Safaricom PLC (SCOM) Earnings Call Transcript & Summary

Good morning, good afternoon and good evening to you all from where it is you're joining us from, it's indeed very nice to still be able to connect with you at this particular juncture. Some of you we did interact this morning as we release our results. So really, really glad to have you all here for this session. My name is Caroline Wambugu. I head the Financial Planning Analysis and Investor Relations team here at Safaricom, and I'll be moderating the discussion today. So we shall kick off with a short update on the business health from our CEO, Peter Ndegwa, followed by an overview of our financial results from our CFO, Dilip Pal, which, of course, we announced earlier today, and I hope that you've been able to interact with the material which was loaded on to the website. So we are looking forward to having some great engagement this evening. [Operator Instructions] And without much further ado, allow me to invite Dr. Peter to give us his opening remarks. Peter, over to you.

Thank you, Caroline. Good morning, and good afternoon, and evening to everyone depending on where you're joining us from. I hope that many of you are able to listen to the conversation that we had this morning. And we trust that you are keeping well since our last update in November last year. And we are glad that you could join us today to discuss our full year performance. As Caroline has said, I hope that you have reviewed the documents that were uploaded today. I wanted to start by acknowledging those who are on the call. Of course, Caroline has already introduced herself, who is our Head of IR. Then we have Dilip Pal, who is our CFO joining us, I can see video of him. We have Wim Vanhelleputte, do we have Wim, Caroline.

Yes, he is joining in like about 10 minutes, Peter.

Okay. So, we will have Wim because it's been very useful to have Wim during the conversations so that he can answer specific questions relating to Ethiopia. But if he is not there, I'm sure we'll be able to pick those up between myself and Dilip. We also have other members [indiscernible], but I'm sure they will join at an appropriate time. So we look forward to engaging you for the next 1-1/2 hour as we discuss the results. I believe that we went through in a lot of detail and many of you I'm sure have observed them by now. I will only do a bit of highlights, reflect on some of the elements that relates to the operating environment and then just highlights from a results perspective in terms of summary. And then I'm sure we will go into quite some detail. But I think the most important thing in fact is to focus on the questions that you have. So I say that the past year has marked significant milestone for Safaricom. We started -- we're celebrating 24 years last year and I need to keep through that when we announced our results in November. In this year, in October, we'll be celebrating 25 years which is a Silver Jubilee for Safaricom. In addition to that since March, M-PESA Foundation solidified in financial inclusion, economic empowerment. And also a big foundation, which is M-PESA Foundation marked 15 years since it was started [indiscernible]. So these achievements that we have seen across our connectivity business, I mean M-PESA Foundation that reflects our commitment to innovation and also our focus on the society and also actually bridge life apart from transforming lives and creating nice change. So now I'll go through very briefly just highlights for Kenya. From a macro perspective, as I said earlier in the day, most of the macro prices are actually stable. And when you look at the headlines, the country looks actually very strong. GDP has declined or rather has slowed down based on the economics as National Bureau of Statistics, which shows that 2024 GDP will slow down 4.7 compared to 5.7 a year back and this is because of increasing fiscal and various disruptions from global challenges, including tighter monetary policies, higher energy pricing and also food prices. Of course, Kenya, from a fiscal perspective was affected last year. And you know that the budget or the finance bill was withdrawn. And then there that has continued to make any forecast for the government. The [indiscernible] is stable at 139 as of March 2025, 9.3% and also it has been similar to the March '24. So we are pleased with the stability. From listening to the governor of the Central Bank, it is likely some stability will be seen. Overall, inflation has remained stable at around mid-single digits. At the moment, from September to March closing at 3.6%. However, I should say, in terms of how we feel for customers, the customers are still pressurized and given that some of hard days and also the fiscal pressure, especially the high taxes, of course, affect this disposable income. So from an operative perspective, we see demands from customers for value, to continue to offer value. We see a lot of pressure from competition across [indiscernible] offering free or rollout price takedowns [indiscernible] that you hear from our presentation. And in terms of the actual performance, as you know we started the year on low notes and especially leading up to June when we had the unprecedented demonstrations in the country last year, which was [indiscernible]. This, of course, challenged us to reset and engage with our customers to ensure a sustained trust, but also to give a short answer as far as volume is concerned because there was a lot of pressure on volume, but also elements around privacy and worry-free experiences. Looking back by the end of the year, our Kenya business has recorded a great performance on both for mining, and we are very satisfied with the health of the business. The growth has been broad based. As you have seen and also the conversion into cash is very, very strong. In terms of highlights, of course, revenue hit KES 381 billion, a growth of 11%, which is very, very strong, and also EBIT, which is 13%, and net income at 12.7%, again pretty strong numbers [indiscernible], i.e. last year, which was also very, very strong. On a group basis, the underlying performance excluding largely one of the factors, depreciation, which you would have seen reflected in H1, and the impact of hyperinflationary accounting which I'm sure Dilip will go into a bit of detail. And the group revenue grew 12.9, which was fantastic. And actually, the contribution of Ethiopia to that growth is about 10%, which means that will be quite important activity. And EBIT grew 16.9, our net income was 14.2%. This is on a constant currency basis. On an imported basis, including the impact of currency reforms in Ethiopia and also hyperinflation accounting, our group revenue was KES 388 billion, up 11, which is also very strong and also EBIT growing faster in line and the net income at about 11% -- 10.8%. We deducted the minority interest and when we consider interest by the company. This is the same party to note that going for given the guidance that we gave earlier, that Ethiopia will now start being important. We see it's growing by about 50%, which is primarily from introduction in some policies and also, I'm not sure we believe currency impact. In Kenya, if I continue on the consumer side, we have made risks in building the building blocks for strong business to reduce attrition, leveraging AI, analytics and also starting to really introduce different propositions in segment positions. I won't go into any more detail in terms of consumer in M-PESA. M-PESA continues to grow by 42% of our business in Kenya. And of course, it's a big deal in terms of commercial inclusion. We are continuing to diversify the ecosystem on consumer payments and the abilities to some of the performance of some of the products that we have launched. [indiscernible] market product has really not well very well received and also starting to get scale in terms of assets and management. M-PESA [indiscernible] customers and now we have also introduced insurance, primarily device insurance. So we've been talking to you guys about going beyond payments. And this, we believe -- this is a year we believe some of the products are starting to become quite important. And by '26, we believe there will be [indiscernible] numbers and also usage. On the credit side, as I've said earlier, we are now offering merchant bundles and locking growth for businesses, which is very important. And on the enterprise side, we will reach, we engage our business customers and ensuring -- micro, small and medium-sized enterprises to ensure their better support. [indiscernible] and M-PESA and also enterprise, we see significant acceleration in the smaller margins, which is for 4G, and we have almost doubled in the customers and that contribute in terms of revenue above total margin revenue that we added from those functions. We also continued to invest in network so that we have secured network and cybersecurity solutions, but also data centers. And then, as you know, we've continued to support the government at both national government, but also country governments, [indiscernible] offer services to the public. And that is important because the public or the services which are offered to the public, to our customers, whether that is fertilizer subsidiary redemptions by farmer or [indiscernible], which is the support [indiscernible] social protection, which I'm not going forward, usually this is M-PESA. On the macro front, the inflation has now stimulated. It's about half of it was previously. IMF projects strong GDP, high single digit, 8.4. And the bill depreciation or other currency reforms have now stabilized, and we closed at the rate of [indiscernible] to the dollar. Of course, we are still assessing the impact of these reforms to our business and starting to adjust to ensure that we set up our business in the new regime, in particular, pricing would be quite important, and also localizing the cost [indiscernible] the proportion of total pricing. Having said that, on the regulatory front, we still continue to expect more to be done on the SMP area. We have seen quite a lot of activity with Ethiopia, adjusting issues and not [indiscernible] investment banks and financial sector reforms, including the Security Exchange. These reforms are actually quite positive because we have seen that the government is going to make broad reforms that positively impact on our sector. From a financial perspective or a business perspective, we see a very, very strong commercial momentum, which is happy, and we have seen a month-on-month quality acquisition of customers, ending at 8.8 million customers which is [indiscernible]. On a group basis, as we said today, we are now KES 388 billion to KES 390 billion, depending on the basis of [indiscernible], which is $3 billion, which is fantastic milestone, and we have delivered the cost financial -- I mean performances that is in line with guiding. And that, of course, means a good guidance has also been made. We also give up '26 guidance which primarily shows a step-up in EBIT and also similarly, but we are also going to continue to accelerate our recruitment of customers to reach 15, 70, and 90-day customers for Ethiopia at the end of '26. And we also confirm that we'll be EBITDA positive by '27. So I'll hand back to Dilip, please, and then we'll take your questions. Thank you.

