Good day ladies and gentlemen and welcome to the Safaricom Plc FY20 earnings release conference call. All participants are currently in listen-only mode and there will be an opportunity to ask questions later during the conference. If you should need assistance during this call please signal an operator by pressing * and then 0. Please also note that this call is being recorded. I would now like to turn the conference over to Mr Michael Joseph, the outgoing CEO of Safaricom Plc. Please go ahead.
Thank you. This is Michael Joseph. I’m the outgoing CEO of Safaricom and the founder CEO of the first ten years of Safaricom. On the line with me is Peter Ndegwa, the incoming CEO who has been in the job since 1 April, and Sateesh Kamath, who is the CFO. I will speak first, and then Sateesh, and then Peter and I and Sateesh will answer any questions you might have going forward, and then Peter might close it. Just to take you in the past year I think Safaricom has done really well in the past year. Our service revenue has increased by 5% which is quite good under the circumstances. Of course you will see that voice has been rather flat. M-PESA has grown by over 12%. Data revenue has gone very well. And of course I think we’ve seen an increase overall in our number of subscribers. We ended up the year with what we expect for a 66% market share in terms of numbers and 88% market share in terms of revenue.
In addition, which is the highlight, which I’m sure Sateesh will mention, is the EBIT has grown by 13.5% and now is at KSh 101 billion. And earnings per share have gone up to KSh 1.78 which is an increase of 14%. And free cash flow increased by 11% to KSh 70 billion. I think those are the highlights of the year. Operationally the first half of the year was a little challenging. The second half I think we did a lot better as Safaricom changed the direction in which it’s going, trying to be simpler, more transparent and honest with our customers, improving our customer care, improving all of our customer touch points in fact including our back office. Also we invested significantly in the network even though the actual capex spend was not as great as the previous year. That was through efficiencies with equipment with the manufacturers with our suppliers. We still increased our radio network in terms of 4G, increased our coverage of 4G. It is probably about 65% geographic coverage and we aim to go to 85% in this coming year. We also improved our core network so that we could handle the back office traffic, core in terms of our data both internally and externally, and we made a significant upgrade to our billing system to handle the volume.
M-PESA of course has done extremely well. It is the payment platform of choice. We have probably 95% market share in terms of M-PESA. But you will see there has been a decline in cash out revenue, which is shown by the not the same growth as we had previously. And the main reason why that has happened is actually M-PESA is doing pretty well because what’s happening now is it’s becoming a true wallet. People are putting money in, paying their bills, and actually using it as a true wallet and not going to the other extreme of taking cash out. And therefore that cash out revenue has declined over the past year. I think one other thing probably is fixed data. We are focussing definitely on fixed data which is fibre to the home and fibre to the buildings. We increased our investment significantly in the second half of the year to fibre to the building in particular and then fibre to the home. Of course we are also investing in IoT, and you will see that coming up in the results in the coming year. IoT is going to be a big thing for us. We continue to invest in agriculture, in education and in health. So far that has not shown up dramatically in the revenue, but we expect that going forward. I think that’s enough I’ll say now. I’ll hand it over to Sateesh to take us through the detailed results. Over to you, Sateesh.
Thanks so much, Michael. Good morning, good afternoon, and good evening to all of you who have joined from various parts of the world. Overall I would describe the financial year 2019/20 as a good year. Service revenue on an underlying basis was steady half year to H2 while profit expanded and we outperformed guidance. We are delighted with the performance on mobile data which registered a double digit growth again as we had guided at the beginning of the year, growing at 12.1% with the second half reporting an impressive 21% growth. M-PESA by 12.6%. The performance was weighed down a bit by the contraction in the betting industry which we have always called out for our investors, and also due to the free transactions in response to the COVID crisis. On an underlying basis M-PESA grew by 17.2%.
With the onset of coronavirus we have seen customer habits have changed. Fewer withdrawals, as Michael called out, more cautious spending, and an increase in balances being held in M-PESA. While we expect things to be challenging in the short run, in the long run we believe we are well placed to bounce back as adoption of digital services would increase and we are creating more reasons for people to use M-PESA. We have been gradually changing our operating model in line with the changing shape of our P&L, and this year we have successfully managed to reduce operating expenses year on year on the back of digital and operational efficiencies. This meant that despite the top line pressure our earnings before interest and taxes grew by 13.5% year on year, which is an acceleration from the 12.7% recorded in the first half. With that I open the floor for questions and answers. Thank you.
Thank you very much sir. Ladies and gentlemen, at this time if you do wish to ask a question please press * and then 1 on your touchtone phone. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw the question please press * and then 2 to remove yourself from the queue. Our first question is from John Kim of UBS. Please go ahead.
Hi everyone. Three questions please. First, in the new reporting you do separate chargeable active data users from the overall user base. Where do you see that chargeable percentage going to over the next 12 to 18 months? A second question, you did indicate that there were some concessions or freebies given around COVID and the lockdown with regard to M-PESA. The number I seem to remember is KShs 650 million. Is that a service revenue number that was forgone? And give us a sense of timing. How early or late in the fiscal year did that occur? The last question on M-PESA. My understanding with the buy-out of the brand is that M-PESA is now owned through a 50/50 JV structure. If we look at below the line there’s a small equity accounted profit. The same question with regards to timing. Does that reflect the fact that you’re now paying a royalty to an entity you own 50% of? And how should we think about that number on an annualised basis? Thank you.
Okay. Let me jump in and answer the second and possibly some of the third question on M-PESA. On the second question, when the COVID crisis struck here we were requested by the government to zero rate transactions below KSh 1000. It was not our choice. It was a request from the government which we could hardly refuse. Previously all transactions below KSh 100 were zero rated. The impact has been as you can see in the second half of March which was KSh 650 million, and we estimate this will continue. Sateesh can give you that figure. What has happened a lot in those transactions below KSh 1000 is that people are starting to split transactions. If they want to send KSh 60,000 they split it into 60 transactions. And believe it or not, people actually do that. We have pressurised the central bank to allow us to cap the number of split transactions at five. So far central bank has not obliged, but we are continuing to put pressure on them. And we hope as we go forward that we will be able to cap transactions below five. This has had an impact on service revenue.