Airtel Africa Plc

Good day, ladies and gentlemen, and welcome to the Etel Africa's half-year results for year-ended March 2025. 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 and then zero. Please note that this call is being recorded. I would now like to turn the conference over to Sunil Teldar. Please go ahead, sir.

Thank you. Hello, everyone, and thank you all for joining us today. I have with me Jaideep, our group CFO, Kamal Dua, our deputy CFO, and Alistair, who is head of investor relations. Let me give you some brief highlights over the last six months before running through our refresh strategy, which has been deployed across the organization and provides some context to the markets we operate in. and why we are so excited about the opportunity that is in offer across the continent. After that, I will hand over to Jadeep to run through the financials. Despite the volatile economic and operating environment over the last six months, we've seen very resilient demand continue to support a strong constant currency revenue performance. Providing an attractive customer proposition at an affordable level is key to unlocking this demand, and we see this continuing to support revenue momentum. Over the period, we launched a cost optimization initiative to drive efficiencies across the business. We've already seen pleasing results, which is evident in the recovery of EBITDA margins in the last quarter, retaining our position as an industry leader in terms of operating efficiencies. During the quarter, we have also implemented our refresh strategy, which significantly increases our focus on delivering best in class experience to our customers. And I'll talk about this later in the presentation. Importantly, without continued investments into our network, we would not be able to provide these essential and affordable services to our customers. It is this sustained investment that is underpinned by our strong capital structure, which has been considerably dearest over the last few years, enabling us to not only continue investing for growth, but also create value for all of us stakeholders. Our purpose is to transform lives across Africa by bridging the digital divide and driving higher financial inclusion. Through the continued rollout of our mobile money services, over the year, we've seen smartphone penetration rise by over 5%. and a 13% increase in mobile money customers reflecting the delivery against this corporate purpose. Being a business that is resistant to challenging operating environment has ensured that we continue to capture the growth opportunity available to us. Over the last five years, we have consistently reported double-digit constant currency growth with revenues and EBITDA growing by a cargo of 19%. and 22% respectively. Earlier this year, we launched a comprehensive cost efficiency program targeting structural ongoing efficiencies will not impact our growth ambitions. We've already realized some benefits in this quarter with a sequential increase in our quarter to margins, and we remain optimistic on our ability to realize further efficiencies. Over the year, we have continued investing in capacity and coverage and deployed over 2,800 new sites. and an additional 3,500 kilometers of fiber reflecting our sustained confidence in the future market opportunity. In addition, we have materially reduced our exposure to dollar debt with 89% of Opco market debt based in local currency, which is up from 71% a year ago. The overall performance across the group has enabled the board to reiterate its existing dividend policy with a further 9% increase in our final dividend. Let me now spend a few minutes explaining the significant opportunities across our markets and how our refresh strategy will enable us to continue executing on this opportunity. As I've highlighted previously, I've traveled across extensively to our opcourses to understand the opportunity and to get to know our teams across the regions. The one thing that these travels have confirmed is the scale and size of the opportunity across our footprint. From a high level, we have an adult population of 384 million people, which is expected to increase by another 75 million by 2030. Furthermore, we have a unique ability to also offer financial services to our customer base, driving increased financial inclusion. As many of you are aware, around 90% of all transactions in Africa are in cash. And a unique distribution network will enable us to capture a significant share of transaction that, innovatively, will move to digital platforms. However, the opportunity is not only in consumer. The B2B or enterprise segment offers a particularly encouraging avenue for growth, and we are actively working on capturing this demand as digital infrastructure across the continent evolves. Now to execute against this exciting opportunity, we've refreshed our strategy to highlight how we intend to maximize our right to win across the continent. The primary focus of this refresh strategy is to ensure a great customer experience by embedding this in our mindset and our day-to-day operations. I believe we can truly differentiate ourselves from our competitors. To unlock the central premise, we have reviewed the pillars that will support this ambition. Firstly, we need to strengthen our go-to-market, enabling us to reach those previously may have been unconnected. Furthermore, it's about investing in building capabilities so we can