Earnings Call: Q1 2022

Jul 29, 2021

Quarterly report

Good afternoon, ladies and gentlemen, and welcome to the Quarter 1 of 2022 Results Question and Answers Conference Call for Atell Africa Plc. On the line from Atell Africa are Raghunath Mandaba, Chief Executive Officer JD Papoul, Chief Executive Officer and Pierre Pontioni, Deputy CFO and Head of Investor Relations. Following a brief introduction, you will be given an opportunity to ask This conference call is being recorded and a transcript will be posted on the Airtel Africa website. I will now hand the conference over to Mr. Raghu Mandava to introduce the session. Please go ahead, sir. Good morning or afternoon, wherever you are. Welcome. Thank you for joining us on today's call. I'm Raghunath Mandava, the CEO of Airtel Africa, and I'm joined on the line with CFO, Debbie Paul and Deputy CFO and Head of Investor Relations, Piyush Alsham. We will be answering any questions you may have. But first, I would like to give a few words of introduction and a brief overview of our Q1. This is the last set of Aeral Africa results that I have the pleasure of presenting to you all with my retirement coming at the end of September. I believe that I'm handing over the reins of an organization that is in good health And I'm sure that Shabnam and Sanya will continue to take this organization further on its path to transforming lives across the sub Saharan Africa where we are present. So let me take you through the highlights and a few of the details before we open up for questions. The group has delivered very strong revenue progression in Q1 with group revenue reaching $1,112,000,000 for the year for the quarter, a year on year constant currency growth of 33.1%. With our continued improvement in operating efficiency, we have posted an even stronger growth in EBITDA, up 46.2 percent to €534,000,000 for the quarter. The Q1 of last year was when the COVID-nineteen pandemic first hit us. And with the consequential and appropriate actions by government in our footprint to constrain the contingent. This ultimately led to slightly weaker results last for the Q3. That weaker comparative has slightly flattered our year on year growth trends this quarter. But even after we adjust for these effects, our revenue progression for the group and across all regions and segments was still ahead of the growth trends we showed in most of our in our most recent quarter 4 results. The underlying revenue growth trends for the group are therefore not I guess the real growth trend lies around halfway between it. VoIP delivered very strong double digit growth, up 26%. Turning our 4 usual growth drivers of data, which is up 37.5% and mobile money, which is up 53.7%. Each of these products similarly benefited from a weaker comparative quarter last year. But even after adjusting these effects, the growth trends are well ahead of the Q4. With our continued focus Our recent customer penetration, it was pleasing to see that our total customer base has returned to growth this quarter, with accelerated growth in both East Africa and from the recent changes in the customer registration requirements. With the easing of these required restrictions in late April, we have since been able to gradually increase the number of locations we can use for activations in line with regulatory compliance across Nigeria, and we have begun adding new customers accordingly. For the group as a whole, we added a head of 2,600,000 customers this quarter and 9,300,000 customers year on year, up 8.4%. The customer base outside Nigeria growing at about 15.9%. Due to increased voice calling, we have seen a 14.3% increase in minutes per customer, now calling about 2 49 minutes per customer per month, up from 218 a year ago. That's about 14.3 percent up. This has driven up our voice ARPU by 16% and taken voice revenue growth to financial expense. Our From the voice performance this quarter reinforces our belief that due to the low unique customer penetration level and the low usage of minutes in our market, there is still a long runway for voice revenue growth to come. Our strong data revenue growth of 37.4% was of our continued customer base growth, up 14.8% and strong data ARPU growth of 18.5%, which was in turn driven by increased data consumption per customer, up 26.7% to 3.2 gigabytes per month now. Our 4 gs customers now consume over 5 gigabytes per month. Our early investments in 4 gs continue to keep us in this growth. The 79.4% of our group sites now up from 66.7% in the previous year. While there is even greater acceleration of mobile money growth The value revenue growth in Q1 decreased 3%. Part of the acceleration has come from the benefit of a weaker comparative last year. And the waiver of charges that we implemented accordingly during the last year. After adjusting for these effects, Our revenue growth for Airtel Money was up strongly in Q4, Q4, Q1. And the story is similar by geography. The accelerated growth across all our reporting regions. Nigeria revenues were up 38 2% on a year on year for the quarter. East Africa continued reaching 32.8%. And still continued to benefit from our 4 gs network investment, Safran Africa revenue growth has now climbed to 34.9% on constant currency basis. As mentioned earlier, the strong revenue growth led to an increased flow through, helping take our EBITDA margin in Q1 to a 48% sorry, Q1 to 48%, a jump of around 400 basis points over Q1 last year. SAIL's fluctuations had an adverse impact of $14,300,000 on constant currency revenue and $8,100,000 on underlying EBITDA for the