Safaricom PLC (SCOM) Earnings Call Transcript & Summary

Good morning, good afternoon and good evening to everyone, depending on who you're joining us from. We are glad to have you for our Half-Year Financial Year 2022 Earnings Release Investor Call. My name is Philip Muchaba, I'm the acting Head of Investor Relations and Financial Planning at Safaricom, and I'll be moderating today's call. In today's call, we'll have a short update from our CEO, Peter Ndegwa, who will also introduce the leadership team accompanying him today. Thereafter, we will be giving you a chance to fill your questions, which Peter will answer with support from the rest of our leadership team. Before we kick off the session, I would like to speak through a few housekeeping rules. Throughout this session, any questions you have for our leadership team should be shared via the Q&A tab. Please type in your questions and we'll read them out and provide answers. At the end of your question, remember to include your organization name. Please ensure you have joined the session with your full names for ease of identification when you post your questions. If you haven't, you can rename yourself now by hovering the cursor over your name and clicking rename on Zoom. In staying committed to our promise on diversity and inclusion, a live transcript has been made available for the comfort of anyone with hearing difficulties, who has during the call. You can access this by clicking the view transcript at the bottom of your Zoom application under more options. This will allow you to keep up with the conversation in a more comfortable manner. I now welcome our CEO, Peter Ndegwa, to kick off the session. Thank you.

Thank you, Philip, and good afternoon, good morning, good evening, everyone, our investor community and anyone else who is joining us this afternoon. I'll make a few comments, and then I'll invite Dilip to summarize our financial results that we announced this morning, and then we'll go into Q&A. So this morning, we announced the H1 results for Safaricom PLC, and we are delighted to be engaging investors this afternoon, investors and analysts. I'm joined today by our CFO, Dilip Pal, who will join me in answering the questions and also by Steve Chege, who is our Chief Corporate Affairs Officer. So between the 3 of us, we should be able to pick up all the questions that we -- that you ask this afternoon. If we are not able to answer all of them, I'm sure the Investor Relations from Safaricom will reach out to you directly and give you whatever answer that we might not be able to confirm. So without further ado, what I would ask is, Dilip, if you can spend just about 5 minutes, just summarizing the key results that we announced this morning for anyone who have been not have watched the video or seen the results, and then we'll go into Q&A directly. Thank you. Dilip?

Thank you. Thank you, Peter. Hello, everyone. Good morning, good afternoon, and good evening. Hope you can hear me well. As Peter mentioned, this morning, we have released our H1 results, a strong set of numbers, I would say. As you have seen, we grew our service revenue by 16.9% on the back of, of course, economic recovery, strong execution that we have done in the half year and also a lot of innovation around our M-PESA products that we have delivered. I'll just go and give you some perspectives on some of the areas like, for example, coming starting with the customer numbers. We have seen growth in customer numbers across all segments. Our customer base has now crossed over 40 million. We have seen 1-month active base going up in all mobile data -- voice, mobile data or M-PESA. From a revenue perspective, voice revenue, we have seen some good progress up in the second half of last year, and we are seeing that same continuing in half of this year as well. Voice revenue grew 3.2%. And we also managed to maintain our voice traffic share at around 68%. A strong rebound on M-PESA with 45.8% growth. And of course, this is also on the back of the charging that has started from January 2021. But more than that, I think you may have seen from our financial results that financial services on some of the fintech areas that we have done extremely well beyond just traditional transfers and withdrawals. But both volume and values have recorded significant growth. Volumes grew 42%, values grew 52%. And more importantly, the velocity, which is the number of transactions per customer per month almost double if we compare the same period last year. We launched our Super App, you may have seen from our public announcement. And in a very short period of time, we see a significant customer engagements with 4 million downloads and 2 million active customers actively engaged in this platform. We are super excited about this. And you may have seen our progress also on the business side as well. Mobile data revenue grew about 6.3%, while we are expecting it to be better than 6.3%. I think what you need to keep it in mind is we have seen a bit of price rationalization during this period. And also, the excise tax, which has come in from August, industry decided to absorb the tax, and that also kind of weighed down overall revenue growth. But on customer KPIs and other KPIs and the fundamental KPIs on mobile data, actually tracking quite well with usage growing from a 1.3 GB last year to 2 GB, the chargeable customers growth, the customers are using -- the 4G customers are using more than 1 GB. They're all progressing quite well. We managed to onboard close to 0.5 million Lipa Mdogo Mdogo customers, which as all of you are aware, was a grip -- key initiative in FY '21. So that's kind of gaining scale now. So overall, I would say mobile data getting traction, but we do see that there are opportunities to grow beyond what we have done. Fixed continues to be a strong growth driver. We have grown over 20%, driven by growth in both home as well as on the business segment, driven by more of an acquisition of new customers. On the cost side, the overall, I think our cost leadership that pillar is strong. We have done KES2.3 billion cost savings this year. That actually could manage to neutralize some of the cost increases that we have seen in the energy as well as in our IT cost. But of course, on a year-over-year basis, the cost has gone up. It's also a fact of last year's a significant -- a similar level decline that you have see in H1 of last year. On EBIT, we have the 28.8% year-over-year growth with an EBITDA -- EBIT margin expansion of 3.3%. We sustained a high CapEx, investing in the customer experience and also expanding our footprint. And also our CapEx includes the CapEx that we have spent for Ethiopia. On the balance sheet side, very quickly, you may have seen borrowing levels going up. We did borrow money to locally in Kenya to fund our license bid. As you'd recall, that $850 million, which was the fee that we paid for the license. So our share of that. We did take a base loan locally, and then we are now in the process of syndicating that loan into a long-term loan. So we did the funding for Ethiopia, about $850 million, which is what I was mentioning through the local funding, the local debt that we have taken. You have also -- you may have also seen the guidance, revised guidance, just to remind all of you when we put our guidance in May this year, Ethiopia was not in there. But as you are now consolidating our financials, it is important that we include Ethiopia as part of the full year guidance. As we may have seen underlying our overall EBIT guidance actually improved, both on the lower end as well as in the higher end, based on the improved performance that we have seen in the H1. CapEx guidance for Kenya, Safaricom operations remains same, but we have added now Ethiopia as part of the full year guidance at a consolidated level. So that's all a quick update on the financial results that we have released this morning. Now back to you, Philip, to moderate Q&A. Thank you.