upsell to our existing customers to enhance lifetime value of our customers. Secondly, a brilliant network experience is fundamental to ensuring our customers remain connected and in many cases can access a network for the first time as we continue to invest in network capacity and coverage across our footprint. There are clusters of opportunities which have been identified using digital tools across all of those which have been called out as must-win markets. Through micro-marketing, Our teams are engaged in making sure that we win in these must-win markets. In the fourth pillar, we focus on the importance of digitizing and simplifying our product offerings to provide simplified customer journeys. As we continue to migrate towards the digital age, the importance of simplifying the customer journey will be increasingly important to accelerate customer acquisition and also improve our customer retention. Airtel money remains a fundamental part of our strategy and is key to our ambitious success across the footprint. Accelerating the adoption of Airtel money not only improves our customer proposition, but also has the additional benefit of driving improved financial inclusion. I will talk about the Airtel money strategy in a bit more depth later on. And finally, our sixth pillar reflects the significance of the adjacent sectors across our markets, which remain intact. In the absence of fixed line infrastructure, the home broadband opportunity remains significant, and we have a real opportunity to scale that business into a meaningful standalone business. Our infrastructure across the continent also provides us with unique opportunity to offer a fully integrated suite of offerings or solutions to our enterprise customers or segment. Underpinning the strategy is a relentless focus on cost optimization to support our ambition for growth and continued investments into people and talent across the region. Our sustainability strategy remains a key support for our purpose of transforming lives and acting as a responsible business. I hope this brief summary helps frame a refreshed strategy. And now let me spend a few minutes explaining the telecoms opportunity and how a strategy fits in. We are exposed to markets with some of the strongest population growth rates in the world, as well as some of the most youthful populations. This, however, needs to be combined with a very low level of SIM penetration across our markets and smartphone penetration to understand the scale and size of the opportunity available. As these charts depict, unique SIM penetration remains below 50%. while only around 43% of our subscribers actually use a smartphone, which highlights the opportunity we have to see sustained growth in our customer base, both in voice as well as in data. Slide 9 highlights how we will look to strengthen our go-to market, enabling us to capture this opportunity. Investing into our distribution network will increase the touch points we have between our agents and our existing new customers. This alongside micro-marketing efforts and a simplification of our product offerings will differentiate the customer proposition. We've seen our voice revenue growing at almost 10% in constant currency, which is indicative of the scale of demand for even the most basic services across Africa. This combined with continued increases in smartphone penetration provides a foundation of continued strong revenue growth momentum. For customers using voice services for the first time, the likely next step on their telecom journey is to take on data services. Data is undoubtedly an area which has a huge growth potential. We have discussed the low level of smartphone penetration, but even for those that are using a smartphone level of usage is still very low below global levels. This has to be taken into context of the market environment where fixed line infrastructure is essentially non-existent. So the mobile data network is often the only way for customers to be connected to the Internet. Slide 11 runs into how a strategy of providing a brilliant network experience is fundamental to unlocking this data opportunity. The provision of a reliable and affordable data connection is extremely important to provide a great customer experience and support customers' migration from voice to data services. Building capacity into our network and increasing the reach of our 4G network has provided the resilience necessary to become the operator of choice across our markets. Almost 97% of our sites are on 4G, and we have rolled out an additional 3,500 kilometers of fiber over the last year, which is key to unlocking this data growth potential. Importantly, other aspects of our strategy will help. Through micro-marketing actions of improving indoor coverage and increased network quality, we expect a further improvement in providing a seamless user experience. Let me now briefly highlight the opportunity in the home broadband segment and why this opportunity remains very, very compelling. Research shows that households with broadband connectivity across Africa remains extremely low on our footprint. As a result, the opportunity to offer home broadband solutions across our markets is substantial, utilizing our continued rollout of 5G network across a number of our markets. With data usage of our existing home broadband customers amounting to 39 GB per month combined with our ARPUs at a significant premium to our existing ARPU, we