grid power site, there are multiple mix of profile of the sites. And based on that, the quantity of the fuel consumption is fixed. And this is also linked to the second tenancy, first tenancy, and so on and so forth. So it is not a straightforward kind of a thing that it is comparable. And obviously, the price is linked to the market price of the fuel. So the base price, which was fixed in the contract, and then there is 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 explain, it is a pass-through cost. And the only way it can get minimized is, as she would mention in the beginning, that we are in touch with the tower to see that all the future sites should come with an alternative source of energy so that we can reduce the 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 availability 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 frost.

Thank you very much. Ladies and gentlemen, we have no further questions in the queue, so we do have to make some closing comments.

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

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