Airtel Africa plc (LON: AAF) Financial review for the Half Year, ended 30 September 2019
· Customer base grew by 10.4% to 104 Mn
· Revenue increased by 8.4% to $ 1,640 Mn in H1 with Q2 growth accelerating to 9.8%
· In constant currency terms, revenue grew 11.4% in H1 and 12.6% in Q2. This was the 7thconsecutive quarter of double-digit constant currency growth. The constant currency revenue growth of 11.4% was driven by double-digit growth in Nigeria and East Africa, partially offset by a slight decrease in Rest of Africa
· Growth was broad based across all services, with revenue in Voice, Data and Mobile Money up by 3.2%, 37.8% and 46.5% respectively
· Reported underlying EBITDA was $ 719 Mn in H1, up 10.9%, while constant currency underlying EBITDA growth was 13.7% over the same period
· Underlying EBITDA margin in reported currency was 43.9% in H1, an increase of 100 bps, while there was an increase of 90 bps in constant currency terms
· Operating profit increased 8.6%
· Free cash flow was $ 237 Mn, up by 28% in H1
· EPS before exceptional items was $ 4.1¢ and Basic EPS was $ 6.3¢
· Net debt to EBITDA was 2.3x, compared to 5.1x as of September 2018
· The board declared an interim dividend of $ 3¢ per share.
|Alternative Performance Measures||GAAP Measures|
|$ Mn||$ Mn||Change %||Change %||$ Mn||$ Mn||Change %|
|Underlying EBITDA||719||649||10.90%||13.70%||Operating Profit||395||364||8.60%|
|Underlying EBITDA Margin||43.90%||42.90%||100 bps||90 bps||Profit Before Tax||316||122||158.40%|
|Free Cash Flow||237||185||28.00%||Profit After Tax||228||204||11.90%|
|EPS before exceptional items ($ cents)||4.1||6.1||-32.70%||Basic EPS ($ cents)||6.3||15.5||-59.40%|
|EPS before exceptional items ($ cents)-Restated (1)||3.7||1.9||96.80%||Basic EPS ($ cents)-Restated (1)||5.7||4.8||18.60%|
(1) In July 2019, following the announcement of the Initial Public Offering, the company issued 676,406,927 new shares. EPS has been restated considering all the shares as at 30th September 2019 had been issued on 1st April 2018 for like for like comparison. (2) For a reconciliation between GAAP Measures and Alternative Performance Measures, refer to section “Reconciliation between GAAP and alternative performance measures on page no 40. (3) The difference between reported currency and constant currency growth rates is on account of currency movements with reference to the US dollar rate.
Raghunath Mandava, Airtel Afria Chief Executive Officer, commented on the trading update:
“These figures underline the strength of our ability to consistently deliver growth across voice, data and mobile money. In the first 6 months of this financial year, we delivered revenue growth of 11.4% in constant currency terms, with even higher underlying EBITDA growth as we continued to improve our operating leverage and tight focus on costs. This performance underlines our ability to consistently grow in double digits, powered by our growth engines of Data and Airtel Money growing at 37% and 46% respectively. This is the 7th quarter of double-digit growth with EBITDA margin expansion of over 90 basis points.
In July we reached an important milestone as we crossed 100 million customers across our footprint. Our strong customer growth aided by distribution expansion was a key driver behind voice revenue growth. Our investments ahead of the industry in LTE network along with our simple and intuitive customer journeys have helped grow data consumption by 81% and data revenue growth by 37.8%. Over the last 6 months we launched 4G services in Democratic Republic of Congo and Niger, and 4G sites now account for 58% of total sites. Now we are ready to launch in Tanzania, thereby making 4G services available across all our 14 countries.
Revenue in our Mobile Money business grew 46.5% in H1 and just above 50% in Q2, as a result of compelling customer propositions and the investments in our exclusive franchise stores and Kiosks. We have also announced exciting partnerships with Mastercard, Ecobank and Finablr which we believe will help to further support our growth aspiration and drive financial inclusion. The business continues to show positive momentum and we are confident we will continue to deliver sustained growth across Voice, Data and Mobile Money, underpinning our medium-term aspirations for revenue and profitable growth.”
Financial review for the Half Year, ended 30 September 2019
Revenue increased by 8.4%, with constant currency growth of 11.4% being partially offset by currency devaluation. Growth accelerated in the second quarter to 12.6% in constant currency as a result of improvement in performance of Rest of Africa. Constant currency revenue growth was largely driven by a 10.4% increase in the customer base, to 104 Mn, and ARPU growth of 1.5%. Double digit revenue growth in Nigeria and East Africa was partially offset by a decrease in Rest of Africa revenues. Across services, revenue growth in constant currency terms was positive with mobile Voice up 3.2%, Data up 37.8%, and Mobile Money up 46.5%.
