Airtel Africa Plc

Good day, ladies and gentlemen, and welcome to the Airtel Africa Q125 results. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star, then zero. Please note that this call is being recorded. I would now like to turn the conference over to Sunil Taldar. Please go ahead, sir.

A very good afternoon and good morning to our colleagues joining from the US. And very warm welcome to this call. And thank you for joining us on today's call. For those that may not know me, my name is Sunil Taldar, and I've taken over as CEO from the beginning of July. I'm joined on the line by our CFO, Jadeep Paul, and head of investor relations, Alistair Jones. We will shortly be answering your questions But first, I would like to provide you with a brief overview of the performance in the first quarter and also give a few initial insights of the business and the opportunity that is available for Airtel Africa to capitalize on. I'm very much looking forward to engaging with you in the future as we report on these ambitions. Over the last year, macroeconomic environment has remained volatile. However, our focus on delivering against a strategy has enabled us to perform well in constant currency terms to reduce the impact that currency devaluation that has had on our reported results. Revenues in quarter one reached to $1.16 billion, which was a 19% growth in constant currency terms as the demand for our services in both GSM as well as mobile money remains strong. Given the significant currency headwinds, the reported currency revenues declined by 16.1% over the year. EBITDA margins for Q1 came in at 45.3%, which was driven lower by predominantly two reasons. The first is inflationary pressures across our markets. particularly in rising diesel prices across many of our markets, in particular, Nigeria. Nigerian diesel prices are over 70% higher than this time a year ago. And secondly, the mixed effect of Nigeria, given the lower contribution coming from our largest aqua, which is a higher margin business. Just to give things into perspective here, Nigeria used to be upwards closer to 40% contribution of our total business has come down to in early 20s, a high margin business. has a significant impact on overall margin delivery at a group or a total business level. And that is the impact that we are calling out here. However, it is worth putting this performance into context. Despite all the macro challenges, we have been able to enhance our reputation as one of the cost leaders across the industry. We continue to remain as the cost leaders and the most profitable mobile network operator in Africa. And this has been enabled by leveraging our continued success on cost optimization, while also retaining our reputation for affordable and reliable services, which has maintained our top-line performance and driven increased operational leverage. Our industry-leading EBITDA margins reflect the very strong execution over the last few years. And it is this, in my mind, that gives us a huge confidence to take additional steps by further intensifying our efforts to look at further cost reductions to entrench our strong reputation across the industry. We've already seen some benefits from this new initiative or intensification of our efforts on reducing costs or driving efficiencies. with the primary focus on network costs, which is the largest cost element in our business, and particularly energy costs, which remains a significant portion of our overall cost base. The deployment of renewable energy solutions, intelligent network design, which allows us to optimize our network, and renegotiation of contracts provides me with conviction that further cost reduction measures are still available. And we will continue to deliver on this over the year ahead. I also want to take a moment to talk through the positive outlook for further growth opportunities across our markets. In particular, in the fiber, which is the home broadband business and also the enterprise business, data center, I see a big opportunity due to increasing internet penetration rapid adoption of cloud computing and soaring demand for digital services, I see this as a huge, a big future growth opportunity. The recent activation of two Africa submarine cable, which combined with our 77,000 kilometer fiber footprint across the continent enables us to unlock significant potential for future growth. And, you know, we have this opportunity to leverage our relation, Airtel Africa's relationship with its corporate clients and to offer reliable, resilient capacity to our enterprise segment at a scale across the continent and accelerate our growth on the B2B segment. So Fiverr, B2B and data center continues, you know, is a very large future growth opportunity that we'll be focusing on. As we announced earlier this year, we have broken ground in Lagos as we commence the construction of a data center in Nigeria, with plans advancing for another significant data center in Kenya. On average, both will be 40 megawatt hyperscale design facilities, as we become increasingly optimistic on the opportunity this business offers. Not only is our offering about tapping the shortfall in capacity, but it's also offering high density secure and scalable integrated solutions to global hyperscalers, government and enterprise segment. We will leverage, as I said, our relationship with Nexstra Business in India to draw on its considerable expertise and relationship with hyperscale players who will be looking to expand across the African continent and also leverage on our relationship with the India business to understand some of the best practices on setting up our go-to-market to service our B2B customers, especially in the large enterprise segment and also in the MSME and the small business SME segment. These are just some of the opportunities that reflect my optimism for the year ahead. Let me now briefly run through the performance over the last quarter. Before discussing our performance across the two main reporting segments, I wanted to highlight our performance on a regional basis, including both mobile services and mobile money. In