2015 Annual Report


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SAFARICOM LIMITED
ANNUAL REPORT 2O15
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01/ HIGHLIGHTS
01 / HIGHLIGHTS
04 - 05 Performance at a Glance 06 - 9 Chairman’s Statement
10 - 13 CEO’s Statement

02 / BUSINESS REVIEW

16 - 17 18 19 20
22 - 23 24 - 25 26 - 31 32 - 35

What We Do The Value We Create Our Strategic Priorities How We are Managed Who Governs Us Who Leads Us Corporate Governance Statement Risk Management

Our Coverage
Kenyan landmass

72%
2G

27%
3G

27%
3G

Population

92%
2G

69%
3G

69%
3G

81%
Mobile phone penetration in Kenya
(Communications Authority of Kenya)

03 / STRATEGIC REVIEW

38 - 40 41
42 - 43 44 - 45 46 - 47 48 - 53 54 - 55 56 - 59 60 - 67 68 - 71

Delighting Our Customers Democratising Data Best Network in Kenya Deepening Financial Inclusion Partner of Choice for Business Staying Ahead of the Curve Growing Youth Appeal Brand Assets Social Impact Sustainability

04 / FINANCIAL REVIEW
75 Directors’ Report 76 Statement of Directors’ Responsibilities 77 Report of The Independent Auditor 78 Consolidated Statement of
Comprehensive Income 79 Consolidated Statement of Financial Position 80 Company Statement of Financial Position 81 - 82 Consolidated Statement of Changes in Equity 83 Consolidated Statement of Cash Flows 84 - 132 Notes 133 Shareholding Information

05

/ ADDITIONAL INFORMATION

136 -137 Notice of The Annual General Meeting 138 -143 Directors and Senior Leadership Team
144 Corporate Information 145 Proxy Form
1

01 / HIGHLIGHTS
Kenya’s first and only 4G (LTE)

2

SAFARICOM ANNUAL REPORT 2015

01 HIGHLIGHTS
3

01 / HIGHLIGHTS

PERFORMANCE AT A GLANCE

TOTAL REVENUE
FY 12 FY 13 FY 14 FY 15

107.00 124.29 144.67 163.36

0

50

Kshs Billion

100

150

200

VOICE REVENUE
FY 12 FY 13 FY 14 FY 15

0

20

40

Kshs Billion

68.96 77.33 84.37 87.41

60

80

100

M-PESA REVENUE

FY 12

16.87

FY 13

21.84

FY 14

26.56

FY 15

32.63

0

10

20

30

40

Kshs Billion

EBITDA
FY 12 FY 13 FY 14 FY 15

0

20

Kshs Billion

37.50

49.24 60.94 71.19

40

60

80

4

SAFARICOM ANNUAL REPORT 2015

TOTAL SERVICE REVENUE

FY 12

100.19

FY 13

118.05

FY 14

138.36

FY 15

156.25

0

50

Kshs Billion

100

150

200

MESSAGING REVENUE

FY 12

7.77

FY 13

10.15

FY 14

13.62

FY 15

15.63

0

5

Kshs Billion

10

15

20

MOBILE DATA & FIXED SERVICE REVENUE

FY 12

6.59

FY 13

8.73

FY 14

11.88

FY 15

17.95

0

5

Kshs Billion

10

15

20

FREE CASH FLOW
FY 12 FY 13 FY 14 FY 15

9.35 14.51

0

5

Kshs Billion

10

15

22.69

20

25

27.52 30

We continue to deliver the best service to our customers; one that has seen the Company rewarded with strong commercial and financial performance.