Thank you, Peter. Caroline, confirm you can hear me.

Yes, we can hear you, Dilip. Please, proceed.

Yes. Good morning, good afternoon and good evening, all. As you do always after our results release, we are very pleased engaging with all of you on our full year '25 performance. We hope you did find time to engage with us in the morning when we had the call, or you have gone through our earning materials from our company website. I believe some of you have joined already, but I'm sure you will have more deeper questions today as we go through our financial numbers. I'll try to be very brief as you would like to spend more time on answering your questions. First of all, just to reiterate, a very strong overall group performance, be it top line or be it bottom line, there's a reported currency or constant currency. We have seen double-digit growth across all financial metrics right up to net income. Starting with Kenya, all revenue line items shown very good performance driven by excellent customer growth that you have seen. Across all segments, we have grown our customers, some of them -- some of the areas like M-PESA, we have seen double-digit growth, the highest that we have seen in the last 4 years. In terms of revenue, if you recall our medium-term outlook that we have provided, which we keep talking about three segments, which is the fixed M-PESA and connectivity business, all have shown impressive growth. M-PESA, 15.2% year-over-year growth on the back of a 19% growth last year, fixed grew 12.9% on the back of a 12% growth, which is further improvement this year and the connectivity business grew 6.5% on the back of a 6.2% growth that we missed last year. And the quality of growth is what makes us very happy. It's quite a balanced growth coming from customer growth as well as ARPU growth. Within that, from a guidance perspective, I think the double-digit growth and fixed double-digit growth in M-PESA and high single-digit growth in connectivity business is what we have delivered pretty much in line with the medium-term outlook that we have given. And also within our connectivity business, mobile data has performed well, with a 15.2% year-over-year growth. Voice and messaging still continue to be in the positive trajectory despite being a segment which is under pressure because of the structural nature of this business moving into more and more internet-based services, but you still see good momentum on this. So that was Kenya. On Ethiopia, very happy with the progress that we have made, including customer growth. If you recall, we have spoken about customer -- a GSM customer target of -- or an outlook of 7 million to 10 million by end of the year. Actually, we closed the year with 8.8 million customers. And on M-Pesa customers, we closed the year with 2.4 million. And across all segments of the customers, you may have seen from our presentation, most of them have grown or actually, all of them have grown 2x compared to the last year. Revenue in local term, tripled from the last year's level, mostly driven by mobile data. But also by voice, we are now beginning to see voice showing up in the overall revenue and driven by both usage as well as ARPU. I just want to highlight a couple of points on the -- you may have seen on our Ethiopia funding and also the Ethiopia performance per se, where we tried to explain the numbers without the currency reforms depreciation. First, with the funding, you have seen that as on end of March 2025, the total funding was $2.27 billion, which was a $410 million increase from the last year. And this is the equity funding, which has gone into it. Part of this equity funding is actually unwinding of the deferred winter payables that you can see in the presentation, there is a decline of the vendor payables. And this will eventually unwind as we pay to our vendors. On performance of Ethiopia, you may have seen the slide where we try to explain the numbers on an H1, H2 perspective, which was clearly giving us how Ethiopia performed if you take out the impact of the depreciation. You've seen that the EBITDA losses come down significantly to KES 8.8 billion underlying basis from a high of KES 21 billion. And at a group level, you may have seen also because of lower losses in the second half, which is what we have spoken about when you were talking about our half yearly results discussion, that second half -- impact of second half we don't expect it not to be material. And it was not material. And that's how the overall reported net income, excluding minor interest, we have reported 10.8% growth. And if you see the H1 and H2 split, actually H1 because of depreciation impact, great depreciation impact, it was a 17.7% decline. Now in H2, it is a growth of close to 45% resulting into a growth of 10.8%. And that's what is indicating and farming our view about FY '26 guidance, which actually Peter spoke about. And you may have noticed that next year's guidance is a significant uplift driven by much lower losses in Ethiopia compared to FY '25. So with that, let me pause here, and I hand over back to Caroline for the question answers. Thank you.