quarter, largely driven by devaluation of the Nigerian naira and the transient culture, partially offset by appreciation in the Central African front at the United Shillings. Briefly, in terms of the balance sheet and cash flow, at the end of Our average ratio was down to 1.8x underwritten EBITDA with net debt at $3,500,000,000 And in Q1, we generated an operating free cash of $428,000,000 up 38% on Q1 last year. Despite a $40,000,000 higher CapEx, largely due to the logistics currency phase of making investments during the pandemic last year. There are a few other significant updates I would like to mention. Firstly, in June, we signed a deal for the sale of our tower portfolio in Tanzania. We sold the 1400 cars to SBS Communications Corporation for €175,000,000 of which €157,500,000 will be paid out first closing expected in the second half of our financial year. Except for the few towers and specials, this production along with the fulfillment of the MRO signed with Helios earlier in the year on monetization for Broadfoot and Power portfolio. 2nd, In terms of the new registration rules in Nigeria, the deadline for customers to register their names with their SIM has moved further, reflecting some of the logistical challenges involved, and this is currently 31st October 2021. We continue to make progress capturing national identification numbers and building our database in collaboration with National Identity Management Commission. So far, out of Airtel Nigeria's 40,900,000 customers, 25,000,000 or 61 percent have been linked to the national identification numbers. Since April, we have resumed new customer acquisition through 2,100 regularly approved outlets. A lot more needs to be added to make new is accessible to all our customers. For the still significant portion of the population and our customers that do not have NIM, we have enrollment centers in collaboration with the National Identity Management Commission, and we are in the process of rolling out thousands of devices to further enhance the national IT number enrollment. We continue to work closely with the government to ensure full compliance. Finally, in terms of outlook, while the COVID-nineteen pandemic continues to have a much more limited impact on our results, Certainly compared to Q1 last year. A third wave of the pandemic is currently stripping through Sub Saharan Africa with the potential for further appropriate actions that may be required by governments to minimize this contingent. For several quarters now, we have shown that our operations are quite resilient, but we continue to be vigilant and cautious. Fundamentally, the opportunity for sustainable profitable growth from our under connected markets for voice, data and mobile money services remain hugely active, and we are confident of continuing to deliver our growth strategy. With that, I would now like to open the line for questions for which I'm joined by JD and Pierre. Operator, I now hand it over to you to please open and manage the Q and A process. Thank you very much, The first question comes from Jonathan Kennedy Good of JPMorgan. Good afternoon and thanks for the opportunity to ask questions. Congratulations on the great set of numbers. Just wanted to check-in with you on some of the guidance that you do provide around your capital allocation model. And if I recall correctly, Below 2 times net debt to EBITDA, you were perhaps considering faster growth in the dividend. I don't know I didn't see any mention of any change on dividend guidance. And just was wondering if We could look forward to slightly stronger growth in the dividend if this kind of growth rate continues. And then perhaps more operationally, there seems to be quite a significant step up across the operations in ARPU expansion across voice data and mobile money. Just trying to get a sense of whether we should expect those kind of growth rates to flatten off or Are you still seeing growth in our pure cost regions? I'll address the operational question and I'll request On the net debt and dividend, David to help me. So the first thing is on the operations reasons. While we told you that our current growth rate is 33%, it should be more around 27%, 28% in between what you saw last quarter in this. However, even if you look at 20 7%, 28%, I think It's surely a significant jump. We've been seeing this growth. If you see the trend of our growth lines over the last 10 or 8 or 10 quarters, We were at 10%, 11%, then we moved up to 13%, then we moved up to 17%, 18% and then the early 20s and now we speak hopefully this is If I'm right, it's about 20 7, 20 28. There has been a regular and consistent jump up. Why is this happening? If you see over the last couple of years, our customer growth rates are healthy, well in double digits and suddenly you saw without Nigeria, the rest of the market actually grew 15%, Same as last quarter. So first is customer growth is happening. 2nd is data plus money today is contributing 43% of our business. Now this 43% of our business at a weighted average is growing well above 40 odd percent. 3rd, voice itself, which contributes 50% of our business is also accelerated to 20 orders. Why is it happening? I don't think there are any short term activity It's more about completeness in the business that we've been driving. 