Thank you, Peter. Thank you, Dilip. We have 2 questions from [indiscernible] from UBS. We are congratulating us for a good set of numbers. And the first question is, please clarify Safaricom's share of cost and CapEx over the next 3 years, this is eluting to Ethiopia. I have $30 billion in CapEx and a total cost of $600 million in year 1. Please also clarify that $1.5 billion to $2 billion in 5-year plan are specific to Safaricom's share of cost for the consortium in its entirety? The second question is on the funding to talk about what is the current funding plan for Ethiopia. And how much of the CapEx and OpEx is to be funded by debt? And to also call out what kind of interest rates, term of loans we have and whether this debt has recourse to Safaricom?

Thank you, Philip. I would let Dilip to answer both questions. Dilip, please.

Thank you, Peter. Okay. Let me confirm that you can hear me well. Yes. Okay. Yes, let me clarify on those numbers. So thanks for your question. $600 million on an about is Safaricom's share of funding. So just to confirm that's the year 1 funding for Safaricom. I think, largely, this is the spectrum payment and then the other funding requirement that we have for the year 1. And to your other questions on, to clarify whether $1.5 billion to $2 billion CapEx, is it Safaricom's share or for the business? I can confirm you that USD1.5 billion to USD2 billion is for the entity as a whole and not Safaricom share. That's the CapEx, 5-year CapEx outlook that we have provided. To your question on the funding plan. So what you're looking at is an optimal capital structure, which will have a combination of equity and debt that both local debt as well as foreign currency debt. And we are also -- we have also looked at vendor financing, innovative vendor financing to augment the funding requirement. So from a funding plan, what we have so far done, I think so far invest -- so far the funding, which has gone into the Ethiopia is largely through equity. And for Safaricom's part of equity, as I mentioned, we took a bridge loan and then we had about $400 million, and that we are now in the process of currently syndicating -- currently we are in the process syndication and that we would be converting the long-term loan. Beyond that, the entities currently funded well. But then we are also looking at local debt options, the term loan debt, because we do have a lot of payments that we need to make in local currency because of the currency situation, as you are all aware of, we want to make sure that to the extent possible the local payments are made through local borrowing, and that is also work in progress. The bigger piece is on the debt side, on the foreign currency part, our engagements been with multiple DFIs, including some of the conversation or the -- what you may have seen in public domain, our discussion with DFC, IFC and those likes. At this point in time, what I can confirm you is that the discussion in some of those DFIs are progressing quite well. And we believe that by the time we need our funding, we'll have enough funding to take care of the business to make sure that the business is fully funded. And in terms of interest rates and other information, I think we'll share those information in due course, and we have more clarity, more visibility around confirmation of those dates that you are currently looking at. Thank you.

Thank you, Dilip. And just to remind you, at the end of your question, please post the name of your organization. The next question is about Ethiopia from [ Madhvendra Singh ]. What are your medium-term targets in Ethiopia? How does your plan get affected from recent political developments in the country? Peter, do you want to take this?

Yes. So I will comment on the impact that we see given the issues that we have faced -- that Ethiopia is facing at this stage. So as you know, as we assessed, the risks are going to Ethiopia, the political elements were always part of that risk because the potential conflict was always there. Clearly, that has crystalized, given the state of emergency that has been declared. And at the moment, as we said during the announcement, we are assessing the situation as it evolves. We had a small team there in Ethiopia, and we have prioritized the safety and security both for anyone who was seconded from our side of Safaricom or Vodacom into Ethiopia. But also for our local employees, which we had already started to recruit. And this is primarily to make sure that in the next couple of weeks as we assess the situation, we take care of the employees safety and security. And as precautionary, we are seeking advice from various sources. And we hope for a speedy resolution of the current issue and peaceful resolution of the current issue. And over the next couple of weeks or few weeks, we would be able to assess the situation and understand if it impacts our ability to launch. In the meantime, we are preparing as we were doing before to prepare for launch, which is supposed to be mid-2022 based on our license obligation, where we expect to have approximately a 1,000 sites to give us the scale that we need to be able to drive that to deliver on commercial launch. The current issue, of course, as [indiscernible], we'll be able to assess that and discuss with the authorities as to how that affects our ability to launch on time. But at the moment, we are working on the business that we can continue to build the infrastructure because quite a lot of it will be exported from outside of Ethiopia. And should the situation change, whichever way, and we believe -- and we think that they need to update investors, we will do that at an appropriate time. As you know, the investment in Ethiopia is a long-term play. Our hope is that this would be resolved. This matter will be resolved in speedy and peaceful way. In terms of the long-term KPIs from an investment perspective, I'll ask Dilip. I think we did cover some of that in the presentation. So Dilip, if you can talk through that.

