Safaricom PLC (SCOM) Earnings Call Transcript & Summary

Good evening, good morning, good afternoon, depending on where you're joining us from. Welcome to Safaricom PLC Half Year '27 Pre-close Call. As always, it's a joy to engage with you in this manner. I am Caroline Wambugu. I lead Group Finance Controls, Performance and Investor Relations, and I'll be moderating today's session. Joining me also for this call is our group CEO, Dr. Peter Ndegwa; and our group CFIO and for those who are wondering, what CFIO means, it's our Chief Finance and Innovation Officer, Dilip Pal who will open for us the session with brief remarks before we move into Q&A. Just allow me to take us through some quick housekeeping rules so that we can be able to be comfortable as we go through with the discussions. First and foremost, if you haven't already done so, please make sure that you've joined with your full name, and you need to update at this particular moment by just hovering over your name on Zoom and selecting rename, if you haven't joined with your full name. [Operator Instructions]. We also do have a light transcript that is available for anybody who needs it and you can access it through your More Options Tab. Just go to the view transcript at the bottom of your Zoom screen. And then should you have any form of inquiry that is not necessarily related to today's discussion feel free to drop us a note in the chart and I do have the Investor Relations team on hand that will be able to support you in the background. So use the Q&A tab for questions, and you can use the chat tab for purposes of any other unrelated query. With that, allow me to once again welcome you to this particular discussion as I hand over the session to our group CEO, Peter, to get us started. Over to you, Dr. Peter.

Thank you, Caroline, and good afternoon, good morning, good evening, everyone. Caroline, please confirm that you can hear me?

Yes, we can hear you well.

