Safaricom PLC (SCOM) Earnings Call Transcript & Summary

25 years ago, our journey began that would grow into the dynamic force we celebrate today. We posed to reflect on the past 25 years of Safaricom a truly extraordinary journey defined by the resilience that transformed our humble beginnings into the cornerstone of Kenya's digital revolution. We look back with pride at having Pioneer at M-PESA, a platform that fundamentally redefined financial inclusion and proved our powerful belief, technology that transforms lives. This foundational legacy propels us forward as we commit to future phasing growth, ensuring worry-free, always on and secure solutions to all our customers and broadly extending our reach into new frontiers, most notably Ethiopia. The past has prepared us and the future for us to become Africa's populist technology company by 2030. Good morning, good afternoon, and good evening to everyone from wherever it is that you're joining us all. Welcome to this investor call for half year '26 results. We are glad to have you here. And for this session, I'll be moderating as usual. And as we get into today's discussion, I would want us to get some short update from our CEO, Dr. Peter Ndegwa, followed by some remarks from our CFO, Dilip Pal, who will speak briefly about our results. And following this, we'll be able to open it up for Q&A. [Operator Instructions]. I'm in staying committed to our promise on diversity and inclusion. We do have a live transcript that has been made available for the comfort of anyone with hearing difficulties, so if you can be able to access this by clicking the CC tab at the bottom of your Zoom application so that you can be able to follow through with the conversations in accountable manner. Finally, should you require any assistance from us that is not related to the subject that had, but is the results announcement that we released this morning. Feel free to write to us through the chat platform and the Investor Relations team will be on hand to support you. As for now, allow me to welcome our CEO, Dr. Peter Ndegwa, to give his remarks. Peter?

Yes, good morning, good afternoon, good evening, everyone. And thank you, Caroline for welcoming everyone. We hesitated to be able to welcome you this evening for no more all that we do every year or every half year and full year after reducing our results. So this morning, [indiscernible] and also our Chairman announced the results for the 2 businesses in [indiscernible] and also at a group level. We are very pleased with the strong performance of our Kenya business is the growth is across the board. We are also [indiscernible] of those results in terms of growth in top [indiscernible] line. We are also pleased with the health of the business, and we will be able to talk to that in a few minutes. We've also kicked off our big celebrations of 5 by giving our customers communities and our stakeholders, a number of big activities that will be running over the next few weeks, including the consumer promotion at [indiscernible], which is a reward across the country for our customers. And more importantly, we also bring a big community program according to the future. We also are pleased with the commercial [indiscernible] that we see despite a challenging environment, especially with the foreign exchange devaluation, continued to position and we will be able to get into the detail. We are in with chief executive there and we'll be giving us more details based on your questions. You will see that from my results about a of the losses that we have reported in leads to currency depreciation or decision than was expected. But we are pleased with the commercial momentum. There is still a lot to be done in order for -- to deliver within the Ethiopian market, especially correcting price to reflect higher costs of operating post devaluation. But at a group level, there is some top and bottom line, and we'll be very happy to [indiscernible] the detailed [indiscernible] summary of that, and then we will go straight into your questions.

Thank you, Peter. Good morning, good afternoon and good evening to all participants of the call. As always, we are pleased to engage with you following the release of our half year results. For those who have not reviewed our earnings material yet, I encourage you to do so for a deeper understanding. Several of you joined us in the morning release announcement, but let me share some quick highlights for the benefit of those who may not have had a chance to join or go through the details. Starting with the group performance. The group delivered robust performance driven by solid results in Kenya and improvement in Ethiopia. We achieved double-digit growth across all key financial metrics. EBITDA grew by 34.9%, EBIT by 54.5% and net income adjusted for minority interest grew by 52.1%. [indiscernible] revenue grew 11.1%, with QP contributing 11.1% of this growth. Starting with now giving you a little bit more color on the Kenya performance. a great customer growth across all segments. The overall -- seeing that day customers, M-PESA connectivity and fixed view Service revenue grew 9.3%, driven by double-digit growth by -- from M-PESA and also mobile data. M-PESA's growth was 14% year-over-year. the approach to acquisition has shifted to our cluster and segment led strategies, driving aggressive growth and customer-relevant management proposition. We have seen a growth in the ecosystem and [indiscernible] now contributing 44.5% of the total service revenue and also contributing 2/3 of the incremental service revenue for the first half of the year. In the Connectivity segment, slightly slower growth than we have witnessed before, but still a good traction of plus 5.3%. Within that mobile data, of course, was the star performer, growing 13.4%. And across all enable 4G devices the customers using more than 1 GB all have grown. And also, we have grown ARPU in the mobile data segment. Voice declined 2.1%. But just to give you a flavor of that a 2.1% growth. We had a -- quarter 1 was -- we started with a higher decline year-over-year, but then we recovered in the quarter 2, and we expect that to continue. And just to give you a sense of that, minus 2.1% voice revenue decline. The quarter 1 decline was about 4%, but then quarter 2 recovered to kind of a flat to a 0.1% growth, so which is what directionally we believe what's going to happen. But within the voice revenue, also, we have what we call [indiscernible] other value-added services that come in as part of that. We have strengthened our registration and onboarding process and which is what led to a slightly higher decline in the quarter 1, and those are now behind us, and hopefully, the current trajectory continues. Fixed revenue grew 9.5%, with customers growing across home as well as business segments. And of course, Home segments grew 16.3%, with a bit of a slowdown in enterprise fixed to about 2%. On the cost side, operating cost, we kind of maintained and well managed. We had a impact of the depreciation of initialing compared to euro. And if we adjust the depreciation our operating cost was way below 8%. Direct cost is also showing good traction, although showing a decline year-over-year, but adjusted with the drop in handset revenue the growth was 6% contributed to a very good contribution margin of 74.8%, up from about 72.5% similar period last year. So overall, as I said, Kenya strong momentum. And of course, that has reflected in the EBITDA and net income growth that I've spoken about. Moving to Ethiopia, just to again repeat, which I've spoken about in the morning presentation, it will pay out of hyperinflation economy and will not be doing any IS to Internet reporting, but there is still a residual impact from what we have done what you're calling as index balance sheet, which will unwind over the period over the period of that that's coming under the line depreciation and amortization. In terms of commercial growth, very good momentum on customers. You have seen customers at 11.1 million. Strong growth in voice customers. Actually, voice recovery is what we are very happy about both on customer side as well as revenue side, mobile data continuing to grow significantly enabled by very good usage and ARPU. And that's, of course, reflected in revenue growth. In terms of the ATB in an ETB currency, the service revenue almost tripled year-over-year for the first half of the year. Now Allow me to now pause there and open the floor for questions and back to Caroline. Thank you.