Thank you. Thank you very much, Peter and Dilip for that great overview. So we've got very good questions coming in here, and I still want to encourage us to keep posting. So I'll try and seam together, the ones that I find are touching on common items so that we can get a good flavor around it. And for the ones asking for specific numbers, we'll also help you on that in the background. So let's start here with the question from Davis from Sterling Capital. Thank you very much for your question. And I'll request Peter to respond to this one. And the question from Davis, Peter is could you kindly give us an update on the research for a use case for M-PESA in Ethiopia?

[indiscernible].

Okay. Okay, that's fine. That's okay.

[indiscernible].

So that's one from Davis. So the rest ones are financial, so I'll direct them to Dilip. So maybe I can read out one -- still from Davis for you, Dilip. With the NB having entered into a policy rate regime, kindly quantify how materially your funding costs are set to rise going forward? And as you speak into that, you can respond to also his other question on give us an update on what proportion of CapEx, OpEx in Ethiopia is currently localized. Peter, you may proceed to start.

Thank you, David, for your question. And I just now want to find out what that as far as [indiscernible].

Not yet, but I'll give you an update shortly.

Yes. So did -- I think the biggest news with M-Pesa that now we can use M-PESA to do payments, which have been an outstanding element for a very long time. And I'm sure we will continue our big analysis on other use cases. But I think that's a very, very big breakthrough for us. And we believe that, that is our good start because the thing with M-PESA and I've seen it in Kenya, is that once you get customers used to using a few use cases, then it's very easy to start going with additional ones. We intend to then launch a credit proposition, such like we've done in Kenya, talking about the equivalent of Fuliza will be launched soon in Ethiopia, which is a consumer overdraft proposition for our customers. But basically, the most important is to say that as you know, Ethiopia is [indiscernible] led so much results being relevant, customers when they are paying utilities or when they are being public sector organizations, we believe that, that's a very, very good decision for the future. On financial products, once you start giving credit on consumer side, then we can roll out other propositions that are relevant for Ethiopian consumers. And we have already identified a bank that we were up within the state that we want KCB and also NCBA here in Kenya on Fuliza. So we do have a partner that we have agreed with, and we will be going to market very, very soon, and we'll be able to communicate [indiscernible]. But certainly, I think the biggest one is the difference of flow, and then I'm sure we'll be on that. The other is essentially during the presentation that 20% of our connectivity businesses work through M-PESA, which is quite significant for [indiscernible]. So that's what I wanted to say this moment. Probably Dilip can talk about the question on NB.

Yes. So thank you, David. Your point on policy rate, first of all, to -- just to refresh our memory on this is that Ethiopia is on a path to quite a few macroeconomic reforms. So there was no policy rate before and as you rightly pointed out, there is a policy rate now. What you have seen so far in our local currency borrowing, interest rate is -- actually actual interest rate that we are able to avail is a policy rate minus a margin rather than a plus margin, which is good, but it is also apparent that the rate at which you are borrowing, those rates are beginning to now go up as we are refinancing, so some of those who are 1 year, 2 year rate and now as we start refinancing, they're going to -- but it's still much, I would say, lower than the policy rate, it's a policy rate minus margin. On CapEx and OpEx proportion in foreign currency, and Caroline can give you exact number, but if I remember, CapEx is about 85% in foreign currency and OpEx currently is about 60%. So that's what -- we are about 60%, yes, that's what the proportion of foreign currency in our CapEx and OpEx in Ethiopia.

I take the next question here from Marty, Marty is with HSBC, and this is to you, Dilip. I'll take two questions, and I'll give one to Peter from Dan. So Marty is asking about the data revenue in Kenya, seems to have decelerated from 20% growth in half 1 to about 11% in half 2, can you help us to understand the reasons and which quarters saw the bigger headwinds? And is the growth likely to accelerate or continue deceleration. And then the second question on M-PESA revenues, again to you, Dilip. M-PESA revenues also slowed from about 17% in half 1 to about 14%, is that a surprise? And how should we think about outlook better or similar. So that's to you Dilip. Peter, you could be preparing for the question from Dan. Dan is with Vergent Asset Management. What was the number of -- I mean, no, no, not that one. That one is for Dilip. About -- no, Dilip, just take those two questions for now.

Okay. So Marty, I'll go back to and keep reminding our medium-term outlook on various streams of revenue. Basically, we have spoken about and repeating again on financial services fixed business and also connectivity business. And within connectivity business, we also spoke about mobile data. So I mentioned this before. We have spoken about double-digit growth in Financial Services. We have spoken about high single-digit growth for connectivity business, and we have spoken about double-digit growth in fixed business. Now actual numbers that we have delivered and in sorry, within connectivity business, we have spoken about double-digit growth for mobile data. Now actual numbers, again, to repeat, FS delivered 15.2% connectivity delivered 6.5%, fixed delivered 12.9%. And within connectivity, mobile data delivered 15.2%. And you are right on seeing that revenue growth rates slower than the first half. First to reconfirm that it's still within our double-digit growth that we have spoken about. The H1, H2 split is a function of also last year's base effect. But if you go back, I think we -- our H1, H2 split for last year was more in H2, I think it grew some 24%, 25% in H2. So this is cycling a much higher growth rate of H2 of last year, that's what it's showing up in the number. Having said that, I think this is the opportunity, and this is what we are focusing a lot on, we have 23 million 4G plus devices, 1 million of them are 5G. And we see that about 12 million of them are actually using 1 GB per customer per month. As you can see, half of them -- just slightly half, more than half of them are actually using more than 1 GB a customer. Now why this 1 GB is important is the -- for us to know that majority of the revenue for mobile data comes from the customers who are using more than 1 GB, the rest all are in the funnel. And so therefore, this gap is what we need to make sure that to what level we can penetrate that customers are using more than 1 GB. I think as we are able to bring in more and more customers under this and that's why our aim and target, we are aiming for to make sure that the double-digit growth in mobile data continues. I'm surprised that you asked that question on M-PESA because I said M-PESA done extremely well. Even if you see H1, H2 difference, a growth of 15.2% on the back of a 19%, 19.4%, if I remember correctly for FY '24 growth for M-PESA, it's quite incredible. So I think we absolutely are very happy, and we don't see any concern on emphasis H1, H2 split. So our medium-term outlook and the numbers that you have spoken about actually are very much delivering that, yes. Back to you Caroline.

