Airtel – Zikomo Kwa Million in 2016
Airtel Networks Plc, Telecom

Airtel Zambia ushered in 4 brand new board members in 2016. The new look board is now headed by Ms. Monica Musonda (of the Java Foods fame) who now joins an elite group of women in Zambia heading the boards of some of the finest premier companies. Charity Lumpa of ZANACO now has a beautiful ‘compatriot’ in this elite circle of power. We at TFTZ are proud of these women. Monica was joined by venture capitalist and Zambian private equity champion Jito Kayumba (of the Kukula Capital fame) whose presence on the board is bound to inspire a drive for innovation. Others who joined include Christian De Faria and Jaideep Paul.

Monica and Jito bring entrepreneurship energy to the Airtel board. This is a signal that this company is more than likely to purse innovation as a means to create value. With a mission statement that declares to provide globally admired technologies and services that would give Zambia easy and dependable ways to connect to the world is inspiring and in line with where this company wants to go. To achieve this, the company singles out 3 core profit drivers for their business that include: Zikomo Kwa MillionSo Cheand Enterprise solutions. Their ‘Zikomo Kwa Million’ offering is intended to build a love mark in their customer’s hearts. We have covered love marks in earlier blogs (go to our Opinion section under marketing). In addition, the ‘So Che’ product currently has a penetration north of 60% of their customer base. Their enterprise offering employs MPLS network technology (one of the best in the game for data telecommunication services) that has presence in 12 strategic towns within the country (read our blog on CEC and you will see similarities in this strategy). In addition, they boast of a superior Network Operating Center (NOC) that is available 24/7.

According to Managing Director Peter Correia, the company produced a strong underlying performance despite a very economically challenging year. The macro forces were strong and customer’s disposable income reduced. In addition, although customers increased (closing the year at 4.9m), the ZICTA inspired KYC had the company shaved off 286,000 customers that were non-compliant. Furthermore, competition increase in the data space which currently is very attractive owing to the high profit margins companies believe they can attain is evident in the MD’s statement. Furthermore, voice has moved into the data space therefore making bundled offerings that sometimes include smart phone + data package + voice minutes became ubiquitous with players in this market. Data bundle products continue to be company’s strongest value creators and we believe they continue to innovate around this area because of their market share. Note to Airtel self: protect this share at all costs.

According to the Managing Director, verbatim “revenues grew by 10.1% from K1,924mn in 2015 to K2,118mn in the year under review. Data remained the key growth driver, having grown by 73.2% from K294mn in 2015 to K510mn in 2016. The company recorded a Gross Profit increase of 20% from K1,548mn in 2015 to K1,858mn in 2016. This was largely driven by the 10.1% growth in revenue as noted above. Total cost of sales reduced by 30.8%”. TFTZ further diagnosed the financials and was intrigued to find that other operating income (Other income + interest income + profit on disposal of subsidiary) on the income statement fell from K 665.8mn in 2015 to K2.229mn in 2016. Recall, TFHZPC had indicated that the larger than expected operating income in 2015 was inspired by the company’s disposal of known assets to Zambian Towers Limited. Therefore, 2016 presented a “cleaner” income statement that shows the company’s true value growing potential. It was so clean that their cost of sales dropped by 31%. Prudence in spending is evident.

Airtime revenue only grew by 2.3% in the year under review, however, data purchase shot up by 73% ranking it tier 1 for value growth. Shareholders will be pleased that equity grew by 35%. However, the Return on Capital employed (ROCE = operating profit divided by shareholder funds plus debt) dropped from 63% to 26%, we believe this is a correct picture that is uncontaminated by the asset sale of the towers in 2015 (more accurate position). In addition, Return on Equity (ROE = profit divided by equity) dropped by 9% to 47% in 2016. Results like these are what makes this industry very attractive and hence why the credible threat identified in Afrimax Broadband Zambia limited (Vodafone) entering the data space.

There are further signals of financial prudence. Gearing is down by 92%. Slight improvement in their acid test ratio, however further action required on inventory and payable days as inventory levels remained flat with a negligible 3% reduction in the year under review. Conversely, a 16% reduction in staff is notable which led to a 19% improvement in labour productivity.

The company’s 2017 outlook will include consolidation of innovation around bundling products, deploying an expansive LTE network and CSR programs that are inclusive government. The management team look confident that the “Zikomo” will bring the millions.

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