FSDH Initial Reaction: Airtel Africa Plc 3Q23 results 
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February 2, 2023/FSDH Research

Key Performance Highlights:

• On February 2, 2023, Airtel Africa reported 3Q23 numbers. The company recorded a 10.7% YoY revenue growth in reported currency to US$1,350 million in 3Q23 (+18.0% in constant currency terms). Although overall growth is in line with the first two quarters (1Q23: +13.0% YoY and 2Q23: +12.7% YoY), it continues to be impacted by the effect of voice customers barred in Nigeria and the loss of tower-sharing revenues following the sale of towers in Tanzania, Madagascar, and Malawi. The top-line growth was driven mainly by a 10.1% YoY growth in the customer base to 138.5 million. Looking at segmental revenue growth, the company maintained the same growth trajectory for the segments, with the data (+15.0% YoY, +22.7% in constant currency) and Mobile money (+24.2% YoY, +30.3% in constant currency) driving the revenue growth, supported by Voice (+6.5%, +13.9% in constant currency) and Other (+0.5%, +6.8% in constant currency) Segment. Nigeria led the revenue growth by region, with the revenues growing 14.6% YoY (+23.1% in constant currency), followed by East Africa (+4.5% YoY, +10.8% in constant currency) and Francophone Africa (+4.5% YoY, +11.2% in constant currency).
   
• The network operating expenses surged 31.1% YoY to US$270 million, and License fee increased 14.0% YoY to US$65 million in 3Q23, while the access charges edged 1.0% lower YoY to US$101 million and employee benefits expenses declined 5.1% YoY to US$74 million. Sales & Marketing expenses grew 3.3% YoY, owing to the rising inflationary environment in the economy, while the other expenses declined 3.6% YoY in 3Q23 to US$108 million.
   
• The company’s operating profit surged 7.8% YoY (+14.6% in constant currency terms) to US$446 million in 3Q23 due to continued revenue growth and modest improvements in operating efficiency in East Africa. In 3Q23, net finance costs vaulted 32.2% YoY to US$161 million due to higher foreign exchange and derivative losses of US$24 million and higher interest on lease obligations of US$14 million. Consequently, the profit before tax marginally declined by 4.2% YoY to $285 million in 3Q23. However, the company recorded an effective tax rate of 32.3% in 3Q23 compared to 39.4% in 3Q22 due to the initial recognition of a deferred tax credit in Kenya. The company’s profit after tax was up 7.5% YoY to US$193 million, mainly due to strong operating performance, partially offset by higher foreign exchange and derivative losses. The company’s earnings per share came in at 4.6 cents, up 11.1% YoY.
   
• The company recorded a 9.3% growth in underlying EBITDA in reported currency (+16.4% in constant currency terms) to US$661 million in 3Q23, driven by revenue growth and supported by cost initiatives, which more than offset inflationary cost pressures. However, the underlying EBITDA margin declined 60 bps YoY in reported currency (65 bps in constant currency) to 49.0% in 3Q23. The leverage ratio has largely remained stable at 1.4x in 3Q23. Net cash generated from operating activities increased 19.3% YoY to US$689 million, while the Return on Capital Employed was 23.8% in 3Q23, a 283 bps YoY improvement.
   
• Looking at the key operating metrics, the Customer base grew by 10.1% YoY to 138.5 million, with increased penetration across mobile data (customer base up 13.6%) and mobile money services (customer base up 22.2%). Moreover, Airtel Africa recorded an ARPU growth of 0.6% YoY in reported currency (+7.2% in constant currency) to US$3.3 in 3Q23.
   
  Other key updates:

1. On 6 December 2022, the company announced the signing of a new US$194 million facility with the International Finance Corporation (IFC). The new financing facility aligns with Airtel Africa’s strategy to increase debt within its operating companies. The 8-year facility is largely in local currency and will support the company’s operations and investments in the Democratic Republic of Congo, Kenya, Madagascar, Niger, Republic of Congo and Zambia, providing more diversified access to local funding.
2. On 9 January 2023, the company announced that Airtel Networks Limited (‘Airtel Nigeria’) had purchased 100 MHz spectrum in the 3500MHz band and 2x5MHz of 2600MHz from the Nigerian Communications Commission (NCC) for a gross consideration of US$316.7 million, paid in local currency. This additional spectrum is expected to support network expansion for mobile data and fixed wireless home broadband capability, including 5G rollout, providing significant capacity to accommodate continued strong data growth.

Market Reaction: Investor reaction to the 3Q23 results was muted as the stock closed unchanged at N1,660.00, versus a 0.93% gain for the All-Share Index (2/2).

Airtel Africa Earnings Highlight 3Q23

Source: Company Financials, FSDH

Notes:
1 Revenue includes intra-segment eliminations of $39m (112-73) for the quarter ended 31 Dec 2022 and $34m (94-60) for the prior period.
2 Mobile money revenue post-inter-segment eliminations with mobile services were $144m for the quarter ended 31 Dec 2022 and $113m for the prior period
3 EBITDA includes other income of $3m for the quarter ended 31 Dec 2022, and $3m for the prior period
Other revenue includes messaging, value-added services, enterprise, site sharing and handset sale revenue.