FSDH Initial Reaction: Airtel Africa Plc 2Q23 results 
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October 31, 2022/FSDH Research

Key Performance Highlights:

• Airtel Africa recorded a 12.7% YoY revenue growth in reported currency to US$1,308 million in 2Q23 (+18.5% in constant currency terms). This overall growth is in-line with the 1Q23 but slightly slower than recent trends due to some specific challenges over the last six months, largely as a result of the effect of barring outgoing calls in Nigeria for those customers who had not submitted their National Identity Numbers (‘NINs’) and the loss of tower sharing revenues following the recent sales of towers in Tanzania, Madagascar, and Malawi. The top-line growth was driven mainly by a 9.7% YoY growth in the customer base to 134.7 million, supported by 3.5% YoY ARPU growth (+8.9% in constant currency terms). Looking at segmental revenue growth, the company maintained the same growth trajectory for the segments, with the data (+18.4% YoY, +24.3% in constant currency) and Mobile money (+28.1% YoY, +32.3% in constant currency) driving the revenue growth, supported by Voice (+6.5%, +12.7% in constant currency) and Other (+7.9%, +13.4% in constant currency) Segment. Nigeria led the revenue growth by region, with the revenues growing 16.0% YoY (+21.0% in constant currency), followed by East Africa (+9.0% YoY, +14.0% in constant currency) and Francophone Africa recorded (+4.0% YoY, +14.0% in constant currency).
   
• The network operating expenses spiked 27.6% YoY to US$259 million, and access charges edged 1.0% higher to US$100 million in 2Q23, while the employee benefits expenses declined 4.1% to US$70 million. Sales & Marketing expenses grew 5.6% YoY, owing to the rising inflationary environment in the economy, while the other expenses continued to rise in double digits, with an 11.4% YoY jump in 2Q23 to US$127 million.
   
• The company’s operating profit surged 17.5% YoY (+22.9% in constant currency terms) to US$446 billion in 2Q23 due to strong revenue growth and modest improvements in operating efficiency in East Africa and Francophone Africa. Net finance costs vaulted 2.8x YoY to US $212 million due to higher foreign exchange and derivative losses. It’s worth noting that the Group’s effective interest rate increased to 6.4% in 1H23 compared to 5.5% in the prior period, largely driven by an increase in base rates. Consequently, the profit before tax declined 22.1% YoY to $240 million in 2Q23. The company recorded an effective tax rate of 36.7% in 2Q23 compared to 37.7% in 2Q22 due to the initial recognition of a deferred tax credit in Kenya in 2Q23. The company’s profit after tax was down 20.8% YoY to US$152 million, mainly due to higher foreign exchange and derivative losses, partially offset by strong operating performance. The company’s earnings per share came in at 3.5 cents, down 16.8% YoY.
   
• The company recorded a 13.8% growth in underlying EBITDA in reported currency (+19.1% in constant currency terms) to US$641 million in 2Q23, driven by revenue growth and supported by continued improvement in operating efficiencies, which more than offset inflationary cost pressures. The underlying EBITDA margin stood at 49.0% in 2Q23, a 45 bps YoY expansion in reported currency (23 bps in constant currency). In July 2022, the Group prepaid US$450m of outstanding external debt at HoldCo. The remaining debt at HoldCo is now US$550m, falling due in May 2024. The leverage ratio has fallen to 1.3x from 1.5x in the prior period. Net cash generated from operating activities increased 30.7% YoY to US$620 million, while the Return on Capital Employed was 23.7% in 2Q23, a 411 bps YoY improvement.
   
• Looking at the key operating metrics, the Customer base grew by 9.7% YoY to 134.7 million, with increased penetration across mobile data (customer base up 10.6%) and mobile money services (customer base up 24.0%). Airtel Africa also recorded an ARPU growth of 3.5% YoY in reported currency (+8.9% in constant currency) to US$3.3 in 2Q23.
   
• The board declared an interim dividend of 2.18 cents per share (2 cents in 1H22). 
   
• Other key updates:

1. On 14 October 2022, the company announced that Airtel Networks Zambia plc had purchased 60 MHz of additional spectrum spread across the 800 MHz and 2600 MHz bands from the Zambia Information and Communications Technology Authority (ZICTA) for a gross consideration of $29m, payable in local currency.
2. On 15 July 2022, the company announced that Airtel Kenya Networks Limited had purchased 60 MHz of additional spectrum in the 2600 MHz band from the Communications Authority of Kenya for a gross consideration of $40m. The license is valid from July 2022 for 15 years.

Market Reaction: Investor reaction to the 2Q23 results was muted as the stock closed unchanged at N1,275.0, versus a 1.60% loss for the All-Share Index (28/10).

Airtel Africa Earnings Highlight 2Q23

Source: Company Financials, FSDH