Good day, ladies and gentlemen, and welcome to the Airtel Africa's first quarter 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 star and then zero. Also note, this event is recorded. I will now hand the conference over to Mr. Olusegun Ogunsanya. Please go ahead, sir.
Thank you for joining us on today's call. I'm joined on the line by our CFO, Jaideep, and our Deputy CFO and Head of Investor Relations, Pier. We'll shortly be answering your questions. 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 a 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. 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 the naira towards the end of the last quarter. We welcomed the 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, 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. We reported a $471 million non-operating exception item in finance cost, reflecting the restatement of U.S. dollar liabilities in our 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 restricted to reflect the devaluation, there should be no further foreign exchange losses, assuming no further devaluation. The recent events will, as we 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 some top group 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 the 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 33% in the period. This has rebounded very strongly from the demonetization 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 seeing 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-focused 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 growing 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 continued 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 usage 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 over 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 continued 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 transaction value. In Nigeria, we continue to build the PSB business, 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 inflation pressures in the market, as I mentioned in my opening paragraphs. We continue to focus on efficiencies in our business with our win-win cost strategy, we remain encouraged by the progress we've made. We do not expect a material impact on our 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 in June was very exceptional in nature, other markets have seen a devaluation, in particular the Malawi and Zambia kwacha, as well as the Kenyan shillings. After adjusting for the forex sources across our markets, EPS was up 16.2%. This did benefit from a one-off gain in deferred tax as an indirect consequence of the naira devaluation. Briefly, in terms of the balances 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 $850 million for this financial year. Furthermore, we continue to actively reduce our balance sheet exposure and continue to offset cash from our various OpCos. Before I open to Q&A, I thought I would summarize the key conclusion from this quarter's results. Operationally, I am very pleased with the performance achieved by the last few months. The accelerating growth reflects the opportunities available across our markets, and our clear and consistent strategic approach ensures we capture this opportunity. With the backdrop of continued economic uncertainty across many of our markets, the performance is very encouraging.
Although the naira devaluation 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'm encouraged by the work undertaken over the last few years to minimize the impact the devaluation has had on our business. Our capital allocation framework remains very robust, and we look forward to continue execution on this and our overall priorities. With that, I would now like to open the line for questions, for which I'm going to be joined by Jaideep and Pier. Operator, I 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 star and then one on your touch-tone 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 star and then two to remove yourself from the list. Again, if you wish to ask a question, please press star and then one. Our first question is from Rohit Modi of Citi. Please go ahead.
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, you know, number of customers when you start charging, you know, having revenue on PSB in Nigeria? Secondly, again, on PSB, what do you see in terms of transaction yields or fees that you can charge in Nigeria? I see generally it's 0.8%-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? Thirdly, on DRC, one of your peers reported substantial decline in ARPU in DRC. I just wanted to confirm, do you see any kind of, you know, deterioration in DRC market or any changes in the market structure in DRC? Thank you.
Thank you, Rohit. Let me take the customer number question first. In Nigeria, we continue to prioritize addition of customer out of revenue growth. I said this in the last review. That remains our priority. We want a very critical base of customers before we start monetizing 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 CBN. 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 has been some pricing aggressiveness by a few of the operators, but we continue to leverage usage to drive up wallet non-spend, and our strategy is working for us in DRC.
Thank you. In terms of yields or, you know, fees that you can charge in Nigeria, or the kind of market do you see compared to other markets?
Like every other market, there are three clear use cases for mobile money. The first one is P2P. Second one is e-payments and recharges. In Nigeria, the charges are highly regulated by the Central Bank. There's a limit to what you can charge. 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 over the next couple of quarters. As we engage the regulators for appropriate pricing of our services, that is basically within the control of the regulator.
Got that. Thank you so much.
Thank you. The next question is from Cesar Tiron of Bank of America. Please go ahead.
Hi, good afternoon, everyone. Thanks for the call and the opportunity to ask questions. I have three, if that's okay. The first one relates to your CapEx, which is in U.S. 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. obviously, inflation is going to most likely accelerate quite significantly in the next couple of months in Nigeria. The industry has tried to put through price increases in September 2022, 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 gonna be able to implement price increases in Nigeria in the next couple of months, or to the opposite, are the authorities gonna put pressure on the industry to lower prices given the significant amount of inflation? The third question also relates to Nigeria. Just wanted to check what you're seeing on the FX market. Obviously, we're seeing the FX rate, but is there any liquidity at the $750 million-$800 million mark? Are you able to take money out of Nigeria right now? Thank you so much.
