Airtel Africa Plc

Good day, ladies and gentlemen, and welcome to the AFL-Africa First Quarter 2024 Results Conference. All participants are currently in listen-only mode, and there will be an opportunity for you to ask questions later during the call. If you need assistance during the conference, please signal an operator by pressing star and then zero. Also note, this event is recorded. I will now hand the conference over to Mr. Shaganugan Sanya. Please go ahead, sir.

Thank you for joining us on today's call. And I'm joined on the line by CFO Jadav and our Deputy CFO and Head of Investor Relations, Pierre. We'll shortly be answering your questions, but first, I would like to provide you with a brief overview of our performance in the first quarter. We have reported a strong set of operating results, despite the macroeconomic backdrop, which remains very volatile. Revenues in the quarter reached almost $1.4 billion, with constant currency growth of 20.4%, and improvement from the 18.6% growth reported in the final quarter of last year. This improvement reflects the success of our strategy across all of our regions. The strong performance in revenues, combined with a continued focus on efficiencies, enabled us to report an improvement in EBITDA margins across the group by almost 70 basis points to 49.5%. This is an increase of 11.1% in EBITDA, a reported currency, and represents 22.5% in constant currency. Really strong operating performance. Before I go through the detailed regional performance of the group, I wanted to comment on the recent events in Nigeria following the devaluation of the Naira towards the end of the last quarter. We welcomed the initiatives introduced by the new Nigerian president, which has resulted in the reintroduction of the willing buyer, willing seller model for the Nigerian Naira. We believe this will lead to a more stable Nigerian foreign exchange market in the long run. As a result of these initiatives, In Naira, Nigerian currency devalued significantly in June. This has impacted our results for this quarter. Reported revenue and EBITDA were only marginally impacted because of the devaluation occurring towards the end of the quarter. However, we reported a false $71 million non-operating exception item in finance costs, reflecting the disturbance of U.S. dollar liabilities in our balance sheet. The after-tax impact of this amounts to 317 million U.S. dollars. This adjustment has materially impacted our earnings for the quarter, but with all of our liabilities now restricted to reflect the devaluation, there should be no further foreign exchange losses, assuming no further devaluation. The recent events will, as you expect, improve liquidity over time, and we facilitate our ability to sustain the recent growth momentum we've seen in our market. Nigeria is a very significant market for us. It offers some top growth potential, and we will continue to actively invest in the market to capture this opportunity. Our strategy remains unchanged, and we look forward to reporting on our successes in the coming quarters. Before I discuss our performance across our two operating segments, Electro allied our performance on a regional basis, our three regions, including both mobile services and mobile money. In Nigeria, we continue to see very strong trends with constant currency growth of over 23% in the period. This has rebounded very strongly from the demonetization impact in Q4 of last year. In East Africa, we reported almost 23% revenue growth in constant currency as well. with our Francophone region coming in at 13.5%, all the three regions seeing an acceleration in growth from the previous period. Let me now talk about our mobile services segments. The strong demand for services across our food chain, combined with our very attractive consumer focus propositions, resulted in an almost 9% growth in the customer base, which combined with an upgrade of 9.8%, almost 10%, resulting in constant currency revenue growth of over 19% and 8% in reported currency. In Nigeria, constant currency mobile services revenue grew by 23% over the period, with East Africa region growing almost 20% and Francophone about 13%. Unlike many other regions in the world, our voice revenues grew almost 12% in constant currency, Given the low levels of SIM penetration and continued pent-up demand for voice services across the market, we expect this to continue. The growth in voice revenue is further supported by almost 30% growth in data revenues, reflecting our increasing and improving network coverage and capacity to facilitate the significant demand we see for data services. This improved coverage has contributed to a 22% growth in data customer base over the year, almost 50% of which are currently using 4G services. Given that usage level remains very low compared to global levels, we expect this growth to continue. Now, mobile money business. Our mobile money business continues to see a very strong performance with about 31% constant currency revenue growth in the period and acceleration from the previous period. And it remains the fastest growing mobile money business in Africa. This very encouraging growth was driven by continued customer growth of over 24% and further enhancements of the mobile money ecosystem. This led to a 47.2% growth in transaction value over the year to almost $107 billion in online transaction value. In Nigeria, we continue to build the PSD business, and we have added over 900,000 active customers over the last quarter, reaching 1.5 million customers. The strong top-line performance across all regions continue to support our group EBITDA, with EBITDA margins rising to 49.5% despite the influential pressures in the market, as I mentioned in my opening paragraphs. We continue to focus on efficiencies in our business with our win-with-cost strategy, and we remain encouraged by the progress we've made. We do not expect a material impact on our EBITDA margins as a result of the Nigerian NILA devaluation. Our margin remains very resilient. Over the year, foreign exchange changes have had an adverse impact on our reported financials. While the NILA devaluation in June was very exceptional in nature, Other markets have seen a devaluation, in particular, the Malewian and Zambian kwacha, as well as the Kenya shillings. After adjusting for deficit losses across our markets, EPS was up 16.2%, although this did benefit from a one-off gain in default tax as an indirect consequence of the Naira devaluation. Briefly, in terms of the balance sheet and cash flow, At the end of June, our livery ratio was 1.3 times EBITDA, with net debt of $3.3 billion. The livery ratio has improved slightly from K-4 levels, but adjusting this ratio for a full-year impact of narrative valuation, we expect the ratio to be between 1.4x and 1.5x. 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. We therefore reiterate our previous keepers' guidance of between $800 and $825 million for this financial year. Furthermore, we continue to actively reduce our balance sheet FSS exposure and continue to upstate cash from our various subcourses. Before I open to Q&A, I thought I would summarize the key conclusions from this quarter's results. Operationally, I am very pleased with the performance achieved over the last few months. The accelerating growth reflects the opportunity available across our markets. And our clear and consistent strategic approach ensures we capture this opportunity. With the background of continuing economic consultancy across many of our markets, the performance is very encouraging. Although the narrow valuation had a material impact on our reported results, we believe The initiatives adopted are for the best of the country and are approaching the market. The scale of the opportunity and the willingness to invest significant capital into the market does not change. Finally, I am encouraged by the work undertaken over the last few years to minimize the impact the devaluation has had on our business. Our capital allocation framework remains very robust and we look forward to continuing executing on this and of our priorities. And with that, I would now like to open the line for questions for which I'm going to be joined by Didip and Pierre. Operator, I now hand over to you.

