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Edited Transcript of SCOM.NR earnings conference call or presentation 1-Nov-19 1:00pm GMT

Half Year 2020 Safaricom Plc Earnings Call

Nairobi Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Safaricom Plc earnings conference call or presentation Friday, November 1, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Joseph

Safaricom PLC - Interim CEO & Executive Director

* Sateesh Kamath

Safaricom PLC - CFO

* Sylvia Mulinge

Safaricom PLC - Chief Customer Officer & Director of Consumer Business

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Conference Call Participants

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* Alexander Vengranovich

Renaissance Capital, Research Division - Analyst

* Ali Al-Nasser

Vergent Asset Management LLP - Managing Partner & CIO

* Danesh Ranchhod

Franklin Templeton NIB Investments - VP & Investment Analyst

* Deepak Tolani;7Summits Investments;Analyst

* Dilya Ibragimova

Citigroup Inc, Research Division - VP

* Harrison Gitau

ApexAfrica Capital Limited, Research Division - Senior Research Analyst

* John Munge;Vergent Asset Management;Analyst

* Kuria Kamau

SBG Securities (Proprietary) Limited, Research Division - Research Analyst

* Martin Kirimi

Standard Investment Bank Limited, Research Division - Research Analyst

* Silha Rasugu

EFG Hermes Holding S.A.E., Research Division - Associate of Utilities, Telcos and Oil and Gas

* Tracy Kivunyu

Tellimer Research - Equity Research Analyst of Telecoms

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to Safaricom PLC's Half Year of 2020 Earnings Release Conference Call. You're welcome to familiarize yourself with the disclaimer, which is available on the investor presentation on the Safaricom website. (Operator Instructions) Please note that this conference is being recorded.

I'd now like to hand the conference over to the CEO, Mr. Michael Joseph. Please go ahead, sir.

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Sateesh Kamath, Safaricom PLC - CFO [2]

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Hi, this is Sateesh Kamath, the CFO. Michael is joining us for the Q&A session. We are getting started. I'll give you a quick introduction. The focus of half year 1 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 for delivering 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 look and feel that the outlook is positive. The launch of our simplified plans and customer journey represent the total transformation 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 air time. 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 KES 93 billion to KES 97 billion and CapEx of KES 36 billion to KES 39 billion. We are happy to announce that the focus on customer trust has really paid out. 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 closing base and more than double of net adds for 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 our customers to opt out from premium rate subscriptions, et cetera. 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, thus driving 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 realize this is the lapping effect of what we did last year. On a sequential basis, the effective rate per MB declined only 3% versus quarter 4 last year.

So while mobile data revenue growth looks subdued at 4%, the growth for September was 12%, which is promising, and we're now able to compare a more like-to-like basis and see that a lot of growth potentials are still there, and we hope our new simplified offers would unlock the potential.

Our GSM revenue streams, like voice and SMS, have finally begun behaving in line with industry's trends. Voice outgoing declined 1%, while SMS underlying declined 5%.

Now to provide a bit of color 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 an equivalent 19.1% that we posted previous year. We have seen an increase in usage 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 normalize things to give view of our 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 percentage points. 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 percentage points 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 amortization drove the balance, partly driven by the benefit from a review of useful life of assets, which contributed 0.8 percentage points, while the remainder came from continued reduction in CapEx intensity.

Lastly, I would like to touch on free cash flow. While performance in the period was negative 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 grow.

With that, I open the floor for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from [Ganesh Bana] of Murphy Asset Management.

We are not getting a response from [Ganesh's] line. We're going on to the next question, which comes from Dilya of Citi.

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Dilya Ibragimova, Citigroup Inc, Research Division - VP [2]

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Congratulations on the strong set of results. I had a couple of questions. One, maybe on the international, on the Ethiopia opportunity, and there are headlines here and there. And I was just wondering if you could give us a bit more color on how you view it whether you're considering going -- exploring this on your own or in partnership? And how would you assess, or how do you assess the risk versus returns or -- for example, mobile money, if mobile money regulation will be a key or not? Or is it just a chunk of (inaudible) change 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. If you -- could you give us a bit more color, is it driven by -- primarily Fuliza and maybe you could give us a bit more details 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? So once the customer gets the transaction, is it being spent on C2B transaction or merchant payments like Lipa Na M-PESA? Again, just looking at the Lipa Na M-PESA, for example, growth rate, it doesn't seem -- it's actually slowing down somewhat. So just some insight on how customers are using their overdraft.