1, our network rollout has been consistent. We have invested in 4 gs well ahead of the industry and we are seeing benefits of it in our data growth. Mobile Money and Voice, our distribution infrastructure has got deeper and deeper and we have continuously invested very heavily in this. And this is giving us lot more customer confidence in our brand and we are seeing this growth. Consumption in Africa has always been low. Voice per minute is about 2:40 minutes for us. Actually across Africa average is closer to 160, 170. We seem to be getting because of our simplicity with which we have driven our pricing and our propositions. We believe that telecom has to be run as a very simple service industry. And I think our customers are Happy with that and we are continuously seeing them include their consumption in R2. So we are now seeing both customer additions handsomely in mid And also along with that, an art to both. Thank you, Eddie. Yes. Thank you, Raul, and good morning, everyone. So on the question of dividend policy, the business has Continued to execute well and we have seen that we have achieved 1.8 times leverage ratio due to expansion of underlying EBITDA. Previously, we have reported that Board would reassess the dividend policy if that leverage ratio falls below 2 times on a sustainable basis. As and when the Board decides to relook at the dividend policy, which I would presume that it will be at the half year and any change thereof, we will make necessary announcement in appropriate time. The current policy is to grow the dividend annually by mid to high single digit percentage from a base of €0.04 as declared last year. Thank you. Jonathan, does that conclude your questions? Yes, it does. Thank you. Thank you very much. Next question comes from Mr. Jones of New Street Research. Hi, thank you for the call and also congrats on a good set of results. Just a few questions from me. Just I wanted to explore the outlook, I guess, more broadly in Nigeria, but specifically around data pricing. If I look at the last 3 quarters or data pricing in Nigeria, if you look at it on revenues divided by the traffic carried, it looks to being pretty stable. Is that sort of is that you think sustainable? Because as you obviously get that momentum around the demand coming through, that all plays through into revenues, which is extremely encouraging. Or is there sort of expectation that potentially there could be additional pressure on pricing? And where could that come from? The second question is just around the mobile money transaction value. Again, over the last 3 or 4 quarters or so, it's been relatively stable The high $12,000,000,000 And this quarter, it was actually a big jump up to about $14,600,000,000 which is great. Just trying to get an understanding of what's driven that sort of step increase, because it definitely does seem to be a more aggressive increase than we've seen historically. So just trying to understand if there's anything And then just finally, you mentioned the number of outlets who which are able to register subscribers in Nigeria, 2,100, I think you mentioned. Can you give us an indication as to what is the total amount of outlets that previously could have been able to Just to get an idea on the percentage and also how do you expect that evolving over the next sort of maybe 2, 3 quarters? Thank you. Thank you. So firstly, let's look at pricing. We stopped looking at pricing in isolation And that's how we've always managed this business. There are two principles of pricing and that we will continue to follow. Firstly, if you buy more on larger bundles, we will start giving you at a lower price. I know it looks like such a simple thing that every grocer does it, but telecoms with all their Intelligent segmentations and prices don't always follow that principle. We benefited from it. So whenever we drop price also, it only happens when ARPU goes up. So the real metrics that we really measure is customer network and that will be consistently growing. As long as we hold the price and grow at 48.7% as currently we've grown or we can if you can get Better elasticity and do the right pricing, we will continue to do that. But I don't see too much of changes there. So I don't worry about pricing. There are countries which take a little profit But as long as they can maintain their usage elasticity right and currently we are still getting that usage elasticity in Nigeria and hence we are confident of this both. 2nd is mobile money. What is that? Mobile money has been actually strong in about 7, 8 countries of ours. So there are 1 or 2 countries that have among these 7 that have picked up on accelerated growth based on some of the good stuff that they've done, especially during the entire distribution machinery that we built. As I told before, while we have many 100,000 of agents for freelancing, we also built an exclusive network of kiosk and Atomani branches. As we've been able to expand these, I think in these difficult periods, people have got greater confidence in the availability of mobile money, and we are seeing that jump. Lastly, The third question of yours is on Nigeria. I agree with you. In the earlier system, we had close to 45,000 odd film selling outlets. But what is the difference between them? He could buy a film and he could register on a KYC application if he had a smartphone and a fingerprinting device given by us. It didn't mean that they were all very highly productive and they were all spread out across. The way I look at it now is you will have much lesser number of these outlets, but they should have greater much better productivity depending on customer. 