Yes. So good afternoon, ladies and gentlemen, and thank you for joining us, as Caroline has said, we'll take you through just a summary of what we want to [indiscernible] you through. I will start by providing an update on the operating environment and the strategic and commercial progress that we are making in our 2 key markets of Kenya and Ethiopia and also how those priorities will guide us as we execute for balance of year. And then Dilip will provide an update on financial outlook, market expectations in particular in relation to guidance capital investment, but also the key considerations that you want to make as you forecast our performance. [indiscernible]. But I need to say that because this is a pre-call or pre-close call, our comments will remain at a high level. And therefore, because we will wait to provide a complete financial results and detail for performance disclosures at our formal results announcement, which we are [indiscernible] we are sharing for the 5th of November this year. So we appreciate your continued engagement. And hopefully, this also is part of the overall engagement. I'll start at an overall group level. I should say that our overall strategic direction remain unchanged. We continue to focus on on our key areas that we have shared with you, which is protecting and growing our Core Connectivity, but also Financial Services businesses, accelerating the development of our new digital platforms, but also strengthening the foundations of Ethiopian business. During the period, our priorities have not changed, and they remain clear. Our execution continues to accelerate. So first, so I want to mention three things, first is we want to sustain the quality and the resilience of our Kenya business, and I explained what that means. Second, we want to deepen customer engagement and monetization, especially across M-PESA Mobile Money and Fixed Connectivity and also our broader financial or digital ecosystem. And then third is to scale our Ethiopia business whilst also improving, of course, the operating economics so that we aim for EBITDA breakeven later this year. And finally, we want to maintain disciplined execution across P&L costs, capital investment, cash flows and also customer experience. So in summary, group has continued to operate against the backdrop of evolving customer needs, competitive and basically and I'll explain that a bit and also affordability pressures, whether those are related macroeconomic environment or related to needs of customers. We have responded by focusing on customer segmentation. So segmentation is a big area. As you know, we've been focusing on that in the past few quarters, ensuring that our propositions are relevant, entering the [indiscernible] infrastructure, especially our network quality and also investment profile reflects customer needs, but also competition. And we are going ahead in terms of competing on price, and really focusing on differentiation. So let me start with where we are in our Kenya business. I start in the operating environment. In Kenya, our operating environment has fundamentally remained resilient, but increasingly, we are seeing more complexity especially with relation to the shocks arising from the Iran U.S., Israel war and how that is impacting the rest of the economy. In particular, inflation we've seen a step-up in inflation in Kenya now at 6.6% in August, which is almost 40% higher than your average in the previous year, which is about 4.4% around March. However, still within the midpoint of the central bank's target range, which has been the case for 5 consecutive months. Transportation has been the one that has been most impacted with inflation at 15.7%, and this was primarily because of course, transportation was the one that is impacted most by diesel prices. In particular, on -- going to the detail, petrol went up by [ KSh 17.26 ] to KSh 214 and diesel up by almost 28% to KSh 217. And of course, [indiscernible] kerosine is primarily an indicator of how it impacts customers. It also went up by close to 25%. Overall, though, we continue to see a resilient advantage in Kenya with improving economic activity, sustained interest risk levels, which are important because [indiscernible] are borrowing rates, but also credit availability of credit, especially to business and continued digitization of the economy. From an industry perspective, the aligned demand for connectivity and digital services remains strong. We continue to see increasing smartphone penetration higher digital consumption and greater use of digital financial services. We believe these structural trends remain supportive of our long-term growth opportunity. On competition, we are seeing more intensity here. We are seeing this not only from the traditional our telecom competitors, but increasingly across financial services, fixed connectivity and digital platforms. Our response is not [indiscernible] price or low price is important because that allows us to actually deliver more value. [indiscernible] lies in the strength of our network, the breadth of our customer relationships and the ecosystem that we have built across connectivity and M-PESA Fixed and [indiscernible], and it is also by providing combined services that allow us to have a long-term and sustainable business model. On the [indiscernible] is also evolving across but that we are seeing much more interconnect between telecommunications, financial services and technology. And the distinction that was there before it become less obvious. We continue to support regulation that promotes innovation, investment, consumer protection and sustainable competitive environment. And finally for our Ethiopia business, Ethiopia continues to be an important part of our strategic [indiscernible]. The business is now operating at a meaningful commercial scale, and the focus now is increasing monetization, operating leverage and a path to EBITDA breakeven in addition to ensuring that we continue to make progress on the regulatory intervention that will allow us to have a more sustainable industry in Ethiopia. So while the macroeconomic and foreign exchange environment remains an important consideration, we remain encouraged by the underlying commercial trajectory in Ethiopia, the opportunity for growth, as I've said, in the regulatory landscape as the communications sector continues to grow. So overall, I would characterize the environment has won strong structural demand and attractive long-term opportunities, but one that requires disciplined execution, continued commercial customer forecast, and careful capital allocation. I'll then now go into a bit more detail in terms of each of the 2 businesses. So Kenya I'd say we are sustaining commercial momentum. So our business continues to demonstrate resilience underpinned by a strong brand, quality network and scale customer base. And then we are continuing to grow the relevance of our products to our customer base. We've talked about segments and also propositions. And those are the 2 areas of forecast as far as our competitive position is concerned. On M-PESA, M-PESA remains the center of our growth strategy and broader digital ecosystem foundation. During the period, we strengthened the platform across payments, financial services, savings, credit and wealth solutions as well as expanding our customer and business use cases. We've also implemented, as you have seen in the media, tariff enhancements to improve affordability, particularly focusing on our merchant consistent, both the purchases of bank to merchant but also [indiscernible] M-PESA, which is the larger, more established merchants. And the intention is to increase affordability of customers, but also to increase the visibility from a margin perspective or the loyalty from a margin perspective. On Connectivity, as you know, connectivity remains the foundation of our customer value and propositions and continue to benefit from strong demand for both Voice and Data and which is supported by the key growth drivers, which we have established in the past smartphone adoption, growing digital engagement and continued investment in quality network and capacity. So we will talk a bit more when we hear questions on Mobile Data and Voice. I will not go in too detail at this stage. On Fixed Broadband, it continues to be one of our key growth opportunities supported by expansion in both fiber but also fixed wireless. 4G adoption and improved 5G adoption apologies -- and improved commercial execution. 5G at the moment is now about 1/3 of our penetration of our networks. So it has started to provide good scale in terms of our ability to [indiscernible] our fixed broadband. On Enterprise and Digital Sciences, Enterprise business remains a strategic growth area as organizations, both SMEs, but also a large corp accelerate their digital transformation journeys. And this includes the public sector. We continue to support customers through connectivity, cloud, cybersecurity and managed services and digital services. And we started this business during the period. We can talk about it in a minute. That's on Kenya. I'll briefly talk about Ethiopia and then I'll conclude. With respect to Ethiopia on operating environment. The operating environment has continued to improve, supported by generally constructive telecom regulatory environment, which we announced last year. It has also benefited from improved foreign exchange conditions and a positive progress on infrastructure sharing arrangement. During the period, we saw full implementation [indiscernible] reference infrastructure sharing framework and additional spectrum resource allocated to support network capacity and [indiscernible] quality. We have seen the benefits of this as a true benefit of regulating work we call it regulatory reset, including cost of service pricing and reference infrastructure sharing, which now have been implemented and are already making impact on our business, both on the pricing side in ensuring that we move to, we go to a path towards selling product above cost on both mobile data and also voice, but also we have a reference sharing arrangements as far as asset sharing is concerned. So while some of the regulatory initiatives are particularly around industry pricing and M-PESA interoperability remaining work in progress, we remain encouraged by the overall direction of [indiscernible] in form, but also the post-chat the regulators are taking. So -- and the long-term opportunity within the market. On security, we've seen some improvement, particularly in the regions that are previously had limited rollout and also the elections past peacefully, which is quite important. On the economy, inflationary pressures accelerated in July. Again, related to the U.S. Iran, Israel war with inflation now in double digit at 15.3% in March from 9.4% in March 2026. And this is driven by both food, which is 15.7%, but also non-food, which is 14.8%. On the macroeconomic side, higher fuel costs contributed to increased inflationary pressures. However, foreign exchange has remained more stable than previously anticipated, helped offset some of the broader macroeconomic risks. So overall, the underlying commercial momentum of the business remains strong, and our strategic priorities in Ethiopia remain unchanged. So in conclusion, we are entering the second half of financial year 2027 with a strong foundation and a clear regulatory macro backdrop across both markets. However, I should say that El Nino rains, which is the new risk that is emerging in the region, remain a clear watch out for H2 following the last that we have seen across the region. We look forward to sharing a fuller picture with you at the results announcement later in November. I want now to hand it back to you, Dilip, for further detail on our financial performance, and we expect to see for close of the year.