Let me take the last question first on the FX liquidity. The new FX regime is about 3- 4 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. It's too early to make a judgment, as we speak now, liquidity is still very thin at $750 million. We're very optimistic that, I mean, as confidence returns to the market, we're gonna see more liquidity in the market. For now, at $750 million, $760 million, $770 million, it's still not as liquid as we'd like to see. Once again, very early days, and we remain confident that liquidity will improve in the market. Now, around the mean, the pricing. In most countries in Africa, prices are regulated by the regulator, by the government.
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. 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 minutes, make them use more data. That's the formula we use for growing. Given the inflation in Nigeria, if you do get a price, it is going to be good for the business, but without this price increase, we continue to deliver very strong double-digit growth on the back of customer addition and increase in usage.
Whether it's talking about voice, we're talking about data, or now talking about getting more customers to use our mobile money business. For CapEx, I will let Jaideep to add more flavor to this. What I mean, the confidence we have in the markets, we're putting our money where our mouth is. We believe in growth potentials in all of our countries, given the very, very still low unique SIM card penetration, the very low usage levels, whether you're 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?
Yeah, sure. Thanks. I just want to add one more flavor to this question about the CapEx. We have to keep in mind that we have 14 countries operation. Nigeria is about 1/3, and let's say ballpark, 1/3 of the CapEx goes to Nigeria. Out of 1/3, we have also, you know, about 75% is in dollar currency. The point is that, you know, to the extent of that 75% of, let's say, $250 million. It' s not something which we will draw immediate alarm or any major concern. 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 demonetization impact for a short period of time.
Other than that, Nigeria has been consistently growing at 20% plus in local currency or constant currency. We need to maintain that momentum, keep investing in Nigeria, because the growth opportunity is immense. From overall perspective, we are not changing our CapEx guidance at this moment, and we continue to invest with all the operating unit, including Nigeria, the way it was planned earlier.
Thank you so much. Thank you. The next question is from Madhvendra Singh of HSBC. Please go ahead.
Yes. Hi, can you hear me?
Yes, we can.
Thank you. 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 behavior in any sorts? Are they struggling to find money to spend on telcos for any reason, and so on? If you could talk about the current operating dynamics in the country post the devaluation, that will be very helpful. The second question is on your leverage. Given the currency, devaluation, I think there might be some short-term, you know, impact on your net leverage ratios.
Is there any concern on your side, for, you know, whether that puts you in a difficult situation at all, even for a brief period in the ratio terms? You know, does it accelerate your, you know, moving away from dollar debt in any way? What are you doing on that front? That will also be helpful. Finally, just trying to understand the derivative in Nigeria. Is it something which relates to... I mean, what part of business this derivative relates to? Is it about the payables? Is it about, you know, the CapEx which you have to do? Why does this derivative exist?
You know, typically, derivatives offer hedge, in case of FX move, it should actually give you hedge, but here it is actually causing you a big hit on the earnings. If you could give some color around this derivative which exists, and why it exists, that would be helpful as well. Thank you.
I will take some of the questions, and Jaideep would respond to the question on derivatives. Let me start with Nigeria and your concern on impact of inflation, as the summary of what you're asking. Yes, there's massive inflation in the country. It's about 20% the last time that I saw. There's been price increase in the fuel and a general price increase in the economy. What I believe that the market is actually adjusted to NGN 750 price point for dollar a few months ago, so I don't think it's a sudden shock. Most price levels have actually been readjusted to reflect the reality of NGN 750 months ago. I mean, the wallet is the wallet. The size of the wallet is diminished. I believe we're a very essential part of everybody's wallet in the country. We're a replacement product.
We replace so many things. We replace transportation, we replace education, we replace entertainment, and we're also very affordable. Given the fact that, I mean, we are an essential item, we're replacing some other essential items and we're also very affordable. I don't see a significant impact on how much of the wallet that is being dedicated to telco services. We didn't see it the last quarter. We've not seen it this quarter. We just continue to provide these services at very affordable price points. Once again, driving a lot more customers to the franchise and making sure they consume more data, more voice, at very affordable prices. That is what we're offering, and that is why I believe the impact on us is very muted as opposed to the impact on other sectors of the economy.
In terms of the leverage, I was going to give you a stronger flavor. Our philosophy remains unchanged. We continue to strengthen our balance sheet. That's our declared objective. By pushing debt down to the OpCos, by localizing debt, and by having as much debt as possible in local currency, so there is no mismatch between our revenues and our debts. I'm going to ask Jaideep to give more flavor to the derivatives.
