Earnings Call: Q1 2021

Jul 24, 2020

Earnings release

Before we continue, I will present an important disclaimer. This call has been prepared by Airtel Africa CLC and is for information purpose only. This call may contain forward looking statements, which by their very nature involve inherent risks and uncertainties and risks exist that such forward looking statements will not be achieved. You are strongly advised to review the disclaimer page of the press release available at airtel.africainvestors. The conference call will be recorded and the transcript will be posted on the website. The speaker will be Mr. Raghunath Mandava. Please go ahead, sir. Good morning, everyone. Thank you for joining today's call. For those who may not know, I'm Raghunath Mandava. I'm the CEO of Airtel Africa. The whole world has been going through these unprecedented times of pandemic. The cold pandemic arrived in Africa a little later than other parts of the world. The governments and the people have handled the situation very well within the constraints of the resources at their disposal. This has helped slow down the COVID infections. We at Airtel have worked with governments, regulators, partners and suppliers to keep customers and businesses connected as well as supporting the economies and communities. We internally are adapting to remote working during this period And we are focused on maintaining and expanding our network to ensure it would cope with the shifting and increasing demand. We kept our distribution up and running by increasing the penetration of digital recharges and also increased stock levels in the supply chain. We expanded our home broadband solutions to ensure customers could work and access entertainment remotely. During the quarter, we partnered with the governments to provide free P2P transfers on Mobile Money and some other transactions in our Mobile Money business. We also created a partnership with Unisys to provide children with access to remote learning and enable access to cash assistance for people via free mobile transport. We donated to the nation we are in, PPE equipment and or classified against COVID. In addition to this, our employees too contributed to these funds, which were equally matched by the company. I would now like to give you some visibility on how COVID-nineteen has impacted our operations during the last few months. During last quarter, our business was impacted by the COVID-nineteen pandemic as restrictions on movements of people and ways of socializing were introduced to contain the spread of infection. We saw an impact on customer usage patterns, particularly during the month of April, as the slowdown in economic growth resulted in lower available disposable income. This was pronounced in markets where the lockdown was stringent. However, in May and June, we have seen customer usage trends return to being broadly consistent with pre COVID-nineteen trends. As a result, the business saw revenue growth picking up in May and June. The business reported growth across all segments, voice, data and mobile money. And also, glad to announce across all the regions, Nigeria, East Africa and Francophone Africa. We delivered against our strategy with continued constant currency growth across voice, data and Mobile Money. We ended the quarter with 13% revenue growth and an EBITDA margin of 34.1%, which is a 61 basis point expansion. Our customer base grew by 11.8% to 111,500,000. Constant currency voice revenue grew by 2.2%. This was largely driven by the fact that the double digit customer base growth was partially offset by drop in voice ARPU due to a decrease in interconnect usage charges across key markets in East Africa and Francophone Africa and also by drop in roaming and international calling revenues. We have continued to strengthen our data networks through further rollout of four gs data. Our data revenue grew at 35.7% in constant currency. Currently, 33.2% of our total customers are data users. Data usage doubled as compared to the previous period last year. Mobile Money along with data is a critical growth driver of our business. Mobile Money customers have grown to 18,500,000, which is an almost 27% growth over the previous year. Reported Mobile Money revenue was at $81,000,000 for the quarter with a constant currency growth of 26.3%. This slowdown in Mobile Money revenue growth during the quarter was due to the waving of some charges as explained earlier in the earlier part of the quarter. Data and Mobile Money are the key growth drivers and are growing in line with our vision of bridging the digital divide and enhancing financial inclusion in the countries we operate. These two together contribute to almost 41% of our revenue and growing well over 30%. Our underlying EBITDA grew to $375,000,000 for the quarter. This is an increase of over 14.6% on a constant currency basis with the EBITDA margin for the quarter being 44.1%. Our strategy to invest in four gs ahead of the curve has helped grow our operation. We are building a unique infrastructure of cashing in and cashing out locations for mobile