Safaricom PLC (SCOM) Earnings Call Transcript & Summary

Good afternoon, good morning, good evening from whatever it is you're joining us from. Indeed, we have had the privilege of celebrating 24 years with our customers on 23rd October, that's last month when we officially marked that milestone. And for 25 years, Safaricom has been more than just a technology company. We've been a catalyst for change, a beacon for innovation and a partner in the progress of millions of things that we've been able to do with our customers. Our commitment to transforming lives is evident in every service that we offer, every product that we launch and every initiative that we undertake as a company. And that commitment is to continue providing our customers with worry-free always-on and secure Safaricom solutions at all times. Once again, good morning, good afternoon and good evening. We are glad to have you here for this session. My name is Caroline Wambugu, and I serve as the Head of Financial Planning Analysis and Investor Relations here at Safaricom plc, and I'll be moderating today's discussion. On today's call, we will have an update from our CEO, Peter Ndegwa, followed by some overview remarks on the performance by our CFO, Dilip Pal. And of course, this is the performance that we announced earlier today. I want to believe a lot of you have probably had the opportunity to engage with the material that was already loaded on to our website. Indeed, if you are able to plug in for the actual discussion, then you must have got a good flavor of that. Post that, we will be able to have you field your questions. That will be addressed by both Peter and Dilip in as much as, of course, we also do have the rest of the top management team on the call. Before we kick off, allow me to just speak to a few housekeeping rules. [Operator Instructions] With those few remarks, allow me now to please welcome our CEO, Dr. Peter Ndegwa, to give his opening remarks.

I will do a few introductory remarks, and then I'll hand over to Jerry, and then we can get into the Q&A. It is great to be able to speak to all of you since our last update, which was in September and the time we updated you on the impact of the new foreign exchange regime reforms in Ethiopia and how we thought that would impact our half year results. Today, given the results are out, we can actually be able to then put it into a lot more detail. I'm glad that Wim has joined, Vanhelleputte and also a number of our ExCo. Over the next period, hopefully, we can be able to engage. Dilip will go into a bit more detail on the actual results, but we'll assume that you have read. But I wanted to highlight a few elements. First is to reinforce that 2 weeks ago, we celebrated 24 years. And I think it is a fantastic milestone to be able to celebrate 24 years of transforming lives. We spent that time, and you have seen from some of the video, giving customers, rewarding customers, engaging stakeholders and thanking for the partnership that we've had. And clearly, as an investor community, also be a big part of this partnership, some of you have been with us since our share was listed. This then sets up a 12-month period where we will have various activities and everything will be wrapped around activities leading up to next year. We think it's a fantastic milestone. We should showcase what Safaricom is. Also, we should be demonstrating what we will be able to focus on in the 5 years to come and therefore, set up for the next 25 years. We announced our results this morning, and I wanted to give a bit of highlights. From a macroeconomic if I start with Kenya, we see that a number of the macro parameters are looking positive. GDP looking solid in mid-single digit. The Kenya shilling has stabilized and strengthened by 17% on a bps against the U.S. dollar at 129. Remember that we had rates of 156 toward the end of '23. Inflation has also come down, of course, off a high base. And I think it's good to see that it is fueled by food inflation coming down, but also fuel, not least because we benefited from the currency improvement. Having said that, we are continuing to see very severe impact on customers' disposable income. The wallets are under pressure, and we see our customers really pushing for us to help them stretch their shedding. In the context of that, customers under pressure, especially given some of the challenges around the fiscal side and also cost, both for individuals, but also for businesses. We are very glad with the performance that we have been able to deliver for Kenya, a very strong performance, both top and bottom line. Top line, of course, growing by 12.9% and bottom line by 14% with EBITDA at even higher rate of 18%. On a group basis, the underlying performance is also very strong, reflecting the fact that we had commercial acceleration in Ethiopia, and I'm sure we will be talking about Ethiopia in detail. Outside of the one-off effect of the bill depreciation and the hyperinflation accounting, which you know. We actually don't consider as part of the dividend piece, our group service revenue grows by 14%, EBIT by 31% and also net income, excluding minority interest by 21.7%. This is important because it reinforces that last year was the highest loss year on an underlying basis for Ethiopia and also helps us to be able to look forward. You have seen from the announcement that we made this morning that our new guidance is that we are going to be elevating the Kenya guidance and also reflecting the impact of the depreciation on the Ethiopia performance. But I need to say that on an underlying basis, we are very happy with both the Kenya and Ethiopia performance. I think that's all I needed to say from a growth perspective, as Dilip will show and you actually have seen from the results, the growth that we have seen in Kenya is broad-based across all segments and flows through the P&L. And on Ethiopia, the commercial acceleration is now starting to make an impact on the Kenya performance, including the fact that 10% of the growth that we have seen has been contributed by Ethiopia. Then last year, it confirms that last year was the highest loss year for Ethiopia. Therefore, we are starting to see even at the bottom line from a growth perspective, Ethiopia being accretive. Let me leave it there, and I'll hand over to Dilip to speak in a bit more detail on the results.