Operating profit increased by 8.6% as a result of strong revenue growth, while operating expenditures as percentage of revenue remained broadly flat. Operating profit in constant currency terms grew by 11.1%, partially offsetting the currency devaluation.
Finance costs reduced by $ 70 Mn. A 23% decrease in interest costs, as a result of lower debt, and derivatives gains more than offset the impact from one-off benefits incurred in the prior year, higher costs related to the IPO and foreign exchange impact on debt.
Total tax charge for the period was $ 88 Mn, as compared to a tax credit of $ 82 Mn in the same period last year as a result of one-off items which included deferred tax recognition in Nigeria for $ 116 Mn and a tax reversal of $ 27 Mn in the 6 months ended 30 September 2018.
Profit After Tax
Profit After Tax was $ 228 Mn, an increase of 11.9% driven by an increase in operating profit and lower finance costs partially offset by higher tax charges.
Basic Earnings Per Share
Basic EPS was $ 6.3¢, down 59.4%, due to the increase in the number of shares issued. If all the shares as at 30th September 2019 had been issued on 1st April 2018, the restated Basic EPS for 6 months ended 30 September 2019 would have been $ 5.7¢ and 6 months ended 30th September 2018 would have been $ 4.8¢.
Alternative Performance Measures
Underlying EBITDA was $ 719 Mn, up 10.9% largely driven by 13.7% constant currency growth, partially offset by currency devaluation. Underlying EBITDA margin was at 43.9%, an improvement of 100 bps as operating efficiencies in network expenses and other overheads partially offset by one-off impact from the quality of service charge in Gabon.
Foreign exchange has an adverse impact of $ 43 Mn on revenues and $ 17 Mn on underlying EBITDA, largely driven by the devaluation of the Zambian Kwacha and Central African Franc. The currency exchange rates in other markets remained broadly stable compared to the same period last year
The adjusted effective tax rate for the current period was 37.1% as compared to 47% in the same period of the last year. The adjusted effective tax rate is lower compared to last financial year primarily on account of deferred tax asset recognition in Rest of Africa.
The adjusted effective tax rate is higher than the weighted average statutory tax rate of 33% largely due to the profit mix between various countries.
Exceptional items of $ 74 Mn for the half year ended 30 September 2019, mainly consisted of a $ 72 Mn gain related to the expired indemnity to certain pre-IPO investors as disclosed in the registration document published on 28 May 2019.
Free cash flow
Free cash flow was $ 237 Mn, up by 28%, underlying EBITDA increase was partially offset by capex increase, due to network modernization as well as roll out of additional sites, and reduction in working capital. Higher tax payments, largely as a result of higher operating profit, were offset by lower interest payments due to lower debt.
Earnings per share before exceptional items
Earnings per share before exceptional items was $ 4.1¢, down 32.7%, as a result of an increase in the number of shares issued. However, if these shares had been issued on 1st April 2018, the restated EPS before exceptional items for 6 months ended 30 September 2019 would have been $ 3.7¢ and $ 1.9¢ cents for the 6 months ended 30th September 2018.
Net Debt and Leverage
Net debt reduced to $ 3,191 Mn in September 2019 compared to $ 6,439 Mn in September 2018. The reduction in net debt is a result of bond repayments of $ 2.2 Bn and an increase in cash from the net IPO proceeds of $ 670 Mn. As a result, leverage reduced to 2.3x as of September 2019 as compared to 5.1x as of September 2018 basis LTM EBITDA.
Other significant updates
The Board approved an interim dividend of $ 3¢ per ordinary share. The proposed interim dividend will be paid on 29 November 2019 to shareholders who are on the register of members at close of business on 15 November 2019 (the Record Date). Further details will be announced by the Company in due course.
On 28 June 2019 the Airtel Africa announced the successful pricing of its Initial Public Offering at 80 pence (NGN 363) per Share. The Offer comprised 676,406,927 new Shares (being the total of 637,178,959 new Shares in respect of the global offer to institutional investors in various jurisdictions outside of Nigeria and 39,227,968 new Shares in respect of the offer to qualified institutional investors and high net worth investors in Nigeria.
Unconditional trading of the Shares commenced on the London Stock Exchange on 3 July 2019 and commenced on the Nigerian Stock Exchange on 9 July 2019.
FTSE 250 inclusion
On 9 September 2019 it was announced that Airtel Africa plc would be added to the FTSE 250 index as from 23 September 2019.