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [3]

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Okay. I'll answer this question on Ethiopia. Michael Joseph here. Yes, as you know, Ethiopian Government intends to issue 2 bids of spectrum. And we don't have clear understanding of the documents yet. We will know this probably after the mid-November. But there were 2 invitations to bid, it's similar to what the Myanmar business like that, it will be a qualitative portion of the bid where we will submit our credentials and what we have done insofar, and it will be a quantitative bid or actually be a bid for the license. Safaricom will be bidding together with its parent Vodacom. Still to be decided on breakdown of what the equity will be between the 2. Plus, there'll be 2 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 a very high interest for these bids, as this is the last big opportunity in Africa. It's almost the final prize to get these licenses. At the same time, there will be also a private -- partial privatization of Ethiotel. But our main focus will be on the new licenses. We do not know what the bid price would be. We have no idea right now. There are just rumors in the market of how high they could go. So that's where we are at.

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Sateesh Kamath, Safaricom PLC - CFO [4]

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I 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, excluding gaming, is 20.9%. So in a way, accelerating. The growth is driven by multiple factors. One, we've seen a good increase in customers using M-PESA. So active M-PESA customer base moved from 21 million customers to 23.6 million customers. So 12.4% increase year-on-year. The number of underlying transactions have grown at 17.4 -- 17.5% year-on-year, moving from 9.3% to 10.9%, excluding gaming. Including gaming, it moved from 12% to 13%. If I look at the breadth of where the growth is coming, roughly half of the growth has come from what we call new businesses and half of it has come from traditional businesses. In the traditional business, transfer business is doing well again. You should remember the fact that it's a mature business with sizable value. So growing 17% of that is something that we are proud of. Withdrawals have grown at 9%. As indicated in the past, we are soft lending withdrawal by adding more and more use cases such that the need for the subscriber for -- need for the customer to withdraw goes down, and that has been the strategy of the company. So withdrawals is growing slower, but that's a happy problem.

If I look at new businesses, very strong growth in savings and net lendings, 5.7 percentage points out of the 18.2%. Within the 5.7, more than half comes from Fuliza, as we know. In Fuliza, we have roughly disbursed KES 112 billion thus far. These are all short, 3 to 4 days, 5 days type of overdraft facilities and the ticket size is between $5 to $10. Other businesses, like international money transfers, they're still small, but growing at 44%. C2B business has grown by 31%. Lipa Na M-PESA is growing at around 22%, which kind of takes us to a space where we would launch more products, details of which I can't share now, by April, which should further accelerate some of the revenue streams, which have reached certain levels of maturity.

But overall, what I would say is that management is pleased with M-PESA's performance of 18.2% and also pleased with the fact that portfolio now is far more diversified with new businesses, withdrawals and person to person transfers, all equally balanced within the revenue streams.

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Operator [5]

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The next question comes from Danesh Ranchhod of Franklin Templeton.

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Danesh Ranchhod, Franklin Templeton NIB Investments - VP & Investment Analyst [6]

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I've got 2 questions. The one question relates to the Fuliza business. Just a question on that. I mean with the potential for interest rate caps to be lifted, looking very likely, do you think that it will affect the Fuliza business? And then my second question relates to mobile data. You gave some numbers that the sort of first half growth in mobile data on the second half of last year was up 14%. Can you maybe just talk a little bit about what you've done with pricing in light of the competition or in light of what Airtel is doing or has been doing in the Kenyan market?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [7]

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Okay. I'll answer you on Fuliza. I mean I think the interest rate cap will be lifted, probably. I mean, it will be lifted. I don't anticipate that it will have any impact on Fuliza interest rates and the business as such in the near term. Let's just monitor and see where it goes. We are putting a lot of pressure on our banking partners not to increase the interest on -- of any of our lending products that we have, either M-Shwari or Fuliza. So I expect that we won't see an increase in our lending rates. On data pricing, let me say before anybody else wants to answer here, on data pricing, there has been some changes, as you know, from year-to-year. But we've just launched a new promotion, not a promotion, a new direction of Safaricom, which we launched last week where we now -- we're now offering data, which has no expiry date and where you can buy as little or as much data as you like with no fixed pricing levels. This effectively is an effective decrease in data pricing overall, but we expect that the -- this will convert into people -- more people buying data at the base of the permit and perhaps people buying bigger bundles going forward, knowing that they will not expire. So I don't think, in the second quarter, that we will see any negative impact. Of course, the competition has yet to respond. Will they respond or will they not respond, it's too early to say. Do you want to add anything to that?

