Nigeria’s Market Drives Airtel Africa’s Earnings Jumps in Q1
- For Airtel Africa, Data Revenue Spikes 37%
- Cash awash Airtel Africa proposed interim Dividend
- Airtel Nigeria Records Solid Revenue Growth, Supported by Voice, Data
Airtel Nigeria has continued to a major segment driving the overall performance of Airtel Africa Plc. with reported strong growth in voice and data revenues on increased customers’ base.
In the earnings call with analysts for the second quarter, the company revealed that revenue growth in Nigeria spiked more than 23% year on year.
Raghunath Mandava said Airtel Africa has passed one hundred million customers in the last quarter, out of which 30% of our customers use data and 15% mobile money.
Airtel Africa Chief stated that these are strong results which are a clear evidence of the company’s strategy and continuation of delivering the profitable growth.
Meanwhile, the Telco giant stated that it is paying interim dividend as part of its pay-out policy as analysts questions why the management chose to distribute profit instead of de-leveraging the balance sheet.
Airtel Africa said it is has strong liquidity as its cash position for the period settled at $1.45 billion.
In its top gear plan, the management also expressed readiness to settle potential cross default trigger payment $505 million on its bonds.
In the first half of 2020, Airtel Africa unaudited result shows that revenue grew by 11.4% with EBITDA growing even faster.
“We delivered a margin expansion of 90 basis points in constant currency terms, revenue growth broad-based across all our services of voice, data, and mobile money”, Mandava stated.
He said Airtel Africa continues to improve its balance sheet position with a leverage ratio down to 2.3x.
Management stated that overall growth of Airtel Africa is broad-based with growth across voice, data, and mobile money.
“At less than 44% of unique customer penetration, there is ample opportunity for growth in customer terms, and this is reflected in our customer growth by over 10%, lending to a voice revenue growth of 3.2%”, Mandava explained.
Speaking further, Mandava said: “Our investments in 4G and a belief that the demand for data is huge in Africa, was reflected in our data customer growth by more than 17%”.
Thanks to the huge network roll-out of 4G, and our “More for More” bundles, he added.
Data average revenue per user (ARPU) grew by 18.5%, data revenue grew by over 37%, and data consumption per customer increased to 1.65GB indicating huge appetite for data consumption in the absence of other technology providing data access in Africa.
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Mandava said mobile money continued to expand country by country, and the revenue growth is more than 46% year on year.
“In both customers and ARPU terms, we have recorded growth, thereby, indicating increasing usage and transaction value.
“Data and mobile money now contribute 26% and 9%, that’s 35% of our overall revenue, and it grew by almost 40%.
“Simultaneously, we are developing the voice segment which also recorded a growth.
“Our belief in the huge growth potential in Africa across all segments (is) further vindicated by the revenue growth of 11.4 % and EBITDA growing faster. Free cash flow was up by 28 %”, Airtel Africa Chief explained.
This is the 7th successive quarter of double-digit growth and EBITDA margin expansion. Mandava said Airtel Africa strong record reinforces three things.
First, the market, the potential for growth in Africa considering 44% unique customer penetration; poor fixed line infrastructure with a potentially huge data growth, and a massive opportunity on financial services.
Second, he said building the right operating model tailored for the African subcontinent, which means building a very profitable and high growth business.
Also, successful execution, if possible even in challenging market with a great (team) that we’ve really built in Africa.
Nigeria:
Airtel Africa boss said Nigeria is the largest market which continued delivering a very strong growth.
“We continued building our leading 4G network in Nigeria, which prove to be an important and profitable milestone for us”, Mandava said.
The management stated that 4G sites more than doubled in the last year, and now, account for more than 60% of our sites.
Overall data consumption grew over 90% and data revenue grew over 75%.
“Our continued focus on cost-efficiency, despite the high investment in network, helped us increase our EBITDA margin to 53.2 %.
“Our overall revenue grew more than 23% in Nigeria. We are keen to launch the mobile money service in Nigeria.
“We filed for relevant applications for both payment service bank and super-agent license.
“We are confident that the roll of mobile (operators and) financial services in Nigeria will grow”, the management stated.
Airtel Africa expressed mix performances across its 6 countries in the East Africa market, some of which have very strong businesses, while the Telco said it is a challenger in others.
The Telco said it has continued to build a very strong networks with nearly all sites being 4G, especially, in a few countries.
“We have completed our network modernization in most of these countries.
“Soon, we will be launching 4G services in Tanzania that will enable that we will be able to provide 4G services to all our customers across the 14 markets”, the management explained.
And here, Mandava said the excellent example is the mobile money expansion.
The revenue growth along with cost-efficiency supported underlying EBITDA growth of 16.2 % in constant currency, thus led to EBITDA margin improvement of 164 bps in constant currency.
In the rest of Africa, revenue was down by 2.9%, however I’m confident it has started recovering in first half.
“We recorded a solid customer base growth. Voice revenue dropped by over 10% due to a reduced termination rates and interconnect charges among others in Nigeria, Chad and Madagascar”, Airtel Africa Boss said.
The management stated Airtel Africa’s 4G launches in Rest of Africa happened a little later than other countries.
“We are still to see the big uptick in the overall growth. However, even now, we are observing a very good growth in data consumption translating to 22 % growth”, the management said.
Our investments in 4G and increasing handset penetration result in the higher data consumption.
Speaking on the figure, Jaideep Paul, the Chief Finance Officer (CFO) said: “Our constant currency revenue grew by 11.4 % and 12.6 % in Q2.