Thank you, Peter, and good morning, good afternoon, and good evening, everyone. Caroline confirm you can hear me?

Yes we can hear you.

Excellent. So let me begin by thanking you all, all the analysts who shared their consensus estimates ahead of the close period, as you know, this is one rituals we do. And we truly, truly appreciate your continued engagement of [indiscernible] and the time that you invest in understanding our business on a continuous basis. So mentioned -- as mentioned by Peter, today's discussion will remain very high level. And also consistent with our close period obligations, we'll not be discussing financial results or providing any new material information ahead of the formal results announcements. And of course, we look forward to sharing the full details for performance in early November. And thank you to everyone who submitted estimates, your consensus estimates. We have reviewed the consensus inputs and also appreciate the quality of engagements and happy to answer any questions more directionally than specific to our numbers in relation to your consensus that you have provided. Now giving you a little bit of an update. I think Peter covered quite a lot. I will not go a lot to details. First of all, at a high level, the underlying drivers of the business, which we call the health of the business. So that remains healthy, and consistent with the trends we have previously communicated to you. At the Group level, we continue to benefit from a diverse portfolio of business that we run. And we do have quite a few growth engines that you always speak about, and we have spoken about those things -- those growth engines in the past and also a strong customer franchise and a continued investment in network and our technology platform. Starting with Kenya, we continue to see healthy customer engagements across our Connectivity, M-PESA as well as Fixed business. The business remains supported by growth in active customers, increasing data usage, strong ecosystem participation within M-PESA. And of course, our customer value management proposition, which is also a lot use of artificial intelligence to offer segmented customers offering is also working very well for us. So what's the themes that continue to see across all the business. So starting with the growth in active customers on the back, what you have seen last year, last financial year, we continue to see growth in customers. We see customer engagements -- and of course, we are continually are benefiting from the CVM activities that we perform. And I think the other part is on our focus on the operational efficiency. If you recall, when you were giving you our guidance for this year, there's a lot of uncertainty around the Iran crisis, or the Middle East crisis. And there are many impacts, inflation. I think you, Peter were talking about inflation creeping up both the markets, but also in Kenya, but with respect to fuel costs, I think that was one of the major concerns. We said that we're trying to mitigate as much as possible. I think some of the mitigation measures actually helped us, which is also kind of buying fuel well in advance with -- ensure that we never run short of power in our base stations, that has worked well for us. Yes, it did impact, but the -- we kind of manage this near-term impact as we speak. But of course, this crisis continue to remain volatile, and I mean, we don't know at any given point in time, whether it is going to get worse or it's going to get better. It looks like it got better, and then it again got worse. So this is one area we continue to monitor. And Peter has already spoken to you about the kind of increase that we have witnessed so far. Turning to Ethiopia. We are truly, truly encouraged by the progress we continue to see in the market on the commercial front. You have seen the numbers that you have discussed in Q1 update very strong customer growth, close to 15 million customers. Of course, you have seen also an announcement of a key milestone of 10 million 90-day active customers. We see strong data adoption and usage, and also see the customer side, an improvement in M-PESA side as well. The business continued to benefit from the better utilization of the network and the scale efficiencies and also the monetization, which Peter spoke about that we have seen -- continue to see in the first half of the year. We also continue to see positive momentum in as I said, on the M-PESA side. Of course, these are still early days and not necessarily resulting into a lot of revenue. But I think on the customer side, we are making good progress. So in closing, our strategic priorities remain unchanged. We continue to focus on our customer growth, network leadership, operational discipline, disciplined capital allocation, and of course, M-PESA expansion and scaling Ethiopia into a sustainable contributor to group value creation, which you have seen that showed up in last year -- last financial year, and we believe that will continue. The underlying operating trends across our business remain broadly consistent with those previously communicated to you. And nothing we are seeing today that changes our confidence in the long-term outlook of the group. Of course, we are also dealing with -- in an environment where there are quite a few variables that you're also dealing with. But I think fundamentals of the business still remain very strong. And thank you once again. We appreciate your continued engagement and look forward to discussing our full year results in early November. Thank you very much. Back to you, Caroline.

