Ladies and gentlemen, welcome to the Q1 2020 results conference call of Airtel Africa. Today's speakers are Raghunath Mandava, Chief Executive Officer, and Jaideep Paul, Chief Financial Officer. All lines are now closed except for the speaker line. If you would like to ask a question to the speakers, please press star one on your keypad to connect with the operator. Before we continue, I will present an important disclaimer. This presentation has been prepared by Airtel Africa plc and is for the information purposes only. This presentation contains forward-looking statements, which by their very nature involve inherent risks and uncertainties. Risk exists that such forward-looking statements will not be achieved. You are strongly advised to review the disclaimer page of the investor presentation available at www.airtel.africa/investors. This conference call will be recorded, and the transcript will be posted on the website.
The first speaker will be Mr. Raghunath Mandava. Please go ahead, sir.
Welcome, everyone, to the Q1 earnings call. Thank you all for joining. Today, I will spend the next 10 minutes or so giving you an update on Airtel Africa's Q1 results and how we've been executing our strategy. I'll then hand over to Jaideep Paul, our CFO, who will give you an update on our financial performance. Airtel Africa growth story remains strong and is a clear evidence of the effectiveness of our strategy across voice, data, and mobile money. Our belief in the potential of Africa for telecom and the growth of the business continues and is vindicated by the results of the last quarter. The growth is possible thanks to faster customer addition and an accelerated growth of data and mobile money. In line with our aspirations, revenue continued to grow in double digits in constant currency term. Underlying EBITDA was growing even faster.
Let me take you through the building blocks of our strategy and the progress we've made in quarter one. Firstly, as I've explained multiple times earlier, we believe that the unique customer penetration is still low in Africa, around 44%. That there is a huge potential for growth. With increased network coverage and our drive to add quality customers through multiple channels of acquisition, we've enabled our customers to grow at over 9.2%. This customer growth helped us to increase voice revenues at about 3.2% year-on-year. In line with our ambition of bridging the digital divide in Africa in the countries we operate, we have continued to build a strong LTE network. Today, more than 50% of our sites are on LTE. This has happened by adding over 1,500 of them on LTE in the last quarter.
In Q1, we have launched 4G in Congo, Brazzaville, and the DRC. Also, we have continued our accelerated rollout of site fiberization in the urban areas in order to satisfy the increasing demand for data traffic and growth. This rollout, together with increased reforming of spectrum performed in some of our countries, led to faster speed and greater LTE capacity. Our continued drive with more and more offerings, and especially our activity for increasing data usage through carefully planned offers, have helped us to grow data customers by almost 14% year-on-year. Data customer per usage has gone up from 1 GB to 1.5 GB per month for the data customers. This has helped increase data ARPU by over 17%. This is what I've said we are in a sweet spot in Africa where both the customer growth, ARPU growth happen simultaneously.
Overall data consumption has grown by over 79% and data revenue by 36%. The contribution of data revenue to overall revenue has grown from 21% a year back to now 26%. What we have now is a big growing segment of data fueling the overall growth. A quarter of our revenues is growing at over 36%. We are in Africa, a situation where both customer ARPU and accelerated data consumption is happening. Let me take you to the next section on mobile money. In line with our ambition, we continue our efforts to be a strong financial services partner in most of the countries we operate. We continued our thrust of providing financial services for the unbanked by making these available through a widespread ground infrastructure we are building. Mobile money is a big growth driver.
Furthermore, we continued our distribution expansion in mobile money through our franchise model of kiosks and mobile money branches, giving more and more points of assured float availability. Our customer base on mobile money has grown by almost 24%. Increased number of services and payment options, along with greater penetration of mobile recharging through mobile money, has helped grow our mobile money ARPU by 16% year-on-year. Once again, we have a category that is contributing 9% of our revenues and is demonstrating both a customer growth and an ARPU growth. Our overall have reached at an annualized level of $29 billion and revenue at $274 million annualized. Nigeria Payment Service Bank license has been applied, and we are waiting for approvals. Our brand names have been approved, and the rest of the paperwork is in process.
