Safaricom Limited (Kenya) – HY2020 earnings call transcript

By Published On: June 16th, 2022Categories: Corporate announcement, Transcripts

Operator

Good afternoon ladies and gentlemen and welcome to Safaricom Plc’s HY2020 earnings release conference call. You are welcome to familiarise yourself with the disclaimer which is available on the investor presentation on the Safaricom website. All participants will be in listen-only mode. There will be an opportunity to ask questions when prompted. If you should need assistance during the call please signal an operator by pressing star and then zero. Please note that this conference is being recorded. I would now like to hand the conference over to the CEO, Mr Michael Joseph. Please go ahead, sir.

Sateesh Kamath

Hi. This is Sateesh Kamath, the CFO. Michael is joining us for the Q&A session. We are getting started. I will give you a quick introduction. The focus of half year one was regaining customer trust and market share. Good progress was made, but there is more to do. We have accelerated our 4G coverage rollout and are on track to delivering on our commitment of covering every town in Kenya by the end of the year. Despite the economic challenges we have delivered strong results for the period and we feel that the outlook is positive. The launch of our simplified plans and customer journey have presented [unclear] of how we do business. We are very excited about the second half of this year and our commitment is to be simple, transparent and honest in everything that we do. We have already announced that we are eliminating expiry of resources and offering bonus airtime. While this may have some impact in the short term we believe it is the right thing to do in the long term for sustainability of the company. We are also maintaining our guidance for the year which is an EBIT of KSh 93 billion to KSh 97 billion and capex of KSh 36 billion to KSh 39 million.

We are happy to announce that the focus on customer trust has really paid off and we now have a net addition of 700,000 customers for the period which is a growth of 8.9% year on year on the closing base and more than double the net adds of the same time last year. Last year you will recall we spoke about the corrective actions that we needed to take, the repositioning of data bundles, absorbing the excise duty increase and making it easier for customers to opt out of premium rate subscriptions etc. While these actions had a negative impact on revenue in the short term with ARPU reducing 2.3% year on year, the customer uplift more than compensated, rising 5% revenue growth that you would have seen already.

Some of these impacts look drastic, for example the reduction in effective rate per MB of 37%. However, you would realise this is the lapping effect of what we did last year. On a sequential basis the effective rate per MB declined only 3% versus Q4 last year. So, while mobile data revenue growth looks subdued at 4% the growth for September was 12%, which is promising. And we are now able to compare a more like for like basis and see that a lot of growth potential is still there. And we hope our new simplified offers can unlock the potential. Our GSM revenue streams like voice and SMS have finally begun behaving in line with industry trends. Voice outgoing declined 1% while SMS underlying declined 5%.

Now to add a bit of colour on M-PESA. We are very pleased with M-PESA’s performance on an underlying basis, excluding gaming which declined by 15%. On an underlying basis M-PESA grew 20.9% which is an acceleration of the 19.1% that we posted the previous year. We have seen an increased usage per customer and we see still opportunity for this ecosystem to continue to grow. So quite a lot has happened in the period, and if I was to try to normalise things to give a view of the true underlying performance excluding the impact of corrective actions that we took last year I would say the service revenue growth was just about 8%.

Moving on to bottom line. Despite the top line pressures EBIT grew 12.7% with margin expanding 2.4%. The contribution margin was broadly in line year on year with margin expansion coming from improved opex as well as capex intensity. Opex intensity improved by 1.3% and this was driven by continued efficiencies especially in areas like network opex. Again, this year we have grown our network, but managed to keep our cost at similar levels as last year through various initiatives. Depreciation and amortisation drove the balance, partly driven by the benefit from the review of useful life of assets which contributed 0.8%, while the remainder came from reduction in capex intensity. Lastly, I would like to touch on free cash flow. While performance in the period was -2.8% this was driven by accelerated capex and the impact of this is expected to unwind by the full year and free cash flow performance will return to growth. With that I open the floor for questions and answers. Thank you.

Operator

Thank you very much sir. Ladies and gentlemen, at this time if you would like to ask a question you’re welcome to press star then one on your touchtone phone or the keypad on your screen and it will place you in the question queue. If you however decide to withdraw your question you are welcome to press star then two on your touchtone phone to remove yourself from the question queue. Just a reminder, if you would like to ask a question you are welcome to press star and then one. The first question comes from Jaynesh Bhana of Mazi Asset Management. Hello Jaynesh. Your line is open. You can ask your question. We are not getting a response from Jaynesh’s line. We are going on to the next question which comes from Dilya of Citi.

Dilya Ibragimova

Thank you very much for the opportunity and congratulations on the strong set of results. I have a couple of questions. One maybe on the international opportunity. There are headlines here and there. I was just wondering if you could give us a bit more colour on how you view it. Would you consider exploring this on your own or in partnership? And how do you assess risk versus return? For example, mobile money, if mobile money regulation will be key or not, or is it just a telco opportunity that looks interesting on its own? My second question is on M-PESA. It seems like there has been acceleration in savings and credit-driven fee revenue. Could you give us a bit more colour? Is it driven by primary Fuliza? And maybe you could give us a bit more detail as to where the volumes are in the first half in terms of transaction volumes and maybe some insight. How do you see customers using this? Once a customer gets the transaction is it being spent on P2P transactions or merchant payments like Lipa na M-PESA? I’m just looking at the Lipa na M-PESA growth rate. It doesn’t seem it is actually slowing down somewhat. So just some insight on how customers are using their overdraft. Thank you.

Michael Joseph

I will answer the question on Ethiopia. Michael Joseph here. So yes, as you know the Ethiopian government intends to issue two bids for spectrum. We don’t have clear understanding of the documents yet. We will know this probably at mid-November. But there were two invitations to bid similar to what the Myanmar bid was like. So, there will be a qualitative portion of the bid where we will submit our credentials and what we have done so far, and then there will be a quantitative bid where it will be a bid for the license. Safaricom will be bidding together with its parent, Vodacom. It is still to be decided on the breakdown of what the equity will be between the two. Plus, there will be two other entities joining us in that consortium. I cannot give you their names yet because I don’t really know if we have permission to identify them. We expect of course that this will be very high interest for these bids. This is the last big opportunity in Africa. It is almost the final prize to get these licenses. At the same time there will be also a partial privatisation of Ethiotel. But our main focus will be on the new licenses. We do not yet know what the bid price would be. We have no idea right now. There are just rumours in the market about how they could go. So that’s where we are.

Dilya Ibragimova

Thank you.

Sateesh Kamath

I will take the second part of the question on M-PESA. Overall, we are pleased with the performance of M-PESA which grew at 18.2%. Underlying M-PESA growth