As has been the practice following our results release, we are pleased to engaging with you on our half yearly results, which we have released this morning. The results materials are already available. I'm sure you managed to go through them. And I also believe that a number of you have joined us in the call this morning. But let me just share some quick highlights for the benefit of those who may not have a chance to go through or attend our presentation. As Peter mentioned, a very strong top line performance at the group, and I will unpack a little bit more about starting with Kenya and then Ethiopia and then to the group. Kenya had a very strong performance. All financial metrics showing double-digit growth. Service revenue grew by 12.9%, as Peter had mentioned. The growth of 12.9% was coming across all verticals, all revenue lines. Starting with mobile data grew 20% growth from customers as well as from ARPU. Financial services grew 16.6%, driven by increased velocity in the M-PESA ecosystem, reflected in the number of chargeable transactions per customer per month growth from 29 to 37. Fixed continues to grow. And what is also heartening for us is we are adding customers and customers across all verticals, whether it is for voice, whether it is for mobile data or whether it is for fixed or whether it was financial services. This has resulted, as Peter mentioned, a very strong financial delivery for the first half. With EBITDA growing 13.7%, EBIT growing 18% and net income of 14.1%. EBITDA margin stable at 55%, and we have crossed KES 100 billion mark for the first time in half year 2025. On Ethiopia, the key highlights are mainly our accelerated commercial execution, resulting into a very good revenue growth. As you have seen, all our KPIs are on the positive direction. And more importantly, the customer KPIs, whether it is for 90-day active customers, 30-day active customers or data active customers, all growing and last 6 months have been a very positive development on all customer front. Now overall group, Peter did mention about a reported basis. Service revenue grew 13%, EBITDA decline of 5.8% and EBIT growth of 1.8%. And net income adjusted with minority interest declined by 17.7%. But what we've also shown in our presentation, if you have seen what we are calling this as a group performance on a constant currency basis, our service revenue grew by 14.5%, EBITDA 13.9%, EBIT 17.5% and net income 10.3%, all showing double-digit growth. Very strong balance sheet on the Kenya side. The debt level reduced net debt to EBITDA, very comfortable and very well benchmarked with the telcos at 0.28, although the interest cost is overall interest cost, financing cost is growing because of the rate increase or the increase in the rate of interest. And this has all resulted into our 2 things which has driven our guidance revision. One, of course, the Kenya overperformance, and you have seen that we have upgraded our Kenya guidance. And Ethiopia, of course, you need to now take into account the impact of be depreciation, and that is what is reflected. Otherwise, underlying, you can safely say that Kenya overperformed and Ethiopia in line with our plan or the initial guidance that we have given in May. That's all I wanted to talk about. And of course, this call is for question and answers, and I hand over back to Caroline to you to now allow those who have joined to ask questions.

Indeed, we have a good number of questions that have come through, and I'll quickly now get into that. I'll start with questions from Modi of Citi. The first question from Modi is the Kenya EBIT guidance implies that EBIT will decline in the second half sequentially at low end or remain flat at top. Looking at the phasing last year, EBIT was strong in the second half. Given you continue to expect strong revenue momentum, is this just due to cost seasonality? Or are you expecting more cost pressure in the second half? Let me also read the second one, and then I'll pause for you to answer, and then I'll read the other 2. The second question is the M-PESA 30-day active customers guidance has been lowered to 1 million. This is for Ethiopia. From 2.5 million to 4 million range that had been advised earlier. Please, could you share with us what is the current M-PESA 30-day active customer in Ethiopia? And what are the key constraints you're facing in driving M-PESA active customer base?

EBIT guidance, you are right, the second half could look lower than what we have achieved in the first half. The seasonality of cost is one factor. I think the other factor is, I think to your questions, what you mentioned about, we had a very good second half of last year. Of course, we are also lapping last year's second half good performance. And that does have an impact on the second half performance. Having said that, guidance also reflects what we see now. And as much as macros have improved, but our customers are still facing a lot of hardships in the way they have to conduct their day-to-day lives. We do appreciate and we do recognize those hardships and also some of the other variables that come in the way of , there are some discussions going around about some of the changes that could impact also in the second half of the year on taxation side. Although these are still not clear, and we don't have a final view about those. But I think on an overall basis, you take all of this into account and then guide accordingly. Having said that, as you have seen, we have actually upgraded our guidance and EBIT by KES 6 billion. On M-PESA, we also have Wim on the call. I'm sure you will have more to add, and I will request Wim also to add there. If you look at in Ethiopia guidance, we are delivering on customer front. We are on track. We have spoken about 7 million to 10 million customers half year through year 6 million. It is more than likely that we will be at the higher end of those customers. I think the sites, we are broadly in line. And the only one which is behind is M-PESA. The reason for that is about finding the use cases, what is more attractive for the customers. And so far, what you have seen is the customer engagements or the use cases, what has been more successful is using M-PESA for buying airtime and bundles, but that will not be enough. The traditional, transfers and with dual have not necessarily kicked off because that takes time. And therefore, it's important that we are recognizing this, acknowledging this, and that's why we are revising down our M-PESA guidance. We have also Wim on the call. Wim, maybe you can add. If there is anything that you want to add on the plan for rest of the year to improve our customer traction in M-PESA.

I will just give a little bit of flavor on the M-PESA growth. As you have rightfully said that currently, we have more than 8 million originally onboarded M-PESA customers, of which now slightly more than 1 million are active. The main activity is buying airtime and buying data voice bundles. Today, we already have 20% of our sales that are actually going through that channel. There's a good uptake. But of course, that is not enough to make M-PESA success. What we have acknowledged is that the journey of M-Pesa in Ethiopia is going to be different from the journey that we have been used to in Kenya and also most of the other markets on the continent. And it's going also to take time. What we're still working on now is new use cases, in particular, digital payments, overdraft, saving, lending, all of those products are being launched with the necessary support from the experience we have on those services out of Kenya. But it's taking time. We have to be patient enough. We have a strong base because 95% of our 6 million telco active subscribers have an M-PESA-enabled account. They are ready to start becoming also M-PESA users as and when we offer them the right services at the right time. It is going to take the necessary time, but we are confident that we will be able to convert a large number of our active telco base also into M-PESA active base.