Thank you, Dilip. And the next question, I'll request Peter to respond. So Peter, the question from Wesley Manambo, SIB is are there any prospects for partnerships with satellite players. I think you may proceed to respond to that one.

So just to add to some of what -- I think it was Marty who asked about M-PESA, we also have happy talk from when Dilip presented this morning that we are growing customers. We are growing usage and also, we have growing ARPU. So when you look the actual growth profile of revenue has decelerated a bit based on these effects, the other half of the business is pretty strong, which is significant. I think there are two areas that we want to continue to address. We saw a slight slowdown in [indiscernible]. That's an area that you see us focusing on and accelerating in '26. However, that is also offset by the fact that we see -- we saw a very good time in terms of use for even a smaller market, so you miss it in the numbers that actually there has been a softer group at merchants, which have been mid area of focus for us. In terms of satellites, everyone is announcing -- all the telecom operators are announcing what they are doing with satellite providers. In Kenya, it's slowly starting, it's a frontline and has already started to set positions at this. We are sticking to an analogue satellite operators and providers including [indiscernible] across Africa is and also energy for that because some of the satellite operators also want to ultimately process country by country. But the main area that we are looking at, one is committed partner that's actually provide a link to resell products to enterprises. Can we get for backfall business with them, titled our technology vision and then, of course, the conversation on direct mobile. So I would say we are currently speaking to a number of satellite operators. I cannot disclose for we are speaking to, various operators, but certainly we have made a lot more progress in this area. And Dilip probably in time when the time is ripe, he can be able to disclose that because some of the conversions under confidentiality, so. But we believe satellite will play an important role, important addition to give customer choice. Initially for direct mobile availability because for SMS, but the others actually would play quite an important role in the near term, but certainly long term, I think the direct mobile will become reality.

Thank you, Peter, for that. Dan to your question about registered M-PESA users in Ethiopia, that number is 14 million. But we also did talk about the 2.4 million 90-day active. And so there's also a question also from Dan to you, Dilip on what is the shareholder loan about, if you could respond to that as you also respond to the last question from Marty on EBIT and the question reads as this. EBITDA margins for half 2 have come to be around 53% versus 55% in half 1. What's the reason behind this? And again, how should we think about the outlook. As you take that, Wim thank you for joining us. I do have a question for you from Davis of Sterling Capital, and the question is on pricing, has Ethio tel increased its prices further? And is there any indication that they will? If not, could you kindly outline your contingency plan? So we could start off with you, Dilip and then Wim.

So I'll start with answering first Marty's question on EBITDA margin. So Marty, I think one of the way I would probably advise you to look at the margin is also remove the device revenue and the device cost from the revenue and the cost and then do the calculation, you will see broadly our margin remains more or less the same. H1, it's true, there are some -- the OpEx is not material. So I don't think there is anything to because we have done quite a bit of -- so last financial year, compared to year before, I think we sold less than 300,000 devices in FY '24. We have sold 700,000 devices in FY '25. Obviously, we don't sell these devices on margins. Our objective is not to get margin on devices, but to put devices on the hands -- to the hands of the customer. And that's why sometimes it does change your margin. So do that calculation, you will probably see not much variation. On shareholder loan then, to your question, it's a good spot. So you would not see this when we release our half yearly results. So this was the transit time. And so as part of funding, sometimes when -- because there are two -- in Vodacom, Safaricom as a shareholder and then we have 3 more IFC, BII and Sumitomo. So the timing of those actual approval for them to invest in equity takes sometimes longer. And therefore, we do have this mechanism of bridge financing for a very short period of time wherein the money goes as a shareholder loan. And then it changes to equity in a very short period of time. You would not have seen this as a year-end or a half year end, but this just showed up here. This was the quarter for funding of $18 million equity by the time we release our half field results, you'll see that, that has moved to equity funding.

Thank you, Dilip. Wim, if you could respond on the pricing. I think Wim has probably dropped off.

What was the question?

He is back.

Do you want to repeat the question.

No, no, I'm good. So it was about the opportunity for us to increase prices. Of course, we are not the market leader. We are more of a challenger 10%, 15% market share, let's say, so it is very difficult for us to take the lead. So we do indeed depend on our competitor to take the lead when it comes to price increases. They have increased the price in October. We immediately followed. We do have indications that there will be possibly another price increase anytime soon. But as I said, we're not in the driver seat. Now when it comes to mitigation, of course, if you can't take up the price, you need to aim them for more users and more usage to at least compensate in terms of the revenue, so then maybe you can get then more users with a lower ARPU than fewer users with a higher ARPU because of the price increases. So we will need to find a balance. And of course, the main target in terms of reaching that breakeven point, it would also put then more pressure on the cost side if you cannot deliver everything as expectation on the revenue side. But we are balancing that out, and we're still hopeful that there will be price increases within the next, let's say, 6 to 12 months at the latest, we do expect another price increase.

All right. Thank you, thank you for that response, Wim. I'll take two next questions. One is from [indiscernible] and this one I'll request that -- Dilip, if you could respond and the question is on fixed data. So it reads as this remarkable growth on fixed data. Going forward, how have you seen competition coming up in terms of speed and pricing. Further, would it be possible to give us an update on your data centers and sourcing more data centers, either through building out your own or leasing? And then Peter, I'll request to respond to a question from [indiscernible], there was a proposed 1% levy on M-PESA payments transaction of value in the 2025 finance bill. Do you have a sensitivity on how this will affect M-PESA revenue growth trends and is there any engagement with the government to advise them against it? We can start with you, Dilip.

