Friends, help me out....

A. Revenue Recognition,
At what point does Safaricom recognize revenue for pre-paid?

1. Cards are shipped out to resellers/distributors or numbers/code generated at POS or other,

2. When Cards are "activated" by loading credit onto 'SIM' or other,

3. When credit is consumed e.g voice, data, sending SMS, credit expires or other,

B. Loyalty Programmes
How does Safaricom account for Bonga points: 1 point = 0.50 ....where do these appear on financial statements? Special line item?

C. MPESA
Where does money held in the system (pending transaction or "saved") e.g. MPESA agent's float appear on Financial statements?

Thanks..

@drake...see the summary of IFRIC 13 BELOW.

IFRIC 13 addresses accounting by entities that grant loyalty award credits (such as 'points' or travel miles) to customers who buy other goods or services. Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services ('awards') to customers who redeem award credits.
Key Provisions

An entity that grants loyalty award credits shall allocate some of the proceeds of the initial sale to the award credits as a liability (its obligation to provide the awards). In effect, the award is accounted for as a separate component of the sale transaction.
The amount of proceeds allocated to the award credits is measured by reference to their fair value, that is, the amount for which the award credits could have been sold separately.
The entity shall recognise the deferred portion of the proceeds as revenue only when it has fulfilled its obligations. It may fulfil its obligations either by supplying the awards itself or by engaging (and paying) a third party to do so.
If at any time the expected costs of meeting the obligation exceed the consideration received, the entity has an onerous contract for which IAS 37 would require recognition of a liability.
If IFRIC 13 causes an entity to change its accounting policy for customer loyalty awards, IAS 8 applies.
Effective Date

IFRIC 13 is effective for annual periods beginning on or after 1 July 2008. Earlier application is permitted.

safaricom 2.0 is about to rev and am sure it will silence most of doubting toms.These are the areas I think they will concentrate on in the coming FY

1.Jamii telkom-safaricom partnership is going to give AK and other ISPs Run for their money if safaricom business offers are anything to go by.

2.Acquisition interms of smart phones, laptops and collaboration like the one we witnessed btwn safaricom and Kenya bankers will drive the data revenue to the next level.

3.Voice is the tricky part to increase minute of usage they may introduce discounted bundles or tarrifs that lock consumers into the network I think they may introduce contract based tariffs with Kabambe offered for free to encourage more users join the network.

4.The sms segment is going to grow exponentially due to its link to social media I think Twitter and facebook addicts find this service heaven sent.

5.Livestreaming their result just showed us how safaricom is demonstrating its capacity in offering real time broadcasting this is jewel if well packaged can be used for live transmission of events cost effectively.

6.Mpesa revolution might surprise us by becoming a stand alone product that might link several banks by being an agent for all banks.

This company offer immense possibilities going forward Airtel will offer a challenge that will help safaricom grow even bigger since it will be kept on its toes by rene meza.

Selah and Barrywhite. Good analysis of where the growth in Safcom'a profits may be expected to come from. As indicated elsewhere, I was pretty impressed by SCOM's topline results but somewhat jaded by the BOTTOMLINE. The company has definitely shown that it is indeed RESILIENT.

All the same, I have pointed out that profits have demonstrated a declining trend in the last 6 quarters. We need to see this trend change direction before we can be convinced that SCOM will not just be another company but what many people had hoped when it first listed - A GROWTH COMPANY both in terms of profits and share price.

Remember SCOM is competing for our Investment Shs or $ against a basket of other companies some of which are still reporting growth in profits in excess of 50% per annum.

Clearly, the market is not that impressed with the results.

The day Mpesa overtakes voice as the main contributor to revenue is not far away...with the global expansion the Mpesa story is not finished and it can only go parabolic..Safcom has re engineered itself far away from voice into a total telco giant..best company in Africa...yes in 10 years time.

@mwanahisa remember safaricom increased its CAPex by 46.1% to [25.48b]and more investment is going to go to this sector as well as strengthening its 2G network.short term Borrowing went down by a whooping 66.8% although long term borrowing went up by 59.1%

Casting my safaricom die hard coat aside I think there is a cause for worry in these areas.

1.Mpesa growth is too negligible for such a taunted solution.Either safaricom is facing stiff competition from other operators or vodafone is eating most of the juice.

3.Data its ARPU went down significantly from Ksh 126 to Ksh.101 maybe this might have been caused by the price war btwn them and orange but still thats really worrying.For a company that wants to move from over reliance on voice this is telling .Lets hope safaricom business and its collaboration with KBA will create the necessary revenues to hedge against reduced voice ARPU.

4.Voice dropping from Ksh.356 to Ksh.300 is also a cause to worry although it was never unexpected given last years price war and the reduce cost of calling.The management should be able to spur some activity in this segment to try and increase customer spending but as CCK reduces its interconnect fees its obvious Voice ARPU will continue dropping.

@selah, first I am glad to observe that you can actually cast aside your "Safcom diehard persona" aside.

I am hoping that the increase in Capex as noted by yourself above will lead to a greater stranglehold on the mkt by SCOM. This is especially through improvements in quality of voice calls, growth in data revenues/a bigger share of the data market, innovative new products etc.

1. Right, so that means is there is a mis-match between Revenue and associated Cash-flows, yes? As an analyst, how would you adjust for that... or is the effect "non-significant/immaterial"

2. As far as the liability/ unearned revenue for Bonga points, could this be used to "park" revenues and smooth results in later stages by changing the value of a bonga point? Indeed, is a claw-back of the same allowed under IFRIC? (I haven't time to go through it)

3. Safaricom is playing a major role in Kenya's shadow banking system w/some individuals using M-Pesa as a bank account. What are the chances the firm could enter the money-markets and earn interest on these funds?

ta

@Mwanahisa - you are seeing the forest for the trees....

I suspect some "window dressing" being done here so retain investor confidence and perhaps deny Airtel some gloating rights...its happened elsewhere before...

If I may throw in my two bits....its been the last 7 months that they have had to wage price wars....I cannot believe that even the increase in minutes from 60 to 96 can help revenue jump that much especially when:

1 - In seven of the 12 months the tariff war waged long and hard....and this might be very simplistic thinking (I will not claim to be a stocks or business analyst - rather just looking at a few vital signs...) in 7 months it had to halve its tariffs and that in itself was not really a USP as such as everyone else jumped onto the Airtel band wagon....ergo for voice revenue to decline by a mere 1.7%:
a) minutes used would have to be be nearly double (100-120 mins) or grow by at least 50% AND...
b) subscriber base would have to grow significantly as well in order to mitigate lower tariffs for voice revenue.

They report 75% market share but by end 2010 it was more like 72%. I am not privy to the fine print of this report but SCOM has always reported the number of SIMs sold rather than active subscribers....

They say "Revenues grew at a faster rate than subscriber growth as we continue to maintain market leadership" hmmm.

As stated above, I agree with @Mwanahisa - its the last 6 months...also worth observing SCOM reached its plateau in 2010 with 5.1% growth in profits....and now 12.4% decline in profits (despite supposedly higher subscriber numbers, expansion into enterprise data, increased consumer data and of course 13.8 million mpesa subscribers (thats like 60% of the adult population - really? ). As the market becomes more saturated, ARPU, even for data, will decline...enterprise data can only grow so much...(and there are more serious players in this sphere esp for the SMB segment).

I think maintaining the dividend 8 billion might help psychologically with shareholders...but not for long...