Thank you very much, sir. Ladies and gentlemen, at this time, if you do wish to ask a question, please press star and then 1 on your touch-tone 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 list. Again, if you wish to ask a question, please press star and then one. Our first question is from Rohit Modi of Citi. Please go ahead.

Thank you for taking my questions and congratulations on a great set of results. Just three questions from my side. Firstly, on TSB, do you have any internal timeline or target in terms of number of customers when you start charging, having revenue on PSB in Nigeria. Secondly, again on PSB, what do you see in terms of transaction yields or fees that you can charge in Nigeria? I see generally it's 0.8 to 1% in other markets. Do you think that will be lower in Nigeria or you think that would be in par with other markets as well? Secondly, on DRC, one of your peers reported substantial decline in ARPU in DRC. I just wanted to confirm, do you see any kind of deterioration in DRC market or any changes in the market structure in DRC? Thank you.

Thank you, Rohit. Let me take the customer number question first. In Nigeria, we continue to prioritize addition of customer ID of revenue. I said this in the last review. That remains a priority. We want a very critical base of customers before we start monetizing them. I expect we're going to continue to have more customers over the next quarters, and at the appropriate time, we would begin to talk about revenues. Nigeria is a very large country, many unbacked people, but the rates are very regulated by the CDN. The key to success is to get a very critical mass, and that is what we continue to focus upon. On your question on DRC, there has been some pricing aggressiveness by a few of the operators, but we continue to leverage usage to drive appware enhancement and our strategy is working for us in DRC.