Thank you very much, Peter and Dilip for that overview. [indiscernible] encourage us to utilize this session for your questions and answer any comments that you'd also like to make feel free to do so. I see a few questions have started streaming through. So remember, this is your session. We've got some good time to spend with our leaders for apace of addressing anything that you'd like to clarify. And Dilip we'll start with you, questions here from Marty of HSBC. Actually a couple of questions. So much thank you for your questions, and we will try our best to go through them. So starting with EBITDA. So why did EBITDA margins come out so strong in Kenya? Is that sustainable level? If there was a change in strategy, what drove that? Yes, I think let's go question by question. So less if you could address the EBITDA margins for Kenya, the strong.

Mary, thank you for that question. I'm sure you are reflecting on our previous conversation that it is not our strategy to increase EBITDA margin, and we have been very clear about that. And of course, we do what we do. And eventually, if that results into an EBITDA margin improvement, we are happy about it. So I just want to confirm you that, yes, I think as you have seen and maybe just when you unpack the numbers, starting from the top line, 9.3% top line growth, obviously did not result into a 9.3% growth in direct cost. You have seen that actually, on a reported basis, we have seen a decline in direct cost. But also on an adjusted to handset revenue, we have seen an increase of 6.6%, still lower than the top line growth. The operating cost also was quite well mania that's what results into a very good EBITDA margin. So as I said, not -- that's not necessarily our strategy. We never said that. But of course, you do what you do and you manage well and then finally, what comes out is what to report at an EBITDA margin.

Thank you, Dilip, for that. Our combined related questions so that we can be able to speak thematically to some of the key things that I'm seeing poking up here. So a question from Marian. This is to you, Peter, it's on the price repair in Ethiopia. So my best question on that is, what was the reason for price repair not working in Ethiopia? Is that competition or other issue? And what's the outlook, but I want to combine that with a related question from Davis where he's asking to requesting for an update on whether your sales adjusted its prices upwards as per your expectations, early in the year. Peter, if you could speak to the pricing repair.

Yes. So thank you, maybe an also to David for your questions. Your -- our expectation is that this like happened or there are countries where tech has been a challenge or devaluation that happened in a significantly we expected that the market will have to back up because the cost of servicing, whether that's data voice would increase. As you know, we've always flat that we are not -- we are not the risk player in the market where we are a challenger. So we can lead on price. And you saw, if you sell from last financial year around September, October increased by around and we are expecting that follow-up price increases would happen in this financial year. We have yet to see that happen. And we are still hopeful because that's we are expecting that to be a pay the same tenets that [indiscernible] in terms of costs. And we've also flagged 2 key authorities for the later or engage some of the government officials and that we do expect that the market will repair over time. And it is important for that to happen for the industry to have long-term sustainability. So a lot of this is led by the division that is easier to make, of course, with a needs through our interactions with relators and we are doing that. But we are hesitator price increase will be very. And I would also want that we discussed this or tells us is on of sufficient and watch his senses about where and when that might be. But lastly, I can say that many of the digits that have done in tiles that are set for us, we include some of the shareholders in other business for the onion actually had engagements with various bicolor than we have expressed this. There's also, as you know, a bank report that was recently published. And the quest for the Ethiopia communication that we the ACA and the [indiscernible] price points are low that there are number of other meters and we've taken to be able to collect some of the industry issues we face. So [indiscernible] if you can cover publicly and also some of the specifics about the [indiscernible].

Sure. Thank you, Peter. So good afternoon, everybody. So as you rightfully say, we are still confident that these price increases will happen. So it's not a matter of if, it's more a matter of when. So the timing, I think, is really the question when these price increases will happen. Our assumption was that this would happen in October based on the fact that last year in October, there was a price increase a first price increase to partially mitigate the impact of the devaluation or the free floating of the currency. So this increase has not happened in October, as we were expecting, but we are still very confident of where we're clear that this will happen in the near future. Why? Because, first of all, as Peter has clarified, this has happened in other markets, whether it's Egypt, Nigeria, Ghana, quite a number of other countries that have gone through a similar kind of devaluation or FX reform in the following 12, 18, 24 months, those price repairs to compensate for the devaluation did happen. So we believe that, that also will be the case in Ethiopia. Secondly is that we are in the same situation with our competitor. They also have dollar-related or dollar-denominated debt. They also need to further expand and invest in their network. So they're facing the same challenge that we are facing. So that's why we believe that ultimately, it's just a matter of time that those price repairs will happen so that we have a more sustainable long-term environment in which to operate. The regulator is very much aware of the challenges that the industry, not just Safaricom, but the industry is facing. So we also expect that there's going to be support from a regulatory side to actually implement those price repairs in the near future so that we have a more sustainable pricing and a more sustainable industry in Ethiopia. Caroline?

Thank you. Thank you, Wim. Thank you, Peter, as well on that question. I'll come back to you...

[indiscernible]

Sorry, what's the question, Peter?

Did I fully answer David's question?

Yes. Yes. Yes, you did. Not Yes. Yes, you did. Right Yes. Okay. So I'll go back to you, Dilip. Again, thematically, picking the questions from Samuel Jay, also questions asked by Marty. With respect to voice and messaging revenues, and generally, the question is around the fact that we did report a drop in the voice and messaging revenue. So question being, how should we think about the outlook for this. As you also clarify, as Adrian is asking, when you initially mentioned, as you were explaining in your initial remarks, the most stringent related registration and onboarding process for [indiscernible]. If you could just clarify that a little bit, also asking on the same. So if you could speak to voice messaging revenues and trends to expect.