We are making good progress in launching wireless home broadband service in a few countries. Our enterprise business is growing along with the growth of our increased backhaul fiber capacities, and is now able to provide more and more to our customers with data connectivity at their offices. Along with the above initiatives on revenue, our efforts relating to cost optimization continued, and they have offset the increase of costs resulting from network rollouts, thereby supporting our EBITDA growth being faster ahead of our revenue growth. On the people front, we are now building a stronger leadership team in Airtel Money, with enhanced fintech and payment capabilities. This new team has been in place since the last quarter, and I'm pleased to say that they have hit the ground running. Our engagement with the governments and the nation through our CSR activities continue.
We've had good appreciation from some governments for the launch network and for making data available and affordable for the society. Overall, I should say, a good start to the year. I now hand over to Jaideep Paul to take us through the financials. Over to you, Jaideep.
Thank you, Raghu. Good morning, ladies and gentlemen. Thank you very much for dialing in. Today, I will walk you through the Q1 2020 financial results. We are pleased to report that our financial results in the first quarter were strong and in line with our expectations. Let me start from the income statement. Reported revenue increased 6.9% as constant currency growth of 10.2%, but partially offset by the currency devaluation. The foreign exchange impact in the period was $23 million on revenue and $9 million in EBITDA, largely driven by the devaluation of Zambian kwacha, Malawian kwacha, and Central African franc. ARPU for the group was $2.7, broadly stable in constant currency as growth in data and mobile money ARPU offset the decline in voice ARPU, largely as a result of changes to IUC rate in Tanzania, Malawi, Uganda, and Zambia.
Across our segments, double-digit revenue growth in Nigeria and East Africa is partially offset by revenue decline in the rest of Africa. Nigeria delivered a strong set of results with revenue up 22% in constant currency, with voice growth of 12.7% and data growth of 73%, as Raghu mentioned earlier. In Africa, revenue growth of 9.6% in constant currency widespread across voice, data, and mobile money, all benefiting from customer growth and increased usage. Performance in the rest of Africa was mixed as growth in data was offset by revenue decline in voice, resulting in an overall 4% revenue decline in constant currency. In voice, a 3.3% customer growth was impacted by reduction of IUC rate in Niger and Madagascar, and the overall market weakness in Congo B.
Looking to our products, revenue growth in constant currency was positive, with mobile data up by 35.9%, voice up by 3.2%, and mobile money up by 41.8%. The key drivers of revenue growth were successful acquisition of new customers due to expansion of our LTE network and distribution supported by stable blended ARPU. Our financial objective is to deliver efficient growth by delivering sustainable revenue growth and EBITDA margin expansion as a result of operating leverage and tight focus on cost. We reported EBITDA of $347.6 million, up 9.7%, largely driven by 12.8% of constant currency growth offset by currency devaluation, as mentioned earlier. The EBITDA margin increased to 43.7%, representing an improvement of 111 basis points as a result of operating leverage and tight focus on cost and the revenue growth. Moving down the P&L, we delivered a profit after tax of $132.
Finance cost increased by $7.7 million, largely as a result of lapping one-off benefits incurred in the prior year and foreign exchange impact on debt, which more than offsets some derivative gain and 20% decrease in the interest cost as a result of lower debt. Tax charge before exceptional item is broadly flat. The effective tax rate for the financial year ending 31st March is expected to be in the range of 30%-32%. Finally, our EPS was $0.041, down by 62.6%, largely as a result of increase in number of shares. Let's now quickly look at our balance sheet and liquidity position. We ended the quarter with a net debt of $4.081 billion, broadly in line with the prior quarter, which resulted in a leverage ratio at the end of quarter 23.
Here, please bear in mind two things, that our leverage includes leases recognized under IFRS 16, and we recognized proceeds of IPO on our accounts in July 2019. You will not see the IPO proceeds impact in Q1 2020. Our intention is to continue to deleverage through ongoing cash generation and potential asset or liquid monetization opportunity, as we see our optimal capital structure to be within a net debt to EBITDA ratio of 2-2.5. Looking ahead, we plan to repay notes maturing next year in the next calendar year. The notes repayment in the future will be covered with IPO proceeds, increased by ongoing cash generation and potential asset opportunity monetization.