Thank you. And in terms of yields or fees that you can charge in Nigeria or the kind of market do you see compared to other markets?

Like every other market, there are three clear use cases for mobile money. The first one is P2P. Second one is payments and the charges. In Nigeria, the charges are highly regulated by the central bank. There's a limit to what you can charge. But for now, the focus is really not on getting revenue. The focus is on getting as many customers as possible. And that's what we're going to continue to do by the next couple of quarters as we engage the regulators for appropriate pricing of our services. But that is basically within the control of the regulator.

Got that. Thank you so much.

Thank you. The next question is from Cesar Turon of Bank of America. Please go ahead.

Hi, good afternoon, everyone. Thanks for the call and the opportunity to ask questions. I have three, if that's okay. The first one relates to your CapEx, which is in US dollars, with the guidance being unchanged. Given the significant depreciation of currencies that you're seeing, why not reduce this CapEx? That's the first one. The second one is on the Nigerian pricing. So obviously, inflation is going to most likely accelerate quite significantly in the next couple of months in Nigeria. And the industry has tried to put through price increases in September 2022. But the regulator, I believe, changed its mind at the latest. And those price increases were not able to be implemented. Do you think you are now going to be able to implement price increases in Nigeria in the next couple of months? Or to the opposite, are the authorities going to put pressure on the industry to lower prices given the significant amount of inflation? And the third question also relates to Nigeria. Just wanted to check what you're seeing on the FX market. So obviously we're seeing the FX rate, but is there any liquidity at the 750, 800 mark? Are you able to... take money out of Nigeria right now. Thank you so much.

Let me take the last question first on the EFS liquidity. The new EFS regime is about three, four weeks old. I think we're in the very early days of this new price discovery mechanism. And I believe confidence will get to this market pretty soon. It's too early to make a judgment. But as we speak now, liquidity is still very thin at $7.50. But we're very optimistic that, I mean, as confidence returns to the market, we're going to see more liquidity in the market. But for now, at 750, 760, 770, it's not as liquid as we'd like to see. But once again, very early days are there. We remain confident that liquidity would improve in the market. Now around, I mean, the pricing. Most countries in Africa, prices are regulated by the regulator, by the government. But like I've said on different occasions, our growth algorithm doesn't depend on pricing. Of course, if you do get pricing, we take it. But look at Nigeria. We've not taken any price increase. We've grown 23%. First revenues have grown. Data revenues have grown. And we continue to deliver growth on the back of usage and customer addition. These are two clear pillars that are very sustainable. add more customers, make them consume more minutes, make them use more data. That's the formula we use for growing. Given the inflation in Nigeria, if you don't get a price, it's going to be good for the business. But without this price increase, we continue to deliver very, very strong double-digit growth on the back of customer addition and increasing usage, whether it's talking about voice, talking about data, or now talking about getting more customers to use mobile money business. and for keepers i will let daddy to add more flavor to this what i mean the confidence we have in the markets we putting our money where mouth is we believe in growth potentials in all of our countries Given the very, very still low unique SIM card penetration, the very low usage levels, whether you're talking about data or minutes, and also the very small penetration of banking services, we're very bullish over Africa. We don't have any plan to reduce our capers commitment. This is a long-term play for us, and we're going to continue to invest in each of our markets to extract value and deliver value to our customers. Yannick, you want to add something?

Yeah, Shivan, thanks. I just want to add one more flavor to this question about the capex. So we have to keep in mind that we have 14 countries operation. Nigeria is about one-third and let's say one-third of the capex goes to Nigeria. So out of one-third, we have also, you know, about 70-75% is in dollar currency. So The point is that, you know, to the extent of that 75 percent of, let's say, 250 million or dollar is not something which will draw immediate alarm or any major concern. So our view is that since Nigeria is growing at 20 percent plus consistently, and it's not only this quarter, even if you go in the past quarters, except Q4 where we were hurt by the demonetization impact. for a short period of time. But other than that, Nigeria has been consistently growing at 20% plus in local currency or constant currency. So we need to maintain that momentum, keep investing in Nigeria because the growth opportunity is immense. So from overall perspective, we are not changing our CapEx guidance at this moment. And we continue to invest with all the operating unit, including Nigeria, the way it was planned earlier.