2nd is in countries where we have implemented such rigorous processes, we've also seen benefit in terms of the decay of customers. We don't see People are literally taking customers or retailers adding customers and creating wrong behavior. So I do know 21,000 2,100 is not yet there. I would not like to reveal the numbers, but we have very aggressive plans to be close to each of our customers. We have about a little more than 12,000 outside and we should be there towards that number or closer to that over the period. So that we are close enough for customers. Thank you. That's Great. And just if I can sneak in one final one, just around if you look at things like food inflation taking place like Nigeria, I guess Yes, there is some type of question being decided to use your phone. And obviously, with such strong growth, clearly, the decision It's come down to that, but certainly it doesn't appear like your numbers are being impacted at all, demand being impacted at all by the sort of inflationary pressure. Is that I mean, any sort of context you can give around that? Is that just clearly demand coming through and inflation hasn't really taken off? There is an Irish economist called Giffen who spoke about what are Giffen goods. Giffen goods are actually replacement goods. So it's like potato in Ireland versus lamb meat. So whenever prices go up and sorry, whenever people have more money, they buy more potatoes And more land. When people have less money, they can't afford land, so they buy more potatoes. So potatoes grow irrespective of the prices are going up are coming down or people have more money or less money. Telecom is like the potato. What are we doing? Today, you and I could be talking If I float down to London or whichever town you were, we are replacing this telecommunication or replacing a costly mode of transport. If I'm talking to someone on the phone, it is a replacement to my physical travel. So in my mind, telecom has always been a given good. The importance of a given good is that it should be widely available, easily serviceable and continue to be affordable. And I think as long as we maintain those principles, I continue to believe telecom will be low irrespective of the economic situation. So I'm a firm believer, some places, cost of transportation, travel and others and hence is a different quote. And secondly, current penetration of mobile is very, very low in Africa. 50% of customers have telephone, Of which 40, that's about 20 odd percent have a smartphone and mobile money penetration is still in infancy. Financial inclusion is not very strong. So I think these are all directions that there is huge potential in the way we serve our customers and I think that should be our primary focus. Revenue is an outcome that will happen, I guess. Thanks. That's correct. Thank you. Thank you. The next question comes from Biraj Dusain of Access Investment Partners. Hi, hello. Thanks for the opportunity to ask a question and congratulations on the splendid results I have to say. My question pertains mainly to operations in Nigeria. To what extent is management worried about the foreign exchange management locally, especially given the fact that the CBN yesterday banned FX to the Bureau De Charge and there is a significant FX backlog in the country locally. That's it, yes. David, would you address this, please? Sorry, can you just please repeat the question? The first part I could not understand because My net connection was not stable. Okay. Yes, my question is fairly simple. It pertains to operations in Nigeria. To what extent is management worried about the current foreign exchange situation locally, Given the fact that the Central Bank yesterday banned FX to Bureau de Change and there is a significant backlog of U. S. Dollars in the market locally. Do you see that as a reason of concern? Yes, that's it. Yes. I mean, obviously, it's a cause of concern for us because we have Vendor liability, especially on the CapEx side, where 60%, 70% of our CapEx is imported. And therefore, we have a vendor liability to meet. So non availability of ForEx is definitely a cause of concern where to meet the vendor liabilities. And of course, the second cause of concern is our ability to upstream the dividend Because as you know that Nigeria is a dividend paying company and we are not able to upstream that. So obviously, these are cause of concern for us. But we are keeping a close watch and looking at all the options available to us to take care of both the CapEx part of it as well as on upstreaming possibilities or opportunities. So we have in last few quarters, we have taken foreign currency loan in Nigeria to meet the vendor liability. And we are hopeful that over a period of time this Situation will improve and Forex should be available to the telecom companies, especially when Nigeria is heavily dependent on the import for CapEx. Okay. Thank you. Thank you very much. Thank you. The next question comes from mauran Rajaratnam of Miptan. Good afternoon, guys. Thanks for the opportunity. My question is also on Nigeria and you mentioned you're keeping a close watch. Where I'll be on the mobile money PSP licenses because there appears to be some movement in that space And this is the telco versus the non telco led model and the bank led model. So maybe some thoughts on how you think this might rollout. Thank you. Welcome. This is a tough question. I mean, every time we are discussing this for quite a few I believe that the telco model led model has a lot to add value. We could help the financial inclusion, especially in the North Turn Belt, where deep distribution and mobile networks have reached, but Banking infrastructure has not reached to the extent available. The 2 of the telecom operators have got the license, but