Airtel Uganda’s 2023 profits fell UGX160 bn short of IPO promises⏤ Did MTN Uganda’s resurgence cut short Airtel’s much-hyped growth trajectory? 

Airtel Uganda, the second largest telco, on March 4th, released its very first post-listing results, showing that for the first time in five years since 2019, it made an 8.8% drop in net profit⏤ from UGX 326 billion in 2022 to UGX 297 billion at the end of 2023.

This is UGX160 billion short of the UGX457 billion the company promised prospective IPO investors during its listing drive in late 2023.

This 8.8% drop, the company, said was ” impacted by an increase in the site running costs due to an increase in rental and energy costs on the additional 399 sites”. 

Expenses went up by UGX208 billion from UGX984.3 billion in 2022 to UGX1.192 trillion at the end of 2023. Network operating costs (UGX314.5 billion) and depreciation and amortisation (UGX326.7 billion) were the two biggest cost centres for the telecom, followed by sales and marketing expenses (UGX198.8 billion). Site running expenses grew by UGX2 billion, from UGX186.6 billion to UGX241.8 billion.

Rising costs aside, the telco however downplayed what is perhaps the real reason it failed to meet its projections⏤ the failure to deliver on the promised UGX1.864 trillion in gross revenue targets. The telco which was buoyant during the IPO, instead delivered UGX1.784 trillion, falling UGX80 billion short of its promises. 

During the IPO, Airtel Uganda had projected that revenue would grow by 16.6% but it instead grew by 11.5%, which is 5.1 percentage points short of projections. Failed revenue projections were reported across both the data and voice segments as well. 

For example, while the data revenue and value-added services segment saw significant revenue growth, reaching UGX776 billion compared to UGX657 billion in 2022 and translating into a growth of 18.1%, this still fell short of the promised 33.6% growth. Had the 33.6% projected revenue growth materialised, Airtel would have homed some UGX877.752 billion.

Similarly voice revenue, although it grew by 3.3% from UGX870 billion in 2022 to UGX899 billion, it had been projected to grow by 7% to reach least UGX931 billion. That would mean, the UGX899 reported at the end of 2023 is UGX 31.9 billion short of the targeted figures.

Failure to meet targets on both segments, especially on the voice segment which remains a big money-maker for telcos⏤ 53.7% revenue maker for Airtel Uganda, shattered Airtel CEO Manoj Murali’s hopes of making an impressive first post-listing financial report. 

Was a resurgent MTN Uganda the cause of Airtel’s failed targets?

That Airtel Uganda did not meet its targets is perhaps not the worst news. The worst news is that MTN Uganda, Airtel’s arch-rival, made very solid gains in the market, fixing its network strength and coverage and in the process picking up a whole new 2.3 million mobile customers in 2o23, compared to Airtel’s 1 million new customers. This is despite Airtel investing in 399 new base stations, compared to MTN’s 350 sites in the year under review. 

Although Airtel Uganda did not explicitly say it in its facts-behind-the-figures explanations published along with the results, this loss of new subscribers to MTN⏤ it is assumed every new consumer connected by MTN is a loss to Airtel⏤ that is responsible for the slow growth of subscriber numbers and subsequently, the failure to hit revenue targets. 

Overall Airtel numbers grew from 13.8 million in 2022 to 14.8 million in 2023. MTN’s overall mobile subscribers- the engine that drives the business, grew by 13.3% from 17.2 million in 2022 to 19.5 million- adding a record 2.3 million new subscribers! That is a whole 4.7 million subscribers head start against Airtel. 

With double-digit growth in overall users, MTN’s voice revenue jumped 11.6% from UGX1001.5 billion in 2022 to UGX1117.2 billion compared to Airtel whose voice revenue grew by 3.3% from UGX870 billion in 2022 to UGX899 billion. In between the voice businesses of the two telcos, there is a revenue gap of UGX218.2 billion in favour of MTN. 