Let's conclude the financial review, taking a very quick look at the free cash flow, which totaled approximately $102.4 million, down by 29% from last year, largely as a result of increased CapEx for network modernization and rollout of additional sites. Capital expenditure were $99.5 million, and a bulk amount of that went on account of investment in data capacities, network modernization, especially in Nigeria and East Africa. That's all from my side. Back to you, Raghu.
We're now open for questions from you, please.
Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone keypad. No further questions at this moment, sir. Please continue. Oh, there is one question, sir. Comes from the line of Sanjay Chawla from JM Financial. Thank you. Please ask your question.
Thank you for the opportunity. I've got two questions. One, can you give the breakup of your gross debt in terms of borrowings, lease obligations, and also total cash and cash equivalent at the end of the quarter? The second question is, you mentioned some progress on launching wireless home broadband services. Can you specify which countries are you looking to launch such services, the spectrum that you would be using, and the kind of ARPU that are possible in those countries markets?
The way we look at wireless home broadband services is that we are building a humongous 4G network. As I spoke some time back, thanks to a Single RAN network that we have built and the huge capacities that we are able to build by farming, refarming spectrum onto 4G. We are building huge capacities on LTE. Not only will these capacities provide great service and both coverage and speeds to our mobile customers, but also we'll have enough capacity to provide wireless home broadband. However, at this stage, I would not like to give further details for competitive reasons of the countries that we are launching. Needless to say, they are critical countries, and we do hope to see some good potential. I'll request Jaideep to handle the debt question.
Our debt is about $4.8 billion.
Thank you.
Minus cash equivalent of roughly about $800 million, net debt is $4 billion. In $4 billion, $2.8 billion is bond plus external loans at different OpCo level, and $1.2 billion is the finance lease obligation. That's a breakup of net debt of $4 billion.
Okay. Just coming back to the first question which I asked, you said you would be using 4G-based network for broadband. Do you already have the MiFi router kind of devices already? Is that the main plank on which you would be expanding-
Okay.
The 4G home broadband?
Yeah. MiFis have been there for quite a while now, that is one of the ways that we are expanding. We are also having some high-end routers that we start giving to customers with multiple customer usage and device connectivity. There's a series of device ecosystem that we have got evolved that can work on 4G. In multiple countries, we have multiple frequencies. Through carrier aggregation, we are able to demonstrate very high speeds on 4G and along with the huge capacities that we've built. See, we need to get back and understand in large parts of Africa are very well spread out.
Unless you have a very high-rise building, most of the houses are very spread out, it does not make meaning to build fiber going from house to house because it's a dedicated CapEx to each house, and you're not sure whether you'll get a customer. Wireless builds on the same CapEx that you spend for the mobile network, and you use this to get the incremental revenues without much incremental cost. That is how we are building our entire 4G wireless strategy around.
Okay. Thank you for that. If I could just squeeze in one more question on Nigeria. What are the drivers of this very strong 22% revenue growth that we have seen there? If you could break it down for us in terms of customers, ARPU, and underlying segments?
Sorry, could you repeat that question, please? I'm missing that.
Yeah. The drivers of Nigeria revenue growth in this quarter.
Let me give you the same drivers. I think Nigeria is a much accelerated growth than the rest of the continent. The three drivers are our customer growth has been in 14%-odd. Our voice revenue growth is in double digits. Our data revenue has been phenomenal. We've expanded our 4G network very aggressively, and way ahead of the rest of the industry, and that has really helped us. Our data revenues are almost 70-odd% plus growth. I think that is really fueling our growth. Nigeria has been a good story for us.
Okay. All right. Thank you, and all the best.
Thank you.
Just one point I want to clarify on the net debt situation. This net debt situation is without the IPO proceeds because that has come in July. The net debt will go down by roughly about $670 odd million further in next quarter, and that you will see in the next quarter.
Our next question is from the line of Randolph Oosthuizen from Old Mutual. Thank you. Please ask your question.
Hi. Yes, good morning. I'm not sure if I missed it, the exceptional items of $64 million, can you just recap what those were?
