Category Archives: Safaricom success

Safaricom 2018 Results, Driven by M-Pesa and Data Growth.

This morning Safaricom released their March 2018 results, reporting that they had overcome a challenging year in Kenya to post record results as their shares also touched record highs.

Kenya’s largest company reported revenue of Kshs 224.5 billion (~$2.24 billion), a 10% increase shillings an EBIT of Kshs 79.3 billion, and a net income of Kshs 55 billion ($553 million). They will pay out a Kshs 44 billion ($440 million) as dividend (Kshs 1.1 per share)  to their shareholders.

As was the case the previous year, the results were driven by innovations in data, and mobile money (M-Pesa_. Mobile data revenue was Kshs 38.4 billion (up from Kshs 29.3 billion) and data usage per customer has grown to 56% to 421 MB, with more than 90% of data consumed through bundles which offered customers better value and freedom of usage.

M-pesa revenue was Kshs 62.9 billion as customers had moved from traditional M-Pesa to payments. The company has signed over 100,000 Lipa-Na-M-Pesa merchants and customers did 147 million Lipa na M-pesa transactions, an increase of 63%. Safaricom had reduced merchant fees by 50% and also made customer transactions that were smaller than Kshs  200 ($2) free of charge. In financing, Safaricom now issued 3 (micro) loans every second through partnerships with banks – M-Shwari (CBA) and KCB’s M-Pesa. Overall, M-pesa accounted for 28% of service revenue, and mobile data was 16% reducing Safaricom’s earlier reliance on voice and SMS which together were still a significant 50% of revenue.

These results were achieved in a year that Kenya had a prolonged electioneering period which slowed economic activity while credit growth was also the slowest in 14 years. But in releasing the results, Safaricom director, and former CEO, Michael Joseph cautioned that a draft industry competition study had proposals that seriously concerned Safaricom such as the introduction of price controls and regulated infrastructure sharing. The proposals, he said, would prevent Safaricom from rolling out services that their competitors could not replicate.

The results announcement also saw a surprise reappearance (via video) of Safaricom CEO Bob Collymore who took personal leave late last year to seek medical treatment. Collymore announced that he was completing the final phases of his treatment and expected to be back in Nairobi in a  few weeks once he was cleared to travel by his doctors.

Some ongoing innovations include in food security (Digi Farm and Connected Farmer) and healthcare (M-Tiba which now has 1 million users. They recently created an agri-business department that will to seek to deliver mobile-based solutions to address food security in the country. Also, the Safaricom Foundation is refreshing its strategy to address sustainable development of communities in three areas; education, health, and economic empowerment.

Going forward, Safaricom projects EBIT of Kshs 85 – 89 billion for 2019 as they look to drive shareholder value through growing M-Pesa across borders, and appropriate partnerships and in environments with the right regulations, Also from e-commerce and they recently signed payment partnerships with PayPal and the Google. 

Regulatory hammer for Kenya telco reverses gains

Reading a version of a report (August 2017) on the telecommunication competition market study in Kenya by  Analysys Mason (AM) of London for the Communications Authority of Kenya presents some startling observations and unwieldy regulatory recommendations.

They regulatory target is the telco – Safaricom, which is the market leader in Kenya’s telecommunications and mobile money space. The reports documents areas where Safaricom is dominant as well as other telco spaces and areas where other companies like Telkom Kenya, Airtel, Wananchi, Equitel (from Equity Bank) and Multichoice (who were beyond the scope of the study) also dominate.

The AM report looks at the current state of the telecommunications sectors, but it ignores the reality of how it got to be where it is – the history of telecommunications in Kenya, strategic-decision-making, investment & management decisions, price wars, new technologies like mobile money and fibre cables etc.

Other studies have been done on the telco sector in Kenya by different agencies. In 2012 Citi did a report on Bharti Airtel (after Bharti-Airtel bought out Zain Africa in 15 countries for $10.7 billion in 2010) and at the time; It noted:

Safaricom is by far the largest operator, with a 65% market share. Bharti is a distant second with a 15% share. Safaricom’s dominance has come down from a  peak of ~80% a couple of years back as the smaller operators have become more aggressive.. while they both launched in 2000, Kencell (now Bharti) focused on the quality of network and high ARPU customers, Safaricom focused on the mass market. Also innovations like per-second billing, which Bharti took some time to introduce and M-PESA also helped  (Safaricom) cement its dominant market position and Safaricom’s stable management in contrast to Zain’s frequent management (1. Kencell 2. Celtel 3. Zain 4. Bharti) changes also helped it compete more effectively.

Kenya has other dominant players such as EABL (alcohol), BAT (cigarettes), Kengen (energy production) and Brookside (milk), but the Communications Authority (CA) is the only agency that can declare if there is a dominant telco market player.    

In the past, the CA  has pushed some changes to level the telco field such as rolling out number-portability, the ending of mobile money agent exclusivity, and the upcoming rollout of mobile money interoperability.  

But some AM report proposals are regressive such as at least five days before launching a new tariff, loyalty scheme or promotion, Safaricom should provide a justification that the proposals can be replicated by a reasonably efficient operator – AM or that Safaricom may not offer loyalty bonuses or promotions for which the qualification criteria require different levels of expenditure or usage by different subscribers in the same category – AM
The range and messaging of different Safaricom promotions like Tunukiwa, Bonga, Flex and now Platinum, is sometimes confusing but they should not be restricted from competing and innovating. Already, another investor report by Citi has already expressed concern about the impact on telcos of some of the regulatory recommendations in the AM report including that they may have effects that will be unclear, they do not foster innovation, and they may result in high prices. 