Thank you so much.

Thank you. The next question is from Madvinder Singh of HSBC. Please go ahead.

Yes, hi. Can you hear me?

Yes, we can.

Thank you. So continuing on Nigeria, if you could talk about your post-quarter end performance in July. That would be quite helpful given the high inflation and we have seen the currency depreciation as well. Have you seen any change in the consumer behavior in any sort? Are they struggling to find money to spend on telcos for any reason and so on? So if you could talk about the current operating dynamics in the country post the devaluation, that would be very helpful. Then the second question is on Given the currency devaluation, I think there might be some short-term impact on your net leverage ratios. Is there any concern on your side whether that puts you in a difficult situation at all, even for a brief period in the ratio terms? And does it accelerate your moving away from dollar debt in any way so what are you doing on that front that will also be helpful and finally just trying to understand the derivative in Nigeria is it something which relates to what part of business this derivative relates to is it about the payables is it about the capex which you have to do why does this derivative exist and you know typically Derivatives offer hedge. So in case of FX move, it should actually give you hedge, but here it is actually causing you a big hit on the earnings. So if you could give some color around this derivative, which exists and why it exists, that would be helpful as well. Thank you.

I will take some of the questions and J.D. would respond to the question on derivatives. Let me start with Nigeria and your concern on impact of inflation as the summary of what you're asking. Yes, there's massive inflation in the country. It's about 20% the last time that I saw. There has been a price increase in FWEL and a general price increase in the economy. But I believe that the market is actually adjusted to $7.50 price point for a few months ago. So I don't think it's a sudden shock. Most price levels have actually been readjusted to reflect the reality of $7.50 months ago. But I mean, the wallet is the wallet. The size of the wallet is diminished. But I believe we're a very essential part of everybody's wallet in the country. We're a replacement product. We replace so many things. We replace transportation. We replace education. We replace entertainment. And we're also very affordable. Even the fact that we are an essential item, we're replacing some other essential items. And we're also very affordable. I don't see a significant impact on how much of the wallet that has been dedicated to telco services. We didn't see it last quarter. We've not seen it this quarter. And we just continue to provide these services at very affordable price points. Once we've been driving a lot more customers to the franchise and making sure they consume more data, more voice, at very affordable prices. That is what we're offering. And that is why I believe the impact on us is very mutated. as opposed to the impact on other sectors of the economy. In terms of the leverage, I think it's going to give you stronger flavor, but our philosophy remains unchanged. We continue to strengthen our balance sheet, that's our declared objective, by pushing debts down to the up-coast, by localizing debts, and by having as much debt as possible in local currency so that there's no mismatch between our revenues and our debts. But I'm going to ask Jared to give more flavor to the derivatives.

Yeah, so before derivative, let me also talk about the leverage. Your second question was on leverage. Obviously, this impact on leverage hasn't come through in Q1. As we have announced that the full year impact will be different. So if we take it at 752 as an exchange rate for Nigeria, then our leverage at the end of the year will be in the range of 1.4 to 1.5. That's number one. It will not be 1.3, probably it will go up a bit to 1.4, 1.5, right? With reference to derivative, let me tell you that for last couple of years, as you know, that we have gone through this difficulty in sourcing dollar from the market. So we have to use various instrument, structured instrument through the bank to source dollar for paying vendor to upstream money and so on and so forth. So this is that those instruments, the derivative instruments were used to source dollar and mainly used for upstreaming and also to some extent for making payment for the capex vendors, dollar denominated capex vendors.

Understood. And just to clarify, the leverage ratio you talked about, 1.4, 1.5, that includes the leases or this is on excluding leases basis?