Thank you, Peter. So you may have seen from our slide deck. So we have provided some information around the CapEx, which is USD1.5 billion to USD2 billion for a 5-year CapEx outlook. We expect EBITDA breakeven in year 4. As Peter mentioned, we expect to launch it around approximately about 1,000 sites and site counts could go up to 10,000. And we will use own build as well as sharing as part of our site build. So I think from a medium to long-term perspective, that's what our outlook at this point in time based on the business case that we have evaluated, and based on which we have gone for the bid -- the license bid. Thank you.

Thank you, Peter. Thank you, Dilip. Next question is on M-PESA from [ Vanrajsinh ]. Can you please discuss the growth acceleration within M-PESA? What is the penetration now of Lipa na M-PESA versus overall M-PESA business?

Go ahead, Dilip.

Yes. So I mean, within M-PESA, if you have seen the -- in the slides, if you have seen, we have grown 45.8% year-over-year. But even within the -- it's not necessarily only the traditional business that has grown. Within 45.8%, we have seen the fintech solution growing actually 43.7% year-over-year. So -- and those are driven by some of the elements that I'd call out. I mean, within that 50% of those fintech solution has to be given by payments, which is quite encouraging. And then we have seen IMT, International Money Transfer is growing 22.6% and lending and savings also growing 17.2%. So if you look at the overall M-PESA, I think it's not necessarily only the withdrawals and transfers, which has of course grown significantly, but we have also grown the other parts as well year-over-year. In terms of Lipa na M-PESA, M-PESA -- Lipa na M-PESA, Sitoyo, would you have more color to in terms of the contribution?

Okay. Now, I was just saying that with regard to Lipa na M-PESA, it's -- our volume in terms of on a monthly basis is about 750 billion, in terms of $7 billion to $7.5 billion in terms of value going through, which is on a totality is about 2 trillion on a monthly basis, shows you the scale of the payment side of it. I think what is more exciting is what we're doing, as Peter mentioned in terms empowerment of businesses. And we are beginning now just from the business up over 40%, 43% of the transactions are now digital, meaning that we are now beginning to open a new era in which B2B is available, what we call the transacting team is empowering payments from the business side. And we are quite excited about how that is going to evolve from a capacity enhancement for -- from a learning perspective for SMEs. And I think, overall, from Lipa na M-PESA, that side of the business is growing extremely well, and we're looking forward to continue to develop new products and services that empower businesses.

Just to add to what Sitoyo said, in terms of the growth, year-over-year, Lipa na M-PESA -- overall, M-PESA grew 45.8%. Lipa na M-PESA have grown actually 83.6%. So that's a significant scale-up of growth that we have seen in H1 of this year.

Thank you, Dilip. Thank you, Sitoyo. Our next question is from Ali Al-Nassir. What's been driving down data prices? Has there been aggressive competition? Or is this just a natural decline in prices over time? He also have a question on Ethiopia. Can you give us an update on the situation in Ethiopia? I know that this has been impacted -- whether this has impacted our overall plans, I believe that has been answered.

Yes. So, thank you. Just one -- the one thing that I wanted to add on Ethiopia before I hand over to Dilip to talk about the pricing of data, is that there are 2 components on the Ethiopian business that we've been working on. The first is just setting up or finalizing a lot of the governance elements, there kind of shareholding vehicles that allow us to operate in Ethiopia, ensuring that the license was paid and all those elements that we have to do with the beat process, yes, and confirming all that. Then the second aspect is preparing for launch, which as I said, is mid-2022 based on the license obligation, including recruitment of CEO, recruitment of ESCO seconding suitably qualified employees from across Safaricom and Vodacom, and then starting to accelerate recruitment of local employees. I did put quite a bit of color during the conversation we had this morning when we announced the results, but for those who may have missed it, that is where we are. And I have spoken about the impact of the current crisis as hard. But we are all -- the team is now working remotely. And of course, should this be resolved quickly. We should -- we'll make a judgment as to when the team is able to fully operate. So I'll hand over to Dilip to talk about the data pricing.

Thanks, Peter. I think on data pricing, what I would like all of us to kind of remind also that what we said before. What you said before that our ambition is to make sure that we drive affordability. And then other thing that we said that we want to reduce the premium, the price premium that we have on data pricing compared to competition. So this is something that we have been driving down to make sure that the price premium becomes more reasonable, more rational. And then second part is the affordability. I think this is important for this market. As you are driving more penetration, as you are driving usage growth, the price pressure will come in. But as I said, this is a combination of driving affordability. But when you do that -- sorry, driving affordability and reducing premium. I think while you do that, I think one thing you're very clear, and we are conscious about that, we don't do anything on a large-scale basis. We do always the customer value management propositions, which are more of individual customer offer, which is customers get more for the same price or they pay a little bit more and they get more. And that's also reflected, as you've seen in the mobile data year-over-year, we have seen an ARPU lift of 7.9%. So yes, the price is under pressure, as I said, because of this -- the affordability and the price premium reduction. But we are focusing on the ARPU improvement to make sure that we can sustain a high mobile data growth in future.

Thank you, Dilip. Thank you, Peter. We have 3 questions from Silha Rasugu of EFG-Hermes. The first question is, what are the terms of the [ USD 400 million ] bridging loan? The next question is which institution financed the bridging loan? And then the last one is on guidance. CapEx guidance seems high for Kenya. This is excluding Ethiopia. Could you please provide more color on how this capital will be allocated, considering we have high 3G and 4G coverage and targeted application of 5G?

