Safaricom Limited (Kenya) – HY21 analysts’ briefing conference transcript

By Published On: June 13th, 2022Categories: Corporate announcement, Transcripts

Peter Ndegwa

We have supported the country for six months now, seven months and it has cost us 9 billion Kenya shillings for H1. We are not in a position to say when we will go back to charging. We do know that we will go back to charging at some point, we are not in a position to announce that. When we are ready to do that, we will come back to you and announce that. We have also been closely in touch with the Central Bank during this period, and we are working together to make sure that we have a position that is fully aligned between ourselves and them. But as I said I wanted to reinforce that we went with this direction to support the country, during this period to support a cashless environment, but also to cushion Kenyans during this period. Kenyans are aware that the free transactions are not going to be there forever, but at this stage we are not in a position to say when we’ll stop, when we will go back to charging.

Cyndia Nguli

Thank you, Peter. Jaynesh, I believe, Peter has responded to your question as well. So, I will move on to Willis’s question. This is regarding Ethiopia. How soon should we expect operations and revenues from Ethiopia?

Peter Ndegwa

Is that a question from Linet?

Cyndia Nguli

No, it’s from Willis.

Peter Ndegwa

Thank you, Willis, I should say that our intention to invest in Ethiopia is a long term play, it’s not to generate near term revenue. Just to indicate where we are, we submitted an expression of interest some months back, we are about to submit a bid although we are waiting for the terms to come through from the Ethiopian Government, which had been delayed, we expect those what they call an ITT which is the terms that allows us what to bid for, to come through in the next 30 days and we are required to submit a bid within 30 to 40 days thereafter. Our intention is to go with a consortium, Safaricom will be the lead with approximately 51% of course we will be sensible in terms of the kind of bid we have in terms of returns to shareholders, our ability to fund any investment that we make. There are challenges in terms of whether mobile money will be included and what time frame that would be. However, all I can assure you, is that the Board will consider the overall bid in the context of ensuring that shareholder value is protected. We do not believe that our ability to pay dividends will be impacted by investment in Ethiopia, but I do need to say that, at this stage, we do not have a view as to, or we are not in a position in terms of the return profiles or indeed the debt levels that we would have to put on the balance sheet to be able to navigate our way through the bid. But when that is ready, we’ll be able to share. We are waiting for the ITTs for us to be able to respond and we will seek the relevant approvals, both in terms of the Board itself and when the time comes from the regulatory authorities, but also shareholders. I will leave it there unless there is any further question on Ethiopia. But just one more point, Ethiopia is going to be a strategic investment. As I said at the beginning, it’s a long term play. We hope that even if we went in with a pure telecom license that a mobile money license will then be allowed, within a relatively short period of time that is two to three years, which is what the government has messaged because long term, we believe that we will get an appropriate return. If we combined a telecom operation with a mobile money operation.

Cyndia Nguli

Thank you, Peter. I believe that also responds to Donatas’s question. I think we can then move to Silha’s has question. Ilanna this is a follow up on the short term borrowings any detail on duration or cost of debt, please?

Ilanna Darcy

Yeah, thanks Silha’s. I hope you can hear me. Sorry, my internet went funny there. Yes, Silha I don’t think we’re going to get into the details of the cost of debt, and I think I mentioned this earlier but apologies if it wasn’t very clear, the debt is purely timing. So, it would be repaid within this financial year. Now obviously if we are successful with the bid in Ethiopia it would be additional debt taken on our balance sheet, but to put it in perspective in case the question is coming from one of worry, our Net Debt-to-EBITDA ratio, at half one, was .27 which compares very favorably if you compare to say like Vodafone they operate at three times EBITDA, so our balance sheet is very under leveraged and under geared from the point of view of sustainability, but the funding that we talked of in half one was to facilitate a kind of timing of working capital commitments and would be repaid by end of year.

Peter Ndegwa

Can I add to that, Ilanna? I hope that the shareholders and investors are not going to complain with us paying dividends early. Because one of the reasons why we went for a bit of additional funding is to fund working capital for other projects, including CAPEX as Ilanna has mentioned. To enable us to use our free cash flows to be able to pay dividends, which we paid a few months earlier than normal. And it was a recognition of the fact that it was an unusual year. Of course, going forward, we are going to go back to the normal timing in terms of paying dividends. But certainly if we hadn’t paid dividends earlier, we would not have been constrained so it’s a purely timing issue. A short term matter which should wash itself by the end of the year as Ilanna has messaged.

Cyndia Nguli

Thank you, Peter. We have a question from Ali AL-Nasser and he says, Thanks for the call. I was under the impression that the deadline for zero rating was December 31st. Are, you know suggesting that the zero rating can extend beyond this deadline?

Peter Ndegwa

No, I’m actually not suggesting anything like that. I am just stating that we are not in a position to make an announcement of when we will go back to charging. We do think that we will go back to charging at some point relatively soon. I do not want to commit to a date, whether that is December earlier or later. But in not committing it doesn’t mean that we think that the deadline will move beyond December. One of the things we are sensitive about we do not want to discuss matters that we may be having in the background with the regulatory authorities at this stage. But I would not want anyone to read in us not committing to a date that we think this will shift beyond December.

Cyndia Nguli

Thank you, Peter. So, we have a follow up question from Fred Tilling; your customer churn rate has increased to above 30% from around 20% last year, please give some insights around why this has moved up?

Peter Ndegwa

The advantage of having a great team is that you can delegate some of the questions. And so, I will ask Sylvia Mulinge, who looks after consumer business but also our Chief Customer Officer to answer the question on Churn.

Sylvia Mulinge

Hello. Good afternoon good morning from wherever you’re logging in. Yes, our churn did go up in half one, but that was a deliberate effort that we’re putting in terms of cleaning up the fraudulent registrations on our network. We had quite a bit coming through during the covid period, and we have spent the first half of the year cleaning that up. So, if you look at the underlying Churn that’s within control. It’s still within the 20% range. But we have taken strict measures in terms of cleaning out all the fraudulent registrations that had happened. So that has shown up, it should stabilize. By the time we’re exiting this quarter. And we get back into the normal range of performance that we have always had in the past. So, under control.

Cyndia Nguli