Background Information 1: Safaricom CEO’s 2016 Statement on Annual Performance and Strategic Focus (Adapted Extract)
The annual results were a result of our continued focus on the three strategic pillars: putting customers first, providing relevant products, and enhancing operational excellence. This resulted in an 8% growth of our loyal customer base, generating strong financial and commercial performance.
We realigned our sales and operations teams to be independently managed in six regions, with the sales and network teams in each region reporting to their respective region heads. Additionally, investments of KES 32.1 billion in our network led to improved data speeds and voice network quality. Independent drive tests commissioned by Safaricom in March 2016 to measure key quality metrics such as dropped calls, call setup success, voice quality, and data speeds indicate that our network delivers the best voice quality and faster data services than our competitors.
Mobile penetration in Kenya now stands at 89.2% as at 31 March 2016 with Safaricom having a subscriber market share of 65.6%. Our market share was reduced partly due to a change in internal reporting policy, which aligned our customer number reporting methodology to that of our competitors. We now report total customers as those contributing to revenues in the last 90 days.
Service revenue grew by 13.8% to KES 177.8 billion. Voice service revenue, which now represents 51.1% of our service revenue, grew by 3.9% to KES 90.8 billion. Non-voice revenue representing 48.9% of service revenue up from 44.1% last year grew by 26.3% to KES 87.0 billion.
Messaging revenue grew by 10.6% to KES 17.3 billion due to an increase in the number of SMS users benefiting from affordable SMS bundles and targeted promotions. Mobile data revenue grew at 42.7% driven by a combination of a 21.5% increase in 30-day active mobile data customers to 14.1 million, an increased uptake of data bundles and a growth in smartphone penetration.
In March 2016, we had 7.9 million customers on 3G- and 4G-enabled devices, of which 0.7 million were 4G handsets. Fixed service revenue grew by 22% to KES 3.8 billion because of an increased number of fixed service customers to 10,490 up 21.6%. We now have 1,018 commercial buildings and 1,795 homes connected to high-speed fiber.
M-PESA revenue grew by 27.2% to KES 41.5 billion driven by a 19.8% growth in 30-day active M-PESA customers to 16.6 million and a 17.5% growth of our M-PESA agent footprint to 100,744. Lipa na M-PESA payments made at 44,000 merchant outlets in March 2016 grew by 74% to KES 20 billion.
Contribution margin improved by 1.1% points to 66.7% attributed to lower growth of direct costs at 10.0% compared to a 14.1% growth in total revenue excluding construction revenue.
Operating expenses as a percentage of total revenue excluding construction revenue was unchanged at 22.1% despite a 9.8% depreciation of the Kenya shilling in the financial year under review. We continue to explore cost reduction opportunities with efforts focused on lowering transmission costs, network-operating costs (including fuel), and IT operational costs.
The business delivered encouraging results and continued to create value for our shareholders, supported by growth across all our revenue streams and focus on cost efficiency, resulting in an EBITDA margin of 44.6%, which was a 0.9 percentage point improvement.
Free cash flow grew by 10.3% to KES 30.4 billion despite the significant supplier payments for [building] the National Police Security Network.
Background Information 2: Safaricom Chairman’s 2016 Statement on Kenyan ICT Market (Adapted Extract)
In the year under review, Kenya’s gross domestic product (GDP) grew by an estimated 5.6% in 2015 compared to 5.3% in 2014. The performance was driven by a stable macroeconomic environment and significantly improved performance of agriculture, construction, finance, insurance, and real estate sectors. This was despite inflationary pressures and volatility in foreign exchange rates.
The ICT sector grew by 7.3% in 2015, which was lower than the 14.6% growth achieved in 2014. The growth in 2015 was because of resilient expansion in the mobile telephony network and increased uptake of Internet services. We remain confident that the sector is on course to attain the Vision 2030 target of contributing 10% to the country’s GDP by 2017. The telecommunications sub-sector continues to be a significant contributor of this growth, with Safaricom and other players supporting economic growth.
In March 2016, inflation was at 6.45%. In the period under review, the foreign currency exchange market improved and the local unit stabilized at KES 101.33 to the US dollar compared to a high of KES 105.29 recorded in the first half of the financial year.
In light of the strong financial performance, the Board recommended a dividend of KES 30.48 billion, an increase of 18.9% from previous year. This is once again the largest dividend in Kenyan corporate history.
Source: Safaricom Annual Report 2016