The AM report notes that there is some concern among investors in that, as Safaricom has maintained a high share of the market for many years and that recently Essar/Yu exited Kenya (2014), Orange sold out (to Helios who re-branded as Telkom-Kenya) and Bharti indicated that they may  also consider leaving Kenya, and perhaps other countries in Africa.

While appeasing investors is good, they have to contend with Safaricom and its impact on a telco regulator with targets, and to the Kenya government country as a significant taxpayer (Safaricom’s 2017 annual report cites payment of Kshs 84.3 billion in taxes and fees to the government, in addition to 35% of Kshs 57 billion dividends that was paid to shareholders)

Finally, Safaricom is a vertically-integrated company, and dominant players come and go and they evolve over time as market forces, customers, and technologies changes. The AM report notes the introduction of Pesalink, which can be seen as a reaction by the banking sector to M-Pesa, and it also cites the use of Equitel – on average, a Safaricom M-Pesa subscriber makes 6 transactions per month, whereas an Airtel Money subscriber makes 0.6 and an Orange Money subscriber makes 0.1. However, the average Equitel subscriber makes 10 transactions per month – AM. 

No one knows what the telco sector will look like in the next decade, but the consumers, not regulatory muscle, should be the decider.

Safaricom CEO Leave and Impact

Safaricom is not expected to undergo major changes or see much impact following the shock statement released this week about CEO Bob Collymore leaving the company for a few months to undergo medical treatment.

“During this time, Sateesh Kamath, the current Chief Financial Officer for Safaricom who is also Mr. Collymore’s alternate on the Board, will take a primary role.  He will be supported by Joseph Ogutu who is the current Director – Strategy and Innovation, Safaricom. Mr. Ogutu will be responsible for Safaricom’s day-to-day operations until Mr. Collymore’s return from medical leave.

Following the news about the CEO’s leave, the Safaricom CFO had a session with investors, and according to a Citi report afterwards on the implications of the events:

We have no concerns over operations of the company in the CEO’s absence. Based on examples in other geographies, it would take a couple of years to derail a well-run company.The company may become exposed on the regulatory side. We think the regulation is likely to remain balanced with consideration of the contribution the company makes to the state (in taxes and dividends)

The discussion about succession and its impact at Safaricom comes exactly seven years after Collymore took over from Michael Joseph as CEO. He then made his formal debut announcing the half-year results back then, and that event will recur again tomorrow (Friday) when Safaricom releases its 2018 half-year results. Also at the results announcement, updates will be given on the e-commerce plans and international expansion of the M-pesa platform.

CFO Kamath with CEO Collymore and Chairman Nganga at the Safariom 2017 results announcement in May.

At the announcement of another year of record 2017 financial results announcement in May this year, company chairman, Nicholas Nganga announced that the expiring contract of Collymore had been extended for another two years. No interim CEO will be appointed at Safaricom, Collymore came to Safaricom from Vodafone, but an appointment of a CEO is one of the governance clauses that changed with the Vodacom buyout of Vodafone’s interest in Safaricom in the middle of the year.

The Safaricom Sustainability Report for 2017 which Collymore launched a month ago, noted that the company’s shareholding had experienced a decline in local and retail shareholders due to their profit-taking from the company’s high share price and a corresponding increase in investment stakes of foreign corporate investors due to Safaricom’s performance and strong fundamentals.

Safaricom Twaweza

Safaricom launched a new brand called Twaweza this weekend, at a swanky ceremony in marked contrast to past subtle changes to the logo of the company.

Director Sylvia Mulinge narrated the seventeen year history of the company from being a department at Telkom Kenya, to becoming Kenya’s largest company, with its ups (choosing to bill its customers per second for every call [which enabled it to leapfrog its competitor who billed per minute], rolling out Simu ya Jamii, 3G data, M-Pesa in 2007, and the Safaricom IPO and listing in 2008). She also listed some missteps made, such as rolling out unlimited data to customers, and slow upgrades to their network that led to infamous Friday congestion – and which then-CEO Michael Joseph attributed to “peculiar Kenyan” phone calling habits that.

Twaweza, announced by CEO Bob Collymore, signals the switch of Safaricom from being a telecommunications company to a digital lifestyle enabler for Kenyans to connect and do more with their lives using the Safaricom network and ecosystem.

Vodacom buys Vodafone Stake at Safaricom

Early this morning a surprising news story first appeared at Bloomberg about Vodacom buying shares at Safaricom. Early interpretations of the story had the Kenya government selling their entire 35% of their most valuable investment to Vodacom.

But later, the official statement from Vodafone (and Safaricom) confirmed that Vodafone was the one selling 35% of their shareholding to Vodacom. It includes a statement by Safaricom CEO, Bob Collymore that the deal “promotes the continued successful expansion of the company as well as the opportunity to drive M-PESA to other markets in the continent.”

  • Safaricom had announced another record earnings year year, last week.
  • Will there be a rebrand to Vodacom? Safari com may be constrained by operating in Kenya. Vodacom just had an IPO in Tanzania whose outcome is pending and M-Pesa has had tremendous strides in Tanzania.
  •  Former Safaricom CEO Michael Joseph resigned from the Vodafone a month ago to concentrate on his role as Kenya Airways Chairman.
  • Vodafone will remain with 5% of Safaricom – down from 39.93%.