Thanks, Philip. Dilip, it's in your street. Please go ahead.

Thanks, Peter. Thanks for your question, Silha. I think on the terms of the bridge loan, I won't get into the details of it, what's the terms. But what I can confirm you is that those very competitive terms. So we scan the market and then we went ahead with the most competitive bid that we've got. And there's a very competitive terms that we've got the bridge loan. And as I also mentioned previously, we currently we are bringing syndication to convert the bridge loan into a long-term loan, which should be finished very soon. On -- again, on institution, we deal with quite a few banks as our core banks. So we use one of those banks to get as a lead and then we use other banks to also participate. So I won't again go into details of which institution, but it's part of the core banks that we deal with. Silha, on CapEx guidance, I think as -- so you have not changed our CapEx guidance, so the CapEx guidance remains same as you have seen, first half from -- the CapEx guidance of KES40 billion to KES43 billion in the first half of the year, we spent -- for Kenya alone we spent about KES19 billion. So actual spend that you see KES22 billion, includes CapEx of KES3 billion [ equivalent ] for Ethiopia. So we are within the ballpark the guidance that we have given. And we mentioned to you before also when you were doing the guidance in May. We are very clear on to make sure that we expand our footprint. We upgrade our network to get better customer experience. And also, we keep investing in some of the growth areas that we have highlighted that is fixed and also expanding capacity for the mobile data growth that you see. And also, the financial services, wherever the upgrades required that we are making sure that we do that. The other thing to highlight is also, if you see that almost 1/3 of the CapEx spent in IT. And that's an important point to note that as we are trying to -- as we are trying to become a purpose-led technology company. So there would be IT spend in order to -- in order to do what we need to do to become a technology company. So these are the things that we are focusing on to make sure that our growth revenues for future is protected in terms of the CapEx spends that we do. I think we are comfortable using the guidance that we have provided. And on your question on 5G, I think we didn't have a lot in that CapEx status that we have. Currently, thereabout 15 to 20 sites that we have launched. By end of the financial year, maybe we can -- we'll go right about 150, 200 sites. So it's not a lot from a 5G perspective. Yes. I hope that clears all the 3 questions that you have asked.

Thank you, Dilip. I'll proceed to the next question. It's about dividends and also on guidance from [indiscernible] from UBS. How should we think about dividend policy going forward? Then on guidance, if we look at guidance for this year, the Ethiopia impact is [ 10 billion ] in losses above EBIT. Is this figure for the consortium and just -- or just Safaricom's share?

Yes. I'll start with the second one on the guidance. At EBIT level, we consolidate the full amount. So the 10 billion loss that you see in EBIT is the EBIT -- negative EBIT number for the Ethiopia operations as a whole, and we consolidate in our numbers. So that's where it is reflected in 10 billion. On the question on dividend policy, our dividend policy allows us to pay dividend, we pay interim and we pay final. I think if you recall, from last year, we started paying an interim dividend, which is what many companies do globally. And also, of course, there are many examples in Kenya as well. So this is something we believe that we could continue with. But of course, these are all subject to Board consideration at an appropriate time. Yes. Otherwise, I can confirm that our dividend policy remains unchanged, which is to pay 80% of net income at a consolidated level. So that remains unchanged. But it allows the flexibility to pay interim and final as we have started from last year. Thank you.

Thank you, Dilip. Our next question is from Tracy Kivunyu from SBG Securities. They are asking why our voice users declined year-over-year? They also have a question on mobile data subscriptions, why they are flat year-over-year? Then they're also asking on OpEx, what is driving the [ 31% ] year-over-year increase in OpEx? And lastly, they also have a query on Ethiopia, is the approval for Safaricom's mobile money license in Ethiopia predicated on the country having a successful bid process for the second GSM license?

So let me answer the question with respect to mobile money in Ethiopia, and then I'll hand over to Dilip to answer the other questions. So prior to our bid, the Ethiopian authorities, actually the Prime Minister has announced that mobile money or another foreign operated entities will not be allowed to operate mobile money until 3 years later. Around May time, when Ethiotel launched mobile money, the Prime Minister mentioned that mobile money will be allowed within 1 year. So we would be allowed to operate mobile money within 1 year. And more recently, as they issued the [ RSP ] for the third license, they have now confirmed that mobile money will be included in the third license. So we are currently engaging the Ethiopian authorities and now are trying to find out what conditions are required for us to be included and be able to operate mobile money. So the letter has gone in. We are currently awaiting response from the Ethiopian authorities. But our understanding is we will be allowed to operate mobile money, but there are certain conditions that the government would be confirming to us, including potentially some additional fee, but that has not been confirmed. So that's what we are waiting. And when we do get that response, I'm sure we'll share with you.