Wim, now that I have you on the mic, I think we'll take the third question from Modi. And the question is there was 20 to 25 tariffs increase in Ethiopia recently. Is there any potential for further tariff increases? And how do you see the elasticity in terms of usage since the tariff increases?

That's correct. In early October, we did increase our prices, both on data and on voice, not yet. It will take some time. We are not really in a strong position to lead the market in terms of price setting. We're more of following what the incumbent or the dominant player is doing. But we are quite confident that over the next 3 to 6 months, the market as a whole, the industry as a whole will further, would I say, rationalize the pricing, both on voice and data. We do see elasticity. It means that the healthy usage continues. Of course, there is always a part of the base that somehow adjusts its behavior, especially in the short term, probably the first 1, 2, 3 weeks, the usage goes down a bit. But then over time, you start seeing a recovery on the usage. The elasticity is definitely there, but it's not a one-on-one. A 20% price increase does not necessarily give you immediately a 20% revenue uplift. But over time, the usage starts coming back. We do believe that there is room for additional price increases that will ultimately result into corresponding revenue uplift. Again, we are the challenger. We can't really afford to have a big price premium over the incumbent. Otherwise, it would be very difficult to deliver the subscriber growth that we're aiming for.

Dilip, back to you with the last question from Modi. Please, could you share any color around dividend outlook this year if there is no change in FX from here?

Let me first confirm the eligible profit for distribution of dividend, how we calculate. And I think you are quite familiar with the way we calculate it. You would recall, we have confirmed to you that we don't take into account gain or loss from hyperinflationary accounting, the IAS 29 adjustments. We'll not do that even now, even though this is a gain. Which means that IAS 29 impact is excluded. And we have very clearly -- if you go through the booklets, we have given very clearly the impact of what you call the impact of IAS 29. The only adjustments that we will do on top of ok, 2 adjustments. First, we have the Kenya performance. and then we knock off the losses adjusting minority interest for Ethiopia. If you have seen our presentation, so Kenya half year performance was KES 47.5 billion and Ethiopia loss adjusted minority interest without hyperinflation and depreciation was KES 10.8 billion. That takes you to KES 36.7 billion, which is what we have been talking about and Peter mentioned about a growth of 21.7% on an underlying basis. The depreciation for the first half adjusted to minor interest is KES 17.5 billion. For you to calculate half yearly number, I think that is what you need to take into account. What you have to do for the full year is what I did mention about in the presentation this morning, given that it was a free float, given that the currency was allowed to adjust very quickly, and you have seen that from a 56, 57 bid to dollar, the currency went down to about KES 118, KES 119. And that impact has already been factored in the amount that I just mentioned on the depreciation impact in the first half. And I also mentioned that majority of the impact for depreciation has come in the first half. And we believe -- and of course, we don't know what's going to be happening in future, and we cannot predict that. But given that it was a free float, we believe the impact for the balance of the year would be minimal, if at all, there is impact. And that will be purely coming in from the rate change, if any. And it's clear that the liability, which is -- maybe you will have some questions, and I'm already -- let me just address this here. We have about $374 million equivalent of liabilities, which is what you have restated and which has resulted into the loss due to big depreciation that we have reported. This one is unlikely to change, if at all, it will go down, which means that if rate remains more or less stable and we are not increasing our liability, there is no impact of depreciation in the second half of the year. But as I said, we don't know the future, and we believe the majority of the depreciation has happened already, and that's already factored in what we call that as 0, day 1 impact in the financials. I think it's not difficult for you to calculate. Remember, we don't take into account IAS 29 impact. And of course, depreciation of the impact of that will be factored in and will be adjusted. And half year number is not the benchmark for the second half. I mentioned, the impact for the second half of the year would be very minimal. I think that's how you can look at the calculation of dividend. And of course, our policy is to pay 80% of the net income for the full year, so you can calculate that.

Allow me now to request Peter to address a question here on the satellite. Actually, 2 related questions, one asked by Wesley Manambo and Maddy as well with respect to whether we see any risks from Starlink in either Kenya or Ethiopia? And I guess the way Wesley is putting out is, do we worry about the impact on mobile data from a potential direct-to-device satellite licensing in the medium term.

I think it's a great question, and it's a question that we've been asked many times. I think the thing is that satellite will play an important role in complementing what has been invested in terms of radio network, but also fiber in this country. As you know, Starlink is in many countries. In Africa, it's already in 14. Different countries are approaching it differently depending on their entry and also regulatory stance. We are already seeing Starlink coming into Kenya and actually offering broadband connectivity to our customers, both the consumer individual but also enterprise type customers. Three years ago, we entered into a partnership with AST to think about the pathway to utilizing and monetizing satellite and what partnerships we would have. This is an area that we have thought about it in the future. The way we are approaching it at this stage is, as you know, our fixed broadband business, primarily fiber at home, but also enterprise, complemented by the 4G and 5G wireless. We have revamped that very significantly. It's not related to the Starlink entry. It was an area that was also a core part of our strategy. Probably we have accelerated as Starlink has come in. We are seeing very good feedback from customers, reliable and also the fact that the minimum speeds now we have is 15 Mbps. In each of the speeds that we are offering, we are able to deliver that speed that we promise. What we are hearing is especially in urban areas currently struggling to deliver their speed promise. But that's what we hear. It's not something that we have necessarily verified. But certainly, our focus is to make sure that we are availing fixed broadband. I'm saying that we will enter into some partnership with a satellite provider whether that's Starlink or another. And when we do have a plan or at least at an advanced stage, we can be able to update you. But at this stage, there isn't anything to update. From a regulatory perspective, we do not know. We need to assess the options that satellite players have and see what risks that leads. Clearly, there is input from the industry to the regulator and not just about Safaricom its ISPs, but also others. And I'm sure the regulator will be able to determine how satellite complements. In most countries, satellite is complementing rural and also remote areas. In this country, it has started in the urban area. It's a place to watch. At the moment, we are playing with our offering, which is strong.