Thank you for the question. So I want to stitch in part voice and messaging. I think on messaging, we do see the customer reference change, and that's reflected. So I would say, I think for the longest time, we're able to hold it to a more flat to a growth trajectory in the messaging, but we now start to see that customer adoption in a more and more digital space in the mobile data does reflect on messaging. So we still have 20 million plus messaging users. But of course, they are doing less number of messages that they are doing before. So which I consider this as part of more of an organic change that's happening in the customer preferences, how they communicate. But voice has been one of our, I would say, star performer over the longest time despite a different in some other markets we have seen because the way we were able to engage customers the offers that we're able to give to them and simulate usage Actually, you have seen that over the longest time, we managed to increase voice usage. So therefore, we -- I think the team around voice is different from messaging. Boy, what I was explaining what you also report as part of the question, that also part of this is some of the some of the tragic subscription-based services that we sell to our customers through third-party partners is what we have made it more stringent. It's not -- I think it's the level of stringency is to a point you -- we have introduced several confirmation so that customers don't complain because you have seen that even if there is a registration which has been accepted by the customer, maybe sometimes there is a wrong click by the customer. So therefore, we introduced quite a bit of -- which is one of the important things, the double confirmation that have you really subscribed. And then this is one area of we really want it as part of our -- as we started the year from the customer experience issues that we have picked up to solve that part of that. So this is more of a quarter 1 effort. And which is what resulted into a decline in the line. Actually, the line without SCA was more or less flat. And as I told you, including that line of revenue, quarter 2 is actually in the positive trajectory, about just about flat to positive 0.1. But if I remove now the lower growth, the value-added services or subscription-based services that were very stringent actually voice is in a positive trajectory. Linking that with what Marine have asked. Of course, a long-term trend, I don't think we'll -- we will -- we'll change our positions that we have spoken to you have told you before is there would be substitution and that we cannot have it. So that, I think voice will be under pressure. And in fact, we've spoken about low single-digit decline will be possible. But immediate future, I think the one -- what we believe that in the second half of the year would be better than what we have seen in the -- that's what our outlook. The first because of the -- or some of the stringencies that we have brought in, I think will be better in the H2. But I think the other point I wanted to highlight is we -- our integrated propositions are gaining traction. We are still not there, but we do have a part of our pie strategy to move into more than one service -- we do have bundled services but individual services. Combined all of this voice, data and messaging, we have about 17% of the revenue comes from integrated proposition. And what we have mentioned to you that as we do more and more integrated propositions, focus is mostly on the ARPU. So you make sure that you are upselling and you as a bundle integrated proposition, and we're able to improve customers' usage and therefore, ARPU. And therefore, all of this put together, and we already started giving you update on the connectivity revenue. So you see all of that together mobile data will replace voice. So we need to be growing faster than the decline that comes to the voice to ensure that the medium-term outlook that we have given. And if you recall, we've spoken about kind of high single-digit growth in connectivity revenue. But because of this half year has not been attention about it, it's slightly slower than what we anticipated. So I think H2, we are expecting a recovery. I hope that answers the 2 questions.

Yes. Yes, you does. And now I move on to -- back to you, Peter. This is a question for Mardi. Any comments on the news feed around regulators looking to control MPSA tariffs? Peter?

Yes. I would be surprised [indiscernible] do not continue to ask more questions. Yes. But I think the whole piece about controlling tariffs is one of the areas we always very sensitive to -- because when regulators, we start themselves in the process of controlling tariffs than the industry can run into challenges. So the development control cars for sale financial services, where would we start to control tariffs for mobile payment service providers. And then our understanding is that base report was done, not necessarily in the kind of mainstream, but as part of gave information that getting those views because the competition is very big about seeking a very broad set of views about how this should be managed. And so it was an initial proposal rather than a suggestion by the [indiscernible] by the reach community CDK. We've already actually provided our own view, industry should be left to drive commercial assessments around pricing and then the rest at the plate all the opcos replan. In addition to that, we have been on [indiscernible] we have been messaging base to invest over the past few years in reducing or tracing affordability first of all, of NTEA if you actually attended the money announcement, or even to be in a change, it is actually somewhere in the booklet and current message on where 2 trade is. Did you point through in detail about the proportion of our business that is not cash. So a large proportion of the volume of transaction that goes to test what you call capable small ticket [indiscernible] and transient for martensitic has its faster, but that portfolio is growing faster by more than compared to your cable transaction. So we have really a seat for despite the fact the [indiscernible] trackable components of the M-PESA on the [indiscernible] portfolio or production portfolio. So it is to demonstrate to the regulator that we continue to offer more value. And then the extension of products beyond payments will also allow us to offer more services that create more value for our customers and then continue to reduce, and you'll see this happening [indiscernible], continue to reduce the direct transaction base business model. So that can reduce our land and detect transaction-based model and continue to take for those areas that we are -- so we will keep you updated. But at the moment is at a public activation stage rather than a kind of policy stage.

Thank you very much for that, Peter. And the reference pages to what Peter was discussing on the chargeable and unchangeable value and volume for M-PESA, you can refer to page 30 of the booklet or on Page 33 of [indiscernible].

[indiscernible] date, but you are spending that is for those -- for [indiscernible].

Can you hear me now? Sorry. Sorry about that Yes. Okay. Let me proceed. So I was making reference to the page. So it's Page 30...

Caroline I ask you whether you have a good [indiscernible] or wherever it is you are calling from.

And we shall not disclose, let's just say we are back. Yes, sorry for that interruption. So let me just repeat the page numbers in case I got lost at that juncture. So it's page 30 of the results booklet...

Yes, I think you need to probably switch off your video.

[indiscernible] is yes, you are active of the investable value and volume for M-PESA. All right. Okay. So question to you on the M-PESA environment in top. So there are 2 questions which are much together on from David. And the question is, other than the fuel agreement that was recently resolved, are there regions that M-PESA is unable to operate in because revenue authorities have entered into exclusive agreements for payments to be done by a single marketplace. [indiscernible] allow it combined. Can we get an update in Ethiopia.