On 9 October 2019 the Group announced a partnership with Mastercard which will give Airtel Money customers the ability to make online payments globally via a virtual Airtel Money Mastercard. In addition, Airtel Money customers, even those using a feature phone, will also be able to make in-person payments at outlets via Quick Response (QR) codes. To date, there are over 1 Mn merchant locations across Africa that accept Mastercard QR payments, approximately 700,000 of which are in Nigeria, Airtel Africa’s largest market and where the company has already applied for a payment service bank license.
On 21 October 2019 the Group announced a partnership with Ecobank which will allow millions of Airtel Money and Ecobank customers across Africa to improve their access to mobile financial services and carry out a variety of mobile transactions.
On 22 October 2019 the Group announced partnership with Finablr which will enable Airtel Money customers to receive money directly to their phones, in their Airtel Money wallets, from more than 160 countries around the world. Money will be able to be sent conveniently and affordably through either the Finablr agent network in 160 countries, the Finablr online portal, an Airtel Money mobile app or the Airtel Africa online portal. Once the funds have been received on their handsets, Airtel Money customers have the choice to cash out in nearly 300,000 Airtel Money outlets and agents across Africa, make peer to peer payments, or pay bills and merchants Airtel Africa will shortly begin a marketing programme targeted at African communities abroad.
The Group obtained a spectrum of 20 MHz in 2600 MHz band in Nigeria, an additional spectrum of 5 MHz in 1800 MHz band in Chad and 10 MHz in 2100 MHz band in Malawi during the period.
Nigeria Payment Bank License:
Application for Payment Service Bank (PSB) License and Super-Agent License has been filed with Central Bank of Nigeria (CBN). Approval of the brand name was received in July 2019.
Regulatory development related to Bharti Airtel Limited
On 24 October 2019, The Honourable Supreme Court of India delivered an adverse judgment impacting the Telecoms Service Providers in India including the Group’s Parent company Bharti Airtel Limited.
Management will host an analyst call today at 9.30am.
Information on additional KPI
An IR pack with information on additional KPI and balance sheet is available to download on our website at https://airtel.africa/investors
The Group is well positioned to capture growth opportunities presented by promising underlying macroeconomic and demographic trends in a fast-growing region that is vastly underpenetrated in terms of mobile and banking services. The Group’s footprint is characterized by low but increasing levels of mobile connectivity, with a unique user penetration at 44%, highlighting the potential for growth across its footprint.
Airtel Africa’s strategy underpins its medium-term aspirations for delivering growth in revenues and earnings, and our belief in enhancing connectivity and digitizing the countries where we operate. To this end, the Group has invested to expand its network footprint and number of 4G sites to enhance network capabilities and support its future business growth. A combination of an under-penetrated telecom market, a young addressable population and rising smartphone affordability, along with low data penetration and unbanked population, provide the growth opportunities for the data and Mobile Money segments.
The business continues to build momentum and the Group is confident of delivering sustained growth across voice, data and mobile money to deliver on its medium-term aspirations for revenue and profit growth. The young and fast-growing populations served by the Group are increasingly connecting to mobile networks, with solid growth in mobile subscribers in Airtel Africa’s footprint expected in the years to come.
During the reporting period, the Group continued to make clear progress across each of its core strategic pillars, namely Win with Quality Customer; Win with Network; Win with Data; Win with Airtel Money; Win with Cost Optimization; Win with People and multiple in the areas of Additional Upside.
Sub-Saharan Africa is characterized by low penetrated markets, with unique subscriber penetration at 44%. The Group’s continued focus on building exclusive channels, combined with a simplified digital onboarding application with seamless onboarding customer experience have enabled to add quality customers, resulting in customer base growth of 10.4% to 104 Mn customers across our footprint. The customer growth remains well diversified across the three segments, where it increased by 15.6% in Nigeria, 9.1% in East Africa and 3.8% in the Rest of Africa. The overall churn decreased by 0.1% to 4.8%.
The Group continued to invest in its distribution network. During the first half of 2019, the Group added more activating outlets for KYC and exclusive franchise stores.
Customer onboarding experience continued to be enhanced through the launch of a Digital On-boarding application in 13 markets. The digitized application captures all regulatory requirements and allows most activations to be done within 5 minutes of SIM sale.
The Group’s processes for improved self-care, implementation of interactive and dynamic IVRs helped to provide faster resolution to customer’s queries, resulting in improved customer experience. In addition, the attractive pricing propositions resulted in increasing usage per customer by 3.7%, thereby contributing to voice revenue growth of 3.2%.