I'll combine 4 related questions. And this one, I'll request Dilip, if you could please respond to this. It's on the performance for voice and SMS. I acknowledge the question from Maddy, from Lucy Adhiambo, also from Samuel Njihia of Renaissance and Tracy of SBG. Really, the question is what have been the key drivers of the good performance on both voice and SMS revenue. And Lucy states that this is against global industry trends. That's really why the concern is there. But also the question on whether this is sustainable into the future.

We have provided a lot of information in our booklets, which obviously would be very helpful for you also to look at. But just to highlight the 3 segments that I want to combine, which is mobile data, voice and messaging is what we are calling that as a connectivity customers, or connectivity business or the way to look at is imagine Safaricom minus fixed and minus M-PESA. That's the business. And you have seen very strong growth momentum. Overall, connectivity business has grown 9.8%. And if we unpack that 9.8% and also historically go back and see what you have seen the growth trajectory in this area, anything between 3.5% to 4% -- and if you recall, in our February Investor Day when some of you are in Addis, we spoke about our intention or our medium-term outlook for Kenya business, which Peter has reiterated today. It clearly talks about that's one area where you want to grow high single digit, and that's what is demonstrating there. I would like to see this as together and one because it's a customer of one wallet. They use it for voice, mobile data and SMS. But even if you unpack it, if you look at -- you want to see it separately, you'll see that the growth drivers are clearly customers, and ARPU. And ARPU is coming on the back of a price optimization, but backed by a very strong usage. And each of this has its flavor. I think over the longest period of time, we managed to grow our outgoing minutes. And this has also happened in the first half of the year. You have seen our outgoing minutes per customer in the first half growing by 7%, and we have also grown our customers. And if you combine all of this, and that is what has resulted into a growth of voice. But as I say, I think sometimes historical performance is not necessarily the benchmark for future, and I saw question some of this, is this sustainable? I think it's fair to say that overall connectivity business, we want to grow. And within that, there will be an element of voice, there will be element of data. And as you have seen, mobile data growth was exceptionally good. And this is no surprise. You have been seeing a growth. The key drivers of those growth, we have seen steady growth in smartphone penetration. We have seen steady growth in 4G+ plus devices. And we have also seen the customers who are using more than 1 GB per customer per month growing. And that has also resulted into a usage growth year-over-year. And it's not a surprise that we also have seen the growth in ARPU. I think if you combine all of this, it is fair to say that we really leapfrogged on our connectivity business from a 4% trajectory to a high single-digit growth, and that's what we are -- our medium-term outlook as well. I think that's where I will leave it. The all strong parameters, customers usage leading to an ARPU growth is what is driving the growth on those business segments.

In addition to what Dilip said and he is right, a big part of our data growth is also because of devices and that acceleration. But from a proposition perspective, we are going a lot more toward segmentation as we announced this morning, be very clear what we are offering the achievers. Very specific insights about each of the segments and how we tailor propositions, including through CPM. And then the second thing is increasing penetration of integrated position, which is what Dilip said. Combining SMS, voice and data and actually pulling them together. And in the end, we'll also put other products on top of that. Then that allows us to reduce the number of customers who go out of bundle, which means that actually you can stimulate usage because people are much more comfortable with the amount that they are paying, but also they will trust that they can be able to have a wallet-free experience rather than run out. The proposition side and using also big data and AI is actually a very important driver of driving integration. And we just upgraded our converged billing platform that allows us to integrate products and then build them in a way that's transparent. That, of course, is also going to help fast track and accelerate the growth of integrated.

Peter, now that I have you with the mic, I would like to position a question to you from Samuel. Samuel Njihia is with Renaissance Capital. And the question is the Business Daily reported that the CA may move to auctions to allocate spectrum. Do you expect this to result in more costly spectrum?

I think these are the questions I tend not to respond to because remember, I can't anticipate or predict what the regulator will do. And I also don't want to express a view as to what the CS should do. I think I'll make a general point, though, as far as spectrum is concerned. In Kenya, spectrum has largely been managed well by the regulator. Access to spectrum by all players has been largely well managed. We believe that should continue, and we hope it does. And also from a cost standpoint, I think it has been also largely managed well, both process-wise but also cost. And that's also what has enabled this sector to be fairly stable and also have a much longer horizon. That's what I want to say because I also don't see something that anticipates what regulators will do or actually incorporate some of the conversations we would be having that are not decided in public domain with the regulator. Let me leave it there, Caroline, I'm sure Njihia will see this play out. But I hope that the industry will continue to be supported to make sure that we continue to deliver on all the services that we have delivered.

I now move back to you, Dilip, and a question here from Maddy on CapEx. And the question is, why do you need to raise CapEx in Ethiopia post FX devaluation? Is this due to more aggressive rollout or any other FX ETC-related reasons?