are excited by the scale of this opportunity over the medium term. In addition to the telecoms growth opportunity, we are in a unique position to layer on additional growth in the form of mobile money. to further enhance shareholder value. Let me spend a few minutes running through the opportunity and our approach to capturing this opportunity of mobile money. This slide reflects our mobile money strategy, which continues to underpin the strong performance across the mobile money business. Building on what we have discussed earlier, the first priority is to access to the customer base by building distribution and bridging and bringing our services closer to the customer. This distribution focus combined with a strong brand will ensure a focus acquisition strategy to capture quality customers. Fundamental to future success is to build the products and offer across the ecosystem. We will roll out targeted services across the merchant network and drive the enterprise engagement by offering reliable and accessible services. We will also continue to innovate to drive increased use cases and ensure we provide the best customer service and drive increased digital adoption to ensure ease of access for our customer base. These services remain underpinned by a reliable and scalable IT platform with a relentless focus on a strong compliance and regulatory framework, which across our markets and products is fundamental to the success of mobile money strategies. Mobile money services is all about driving increased financial inclusion across our markets. Low level of financial inclusion has been one key reason for strong customer base growth, but it has also been reinforced by the trust that has been built up through the provisions of easy-to-use services with a focus on float availability so customers can access their cash with relative ease as and when they need it. The facilitators of these transactions is our agent network. And once again, this has been and will continue to remain a core part of our strategy to drive increased base growth. We've seen a significant step up in our agent infrastructure and continue to prioritize the exclusive agent network as a key facilitator of this growth potential. Slide 15 demonstrates the continuing evolution of our mobile money ecosystem. With annualized transaction value of 128 billion in reported currency, we've seen the makeup of transactions shift towards newer, more advanced services, such as bill pay and merchant services as the ecosystem continues to grow. We are still seeing the digital wallet cash-in and cash-out services as the major source of mobile money revenue, and there is still huge growth opportunity for this from increasing our penetration with new customers, but there is also continuing diversification of the business towards additional payment solutions and also more sophisticated financial services. Moving on to the enterprise opportunity, the growth of the enterprise segment and the scale of the SME sector provides a unique opportunity for us to tailor our services towards the ever-evolving needs of enterprise segments. The recent activation of two Africa submarine cable, which combined with our 77,000 plus kilometer fiber footprint across the continent enables us to offer reliable, resilient capacity to our existing corporate customers, while also attracting new customers to offer a unique service at scale across the continent. Rising internet penetration, the rapid adoption of cloud computing and soaring demand for digital services will underpin our data center strategy. We've commenced the construction of data centers in Lagos, in Nigeria, with another data center expected in Kenya. We will leverage 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 African continent. Hopefully that provides a snapshot of where we as a business are across Africa and reason for our optimism for the outlook. Importantly, we believe our refresh strategy will be key to unlock the significant opportunities on offer. Let me now hand over to Jaydeep to run through the financials.

Thank you, Sudeel, and good afternoon to all of you. Let me start with the key financial highlights. Our reported performance continues to be negatively impacted by significant currency devaluation across key markets. most significantly in Nigeria as well as macroeconomic challenges. However, we have delivered good underlying results despite these headwinds. Revenue growth for the half year was approximately 20% in constant currency with double digit growth in data and mobile money services. EBITDA grew by 13.5% in constant currency to reach $1.1 billion in reported currency EBITDA margin at 45.8% declined from last year, reflecting the impact of lower contribution of Nigeria post the Naira devaluation and inflationary cost pressure. However, on a sequential quarter basis, margin improved by 124 basis point to 46.5% in constant currency, following the cost optimization program initiated earlier this year. Operating free cash flow at $771 million declined 22% in reported currency due to currency devaluation, as mentioned earlier, especially in Nigeria. And during the quarter, we had extended our tower lease agreement with ATC in four of course, which resulted in an increase in lease liability of $1.2 billion. thereby increasing the leverage by 0.6 times. Hence, the leverage during the quarter was at 2.3 times as compared to 1.6 times in June 24 and 1.3 times of the last year. We'll