Yes. The exceptional item includes, we have one indemnity accounting, which we have done. We have a $72 million of indemnity reversal, which has happened in this quarter. That's in the exceptional item. There is a $13 million of share issue and IPO related expense, which has come in this quarter. We have a network modernization related $9 million. Nine million plus 13, $22 million of expense and $72 million of reversal of indemnity, and that is $50 million of exceptional item.
Okay. Just explain to me the indemnity, how that works.
Yeah. We had some pre-IPO investor indemnity, which was accounted for earlier as a provision. Since this has expired and no claim is there, we have reversed that $72 million in this quarter.
Okay. All right. Just I had another question whilst I'm just finding that again. I'm sort of flipping through the IR pack . Just the derivatives, what are the main derivative positions or that you use?
Interest rate swap.
Interest rate swap.
Interest rate swap. Okay. Right. I'm sure that's in the prospectus. I'll just go and read up on that a little bit. Okay. Just looking at section seven.
Sorry
The consolidated income statement. The, yeah, the $72 million non-operating income, that includes these exceptional items that you've just been referring to?
Yes.
Okay. All right. Cool. Yeah, thanks. That's all from my side.
Thank you, Randolph.
Our next question is from the line of Alex Roensiek from Exane. Thank you. Please ask your question.
Hello, guys. Thanks for taking the question. I just have two, if I may. The first one is, if you could maybe elaborate on the next milestone regarding the full launch of mobile banking in Nigeria. The second one is just looking at your increasing CapEx year-over-year. Is that mostly phasing for the year and front-loading spending on 4G and new towers, or should we think about the similar trend for CapEx increase for the rest of the year? Thank you.
While mobile money has been there in all the countries, last year, the Central Bank of Nigeria has issued a Payment Service Bank license applications for all of us, including telcos. We have applied for this Payment Service Bank license. We have submitted the applications, and we're waiting for approvals from the bank. Currently, the paperwork is in process. In the meantime, our brand name has been approved, which I will not discuss now. We have started work on both our building our platform and our rest of the processes company. I do expect, in the next couple of quarters, we should have the approval, hopefully. Now, as regards to the CapEx, our guidance continues to remain same around $650 million-$700 million.
It's just that, we have spent about $100 million in Q1, which was slightly higher than the last year Q1 of $50 million. It's more of a phasing. We are getting more and more evenly phased than the SKUs we've had in the past. We should be able to hold on to this. If there is any change, we will brief you and keep you posted.
Okay, thank you. Maybe if I could just add one on Nigeria, because I think, expectation at some point were for launch later this year, and you mentioned, maybe in the next couple of quarters. Could we have maybe a delayed full approval, I would say, by mid-2020? Is that something that could happen, or are you still targeting for this year forward?
To be honest, Alex, I'm still hoping, and we are working towards a launch before the end of this year. All our preparation in that direction, as you know, this involves approvals from the Central Bank. I am not able to clearly commit any timelines.
Okay. That's very clear. Thank you very much.
Thank you.
Our next question is from the line of Ramesh Babu from HSBC. Thank you. Please ask your question.
Yeah. Hi. Thank you for taking my question. My first question is on effective tax rate. You are guided for 30%-32% for the year. Can you guide, going forward, how we should model this? Will it be at this level, or can it be coming down?
Effective tax rate for us remained at the same level, what we have given. There is no change expected unless there is a tax rate change which happened in any country. At the current level, it remains same.
Okay. My second question is on, in Kenya, about consolidation. Can you just throw some light on it and where we are standing right now in consolidation in Kenyan market?
Kenya is led by a dominant player, and there are two other players, which is Airtel and Telkom Kenya. There is an intent that we both, and so that we can have a consolidated business plan so that we could invest much more aggressively jointly. Currently, the applications are in process with government, and we are awaiting their approvals. I would believe that these approvals would come sooner than later, and should happen quite quickly.
Okay. Thank you. That's it from my side.
Thank you.
Again, ladies and gentlemen, if you would like to ask questions, please press star one on your telephone keypad. Our next question is from the line of Calvin Hang from PineBridge. Thank you. Please go ahead.
