Airtel Kenya’s auditors have raised the red flag on the company’s financial health after the telecommunications firm posted a Sh2.89 billion loss last year, raising its cumulative losses to Sh68.09 billion.
Airtel, which is in merger negotiations with the government-owned Telkom Kenya, is now insolvent to the tune of Sh8.14 billion after the gap between its liabilities and assets widened further from the Sh2.86 billion recorded in 2017.
The firm halved its annual loss from Sh5.8 billion in 2017, but losses accumulated over the years and an increasing debt load pushed the company 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, #ticker:SCOM which posted a record Sh63.4 billion after-tax profit in the last financial year ended March 31.
Airtel is awaiting regulatory approvals to merge with Telkom Kenya, the country’s third-largest telecommunications firm.
The firm’s losses deepened on the back of increased operating, finance, administrative and distribution costs, gobbling close to Sh22 billion of the telco’s revenue.
Its distribution costs jumped to Sh250.6 million from Sh55.6 million in 2017, partly driven by arbitration talks it had entered into with some of its distributors in 2015 after they filed a lawsuit challenging its commission rates.
Revenue from the sale of goods (accessories and handsets) recorded a sharp decline to Sh45 million from 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 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,” states the board in a note accompanying the financial statements.
The directors say they have obtained a commitment from its major shareholder to obtain additional funding to meet its obligations as they fall due.
The telco has seen a rise in its shareholder loans to Sh47.5 billion in 2018, up from Sh43.4 billion in 2017.
These loans are from its holding firm Bharti Airtel Kenya BV, and are supposed to be payable in full by December 2021. They are unsecured and carry an interest charge of three percent per annum.
Airtel’s borrowings last year shrunk to Sh5.9 billion, from Sh8.52 billion in 2017.
It owes Citi and Standard Chartered banks billions of shillings. The telecommunications firm has also seen its taxes due to the Kenya Revenue Authority rise to Sh9.4 billion as at last year.
Airtel Kenya is now focused on its subscriber numbers, churn rate and revenue per user targets to turn around its fortunes.
Its subscriber base rose by 45 percent last year to more than 13 million, pushing its revenue up by 23 percent.
Airtel’s subscriber growth comes on the back of a prolonged tariff war with Safaricom, which saw it launch the lowest call rates in a promotional offer recently.
The firm recorded a rise in its revenue to Sh20.5 billion in 2018, up from Sh16.78 billion the previous year, pushed by voice income which increased to Sh10 billion, up from Sh7.7 billion the previous year.
Airtel Kenya also saw a rise in its data revenue to stand at Sh5.5 billion at the end of December last year, from Sh3.7 billion over a similar period in 2017.
The firm also booked a Sh618 million loss on suspected fraud by its employees last year, via its Airtel Money platform, of which it has since been paid Sh86 million by its insurer AIG Kenya in March this year.
“In 2018, incidents of cash control frauds were identified in the Airtel Money operations in Kenya, which involved circumvention of its controls by Airtel Money employees and resulted in loss of Sh670 million,” the firm’s parent company said early this month through its Initial Public Offer prospectus.
“While Airtel Africa has introduced enhanced controls, including increased segregation of duties, daily reconciliations and technical restrictions on the transfer of funds to non-Airtel bank accounts, the risk of fraudulent activity by individuals employed by or working in partnership with the Group cannot be eliminated completely, and it may be liable for fraud and problems related to inadequately securing its payment systems.