money in the market and increasing our distribution. We continue to expand the range and depth of our ASL Money offering through more partnerships like the recent one we saw with World Remit amongst others. Onto our balance sheet. At the period end, our leverage ratio was 2.2x of EBITDA. In the three month period, we generated an SPF amounting to 96,000,000, up by 53% versus last year, largely due to higher underlying EBITDA by CAD 27,000,000, reduced interest payments by CAD 8,000,000, resulting from a lower debt and a lower CapEx of CAD 33,000,000, which was offset by some increase in cash tax. This resilient performance is due to the criticality of voice data and mobile money in people's lives and the heightened preparations for COVID-nineteen that Airtel has done. The outlook remains uncertain. However, these results are further evidence of the growth opportunities in our markets, the effectiveness of our strategy to focus on winning customers by investing in our network and continue to expand our voice data and mobile money businesses. I'm joined by the CFO, JD Paul and Sr. Kalycian, Deputy CFO and Head of IR to answer any questions you may have. I will now hand over to the operator for us to take any questions from you. Thank you. Over to you, the operator, please. If you change your mind, please press followed by 2. When preparing to ask questions, please ensure your mobile is unmuted properly. Thank you. And we have first question coming from Donald Reid from Millennium Capital. Just a couple of questions. The first one is, can you give us any color on where Nigeria is with the mobile money license process? So it's been quite delayed. Our initial expectations was that, that would be done by the beginning of the year and kind of things have been quite. Thank you, Donat. As we told you last time, we have applied to the government. The government has issued after a movement last late last year end to two of the telco operators, the smaller one, both us and the leading operator have not got it. We are in continuous discussion with them. And we believe during the current COVID, things have come to a little more standstill on this. And but however, we are still hopeful. But really, I do not have a timeline for that. Way I would look at it is it has not been rejected and it is still in process. And do you have I mean, do you have any have you any any feedback from me why it's been delayed so long? I beg your pardon, sir? Have you had any feedback from the Nigerian government why it's been delayed as long as it has been? No. We have not had any feedback yet. Okay. And then I just had one technical sorry, just one kind of technical question. In your cash flow statement, you've got a cash flow from operations from Mobile Money. So I don't know the actual word is in front of me. Can you explain that? Is that third party cash flow or is that your own cash flow? Debbie, please go The exact line is increasing Mobile Money wallet balance in your cash flow statement, which is a $55,000,000 increase. That's Mobile Money wallet balance. Is that your own cash now? Or is that third party money? So, let me come. This is Jaigit. Good morning. Yes. This is a third party bills customers, balance. This is not our money. This is the money which is lying in the trust account, trust bank account. Okay. All right. Perfect. And then sorry, and then just the last question from my side. Your CapEx decreased in the last quarter because COVID. Can you give a sense of what you think your CapEx numbers will look like for the next for the balance of the year and for the next couple of quarters, given that I would imagine you would have some catch up spending that you need to do? So if situation remains normal, we would expect $625,000,000 to $650,000,000 of CapEx for the full year. But we are closely watching, the current situation. So, depending on how things move in the subsequent quarters, we will let you know in appropriate time. But as it stands today, it will be between $625,000,000 to $650,000,000 Okay. Thank you very much. We have next question coming from Tunde Abidoy from FBN QUESTION Capital. Hi, Tunde. Please go ahead with your question. Hi, guys. Good morning. So I have a couple of questions. And the first one is on your total site count. The last time, I think, you mentioned that your site count was around 22,900. What is it now? Can you also give us the split in terms of two gs, three gs and four gs sites? What proportion of the sites are two gs, three gs and four gs? And also, can you give us an indication of your site count in Nigeria or what proportion of those sites you know are in Nigeria? Then what is your expected revenue per minute? What do you see? And lastly, out of the $6,500,000 of CapEx that you've guided to, what proportion of that is going to Nigeria? That's all for now. Thank you. Okay. Let me address this. Nigeria, have about 9,800 sites, almost 70% of them 69%, seventy % of them on four gs. Sorry, the line is a bit bad. Did you say +1. 