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Safaricom Reports Strong Growth in Fiscal First Half

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Safaricom has continued to grow its business at a fast pace during the first six months of its current financial year (to the end of September), with the Kenyan operator reporting growth in customer numbers, revenues, margins, traffic and network coverage.

The operator added 450,000 new customers, compared with a year earlier, to take its total to 29.94 million, of which more than 25 million were active users (using a service within the past month). Monthly average revenue per customer (ARPU) increased by 5.4% to KES 662.51 (US$6.53).

Kenya's market leader reported a 7.4% year-on-year increase in total revenues to 122.84 billion Kenyan shillings ($1.21 billion) for the six-month period ending September 30, 2018. As the table below shows, mobile data revenues grew by 10.8% and income from the use of its mobile finance service M-PESA grew by 18.2%.

Its earnings before interest and tax (EBIT) grew by almost 19% to KES44.6 billion ($439 million), while net income was up by more than 20% to KES31.5 billion ($310 million).

The operator has continued to invest in its mobile network coverage, boosting its number of 4G basestations by 62% to 2,353 -- the operator says it now boasts 53% 4G service coverage -- and its 3G basestations by 21% to 4,737. CEO Bob Collymore noted that Safaricom had invested KES17 billion ($167 million) during the six-month period "driven by increased network roll out and acceleration of broadband and fiber deployment."

Table 1: Safaricom Fiscal 2019 H1 Key Numbers

KES billions IAS 18 HY 19 IAS 18 HY 18 IAS 18 change %
Voice revenue 48.03 47.35 1.40%
M-PESA revenue 35.52 30.05 18.20%
Messaging revenue 8.81 8.92 -1.20%
Mobile data revenue 19.45 17.55 10.80%
Fixed service revenue 3.91 3.23 21.00%
Other service revenue 2.49 2.63 -5.30%
Service Revenue 118.21 109.73 7.70%
Handset revenue and other revenue 4.33 4.49 -3.50%
Construction revenue 0.3 0.2 48.70%
Total Revenue 122.84 114.43 7.40%
Operating costs -25.82 -24.13 7.00%
EBITDA 62.12 54.27 14.50%
EBITDA margin %* 50.60% 47.40% 3.2ppt
Depreciation & amortization -17.56 -16.74 4.90%
EBIT 44.56 37.53 18.70%
EBIT Margin %* 36.30% 32.80% 3.5ppt
Net Income 31.5 26.2 20.20%
Net Income %* 25.70% 22.90% 2.8ppt
Earnings per share 0.79 0.65 20.20%
*All margins are calculated on total revenue (excluding construction revenue) plus other income

The numbers impressed investors, as Safaricom's share price gained more than 4.2% on the Nairobi exchange Friday morning to KES24.50. But there are concerns for the company and its investors on the horizon, as a report from Reuters noted that new tax pressures were expected to impact on the company's earnings.

Collymore and his team are doing what they can to offset the new tax burden, including a shift in its operational processes. "We have embraced the agile way of working. This approach is helping us enhance efficiencies and innovate faster in order to meet rapidly changing customer needs. The agile approach is also enabling our business to adapt to a dynamic operating environment, which is at the moment characterized by increased taxation, increased competition and continued uncertainty in the regulatory space, therefore allowing us to identify sustainable growth opportunities and maintain our full-year guidance," said the CEO.

Safaricom CEO, Bob Collymore speaks during the Safaricom half year results announcement at Michael Joseph Center.
Safaricom CEO, Bob Collymore speaks during the Safaricom half year results announcement at Michael Joseph Center.

In its review of its fiscal first-half performance, the operator focused on three key areas of growth -- M-PESA, mobile data and fixed line services, which together "contributed 95% of total service revenue growth. During the first six months of the year, M-PESA was the main driver of growth, contributing 64% of service revenue growth, further accelerating displacement of traditional voice and messaging services." It added: "Mobile data and fixed data contributed 30% of total service revenue growth."

The operator seems particularly bullish about its investments in fiber-to-the-home (FTTH) broadband. "We maintained great momentum in our fixed service business, connecting an additional 30k homes in H1 and more than doubling our coverage YoY. Though a relatively new line of business, fixed data now contributes 3.3% to total service revenue and grew at 21% YoY in the period," the operator noted in its earnings release.

Ray Le Maistre, Editor-in-Chief, Light Reading for Connecting Africa.

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