I think I mentioned in my speech as well. It's purely on account of depreciation. Remember, we are reporting in local currency. Obviously, as much as our -- the commitment in hard currency remains same, we haven't changed our plan for the year. But when you convert that into the local currency, that goes up, and that's what's reflected. I think I did mention about the increases in the CapEx growth, I think KES 10.5 billion equivalent is because of the depreciation that we have factored in. There is no increase in CapEx. We are fairly within our expectation of the number of sites that we want to roll out. And we did mention about that also in our guidance the enabling factors where we spoke about reconfirming our commitment to a customer base of 7 million to 10 million. We are talking about sites reaching up. We are about 3,008 sites as of end of September. We plan to go up to 3,300 sites. Just to reconfirm, it has nothing to do with the normal CapEx spend. It's just the impact of the depreciation that has been factored in.

Now I request Wim to kindly respond to a question here from Tim Staermose is with African Lions Fund. And the question is, there was a push to get M-PESA onto the approved list for digital fuel payments in Ethiopia. Has this happened? Also, is there any plan to make M-PESA interoperable with Telebirr so that transfers will be possible from one network to another the way that is possible in other countries?

Yes, I can confirm that M-PESA has been invited to participate in integrating our digital payments solution onto the central fuel management and monitoring platform that is owned and managed by the Ministry of Transport. It's now a matter of time to work out the technical details before we then will actually be able to go live and offer fuel payments through the M-PESA platform. When it comes to the interoperability, so for now, the regulation does not allow for wallets to be interconnected directly. We are engaging. We continue to engage with the authorities, the NBE, National Bank of Ethiopia to allow that because as you rightfully say, it's a standard practice in most of the markets. We are working on that to enable interoperability between the wallets, yes.

The next question from Sila. Sila is with Emerging and Frontier Capital. I'll request Peter to please respond to this question. And the question is, kindly share more details on the economics of the mobile phone assembly plant. Sila notes that you had mentioned that it's a big bet for Safaricom, and we have seen mobile data usage is very much improved. Will it become impactful to the P&L in the long term?

I think Caroline should have directed that question to the CFO, but who is also a Board member in the local assembly. But I think it's a great question and actually quite straightforward. Actually, when we went into this area, we were very surprised that the economics are fairly light. In terms of investment profile. And therefore, the actual core investment is quite low. We have a plant that can produce 2.5 million devices. In terms of impact on overall business, it should be minimal. Dilip you may want to give the actual investment profile, but if I recall, it was $3 million in total and our share is only 25%.

I think you have covered that. I mean it was a sweet surprise to us how quickly and how seamlessly we could start the operations of this assembly. And remember, we are actually currently producing what we call that as our hero models. And on the investment economics, I can confirm you, it's a very light investment. Peter is right in saying our 25% share is not even rounding off in our overall capital spend that we do. More importantly, the economics for the customers is what we are driving as part of when we went for this as part of the strategy. And we've spoken about it, we are able to actually deliver much more value to our customers because of also the price difference between an imported device and locally produced device. It's cheaper. And it could be anything between 20% to 25% based on the model that we have. And that, to my mind, is the biggest economics. Then combine that with what you have recently launched, what you're calling that as device insurance. All those devices which are now going to the customers, we have recently launched our insurance proposition and every single device now going with an insurance, which also enables -- or which also safeguards the customers, which has been one of the big problem. I also have to mention that you just don't sell a device, we sell with our bundled products. If you combine all of that bundled product, customers who are buying many of those are upgrading from 2G to 4G using more, that's another economics, more usage for mobile data. Lower price and also ability to pay by using our device financing Lipa Mdogo Mdogo proposition. If you combine all of this and the investment, I think it's a very simple economics that it works for us, and it is working. As you have seen, the numbers are also growing. In the first half of the year, we already shipped 400,000 devices. And the capacity, as Peter said, we can do 2.5 million in a year.

Dilip, so questions here from Tracy of SBG. 2 questions that I would like you to kindly respond to. The first one is why were Lipa Na M-PESA deals flat year-on-year? And secondly, what is the strategy to revitalize the lending revenue, Dilip?

On Lipa Na M-PESA, you are on a, what I would say, on a massive drive to recruit merchants. And you have seen historically going back to the level where you are about 150,000, 170,000 to a level where you're about 700,000. I think the 2 things here you have to keep it in mind. One is that -- you have a recruitment drive and you also want to ensure that you are leveraging the merchants, which is what you call the active merchants and merchants who are using what you call the transacting deals. I think there was also, you can say, a period of consolidation that has also what resulted in. But we are again on a recruitment drive. And I don't want to preempt, but by the time we release our full year results, you will definitely see a better traction in the Lipa Na M-PESA merchants number. But if you have noticed that our the business payments, which are growing and some of those are also driven to the L&M merchants. Now Lending. I did mention in my speech, very good growth, and we are very satisfied with the growth in disbursements, which is important because volumes are growing. And I also mentioned about the revenue is flat. Revenue is flat simply because of the price optimization we have done. Time to time, we have quite a few portfolio of credit products that we partner with different banks. I think time to time, we look into this to make sure that more customers can optimize that. And we also do a periodic refresh of the eligible customers and also the eligible customers' credit limit. We have seen some good traction outside of Fuliza and you have seen that in the numbers that we have shared in booklet. I think some of them are quite promising, and we are encouraged by that momentum coming in. The one Fuliza, I mentioned about it is because of the price optimization that we have done, and we are still having the lapping effect of that. And also, just to remind you, the way the price optimization was also done to allow customers to use it at a short-term overdraft product rather than using it as a term loan. Obviously, there is a bit of reset happening and to the betterment of the customers, and we don't take those things lightly because it's ultimately a product which is meant to be for a short-term period should not be used for a term loan because that could become very expensive. And we have seen a bit of reset on that as well. As you know, after the first initial charge, the customers are allowed to use this for 3 and if they're 3 days. And if they're paying back within 3 days, they are not charged anything. I think customers are also making use of that, which was what it was meant for. I think Fuliza is where the price optimization which was meant for customers and making sure that it's affordable is actually helping us. And also, hopefully, in future, you will see the broadening of the customer base. We are very excited about the credit opportunities. You have seen the merchant credit is picking up, although on a smaller base, but that's another area for us, a future growth area, as you have seen from our presentation.