Thank you, Peter. Thank you, Dilip, for that great overview. So now we'll get right into the Q&A piece. [Operator Instructions] I see some have started streaming. So happy to ensure we maximize on the time we have together. So I'll kick off with the questions that have come in. And Peter, I will request that you response to this question from Martin of HSBC. A question on inflation. You're talking about inflation and how that is panning out in both markets. So the question is how do you see inflation impacting our business, both pricing and cost? And is it going to positively impact M-PESA? Peter?

Yes, yes. So thank for that question. I'm laughing because I thought Caroline will direct that inflation question to the CFIO but very happy to answer that question. I think -- let me just first of all speak about the kind of obvious piece, which is the impact of inflation on fuel because, of course, affects transport, as you have seen, transport in Kenya is at 15% in terms of inflation. So transportation affects everything that happens in the economy, so that this ability drive kind of impact of diesel pricing, both within the general economy, but also within our business. Within our business, we use diesel in our sites. But also the second aspect that is normally not seen, but it's actually much more significant is that diesel is also a component of how energy is generated, and therefore, it's an adjustment to electricity cost. So we saw a significant increase in the power cost for -- which is a big component of our network cost. As you know, network cost is about half of our network operation -- or other energy cost is about half of our total operating technology or OpEx. And therefore, when you have diesel and power going up than you do see a big impact on our business. But the broader issue for us is the import of consumers. We've seen a significant impact on affordability, customers pushing for value across our business, whether that is in Fixed, in Mobile or even in M-PESA. And one of the ways that we have responded is actually, I said in my opening, is to actually increase the proportion of services that we offer for free. So as you know, for example, what we call [indiscernible] which is a small transaction of KSh 100 for [indiscernible] margins we're increasing to 200%. And for even M-PESA merchants, we increased the free component for the merchant from KSh 200 to KSh 500. That offers relief both to end customers, but also merchants, and we've seen that although it impacts revenue, we've seen that improve in usage, but also penetration and also the amount of money that is actually retained -- retained in the [indiscernible]. So maybe your point about the impact in M-PESA, you can see that there is elasticity when we offer more services for free. I think that's -- so it's both on the cost side but also on the customer side. On the Mobile side, we have also changed our pricing of mobile data and this has been announced. And what we have done is to offer much more value for those who are buy daily, weekly and monthly and reduce the number of positions we have for [indiscernible]. So in the end, we will actually offer much more value, but we want customers to -- that will take for customers or other for propositions to actually last longer. We've seen a significant acceleration or a shift from hourly to daily, which is what we want a long term value even for customers that is good for them. We're also offering much more value to the off-peak than big [indiscernible] that we're able to manage our network and that has also helped ourselves. And then the final thing i wanted to say that, as you know, we've been going through an energy organization program, and one of the things we've noticed as part as the Iran U.S. and Israel war continues, we started to benefit our network is more resilient because we have more sites on solar, and we have more sites on modern battery. So even as we see impact of diesel, we also see the benefits of the investment that we've made in the past. So I want to leave it there and please feel free to add to this.

No, Peter, I think you have covered quite well. The -- I think the Ethiopia although our dependency on diesel is very less compared to Kenya, but we did see challenges in terms of availability as the country as a whole depression import of diesel significantly. So we really have to make sure that we optimize whatever is available, although telecom was prioritized but it was never a situation where you always had availability. Availability was never a concern in Ethiopia, but availability also became a bit of a concern, but we optimized it to our best possible ability. And Kenya, availability was never an issue. It was more of the price. And I think Peter, you covered it very well.