So let me start with -- that is -- so first of all, you've an interesting question on data center. We have seen how the demand for data center capacity just multiplying in every year and with all the other computing that's going on in the world, it's not going to slow down, maybe it's going to further increase and that's -- it's not a surprise that quite a few submarine cables are lending in Mombasa potentially to address some of the demand that's coming through. In the past, we have never looked at this as an opportunity -- a big -- I will say we have not seen this as a big opportunity, but having invested in a modern data center, buying our own land and data center currently, which is operational, gives us the confidence that maybe there are opportunities for us to monetize. When I say monetizing, we do have monetized -- we are monetizing that beyond our own captive consumption in the way we serve many of our enterprise customers, but that opportunity could become bigger in the future. So we haven't necessarily concluded in any direction, but from the infrastructure and -- do we have the land? Do we have -- I think we are -- we do have -- we have progressed quite a bit on this. And we -- in case we are able to demonstrate a good return to our investment and, of course, to return to the shareholders, I think at some point in time, we'll think about it. But right now, we are majorly catering to our own captive demand and the enterprise requirement that we have. On the fixed, I don't know, I see Fawzia probably is on the call. Fawzia, would you like to -- I don't know that you heard the question. Fawzia, who is our Head of Consumer Business, the Chief Consumer business. She was on the call. Is she on the call.

Yes, she is on the call. Fawzia, you can hear us.

Yes, I can hear. What's the question, Dilip.

Caroline, you want to repeat the question for Fawzia to answer.

Yes, yes. So Fawzia, this is a question from [indiscernible] and the question is on fixed data, of course, commending us for the remarkable growth that we've seen on fixed data. And so the question is around then going forward, have we seen competition coming up in terms of speed and pricing and -- yes, so I think that's -- yes, that's it on fixed data, sorry, they were two combined questions, but that's the question on fixed data. You may proceed.

Okay, fine. Good afternoon, good morning, wherever you're located, so yes, main we see good competition in this area, just like you've mentioned, and I think the reason is because there's great opportunity. In Kenya, we say we have about 12 million homes. And currently, the last count we did, we have over 100 ISPs and all the ISPs are trying to do what you call a landgrab into those 12 million homes. Of course, we see that the immediate opportunity being around 5 million to 6 million homes, but all of us have connected less than 2 million homes. So everybody, it's a landgrab. Everybody is rushing for it. We see the competition being mainly from a pricing perspective. I think at the moment, we offer the most superior speeds in the market after our upgrades in the second half of last year. But we see a lot of the ISPs providing propositions from a value segment perspective just to meet the customer where they are from a wallet perspective. For us, I think we will continue to segment our customers and ensure that we deliver to them propositions that meet their price points, but we will make sure that we do that at the highest quality. So I mean, it is competitive, but I think we are going to leverage both our strengths and even there we need to walk with partners, we will do so just so that we continue to live in this base.

Thank you. Thank you for that Fawzia. Okay. Peter, you may proceed.

Yes. So just in addition to Fawzia's comment, I know we have been congratulated for the growth. We are not quite satisfied. That's the one area we have to meet. There's more opportunity that actually that we are exploiting. I think Fawzia is right, she has done a brilliant job in terms of getting experience right, getting this basics right, getting speed right, and also getting quality before now you start to ramp up actually connections, but secondly, it's an area that you'll see more investments and more commercial focus. On the next question, this is the one area we look at quite carefully. Actually, this is probably from a finance perspective, this is probably one of the best neutral deals with respect to our sector. Yes, there are [indiscernible] that we need to deal with, but certainly, we have not seen any increase on excise on connectivity, on M-PESA, which is the first time. So I'm not sure what the one [indiscernible] talking about, but as far I know, there hasn't been a cost increase in rates as far that is concerned on either the GSM or M-PESA. Dilip, you can talk on that.

Yes, I'm not aware either.

I think we are in a good pace. I think one thing though, I remember the process in Kenya, it will go through quite a number of processes, including improving the -- what they call the public participation, elementary process. So until it is signed in law, we would not assume that the position we have seen in the finance maybe the one that could be the final position. So we still have to make sure that our proposals continue to be heard throughout the processes until the final process is completed. So my statements should be taken to see that we have for [indiscernible]. It's just theory that there has been a proposal from their treasury and that doesn't need -- cannot be introduced maybe.

Thank you. Thank you for your response, Peter. Now I go to a set of questions from Tracy of SBG. And I'll start with you, Dilip. I think I'll read out two and there are two questions to you, Wim and then we'll continue as we go along. So the first question from Tracy is was dividend payout ratio looking lower than 80% because of the impact of hyperinflation on reported EPS and if so, what's the EPS performance, excluding hyperinflation? And will there be hyperinflation in FY '26 numbers. So those two questions, Dilip, you can prepare to respond and for you, Wim. Yes, for you, Wim, I know you commented on prices, but the question is, has there been any price increase implemented in Ethiopia in this financial year under review and what's your view on data usage per customer in Ethiopia? Do you see a peak at current levels. So we can start off with you, Dilip.

Yes. So Tracy, on dividend, maybe Caroline, you could help. If you have seen the presentation, so there was one slide we have not presented the net income bridge. Tracy if you go through that slide, actually, you will see, and you'll understand clearly. And just to remind you, our policy of paying 80% dividend on a consolidated net income, excluding minority interest, after ATB devaluation after depreciation. But without -- so that we definitely take into account, but without any adjustment for IAS 29. And that we have been consistent in IAS 29 has been -- this is the third year of IAS 29, so all the 3 years that we have always informed you about whether it is a loss or whether it is a gain, we don't take that into account for calculation of dividend. The only thing we do and the only thing that we calculate is the depreciation. Depreciation is part of the reported number, and then we do the netting of the minute interest and -- or we call the distributable profit attributable to the shareholders. And if you do that calculation, you realize that the number ties up quite nicely. So there is no change in that. Now the bigger question is on what the future of IAS 29 is. And it's -- Peter makes joke of this in -- of about me, that there are very few people who understands this, and I have to be honest, I have to study a lot to understand because I didn't start this during my days CA days because I never thought that I had to apply this in my career. So on a more serious note, Tracy, the way this calculation works is cumulative inflation crossing 100% in a 3-year cycle. when processed, you get into hyperinflation environment. And that has happened actually, if I remember correctly, in December 2022, so that's why we have 23, 24 and 25, these 3 years in hyperinflationary environment because all 3 years, we tested that it is -- cumulative inflation is more than that. Now if you have noticed from Peter's presentation, the inflation environment in Ethiopia is on an improvement path. And we do have a few external analyses on projection for future inflation. And we have run a few scenarios. It is more than likely. So I cannot confirm and don't hold me accountable for this, but it is more than likely that IAS will be out of IAS 29 from FY '26 unless something dramatic happens on the inflation side, which can also happen. As you know, Ethiopia macro-economic environment has been very volatile in the past, it's getting better. So we have to just watch out for this. But from our projection now and based on few external inputs that we have received, it is more likely that we'll be out of IAS 29 adjustment for FY '26.

