Airtel Africa Plc (Nigeria) – Q1 2024 Results Conference Call Transcript

By Published On: October 19th, 2023Categories: Transcripts

Good day ladies and gentlemen, and welcome to the Airtel Africa Q1 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 * and then 0. Also note this event is recorded. I will now hand the conference over to Mr Segun Ogunsanya. Please go ahead, sir.

Segun Ogunsanya
Thank you for joining us on today’s call. And I’m joined on the line by CFO, Jaideep, 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%, an 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 the 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 in reported currency, and represent 22.5% in constant currency, a really strong operating performance.

Before I go to the detailed regional performance of the group, I wanted to comment on the recent events in Nigeria following the devaluation of Naira towards the end of the last quarter. We welcome 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, the Naira, the 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 $471 million non-operating exceptional item in finance cost, reflecting the restatement of US Dollar liabilities in a balance sheet. The after-tax impact of this amounts to $317 million. This adjustment has materially impacted our earnings for the quarter, but with all of our liabilities now restated 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 will 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 untapped 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, 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 very strong trends with constant currency growth of over 23% in the period. This has rebounded very strongly from the demonetisation 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 have seen an acceleration in growth from the previous period.

Let me now talk about our mobile services segments. The strong demand for services across our footprint combined with our very attractive consumer focussed propositions resulted in an almost 9% growth in the customer base, which combined with ARPU growth of 9.8%, almost, 10% resulted 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 bringing 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 continuing pent-up demand for voice services across our 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 user 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, an acceleration from the previous period. And it remains the fastest growing mobile money business in Africa. This very encouraging growth was driven by continual 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 annualised transaction value.

In Nigeria, we continue to build the PSB 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 inflationary pressures in the market, as I mentioned in my opening paragraphs. We continue to focus on efficiencies in our business with our win with costs strategy. And we remain encouraged by the progress we’ve made.

We do not expect a material impact on EBITDA margins as a result of the Nigerian Naira devaluation. Our margin remains very resilient. Over the year, foreign exchange changes have had an adverse impact on our reported financials. While the Naira devaluation regime was very exceptional in nature, other markets have seen a devaluation, in particular the Malawian and Zambian Kwacha, as well as the Kenya Shillings. After adjusting for foreign exchange and derivative losses across our markets, EPS before exceptional items was up 16.2%, although this is a benefit from a one-off gain in deferred 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 leverage ratio was 1.3x EBITDA, with net debt of $3.3 billion. The leverage ratio has improved slightly from Q4 levels but adjusting this ratio for a full year impact of Naira devaluation, 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 guidance of between $800 million and $825 million for this financial year.

Furthermore, we continue to actively reduce our balance sheet FX exposure and continue to upstream cash from our various opcos. Before I open to Q&A, I thought I would summarise the key conclusion 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 backdrop of continued economic uncertainty across the different markets, the performance is very encouraging. Although the Naira valuation had a material impact on our reported results, we believe the initiatives adopted are for the best of the country. And our approach to 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 minimise the impact the devaluation has had on our business. Our capital allocation framework remains very robust and we look forward to continue executing on this and our overall priorities. And with that, I would now like to open the line for questions for which I’m going to be joined by Jaideep 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 * and then 1 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 * and then 2 to remove yourself from the list. Again, if you wish to ask a question please press * and then 1. Our first question is from Rohit Modi of Citi. Please go ahead.

Rohit Modi
Thank you for taking my questions and congratulations on great set of results. Just three questions from my side. Firstly, on PSB, do you have any internal timeline or target in terms of number of customers, when you start charging, having revenue on PSB in Nigeria? And secondly, again on PSB, what do you see in terms of transaction 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 will be in par with other markets as well? Secondly, on DRC, one of your peers reported a 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.

Segun Ogunsanya
Thank you, Rohit. Let me take the customer number question first. In Nigeria, we continue to prioritise addition of customer ahead of revenue. I said this in the last review. That remains a priority. We want a very critical base of customers before we start monetising them. I expect we’re going to continue to add 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 unbanked people. But the rates are very regulated by the CBA. 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’s been some rising aggressiveness by a few of the operators, but we continue to leverage usage to drive ARPU higher, and our strategy is working for us in DRC.

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

Segun Ogunsanya
Like every other market, there are three clear use cases for mobile money. The first one is P2P. The second one is the bill 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.

Rohit Modi
Got that. Thank you so much.

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

Cesar Tiron
Hi. Good afternoon everyone. Thanks for the call and the opportunity to ask questions. I have three, that’s okay. The first one relates 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 push for 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. I 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 or ₦800 mark? Are you able to take money out of Nigeria right now? Thank you so much.

Segun Ogunsanya
Let me say the last question first on the FS liquidity. The new FX 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 is too early to make a judgment, but as we speak now liquidity is still very thin at ₦750. We are very optimistic that as confidence returns to the market we’re going to see more liquidity in the market. But for now, at ₦750 to ₦770 it’s not as liquid as we like to see. But once again very early days and we remain confident that liquidity will improve in the market.

Now, around the pricing. In most countries in Africa, prices are regulated 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%. Voice 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 videos, make them use more data. That is the formula we use for growing. Given inflation in Nigeria, if you do get a price increase, it’s going to be good for the business. But without this price increase, we continue to do a very, very strong double digit growth on the back of customer addition and increasing usage. Whether it is talking about voice, talking about data, or now talking about getting more customers to use mobile money business. And for the capex, I will let Jaideep add more flavour to this.

But I mean, the confidence we have in the markets, we are putting our money where our mouth is. We believe in growth potentials in all of our countries. Given the very, very low unique SIM card penetration, the very low usage levels, whether I’m talking about data or minutes, and also the very small penetration of banking services, we’re very bullish about Africa. We don’t have any plan to reduce our capex 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. Jaideep, you want to add some?

Jaideep Paul
Yeah, sure. Thanks. I just want to add one more flavour 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 75% is in Dollar currency. So, the point is that to the extent of that 75% or let’s say $250 million is not something which will draw immediate alarm or any major concern. So, our view is that since Nigeria is growing at 20% 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 demonetisation 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 units, including Nigeria, the way it was planned earlier.

Cesar Tiron
Thank you so much.

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

Madhvendra Singh
Yes, hi. Can you hear me?

Segun Ogunsanya
Yes, we can.

Madhvendra Singh
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 behaviour 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 your leverage. 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 that you have to do? Why does this derivative exist? And 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 colour around this derivative exists and why it exists, that would be helpful as well. Thank you.

Segun Ogunsanya
I will take some of the questions and Jaideep would respond to the question on derivatives. Every time with Nigeria and your concern on impact of inflation as the summary of what you’re asking.