Chief Executive Officer's (Interim) Statement

The last month has been a difficult one for the Safaricom family, including our partners, following the passing of Bob Collymore. He was a great man, not just because he was a dear friend of mine, but because of what he was able to achieve in the nine years he spent at the helm of Safaricom. While we are still trying to come to terms with this loss, I believe that focusing on preserving and honouring Bob’s legacy will help us to eventually heal.

To guide the business through this transition, I have been appointed by the Board of Directors as Interim CEO. In this role, I will be taking care of the business to ensure that we stay on course with our strategy while the Board identifies a suitable candidate to lead this great company.

Until then, my focus for the foreseeable future will be to rally the team and guide the various business divisions in the execution of our business strategy, which will mean continued focus on putting the customer first, delivering relevant products and services and enhancing our operational efficiency.

We see a number of viable opportunities that have the potential to lead our business to greater heights. As a member of the Board, I am aware that the business has already outlined a number of focus areas for the current financial year, including providing additional support to the business units that are emerging as key revenue drivers, such as Financial Services.

I am particularly keen to work closely with the team to deliver the regional expansion strategy, something I know Bob wanted to achieve this year. Data also remains a key priority for the business, which needs to find a way to create balance between growth of data consumption and revenue growth.

So far, we have been making significant investments in this area and have a vision to become the best 4G+ network for everything from gaming and entertainment to social networking and I look forward to collaborating with a cross-functional team to make this happen.

Growth in this area will support our evolution into a digital lifestyle enabler, which will position us favourably to grow new revenue streams from non-traditional products and services such as DigiFarm, Masoko and other innovations in the pipeline. We believe that these initiatives, together with the investments we’re making in our network, will enable us to maintain our industry position, defend our market share and increase our Net Promoter Score not just based on the variety and quality of the products and services we sell, but on what our customers feel and say about us, because our business exists to transform their lives.

We have a vision to become the best 4G+ network for everything from gaming and entertainment to social networking.

This purpose is in our DNA, it’s what makes Safaricom great and I look forward to working with all our stakeholders to bring it to life, while at the same time delivering enhanced value for our shareholders.

Michael Joseph | Chief Executive Officer (Interim)

Chief Financial Officer's Statement

In a year that macro weighed on customer choice, we continued to generate positive momentum resulting in strong performance in the year. Service revenue grew at a strong rate of 7%, with 5% of the growth coming from increased customer support and overall customer growth momentum remaining solid, pushing the subscriber base to 31.8 million, with 2% of the uptick coming from Average Rate Per User (ARPU) growth. Customer growth was driven largely by an effort to regain our customer trust leading to an improvement in our NPS.

M-PESA grew 19.2% contributing to 76.6% of service revenue growth and offsetting a decline in legacy voice and messaging as these businesses face competitive pressures and migration to newer technologies. M-PESA now accounts for 31.2% of service revenue, indicating the resilience in our business model vis a vis a traditional telco. Voice and messaging now contribute 39.9% and 7.3% to service revenue respectively.

Mobile data experienced slow growth at 6.4% contributing 1% to service revenue growth. It accounts for 16.1% of service revenue. Mobile data performance reflects both competitive conditions in the market and increased taxation that was absorbed for in-bundle customers.

Fixed data grew at 22.7% contributing to 0.7% of service revenue growth and is now 3.4% of service revenue. delivered an EBIT of KShs 89.6b which is higher than our guidance of KShs 85billion - KShs 89billion improving by 13.1%. Earnings per share improved by 14.7% and free cash flow improved by 13.9%.

Sustained margin improvement

EBIT margins improved by 1.9ppts supported by higher revenue, an improved contribution margin, prudent spend and capex investments leading to increased efficiencies and improved bottom line. Contribution margin reflects decreasing airtime commission driven by more M-PESA top-ups, M-PESA mix benefit as M-PESA commission grows at a slower rate to M-PESA revenue and other costs benefits.

Investment guidance for the short to medium term

We sustained our level of investment in FY19, with capital expenditure totaling KShs 37.25 billion for the year. This enabled us to expand our network to ensure the widest reach.