Thank you, Dilip. Wim, you may proceed.

Okay. So yes, there was a price increase in October, about 20%, which we -- as I said, immediately followed when the market leader implemented that. Now in terms of data usage, as you would see, Tracy, we are stabilizing at around 6.5, 6.6 gigabyte per user. It has grown a lot about 50% compared to last year. But now when you look at it, it has been started to be stabilizing, of course, if you would go and implement massive price increases, all of a sudden, you would expect the usage to go down. And then over time, it will start catching up. So my 5 cents on it is that it will start stabilizing around 6 gigabytes, which is still 30%, 40% higher than we currently have in Kenya, which, of course, also related to the relatively low pricing.

All right. Thank you for that Wim. So the next questions from Tracy, and I'll request Dilip, if you could respond to this one. So what drove the OpEx growth to be faster than revenue growth in Kenya and then looking at the Kenya EBIT guidance, the Kenya EBIT guidance implies a slower growth at top end than FY '25. Why is this the case? Dilip you may proceed.

Okay. So on OpEx growth, I tried to explain it during the presentation. So there -- clearly, there are three drivers, which has resulted in high -- the growth that you have seen. The one is quite standard and probably you are quite familiar with the payroll cost growth, there has nothing been unusual about it. We do have our what we call the annual adjustment in salaries that we do give to our employees, and that's what's reflected in the payroll cost. Then you would have seen a growth in network cost, and that actually is the primary driver of growth. Fueled by two counts. One is -- and mostly coming from one driver, which is the expansion of our network, both overall number of sites that we have added and also 5G sites. And if you've seen and we've spoken about it, our 5G, we have actually expanded our 5G footprint by more than double. So 800 was the last year closing, this year, we closed about 1,700 -- close to more than 1,700 and 5G usage is picking up, whether it be through the FWA 5G or I did mention about -- in our 23 million 4G+ devices we have now 1 million plus 5G devices and they are growing at a rapid pace. And do remember, 5G does allow very, very fast speed, but it does also consume higher energy compared to 4G or 3G sites. So a combination of expansion of the network itself, which, of course, leads to the other network-related costs, which goes up and then the energy consumption coming from the overall expansion of sites and also from the 5G sites is what is driving the cost. The hard element is also the -- what we call the other operating costs. When you see the detailed numbers, you would also see that there is an increase there. A substantial part of it was also driven by our -- we spend on our brand last year. We continue to spend our FY -- the Safaricom@24 celebration, Safaricom@18 -- M-PESA@18 celebration. So there is a lot that we are doing in our brand. So we have taken a decision to increase our brand spend, and that's also reflected into that. Other than that, I think the rest of all -- rest of all items are quite normal increase that you have seen. And just remember that we are still -- okay, you could argue that inflation has come down, but it has come down from a very high base growth, which you have seen previously. And some of the materials that we -- some of the production services that we consume, those does have higher impact on inflation side, then that's just the headline number that you see in the published numbers. On EBIT guidance, so I do consider that there would always be a discussion and debate on EBIT guidance. Sometimes we're saying we are being very optimistic and sometimes we have been conservative. Last year, if you remember, we had a similar time, we have given our guidance, and we have seen very good momentum in the half year, and we upgraded our guidance. And you did see the number for FY '25, we have hit the higher end of guidance for EBIT in FY '25. Now I would consider this is very balanced, depending on how you're calculating, whether it is the higher end of Kenya's EBIT at 173 or at the lower end at 170, or at the midpoint at 171-1/2, 172 , I think this is a very good growth touching between 8% to 9%, which is quite balanced at I would say. So I mean, that's what our view at this point in time. We do take a lot of things into account to be able to see that Kenya EBITDA guidance is in line with our business forecast that we are making at this point in time. I would have expected you to also talk about the overall guidance, EBIT guidance, which I'm sure you have done in your calculation, which I think overall, you have to look at the group guidance as well on EBIT, which is a significant shift from where we have closed with KES 97 billion EBIT this year to -- at the higher end of EBIT next year, it goes up to KES 150 billion, which is quite good. So that's all I want to say on the EBIT guidance, Caroline.

Thank you, thank you, Dilip. And thank you for your questions. I'm still receiving questions here. So feel free to engage with us. The next question is from [indiscernible] I see your question around the net debt. I think just to confirm the numbers are actually the same. So remember the KES 54.6 billion that you're referencing is with respect to the company and then the KES 85 billion is with respect to the group, but they are the same in both booklets. So happy for you to just recheck that. But back to you Dilip, Rohit of Citi is asking us, do you expect any benefit on margins from declining oil prices in both markets? And maybe you can combine that also with his other second question on CapEx in Ethiopia. So the question is CapEx and Ethiopia declined, but site additional target is similar to this year, do you expect to use more of incumbent towers than building new towers? And in that case, will that impact the margins in Ethiopia, Dilip.

Yes, cost of oil is a very important input in our planning assumption. So in the way you have seen our guidance for FY '26, it does reflect that -- the oil cost reflected in the energy cost that we have is impacted. I think it does impacting, one, is the directly in the energy cost, which is what we have been on a mission to modernize our power infrastructure in Kenya, and that does allow us to have less dependency on the diesel which is what we are on a mission. So internally, we are aiming for a zero-diesel consumption in Kenya, which I think is a very ambitious target. But we are trying to be in that space that where we don't need to consume diesel, also good for the environment, right? But other than that, I think it does impact -- when oil cost goes up, it does impact a lot of logistics-related costs, which finally impacts our cost as well. I think a stable oil price or lower oil cost does actually help us. And this is pretty much part of our FY '26 guidance that we have factored in. Now on the other side, I think you need to also reflect on increase in energy costs coming from Ethiopia. You recall in Kenya, mostly the subsidies were removed, and post that energy cost, I think last 1 year has been quite stable after a series of growth in both diesel and grid power cost. But in the last 1 year, it has been quite stable. On the contrary, in some cases, it has been already declined. But Ethiopia is on a different trajectory. Post IMF deal or the arrangement, I don't know, we can confirm, I think we have at least 2 to 3 increase in the cost of diesel as well as in the power, maybe not so much in the diesel, definitely on the power, maybe you can also confirm on that, yes. And maybe you can also address always a question to me. Rohit, I confirm you, it does not change that. We are actually planning to -- if you remember, we are planning to deliver 3,300 sites. So in terms of preparation and all, it's just the sites, not on air. But in terms of preparation, in terms of accruing CapEx for the equipment and all, we managed to do that. So we don't look at 3,100 to 3,800, look at 3,300, 3,800, so there is no risk on that unless there is anything material happens on the currency side. As you know, 85% of our CapEx is in foreign currency. So Wim, maybe you can answer on the energy cost, how many times and what do you see on the ground?