I only got the first question, can I maybe you switch of the video switch your video because you are breaking yes?

Okay. My apologies for that. Can I be heard now?

No, you can be heard. And I think the questions are also hard if you can go ahead, yes.

Okay. So I will focus on the first question because I didn't get the second question. So on the first question, there are no exclusivity arrangements or agreements in place anymore. So as you rightfully say, the fuel is now open. So we are offering fewer payments through M-PESA and all government-related payments, taxes, fines, anything related to government and state-owned enterprises like electricity or water providers. So all of that is now going to be migrated onto a government payment gateway. That was embedded in the DPO a few months ago. So this is now a clear commitment made by the Ethiopian government that they will open up all government-related payments to all payment providers. So this is not just about Safaricom. All the banks, all the PIIs will be able to offer all these payments on an equal access basis. Also, I would like to mention the [indiscernible]. So we have connected onto [indiscernible], which is mandatory by the NBE so that will also allow us to have access to the entire digital payment ecosystem. And sooner or later, everybody will mandatory have to connect to that switch. Caroline, could you just repeat the second question? Which I didn't properly get.

Yes. So the second question, we, and I hope you can hear me now. Very good. It's from Anton. Anton is with [indiscernible]. And the question is, can we get an update on the competitive environment for M-PESA in Ethiopia?

So yes, I think that is a very related question. Yes. So the competitive environment, I think the areas that were originally there, which we highlight a few and others have now been lifted. So it is becoming gradually a more level playing field. Of course, there has been a head start. So we are on a catch-up game. But when you see that we are already getting 30% penetration of our existing GSM base, which is up from 20% a year ago. So we are getting traction and the level playing field because of the DPO that the government of [indiscernible] has committed to. We are quite hopeful that we are now on a path of accelerated growth in terms of the MSA in Ethiopia.

All right. And I trust it has addressed the question satisfactorily on the MPS environment in Ethiopia. My next question is to you, Pete. And with respect to the Wild Bank report, I think just -- this is a question, just allow me to get to it. This is a question, Peter, from Sam Di of Reliance Capital. And the question is, is there any progress or indication that the issues highlighted in the recent bank study being or will be addressed, Peter?

Yes. I think are that is also related to probably what did it have asked and I suspect the question that I forgot to close out. the magna answer, which is quite [indiscernible] in general for a very specific reason. The issue we face is setting up a leopard and also the activate implementing the outcomes of declaring AP and SMP. I think those then would be able to help us address some of the challenges we faced with respect to when the market share what will happen. And then the cost made earlier is that we regather on both issues in terms of ensuring the tire operates. I think there have been very, very good progress on the NPE side in terms of financial services. Now we need to see the same progress happening on the HCA side with respect to ensuring that the players sell above cost, especially those that have [indiscernible] and that's, for example, the data connect strategy with respect to sharing of the sites of fiber assets can be priced at appropriate rates, which have been defined by the retires. And the ages at the ibanker has actually produced. And I have said too that we can update on some of the details, but also what he's reached on the progress and how the regulator is iterating and the actions that we have committed it coding costs have as sold. So we'll go duration.

Okay. Thank you, Peter. So yes, there are 2 main engagements with the regulator following or in line with the findings of the World Bank report that was mandated by the EPA. It is the ECA who gave a Monday to the World Bank to issue this report. So #1 is on the pricing at the retail pricing. There is now a consensus, I would say, that there is clear evidence that we -- in the market, ourselves and for sure, our competitors are selling below cost, which is, of course, not sustainable and it was also not allowed. No operator or no commercial business should be allowed or is allowed to sell systematically below cost. -- so there is a clear understanding of the regulatory side that there is an area of concern that they need to address for the markets to be able to be sustainable. So that is on one side is on the retail pricing, the issue of selling below cost. And then the second one, Peter, that you have mentioned, is the ISO and the reference infrastructure sharing offer. So that is the framework that regulates the pricing of tower sharing, infrastructure sharing in general, fiber, lease lines, ducts, all those areas where the income that has been declared in SMP, significant market power. And those prices ultimately need to be regulated also on a cost plus margin basis. So a study is ongoing and a request by the regulator has been submitted to the operators to submit their cost structure so that ultimately, the regulator can look into the cost plus margin because these prices as per the regulation as the S&P regulation has to be offered to other operators on a cost plus margin basis. So those 2 things are ongoing. I cannot commit on behalf of the regulator on a date -- but for sure, there is awareness at the regulatory level in Ethiopia that these are 2 important matters that require the tension and intervention in the long term to be able to create that sustainable telco industry.

Thank you SP1 Thank you, Peter. Thank you, Wim. I trust with [indiscernible] on my side that I can now be very well [indiscernible]. And with that, our request [indiscernible] to now respond to this. But so there are a number of questions Dilip, on the handset revenue and the volatility there in from somewhere from Marti and a few others, so just allow me to read one for context but basically to address what exactly is exhibiting the significant volatility in the handset revenue. And if we could shed some light on the factors driving the erratic trend and especially the sharp decline that we've seen in the first half of '26. So handset revenue volatility, Dilip over to you.