EBITDA increased 13.7 % leading to 100 basis point EBITDA margin expansion, which now stands at 43.9 %.
Absolute EBITDA for the half year stands at $719 million, our balance sheet position also has improved, lower net debt and higher EBITDA led to net debt to EBITDA ratio at 2.3 times, in line with our capital structure policy.
“We generated strong free cash flow up 28 % to $237 million. EPS before exceptional item was 4.1 cents.
On a normalized basis, by assuming a similar weighted average number of shares, EPS nearly doubled over previous year first half. Moreover, the Board has approved an interim dividend of 3 cents per share.
Reported revenue were up 8.4 % while constant currency growth was 11.4.
This is more than offset unfavorable foreign exchange devaluation in certain countries, revenue growth was broad-based across voice, data, mobile money, the CFO said.
Segment Performance:
Looking at the performance across all three segments, Airtel Nigeria delivered a strong growth both in voice and data, supported by double digit customer growth and 1.5 % increase in ARPU.
In East Africa, we delivered a good performance across voice, data, and Airtel money. Kenya, Tanzania, Malawi, Zambia, all delivered double digit growth.
Performance in Rest of Africa improved in the second quarter largely driven by data and mobile money while continues to pressure due to macroeconomic weakness and changes to interconnect rate.
In Rest of Africa segment, Airtel Africa delivered good performance in DRC, Chad and Seychelles.
Meanwhile, in countries like Gabon, Niger and Republic of Congo, Airtel Africa said it delivered a good growth in data, even though not enough to offset the voice revenue drop.
Mobile money business delivered another quarter as well as half year of strong performance.
The unaudited statement shows that revenue grew by 46.5 % in constant currency driven by customer growth, growth in transaction value.
The management stated that growth in customer base was largely driven by the expansion of distribution network as the business invested in more franchisee driven exclusive kiosks and mobile money branches.
Explaining the numbers further, the CFO said underlying EBITDA increased by 91 % amounting to $70 million, driven by revenue growth and supported by optimal distribution cost structure resulting into better flow-through in EBITDA.
Paul said as a result, underlying EBITDA margin improved to 48%, up from 3%. ARPU and mobile money also increased by 22.4%, mainly driven by add-on services like merchant payments, etc.
The management said Airtel Africa delivered a consistent EBITDA growth. In the period, EBITDA increased 10.9% in reported currency and 13.7% in constant currency.
Paul said during the half, the company incurred $246 million of capital expenditure and maintained full year guidance for our Capex to be in the range of ($650 to 700) million.
“We aim to return cash to shareholders through clear dividend policy which aim at distributing a minimum of 80% of our consolidated free cash flow subject to our leverage ratio to below 2.5 and any other regulatory or monetary restrictions”, the CFO said.
Airtel Africa CFO said the board has approved an interim dividend of 3 cents per share.
“Our very strong free cash flow generation seen in the first half, as free cash flow increased 28% to $237 million as higher EBITDA growth and lower year on year working capital outflow, more than offset higher capital expenditure as we continue to invest in our network and distribution infrastructure”, he added.
Tax payments were higher in the half, largely as a result of higher operating profits and were broadly offset by low interest payment as a result of lower net debt.
So, our balance is getting stronger, the CFO painted at the earnings call.
He said over the last four years, the Telco has consistently deleveraged and now closed the half year with a net debt to EBITDA ratio of 2.3.
The CFO said this is well within the company’s targeted capital structure policy, largely driven by both EBITDA growth and lower net debt as a result of receipt of initial public offer (IPO) proceeds.
“In line with our medium-term strategy to increasingly match our currency exposure with asset and liabilities, we have reduced our foreign currency date by 41 % and increased our local currency date exposure by 29%”, Airtel Africa CFO stated.
In the medium-term, we will continue to focus on deleveraging our position through EBITDA expansion and asset monetization opportunities, as well as, continue to diversify our currency exposure.
“We delivered consistent double-digit revenue growth with all services, namely voice, data, mobile money contributing to the growth.
“EBITDA grew even faster and we expanded our EBITDA margin by 90 basis point in constant currency term.
“Cash delivery was also strong, up 28% at $237 million.
“We continued to deleverage and reach a leverage ratio of 2.3, in line with our capital structure policy, as a result of both EBITDA margin – EBITDA growth and lower net debt”, the CFO explained.
Segun Ogunsanya the Managing Director and Head of the (Region) of Nigeria said Airtel continue to expand our business in Nigeria through network expansion.
“We’ve invested significantly beyond 4G that is driving quality customer who spend a lot more money.
“So, if I’m to summarize, two key levers are driving the growth, one is expansion of networks, two our efficient distribution infrastructure”, Ogunsanya added.
Commenting on why the Telco giants is distributing dividend, Airtel Africa’s CFO Paul said interim dividend is in line with the company’s dividend policy.
Airtel Africa policy allows distribution of a minimum 80% of its free cash flow subject to leverage ratio being below 2.5, and subject to any other monetary or regulatory restriction.
“So, this has been evaluated thoroughly by the board and board has recommended this dividend”, Paul stated
On the company’s plan to deleverage its book, Airtel Africa Chief said the group has data center and other (sum of the assets) which can be monetized, and some cash can be generated from there.
“We are actively working on those. So that’s one of the way of reducing the overall debt. EBITDA expansion, asset monetization, and a very tight control on the overall CapEx, are the three things which will lead to, in the future, the – deleveraging, or, improving the leverage or the net debt position”.
Nigeria’s Market Drives Airtel Africa’s Earnings Jumps in Q1
