Airtel Africa Plc (AAF) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q1 2021 Results Conference Call of Airtel Africa. My name is Jobin Joseph, I'll be coordinating today's call. Today's speaker is Raghunath Mandava, Chief Executive Officer. [Operator Instructions] Before we continue, I will present an important disclaimer. This call has been prepared by Airtel Africa plc 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.africa/investors. 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 COVID 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 families. 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 government to provide free P2P transfers on mobile money and some other transactions in our mobile money business. We also created a partnership with UNICEF to provide children with access to remote learning and enable access to cash assistance for people via free mobile transfer. We donated to the nation we are in PPE equipment and/or cash to fight 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-19 has impacted our operations during the last few months. During last quarter, our business was impacted by the COVID-19 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 are seeing customer usage trends return to being broadly consistent with pre-COVID-19 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 44.1%, which is a 61 basis point expansion. Our customer base grew by 11.8% to 111.5 million. 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 4G data. Our data revenue grew, up 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 18.5 million, which is an almost 27% growth over the previous year. Reported mobile money revenue was at $81 million 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 waiving 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 2 together contribute to almost 41% of our revenue and growing well over 30%. Our underlying EBITDA grew to $375 million for the quarter. This is an increase of over 14% -- 14.6% on a constant currency basis with the EBITDA margin for the quarter being 44.1%. Our strategy to invest in 4G ahead of the curve has helped grow our operation. We are building a unique infrastructure of cashing-in and cashing-out location for mobile money in the market and increasing our distribution. We continue to expand the range and depth of our Airtel Money offering through more partnerships like the recent one you saw with WorldRemit, amongst others. On to our balance sheet. At the period end, our leverage ratio was 2.2x of EBITDA. In the 3-month period, we generated an FCF amounting to $96 million, up by 53% versus last year largely due to higher underlying EBITDA by $27 million, reduced interest payments by $8 million resulting from a lower debt and a lower CapEx of $33 million, which was offset by some increase in cash taxes. This resilient performance is due to the criticality of voice, data and mobile money in people's life and the heightened preparation for COVID-19 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 while investing in our network and continue to expand our voice, data and mobile money businesses. I am joined by the CFO, Jaideep Paul; and Pier Falcione, 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.

[Operator Instructions] And we have the 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 there's been quite delay. Our initial expectations was that, that would be done by the beginning of the year [indiscernible] it requires.

Thank you, Donald. 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 2 of these 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 time line for that. The way I would like to see it is it has not been rejected and it is still in process.

And do you have -- I mean do you any feedback from them 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 if the actual word is [ transfer fee ]. Could you please explain that? Is that third-party cash flow? Or is that your own cash flow?

Jaideep, please take that.

So the exact line is increasing mobile money wallet balance in your cash flow statement, which is $55 million increase. That mobile money wallet balance, is that your own cash flow? Or is that third-party money?

So let me come. This is Jaideep. Yes, this is a third-party billed 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 of the -- because of the COVID crisis. 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 million to $650 million 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 million to $650 million.

We have next question coming from Tunde Abidoye from FBNQuest Capital.

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 2G, 3G and 4G sites? What proportion of your sites are 2G, 3G and 4G? And also, can you give us an indication of your site count in Nigeria or what proportion of those sites are in Nigeria? Then what is your expected revenue per minute? What do you see? And lastly, out of the $625 million of CapEx that you guided to, what proportion of that is going to Nigeria? That's all for now.

Okay. Let me address this. Nigeria, we have about 9,800 sites, almost 70% of them, 69%, 70% of them are on 4G.

Sorry, the line is really bad. Did you say 9,000?

9,800. Okay.

9,800. Okay.