However, Airtel still has their data act together. Even though its data revenue grew at a slower rate, Airtel remained ahead of MTN in data revenue, growing its earnings from UGX657 billion to UGX776 billion, compared to MTN which reported a 21.7% growth from UGX511.3 billion to UGX622 billion. Between Airtel and MTN data revenues, there is a revenue gap of UGX154 billion (UGX145.7 billion in 2022). 

If Airtel had also met its 17.1% projected increase in customer base, it would have grown its overall subscribers from 13.8 million in 2022 to at least 16.16 million. But this did not come to pass as customers only grew by 7.2% to 14.8 million. 

Resulting from the above, Airtel which in 2022 had a 46.5% market share of voice revenue compared to MTN’s 53.5%, saw this drop by 1.9 percentage points to 44.6% at the end of 2023, in favour of MTN whose industry revenue share rose to 55.4%. Similarly, Airtel’s market share leadership in data revenue⏤56.2% in 2022 compared to MTN’s 43.8% also took a 0.7% scratch, allowing MTN to increase its share of wallet to 44.5%. 

Is Airtel Uganda giving preferential treatment to Airtel Money, to the detriment of its shareholders?

Other than the below-par performance, when Airtel Uganda shareholders meet in their upcoming shareholders meeting on 26th March 2024, one of the things they will also want to understand is why there has been a sharp increase in the payments/purchases made by Airtel Uganda from Airtel Mobile Commerce Uganda Limited (AMCUL), its sister fintech company.

Some analysts have already raised their eyebrows over this development. 

Purchases by Airtel Uganda from AMCUL increased by 27.4% from UGX161.8 billion to UGX206.2 billion- an increment of 44.4 billion. 

Conversely, while the amount of goods and services that Airtel buy from AMCUL from Airtel have increased by 32%, in absolute terms it has only increased by 7UGX7.1 billion, from UGX21.1 billion to UGX29.2 billion.

While on the face of this, trading between related parties is business as usual, some analysts have suggested that Airtel Uganda and AMCUL are running a commission/cost structure that heavily favours AMCUL. Allowing generous commissions and tariffs to AMCUL which is 100% owned by the Airtel mother companies, may put other shareholders of Airtel Uganda at a disadvantage.

Airtel Mobile Commerce Uganda B.V. owns 99.95% of AMCUL while Airtel Mobile Commerce Holdings B.V. owns 0.05%. Both are companies owned by a series of companies, ultimately controlled by Bharti Enterprises (Holding) Private Limited which belongs to the Indian billionaire, Sunil Mittal and his family. 

On the other hand, as of 31st December 2023, Bharti Airtel Uganda Holdings B.V owned 89.11% of Airtel Uganda, with the remaining shares owned by the National Social Security Fund (NSSF) at 10.55%, various other shareholders at 0.34% and Bharti Airtel Africa B.V at 0.0001%.

For example according to our sources, Airtel is said to have allowed AMCUL above-market commissions whenever they sell airtime on behalf of Airtel. According to the source, AMCUL receives approximately 6.5% commission compared to other distributors who receive between 4%-5% in commission. 

By comparison, MTN Momo, the sister fintech company of MTN Uganda receives 2% from MTN Uganda whenever clients load airtime using the MTN MoMo platform. 

Airtel Uganda also charges AMCUL generously for SMS and USSD messages; said to be between UGX1.2 to UGX2 per message compared to other third-party users of the same service. 

By comparison, MTN Uganda charges its fintech UGX6 per message.

We wrote to Airtel Uganda to ask if this was true, but despite them receiving our email and acknowledging so, and despite other several reminders over 2 days, they had still not responded to our inquiries by the time of publishing this story. 

Airtel also disclosed that it had signed an agreement on 30th June 2023 for a facility of UGX75 billion to be drawn in instalments and that the telco had dragged down 40 billion on this facility. The Company withdrew UGX 20 billion on 1st September 2023 and UGX 20 billion on 6th October 2023, respectively totalling UGX 40 billion with a tenor of one year. The interest rate on the loan facility is a 90-day treasury bill rate, plus 2.5% per annum- an equivalent of approximately 11.78%.

Did MTN’s… voice resurgence upset Airtel’s 2023 growth resulting in UGX160 billion in failed targets?