Thanks, Peter, and thanks, Dilip. Dilip just speaking to the oil piece and the availability for both Kenya and Ethiopia markets. I think I'll do a follow-up on that based on the question from Rohit, Rohit of Citi. Asking what impact have the recent increase in oil prices had on the business so far? And then basically for Ethiopia, given the high oil price environment, do we see any delay in the EBITDA breakeven target?

Yes. So I think for Kenya, I mean just to -- I mean, just to remind you all, the actual increase in the price that Peter mentioned about those happened over a period of time. So you may wonder what is the impact, why the cost of electricity went up. Cost of electricity went up because there is a [indiscernible] like a fuel cost embedded into electricity cost. But the change is, I think some of the increase that you probably have seen in other on operations of the countries, Kenya did the actual increase much later, although quite a big increase came. So the actual impact of that in the half year will be for fewer months or lesser period than compared to you see a full increase in the 6 months -- of the increase that we have seen so far. Of course, we don't know what happens later on. So as I mentioned in my opening remarks, I think the increase was -- we are able to -- cost has increased. But overall, within the operational efficiency drive that we have undertaken, we could broadly cover that -- but of course, the fuel cost line has gone up, and you'll see that coming up. From a period perspective, the impact of H2 will be higher than what you will see in H1. Ethiopia, I think the -- one is the availability, as I mentioned. So it doesn't necessarily have a direct impact on the EBITDA breakeven. It does have an impact of your sites are ready to roll out now go on air. So you have to ensure that you are not going with a diesel solution anymore. You have to ensure that your power or grid power is available from day 1. It's just that's the process part of it, it delays a bit in terms of sites that come to life. So initially in the past, what is to do, even if there is a delay between getting the grid power which to put a diesel generator then we could actually go on. But because the availability you want to ensure that the sites that you already have, we cannot have any disruption. So we prioritize that. And then we ensure that when you have the grid power is only when you are going to put the site on air. So that's really the -- you can say a little bit of course correction that you have to do. But the one headline number, which is you recall on our releasing results, the March number was truly, truly good in terms of inflation from a -- when we entered the market inflation was around 30%. And in March 2026, it came down to single digit. I think that's what it is shifting now, kind of double now close to 15%, which is what actually impacts everything else. So therefore, that's the line actually we watch out a lot. But on the other side, we have also seen quite a bit of -- although it's nothing to do with fuel cost. I'm also saying there's a macro factors that rather macroeconomic factors are actually playing out quite quite well and probably better than that what we expected, including on the currency side, as Peter mentioned, there is far more stability in terms of the currency rate. And those of you who have noted that I think if I'm not mistaken, a week back or 2 weeks back, typically, National Bank of Ethiopia auctions, the foreign currency, Dollars specifically. And first of all, the quantum of Dollar which was coming for auction, though that have gone off significantly over the period, which kind of gives the confidence that the liquidity is improving. And then actually, the last one that I've seen was not fully subscribed. I mean, for the first time in Ethiopia, I think we have seen that demand was lower than the supply, which was available in currency. I'm sure those of you who have watched us and spoken to us in terms of the dollar availability -- that's a very -- there's a material shift in the way it has evolved, and that's also a rate which was more or less consistent with what it was often before. And then from an EBITDA breakeven point of view, I think the fundamentals of the business, the commercial that we have spoken about in the past, and you have seen that our momentum, both on the customer as well as in the revenue side, in the quarter 1. That doesn't change. And therefore, it gives us the confidence. Okay, along with the regulatory interventions, which is resulting into a lot more certainty in quite a few areas including [indiscernible] around that the colocation things, those have also given us the confidence that our breakeven EBITDA breakeven, Ethiopia EBITDA breakeven milestone doesn't change at this point in time. So I think that's how I want to leave Caroline with Ethiopia.

Thank you. Thank you very much, Dilip. And just staying on Ethiopia, Peter, there's a question here from Rohit about Tigray. So the question is, how do we see the situation in Tigray continuing to impact the top line performance for Ethiopia. Peter?