Hi there. You guys mentioned the IPO proceeds coming in after the quarter. There's already a substantial cash balance that you have there. Just wondering if there's any specific tranches of debt that you're gonna target to take out, given the plan to reduce leverage, whether it's the US dollar bonds, the EUR bonds, or bank debt. Thanks.
Yeah. Our objective is to pay off the bond, whichever bond we can repay. That process will start, already started, in fact, this quarter. It's basically paying the bond.
Got it. Thank you.
Our next question is from the line of Parag Gupta from Morgan Stanley. Please ask your question.
Yeah. Hi, this is Parag here. Just had two questions. Firstly, in your opening remarks, you talked about asset monetization as a way to reduce your leverage ratios. If you could just give us some additional color on what are these assets that can potentially get monetized, and over what time period? The second question was, are there any regulatory changes in any of your key markets that we should be aware of? Thank you.
Okay. On asset monetization, as we mentioned during our presentations earlier at the pre-IPO stage. In five countries, we have roughly about 4,500 odd towers left out, which are not sold and leased back, like we did in eight other countries. We are expecting and targeting to get these towers sold and do the lease back in these countries. It's very difficult for me to give the timeframe, but the process is on, we will keep you updated as and when we progress.
Okay.
Okay.
Sorry. Go ahead.
Additionally, other than that, we have also opportunity of monetizing some of the data centers we have, plus fiber. These are additionally, we are targeting to monetize in appropriate time.
Got it. Do you have a rough sense of how much could all these assets put together yield you? Any particular, any small percentage?
It's very difficult for me to speculate that, but we'll keep you informed as and when we make some progress.
Okay.
Regulatively, I think across the 14 countries, there are the usual regulatory corrections around KYC and IUC costs and others, but I don't think there is anything very significant for us to brief at this stage.
Okay. Our next question is from the line of Kuninis Luzwick from Robeco. Thank you. Please ask your question.
Hi, good morning, and thanks for the call. In your statement, you state that you are confident you will deliver sustained growth across all the segments, voice, data, mobile money. I wondered, does it also hold for the short term? Because we've now seen your first quarter. Does it also mean that the second, third, and fourth quarter will be probably stronger than Q1? Or is there some seasonality effect that we could see weaker quarters this financial year?
Thank you for the question. First thing is, I think we should look at the business in three forms. Do the fundamentals of the African market change, and how long do you think these fundamentals will favor the telecom business? Our unique customer penetration is still around 43%, 44%, while the SIM penetration is around 70-odd %. That means with network getting covered to 70% to 80% of the population, this 43% is surely going to rise. I would believe that somewhere it has to come towards the 60-odd % mark, and it will be over the years. That means the penetration could go up to 74%, should go up to 80%, 100%. We should also note that Africa is also the fastest-growing population in the world. That's almost 2.8% population growth year-on-year.
The next couple of, say five years, if you were to look, it should grow population at 15%. The fundamentals are very much in favor. The second thing on data, we are rolling out aggressive data net capacity. We believe data is starved, the markets are data starved. There are very fewer options on entertainment. Home broadband penetration is low, and smartphone prices are coming down, so a lot more entertainment will happen on the phones. Are the fundamentals in our favor? I think yes. I would not be able to give any forward-looking statements on how our revenues would grow in the next couple of quarters, but the opportunity for all of us, all telecom players in Africa is surely very good. Is there a second question I missed?
Okay. Yeah, that was the question. Thanks a lot. One other question. Can you comment on the DRC? Vodacom had some very big problems there. Do you also have big problems, or are you in a better situation there?
I would not like to comment about any other operators, but we do not have any problems of significance to report. Our businesses are quite stable, and we are quite happy with what is happening.
Okay. Thanks a lot.
Thank you.
Again, ladies and gentlemen, if you would like to ask questions, please press star and one. Our next question is from the line of David Adu from Meristem Securities. Thank you. Please ask your question.
