Full Year

Safaricom: FY09 net profit down 23.9%

Safaricom Limited, Kenya’s leading mobile communications provider announced a 14.22% decrease in its profit after tax for the twelve months period ending March 31 2009, which dropped to KES 10.5 billion from KES 13.8 billion for the same period in 2008. Total revenue over the twelve months grew by 14% while operating expenses increased from KES 33 billion to KES 42 million. Cash generated from operations in the  twelve months period ending March 31 2009 decreased by 15.5% from KES 35 billion for the period ending March 2008 to KES 30 billion for the period ending March 2009. During the year Safaricom invested KES 185 million in One Communication, a Kenyan based data services provider.

SAFARICOM GROUP - MANAGEMENT COMMENTARY
RESULT FOR THE YEAR ENDED 31 MARCH 2009

The board of Directors of Safaricom Limited is pleased to announce the group for financial year ended 31 March 2009. For the 9th consecutive years, the company has delivered strong financial results with a significant increase in subscribers and revenue.

These strong results were delivered despite the difficult economic conditions encountered during the year. The effects of the post election violence, high inflation driven by food and oil prices, the global economic crisis and the volatile foreign exchange rates resulting in the weakening of the shilling all combined to reduce the spending power of our customers and drive up operating costs. Competition increased significantly with the entry of two new operators resulting in increasing tariff pressure and a corresponding reduction in tariffs of up to 40%.

Total active subscribers increased to 13.36m (growth of 30.6%). The new subscribers on our network increased by 3.1m in the year, contributing to the overall increase in market penetration to 47%. We have retained our market leadership with a customer market share at 79%, which is also reflected, in our churn rate of 24%, which is lower than the industry average.

Double-digit revenue growth continued with revenue increasing to Kshs 70.48bn, a growth of 14.8%. Revenue market share is estimated at 83% impacted positively by our customer ARPU remaining the highest in the industry, a function of the breath and quality of the products and services offered to our subscribers. Data revenue increased by 83.0% and represents 12.9% of revenue. The growth has been driven by the combined effect of both broadband mobile services and M-PESA.

• EBITDA of Kshs 27.95bn is 0.3% lower than prior year. However excluding forex loss of Kshs 679m, EBITDA increased to Kshs 28.63, an increased of 1.7%, giving an EBITDA margin of 40.6%.
• Shareholder funds continued to increase over the period and grew to Kshs 51.15bn an increase of 19.9% over the previous year.

In order to sustain our strategy, we continued to enhance and expand the network, requiring capital expenditure to continue at a high level. The growth in the subscriber base, the continued investment in network expansion and resonance of products and services offered to customers will ensure that we have a strong foundation for future growth in the Company and shareholder value.Given these strong results, the Board of Directors recommend the payment of a final dividend per share of Kshs 0.10 representing a total dividend payment of Kshs 4.00bn.
Major initiatives in the year
The 3G network was commercially launched in the first quarter of the year and now extends to cover Nairobi, Mombasa, Magadi, Eldoret and Naivasha with 301-3G enabled base stations. In the second half of the financial year Safaricom acquired a 51% stake in one Communications Limited- Wimax Company, to provide fixed wireless data services to corporate, medium sized institutions and individual customers. This service compliments our 3G mobile Internet access and has enable access to a broadband mobile service with enhanced dedicated speeds and secure remote access.

The data services have been tailored to meet customer needs as well as lead innovation. Safaricom offers the fastest mobile Internet services enabling our subscribers to take full advantage of various new, exciting and affordable products launched during the year. These include Hotspot/ Broadband PrePay and PostPay bundles, data modems, Safaricom mobile connect, 3G enable Smartphones including Blackberry Bold, Mobile DSTV promotion, mention a few.

In line with Safaricom’s ethos of giving back to our subscribers, we also introduced various ‘first–of-a-kind’ promotions including the highly popular ‘Jibambie’ promotion that gave subscribers a discounted tariff based on the value of their top-up, free talk time, 12 days of Christmas promotion, Surf to Win, various handset promotions including Magic box. Product launches included Voice SMS, Mobile Advertising, Miss call Alert amongst others.

The loyalty of Safaricom subscribers has been enhanced by both the Bonga Loyalty Program and the M-PESA service. With over 50% of our subscribers now registered on the Bonga Loyalty Program, they both realize the benefits of earning points by using our products and services.

M-PESA, the World’s first mobile transfer service, has revolutionized customer interaction with Safaricom. With over 6 million registered users, 9000 agents and over 60 pay-bill partners. M-PESA service continued to perform extremely well. The M-PESA service has diversified the provision of services beyond money transfer to include salary payments through Business to Customer payments, pay bill solutions through Customer to Business payments, convenient withdrawals through ATM network offered by Pesa-Point agent float management system through the Agent Aggregator and Super Agents, and the International Money Transfer service which is still in pilot.