Yes. Yes, as I said, we -- so thank you, Rohit, when I was going into my summary. Overall, we see the security situation in Ethiopia as better than in the past overall. Of course, hotspots continue to change in the past [indiscernible] then this year because of elections in Tigray has traded up a bit. But we have a business in Tigray so far, we are able to operate. So what the issue exists is not at a level that is impacting our operations. And we continue to kind of watch the situation as it evolves. The fact that the elections were concluded in a peaceful way and without a lot of fanfare is also very, very good, which means that going forward, you see -- you would expect more stability because once the elections are concluded, then usually the country unites and moves forward. And the last time we were there about 2 weeks ago with the Board we kind of felt and actually speaking to various stakeholders there's confidence that actually the completion of the elections allows for a much more kind of predictable and most [indiscernible] period to come. Of course, the macroeconomic issue, especially with respect to they Iran, the Israel war and all that and the impact on fuel kind of disrupt. But generally, our read of the country is a posture of more stability than less. So I think that's where I want to leave it for now.

Thank you, Peter. Yes. So let me bring us back to Kenya business. And this one now requested Dilip respond still from Rohit of Citi and the question is on the handsets. So following last year's handset strategy changes, which he believes also partly supported by margins. Do you expect further declines in handset sales? And would that continue to provide a tailwind to Kenya margins as more device financing is shifted to third-party partners? Dilip?

Rohit, thank you for that question. And it's a good spot that you think you found that the handset sales have slowed down. But I think the margin improvement was linked to the handset sales because if you recall, we had to provide for quite a bit of performing assets that we did not necessarily collect. So yes, we learned a lot from that. Our device financing through third parties. The -- we needed to do things that require -- as a market leader, we need to demonstrate that device financing can work in this market. And if you recall the history of device financing when we started with the good solution, we did quite well. I mean, close to 2 million devices that we have sold truly program proposition, but that was purely driven by upgrade of phones from 2G to 4G, and we benefited significantly out of it. Of course, customers benefited significantly out of it. Over a period of time, I think the system developed, you see more and more partners finding and they are not necessarily relying only on the 2G devices. They're also looking at upgrade for 3G to 4G and 4G to 5G. And along the way, when you did that, we realized that you can see it's a shift in strategy, which does not -- our main objective, let me just stress what's our strategy? Our strategy is to ensure that every Kenyan, there is a 4G plus devices for 4G or 5G devices in every single Kenyan at some point in time. And we wanted to fast track it as as much as possible. And that's why we went into a big driver of doing it by ourselves. But you realize that there is ecosystem has developed, and we can realize that ultimately to what matters is the outcome, outcome is that customers are using a 4G plus devices. And we see that our network attachment of those devices, even if it is not going through our own channel, it's still -- is very, very high. So -- and by the way, 80% is actually the open market. So therefore, we needed to ensure that we are present in the open market materially, and that's what we have did. To answer your question, no, I think we did a kind of -- that you can assume that you have a baseline now we have set. We believe that we have our control channels that we can do continue to still drive our devices to the partners, our own partners and also through the open market partnership that we have through different market propositions that we do drive. So to answer your question, no, I think it's kind of a reset which has happened. I don't expect that this is going to change materially in going -- or it's going to go down beyond what we already have. And therefore, I don't see any impact on the margin on this.

Thank you. Thank you, Dilip. Still on Kenya, Peter, I will request that you respond to this question from [ Madi ]. The question is, do you see M-PESA mix shifting more towards lending similar to other OTT fintech platforms, especially as competition increases?

Yes. So Madi, that's a very good question. I think our intention is always to move the mix away from your kind of transaction-based costs transaction base to a model P2P OTC into lending, savings investments insurance and so on. And you'll have seen after the cut price or drove or change the model, under the lending propositions. We have seen acceleration in lending and [indiscernible] last year. So lending will continue to grow faster than the rest of the M-PESA business. That doesn't mean that the rest of the business is not growing better, lending will continue to grow faster because we see more -- when you look at penetration of lending, is still 1/4 of our active [indiscernible] base. So your regular borrowers generally [indiscernible] has increased quite a bit is actually about a 1/4 of active [indiscernible] base. So there are aspects of lending that will also improve is also the [indiscernible] site. We see a lot of opportunity even with both the small merchants for cheap, but also M-PESA merchants. I have to say we have not actually been a successful on the merchant side as we have been on the consumer side. So once we crack that, we believe that lending can be a much bigger part of the portfolio because there is a net demand both on the consumer side but also on the enterprise side.

