Last week telco giants, Airtel Africa and MTN Nigeria, released their 2022 first half (H1) financial reports. The financial reports, although stellar by many standards, were impacted by the challenges of operating in Nigeria.
On Thursday, July 28, Airtel Africa got on a call with investors and analysts to answer questions related to its half-year 2022 earnings report. Over the course of the 38-minute call, most analysts and investors on the call wanted to know the number of Airtel’s active customers in Nigeria, the effect of the volatile foreign exchange rate and increasing inflation on the company’s profit margin, and the repatriation of its profit from Nigeria.
These concerns were echoed in MTN Nigeria’s 2022 H1 earnings report.
Airtel Africa, which operates across 14 African countries with over 131 million customers, reported that in the first half of 2022 the group generated $1.2 billion in revenue, growing by 13% from the same period last year. The group recorded a profit of $178 million, which grew by 25%.
The telecom giant which divides its African operations into 3 geographical segments: Nigeria, East Africa, and Francophone, shared that its total revenue across both mobile services and mobile money in its largest segment, Nigeria, grew by 18.3%, and by 14.1% in East Africa, and by 11.7% in francophone Africa.
Mobile money service grew by 26.5%, driven by growth of 26.9% in East Africa and 25.4% in francophone Africa. The group didn’t disclose the figures for its Nigerian mobile money operations as operations only commenced in June.
MTN Nigeria reported a total profit of ₦181 billion ($300 million)* for the first half of the year 2022, 28% more than its profit for the same period of last year at ₦141.8 billion ($235 million). The company reported a revenue of ₦950 billion ($1.58 billion) for the first half of the year, 20% higher than the ₦791 billion ($1.3 billion) generated in H1 2021.
Across its different operating segments, voice calls generated the most revenue, recording ₦501.8 billion ($836 million), growing by 2.9% from ₦487.6 billion ($812.6 million). Data revenue came in second place at ₦348.4 billion ($580.6 million), growing by a massive 51.6% from the same period in 2021. The fintech segment brought in ₦40.4 billion ($66.67 million), recording a 27.8% growth from the same period in the previous year.
This is largely attributed to the rise in fintech subscribers by 87.3% to 11.5 million, resulting from 4.2 million newly-registered (2.4 million active) MoMo wallets since launch of its Payment Service Bank (PSB) on 19 May 2022.
Dealing with barred customers
In April, the Nigerian telecommunication commission gave a directive to telecom operators to place a restriction on outgoing calls for subscribers that had not connected their National Identity Number (NIN) with their SIMs.
This led Airtel and MTN to bar 13.6 million and about 10 million subscribers respectively. Since then, the two telcos have been able to reactivate roughly about 20% of these subscribers. MTN has reactivated 2.6 million subscribers, while Airtel has done same for 2.5 subscribers.
“Out of the 13.6 million [barred] customers, about 5.3 million submitted the NIN subsequently…Out of the 5.3 million customers, we have reconnected about 2.5 million out of them,” Airtel Africa Group, CEO Segun Ogunsanya, said on the earnings call. He further explained that the remaining 3.8 million customers submitted details that couldn’t be verified but that was being rectified.
Despite the effect of this exercise on the number of subscribers and voice revenue, Airtel Africa added 3.1 million customers, with a majority of the growth coming from Nigeria and East Africa, while MTN Nigeria recorded a net addition of 5.7 million mobile subscribers.
On a more positive note, Ogunsanya added that this barring exercise is causing a consolidation of SIM usage across the country leading to an increase in the average revenue per user (ARPU) from customers with multiple SIM cards who now chose Airtel as their primary SIM.
Volatile exchange rate and Inflation
In June, Nigeria’s inflation rate reached a 5-year high of 18.60%, up from 17.71% in the previous month and 20% above the World Bank’s projection of 15.5%. The volatile Nigerian foreign exchange rate rose to an all-time high record ₦720/$1 in the last week of July. These macroeconomic factors affected the earnings of both companies.
MTN Nigeria CEO, Karl Toriola, shared that the company had to deal with the rising inflation and volatile exchange rate as it deployed 127 5G sites in readiness to go live in the third quarter of 2022, and 4,984 4G sites during the first half of the year. The company spent ₦311.6 billion ($519.3 million) on its overall capital expenditure in H1.
For Airtel Africa, which only disclosed the group’s figures, there were questions about how inflation in Nigeria, its biggest African market, affected the company’s margin.
Ogunsanya attributed a 133% increase in diesel fuel price from ₦300 per litre to about ₦700 litre as a significant cause of the reduction in its profitability margins. The fuel price increase alone impacted the group’s performance by about 1%, according to Jaideep Paul, Airtel Africa’s chief financial officer (CFO).
To minimise the impact of fuel price on its bottom line, Airtel Nigeria is working with converting sites from diesel power to green power sources such as solar.
“It’s a tough one. It’s just impossible to completely offset the impact of [about] 150% increase in the price of fuel,” Ogunsanya said.
A recurring question that didn’t seem to get a satisfactory answer from Ogunsanya was that of the exchange rate. At least 3 analysts and investors asked for the rate at which Airtel repatriated its cash out of Nigeria: CBN rate which is about ₦420 or parallel market of ₦700.
“It is not close to the parallel market rate…we don’t watch the parallel market rate,” Ogunsanya said. “But I can confidently say to you that we have not repatriated any money at the parallel market rate.”
Ogunsanya and other Airtel Africa executives present on the call made it clear that Airtel Nigeria didn’t use the CBN rate or the parallel rate, but didn’t disclose the exact rate.
“Obviously, it is not the Central Bank rate. We have used many instruments and options for upstreaming the money,” Ogunsanya said. “Unfortunately, we will not be able to give you the exact average rate or any specific answer for that.”
Over the years, the telecoms sector has contributed significantly to the Nigerian economy. In 2021, telecoms contributed ₦9.15 trillion in real GDP to the Nigerian economy, representing 12.5% of the total real GDP of ₦72.39 trillion. This contribution is in spite of the multiple increasing challenges faced by operators in the sector.
*$1 = ₦600