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Airtel Africa plc (Airtel Africa), which has a presence in 14 African countries primarily in East, Central and West Africa, has recently suffered from the strength of the American dollar, which has led to currency depreciation in many African countries, and in turn increased import costs and inflationary pressures. On 27 October 2022, the company published its for the first half of its FY 2022–23, which saw the FTSE 100 telecommunications and mobile money services company’s total customer base grow 9.7%, as well as a 12.9% increase in its revenue. However, the company’s profits after tax declined by 1.5% to £286m (US$330m) as a result of higher foreign exchange and derivative losses of £138.7m (US$160m). If these factors are excluded, Airtel Africa’s profit after tax would have been up by 30.4%. Despite this decline in profits, the company declared an interim dividend of 2.18 cents per share, a slight increase on the two cents for FY 2021–22. The announcement saw Airtel Africa’s topple by 15.1% by the end of the day.

The company’s chief executive, Segun Ogunsanya, stated the following in relation to the results:

‘Whilst we are not immune to the current macro-economic challenges and currency devaluation risks, I am pleased to report double-digit reported revenue growth in the period, largely driven by customer growth of 9.7% and ARPU growth of 7.2%, as we increased penetration and usage through our affordable service offerings. Our cost efficiency initiatives combined with improving growth trends have also helped offset inflationary pressures on our cost base and expand our EBITDA margin by 38bps in constant currency.’

The past few months have seen the devaluation of the Central African franc (15.1%), the Nigerian naira (3.0%), the Kenyan shilling (8.7%), the Ugandan shilling (4.8%) and the Malawian kwacha (18.9%), which was partially offset by the appreciation of the Zambian kwacha (19.4%) during the period. In its results, as well as its 2022 , currency fluctuations are outlined as one of the principal risks faced by the company:

‘Our multinational footprint means we are constantly exposed to the risk of adverse currency fluctuations and the macroeconomic conditions in the markets where we operate. We derive revenue and incur costs in local currencies where we operate, but we also incur costs in foreign currencies, mainly from buying equipment and services from manufacturers and technology service providers. That means adverse movements in exchange rates between the currencies in our OpCos and the US dollar could have a negative effect on our liquidity and financial condition. In some markets, we face instances of limited supply of foreign currency within the local monetary system. This constrains our ability to fully benefit at Group level from strong cash generation by those OpCos.’

According to Airtel Africa’s annual report’s risk heat map (see page 82), exchange rate fluctuations remain a ‘significant’ and ‘likely’ risk. 

This is not new for the company, with both its (see page 73) and (see page 57) annual reports also placing the risk in the same quadrant of their respective risk heat maps.

Airtel Africa is not the only company during the 2022 AGM season to flag currency devaluation as a possible threat. Indeed, currency fluctuations were specifically mentioned in approximately 13% of FTSE 350 annual reports. Another example of this is RS Group plc’s , which also highlights the threat posed by operating in foreign currencies:

‘The Group is exposed to foreign currency transaction risk as it has operating companies with payables and receivables in currencies other than their functional currency. The Group also has foreign currency translation risk resulting from investment in foreign subsidiaries and foreign currency debt which is mainly in US dollars with some euros.

Hedging of currency exposures during periods when operating companies cannot easily change their selling prices is implemented in order to shelter the forecast gross profit during those periods. In this way the impacts of currency fluctuations can be smoothed until selling prices can be changed in the light of movements in exchange rates. The hedges are enacted through forward foreign exchange contracts in appropriate currencies entered into by Group Treasury based on trading projections provided by the operating companies. The Group’s largest exposures relate to euros and US dollars.’

Finally, Tesco plc noted in its that its ‘financial performance may be adversely impacted by uncertain macroeconomic conditions, including inflation; volatile commodity prices and currency fluctuations and unpredictable tax exposures due to changes in tax laws and their interpretation’. This has indeed been the case, with the UK’s largest supermarket currently recovering from a 26.0% collapse in its , as it contents with rising inflation and the temporary collapse of the pound sterling against the dollar.

Market Tracker will continue to examine the effects of the current geopolitical uncertainty on FTSE 350 companies as they develop.