Yeah. Before derivative, let me also talk about the leverage. Your second question was on leverage. Obviously, this impact on leverage hasn't come through in Q1, as we have announced that the full year impact will be different. If we take it at 752 as an exchange rate for Nigeria, then our leverage at the end of the year will be in the range of 1.4x-1.5x. That's number one. It will not be 1.3x. Probably, it will go up a bit to 1.4x, 1.5x, right? With reference to derivative, let me tell you that for last couple of years, as you know, that we have gone through this difficulty in sourcing USD from the market.
We have to use various instrument, structured instrument through the bank to source USD for paying vendor, to upstream money, and so and so forth. This is the those instruments, the derivative instruments, were used to source USD and mainly used for upstreaming and also to some extent for making payment for the CapEx vendors, USD-denominated CapEx vendors.
Understood. just to clarify, the leverage ratio you talked about, 1.4-1.5, that includes the leases or this is on excluding leases basis?
Yeah, yeah. It includes lease liabilities and everything put together. I mean, the way we calculate normally the leverage. The definition remains same.
Right. Just to, you know, sorry for following up on the, on the derivative side. What is the duration of these derivative contracts? By when the derivative contracts would stop being an issue for you in terms of further currency depreciation, if it happens?
The point is that it all depends on the liquidity. If liquidity improves in next, you know, few quarters, or let's say from this quarter onwards, if we start seeing that liquidity, we can dilute many of our Forex liabilities in Nigeria by sourcing USD and keep liquidating those liabilities, including derivative. It all depends on how the liquidity situation will move as we progress through the subsequent next couple of quarters.
Got it. Thank you very much.
Our endeavor will be always to source USD and keep reducing this, Forex denominated liabilities in Nigeria, because that is not only. It will actually future-proof us from further devaluation impact if any further devaluation happens. Our endeavor is to continue to, source USD and keep reducing this, exposures, the foreign currency exposures in Nigeria.
Got it. Thank you.
Thank you very much. Ladies and gentlemen, a reminder, if you'd wish to ask a question, please press star and then one. The next question is from Tajudeen Ibrahim of Chapel Hill Denham. Please go ahead.
Thank you very much, congratulations on your numbers. I just would like if you can give clarity around what you expect to be the catalyst for your business in Nigeria, in terms of recovery for the remaining part of the financial year. You know, we have seen the numbers, you know, being dampened by foreign currency, you know, losses. What do you expect to be the catalyst for recovery for the business going forward? The second thing is, I would like it if you can please speak around your energy, you know, costs, in Nigeria, particularly around what you had said you would do previously to bring down the energy costs around, you know, the towers. If you can speak to that, I think it will help. Thanks a lot.
Thank you, Tajudeen. The catalyst for our business, I mean, we don't require any catalyst. The fundamentals are very strong. We just delivered a 23% growth in constant currency. Data revenues are climbing. Voice revenues are climbing. Mobile money business, we acquired 1.5 million customers. We've increased the agent base. We started on very strong footing, I mean, this one-off devaluation, though external to us, my only response, continue to grow a very strong double digits. If we continue to grow at 20%, 23%, and 24.5% growth, we foolproof our business. That's the only response we can give. We're not expecting any major catalyst from anywhere. Just focus on the strategy of growing the top line, expand our network footprint, contain cost, deliver myself profitability.
That's the catalyst that is required for us to continue to remain relevant in our largest market. On the energy cost, there are a number of things that, I mean, we're looking at. The price of diesel has come down significantly from what it was in the last couple of quarters, and that's been a good, sweet natural P&L. We've still not moved away from our desire to use more environmentally fuel. This is good for two things, good for the environment and good for our P&L, because they're actually cheaper. They are based on three legs. The first leg is to use more of lithium battery. They can retain much more energy, and they can serve us for longer hours.
The second one is use of solar panels, and the third leg is increasing the number of towers which are connected to the grid. We're making progress on each of these three legs: conversion to lithium battery, use more solar panels, and connecting more sites to the grid. Grid availability is increasing in Nigeria, and that is why we're able to connect slightly more sites to the grid. Those are the three clear pillars upon which, I mean, we base our energy conservation on, and of course, we continue to work with the partners. They all align with us that it's right thing to do, good for the environment and good for cost control as well.
Okay. Thank you. Do you want to speak to mobile money? I know that, you know, the numbers are still way too small to be reported, but are you open to speaking to what you are doing to support the overall ecosystem, particularly in Nigeria?