Thank you very much, Peter, for that. I'll take us now back to Ethiopia and Dilip, I'll request that you respond to this question from Linet of Absa. So Linete, you're asking about the FX outlook, that one I can share with you. I mean, we just rely on just no more market research reports for purposes of FX outlook that is forward-looking. But having said that, Dilip, any sensitivities guidance that we could give on EBIT? This is for Ethiopia with respect to be it energy price changes, weaker [indiscernible] and/or El Nino shock. So any sensitivities that the teams need to be aware about as far as Ethiopia EBIT guidance is concerned? And maybe you could combine that with a question from Matti with respect to the EBITDA breakeven for Ethiopia asking that [indiscernible], does it mean it's going to be self-sustainable on a cash flow basis as well? So maybe you could combine those two?

Okay. Thank you, Linete. Let me start with Ethiopia. So if you look at -- I'll divide into two parts. So one is the EBITDA breakeven. I think you already heard both Peter and me reconfirming that based on what you have seen so far. And based on our estimates for the balance of the year with 2 important variables, which is the most important 2 variables. So there are many variables in the currency and pricing or the [indiscernible] market repair corrections, which are happening at the industry level driven by the regulatory interventions. Based on what we know now and based on what we see will happen in the rest of the year, we are confident that we will achieve the EBITDA breakeven milestone for FY '27. So that's -- so let's leave it there. And I mean, I think that should be enough for you at this point in time, to be able to see. And we spoke to -- spoke about the currency for the longest time, despite all the other volatility, the currency remained quite stable. And you will see from Caroline and I think pretty much the outlook that some of the banks that we use their outlook they don't predict, yes, currency continues to depreciate, but at a much, much slower pace than it has ever been historically for Ethiopia. So that's what it is. And price-ups I think you have already seen that in quarter 1 as well, how the price ups are showing up and of course, flowing into the revenue growth that you have seen. And so I want to just ensure that, that lands well. So that's on the EBITDA breakeven. EBIT is actually is in relation to guidance, overall group guidance. I will remain still within the broader EBIT guidance that we provide for the group without necessarily now breaking it down into -- first of all, you're not discussing necessarily a lot of detail about, you will see the numbers coming as and when we release our results. But for both Peter and me, we are saying we don't see any reason for us to change. And for us that our full year EBIT guidance for the group need to change. Although we are not -- as I said, we are not discussing numbers now, but there is nothing that I won't go by now it's Kenya versus Ethiopia, but let's just remain within the ballpark of group and group EBIT guidance remain. I don't think you need to change or if there is anything that requires us to give you an indication of a change. That's how we'll leave it on on EBIT without being specific about Ethiopia or Kenya. Sorry, there was a question on cash flow. I missed that [indiscernible] the cash flow. So the -- we believe the Ethiopia, the big cash requirement cycle is largely over, and you would have seen what you have reported in quarter 1. And based on -- of course, the this is the period where you're saying you're getting now scale the commercial scale of 15 million to 20 million. So this is the year of gaining our commercial scale of 15 million to 20 million customers. and close to 4,000 sites that we want to achieve these financials. So beyond that cash requirement for the business will be driven by how -- how are we now from there and how do we -- how do we further in terms of rollout. So I think by the time we did mention about, I think close to 60%, population coverage last year by the time ballpark, we can't be absolute certain will kind of reach around close to 70% population coverage and that gives us a kind -- the scale that you can start seeing what further opportunities that we have for rolling out sites and what are the opportunities. And that will always be driven. And we will always be investing in CapEx to ensure that business can sustain the momentum and the demand that we see in that market. So I think to answer your questions, I will go back to what I said when we were guiding for FY '27 in terms of group guidance, although the CapEx level is lower in Ethiopia this year, because of which you have seen a decline in overall CapEx number, but I did say that overall CapEx intensity at the group level of -- you have seen that 17.5%, 18% level, if I recollect that number, we don't see any reason that that don't need to change. And then there would be -- this year's CapEx number is significantly lower than last year, but I don't think that's the number that you should look at. You should look at an overall level of CapEx intensity, which is what we have given you kind of indication, we believe we can sustain that level of CapEx intensity. Having said that, I think we'll always look for opportunities, and we'll always tell you when we see opportunities in investing in Ethiopia and then -- and see whether there is a requirement of further cash. But right now, the -- I mean I can safely say that the major requirement of cash, we are kind of behind that. So that's what -- I will leave it there, Caroline.

Yes. Thank you very much, Dilip. So I'll take us back to the Kenya business? And this question now request that Peter, if you could respond to it from [ Mohammed, Mohammed ] is with African Lions [indiscernible]. And the question is on the [indiscernible] transactions. And the ask is after increasing [indiscernible] transactions on L&M and [indiscernible] merchant to KSh 200 and KSh 500, respectively. Do you also see scope to expand the [indiscernible] P2P transactions from KSh 100 to anything about that? Peter?