Thank you. So in market has set demand and our strategy have not changed, and you have seen those numbers in terms of the 4G devices, 4G devices or smartphone devices in our system. In our network is actually growing and growing at terrific space. I think over the long -- I think over the last 4, 5 years, we have been growing 20% to 30% on the buses done as a very, very clear part of our strategy. And so first of all, I want to confirm that in market demand to solve customer or customers demand to get a 4G device from their current 2G devices that remains. And our strategy is to ensure that customers have access to that. So just to confirm that. So nothing has changed and it is happening. And from the growth you can see that actually the devices in our ecosystem is growing and growing very, very well. Now Ben comes who participates there, how much you are doing. Remember, we are not the only player. And when we talk about handset revenues that we buy handset and we sell handsets. but there are partners who are also equally active as well as the open market. What I -- what we have done and what we have seen, if you recall last financial year, -- those of you who are very close to our financials and not only half year and also that thing full year. We were accelerating our device financing of [indiscernible] propositions. And we have pretty a bit of a roadblock in terms of seeing a customer default in repayment. And there are issues in our platform, the issues in the way we have done some of the processes and also the way we collect money, that we would allow flexibility to customers to pay over a period of time. So you can say we took a pause because the NPL or be debt provision went up significantly. I'm sure all of you recall that. And that's one of the reason I was explaining direct cost decline of year-over-year decline in a growth market, which is 9.3% top line growth was unusual. And that's because also we have seen decline in the NPL provision. So this is not to say that we have changed our strategy, but we need to fix some of these internal platform issues and also some of the customers' experience issues. I can I can confirm you that we have done very good progress on this. But along the way, we have also explored third-party options more aggressively than before because the device financing that we are doing to the limonite propositions, the receivables are sitting in our balance sheet. We also wanted to do a lot more to the off-balance sheet approach and which is what we have actually accelerated during this period. So and that we continue to drive as well as our repurpose element proposition, which has more flexibility in terms of portfolio of devices that customers will have the van or the propositions in terms of how they can pay and how they can use their loyalty points in testing the bunker points they have to repay for their debt and also the ability to repay which is not just a fifth time of -- and so we are bringing in a lot more flexibility around that. Currently, we are doing smaller numbers, not necessarily the numbers that we are doing before. But this is the reason why you've probably seen a slowdown in the handset device sales that we do through our own book. But overall, I think in market -- that has not slowed down, demand arises and we are partnering whether it is through the third-party partner or others to the open market to ensure that there is always something suffer which goes to the customer when they're buying devices. So that's what's really the reason why you are seeing these changes in the handset sales.

Thank you very much, Dilip I would like us to shift our attention now to a couple of questions coming through with respect to the guidance. both on customer numbers for ECP and bit, but let's start with customer numbers. I see questions from Rohit and from Tracy. So we've taken note of your questions. And this is to you, Dilip. So given the run rate of net adds in Ethiopia, we're still targeting 15 million to 17 million subscribers by end of year. And of course, a related question to the same from a trend perspective. So what will drive the acceleration in the second half to get us to the guidance on customers. We start with customers, then we'll address EBIT.

Yes. I'll start with customer numbers. I think from -- maybe you're looking at the first half of the year, the current run rate with 11.1 million TV customers. the second half of the year in the range of 15 billion to 17 billion, we would need another 4 million net debt to get to a level at the lower end of subscribers. So we have not changed our guidance, and we assess that the [indiscernible] I'm sure we can comment on that. That we are -- we are aiming to achieve that number through various means, including and the question that you have, what brings us the confidence I think a few things. One of the things that we haven't spoken a lot about, I think kind of an improvement in the Amhara region, where you can correct me the number of sites kind of you have sites which you are not able to offer data to our customers with like data bar customers. Now that's our primary offer. That's why that network, our customer loves us. So when you don't have data. Of course, we are not able to acquire customers there. So as we speak, end of September, pretty much all sites which are data bar are now available, and we are also able to actually acquire customers. We are also adding new sites. We're adding new towns, some of the barriers of -- which were out of bound, and we are again starting as we are being relaunched. So maybe Wim,you can talk about a little bit of the commercial intensity that we are bringing in to ensure that the second half of the year is definitely better than the first half of the year in terms of net add acquisition.

Okay. Thanks, Dilip. Yes, for sure. The second half will be better than the first half. several reasons. First of all, the seasonality. You've seen also last year, we had a very strong last quarter. So driven also by seasonality. So we expect that to replicate to happen again this year. So the last quarter, we expect some strong performance out of seasonality. We're also adding still more sites. We are now at 3,300. We still have a few hundred extra sites that will be coming live in the next 3 to 4 months, which will be able to also contribute to the additional growth meaning outperforming the current run rate. And then thirdly, as you rightfully have mentioned, in the Amhara region, until a few months ago, we had 300 to 400 sites where we were not able to offer data services. So most of those have now -- the restriction on most of those sites has now been lifted. In August, September, the last bunch of sites came live. So we also think that out of the Amhara region, we will be able to get additional growth to outperform the current run rate and to come to the guidance figures.

Thank you. Thank you, Dilip Pal. Thank you, Wim, for that. And so Dilip,coming now to the EBIT guidance. And as positioned by the analyst here, I think the concern is speaking to still the expected depreciation of the shilling in Ethiopia continuing into second half. So question being why we are still holding the guidance at the same levels and especially in [indiscernible] where we've closed that at a this first half of the year.

Yes. I think -- it's -- first of all, it's a valid point, and it's a valid concern, given what you have seen in the first half of the year in terms of accelerated depreciation of where compared to both dollar and euro. But I think within that, the -- we did expect dollar to depreciate. But of course, the actual acquisition was higher than what we expected. But what came as -- I mean, I don't think it was only for Ethiopia, but for most of the countries, I mean, I did mention about that in the morning presentation, even in Kenya, where you see USG to [indiscernible] remained stable over the longest time, but there was a close to 10% depreciation compared to euro. A proportion of Europe payments for if you look higher because some of those operators cannot accept dollar payments because of what are the geopolitical issues. So that, of course, was not necessarily something that we plan. But I think over the -- over the last few months, we have seen stability on -- I think it came from dollar to euro depreciation globally, you may have seen that, but you have seen more stability on that. So the way to look at is Peter in his closing remarks and providing outlook, of course, we don't discuss guidance in half year. As you always say, half year is a bit so to just reflect to see what is working well, what is not working so well and what we do in the second half of the year to make sure that we stinging within the guidance that we provided. As Peter did mention about that our group guidance, we have, of course, spoken about individually Kenya and Ethiopia, our group guidance still remains intact. And of course, which you can also see that even if there is some headwinds in Ethiopia's EBIT numbers for the first half, but we have seen a significant acceleration in 1 year. So that's why it gives us the confidence what Peter mentioned about it that overall group guidance remains intact. Yes. I mean, of course, we still have 6 months to take care of the businesses, there would be commercial acceleration. We spoke about more customers. And then we -- I think the last part of the first 45 minutes were discussing about market in city 1 of the key thing is the market repair. And we are all hopeful and we remain hopeful about that correction happening because that's really unsustainable at the current pricing. So I think with all these considerations and assessment we thought from the management side that it's prudent that group guidance remains same.