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Sateesh Kamath, Safaricom PLC - CFO [8]

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I'll just add to what Michael has said, we are doing all of this to unlock the true data potential. So as Michael said this morning in the results presentation, we would spend a considerable amount of CapEx focused on 4G and would take 4G to every town in Kenya. Now why are we doing this is to unlock what we think is the true potential within the customer base. Of the 27.5 million customers that we have, only 7.9 million customers use more than 100 megs. That's a huge latent potential that can be unlocked over a period of time if we get the trust and right propositions to the customers. You would notice, within this period, the underlying KPIs, which we monitor to see whether the future looks strong or not, have been very, very well performing. Active 4G devices in the network went up by 70.8%, and the customers who use more than 100 megs a month have grown by 33%. And the customers who use 100 megs is only yet 40% of the total active monthly customers. So we have got a way to go. And what we will be doing is to focus all the attention, energy and propositions to unlock that potential.

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Operator [9]

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(Operator Instructions) Next question comes from John Munge of Vergent Asset Management.

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John Munge;Vergent Asset Management;Analyst, [10]

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My question is with regards to mobile money. Do we have a sense of how much growth is as a result of third-party developers connecting to the site? This would be specifically the likes of Tala and Branch of small-ticket sized loans instantly through mobile devices. Do you have a sense of how much they're contributing to the underlying growth of M-PESA? And is the prevalence of mobile lending from such individuals seen as a risk to the user base of M-PESA?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [11]

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Thanks for the question, John. Unfortunately, I don't have a ready figure for what exactly is the percentage of loans that we disburse for Tala and Branch. And the reason for that is it's so small, it doesn't appear in any of our KPIs. So while I don't have the figure, I can give you a feeling that it's negligibly small, so small that I don't really monitor how much comes from there. Hence the second part of the question of whether we have any risks from some of those organizations, the answer is not really.

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Operator [12]

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The next question comes from Tracy Kivunyu of Tellimer.

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Tracy Kivunyu, Tellimer Research - Equity Research Analyst of Telecoms [13]

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Sorry, can you hear me?

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Operator [14]

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We can hear you now, yes.

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Tracy Kivunyu, Tellimer Research - Equity Research Analyst of Telecoms [15]

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All right. My question is regarding the broadcasting license you received in July. I just wanted to find out what your plans are in terms of content provision? And any other content-related activities you want to do with the fiber to the home profile?

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Sylvia Mulinge, Safaricom PLC - Chief Customer Officer & Director of Consumer Business [16]

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Okay. So we are at advanced stages of finalizing on the content platform. So in the next wave of probably significant announcements that will be coming from our end, we should be able to give you a good update on that. I think for us, the strategy has evolved around identifying the most cost-effective model that will ensure that we deliver the content at a price that is affordable to our customers so that even as they're subscribing and picking up the different packages from us, they will be able to not only afford the subscription cost for the content, but also be able to pay for the data service. So bundling the 2 into something that is cost-effective to our customers is critical as well as also ensuring that whatever content we deliver, it is mobile-fast ready, so that customers consume it for few weeks of their mobile phones and they use their interface that is easy for them to interact with. So still, that's still work in progress, but I believe before the end of financial year, we should be able to come back to you with a significant announcement around it.

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [17]

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My apologies. Sorry, Tracy, just for the transcripts, that was Sylvia Mulinge, our Chief Customer Officer.

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Tracy Kivunyu, Tellimer Research - Equity Research Analyst of Telecoms [18]

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If I may add a follow-up question, Sylvia, on that. Will the content be strictly databased? And I mean, would you need Internet to access the content? Or will customers be able to access it from satellite and other subscriptions?

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Sylvia Mulinge, Safaricom PLC - Chief Customer Officer & Director of Consumer Business [19]

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Well, we're going to look at different models. But obviously, the objective of investing in content is so that you can add a lot more value to the data points that we're giving to our customers. So it will be consumed off our network on both fix as well as mobile. But obviously, there are different options that are available, customers can come and pay a subscription fee and download and watch later and others who want to go streaming content. So all that's in the play. And when we make -- we are making those decisions right now, and we'll be able to share with you once we launch.