Nigeria, we continue to see strong trends with constant currency growth at over 33% in the period, continuing to reflect strong demand across the market despite the challenging macro backdrop. In East Africa, we reported over 22% revenue growth in constant currency. The francophone region continues to see pressure on consumer spend from inflationary and competitive pressures, impacting growth which increased 5.2 percentage points in constant currency. Let me begin by focusing on the performance of the mobile services segment. The strong demand for services across our footprint combined with our attractive consumer-focused proposition resulted in an 8.6% growth in our customer base, which combined with ARPU growth of 7.8% resulted in constant currency revenue growth of over 17%, with Nigeria growing over 33%, East Africa by almost 20%, while Francophone region was up 3.6%. Demand for voice services continues to remain robust. However, data remains a very large and a key opportunity for us. The young and aspiring population across our footprint, combined with our widespread 4G network, continues to support a further increase in smartphone penetration by almost 5% over the year. This combined with 25% increase in data usage per customer to 6.2 GB has resulted in strong data revenue growth of 26.4% in constant currency. Usage remains, however, low in a global context. So we expect to see growth remain at an attractive level. The mobile money business continued to see a strong performance with over 28% constant currency revenue growth in the period. Financial inclusion across many of our markets remain low, and we see mobile money as a key facilitator of increased adoption of financial services, supporting economic growth and transformation. A 15% growth in customer base and a 29% growth in transaction value to an annualized level of $120 billion reflects the continued enhancements we make to the mobile money ecosystem and continued investments into the distribution network, particularly the exclusive channels, which clearly differentiates our offerings. Below the EBITDA line, our results were once again impacted by foreign exchange fluctuations, with the Naira continue to weaken in the quarter. Shubham Tulsiani, Across the group currency devaluation resulted in derivative and foreign exchange losses of $136 million, of which $122 million related to the to the Naira devaluation, which has been classified as an exceptional item. EPS before exceptional item came in at 2.3 cents. A key development during the quarter was the repayment of our whole code bond of 550 million, which matured in May 2024. This is once again a continuation of a strategy to reduce external foreign currency debt. A year ago, 48% of our market debt was in foreign currency, which has now been reduced to only 14% at the end of June. following the payment of or pay down of almost $830 million of foreign currency debt. I think we've been, you know, we've stayed committed on this particular agenda, and today at a whole core level, we are debt-free. Our capital allocation policy remains unchanged. Our priority is to continue to invest in the business to ensure we future-proof our operations for sustained growth And we therefore reiterate our previous tax guidance of $725 million to $750 million for this financial. In addition, we remain committed to a positive shareholder return policy with the AGM approving our final dividend of full year 24 of 3.57 cents and the continuation of our $100 million buyback program. Now a little bit about my personal experiences. I joined the business in middle of October, and in the last eight, nine months, I've managed to travel to 10 out of our 14 operating countries. And having visited most of our markets since I've joined Airtel, I'm very convinced of Airtel Africa's unique position to capture the opportunities on offer across the continent. Our purpose of transforming lives is clearly being delivered as we continually invest in the markets to enable increased financial and digital inclusion, which is fundamental to driving economic prosperity across communities. The first priority for the group is to put the customer first and ensure we offer a great customer experience. To do this, we need to continue to simplify the products on offer, and provide best-in-class network experience at an affordable level. Because delivering great customer experience across all our touchpoints will be our differentiating factor as compared to competition across our markets. And that remains a big area of focus, and we want to put customer right at the front and center of everything that we do. I expect to see continued migration of customers from feature phones to smartphones and the expansion of our 4G network continuing to deliver sustained growth momentum in the future. Offering additional services to our customers in the form of mobile money will further help our growth ambitions, and this remains a fantastic area of growth potential which we will continue to tap. I will remain focused on ensuring our investments into both the new and the existing business streams continues to be in a way that maximizes returns available to all our stakeholders. I do think that execution seen to date across the business provides a foundation for future success. The ability to unlock and deliver on the significant growth potential I've alluded to is possible because of the strong capital structure we currently have in place. The outlook for Central Africa is very, very compelling, and I look forward to executing on this and our overall strategic priorities in the coming years. And with that, I would now like to open the line for questions, for which I'm joined by Jadeep. Operator, I now hand it over to you to facilitate the Q&A session, please.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, you are welcome to press star and then one on your touchstone 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, you may press star and then two to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then one. The first question we have is from Cesar Tyrone of Bank of America. Please go ahead.