9 8 Okay. Thank 0 2 actually, and about 70% of them are on four gs. Africa overall is also on similar ratio on four gs, maybe a shade lower 65%, sixty six % on four We have about 23,471 sites. In the last one year, we have rolled out almost 2,000 plus sites, of which 1,500 disproportionate came towards Nigeria. But overall, in our CapEx, we should be in line with our revenue mix. We have more or less covered very good market. We are moving towards more and more towards a full four gs coverage. Two of our countries, we are 100% of our sites are on four We are working towards building the same in the rest of our markets. And we will continue to invest. The more the way I would look at more is more than the CapEx allocation, it's about the design and how much network we are rolling it out in each of these countries and how we are modernizing these networks to both deliver the number of sites and the capacity. It is very critical to know, for example, in Nigeria, between eighteen months back and today, we had only 10 megahertz of eight four gs on Nigeria. Today, are almost moving towards 35 megahertz in the two cities. By addition of, as I spoke last time, by the addition of 20 megahertz of 2,610 megahertz of 900, of which five megahertz we are using for L900 or LTE. So the key thing is how much of the spectrum we are able to allocate for four gs and how much capacities we are able to build. These capacities are also dependent on the design and the hardware that we use and the design and network planning that our teams do. So there's a very careful work that is happening and we are creating huge incremental capacity. And by the nature of the design of our networks with single ramp without too much increase in cost. And that's why you will be seeing that our overall data growth consumption has grown up by almost 100% in the last 12 in this quarter versus four quarters back. And that's how it's in line with our strategy. Okay. Yes, thank you very much. Just one last question. I'd like to have a view on where you see five gs in Nigeria. Where are you with respect to that? We are evaluating five gs across the world. And I've said before, we are very keen. Some of our networks are actually ready for five gs or surely 4.5 gs. We are planning ahead. But the key question is what frequencies do we run five gs on and what are the use cases? We still haven't seen enough of these use cases and conversion very well. Five gs normally requires huge spread of spectrum. Currently, the way we are operating with this, let me tell you the two users. One is autonomous cars that everyone talks about, so that the latency is very low. That is latency is the amount of time you can take a decision between getting the signal and coming back. So that has to be low for autonomous cars and many such devices. Second, you need very high speed for home broadband and others. However, thanks to the 35 megahertz of spectrum, 2,600 layer, 900 layer and 1,800 layer, for example, in Nigeria, we are able to run our home broadband business, which is slowly picking up quite well. We sell routers and MiFi devices very attractively priced for large users at home. So we are able to get part of that swing through the high spectrum that we have picked up and started building on it. However, we are actively looking at we will be actively looking at five gs, but from a distance for the time being now. Okay. Thank you very much. Thank you. Thanks. Thank you. Thank you, We have another question from mister Ramesh Babu from SBD Bangalore. Hi, Ramesh. Please go ahead with your question. Hi. My question is on mobile money. Can you please quantify what is the impact of free P2P transactions on mobile money or entire group revenue? That is my first question. And my second question is like data usage per customer increased by 68% Y o Y. Do you see I mean is your bandwidth sufficient to accommodate the higher data traffic growth? Or do you feel any congestions in the network? Thank you. So let me look at it like this. I'll request JD to give the detailed number. What happens when people do more P2P, when you ran free P2P? Not only the P2P revenue gets impacted, some part of the cash in cash out volumes also at the trade get impacted. So this is a more comprehensive way of looking at things because customers got a benefit there. The exact numbers I'll refer, Jayjit, to pull out and share with you. In the meantime, I will answer the one on data customers. Our data customers, our customer has grown up by 68%. We are reasonably comfortable except in one or two markets and in the critical core cities, where if you do what is the way how do you build this thing? Either you have larger and larger spectrum and bandwidth or if it is in the larger cities, you have to build more and more Intel, so that you can share that load among multiple number of towers. It's a constant balance that you'll have to do. Overall, we have been acquiring a lot of spectrum and building it, but in specific pockets where we have this condition, we have gone and invested in some infill sites. I would like not like to name the cities, but we have done that in both ways of solving. The Nigeria example is a spectrum