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Operator [20]

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(Operator Instructions) We've been rejoined by [Ganesh Bana] of Murphy Asset Management.

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Unidentified Analyst, [21]

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Kim, I think I just had some technical difficulties, I should be up and running now. You can hear me, correct?

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Operator [22]

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Yes, sir, we can hear you.

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Unidentified Analyst, [23]

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So I've got 2 questions. One on revenue and one on OpEx. So revenue growth was 5 -- 5-and-a-bit percent, which is sort of marginally above what inflation is at the moment. Is this -- are you likely to, I guess, reaccelerate your revenue growth? And then on OpEx, you've done phenomenally well to kind of squeeze the cost base, but how much more efficiency can you basically squeeze out of -- part of the -- out of your cost base?

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Sateesh Kamath, Safaricom PLC - CFO [24]

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Thank you for the question. Do you mind identifying yourself once more, please. We've missed that portion?

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Unidentified Analyst, [25]

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No, sorry, it's [Ganesh Bana] from Murphy Asset Management.

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Sateesh Kamath, Safaricom PLC - CFO [26]

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[Ganesh], to speak about revenue first, we're going through a transition phase, as I explained, where a number of actions were taken in the second half of last year to get back customer momentum, which is extremely important. In a position like us where we have such strong leadership, it is important not only that we look at short-term imperatives, but also look at in the long term, maintaining the customer market share. What we're seeing is extremely encouraging results with some of the actions that we have taken, which we think will get further accelerated with the actions that we have very recently announced, which Michael spoke about earlier on. If you look at on an underlying basis, the 5% growth could have been 8% if we decided not to take some of those actions that we took. A good example is PRS revenue, or premium rated services revenue, which is a point of pain for a number of customers who go ahead and subscribe to them but do not know what exactly they have subscribed to or do not know how to come out of it.

As an example, we have run a campaign to explain that to the customers, providing them links to come out of those subscriptions they did not want. As a result, the revenue has gone down by 22.5%, to speak of just one action that we've done, which is customer-centric. What we believe is all of this will, again, help us accelerate customer growth. And if we get customer growth, revenue growth will follow. Customer growth is 8.9%, and I'm not talking about reported customer growth, which is 15%, I'm talking about active customer growth. So in a revenue transformation year, Ganesh as you know, which many of the telcos go through far more painfully when managed by the regulator, we have done, in our view, a strong performance with all the underlying factors that drive revenue, showing very positive momentum. So we're confident that revenue will accelerate in the future.

But at the moment, we are focusing on ensuring that we get strong customer momentum and revenue will follow through. On the cost base, you're right, Ganesh , that there's a limit to what we can do in cost. Our cost base is already extremely efficient. I would not position this as a cost reduction program that we've done. What we've done is relook at the way we run Safaricom and look at each line item and see can we run these things in a newer way? So it's a lot more reengineering, digitization of the company, which has given us the cost benefit rather than the typical cost reduction programs like reduction of people. Just for the record, we did not reduce people at all. It is all about reengineering, looking at things differently and running the company more efficiently. I hope that answers, Ganesh .

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Operator [27]

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Next question comes from Silha Rasugu of EFG Hermes.

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Silha Rasugu, EFG Hermes Holding S.A.E., Research Division - Associate of Utilities, Telcos and Oil and Gas [28]

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Just 3 questions regarding M-PESA. Apologies if I may have missed this. To begin with, on Fuliza, could you provide transaction volumes that have been completed using the overdraft facilities in the period? Secondly, M-PESA commission costs in half year '20? And third, just on M-PESA fees or commissions, do you anticipate repositioning or repricing similar to what you have been doing on mobile data is just -- is there any expected changes in pricing of M-PESA services?

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Sateesh Kamath, Safaricom PLC - CFO [29]

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So on Fuliza, we -- you're right, you missed some portions. We already covered it, but I'm happy to repeat it. Fuliza is part of -- good part of our growth story. It's 4 percentage points out of the 20 percentage points that we have grown in the year. So M-PESA had overall growth across streams and Fuliza has accounted for roughly 1/5 of it with the rest of the streams all delivering instead.

M-PESA cost as a percentage of M-PESA revenue is coming down. As I've explained in the past in various investor calls, this is something that we look forward to because the money rotation is done digitally as a result of which the margins improve. Every time the money comes in and every time the money goes out, human effort is involved and more transactions that we do within the ecosystem, the margins do improve. I do apologize, I missed your third question.