The Group strategy to invest in the 4G network through single RAN technology has resulted in better 4G coverage and enhanced the network’s capacity, leading to high-speed data being made available to more of our customers. With continued investment in 4G network across our footprints, 4G sites now contributes 58% of total sites as compared to 27% in the last year. In the first half of the year, the Group launched 4G services in Democratic Republic of Congo and Niger and we are ready to activate the commercial launch in Tanzania, thereby making 4G services available across all of our 14 countries.
In the six months ended 30 September 2019, the Group completed its network modernization in nine countries (Uganda, Kenya, Zambia, Malawi, Rwanda, Congo B, Gabon, Madagascar and Seychelles) and continued the modernization in other countries.
The Group continued to invest to build large fibre capacities. In the past 6 months, the Group increased the number of sites on fibre and long-distance fibre capacities which has helped the Group to build strong redundancies, which further supported greater uptime and high-speed data availability to the Group’s customers.
The Group also acquired additional spectrum, by adding 2600 MHz frequency (20 MHz) in Nigeria, 1800 MHz (5 MHz) in Chad and 2100 MHz (10 MHz) in Malawi. Furthermore, the Group continued the spectrum refarming activities to maximize network capacity.
The Group investment activities resulted in Capex amounting to $ 246 Mn in the first half of the year, excluding spectrum acquisitions.
Data growth is a key pillar of the Group’s strategy. The improved LTE network offered by the industry has contributed to increased smartphone penetration. The percentage of 3G and 4G enabled smartphones increased to 31% from 27.8% in the previous year. This has resulted in data customers increasing by 17.7% to 31.9 Mn which now represent 30.7% of our total customer base.
The Group’s strategy to partner with key handset outlets, offering more affordable smartphone bundles and a customer-friendly SIM upgrade process has also supported data customer growth. Higher adoption of “More for More” data bundles has helped increase the data usage per customer to 1.6 GB/customer from 1GB/customer in previous period. All these have contributed to data revenue growth of 37.8%.
As a result of increased penetration and usage of 3G and 4G data customers, data ARPU increased by 18.5%, with every region contributing to data ARPU growth.
The Group continues to work on enhancing financial inclusion across its footprints. The lower penetration of traditional banking services demands mobile money services to fulfil the needs of largely unbanked customers. Continued expansion of distribution network of both agents and exclusive run franchisees (Kiosks, Mini-shops and Airtel Money Branches) contributed to ensure float availability to the customers. This has been a key driver of building greater confidence and interest towards Airtel Money across our footprints. The Group has also enhanced mobile money offerings to customers through enhancement of the merchant ecosystem, and offering insurance, loans and international money transfer facilities through partnership with other financial service providers.
Expanded distribution and enhanced offering contributed to mobile money customer growth of 2.6 Mn to a total of 15.5 Mn and an increased annualized transaction value to $ 30 billion from $ 24 billion in the previous period. Annualized transaction value in Q2’20 amounted to $ 32 billion.
Mobile money continues to be Airtel Africa’s fastest-growing business segment, delivering revenue growth of 46.5% in the first half year, and slightly above 50% in Q2. It is an increasingly more important part of our business and currently accounts for 9% of total revenues.
The Group continued to enhance its customer offering by entering into partnerships with leading institutions such as Mastercard, Ecobank and Finablr to provide improved access to digital payments, to allow customers to receive conveniently and affordably funds from 160 different countries and improve customer access to financial services.
The Group has an efficient operational model, focused on cost efficiency initiatives and enhancing our digitalization initiatives. We embrace robust cost discipline and continuously seek to improve processes with the aim to deliver one of the highest EBITDA margin in the industry. Additionally, we adopt technology in a financially efficient manner to optimize capital expenditures.
As we actively expand our infrastructure network, we adopt detailed analysis with the aim to minimise the incremental cost of building additional sites and additional capacity. We are also looking to limit on-going operating costs per-site by looking at initiatives to save energy costs, convert sites to a grid and consolidate sites already owned. Moreover, in the first half of the year we were able to largely reduce the cost per Mbps through our continued investments in large capacity IRUs and fibre in line with our model of creating huge throughputs.
We look at ways of simplifying our operating model on an on-going basis, making it seamlessly digitizable across all customer-facing and other processes. We established shared service centre in India, and we continue to look at ways to further leverage it by migrating more processes there.
In the first half year EBITDA margin expanded by 100bps to 43.9%, as a result of double-digit revenue growth and cost efficiencies.
Areas of additional upside
The Group’s improved 4G network, alongside the increase in sites on fibre has provided an improved infrastructure to establish and grow both a wireless home broadband and enterprise businesses. The MiFi and the routers launched across the Group’s footprints resulted in the growth of wireless home broadband. The Group has also witnessed encouraging results on fixed-line and enterprise business.