Thank you. Thank you, Dilip, for addressing the EBIT guidance question. And I still will defer back to you, Dilip questions here from net limited with APA. And the question is on the net finance costs being that they declined significantly, which is a positive surprise since total borrowings grew. So what drove the decline and there was some of the debt facilities renegotiated.

Yes. No, that's a good spot, in fact in the presentation. in the cost slide, you may have seen one chart where we have shown a decline in the gross interest cost. I think you are referring to a net financing cost, which also includes the interest income that we earn from our balances. So interest income also declined as like the interest cost. First of all, I think we -- I think in the morning, I spoke about this, the macroeconomic improvement and the car has changed materially. And of course, the -- pretty much all our debt at this point in time, which obviously you have a view of -- you have seen that number, our all are floating interest rates. So as benchmark rate goes down, we are able to bring down the cost of borrowing. And absolutely, I can confirm you that the interest cost reduction or net financing cost reduction is a function of the rate benefit that we could obtain because all our debts are protein interest rate. So I think it's an improvement also macros. Remember last year, around the same time, I think I was explaining an increase of 40% growth year-over-year, half year, if I recall, and then it started to slow down from the second half of the year, and that's flowing into the half year of this financial as well.

And the second question from [indiscernible] is on Ethiopia are there any dedollarization initiatives in Ethiopia.

Yes. Wim, maybe you can give some flavor because you have done a lot. We spoke about that in the past. Maybe you can give some examples of what we are doing now.

Sure. Thanks for the question. Yes, we have done a lot of [indiscernible] through in-sourcing and also by localizing some of the contracts. So maybe also in anticipation or think of a related question is on the mix of the dollar component in the -- so if you exclude the leases, the leases on Ethiopia, which are, of course, as you know, [ they're paid in beer ] but the effect to the dollar. If you exclude those, we have now achieved almost 2/3 of the remaining OpEx that is now which means that we are less vulnerable to ForEx exchanges, especially to the euro because of the additional euro to dollar depreciation. We also now needed to focus a little bit more on the ones that are euro denominated. So we've been able to do that, mainly on the technical part, IT, SLAs, network, SLAs with the vendors, with Nokia, Huawei and other vendors, we've been able to in-source a lot of those Level 1, Level 2. Of course, you always remain with a Level 3 kind of O&M support. But those are far smaller than the level 1 and level 2. So we have in-sourced a lot of those level 1 level network and IT SLA. Then when it comes to cost of sales, that one is largely 90% in local currency because the only dollar components we have in that is the IP transit from Gibutio from Mombasa, everything else is there also in local currency. So we have done a lot. We are still continuing and exploring additional opportunities to see whether it's more possibility to dedollarize, but a lot of that has been done, and then it always becomes more difficult to look for more but any opportunity -- additional opportunity that we can find, we definitely explore to further mitigate the impact of the FX on our cost structure.

Thank you. Thank you very much, Wim, for that color. And now moving on to the shareholding update, and -- I will now leave it to either you, Peter or Dilip, you can choose who to respond. But the question from Tracy was the shareholding update reflected in the attributable net profit for this first half? And do we expect the shareholding to remain as is for the full year. We'll receive the other shareholders outside Protacom Group return to equity contribution? And what is the maximum shareholding that Safaricom would hold in Ethiopia. So 3 questions in one, but basically addressing shareholding, please.

This looks like a CFO question.

Looks like a CFO question. I can see from [indiscernible] Yes. No, I'm happy. I'm happy to answer that. I think the -- on the current level of what you have already -- what we are addressing and what you've probably seen in our results booklet. We don't expect a material change. There would be -- there could be changes. But I don't think we expect a material change in that because the capital call in terms of newer capital requirements, it's becoming smaller and smaller. You have seen that mega part of funding this half year itself came from the debt facilities that we have taken as part of our foreign currency loan of 100 million. And then we are -- and the equity line that increase that you see is pretty much up going from the deferred funding. You recall the deferred funding is just those Nokian who are we deferred funding. Negotiations that we have done when we issued purchase orders. So this falls on -- to the shareholders to pay back when those are due for payment. I think half of that came through the reduction -- reduction in the deferred balance as well and another half around 50 million came through that. So actually, the size of the equity that's coming through is becoming solar and smaller. That's what I'm saying. It could be coming in, but I think it will not be material.

Thank you. Thank you, Dilip, for that. All right. And now back to questions on the Kenya business, and we have questions here from Faruk. So Dilip, I will read the question as you take a glass of water because I'm still directing this question back to you. So this is on the data customers in Kenya and the question of what [indiscernible] would like to know is what drove that strong growth in the data customers using more than 1 GB, that's the 19% growth that we reported this morning. including the growth in the 4G plus handsets that grew to 28%. What drove that strong growth, Dilip?