Thank you, Peter. I'll take the other 3 questions now. On the voice, I'm not sure that I'm reading the numbers. We kind of sustained our voice a 30-day active voice customer number. So it's a small improvement compared to last year, but it's -- I would consider this as more of a sustained voice customers, actually active voice customers. I think what I would also like to highlight is what I mentioned in my opening brief is, actually we are holding on very strongly in voice share -- voice traffic share. As per June CA data, you would see that our voice traffic share is holding at 68.2%. So actually, voices, for us voice has been a very strong performing segments, given what was happening in the H1 of last year, if you would recall, but then there is significant recovery happened in H2 of last year and that we are seeing the sustaining in H1 of this year as well. On mobile data, I think the numbers to look at would be the 1-month active mobile data customers, which has grown, which has grown 4.7%. The other numbers to look at the distinct bundled users, which is what we are driving our attention, more and more bundled customers are coming in, that has grown 8%. And then the customers, the active -- the customers we use, we call the Giga customers. Those were the really serious users who use more than 1 GB per customer per month, that has now reached to 6.8 million, which has also grown quite 26%, 27%. So underlying, if you look at, I think all the areas of -- the focus areas that KPIs that we monitor on the data, I think, on the customer side, they are progressing quite well. To your question on the OpEx, what I would like to highlight a couple of points. So I want to start with the increase that you see is also on account of Ethiopia consolidation effect. So our current year's OpEx includes broadly around [ KES200 million ] equivalent of OpEx that we have incurred in Ethiopia operations, which you have consolidated, which, of course, was not there last year. And other than that, the increase that we have seen is also a result of H1 being extremely muted in terms of the cost. As you recall that, that cost actually declined over 10% in H1 of last year because of COVID pandemic, the lack of movements and therefore, a lot of cost [ guidance ] that has happened. It's not that a lot of cost has come back, but it just a lapping effect of that is also reflecting here. And the areas that we have seen cost increase happening in energy, which is something that we could not avoid, the rates have gone up, both for diesel as well as for the electricity. And then some of the accounting shift of IT expenses for cloud services, which moves from CapEx to OpEx also comes as an IT expenses, which also resulted in an increasing cost. I think overall, we are quite satisfied with the progress that we have made in our cost leadership program, wherein we have managed to save KES2.3 billion in H1 of this year. Thank you. Back to you, Philip.

Thank you, Dilip. We have next question from Solomon Kariuki of AIB Capital. Their question is, what contributed to the 51% Y-o-Y jump in income tax expense? The other 2 questions are on M-PESA. What plans does the company have on getting a bigger share of the huge [indiscernible] trends market that has been dominated by their banks? They are also asking what is the update on Mali Wealth management platform?

Peter, I can start on that one?

Yes, go ahead. Go ahead. Sitoyo. And Dilip will answer the question on -- yes, the first question. Okay.

So we're focusing heavily on remittances as well as global payments. So we do have -- you can receive from over 200 countries. And today, we do have majority of the market share. We now command over 65% of all remittances coming to the country. So we are very strong in that side. And more importantly, now is to look at the opportunities around e-commerce. With regards to the products that are under approval by the regulator, it's difficult to comment on that, but we are actually engaging the regulator to ensure that we're able to launch those products. But until then, we await regulatory approval. Thank you.

Thanks, Sitoyo. On income tax expenses, you'd recall that there was COVID really for corporate tax rate, which was brought down to 25%. So that was for 9 months of last financial year, and this was restored from past January 2021. So the increase in income tax expenses that you see, actually in combination of [ '21 ], of course, our profit before tax has grown, has grown over 20% and also the rate increase from 25% to 30%. That's reflected in income tax expenses.

Thank you, Dilip. Thank you, Sitoyo. A couple of questions on M-PESA. First one is bank to M-PESA wallet transactions account for 18% of the transactions. Could you please comment on the volume growth that Safaricom has witnessed given that this base is currently free? Then when do you foresee the reinstatement of charges for this service? And upon reinstatements, do we expect to see an adjustment in the fee structure? And lastly, finally, comment on the revenue split with the different partner banks expected post fees reinstatement.

Thanks for that question. I think for us is we did that with the regulatory cushion customers during the COVID period, it's still ongoing. So we are still working with the regulator with regards to when these measures will be lifted. Yes, we've seen growth in customer to bank transactions as well as bank to customer transactions. And similar to what we did with B2B, we are analyzing the trends to ensure that we sustain the customer -- the new customer behavior. So when we do finalize the regulator, then we will be able to look at the tariffs with regard to M-PESA to bank and bank to M-PESA transactions. Thank you.

Thank you, Sitoyo. Continuing still more questions on M-PESA. We have a question from Ali Al-Nassir. What are the next features in the pipeline for the M-PESA customer up? Two other questions from Irene Wanyoike of Jubilee Financial Services. What has been the reception of the M-PESA business app and which M-PESA product has performed best in the app during the period?

And those are great questions with regards to the app, those are great questions. One is on the business app, we are seeing it's over 120,000 merchants are using it out of close to 400,000 merchants on it. What we're doing is empowering businesses to -- now they can see the inflows and outflows. And more importantly, they can do B2B transactions. In addition to that, we are making the business app become a Super App by incorporating what we call mini programs. These are third-party systems that empower enterprises to do -- to perform the business. It's better to see how they can grow their business. With regards to the M-PESA Super App, I think some of the key things that have come, have coming in play are they sent to many functionality, the QR code, the ability to look at real-time statements, international money transfer. But now what we're seeing now, it's hundreds of thousands of customers using the Mini-apps. And the Mini-apps is what we're transforming M-PESA to become a logical Super App. And this is where we come to Google Play Store and which we are seeing today, we have published over 17 Mini-apps and there over 65 in development with a target of over 300. So those are some of the key things that you'll see on the road map, in addition to some of the wealth management products, once we get them approved, you'll see them coming into the Super App. Thank you.

Thank you, Sitoyo. I would like to remind you to ask your questions via the Q&A tab. I'll move to the next question from Ali Al-Nassir. The question is, what's driven the loss from associates? The same question has been repeated by Silha Rasugu of EFG-Hermes. They are also asking, could we please have a breakdown of the finance costs for the period? And they are also asking for an update on M-PESA Africa.