In terms of mobile money, we remain focused on our twin revenue strategy. One, make sure the IT platforms are very strong, very robust, customer friendly, and secondly, use this to attract a lot more customers. You've seen from the last quarter, we had about 600,000 customers. We've added 900,000 more to the customer, making almost 1.5 million customers. That's some good progress for us. In terms of the agent base, we've gone up to almost 134,000 agents. These are points where you can go and do cash in, cash out, an increase of almost 7,000. That's also some good progress for us. In terms of transaction value, we've actually done over $100 million in terms of transaction value. Those are clear progress that, I mean, we're reporting upon.
The key focus is customer addition, customer addition, customer addition. Given the very low take rate again, we need a very large customer base before we start, I mean, monetizing the base, and that's one thing that, I mean, we keep working upon.
Okay, thank you.
Thank you very much. The next question is from Aditya Suresh of Macquarie. Please go ahead.
Thank you for the opportunity. I have two follow-up questions, if I may. First, as you say, your subscriber base has been expanding. Wouldn't that the data consumers as portion mix, also expanding, the same with mobile money as well? Do you have any perspective on kind of how this could look like in maybe 12 months' time, 18 months' time? Do you think maybe like some of the more recent dynamics around demonetization, etc, helps accelerate some of these trends? Are you witnessing any of that in your customer base? Is the network kind of positioned adequately for all this team?
The question is not very clear, though. Are you talking about customer base for our business or customer base for mobile money?
For both. What I started talking about was, for example, data users as a proportion of your overall customer base, that's now at about 40%, right? That ratio has been expanding for the past couple of years. Do you have any perspective on how this could evolve in, say, 12-24 months? Are you seeing any acceleration from these trends in different markets? I guess the question on mobile money was more about with demonetization, is it your view that maybe we see a further bump up here or an inflection in kind of your mobile money users?
In terms of overall customer, we continue to expand our customer base. About 5% growth in this quarter over previous year. We had a slight slowdown in this quarter because of a new regulation that increases the age that you can offer SIM card to consumers from 16 - 18. That took out a very large number of potential customers, but of course, we are always very compliant with any regulation. That regulation came out a couple of months ago, and we compliant with that regulation. That's sort of slowed down the customer numbers in the last quarter. Talking about, I mean, data customer. Data customer continued to increase.
As I said in my opening statements, close to 50% of our data customers in Nigeria are actually 4G customer, and get a lot more usage out of 4G customer. That is one clear objective for us, not just increasing the absolute number of customers, we're increasing those with smartphones, who consume a lot more 4G, that we will continue to do. Lastly, on mobile money, again, there are two sources of customer addition to our mobile money business. One is from new customer, and second is from our base. In Nigeria, we've got over 40 million customers already. The challenge is to convert as many of this base as possible by showing them the advantages of using a mobile wallet. That is one base for us to start from, and the second opportunity is new customer that we are acquiring.
Those are the two sources we use to increase the customers that are using the mobile money business. Our very unique distribution infrastructure is certainly conditioned to deliver very, very strong numbers of customer growth. We had a slowdown last quarter from regulatory requirement for minimum age from 16 - 18 years.
In terms of the incremental EBITDA margins that you're seeing as you're adding on these customers, are you able to comment on that, in terms of your expectations and what you, what we should look at over the next, say, two years? It seems that a lot of your cost items are fairly stable, and as you grow the business, you should see a fairly meaningful further bump up in operating margins, and I just wanted to hear your perspective on that.
If we check our performance over the last quarters, we've got a very simple algorithm. First is to grow top line, and second is to expand EBITDA. How do we expand EBITDA? We've got this philosophy around incremental EBITDA, that for every $1 we add to the top line, we make sure between $0.50-$0.55 go towards supporting the bottom line. That has worked for us very well in the last set of quarters, you can see from our results. We're not departing from that philosophy. We continue to grow top line by driving usage, and we continue to grow the EBITDA line by $0.02, the incremental revenue coming from top, and a very efficient cost structure. How do we contain cost structure? We focus on increasing capacity, network capacity, at minimal incremental cost.
I mean, we've spoken about Single RAN technology for a number of quarters, that is still, I mean, with us. We just have various ways of leveraging on capacity expansion at minimal cost. We continue to look at distribution costs as well. We're converting some customer to digital channels, cheaper for us. We're moving some to mobile money, cheaper for us. We're looking at transmission, rewriting our transmission path to optimize design capacity. I believe that this lesser focus on cost control, lesser focus on expanding the top line, will continue to deliver between 50% and 55% incremental EBITDA for us.
Thank you very much. Ladies and gentlemen, we have no further questions in the queue, and I'd like to hand back to Mr. Ogunsanya for some closing remarks.
Thank you very much. Looking forward to seeing all of you over the next 3-4 months. Thank you.
Thank you very much, sir. Ladies and gentlemen, that then concludes today's event. You may now disconnect.