Thank you, Faruk. I think I was giving an update on the devices. I think that's very much part of the strategy. I mean, we have covered this country pretty much everything all 97%, 98% of the population is covered through Obviously, the big part of that monetization comes to the customers that we acquire. What we have realized and what we have seen is as much as you have 20 million-plus customers. But the real, what you call that the real contribution of the customers who are contributing to the revenue are the ones who are who consume 1 Gbs customers, and they are all using 4G services. So 1 of the key agreement that we are the that we monitor, and that's part of our target and the strategy that we discussed is about penetration of the 4G devices that we are making so much efforts to get devising -- 4G device enhance with the customer, what proportion of that are actually using more than 1 GB. I mean, if a customer is not using a [indiscernible] GB, then -- okay. I'm sure they are using that. There are people who are using their customers that are using less, but they're really not necessarily contributing to the revenue. And that's what has been our focus. You have seen a penetration is growing, and I'm happy to notice that but we still see a runway because the penetration is about 50% of the 4G devices that we have in our network, in our ecosystem them actually are using 1 Gbps. So that will continue to remain 1 of the big growth drivers as we accelerate and that also gives you kind of the runway that we have to grow our data revenue. And 4G devices, I think that has been our -- or everything that we have done, I think, for the last 3, 4 years, ever since we covered pretty much out country. I mean the whole digital experience, the experience of consuming those digital services, doesn't exist unless you were able to give customers the 4G devices. There was the whole idea to bring -- to bring home or to do the Kenya fast device assembly solution, a company called EDA, which is what you also co-own into Kenya. And these are all part of that a broader enabling story of if we enable our customers with devices with the right price with affordable solutions with credit propositions for them they can pay in installments, ultimately, the results will flow in the consuming more and coming into the point of the ultimately, what reflects the growth in the mobile data revenue. I think that's what I would say, what drove the growth and both in the 4G devices as well as the customers that are using 1 GB plus.

Faruk, I think the second question, we addressed it when we were talking about the mobile money environment in Ethiopia, but if you do have a follow-up question, happy to take that one up. I would see your third question. And again, this is to you, Dilip. How do you expect the revenue mix of M-PESA Kenya to defer in the next 3 to 5 years versus today, that is business payments versus consumer payments. And that you address that, I can combine with the take rate question from Thermo that asked any risk around our take rates in the various business segments from et are we seeing any pressure on take rates.

Okay. composition of the profile we start with that we have been reiterating this point again and again the strategy of going beyond payments and accelerating solutions, which has been very much part of the strategy. Now you have to see this in 2 parts. One is how much of that show up in the line item of particular initiative, for example, take example of the new initiative that -- it's less than 1 year, our wealth management proposition, what we call the GD. you have seen the numbers. Those of you are familiar and those have -- I mean, you know that market, we are at 15 billion asset under management and we just -- we noticed actually a couple of 1 or 2 weeks back. We are already featuring GD featuring 1 of the key contributor of driving in the number of customers who are in the wealth management because you were in the space where you were able to democratize well, actually are contributing to that. Now does that make -- is that revenue item, a big item, is this going to contribute significantly. And sir, maybe no, it's not -- it may not become revenue earners. But the point is you are creating ecosystem. I think that's what you have been highlighting that you are creating one more reason for customers to use the services and create proposition for them to stay in the ecosystem. If the money tenants in the ecosystem, they're able to do things that they otherwise they would have done for them to leave the ecosystem, and we're allowing them to stay with the ecosystem. I think ultimately, that results into a revenue. And that's why you need to look at the velocity of the money moving in the mps ecosystem, and that's what has given revenue. So I think you need to look at the overall volumes and values in those different streams of different segments of the offerings that we have rather than just seeing what proportion of revenue will come from there because it is an ecosystem, one thing drives another -- to give you an example, another jump, I think this will help you think about the future. When we had the Hale fund when it came in, 20 million-plus customers registered a large sum of money came into our ecosystem. And there is the money we made as part of our regulator on enabling that in our ecosystem. But that was not necessarily the biggest amount of money that we have on. That is a very small amount. But when [indiscernible] in the ecosystem that comes in, the 2 customers are doing something, which allows us to now monetize. I think you have to see this in this context other than looking at we would be always launching newer production services that we have done I think about that we do through our partners, of course, including the wealth management proposition. The credit we started going back to history, [indiscernible], those are all of you who are familiar with the [indiscernible]. But then along the way, we launched Credit for [indiscernible], which is for [indiscernible]. We launched credit for patents. And we saw those merchants, the numbers are growing significantly. The number of [indiscernible]. So when you have recruitment of margins, I think you can go back to the margins with the value proposition, there would always be stickiness for those last market to stay remain within our ecosystem. I think that's what we're driving new segments of credit, allowing those who are not availing credit before are availing credit -- is there a big part of the revenue, not yet. But are we able to engage those merchants. Yes, so that the ecosystem grows, the velocity and volumes within the aquisition growth, and that's what we monetize. That's what I would say I think the other question, I think, which was on the take rate. Again, I think we are I mean this is also very, very clear and as part of -- very much part of the strategy. Volume drives the revenue. You saw that our chargeable volumes grew by 20% and Peter did mentioned about nonchargeable noncharter grew by 31%. But chargeable volume grew by -- so that charge volume growth is giving us a revenue growth of 14%. It's a volume-driven business. So we need to create more instances of for customers to do on more transactions and then you monetize. So I think from the actual results from the actual numbers, you've seen that our take rate has been consistent. But of course, the portfolio of that -- the mix of that changes, but you're still able to maintain overall -- overall take rates are quite stable even in this year '26. Yes. So that's what I just wanted to comment on the face rate as well as on your comments on the forecourt on the profile of MPS revenue.

Thank you, Dilip. Peter, did you have any additional comments on that?

Yes. I was actually just around the CFO and the large tickets. This is the shortest talk about increase probably that will come in when we start having the road shows we have. But I wanted to add on actually the way we think about integration which is also what was saying to explain. But as offering services in the way that we have offered them traditionally, it was in the onsite but also on the entail. On the connectivity side, if you can integrate products more, we can meet the needs of customers better and segmentation is also allowing us to drive in accretion even more. And now with AI and CBM, we can be able to target and a taint know that is some of simulate. And we are making more progress on the consumer, I would say, Snowman in the presentation I made earlier, we are targeting a with specific offerings, drivers specific costs of customers. And then we are starting to speak about how we can add our financial services products product that will not be our base product. So an insurance for [indiscernible], it health insurance kind of vehicle. So these are both margins, for example, and we've seen success with offering asset or investment option for merchants that also we can withdrawal demand would allow them to feel that they can save in ecosystem of competitors. They're all of these new product its becoming more important in units element purely the monetization aspects. And then the internally, we monetize this to say how many customers are getting one or one more service. And then I know many of you have also asked us how long -- I mean we deeper or is this a take. So we hope that we come with the one up in a way that it how we integrate offerings in the digital and also blood with the process side with the kind of invest and also the segmentation side, we should be able to see much more integration between GSM and better and also we didn't invest so that we build that thing about profile of products, but also how many customer market are we meeting those needs.