DIVIDEND
FY 12 FY 13 FY 14 FY 15

0

5

Kshs Billion

8.80 12.40

10

15

18.83 20

25.64 25

CUSTOMER NUMBERS
FY 12 FY 13 FY 14 FY 15

0

5

Million

10

15

19.07

19.42 21.57 23.35

20

25

NUMBER OF BASE STATIONS

Total (2G + 3G)

FY 12

3G

Wimax

187

1,439

2,690

Total (2G + 3G)

FY 13

3G

Wimax

203

Total (2G + 3G)

FY 14

3G

Wimax

203

1,604 1,847

2,905 3,140

FY 15

Total (2G + 3G)
3G 4G Wimax

236 195

1,943

3,382

0

1000 2000 3000 4000

5

01 / HIGHLIGHTS

CHAIRMAN’S STATEMENT

The ICT sector realised a growth of 13.4% in 2014. The sector now contributes an estimated 8.4% to the GDP and, with well guided policies, the sector is estimated to attain the Vision 2030 target of contributing 10% to the country’s GDP by 2017.
As the chairman of the Board it gives me great pleasure to take this opportunity to update you on the performance, the competitive and regulatory environment and economic factors affecting our business.
In the period under review, we continued with the execution of our strategy which enabled us to continue to deliver unmatched customer experience which in turn led to strong results and sustainable shareholder returns.
Kenya’s economy remained fairly stable growing at 5.3%, a slight reduction compared to 5.7% in 2013. The performance was supported by a reduction in energy prices and increased government spending on major projects by both the national and the devolved Governments.
The ICT sector realised a growth of 13.4% in 2014. The sector now contributes an estimated 8.4% to the GDP and, with well guided policies, the sector is estimated to attain the Vision 2030 target of contributing 10% to the country’s GDP by 2017.
There is no doubt that a significant part of this growth is attributable to the mobile telecommunications sector where Safaricom and other players continue to contribute substantial gains to the economy.
In the year, interest rates remained stable with the Central Bank of Kenya maintaining the Central Bank Rate (CBR) at 8.5% and a modest increase in inflation by 1.2 ppt to 6.9%.
On the foreign currency exchange market, the Kenya shilling weakened against the dollar, a factor attributable to the declines in dollar inflows mainly from the tourism sector.
The Board recommended a dividend of 64 cents per share, totalling Kshs 25.64 billion, an increase of 36%. This is once again the largest dividend in Kenyan history.
Our superior capabilities continue to enable us to support our key stakeholders in their endeavour to improve the lives of our customers and the people of Kenya as a whole.
Our commitment to continue transforming lives remains strong and with our strategy in place, we are confident that we shall continue creating value for our shareholders and customers.

6

SAFARICOM ANNUAL REPORT 2015

KEY REGULATORY HIGHLIGHTS
Renewal of Operating Licence
The regulatory environment remains an area of importance to our operations. As noted during our half year results, our operating licence was renewed in July last year for a further ten-year period.
Acquisition of Additional Spectrum
We also acquired additional spectrum after concluding the purchase of Essar Telecom’s assets. This has helped us continue improving our network coverage and provide quality services to our customers.
Mobile Termination Rates (MTR)
In the same period, there was a reduction in the Mobile Termination Rates (MTR) from Kshs 1.15 to Kshs 0.99 with effect from July 2014 in line with glide path that the Communications Authority of Kenya (CA) prescribed in 2010 that saw the reduction of the MTR from Kshs 4.42 in 2010 to a final rate of Kshs 0.99 in 2014.
National Police Surveillance Project
Safaricom was contracted by the Government through the Ministry of Interior and National Coordination to build the National Police Surveillance, Communication and Control System that introduces a technology driven approach to Police work. This will go a long way in enhancing security and creating a better business operating environment.
Universal Service Fund (USF)
The CA implemented the Universal Service Fund (USF) and Safaricom is currently paying the Universal Service Levy as required. Meanwhile, Safaricom and other operators through the industry lobby groups, Kenya Telecommunications Network Operators (KTNO) and Telecommunications Operators Service Providers (TESPOK), are engaging the CA on various matters with respect to the operationalisation of the USF.