The other question, Tracy, we shall reach out to you separately so that we give you the subscriber piece of what you've asked. Peter, I want to request that you respond to a question here from Dan of Vergent. And the question is, having obtained an insurance license in Kenya, could you comment on how big an opportunity this could be? And Dan is also bold asking for targets if we have any targets in terms of percentage of M-PESA revenue from the insurance business.

Before I go to Dan's question on insurance, which I have to say this is probably for once we are much more confident in the past. I know some of you have asked when will new areas come into fruition. That's the reason why. But just going back to the question of Tracy on LMN beyond the commercial intensity and starting to see that footprint of merchants actually expand. I think it is important also to note that the Pochi, which is a small single person, female or male is actually growing, almost doubled. That is actually a good indicator that the use case is actually working there. And we believe that this will help us in the future be able to package solutions for this type of customer, especially as soon as we understand what their needs are. That's very exciting. But certainly, Dilip is right that we are focusing on accelerating merchants. Now on insurance, we are in a great place as far as insurance is concerned now. We have now a brokerage license. We have already cleared the way with the insurance regulator. We've already discussed with a number of the underwriters on products that we could co-create together and believe given the low penetration of insurance in Kenya, we can be able then to start offering a number of insurance products that will help expand attrition, but also access and include people who will not have accessed insurance. In understanding where we start, we decided to start with ensuring our own portfolio. We're going with one of the initial products we are offering is insurance on devices. Given how important devices is going to be both 4G devices, CPEs at home, 5G devices and so on. We started, as Dilip said, we are offering a device plus financing and then insurance. And we already have more than 100,000 policies that have already been taken up by customers. In the context of the device sales that we have within our portfolio, that's quite good. And also, it means that customers do see value. And that also allows us to test the technology, to test the claims process and so on and so forth because the product is closer to home. Then over time, we believe that then we can expand it as we co-create products with licensed operators in this country in the same way we do it on the credit side. We don't necessarily talk about the guidance on contribution. But when we were thinking about our strategy for 2030, we felt that for M-PESA, we need to continue to reduce the over reliance on pure payments and therefore, credit insurance savings should start to grow so that they become material by the time when we get to 2030. We will wait for a year of operation before we actually see how big this thing can become. But certainly, it is an area that we believe will be quite significant. And if nothing else, to ensure that it helps customers see value that we are offering as a portfolio as part of the M-PESA ecosystem. And of course, we will monetize it in the appropriate way.

I'll move to questions from Lynette. Lynette has 3 questions on financials, and I'll request Dilip, if you could address these 3 questions. The first question is, please advise on the OpEx localization plan management have for Safaricom Ethiopia, what percentage of OpEx is in dollars? And is there a target percentage and over what period it should be achieved? That's the first question on the localization plan. The second question is what is management's currency mix? What is management's currency mix for additional debt raised for Ethiopia's CapEx? And lastly, and third question is, please give us a breakdown of the KES 7 billion bill depreciation impact loss. What percentage was above EBITDA and what percentage is linked to FX losses?

50% of OpEx in Ethiopia is in hard currency. And the 2 biggest items of OpEx in Ethiopia, the number one is network operating expenses and number 2 is payroll. Now with the network operating expenses, leases, the Ethio Tel lease is the biggest. And then there are the other items, for example, what you call the managed services by the Huawei and Nokia. Now what Wim and the team has focused and managed to a large extent, localizing are those ones, mostly contracted or agreement was done to pay in dollar, but most of the deliveries or most of the fulfillment is happening locally. I think I don't have a percentage. Wim can confirm, but most of those things you are moving to a localized currency. I think we have been fairly successful in this area. There are still small pieces here and there. But the biggest piece which is still remaining to be addressed, and that's our intention, but we are not necessarily sure because that also depends on how the other partner works on it, which is the Ethio Tel leases. I think the other second item is the payroll. This is probably one area you will see material changes and that much of this has already been affected. The peak of our Ethiopia rollout, we had close to 200 expats that has substantially come down. And by end of this financial year or mid or in the first quarter of next year, the numbers would be very few and which, of course, the expats also does influence the foreign exchange because they are paid mostly through their parent organizations, mostly which are the consortiums paid in dollars. I think you will see gradually improvement happening on this. But within that, I think the Ethiopia lease is what will be residual contract that we'll have to watch out. But as I mentioned, we still have our intention to see to what extent we can renegotiate that contract. On the mix of debt, I think we are very careful having cited or having known the discussion that was going on a potential depreciation that we are very clear that we will avoid any foreign debt at that point in time. There was debt available. As you know, we did a frame agreement or there was an expectation that we will top up our $100 million IFC debt with more debts, and those are fairly within the approval, which was already granted. But we decided not to take that. There's no point in taking those debts and foreign currency and then the value of that becomes half of that, if you're using those debts to pay local vendors. And toward that, we maximized and we are still continuing to maximize the local debt, and that's also reflected close to $100 million equivalent of debt that's reflected on 30th September. I think that's what our endeavor is. And our requirements of -- as we are localizing more and more payments in local currency, our requirements to pay in local currency is increasing, and that is why it is very important for us to ensure that we maximize local capital, raising of local capital. And we would be very open to use the capital markets authorities framework of raising capital in future. When I'm talking about raising capital, most of the debt capital, we spoke about it. And I think there would be a point in time where they would be ready to have debt capital market, and we'll be definitely one of those who would be willing to access that. Intention is to maximize that, the local one to ensure that we maximize and whatever shortfall comes in, mostly facilitated to the hard currency shortfall comes in, and it is met by the equity contribution by the shareholders.