So let me first -- do the first 2. And Sitoyo, you can talk about M-PESA figures. So let me -- on associate companies loss is primarily driven from losses from our associate company called [indiscernible], like many other companies, first of all, this is a startup. So it's expected that they will have losses in the beginning. And secondly, during 4-week time, I think many businesses have suffered on the customer acquisition side, and this business also did. So I think this is very normal that in a start-up stage, there would be losses. And so that's on the associate companies losses. On finance costs, I think this can be provided. I mean, just to tell you in terms of finance cost, there is -- in finance costs, there is around KES1.1 billion as currency losses that's part of this. The rest is increase in interest cost because of the bridge loan that we have taken for funding Ethiopia. And also, I think you see the net figure is also a combination of the interest income that used to our cash balances, of course, have gone down. So because of its our interest income is also low compared to previous year. So in combination of that, these are the big, big numbers that are reflected here. But a more detailed breakdown if you need can be provided to you separately. I think, M-PESA Africa -- Sitoyo, are you on the call?

Yes. So for M-PESA Africa, the key thing what we're doing is to deliver market on the standardized platforms in order to be one M-PESA the largest fintech and digital ecosystem in Africa. So we are looking at verticalization of all our products, services across all markets in order to consolidate them and have this one view of M-PESA across the entire footprint. So it's an exciting time at how we are setting up M-PESA Africa to ensure that we optimize our CapEx as well as OpEx. Thank you.

Our next question is from Madhvendra Singh. They're asking what kind of trends are you seeing in voice revenues vis-a-vis growth in data segments? They're also asking how long before you move completely to data, voice combo bundles? Or is that not really something you're looking to do?

Peter I can -- So, on -- I think I tried to explain that in the opening remarks, we have seen very strong performance on the voice side, voice revenue grew 3.2%, I mean, compared to mobile data growth, which grew 6.3%. I think in relation to that, voice growth was very strong, and we are holding on to a high minutes of uses per customer, and we are holding to a very high sustain traffic share in the market. So I think on voice, I would say that our work on customer value management proposition has worked very well because of which you are able to, over a period of time, increase minutes of usage and therefore, kind of a -- the slide that we have seen, we're able to stop that. So that's on the voice. I think on the data side, what I was explaining you that we did see some headwind in H1, mostly driven by the cost absorption that we had to do for the excise tax increase, which has happened from August and also the price rationalization that also -- some part of it is quite part of our own strategy to reduce the price premium as well as driving affordability. I would say that the voice performance has been quite satisfactory. And we believe that the work that we are doing are quite encouraging in order to for us to -- that the slowdown, the decline of voice that we have seen in the past. And we believe that the data, all the KPIs, all the fundamental KPIs, which drives data growth are working quite well, and they are visible. And we believe that this can also be accelerated as we go along. So that's on the voice and revenue data strength that we see. On combo, I think, I don't know what exactly you mean by combo. We don't have combo. So you can buy voice -- you can add voice to our data bundle. So when you buy bundle, you can have those combos. But if you're referring to some of the products that some advanced marketplaces like Europe, they do, they just have one price point, and then they -- the customers can use, whether it is for voice and data. I don't think we are there yet, and I don't think we need to do that yet. We'll see as we go along, because this is also part of the evolution that we are still at a very lesson stage of better evolution, we believe that's sometime away getting into a basically composite bundle with using for voice or data, as we have seen in other markets. Thank you.

Probably I'll add a couple of things to what Dilip has said on voice and data. So we feel we understand a bit more about how we could increase engagement with customers on voice. It is a mature market. It's a mature category, sorry. And we are not messaging that we think that there will be significant growth in the future. What we do know is that we do need, given our scale, do need to defend the actual segment and ensure that we keep our customers engaged. And that's one of the reasons why we've invested significantly in customer value management. So in putting a new platform that will allow us to be able to drive just for you propositions, and they have been very, very well received. Certainly, given our scale in the market, we don't go for headline price competition, and we won't do that. So therefore, on voice, you can expect that we'll walk through those kind of term lines. But the category will continue to be under pressure. I think it's also useful to understand that we also had an excise duty increase. So the actual performance of voice includes an excise duty increase that went through and was put through in pricing in last. So that will affect the trajectory that we see on voice. To be fair, we believe there's a lot more opportunity in data. It's the penetration of 4G phones is still in the 20s. Now we have network at 96% on 4G. So we feel this -- and also content is still at an early stage. So we still feel there's a lot more we can do on the data side. We do need to make sure that we understand Voice over IP and how that impacts everything. And also on the SMS side, we have -- we've also started to see that we need to engage customers, so that they have a holistic offerings depending on their lifestyle, especially they're high-value customers. So that -- this customer value management will help us going forward.

Thank you, Peter. Thank you, Dilip. Our next question is from Linet Muriungi of Absa Kenya. And the question is the consortium targets to breakeven in year 4, please take us through the underlying assumptions guiding this estimate?

Dilip, go ahead.

I think underlying assumptions are, basically, if you look at the CapEx, which you have put in as an outlook for 5-year CapEx of USD1.5 billion, USD2 billion. And then, I mean, key drivers, if we look at also the number of sites that we will put into place. So we started 1,000. This could go up to anything around a 10,000 as we mature the business. I think, for us, those are the key points to consider in the level of CapEx and the sites that we are putting. Yes.