CORPORATE GOVERNANCE
During the year there was a change in the composition of the Board of Directors. Mr. Gianluca Ventura was appointed to the Board as a non-executive Board member, replacing Mr. Sunil Sood who resigned during the year.
I welcome Mr. Gianluca to the Board and wish to sincerely thank Mr. Sood for his contribution during the year.
LOOKING FORWARD
The financial year under review was a phenomenal year for Safaricom, having continued to establish ourselves as a leading telecom operator at the forefront of innovation and transforming lives.
Telecommunications is becoming ever more present in more areas of life. We are focused on continuing to lay the foundation for new growth in all areas of our business, exploit new opportunities as well as to strengthen and diversify our existing product portfolio.
With the commitment of our employees, the continued support of our investors, and the unwavering loyalty of the millions of our customers, coupled with our understanding of our customers’ needs, we shall continue to deliver value to our stakeholders. Our commitment to continue transforming lives remains strong and with our strategy in place, we are confident that we shall continue creating value for our shareholders.

MR. NICHOLAS NGANGA CHAIRMAN
7

01 / HIGHLIGHTS

TAARIFA YA MWENYEKITI

Sekta ya Teknolojia ya Habari na Mawasiliano, yaani ICT, ilishuhudia ukuaji wa 13.4% katika mwaka wa 2014. Hivi sasa Sekta hii inachangia 8.4% kwenye Jumla ya Pato la Taifa (GDP), na kukiwa na sera zilizo na mwongozo mzuri, sekta hii inatarajiwa kutimiza malengo ya Ruwaza ya 2030 ya kuweza kuchangia 10% kwenye Jumla ya Pato la Taifa (GDP) kufikia 2017.
Kama Mwenyekiti wa Bodi ya Wakurugenzi, nina furaha kubwa kuchukua fursa hii kuwaarifu kuhusu matokeo, hali ya ushindani wa kibiashara na kanuni za udhibiti pamoja na hali ya kiuchumi inayoathiri biashara yetu.
Katika kipindi cha mwaka tunaochambua, tuliendelea kutekeleza mkakati wetu ambao ulituwezesha kuendelea kutoa huduma toshelevu za kipekee kwa wateja, jambo ambalo lilichangia upatikanaji wa matokeo bora na faida kwa wamilikihisa.
Uchumi wa Kenya ulibakia imara na kukua kwa 5.3% katika mwaka wa 2014, ingawa ulishuka kidogo inapolinganishwa na 5.7% mwaka wa 2013. Matokeo haya yalisaidiwa na kupungua kwa gharama ya kawi na kuongezeka kwa matumizi ya serikali katika miradi mikubwa pamoja na miradi mingine iliyotekelezwa na serikali za ugatuzi.
Sekta ya Teknolojia ya Habari na Mawasiliano ilishuhudia ukuaji wa 13.4% katika mwaka wa 2014. Sasa inachangia karibu 8.4% kwenye Jumla ya Pato la Taifa (GDP), na kukiwa na sera zilizo na muongozo mzuri, sekta hii inatarajiwa kutimiza malengo ya Ruwaza ya 2030 ya kuweza kuchangia 10% kwenye Jumla ya Pato la Taifa kufikia mwaka wa 2017.
Hakuna shaka kwamba sehemu kubwa ya ukuaji huu ilitoka katika sekta ya mawasiliano ya simu za rununu ambapo Safaricom na wahusika wengine wanazidi kutoa mchango mkubwa kwenye uchumi.
Katika mwaka huo tunaochambua, viwango vya riba vilibakia thabiti huku Benki Kuu ya Kenya ikidumisha viwango vyake (CBR) katika kiwango cha 8.5% huku mfumko wa bei (inflation) ukiongezeka kidogo kwa 1.2% kufikia 6.9%.
Katika soko la ubadilishanaji pesa za kigeni, shilingi ya Kenya ilidorora dhidi ya dola ya Marekani, jambo ambalo lilihusishwa na upungufu wa mapato, hasa kutoka sekta ya utalii.
Bodi ilipendekeza mgao wa faida wa senti 64 kwa kila hisa, ambao ni jumla ya Kshs 25.64 bilioni, likiwa ni ongezeko la 36% kulinganisha na mwaka ulio pita. Huu kwa mara nyingine ndio mgao mkubwa zaidi wa faida katika historia ya Kenya.

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SAFARICOM ANNUAL REPORT 2015

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2015 Annual Report