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Silha Rasugu, EFG Hermes Holding S.A.E., Research Division - Associate of Utilities, Telcos and Oil and Gas [30]

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It is just with regards to the outlook on pricing or commissions on M-PESA services. Do you anticipate any sort of repositioning, similar to what's been going on with mobile data?

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Sateesh Kamath, Safaricom PLC - CFO [31]

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Not at the moment. And as you can imagine, pricing decisions are based on a number of factors, competitive situations, a strategy of what we need to unlock, and for obvious competitive reasons, we cannot speak about it at this point of time. But at this stage, as I said today, we do not foresee significant pricing changes in M-PESA.

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Operator [32]

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The next question comes from Harrison Gitau of ApexAfrica Capital.

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Harrison Gitau, ApexAfrica Capital Limited, Research Division - Senior Research Analyst [33]

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Two questions. One is you did a significant job in noncurrent assets year-on-year, first half '20 compared to first of '19, kindly expand on that.

Secondly, we also looked at significantly in working capital. Can you explain how that might affect the company's ability to pay the dividends payable liability that is permissible? And that we have received a lot of questions from our investors asking us about the progress on DigiFarm.

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Sateesh Kamath, Safaricom PLC - CFO [34]

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Okay. I would repeat the questions that you said because the quality of voice was not great. I thought the first question that you asked is, why is there a significant increase in noncurrent assets.

The noncurrent assets this year is KES 144 billion in IAS 17 basis. It was similar to KES 145 billion in IAS 17 the previous year. So on IAS 17 to IAS 17, it is at a very similar level. You would be aware that this year, we adopted IFRS 16, which requires lease accounting to be done as a right-of-use asset, which has resulted in a significant increase on noncurrent assets from KES 144 billion to KES 161 billion. The details of this has been uploaded into our website where you will be able to see it from there as well.

As far as your second question was concerned of the ability to pay a dividend, we did pay the dividend for the retail investors already. For the major shareholders, we paid dividend closer to December period, November, end of December period. So the dividends payable yet is KES 56 billion, which is reflected in the balance sheet that you can see in the website. We have cash of KES 23 billion and fixed deficit (inaudible) of another KES 20 billion. So we are reasonably close to the amount that is needed for dividends. So at this point of time, we do not see any worry at all for the dividend payment concerned.

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [35]

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On DigiFarm, on where we are on DigiFarm, we are now -- I can say we are on the last trials on DigiFarm, which has now 15 products end to end with some 50,000 farmers going from one -- from borrowing to getting inputs to buying their crop. This is during the current rainy season. Subject to the successful trial, which will end in January of -- January or February, then we will launch in a large-scale, going forward. The limitations of DigiFarm are 2 things: One is on the ability to finance the farmers, and we have now recently received some financing, ground financing from Stanbic Bank, and we hope to see something coming from Standard Charter in the future, which will help us from the loan side, the lending side. And then on the other challenges on the buying side is to make sure that we have buyers ready for the crops when they are ready, and we're working on that, and that should be putting up an exchange right now and also working with Twiga Foods as well to see if we can manage on the buying side. So I think we will see and be able to report probably at the next reporting session, a successful completion of the concept trial.

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Operator [36]

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The next question comes from (inaudible) of Faida Investment Bank.

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Unidentified Analyst, [37]

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I have 2 questions. My first question is on the performance of the reverse call feature. Could you give, for instance, how many calls have been made so far? And my second question is on M-PESA. Could you kindly give a breakdown of M-PESA transaction value?

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Sylvia Mulinge, Safaricom PLC - Chief Customer Officer & Director of Consumer Business [38]

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On reverse call, there are so many things that we introduced a couple of months ago. We are getting roughly 0.5 million people every day, generating a reverse call of their family and friends. And I think that received positive customer sentiment. We will continue to see how that grows as we go into the future. It's a great alternative to the please call me back status that we currently have.

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [39]

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Thank you for the question. As far as your second question of breakdown of M-PESA value, I suspect it's going to take a little bit of time given the line items included there. We are happy to send it to your e-mail separately after this call, and please do expect an e-mail from our Investor Relations team.

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Operator [40]

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(Operator Instructions) The next question comes from Alexander Vengranovich of Renaissance Capital.