802 (sic) [ 9,802 ] actually. And about 70% of them are on 4G. Africa, overall, is also on similar ratio on 4G, maybe a shade lower at 65%, 66% on 4G. 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 markets. We are moving towards -- more and more towards a full 4G coverage. Three of our countries, we are 100% of our sites are on 4G. 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 18 months back and today, we had only 10 megahertz of 8 -- 4G on Nigeria. Today, we are almost moving towards 35 megahertz in the 3 cities. By addition of -- as I spoke last time, by the addition of 20 megahertz of 2600 and 10 megahertz of 900, of which 5 megahertz we are using for L900, or LTE. So the key thing is how much of the spectrum we are able to allocate for 4G 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 RAN 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 months this quarter versus 4 quarters back. And that's how it is in line with our strategy.

Okay. Just one last question. What -- I'd like to have a view on where you see 5G Nigeria, where are you with respect to that?

We are evaluating 5G across the world. And as I said before, we are very keen. Some of our networks are actually ready for 5G or surely 4.5G. We are planning ahead. But the key question is what frequencies do we run 5G on and what are the use cases. We still haven't seen enough of these use cases and conversion very well. 5G normally requires huge spreads of spectrum. Currently, the way we are operating with this, let me tell you the 2 users. One is autonomous cars that everyone talks about, so that the latency is very low. That is latency is 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, 2600 layer, 900 layer and 1800 layer, for example, in Nigeria, we are able to run our home broadband base, which is slowly picking up quite well. We sell routers and MiFi devices and very attractively priced for large users at home. So we are able to get part of that chain 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 5G, but from a distance for the time being now.

[Operator Instructions] We have another question from Mr. [ Ramesh Babu ] from HSBC Bangalore.

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?

So let me look at it like this. I'll refer Jaideep to give the detailed numbers. What happens when people do more P2P, when you ran free P2P? Not only the P2P revenue that's 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 request Jaideep to pull out and share with you. In the meantime, I will answer the one on data customers. Our data customers or customer has grown up by 68%. We are reasonably comfortable, except in 1 or 2 markets and in that critical core city. 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 infills, 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 infill sites where we were a little spectrum starved in a few blocks. 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 4G ahead of everyone else, and they are very sympathetic, and they believe that we are also partners to their developmental agenda. Jaideep, would you like to add anything on money?

Yes, please. Yes. So the impact is actually $1.9 million for the quarter, the P2P free. As you know that the initial stage, when it 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 have started coming back because of the normal situation is prevailing. So the overall impact is roughly about $1.9 million.

We have next question from [ Silas Shema ] from [ FTA Global Lagos ].

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 in population, the unique -- due to some deal synergies, the unique customer penetration is still at 45%. As long as we can grow a network and make SIM cards and recharge available to people and easily, you will start seeing a lot more of this usage. So our customer growth, as I told you, is about 11.8% or we have touched 111.5 million. So when your number of customers grew 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 a 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 affordable, 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, with 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'll take the liberty of adding 2 sentences. We are an essential service. There is a genuine little demand for these services. We are like electricity. We believe if they do not have electricity, they're eagerly waiting for it. People are waiting to -- wanting to become telco customers because this is an essential service and a need of them. How well we service is the 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 do 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 actually -- there is a growth in the voice revenue, voice usage. But most impact is coming because of the roaming and the interconnect charges of the international call.

So the current growth you are seeing at 2.2% in spite of -- or despite these drops we've seen on roaming and interconnect.

Yes. What's your blended CRM?

Sorry?

Your blended CRM?

Jaideep, have you understood? I'm missing.

Sorry, blended what?

Yes, effective revenue per minute.

Effective revenue per minute.

So 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 the largely what we worked on is ARPU and voice usage per customer. So if you really look at it, that will be almost less than $0.01 maybe. I don't have -- do you have the number?

Yes. So if I see the realization -- I believe the question is on the customer rate is that correct? So the outgoing price -- sorry, or realization.

Sorry, Jaideep, please go ahead.

Is it -- 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. Well, I think it's [indiscernible].

Voice revenue? Okay. So it's voice revenue per minute, yes?

Yes. We don't publish effective revenue per minute. It's not a KPI that we disclose.

[Operator Instructions] We currently have no further questions, and over to Mr. Raghunath.

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're 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-19. 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.