Sure. Thanks, Dilip. So when it comes to Ethiopia in terms of power, you know that we have a very green and reliable grid because of the dams, the hydro. So already from the design, we have actually quite a few sites that are running on diesel generator. We have very few sites that are running 24/7 on diesel generator. And most of the sites are actually electrified with 6, 8, 10 hours battery backup. So already our consumption in terms of liters per site per month is actually very low. So yes, it's true there are some price adjustments. Fuel prices have gone up quite significantly over the last 6 months since the ForEx reforms and one of the obligations to the government was to reduce the subsidies that they historically were giving for fuel, but the fuel cost component as part of our total operating or network operating expenditure, is actually relatively small. It's quite low. So a price increase in the unit cost of the liter is actually compensated by a further reduction of the number of liters that we are consuming because of more electrification, more batteries. So we don't really feel the increase of the fuel price on our P&L.

Right. Thank you. Thank you for that, Dilip and Wim. So to allow my CFO to take some water. I'll direct the next question to Esther. So Esther, we have two questions here from Samuel, Samuel is with Renaissance Capital. And the questions are, so one is the drop in value of withdrawals and take rates, just to get a little bit more of color on why that is the case? And the second question is on lower transaction value on Lipa na M-PESA despite the growth that we are seeing in active deals and volumes. So Esther, if you could please respond.

Okay. So good afternoon, and thank you, everyone. So let me just start with the first question around the drop in value of withdrawals and take rates on M-PESA. So we've seen an increased -- we've seen increased use cases on M-PESA. So we're seeing a lot more the money staying within the M-PESA ecosystem. To give you the example that if you look at M-TIBA, which is our standing order submission. You will see that people are then keeping more money in their wallet as a result. So the need for withdrawals is reducing. If you look at also some of the initiatives that we have around the public sector with the social protection initiatives, we're also seeing more money staying in the ecosystem. So it means that with increased digitization in our ecosystem, the need for withdrawals has reduced. And hence, you'll see the drop in the withdrawals as value continues to remain within the M-PESA ecosystem. On the take rates, these remained relatively flat during the period, but I'm happy -- we're happy to explore what you are seeing, then we can dig a little bit deeper into that. And the second piece around the lower average transaction values on L&M, what we have continued to see is uptick on L&M and the uptick has largely been on the smaller traders, lower merchant -- lower ticket merchants. So we're seeing higher frequency, which has increased our volume significantly, but the value seen remained relatively below the average ticket values. And you'll also see that our average days of use in M-PESA has also increased. And so what that means is that we're doing -- we're seeing more smaller value tickets in our ecosystem that ties into the increased number of days of use. So I hope that covers all the aspects of the question.

Worded very well, Esther. I just wanted to add on the take rate. I'm not sure how -- maybe Caroline you could help them to see, in the slide that I presented, which is available, which is, I think, Slide 34, at least in my deck, I have given a chargeable transactions per customer per month and also the take rate and we now started giving you take rate on overall transactions and also take rate on chargeable transactions. Actually, both are either on growth or on stable part. So maybe, Caroline, you can help to check how the calculation is showing a decline.

Yes, yes, yes. I think that's a good point, and that is on your Slide 34, so you can make reference to Slide 34 to receive the information on the take rate, but happy to engage offline should you still need more information on that. Thank you so much, Esther for that response. The next question and I'll direct this to you Dilip is from Ian. Ian Wangai is with Kuza Asset Management. And the question is, could you provide more clarity on your effective tax rate because based on the full year 2025 results, it appears to be around 50%, I think he is making reference to the group because the Kenya one, the effective rate is, of course, much, much lower. So the question is what factors have contributed to such a high rate, Dilip.

Yes. I think, as you know, the Ethiopia -- I think you are calculating net income and then you're trying to calculate the tax, but we are paying tax on Kenya income. And you -- if you look at Kenya, I think if you just separate your calculation, and you will see that our effective tax rate for Kenya business remain pretty much stable. I think it is -- if I remember correctly, the number, 33%, yes, 33%, which is stable. So the way to calculate effective tax rate would be, and we are not paying tax because we are still not profitable in Kenya, and we are not able to offset -- we cannot offset the Kenya income with the Ethiopia losses. I think that's what I think your calculation of the effective tax rate is coming. And again, happy to help you and support you to see that how -- that you can get the calculation right.

Thank you, Dilip. Dilip, I think I'll just read out the question from Kevin. Just double-clicking on the guidance. And I think, Kevin, you've done some good arithmetic analysis here. But let me just read it out and then we can see how best to respond to this because we do not guide on revenue. But nonetheless, Ethiopia guiding to a loss of KES 23 billion to KES 26 billion, in 2025, the depreciation was around KES 20 billion. So to achieve an EBIT loss of about KES 25 million, it means EBITDA should be close to breakeven. So costs in 2025 were around KES 40 billion. So revenue of KES 8 billion. So to achieve EBITDA breakeven suggest the revenue needs to be at least KES 40 billion in Ethiopia. So the question is KES 40 billion of revenue in Ethiopia, is that possible as early as financial year 2026, Dilip.