example, but in spite of that in specific locations, we still have to put a lot of infill sites. We have done that insights where we are a little spectrum starved in a few months. But overall, we are very comfortable on the spectrum and we are continuously working with the governments for increased spectrum. And the governments are also very excited and very cooperative because they see us as a very strong partner investing in four gs ahead of everyone else. And they are very sympathetic and they believe that we are also partners to their developmental agenda. David, would you like to add anything on Mani? Yes. The impact is actually $1,900,000 for the quarter, the P2P3. As you know that the initial stage when they started the COVID lockdown started in the beginning of the quarter, April and part of May, a large part of May were under this free P2P. But from June onwards, most of the countries, the P2P charging has started coming back because of the normalcy normal situation is prevailing. So the overall impact is roughly about 1,900,000,000 Okay. This helps. Thank you. We have next question from Silas Chima from FDA Global Lagos. Hi, Silas. Please go ahead with your question please. Hi. Thank you for an excellent results. Please can you tell us what is driving your voice revenue growth? Excellent. So let me come to the first thing. I've always been saying this. The first point we have to note in Africa is while there is a SIM card penetration at about 70%, that is the cumulative number of SIM cards of all operators to population. Due to some GLC images, the unique customer penetration is still at 45. As long as we can grow our network and make SIM cards and recharge available, there is usage. So our customer growth, as I told you, is about 11.8% or we have touched 111,500,000 So when your number of customers grow by 11% and if my revenue is 2% growth, that means my ARPU has dropped by closer to 9%. This is in spite of our minutes growing by 4%. That means we have also been lot more liberal at the lower end for price correction, wherever we have to stimulate demand and make it more affordable. So consistently, we've been making mobile available, growing customer base through our distribution and our network rollouts. I generally believe that in Africa and I've been repeating this, unlike the rest of the world where voice has stopped growing, the unique customer penetration being at 45, there is still a long road of growth in voice if only we know how to reach them and service these customers properly. I take the liberty of adding two sentences. We are an essential service. There is a genuine latent demand for these services. We are like electricity. The village does not have electricity, they are easily waiting for it. People are waiting to wanting to become telco customers because they're an essential service and in need of them. How well we service is a responsibility that we have. The better we do it, the better we will see the growth. Raghu, can I add one more point? Yes. So what you see as a voice revenue drop is largely contributed by roaming and interconnect international incoming usage and therefore the revenue. If you look at our domestic voice, it's it's actually there is a growth, in the voice revenue, voice usage, but most impact is coming because of the roaming and the interconnect, interconnect charges of the international call. So the current growth you're seeing at 2.2% in spite of or despite the drops we've seen on roaming and interconnect. Okay. Thank you very much. Thank you. Yeah. What's your blended CRM? Sorry? Your blended CRM. It's a tip maybe actually for me. To be honest, we don't look at price per minute. We actually work on ARPU. That's why most of our top line is in the form of bundle. So that people buy more and more and use more. So largely what we worked on is ARPU and voice usage per customer. So if you really look at it, that will be almost there's an zero maybe. I don't have do have the number? Yes. So if I if I see the realization, I I believe the question is on the customer rate. Is that correct? The outgoing price, sorry, or realization. Sorry, David, please go Yes. No, I'm just trying to get a clarification on the question. Is it on the realization? Yes, in terms of revenue per minute. I think it's the Voice revenue? Voice revenue per minute. Yes. Sorry, Jade. We don't publish effective revenue per minute. So it's not the KPI that we disclosed. But it was on the thank you very much. We currently have no further questions. And over to Mr. Vaikumar. Thank you all very much for your time today. As I said before, these are unprecedented times and we are fully committed to serve the communities we are in. The last quarter has been a difficult period and yet we've been able to deliver a resilient performance for Airtel Africa in the wake of COVID-nineteen. I look forward to talking to you all again at the half year results. Thank you and do keep safe. Good day all. Thank you very much. Ladies and gentlemen, this concludes today's call. Thank you for joining and you may now disconnect your line please.