Mariana, I hope you saw the question we responded to you in the back end. I trust that has resolved for you that particular query. I do have a question here from Davis. Davis Githinji is with Sterling Capital. And the question is to you, Peter. The question is kindly rationalize the material consortium investment being made into the Kenyan health sector, particularly from a shareholder perspective.

As we said during our results announcement, we've done very well in expanding our participation in ensuring that we can cover public sector because we've done very well with individuals and also with enterprises. Now we need to cover public sector. Health has been seen at this stage, I think it's new, but Safaricom has been involved in digitizing public sector or rather at least enabling how the public sector deliver services to the public. We've done fertilizer subsidy on the agricultural side. The platform that is used by the government to deliver on the subsidy is delivered through us. That has benefited more than 1 million farmers, 5 million farmers registered. In future, the vouchering program can actually be able to be used not just for fertilizer, for agronomy support and so on and so forth. The other area, as you know, we've been involved is whole financial inclusion. When the government came in, they wanted to expand participation on accessible credit, and we went through the process together with others to deliver on the Hustler Fund, which actually reached almost 200 million customers. And today, about 7 million to 8 million are borrowing on a regular basis. We are also involved with some of the other areas like ensuring that we can use our platforms to deliver support to one part of the population, those refugees or actually postretirement support that is provided. And we believe the government wants to reach at least 2 million of those people. Health is just another of those areas. I think it is important to realize that health is a lot more emotive and not least because it is very personal, affects families. But secondly, because the funding of health care has actually been changed from the old national health insurance fund to 3 funds that are now partly funded through the consolidated fund and also partly funded through contributions by those who are like us, which is what is called SHIF, social health insurance fund. Whether it is the old system or the new one, we would still have been involved in helping digitize how the service ia a success. We need to be able to separate between the digitization and also the way the financing of health care works. Specifically to universal health care, so the government is moving from where only a proportion of the population was covered and even that there was a lot of areas that were not covered to a place where the whole population will be covered through the universal health care delivery. And therefore, we've been asked together with other parties to deliver an end-to-end digitization of how that whole ecosystem works in the way the payment ecosystem, for example, works. That's the vision that the government intends to have. And remember, because health care is devolved. A lot of health care facilities actually delivered at a county level, although this whole thing is being facilitated by the national government. We started the work, of course, prior to 1 October. But from the 1st of October, they stopped the old national health insurance fund to the new social health authority. And the intention is over a 2, 3-year period, there will be systems and processes will be fully digitized so that it enables citizens to be registered, citizens to be identified at hospitals, citizens to receive services and also hospitals to actually be able to pay for what they have treated individuals for -- and then as a result of that, the portability of health care data from public to private hospitals. There will be an exchange that allows that to happen that is secure. And eventually, you overlay all the medical stuff. What I mean is that the way we support the medical and the clinicians at hospitals from a tools of operating perspective and then eventually, how everything then talks to each other. It is a very comprehensive plan. It is a 10-year involvement. And the way it's been worked through from a commercial perspective is we spend money and then government or public sector reimbassses that money once you have delivered the clear milestones that are required. Safaricom we have a scope that we have been given. And most of that scope is leveraging the infrastructure we have. The connectivity infrastructure to hospitals, the cloud infrastructure through secure hosting, the capability from a IT developers perspective, we also need to create similar capability in the health sector, the way we've created Daraja for M-PESA so that individual developers can help be able to support this ecosystem. We believe in terms of CapEx, it's not on our end. It's not a huge investment, but it's a lot of investment in development of systems, deployment of infrastructure and connectivity and other parties are providing support in different areas. It sounds like a lot of money, but when you look at it over a 10-year period and when you look at the health care program, it is not necessarily a big thing. A significant amount has been benchmarked globally. We will be able by the end of the year to give you an indication of how much we have spent and how much has been reimbursed. And when we presented this to the Board, it's accretive to our business. It allows us to showcase our telco capabilities. But more important, it allows us to support a program that will be very beneficial to the public. if you leave aside the motions around the contribution and the funding of health care. That's all I'd like to say at this stage, Caroline and probably at the end of the year, as part of the process of the strategy deep dive or rather the investor forum that we are going to have sometime in Q4, we can actually do a deep dive on this particular one.

We are now into the last few minutes of this call, and I have 3 questions, which we are going to answer as we close. Eric, we did address the question on interim dividend, but you can always reach out to the Investor Relations team as a follow-up. But yes, so 2 questions from Maddy and one from Wesley, and I'll request that Dilip you answered 2 questions, and then Peter will answer the last question. The 2 questions to you, Dilip. One is from Westley of SIB. Does the FX situation impact your long-term CapEx outlook? And then you can also respond to a question from Maddy in terms of what is the biggest risk that you see in the next 12 months for the home market, the FTTH business?

No, we have reviewed and we have relooked our CapEx requirement. And that's why you have seen our reconfirmations for Ethiopia. The medium-term outlook on CapEx that we have given, we have reaffirmed our numbers to the range that we have given you. We believe the range covers adequately whatever be the fluctuations that we have. Now Caroline, was it fiber to home, the biggest risk? Is that the question was?