Yes. So Mohammed -- so the reason why we actually went. So our intention, a direction of travel as far as value is concerned, is to keep giving more value to our customers, whether on the Mobile side or actually on the M-PESA side. In particular, on M-PESA for the more vulnerable transaction types and lower value transaction is where what we call vulnerable. We look for targeted ways of actually reducing -- increasing the number of -- the amount, the threshold that is free or actually reducing the cost by units. So we decided to go with promotion for 3 months of [indiscernible] are likely to make permanent that increases to KSh 200. And one of the reasons why we did that. We also wanted to understand and test the elasticity test the kind of cannibalization of the B2B side and so on and so forth because the same customers who are actually using P2P. And to the extent it's necessary. Of course, we also have to do it in a way that is gradual that delivers the outcomes from a business perspective and you not give me the price if we don't deliver our guidance. So we do it gradually. But it's fair to say we already have 60% of our transactions are free. And I'm sure, because of now moving the [indiscernible] to KSh 200 to KSh 500. We'll see that accelerate. And I can't tell where the [indiscernible] because it depends on usage. But I'm sure in that half 1 or even the full year, we'll be able to have taken the [indiscernible] of how that has worked. But the other pockets that we are looking at and say, can we actually give more value. So we will continue to respond to our customers under pressure. So but I don't talk about P2P. It's a large part of our business. We -- maybe if we went in, we will probably reduce the costs of transactions versus clearly just increasing the threshold for free, but that's something that will make judgments as we go along.

Thank you very much, Peter, for that. And I believe [indiscernible] that also responds to your question, around how we are looking at the competitive environment on the M-PESA space. But I'm happy for you to do a follow-up question. Should you want further clarification. Then I request Dilip, if you could respond to this question from [indiscernible] on the Network. So the question is now that 1/3 of our network is 5G and [indiscernible]. Could we comment on whether data traffic has followed? And do you foresee a corresponding uplift in average data usage deli?

I'll take you back to, I think, one of the slides that we presented during full year results presentation, the usage, average usage per customer by different Gs, like 2G, 3G, 4G and 5G. I think we had reported about 1.6 million 5G customers. And that's -- that's growing, that's growing rapidly. And you may have seen that the usage for 5G customers are double more than double that of our 4G customers. So that gives you a sense of that it will be a function of how fast we can get customers. And also, I think the other part is that the device ecosystem is also growing. So we are not rushing to -- as we have not rushed to a coverage kind of hurry that we are not in a hurry to cover the whole country on 5G, but you are now beginning to see that there is a lot more traction on 5G and we see a lot more usage. So you can imagine that you now get more customers who are using now 5G. So the usage also will grow. So to answer your questions, yes, but I think the other part also, we need to now -- we are also currently looking at the -- how can we now grow a little bit faster than what we have grown in 5G rollout. So we did a kind of a onetime big rollout, and then we are doing incremental a little bit, but you are looking for opportunity to see where are those pockets opportunity [indiscernible] in 5G because 5G is not only the mobile usage which we, of course, see a great momentum. The other part is the 5G [ the FWA ]. So [indiscernible] that's also a big part of our story. You have seen in our overall fixed broadband that's showing up as a material number in terms of the incremental growth that we are seeing, where you're not able to cover by fiber, we are able to cover by FWA. So combining these two, this is one area we are we are currently looking at to see now how we can fast check the roll out and therefore, more customers. But I think the opportunity much bigger, as you can see, internally, we discuss about average usage per customer in Ethiopia and in Kenya. And you know that shows up. But of course, you can argue that Ethiopia has 10 million, 11 million data customers and Kenya has double of that, but it's not that Kenya has 3x or 4x. So from a usage perspective, Ethiopia is at more than 7 GB and where in Kenya we are at just about 4-plus GB that we see an opportunity. But I think we also have to enable to the device strategy, which is working very well combined with roll out fast-tracking roll-out and ensuring that we drive both the mobile broadband as well as the fixed broadband to the FWA proposition. So this is a very, very important area for us, [indiscernible] just to confirm.

Thank you, Dilip. Then I'll ask you to please respond to this question from Tracy. Tracy from SBG around the merchant lending space. The question being, what are the particular bottlenecks on merchant lending, not scaling as fast as consumer lending? Is it a credit scoring model issue or higher potential average loan value compared to consumer reducing appetite from bank partners?