I don't know how much has been the progress. We don't see too much of it. However, I believe that Our application has not been rejected. We are hopeful that at some time we should flip. And if we do get it, I think we can make a substantial difference to financial So we are all glad to see some positive signs in this direction, but we are all waiting eagerly ourselves with fingers crossed. I have nothing more concrete to add to this. And The news in the media that the telco led model is not favored by the CBN and there are some documentations on the CBN website that suggest this as well. No, I don't know if it is right and speculative at this stage. I would like to have a view on that. Thank you so much. Thank you. The next question comes from Abdul Raimo Bello of WSTC Financial Services. Yes, good afternoon. Thank you. Yes, my question has been asked by the previous analysis. I read about the PSP lines and stuff. So it's been answered. Thank you. Thank you. Thank you. Thank you. We have a follow-up question Jim from Viroj of Axis Investment Partners. Yes. Just a second question with regard to Airtel Mobile Commerce, the spin off that was done last quarter. I remember in the last call, Management stated that there is a total potential for up to 25% of minority investment and A target IPO of 24 years. Is that strategy still in line? And have you had any update since then with regards to minority investments. Thank you. Thank you. The strategy is still in line. We believe in that strategy. We are in discussions with various people who are keen to work with also value to us and the investment and As and when it is ready and materialized, we will keep you informed. But I have nothing more to add. But we are very clear on that strategy. Right. Thank you. Thank you. Thank We have a follow-up question from Alastair Jones of New Street Research. Hi, thanks. Just a quick one and I know the PSC license and you We've talked about that a lot. I'm just trying to understand how do you see the balance between waiting for a potential PSE license versus actually taking the initiative to talk to potential banking partners and start rolling out a service in partnership with them. I mean, how does that How do you think about that strategy and the timing around that? Because obviously, you're losing sort of momentum by waiting and could you not potentially get a partnership and we're trying to drive it forward Thank you. We actually have already a partnership with Axis Bank in Nigeria. It's an access bank money, access money powered by Airtel. And we are running that and working a large amount of there are a lot of services that do happen through that. And also certain Support programs and money discussions are happening in that. However, we believe that payments of this bank or a separate license would give us greater impetus to the way we drive this business. It's already there. Thanks. Thank you. Next, we have a follow-up question from Jonathan Kennedy Goode of JPMorgan. Thanks. Just a housekeeping issue for me on mobile money. Do you no longer supply us with the Regional breakdown of Noble Money revenue and EBITDA? I just can't find it from this. I'm looking in the wrong places. JD, I thought we never did. Go ahead, JD. Hello. Just give me a second. Just give me a second. I'm just going to that place. So in the regional side, So if you go to Page number 9 in the RNS announcement, which we made, You see the mobile money revenue for East Africa, francophone Africa in the next page. It has been given. And we have not changed anything in the format. So we give a consolidated mobile money number and we also give the revenue number for Okay, great. So I was looking at the IR packs, so perhaps I'll look at the RNS. Thank you. Yes, if you can go to the RNS, you can see that region wise revenue numbers have been given. Thank you. Next, we have a follow-up question from Maharajarathman of Medtco. Hi, Ragusa. I have a follow-up on the PSP license. I know you mentioned you don't have a further comment, but you're welcome to say so again. Is there anything preventing you from legally separating the entire mobile money business In Nigeria and partnering with the bank, conceptually, there is nothing that prevents that, right, even if it's not a telco led model because that's A separate financial institution that partners with the bank and drag through mobile because I can't see how Nigeria gets financial inclusion, Especially like you mentioned in the North where banking penetration is not even in the teens in some places without with the help of the mobile operators. So I'm just struggling to see how this will work out. Good question. So even in Airtight, the payment bank service that we have applied for license to the Central Bank is a separate company from the telecom business, Firstly, so it's a separate one. So the second question is, should we work with a bank or wait for this license? We believe that we should get the license And if the government would see this fall favorably and then I think this will help We have perhaps not worked out anything yet with any of the banks. Great. Thank you. Thank you. We don't seem to have any further questions on the line. So I'd like to hand over back to Ravi for closing comments. Thank you. Thank you very much, ladies and gentlemen. And this is my last earnings call and wishing you and Airtel Africa the very best. I'm sure this company will continue to go to greater heights. Thank you for being on the call today and good day to all. Thank you, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.