Our capital additions of KShs 37.25billion expressed as a percentage of our revenues remained in the ‘mid-teens’, driven by our focus on enhancing monetisation and cost savings opportunities upon deployment. We expect similar levels of capex investment in FY 2020 in the range of KShs 36-39billion. This will go into strengthening our mobile network and supporting our growth in fixed line as we look to further grow our Fibre To The Home and Fibre To The Business revenue streams.

Innovation and partnerships

Innovation and partnerships continue to define our approach to revenue diversification and growth. This year, we made good progress by securing key partnerships for our M-PESA business including AliExpress to drive our payments business, Western Union to drive remittances and “Fuliza”, our overdraft product, to drive lending.

Special dividend and sustaining shareholder returns

The Board remains committed to investing in the business and continuing our strong record for paying progressive dividends each year. The proposed dividend for FY19 is KShs 50.08billion, an increase of 13.6% year on year. Given the strong position of the balance sheet, we proposed a special dividend for this year of KShs 24.84billion.

Adoption of IFRS 15/16 standards

During FY19, we have adopted the IFRS 15 accounting standard (which primarily relates to revenue recognition) for our statutory reporting, but our management reporting remained on an IAS 18 basis, reflecting our internal budgeting process. For FY20, we shall adopt IFRS 15 for our management reporting.

Adoption of IFRS 16 in this financial year will have a material impact on EBITDA, mainly due to the leases we hold. However, the upside on EBITDA is negated by an increase in both depreciation and interest expenses, hence we expect the impact to net income to be immaterial.

Looking ahead, what does the future for Safaricom look like?

We remain committed to our purpose of transforming lives. Our latest True Value Report indicates that Safaricom’s value to the Kenyan society increased by 11% to KShs 601 billion and contributed 6.3% to the GDP.

We are excited about the future of M-PESA expansion and initiatives such as bringing the IP to Africa, innovations such as Fuliza, opportunities around Fibre including surveillance and content, E-commerce, DigiFarm and Enterprise solutions including IoT (Internet of Things). We continue to leverage the power of mobile technology to deliver on shared value propositions that disrupt inefficiencies and impact lives positively in the health, agriculture and education sectors, such as M-Tiba, DigiFarm, Shupavu and M-Salama. We continued to enhance customer engagement through capacity upgrade of our transactions, agents and merchants in our network. We remain focused on enhancing our customer experience to maintain leadership as the most trusted company and grow our customer base.

We are pleased with the strong results we have delivered for the year, building on our long track record of consistent delivery, protecting shareholder wealth and putting the customer first and we foresee continued growth in the future.

Looking ahead, the business will sustain its momentum of investing in the quality of our service and diversification of our revenue portfolio to ensure sustained returns to shareholders. Guidance on EBIT is in the KShs 93-97billion range for FY20 up from KShs 89billion, with capex guidance remaining within the KShs 36-39billion range.

Sateesh Kamath | Chief Financial Officer

Our strategic pillars at a glance
Putting the Customer First

We are progressively providing a seamless, frictionless, personalised and digital experience to our customers.

Relevant Products

We are developing a deep insight of our customers’needs, wants and behaviors and providing propositions to lead in chosen segments.

Operational Excellence
Technology Enabling a Digital Society

It’s not just about providing the bare minimum in voice, messaging and data services; it’s about investing in enablers that allow our customers to stay connected to each other and to the world around them.

Digital First

Rethinking and digitising our operations, products and services to become more agile in order to enable the digital lifestyles our customers.

Our Contribution to the Sustainable Development Goals

In making the SDGs a central pillar of our business, we have made sustainable development a part of the culture at Safaricom. We have identified 9 of the 17 SDGs that best represent our dedication to sustainability and incorporated them into our business strategy.

Looking Ahead

With the platueing of traditional revenue streams, we have found it necessary to constantly redefine our focus, in order to tap into opportunities and position our business as a digital services provider to continue to deliver great value to our customers, while at the same time protecting shareholder value.

Looking ahead, the business will sustain its momentum of investing in the quality of our service and diversification of our revenue portfolio to ensure sustained returns to shareholders. This section responds to some of the questions by investors on Safaricom's strategy.