talk about this in detail in the coming slides. EPS before exceptional item was 4.9 cents, lower from 7 cents last year, impacted by the translation impact of currency devaluation and higher finance charges. And the board has declared an interim dividend of 2.6 cents per share, which is up by 9%. Coming to mobile services. Our mobile customer base grew by over 6%, supported by 9% growth in East Africa as well as in Franco-Africa. In Nigeria, the customer base growth was flat as it was impacted by barring of customer as we fully complied with the KYC directive issued by the regulator. Data customers at 66 million were up over 10% year-on-year basis, Mobile service ARPU was $2.2 per customer per month, growing by 9.7% compared to the prior period, primarily driven by data ARPU growth. The decline in reported currency ARPU was on account of Naira devaluation. Revenue for the period was $2 billion. growing 18.4% in constant currency. EBITDA was 0.9 billion, grew by 9.9% in constant currency with an EBITDA margin of 45.1%, declined 347 basis points in constant currency. However, on a sequential quarter basis, margin has improved by 142 basis points. On mobile money performance, Customer base at 41.5 million was up over 13% year on year. 26.5% of our total customer base uses mobile money services. Transaction value at $64 billion for the half year increased 30% in constant currency. ARPU expanded 11% in constant currency to reach $2.00. per customer per month as the expansion of mobile money ecosystem continues to drive increased engagement with the various financial services. EBITDA grew by 33% in constant currency to reach $247 million, with EBITDA margin at 53%, expanding 167 basis points in constant currency. Coming to the next slide, the overall revenue growth was 19.9% in constant currency, while in reported currency, the revenue declined 9.7%. In constant currency, both data and mobile money services continue to see strong growth of 28% and 29% respectively, with voice continuing to see encouraging growth of 9.4%. Reported currency revenue continues to be impacted by significant devaluation during the year, impacting the half-year revenue by almost $660 million. On the next slide, we show the group EBITDA performance. So EBITDA declined by 16.5% in reported currency to 1.1 billion. However, constant currency EBITDA grew by 13.5%. EBITDA has been adversely impacted by $348 million as a result of currency devaluation OPEX increased by $271 million, out of which almost 45% was contributed by the network OPEX increase, which reflects the inflationary cost pressure most notably in the fuel price across key markets, including Nigeria. OPEX increase coupled with lower contribution of Nigeria has resulted in decline in EBITDA margin from 49.6% last year to 45.8% in current year. However, as a result of our cost optimization program, we have seen 124 basis point increase in EBITDA margin in Q2 to 46.5% as compared to 45.3% in Q1 in constant currency. Coming to the regional performance. First, Nigeria. Let me briefly call out all the key conclusions from our recent performance in Nigeria. Despite the tough Macroeconomic condition, we have seen revenue growth in Q2 accelerate to over 38% as we continue to see strong demand across the market. As discussed earlier, we disconnected subscribers during the quarter to align with KYC directive issued by the regulator, but the growth remains strong. Data revenue grew by over 44% in constant currency, mainly driven by data R2 growth over 30%. Data R2 growth was supported by increase in smartphone penetration and usage. Emitter margin of 48.4% have been particularly impacted by the 90% increase in diesel price over the last one year. However, margin has improved on a sequential basis. as the cost efficiencies materializes and operational leverage upsets some part of the inflationary pressure. In East Africa, revenue grew by 21.7% in constant currency, supported by double-digit growth across all three services of voice, data, and mobile money. Voice revenue grew by over 10%, data revenue by 26%, and mobile money revenue by over 31%. Despite inflationary pressure on the cost in certain of course of East Africa and the rising diesel cost EBITDA margins remains resilient. Coming to Francophone Africa, revenue grew by 7.1% in constant currency with Q2 growth accelerating to 9% as compared to 5.2% in quarter one. This growth is testament to the initiatives we have put in place to grow the customer base and improve the momentum across the region. Data revenue grew by over 18%, mobile money revenue grew by over 20%, while voice revenue declined by 1% in constant currency. Voice revenue was largely impacted by the interconnect rate reduction in some of the markets. EBITDA margin at 42.8% declined by 438 basis point, which was driven by the inflationary cost pressure increase in fixed frequency fees in certain markets. However, on a sequential quarter basis, margin improved by 201 basis point. The next slide is about finance cost. As you can see, the finance cost excluding exceptional item and item and forex and derivative losses increased by $49 million, largely as a result of increased local currency debt in operating entities in line with our strategy to push down debt to the OPCOT. Further, the change in debt mix between foreign currency and local currency coupled with the increase in the interest rate also impacted the finance cost. This increased local