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Alexander Vengranovich, Renaissance Capital, Research Division - Analyst [41]

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I joined the call a bit later. So sorry, if I repeat 1 or 2 questions which are already asked. My first question is on the mobile money regulation. Can you give us an update if there is anything new with regards to the changes there, which could be impacting your business in the second half of the year? And the second question is regarding the mobile towers you currently have in Kenya, do you theoretically consider being off the portfolio of the towers? Or it's not being discussed within the company yet?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [42]

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I think I'll answer the question on the M-PESA regulations. We -- there's no major changes coming right now. We are in active discussion with the Central Bank to change some limits -- limits on M-PESA in terms of how much you can hold and how much you can transfer. We have not got an answer back yet, and we don't know when we'll get an answer, but there's nothing new coming from the regulator on mobile money. On the second question in regards to towers, we have no intention at this stage of doing any transaction with regard to our towers.

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Operator [43]

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Next question comes from [James Banning] of Kuli.

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Unidentified Analyst, [44]

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A very quick one from me. As far as I understood, the -- on the gaming side, there was some gaming companies that had their licenses revoked and now going to be reissued. I think this was in -- over the summer, July, August, September. I'm just wondering if those licenses have come back. And would that mean that this gaming line item and if will start returning to growth as we go forward?

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Sateesh Kamath, Safaricom PLC - CFO [45]

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[James], thanks for that question. At this point of time, it's something that the regulator is looking at. It's complicated because there's taxation issues as well with these gaming companies. From what we see, we have seen a substantial reduction, close to 50% to 60% of revenues from gaming have gone already. And we've always called this us out with our investors that we are not likely to lobby or participate in any discussions. We would provide services as required by the regulator. And now that the regulator has decided to clamp down, we will adhere to it as well. In our models internally, at this point of time, we are not factoring in gaming going back to those high levels. However, this is an industry which is outside of our view and under the control of the regulator. Hence, it's difficult for us to predict reasonably. Internally, we are not factoring in increasing in gaming revenue.

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Operator [46]

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(Operator Instructions) We have a follow-up question from Tracy Kivunyu of Tellimer.

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Tracy Kivunyu, Tellimer Research - Equity Research Analyst of Telecoms [47]

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I just wanted to ask about acquisition plans -- sorry, the expansion plans that Safaricom has. Are there any other countries that Safaricom is considering and is there any timeline related to those?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [48]

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No, there's nothing -- other than Ethiopia, there's nothing that we're looking at the moment.

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Operator [49]

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We have a follow-up question from John Munge of Vergent Asset Management.

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John Munge;Vergent Asset Management;Analyst, [50]

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Sorry, my question was already asked by Tracy.

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Operator [51]

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(Operator Instructions) The next question comes from Ali Al-Nasser of Vergent Asset Management.

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Ali Al-Nasser, Vergent Asset Management LLP - Managing Partner & CIO [52]

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Can you comment on the appointment of Mr. Peter Ndegwa as the company CEO, effective April 1, 2020? I'm particularly interested in hearing about the factors that were considered? And how do you see him fitting in, given that he's somebody who's an outsider from both an industry perspective and from a Vodafone-Safaricom perspective?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [53]

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Yes, I'll answer that question. I mean when we went to search for a replacement profile, obviously, we decided it at some point, and both -- together with -- from our shareholders, we decided that we would look for a Kenyan for this job. That immediately limits your scope to what you can find in terms of people who are telecom experienced in Kenya and with the level of maturity and experience to run a company of the size of Safaricom. Nevertheless, we went through an extensive search and extensive recruitment process. And in the end, we chose Peter Ndegwa for the role, based on his experience in the multinational organizations, his maturity and his experience in running 2 companies, 1 in Nigeria and 1 in Ghana.

Recognizing that he doesn't have any telco experience as such, we still think that from his knowledge, experience and maturity and intelligence level that he would be able to come into the company and be able to pick it up what needs to be done. Of course, it won't be immediate. We expect that there will be an overlap for a transition period of about 3 to 6 months. And of course, we have a good team in place to support him going forward. So although he's not the ideal candidate, he is as close to that -- as close to ideal that we can get, taking into account our limitations.

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Operator [54]

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The next question comes from Lisa Kimathi of Standard Investment Bank, Kenya.