Yeah, yeah. It includes lease liabilities and everything put together. I mean, the way we calculate normally the leverage. So the definition remains same.

Right. And just to, you know, sorry for following up on the derivative side. What is the duration of these derivative contracts? By when these derivative contracts would stop being an issue for you in terms of further currency depreciation if it happens?

The point is that it all depends on the liquidity. If liquidity improves in next few quarters, or let's say from this quarter onwards, if we start seeing that liquidity, we can dilute many of our forex liabilities in Nigeria by sourcing dollar and keep liquidating those liabilities, including derivative. So it all depends on how the liquidity situation will move as we progress through the subsequent next couple of quarters.

Thank you very much.

Our endeavor will be always to source dollar and keep reducing this forex denominated liabilities in Nigeria because that is not only, it will actually future proof us from further devaluation impact if any further devaluation happens. So our endeavor is to continue to source dollar and keep reducing this exposures, the foreign currency exposures in Nigeria.

Thank you.

Thank you very much. Ladies and gentlemen, a reminder, if you do wish to ask a question, please press star and then one. The next question is from Tajuddin Ibrahim of Chapel Hill, Denham. Please go ahead.

Thank you very much and congratulations on your numbers. I just would like if you can give clarity around what you expect to be the catalysts for your business in Nigeria in terms of recovery for the remaining part of the financial year? We have seen the numbers being dampened by foreign currency losses. So what do you expect to be the catalyst for recovery for the business going forward. The second thing is, I would like it if you can please speak around your energy costs in Nigeria, particularly around what you had said you would do previously to bring down the energy costs around the towers. If you can speak to that, I think it will help. Thanks a lot.

Thank you, Tajuddin. On the catalyst for our business, I mean, we don't require any catalyst. The fundamentals are very strong. We just delivered a 23% growth in constant currency. Data revenues are climbing. Voice revenues are climbing. On our mobile money business, we acquired 1.5 million customers. We've increased the agent base. We started on very strong footing, I mean, and this one-off devaluation, though external to us, my only response is continue to grow a very strong double-digit. If we continue to grow at 20%, 23%, 24%, and 5% growth, then we foolproof our business. That's the only response we can give. So we're not expecting any major catalysts from anywhere. Rather, just focus on a strategy of growing the top line. It's not a network footprint. as a catalyst that is required for us to continue to remain relevant in our largest market. On the energy cost, there are a number of things that we're looking at. Of course, the price of diesel has come down significantly from what it was in the last couple of quarters. Anyway, that's been a good sweet natural DNA. But we still don't move away from our desire to use more environmentally and good for a piano because they're actually cheaper. So they are based on three legs. The first leg is to use more of lithium battery. They can retain much more energy and they can serve us for longer hours. The second one is use of solar panels. And the third leg is increasing the number of towers which are connected to the grid. We're making progress on each of these three legs. Conversion to lithium battery, use more solar panels, and connecting more sites to the grid. Grid availability is increasing in Nigeria, and that is why we're able to connect slightly more sites to the grid. Those are the three clear pillars upon which, I mean, we base our energy conservation on. And, of course, to continue to work with the partners, they all align with all that is right and should do good for the environment and good for cost control as well.

Okay, so thank you. Do you want to speak to mobile money? I know that the numbers are still way too small to be reported, but are you open to speaking to what you are doing to support the overall ecosystem, particularly in Nigeria?

In terms of mobile money, we remain focused on our twin learning strategy. One, make sure the IT platforms are very strong. very robust, customer-friendly, and secondly, use this to attract a lot more customers. about 600,000 customers. We've added 900,000 more to the customer, reaching almost 1.5 million customers. That's some good progress for us. In terms of the agent base, we've gone up to almost 134,000 agents. These are points where you can go and do cash in, cash out, an increase of almost 7,000. That's also some good progress for us. And in terms of transaction value, we've actually done over $100 million in terms of transaction value. Those are clear progress that we're reporting upon. But the key focus is customer addition, customer addition, customer addition. Given a very low take rate again, we need a very large customer base before we start monetizing the base. And that's one thing that we keep working upon.