I don't know how to frame the answer. Let me try and give you -- I'm sure you are doing your own calculation. As Caroline mentioned, we don't guide on revenues. I cannot confirm or decline the number that you're talking about. But I want to give you color of the rationale and the way you can think about KES 23 billion to KES 26 billion plus EBIT loss that's in the guidance. Our reported loss for Ethiopia was KES 61 billion at EBIT level, yes. Caroline, if I'm making a mistake, remind me, KES 61 billion loss of EBIT, that's the reported number. So there are 2 phases of currency. We have reflected majority of -- most of the currency depreciation has come in the first half. And we reported this number in the first half of the year is KES 33 billion, yes. And then there are further, of course, the currency depreciated but at a much lower pace for the balance of the year. But even if you take KES 33 billion as a basis, so KES 61 billion minus KES 33 billion gives you a loss of, what, KES 28 billion, yes? So it's about KES 28 billion loss. So there are many ways you can calculate and see whether these numbers are making sense. I think from our perspective, based on the assumption of the guidance that you have given for Ethiopia, which is 15 million to 17 million customers, 3,800 sites -- base stations, we do believe that the guidance number reflects the right number. And I have also tried to unpack the Ethiopia EBITDA number minus the depreciation. So I think that will also probably help you, which was the last slide in the Ethiopia section. What was the EBITDA loss in FY '24 without the depreciation. And if I remember that number correctly, it was about KES 8.8 billion loss. So that's why we are saying we'll still be in losses in FY '26 and turn into FY '27 breakeven, and that's why FY '27 breakeven hasn't changed. As I said, I will not be able to confirm any of the other numbers because that's not what we are guiding. But happy to help and support you which is on a one-one basis and some more color to understanding how your -- what are some other assumptions without necessarily telling you how to do it, but we'll try to get a little bit more insights into how you are calculating that number. what is the driving -- what are your assumptions on to that, that would be helpful. I hope that was clear.

Yes, it was Dilip, and Kevin, I hope you got some good color around that. A few questions here, I think there's some we've been able to respond offline and one asking about the chargeable transactions value. So Tracy we'll get back to you, that was also off-line so that we can just give you some color around it. Davis, I see the question on pricing. I know we responded to this, but it looks like you still want to get some color around what's the target pricing that we are looking out from an Ethiopia FY '27 perspective. I don't know whether Wim you'd like to add anything to that before we get some closing remarks from our CEO as we close the call.

Thanks, Caroline. I'm not sure what I should respond to the target price. We'd say the target price should be the right price for the customers to feel that they get value for money. I think we all know when you compare with Kenya that the pricing today is at one-third, Kenya price is about KES 60 for a gigabyte, we are sitting more to the KES 20. So there is a big gap between KES 20 million and KES 60 million, so what is the target or the ideal price. I would say it's somewhere between KES 20 and KES 60 because we -- of course, we still want to keep our usage high enough so that overall, even if there is price increase, we still end up with higher ARPU. If your price increase is offset by a similar reduction in usage, then of course, you haven't really gained much. So we still believe that there is room for price up while not reducing or losing too much on the usage side.

Thanks. Thanks, Wim. I think that's very, very helpful. And I trust that they will find that information great for input purposes because I know they are looking to see how the modeling will pan out. So really appreciated for that response. Alessandra, I see your question. Allow me to take it offline, so that I can give you a bit more detailed analysis on that, I've taken a note of that particular one. I think with that, we have exhausted the questions that I see on this side. Samuel like to see a follow-up but allow us to just close the call at this point as I request Peter to give us some closing remarks. And as usual, do feel free to reach out to us for the ongoing engagements on our results. So happy to respond to your questions through e-mail, so feel free to reach out to us in the usual way. Peter closing remarks.

Yes. So thanks you for all the questions. Well, the questions -- just before I close, the question that Davis has asked on price, like pricing will become a very -- how about we get back to the right place in Ethiopia as far as that business is concerned. But if you could also remember the history, when we want to that market, Ethio tel reduced price by quite a significant margin. So that [indiscernible] the customer affordability or even what is normal because if we didn't do that price reduction, I think the collection drop will have been much more worse. So that's one aspect that you should consider. The second aspect is that [indiscernible] rate or pricing at least for worse which we know that the moment SMP has not fully implemented because if SMP have been implemented, Ethio tel will not be able to sell any products below it. So that's an aspect. So [indiscernible] was able to deal with that, I think you'll see some price correction in that in our way. But [indiscernible] said, which is Ethio tel actually makes some [indiscernible] indirectly that we can be able to make those moves. [indiscernible] address the correction. But affordability, I think is in a good place. The price environment is low. So we are not necessarily worried about the affordability. And then secondly, there have been significant price correction in all areas, categories. So that's [indiscernible] and I'm sure Caroline will keep you guys posted in case there is material move because that's the one I say. And we have also seen have markets as a new base captive market. These things take time to made small incremental pricing or actually you get few big ones. So it depends on how the market evolves. So in conclusion, I think [indiscernible] we are very happy to engage. I know there's a lot of things today. Caroline and team and myself and Dilip are happy to engage you. We're going to have a series of investments from next week. So hopefully, we'll also be able to give more one-on-one and answer questions [indiscernible] summarize if [indiscernible] the performance of the business in particular, very, very strongly. Kenya, I know the same elements that helps business to strong. There are great customers [indiscernible] commercial management and aggregates to the market should bearing [indiscernible] Ethiopia and also get M-PESA growth and that would allow us to see a very sustainable profile. And that's why we are confident about the guidance that we have given for next year. Now some of you may not be very satisfied. Also manages -- I know there is this question that keeps on being asking margins. My own view is that we shouldn't be expecting significant margin expansion. We will not invest on pricing more or higher value for our customers, rather than [indiscernible] at least in Kenya material price, and we don't have much expansion because then it should also imply that the [indiscernible] premium still hold, especially [indiscernible] for today but also for Dilip, I know that Wim, Esther, and Fawzia, those who have answered the questions. I'm very, very happy to continue engaging [indiscernible] great afternoon and good weekend and very good day to you all. Thank you, guys. Over to you Caroline.

Thank you. Thank you, Peter. Thank you, Dilip. Thank you, Wim, and the leadership as well. Once again, as Peter has said, we really appreciate having these conversations with you. And yes, we shall definitely continue having them through the intimate sessions we'll be having in the coming weeks, but also feel free to reach out to us on anything that you'd like more information on analysis and the like. Kevin, feel free to reach out with that model. I think I'm really happy to support you as we go along. But really thank you for dialing into this call this evening. To have yourselves a good evening and good day. Thank you.