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Martin Kirimi, Standard Investment Bank Limited, Research Division - Research Analyst [55]

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Actually, it's Martin Kirimi. A couple of months ago, you launched -- you sent out a statement that you're partnering with Equity Bank on some projects. Could you kindly give us an update on how far the partnership has -- is actually picking up?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [56]

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No, I'll answer the question. I don't think I can answer that question in detail because, obviously, it's a transaction between 2 companies, and we are still negotiating with them on different work streams. Some of them are close to fruition, some will take a little bit longer to close, if we can close them. So I think it's too early to say, and I think I'm not at liberty to disclose where we are with that relationship.

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Operator [57]

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The next question comes from Kuria Kamau of SBG Securities.

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Kuria Kamau, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [58]

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Just a couple of short questions from me. The first one is around looking at guidance, if you -- the guidance hasn't necessarily changed, really changed, but I'm just wondering, you seem to be tracking ahead of that. You kind of mentioned, we saw it with mobile data and also with call tariffs, we saw those being reviewed downwards. So I guess, this was expectation the second half might be a bit more challenging from that perspective, but you mentioned that it's more of a long term. Just curious what, in essence, do you see kind of going to the second half in terms of headwinds in addition to ones you mentioned? And then second question, kind of even briefer than that is just around what keeps you up at night? What concerns you? We saw the market share data come out a few -- a couple of weeks back, we saw, at least, on minutes, there seems to be some movement, some advance movement. So I'm just wondering, other than that, what necessarily keeps you up at night?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [59]

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Yes, I think looking ahead and going forward, we do face some headwinds. I think right now -- I think based on what we launched last week in the marketplace here with our new offering and new service delivery options -- service delivery that we're going to provide, I don't see any major headwinds coming to us based on what we know. Of course, there are always going to be external factors that we cannot predict, but I think we are pretty confident about the second half of the year, both in terms of revenue, margins and numbers. But let's see how it goes. But I think we're pretty confident that we will make some inroads in terms of market share, that's our objective, inroads in terms of market share, repositioning of our NPS score and basic financial numbers. What keeps us awake at night? I think it's not anything, I think, serious that we have yet. Because we are a big company, because we are a successful company, it's very easy to sit back and rest on our laurels and say, fine, we're doing really well and what other mobile phone company has a 50% EBITDA -- EBIT margin . So I think this is just what keeps us awake is to make sure that we're not too complacent about our position in the marketplace and our success.

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Operator [60]

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Next question comes from Deepak Tolani of 7Summits Investments.

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Deepak Tolani;7Summits Investments;Analyst, [61]

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Just a quick clarification on the Ethiopia expansion or the spectrum that you're bidding for, does that spectrum allow you to do voice, data and mobile money? Or right now, is the conversation just on the voice portion?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [62]

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Yes. Sorry, this was an earlier question, which I didn't really answer. At this stage, we don't know. There are some lots of clarifications still to come from the Government of Ethiopia. There's some consultation taking place on the 15th of November where we will get some of these questions answered. Right now, mobile money is not included in the bid because mobile money cannot be offered by a foreign entity. We are hopeful that the regulations will change to allow foreigners to provide financial services but we don't know whether that will be in time for this particular bid. So right now, it's undecided whether we will include mobile money in the bids that we will get -- we should make for the licenses. We cannot say really with any certainty today. Hopefully, as I say, when the government issues its final clarifications, we will get some more clarity on this.

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Operator [63]

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(Operator Instructions) We don't seem to have any further questions on the line. Do you have any closing comments?

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Michael Joseph, Safaricom PLC - Interim CEO & Executive Director [64]

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I think the closing comments -- I think that Safaricom, having done what we've done in the last few weeks, having sort of reestablished that changed the direction of Safaricom, both in terms of pricing methodology, service offering and service delivery, I think we're pretty confident about the future. I think we set a new standard for mobile phone companies in Kenya.

I think we've seen that there will be possibility that Airtel and Telkom will still merge. I'm not sure it will be completed in this quarter, probably going to move to next quarter. But nevertheless, I think, based on our fundamentals of making sure that we have 4G everywhere by the end of this year, our data offering will be very strong and the quality of service that we'll get from data will be very good based on our fixed data that we are accelerating as well. And then on financial services, I think we are in a very, very strong position for the next half of the financial year. And I expect that this trend will continue. I think that's all I want to say.

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Operator [65]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Safaricom PLC, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.