Okay. Good morning. Thank you for taking my call. The question I wanted to ask has already been answered. That was around the impact of the IPO on paying off your net debt. The second question I wanted to ask is, in your IPO prospectus, you mentioned that you are undergoing a court-approved capital reduction scheme to clear up your retained loss position of, I think, about $456 billion, if I'm correct. I just wanted to find out, what's the status of that? Given that, you give guidance of paying out about 80% of your free cash flow as dividends to investors. Thank you.
[inaudible] IPO, net-debt.
Okay.
The first question was on the impact of IPO on net debt, correct?
Yes.
Yeah. As I mentioned earlier, that $680 odd million, which we have collected as our IPO proceeds, will be utilized to pay off the bond. Therefore, the current net debt of $4.08 billion will come down to approximately $3.4 billion.
Okay.
That's the first point. What was your second question? I didn't get that.
Okay. I said the second question was that, in the IPO prospectus, there was a section that said you are currently undergoing a court-approved capital reduction scheme in the U.K. concerning the retained loss position of $456 billion. I wanted to ask, what's the status surrounding that?
Well, I think it's ongoing. It's with reference to the share split.
Yes.
Yeah. It's still there as a court proceeding.
Okay. Still ongoing. Does this mean that, given that you are currently in a retained loss position of, I think about $456 billion as at when the full year results were published, how is this likely to impact your ability to pay dividends? Given that you give guidance of paying out about 80% of your free cash flow as dividends to investors.
Sure.
Sorry, this is Pier, head of IR. As part of the IPO process, we underwent a share split, just before it.
Okay.
As part of the process is now ongoing in the U.K., will be concluded very soon. As part of that process, we will increase our distributable reserve at Airtel Africa plc, and so we will have distributable reserve to pay dividend if the board decides to do so in line with our dividend policy.
Oh, okay.
The dividend policy which we have given in the prospectus, it says that minimum 80% of the free cash flow.
Cash flow
is distributable as dividend subject to two conditions. One, of course, board approval, regulatory clearance, everything. The second is net debt to EBITDA ratio should be maximum of 2.5. It should not breach that-
Five.
Yeah, that leverage.
Okay. Given these conditions, when should we expect dividends by the end of 2024 year?
Well, as I said, this is subject to board approval. As and when board approves this, it will come into public domain.
Okay. All right. Thank you.
Thank you.
Our next question is from the line of Balaji Subramanian from IIFL. Thank you. Please ask your question.
Hello.
Hello.
Hi. I had three housekeeping questions. You have mentioned about a one-off charge in Gabon. Could you please quantify this? My second question is, I can see that the SG&A expenses are up sharply. Is there any one-off over there? My final question is, what has resulted in a marginal decline in EBITDA for East Africa? Thank you.
The first question is on Gabon quality of service. We have a quality of service penalty, which was recognized in this quarter, $8.7 million. That's one. The second is, what was the second question?
Marginal decline.
It was on SG&A expenses.
SG&A. There is no one-off or anything. SG&A expense is in line with the revenue increase, because SG&A is also linked to the customer acquisition. Additional customer acquisition and the revenue increase leads to the increase in SG&A. As regards the EBITDA of East Africa, I don't know, maybe we are seeing some different numbers, because June 2018, our revenue was $266 million, and our EBITDA was $101. This quarter ending, we did $277 million, which is in reported currency of 4% or in constant currency, a 10% growth. Our EBITDA has moved from $97 to $113, which is a 16% growth in EBITDA. Our EBITDA margin has been strong.
Sorry, I was referring to the sequential movement from the March quarter to the June quarter.
One second.
One second.
One second. We'll come back to you a little later.
Just give us a second.
Thanks a lot. That's it from my side.
Thanks. I'll just come back to you on the next.
Yeah.
For those participants who would like to ask questions, please press star one. No further questions at this time. Please continue.
Thank you very much. Excellent. Thank you very much, everyone, for joining this call. We are glad that we've started the year on a strong note, and we do look forward to catching up with you once again. I do know the start of the summer vacation in London today, and some of you have taken special time to be here on this call. Thank you very much once again, and look forward to meeting you soon.
That does conclude our conference for today. Thank you all for participating. You may all disconnect.