Okay, thank you.

Thank you very much. The next question is from Aditya Suresh of Macquarie. Please go ahead.

Thank you for the opportunity. I have two forward-looking questions, if I may. First is, as you say, your subscriber base has been expanding. Within that, the data consumers have been expanding. Same with mobile money as well. Do you have any perspective on how this could look like in maybe 12 months time, 18 months time? And do you think maybe like some of the more recent dynamics around demonetization, et cetera, helps accelerate some of these trends? Are you witnessing any of that in your customer base? And is the network in a position adequately for this team?

The question is not very clear, though. Are you talking about customer base for a business or customer base for mobile money?

For both, what I started talking about in the next example, beta users as a proportion of your overall customer base, that's now at about 42%, right? And that ratio has been expanding for the past couple of years. Do you have any perspective on how this could evolve in the next, say, 12, 24 months? Are you seeing any acceleration from these trends in different markets? And I guess the question on mobile money was more about with the monetization, is it your view that maybe we see a further bump up here or an inflection in kind of your mobile money users?

In terms of overall customer, we continue to respond at customer base about 5% growth in this quarter of our previous year. We had a slight slowdown in this quarter because of a new regulation that increases the age that you can offer safe cards to consumers from 16 to 18. That took out quite a large number of potential customers. But of course, we always very compliant with any regulation. So that regulation came out a couple of months ago, and we compliant with that regulation. That sort of slowed down the customer numbers in the last quarter. Talking about data customer, data customer continued to increase. I said in my opening statements, close to 50% of our data customers in Nigeria are actually 4G customers and get a lot more usage out of 4G customers. That is one clear objective for us, not just increasing the absolute number of customers, but increasing those with smartphones who consume a lot more 4G, and that we will continue to do. And lastly, on mobile money, again, there are two sources of customer In Nigeria, we've got over 40 million customers already. So the challenge is to combine as many of these bases as possible by showing them the advantages of using a mobile wallet. That is one base for us to start from. And the second opportunity is new customers that we are acquiring. Those are the two sources we use to increase the customers that are using the mobile money business. But our very unique distribution infrastructure is certainly conditioned to deliver very, very strong numbers of customer growth. But we are still down last quarter from regulatory requirement for minimum age from 16 to 18 years.

And in terms of the incremental EBITDA margins that you've seen as you're adding on these customers, are you able to comment on that in terms of your expectations and what we should look at over the next, say, couple of years? It seems that a lot of your cost has been stable. And as you grow the business, you should see a fairly meaningful further bump up in operating margins. And I just wanted to hear your perspective on that.

We check our performance over the last quarter. We've got a very simple algorithm. First is to grow top client, and second is to expand EBITDA. How do we expand EBITDA? incremental EBITDA. For every $1 we add to the top line, we make sure between 50 and 55 cents go towards supporting the bottom line. That has worked for us very well in the last set of quarters. You can see from our results we're not departing from that philosophy. We continue to grow top line by driving usage and we continue to grow the EBITDA line by 2 cents incremental revenue coming from top, and a very efficient cost structure. How do we contain cost structure? We focus on increasing capacity, network capacity, at minimal incremental cost. I mean, we've spoken about single-hand technology for a number of quarters. We just have various ways of leveraging on capacity expansion at minimal cost. We continue to look at distribution costs as well. We're converting some customers to digital channels. transmission, the rational transmission part to optimize this incapacity and I believe that this lesser focus on cost control, lesser focus on expanding the top line will continue to deliver between 50% and 55% incremental EBITDA for us.

Thank you very much. Ladies and gentlemen, we have no further questions in the queue and I'd like to thank Mr. Ogunsanyo for some closing remarks.

Thank you very much. Look forward to seeing all of you at the last three, four months. Thank you.

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