Thank you. Thank you, Peter, for those additional remarks, very, very helpful. We have 8 minutes to go to the call. So any last minute questions, this would be a nice time to just post it. But then again, just remember, we have lots of engagements for -- so various platforms. where you'll be able to engage with both Peter and Dilip in a more elaborate discussion around certain matters. I've seen quite a number of questions asking about the proportion of the foreign currency pushes for OpEx and CapEx for OP. I think that was addressed earlier, but just for clarity from a total perspective, on the OpEx side is about 30% foreign on the CapEx side is about 70% foreign on a total basis. So that should give you some good guidance. So Dilip, if you could respond to this question from Evan. Evan is with Code Asset Management. And he is asking if we could elaborate on the CapEx outlook. And provide more insight also into the decline in the free cash flow. Of course, noting even that we did hold the guidance we've given on CapEx this but will it over to you.

Yes. Thank you, Evan. I think on -- starting with CapEx. Actually, if you look at the group CapEx, you need to look at Kenya and it does separately. Starting with Kenya can year CapEx have actually grown year-over-year. I think it's about 11% growth as we have front-loaded our CapEx to get the best commercial outcome for the year. And to give you an example, this year within first half of the year. We have rolled out all our sites that we wanted to roll out in Kenya. So that's why you see an increase of CapEx in Kenya. And in to, it's different. It will be a year-over-year CapEx declined by 66%. And I did mention this also in the presentation. And you can also go through the slides, Caroline, you can refer to the page number of that slide, we have shown. So if UP CapEx is meant to decline year-over-year. And we did just mention when you talk about and actually given the guidance. Full year guidance CapEx growth for Ethiopia and Kenya. So if you a decline, it's pretty much in line with what you are expecting, noting that the full year CapEx guidance doesn't change paying for -- even if there is a decline more than what we're anticipating in the poster, but full year guidance for Ethiopia remains same. And noting similarly for Kenya, despite Kenya growing faster higher compared to last year, but I think we remain within the guidance. So that's to confirm that there is no change in the CapEx. CapEx is still during the plan, and this is what you are delivering is as per plan. Coming to free cash flow. I try to unpack this in the call in the presentation today. I think we are referring to group free cash flow decline of 2% Kenya decline? I mean, you've seen a very good growth actually from EBITDA positively coming up. And also CapEx decline is also showing up in the free cash flow growth that you have seen. But there is a working capital impact that -- or the negative working capital impact that's what's pulling down the year-over-year growth. I did mention this, the Kenya and working capital is more of a timing issue. Which will unwind. And Ethiopia, some of these are also reflecting the greatest large filing of craters that has happened last year. We have paid up quite a few of those creators. And remember, Ethiopia capEx is half of likely to be half of the CapEx level of that last year. So you have less CapEx, which also means that you have less creditors. And I also mentioned about that the overall for the full year, we expect our free cash flow to be still remaining strong as we have seen in the past year. So that will be my comment on the free cash flow and the CapEx.

Thank you very much, Dilip. And before I invite our CEO, to give his closing remarks, it, maybe just a comment on whether management does any sensitivity analysis on the price for just to be able to inform internal decisions. So maybe just a comment on the sensitivity analysis that we perform with respect to the price expectation for Ethiopia.

Yes. Thank you, Caroline, and thank you for those who had asked that question. I think, yes, we do all the time. So as you think that, and I think in my presentation slide explaining service revenue for in. I think at least provide, I mentioned about the expected market repair did not happen because we do track it all the time. But I just also want to say that is very internal and we do engage with the management and also see because scenario analysis for a market like Ethiopia is like ongoing, and we do, I think, all the time, and we do our tricone in a month in terms of to be able to see, okay, what's coming up next? What do you see expecting in the next quarter? What do you see coming up later? As Wim was saying, the expectation was that the price up would have happened in October was also part of that synergy and election. So we do all the time at but very internal.

Thank you very much, Dilip. So Anton and Tracy, I think maybe just one question remaining here on some detailed analysis. So we'll reach out to you separately. So that we can be able to avail that information to you. But once again, should you want to do -- make any follow-up questions with respect to our performance. You can always reach out to us on the Investor Relations e-mail address Allow me now to just bring on board to Peter to make his closing remarks as we bring the session to a close, Peter.

Yes. So thank you, Caroline, and thank you Wim and Dilip for covering quite a lot of the questions. And thank you, everyone who attended today's call. As I said at the beginning, we are actually pleased with the results that we have delivered in some tough environments. In Kenya, we start the fact that we do see customers and under pressure, we delivered robust to the health of the business is in good shape. And yes, there are a number of areas to manage but your balance, you will see as we'll continue to execute in the 3. So we are fairly confident in the release in Kenya. In Ethiopia, as I said, we actually rate the commercial progress, but the shift result is the market is there. So we will continue to use this or these rates going forward. So pricing will be a consideration and that and make of progress in navigation to expand which is whether that's the effect for regulatory intervention. And we will do what we need to do to be able to get for [indiscernible] on the network sale but also customer numbers. but we will need to progress the market [indiscernible] countries so that we can ensure that the [indiscernible] first of all, breakeven but also subsequent intonation that it becomes a very strong driver of both stock and our of the overall acquisition. I also want tanker investors. We eating the milestone of 5 years tomorrow being a big part event, but also stakeholder events. And also, as I said, yes, I didn't know lot by customer and I want to say patrol,especially analysts and investors who were gatefrom outside of Kenya. And also we think we've been a big or and actually looking forward to meeting many of you [indiscernible] in the rig banknotes.

Thank you, everyone. Thank you, investors and analysts for making time to have this conversation with us. Just to mention, we will be embarking on road shows, as Peter has said. And so we will have more opportunities to engage. And I think it's just also good to highlight to you that this is the first year of our Vision 2030 strategy.