Customer delight is critical to our success and will be considered a key differentiator of operators. Completion and opening of the state-of –the-art Jambo Contact Center along Mombasa Road has improved the level of customer care to our subscribers and welfare of our employees. The implementation of a Customer Relationship (CRM) program further demonstrates our commitment to delivery of continuous improvement of customer service and satisfaction.

Key highlights of the twelve months ended 31st March 2009

The following are the key highlights of the results: The active subscriber numbers have increased to 13.36m from 10.23, an increase of 30.6%.
Subscriber market share at 83%.

• Turnover increased to Kshs 70.48 Bn compared to Kshs 61.37bn in the previous year, a growth of 14.8%. Blended Average Revenue Per User (ARPU) for Pre-pay and Post-pay was Kshs 475. ARPU reduced in the year as a result of increased penetration and lower average tariffs. This was however compensated by increased average minutes of use per month of 57.8 from 52.8 in the previous year.
• Strong EBITDA of Kshs 27.95bn, including a forex loss of 679m compared to Kshs 118m in the previous year.
• Operating profit of Kshs 16.18bn impacted by increased depreciation in line with the increased capital investment.
• Profit before tax of Kshs 15.30bn impacted by increased depreciation and higher financing costs. The prior year financing costs included two non-trading gains to the value of Kshs 1.76bn.
• Increasingly strong growth in the M-PESA service with 6.18m registered users to 2.08m users in the previous year.
• Capital expenditure investment in the year ended 31 March 2009 was Kshs 23.82bn, increasing the total capital investment since inception to Kshs 119.79bn.
• Increased 2G sites across the country to 1,889 sites from 1,558 sites.
• Increased data business for corporate, medium-sized institutions as well as individual customers.  301 sites have been upgraded to 3G to support this strategy. The number of distinct data users has increased from 0.57m at the beginning of the year to 1.47m reflecting the growth potential in the data market.
• Cash from operations of Kshs 30.1bn remain strong during the year enabling the company to expand the network coverage further and ensure that the core network was enhanced to manage the increased subscriber use.
• Total gross borrowings (exclusive cash and cash equivalents) increased to Kshs 11.31bn from Kshs 9.20bn. Gearing (gross borrowing less cash and cash equivalents) was 12.0% from *.0% due to a marginal increase in borrowings.

Future outlook

External market expectations expect that market penetration could increase to over 65% over the next four years. This reflects a significant opportunity for future growth where we expect to remain market leaders and maintain our leading position.

With the increased levels of penetration into more rural areas where consumer disposable income is lower, it is anticipated that voice ARPU’s will continue to decline. However with internet penetration at less than 10%, there is a significant opportunity to compensate for the declining voice ARPU through increased data ARPU’s.

Safaricom is well positioned to take advantage of this opportunity with the continued expansion of our exiting 3G and Wimax infrastructure technologies, products and offerings which will be greatly enhanced with the landing of the submarine fibre optic cables, TEAMS (in which we have a 20% shareholding) and Seacom.

Our capital expenditure is expected to remain high over the next few years as we continue the rollout of our data infrastructure and continue to invest in the capacity, coverage and quality of our network. These investments will enable Safaricom to exploit the high growth potential of the data market, as well as protect its market leader position.

The company will pursue and investigate further potential acquisitions to enhance the overall data service and is well positioned to continue to increase shareholder value now and in the future.

RESULTS FOR THE YEAR ENDED 31ST MARCH 2009

Safaricom results for the year ended 31st March 2009 shows a decline of 23.9% in profit after tax compared to the prior year.

Selling, general and administrative expenses increased to Kshs. 9.74bn representing 13.8% of revenue in the period compared to Kshs. 7.26bn, 11.8% of revenue during the same period in 2008.The increase in these costs was due to:
-Increase in headcount of 59.7% to 2,387 with a cost increase of 31.7% relating to growth    in call center, retail and technical departments to support service and future growth
-The increased cost of running additional retail outlets
- Foreign exchange losses relating to operating activities of Kshs. 0.68bn from Kshs. 0.12bn, an increase of 475%.

Revenue
Revenue increased to Kshs. 70.48 Bn in the period compared to Kshs. 61.37 Bn during the same period in 2008. The increase was driven by voice revenue as the customer base increased during the year. Voice revenue increased by 8.5% to Kshs. 58.80 Bn representing 83.4% of the total revenue whilst SMS, M-PESA & data revenue increased by 83.0% to Ksh. 9.10 representing 12.9% of total revenue from 8.1% in the prior year.

Total MPESA revenue in the year increased to Kshs. 2.93bn from Kshs. 0.37bn growing to 4.1% of total revenue from 0.6% in the previous year. Data revenues increased to Kshs. 1.51bn or 2.1% of total revenue from Kshs. 0.34 bn or 0.5% of total revenue in the prior year.

Net cash used in financing activities was to Kshs0.17bn in the period. The company paid a dividend of Kshs2.00bn relating to the previous financial year. In the previous year, the company paid a dividend of Kshs4.00bn and re-paid shareholder loans of Kshs4.24bn.

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