currency debt are, however, mitigating our exposure to exchange rate fluctuation by reducing the forex exposures. Exceptional item loss due to Naira devaluation was lowered by $240 million as compared to the prior period. Further, non-exceptional derivative and foreign exchange losses in current period was lowered by $154 million as compared to the last year. Next slide. On EPS, despite our good underlying performance with double digit growth in revenue and EBITDA in constant currency terms, EPS has been negatively impacted by derivative and foreign exchange loss, primarily in Nigeria. Over and above the derivative and forex loss related to the devaluation of USD liabilities and derivatives, currency devaluation also has a translation impact on reported revenue and EBITDA. Hence, EPS before exceptional item at 4.9 cents was lower as compared to 7 cents last year. Our normalized free cash flow, despite significant currency and macroeconomic headwind, we are able to generate positive cash flow, excluding license renewal payment. This slide gives a bridge between EBITDA and normalized free cash flow. The components of the cash flows include cash capex of $418 million, income tax payment of $200 million, license renewal payment of about $91 million, and other cash payment like interest, lease repayment, and dividend to various shareholders, minority shareholders. Our capital allocation policy remains the same. Our key priority remains to continuously invest in business, along with further strengthening the balance sheet. Our capital guidance for current year is between $755 to $750 million. Our leverage at 2.3 times was impacted by ATC contract renewal, as well as devaluation impact on EBITDA. We have taken a significant step in reducing our exposure in foreign currency market debt with $809 million payment of foreign currency debt in the last year, including the repayment of 550 million bond in May 2024. Returning cash to shareholders through our progressive dividend policy remains one of the priorities, and the board has already recommended an interim dividend of 2.6 cents per share, reflecting growth of 9% in line with our current dividend policy. The next slide, we have added this slide in this time since there is an ETC contract renewal which has an impact in the lease obligation. So on 30th September, we have renewed our contract with ATC for a period of 12 years on approximately 7,100 sites in four of course, namely Nigeria, Uganda, Kenya, and Niger. The 12-year extension period is part of commercial agreement with ATC The longer-term contract renewal is a win-win for both parties as it provides certainty of cash flows for the Tower Cove and enables us to secure strong commercial terms in relation to the commitment ATC has made for investment into renewable energy solution, which will result in reduction in consumption of diesel and corresponding costs. The benefit of renewable solution will come in the medium term. The impact of renewals on the cash flow of the company is neutral to positive. The accounting of renewals in accordance with IFRS 16 has been explained on the chart in the left side where you can see that the lease rental payment to the tower company remains same over the contract period. Though from the accounting point of view, there is a reallocation of lease rental between interest and principal repayment during various stages of the contract. During the initial period, the interest component is high and the principal repayment is low, which reverses over the later part of the contract. So in summary, the financial impact is cash flow of the company does not change. Increase in right of use asset and lease liability by $1.2 billion, which is the present value of the future lease payment, which has resulted in increase in leverage by 0.6 times. Decrease in profit after tax by approximately $120 to $130 million on an annualized basis in the very first year of the renewal, primarily due to increase in the interest cost without any corresponding impact, incremental impact in the cash flow. 50% of this impact is expected in the second half of the current year. As we progress through the years, this impact will keep coming down And from the middle of the contract onwards, mid-term contract onwards, actually the impact will be significantly low. Our next slide on net debt, we continue to focus on localization of debt through de-dollarization program. As on 30th September, 2024, 89% of the offshore market debt is in local currency compared to 71% in prior period. We have repaid $550 million bond that matured in May 24, Using the cash available at Holco, Holco is now absolutely debt-free. The total weighted average interest rate was 13.2% vis-a-vis 8.8% in the prior period. Increase of this is due to higher local currency debt and repayment of $550 million bond at Holco level, which carried a lower than average interest rate. On leverage, we have already discussed the impact due to ATC contract renewal and impact of lower reported currency EBITDA on account of currency devaluation. As a result, the leverage at 2.3 times was higher as compared to 1.3 times of last year. If we take this entire contract on an operating lease method, the ratio of net debt excluding lease liability to EBITDA after the lease payment, the operating leverage will be one times for the current period compared to 0.7 times in September 2023. Let me now hand over back to Sunil for his concluding remarks.