I'll continue to the next question from Tracy Kivunyu of SBG Securities. 4 questions. First one is, what are the mobile money regulations currently in Ethiopia? The second question is on Ethiopia still. What is the pricing environment like in Ethiopia with respect to mobile termination rates and will there be price flows or caps in the markets? The third question is on M-PESA. What is driving the delay in approval for M-PESA innovation such as wealth, insurance and visa partnerships?

Okay. So I think the question about approvals, Sitoyo, did cover it. He said that we normally would not comment on approvals that are awaiting regulatory scrutiny because we are in [ bid ] business, and we only announce products when they have been free approved by the regulators. So I think Sitoyo mentioned that. I'll also just briefly cover the mobile money piece in Ethiopia. At the moment, we are at an early stage given that, remember, mobile money was only launched by Ethiotel in May. So the Bank of Ethiopia is currently walking through how the regulations will evolve. We've just been told that telecommunication operators owned by foreigners, we will be allowed to operate mobile money. So it is at a very early stage. And until we have enough conversations with the authorities in the future, we will not be able to give a structured view of how they level over time. Clearly, we are giving our own experience about mobile money regulations in Kenya and across the region that will -- the Ethiopian authorities will use as input into some of the regulations that they'll come up with. But how those evolves, we are going to see. And as I said, we've also sent a letter to ask for clarifications on the guidelines and also the requirements for us to be allowed to operate mobile money because as you not yet know, although it's been announced as part of the RFP requirement. In terms of the NPLs, there are some guidelines that were given as part of the bid process, and we can give those specific detail to the person who has asked the question. I can get the -- our Investor Relations team to give the specific details. Of course, the Communication Authority of Ethiopia is currently in the process of ensuring that they down on the sector as they invite new players. But happy to share those guidelines that are existing in place as part of the -- that I announced as part of the bid process.

Thank you, Peter. We have 2 other questions.

Sorry, Philip, I don't know whether, Steve, you have any further comments you wanted on any guidelines with respect to [indiscernible] market in Ethiopia for MFS or [indiscernible].

Yes, you've covered the mobile money very well. So on the interconnect, the ECA, which is the regulator of Ethiopia has pronounced itself given a termination lift, and we can share those, as Peter has mentioned. You should understand that apart from Ethio telecom, there's no other operator that exists in Ethiopia. So these are the fast interconnection rates that have been set aside by the ECA. And we wait for them to be implemented when we finally launch the service early next year. So that's the only update I would give to what Peter had explained in detail.

Thank you, Steve. Two other questions on Ethiopia. First one is from [indiscernible] of UBS. Can you please share with us how Ethiopian tax works for mobile operators in country? Is it calculated on profit before tax? Or is this a turnover driven element? The second question is from Linet Murungi of Absa. Might you have any information on which interested telco companies have been -- have made a bidding for the third license since announcement in August?

So I will just comment on what is in the public domain with respect to the interested parties. So not with respect to the recent announcement of RFP for the third license. We know that Orange and MTN have been interested and the other players who have expressed interest. What would be notional is whether they are interested with -- given the announcement of the third license. So we are waiting to see the results from the government process. But at this stage, we can't comment rather than what has been covered in the media. And Philip, on the question -- sorry, I -- oh, yes, on the tax question, I'll hand over to Dilip. There was a question on how tax is calculated in Ethiopia. I think on a later note, we are not expecting to pay the tax soon. So probably the most urgent issue to deal with. But I'll hand over to the CFO to comment on how tax is calculated in Ethiopia.

Thanks, Peter. I think what we could do with, I think, UBS team. If you're looking at this for your model update, how -- so I think I'll try to get these questions a bit more offline so that you'll let us know what exactly you're looking at because tax calculations are not different. But then are you looking at what is the objective of this, then we can help you. But I think we'll leave it here because I don't think the methods are any different, but all that they have the tax holiday as well. There is up to a particular point in time, you are allowed to carry your losses because we'll have losses in the beginning. We can share a bit more details off-line if you are okay.

Thank you, Dilip. Thank you, Peter. Our next question is on messaging from Wesley Manambo of Genghis Capital. With a 90% market share in SMS traffic, what plans do you have to revamp revenues from this segment? Or should we expect a gradual decline as customers continue to embrace other messaging channels?

Dilip, go ahead.

Thank you for the question and also calling out the market share data, which is available in the public domain. Our understanding and based on what's happening across the telecom operators globally is that messaging revenue, like voice, Peter mentioned about comes under pressure, simply because as the Internet mobile data grows, there are customers find it more useful to use those means of communication. But at the same time, what we also noticed, and that's something that we are working on, while messaging revenue will be on a declining trend, and that's fair to assume. But I think there is a lot more engagements that we could do, and we see that when you engage more and we bring back promotions, which are very specific to customers, we see customers actually taking those promotions and using more. So I think there is a space where we are currently working on to make sure that how to increase our level of engagement with the customers. And how are you also to make sure that the pricing works well for customers to look at messaging also as one of the way to communicate. And I mean, it's fair to say that this will be on a declining trend, but I think it's not to the point that we are saying that we're going to give up. Now we are not. We are trying to make sure that while our market share is still high. We believe that the right level of engagement customers use more, and we can keep on seeing a relatively stable line of revenue this end. But of course, on a declining trend.

Thank you, Dilip. I'd like to remind all the participants to please post your questions via the Q&A tab. I'll move to our next question from Danesh. And the question is, what is the price premium on effective data pricing versus Airtel currently?

So, Steve or Dilip, one of you.

Go for it, Dilip.

