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Airtel losses hit Sh6bn amid audit questions

Mr Prasanta Das Sarma, Airtel Kenya chief executive officer, during a past product promotion.

Airtel Kenya’s losses doubled in 2020 to Sh5.9 billion even as its auditors raised the red flag on the company’s financial health after the telco’s cumulative losses rose to Sh77.41 billion.
Airtel also saw its net liability position widen further to Sh43.7 billion in the full year to December 2020, up from Sh37.78 billion as of December 2019, pointing to its insolvent position.
The firm posted its highest loss in history in the financial year ended March 31, 2021, having halved the loss to Sh2.78 billion in 2019, up from Sh5.8 billion in 2017, but losses accumulated over the years and an increasing debt load pushed it into a precarious financial position.
“These conditions, along with other matters… indicate the existence of a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern,” warns Airtel’s auditors Deloitte.
The company’s weak financial position is in sharp contrast to market leader Safaricom, which posted a net profit of Sh68.67 billion in the financial year ended December 2020, a drop from Sh73.65 billion the previous year.
Safaricom’s profit drop came on the back of a decline in service revenue and increased costs in Covid-19 business environment, plunging the telco into the first full-year profit fall since 2012.
The firm’s directors say they have obtained a commitment from its major shareholder to obtain additional funding to meet its obligations as they fall due.
Airtel has a shareholder loan of Sh52.2 billion up from Sh46.6 billion the previous year, and its directors said with this, there is “sufficient liquidity to manage its operations.”
These loans are from its holding firm Bharti Airtel Kenya BV and are supposed to be payable ‘on demand’ and are unsecured, carrying an interest charge of three percent per annum.
“The directors are of the opinion that the company is a going concern on the basis of it generating cash flows of at least the management projections and also obtain additional funding from its shareholders required to meet its obligations,” states the board in a note accompanying the financial statements.
The negative asset position means Airtel would have been unable to meet its financial obligations maturing this year, even if it sold all assets that could be readily liquidated.
“The directors acknowledge that the continued existence of the company as a going concern depends on the outcomes of various strategic measures that the directors continue to pursue to return the company to profitability and continued financial support from the company’s shareholders and bankers,” the note says.
Airtel’s borrowings in the 2020 financial year jumped to Sh9.23 billion, up from Sh6.83 billion in 2019. Its net assets in foreign currencies rose to Sh8.89 billion in 2020, up from Sh6.19 billion the previous year, while its net foreign currency liabilities stood at Sh56.17 billion up from Sh49.85 billion in 2019.
In 2020, Airtel Kenya picked up Sh2.18 billion in new loans from JP Morgan Bank, but also had loans with HSBC-Mauritius (Sh1.64 billion), Citi Bank (Sh5.4 billion) and Sh1.7 billion in loan and overdrafts from Standard Chartered Bank. It cleared its Sh1 billion loan from Stanbic Bank. Its net borrowings as at March 2021 stood at Sh61.28 billion, up from Sh53.19 billion the previous year.
“The current borrowings from HSBC-Mauritius and Standard Chartered Bank are repayable within twelve months to December 2021,” it said, indicating that it retired them by the end of last year.
The overdraft facility Airtel has with Standard Chartered Bank bears an interest of 9.25 percent and as at December 31, 2021, the overdrawn balance was Sh702.7 million, having doubled from Sh361.3 million as of December 2019.
Airtel’s losses deepened on the back of increased operating, finance, administrative and distribution costs, gobbling close to Sh24.82 billion of the telco’s revenue. This was a rise from Sh21.27 billion in expenses the previous year.

Voice revenues

Its 2020 revenues rose by more than Sh5.1 billion to Sh26.41 billion driven by voice revenues that stood at Sh12.39 billion, up from Sh9.98 billion in 2019. Its data revenues also grew in 2020 to Sh7.79 billion, up from Sh5.84 billion. Its interconnecting revenues rose to Sh2.6 billion in 2020 up from Sh2.1 billion in 2019. Its roaming revenues recorded the biggest dip to Sh116.9 million in 2020, up from Sh281.74 million.
Revenue from the sale of goods (accessories and handsets) increased to Sh69.37 million, but way below the Sh677.2 million in 2017, pointing to either a struggling Airtel shops business model, or the firm’s shift away from that business line.
The country’s second largest telco also saw a rise in its employee expense benefits to Sh1.73 billion, up from Sh1.42 billion in 2019 driven by an increase of Sh101 million in salaries and Sh270 million in other related staff costs. – businessdailyafrica.com

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