Yes, to the home market business, yes.

We had a very strong momentum. FTTH has been a stellar performer in the first half of the year, growing customers and of course, growing revenue. And I think within the fiber FTTX, I mean, the fiber-to-home business has done extremely well. We actually connecting more homes faster than what we have done last year, and we continue to connect. And then we are also ensuring that the customer acquisition also goes with the space. We haven't seen any slowdown, and we don't think there is. This is one area we have always focused as a growth engine, and we will continue to focus on this area. Yes. I think if you are talking about in the context of the Starlink and the other AST services, I think Peter did speak about that. I think you have to see this in the context of the satellite broadband happens to be another way of delivering broadband services to customers. And with our offerings, which is with all the bouquet of services that we have from a mobile enhanced broadband to fixed wireless driven by both 4G, 5G and the fixed and fiber to home or fiber to business, combined with what you have launched with content and then the integrated bundling with the mobile services, I think we are in a very unique position to serve our customers. And Peter spoke about what we have done in recent times to our customers in terms of giving much better services from a quality of the network, the quality of broadband that they're using. I think we are confident about adding more homes, connecting more homes and recruiting more customers in this space. Yes, that's what our outlook, and we don't see that changing in the next 12 months.

Now to our last question, and this is a question from Maddy. And Peter, I request that you respond to this question as you also give us your closing remarks as we bring the call to a close. And the question is, is there a renewed push for M-PESA split from Safaricom?

Everyone knows that this question has been asked many times, should the GSM business be separated from financial services. We've always said, look, financial services and GSM have always operated together. The complementarity of the 2 are fantastic. And therefore, if we were going to consider any reorganization, it will have to benefit stakeholders, of which investors is a very important part of it. And if you look at it from an investor perspective, it is that we probably are not providing enough information when I look at Caroline and, I think this business from some of parts over time has been fully valued and then more recently, we know that the share price probably doesn't reflect the full value of the business. That's one. The financial services business separately from the other businesses. Then the second is potentially there may be an option or a view about potentially could you get more value if the 2 are separate. One would have to believe that you could do more when it's separate and when it's together. Whatever the case, if you are ever going to this area, it will have to be because it's significantly accretive to the shareholder returns that existing and also future shareholders would get. Up to now, we have not necessarily seen a strong case. However, we will continue to look at it. There has been talk in various places. Most of the push comes from the Parliamentary side. But I think all I can say is that we are always looking at it. We have sought advice to look at what options there are -- but at the moment, there isn't anything being considered by the Board. So until such a time that, that is the case, then we can be able to update the investors in which case, also for the listed shareholders. That's where I wanted to leave it to Caroline. Did you want me to make a few closing remarks? Dilip, Wim, anything you want to say before I close?

Caroline, you can talk about probably the invite has already gone for the February Investors Day. I think that could be one. Other than that nothing else to add, Peter.

It is our mission at the end.

In closing, I think we've had a great day in terms of the results that we have announced at least from a management and Board perspective. We had a Board meeting earlier in the week and the Board is very pleased as we are as management with the strong performance that we see and also strong health of our business across both Kenya, specifically in Kenya, given the challenges that we see externally and also the pressure that customers are under. And then for Ethiopia, despite the fact that we will have some near-term headwinds, as we said, with respect to how we digest the impact of the foreign exchange reforms. We are very pleased with the work that Wim and the team are doing driving commercial acceleration in Ethiopia. Of course, the M-PESA area is the one area that we need to do a lot more. And I'm sure by the time we announce our full year results, we'll probably have a little bit more news. But certainly, when you look at all, we are very happy with what we are seeing. And also our strategy is working, our execution is on track. There's still a lot of headroom, and that's also one of the reasons which make us more confident about the future. There's still huge headroom to drive broadband acceleration, new products on the M-PESA side. We are much more confident about insurance and savings. There's headroom on the customer experience side. And there is headroom, of course, on the Ethiopia side in a big way, both on the M-PESA side, but also continue to accelerate. The financials are beyond P&L. Our business is solid from a balance sheet perspective. We have the freedom to be able to continue to invest for the future. We are not as steep though to the challenges, especially competitive dynamics. Of course, a lot of you mentioned Starlink and satellite. We have seen a bit more competition on the financial side, especially OTT players but we've been a business that responds well to challenge, and I'm sure we will respond to these challenges, either complement partner and all make sure that our proposition still sharpens our ability to compete. Thank you very much, and we will be able to -- I'm sure, through the team be able to respond to any other questions that you may have at this half year. And looking forward to seeing you for those who can make it. I hear is in a very good location, and I'm sure Caroline talk about it in the best forum sometime in Q4. Thank you, and I hand over back to you Caroline.

Thank you very much, Peter. Thank you, Dilip. Thank you, Wim, for the very engaging session. Thank you, everyone. And as Peter and Dilip have mentioned, indeed, you still do have time to sign up for participation in our upcoming third Annual Investor Forum that is set for the 13th and 14th of February 2025. And indeed, it will be held in Kenya, but the coastal line of Kenya, so in Mombasa. I know most of you have been to Nairobi. We want to take you now to the coast, the Mombasa side of things. Looking forward to seeing you signing up and indeed making arrangements to join us for those 2 days of wonderful engagements. With that, happy to bring the session to a close. Once again, thank you for your participation. And should you have any follow-up questions, feel free to reach out to us on our Investor Relations e-mail, [email protected]. Otherwise, do have yourselves a good day and good evening. Thank you.