Steve, do you want to go ahead?

Go for it. So, talking about the price, Dilip, which is a numbers things.

Yes. No, I think our understanding, we are roughly about -- still about double that of competition. The nearest comp is reactive in terms of our price premium and mobile data.

Thank you, Dilip. Another question from Tracy Kivunyu of SBG Securities. And this is on Fuliza. Please give an update on Fuliza for business. How many businesses have taken this up and not proportion of Fuliza revenue these accounts currently?

Thank you for that question. Today, we've not yet launched Fuliza for business. This is part of what we're waiting regulatory approval for. So it's something that we are really clearly looking at given we have over 400,000 businesses that use Lipa na M-PESA. So for now, I'll just give you the same comment I had, wait for a regulatory approval. Thank you.

Thank you, Sitoyo. That was our last question. Probably we can give you a minute to ask more questions. And if not, we can close the session. We have the next question that has just come in from Lisa Kimathi of SIB. And she's asking us to comment on the performance of Lipa Mdogo Mdogo and the repayment rate. The other question is, are we partnering with any corporates or existing Super App in developing the M-PESA Super App?

Go ahead, Dilip. And then hand over to Sitoyo on the Super App. Yes.

I think I did mention about Lipa Mdogo Mdogo when I was commenting on mobile data, I think it's one of our key initiatives to drive device penetration in the market through affordable day-to-day payment. The numbers that we are just short of 0.5 million Lipa Mdogo Mdogo customers who are updating. And in terms of the payment, I mean, I think we do see that these are quite reasonable in terms of our -- what you expect this kind of initiatives to drive customer repayment. So there isn't anything that we have seen, which worries us. This is something that we really want to continue. So we always evaluate this in terms of how do we put the 4G device in the hands of a customer. There are options that we do, either we put in upfront subsidy or we do it through the propositions through element. So at this point in time, I think you're quite satisfied with the progress that we have made, and we continuously evolve and try and improve in our ability to target those customers who are eligible and who could take advantage of this. Thank you. Now over to you, Sitoyo.

With regard to Super App. So from a technological standpoint, so what are making the M-PESA Super App is Alipay technology that we've deployed in terms of their many program platform. So from a technology standpoint, we have partnered with Alipay. But I think for -- with regard to other corporates, it's how we are working. Today, you can see NHIF, NSSF, SGR and DSTV and so many more partners on to it. So the idea is this will be put similar to what we have with the open API platform that we have. And today, we have over 42,000 developers on our open API. The intention for this is to make it as easy as possible for many program to come on to our platform. So instead of taking roughly about 2 weeks, this will be done in a day also. So the intention is to work with the fintech community around the already M-PESA ecosystem to ensure that we can bring in as many programs into it. And this just your case is the power of what we're trying to do from a lifestyle perspective because if a Kenyan has an up, let's say, [ Quora ], the fintech, they can publish it within our ecosystem and now 28 million customers have access to their services. So it is a marketplace, and we'll be driving e-commerce from this perspective to truly make it a life [indiscernible], as I'd mentioned earlier. So really looking forward to partnership with many organizations to be able to take advantage of the Super App capabilities that we have built. Thank you.

Thank you, Sitoyo. That was our last question. Thank you all for attending the investor call today. We look forward to continued engagement with you during the road shows that begin on Monday -- sorry for the…

There's one that I've just seen if you can pick it up here.

Yes. This has just come up. It is on the M-PESA Wallet. How has this progressed? We have 18% share of volumes coming from the free wallet. How has this progressed as we remain on the free wallet?

I'm assuming this is with regard to banks to M-PESA?

Yes.

Yes. I think I mentioned about the bank that we've seen because we are interoperable with banks. So we're seeing good inflows from bank to M-PESA and vice versa, we've seen great traction between M-PESA to bank. And we are seeing that, that interoperability is good today, it's free. And that cushion customers that mentioned from the COVID response. But as we walk with the Central Bank and walk with other stakeholders such as KBA, it's just to see when does those comes to end. And then looking at the customer behavior and ensuring that we do make -- we do ensure that we sustain that behavior that's there in terms of interoperability between ourselves and the banking industry. I hope that answered the question.

Thank you, Sitoyo.

And probably one other comment is there was already a significant increase in the base. So therefore, it doesn't look like it's a significant shift, but there was already substantial growth last year. We saw very significant message that have been used as a collection ecosystem, and you've seen that kind of continue. And probably, that's one of the reasons why it might not look as the scale may have felt like it has slowed down, but the bid was quite significant.

So and with that, Peter, let me hand back to you to close the session.

Yes. So thank you, Philip, for facilitation, and thank you to my colleagues, Dilip, Sitoyo and Steve for answering the questions. And thank you to everyone for attending today, investors, analysts, any questions that we have promised to get back to you, we will. And also, if you want to reach out to our Investor Relations team, please do. I think we are -- we feel that we are on track in terms of delivering on our strategy in Kenya, whether that is strengthening our core connectivity business, expanding our financial services business, what that has on the cost side and broadening our participation beyond our existing transaction business. And also on the Ethiopia side, despite some of the challenges that we are experiencing. I should say that Ethiopia is a long-term play. So therefore, hopefully, we are able to navigate through the near-term challenges that we assume. But delighted with the results and looking forward to continuing to drive our strategy in the second half. Thank you to all of you for your support. I'm looking forward to speaking to some of you in the detailed session that will have subsequent to this. Thank you very much, and have a great afternoon or morning. Thank you very much.

Thanks everyone.