Category Archives: Safaricom success

Safaricom’s Ethiopia License Bid

This week marked the deadline for bids for two new Ethiopia telecommunication licenses on April 26. Two offers were received in Addis Ababa; one by MTN (Mauritius) and the other for a “Global Partnership for Ethiopia”, a consortium by Vodafone, Vodacom, Sumitomo and Safaricom.

This is part of an overdue privatization push by Ethiopia that has continued even as political tensions have flared up in different parts of the country. The licenses do not include mobile money, but that is something that currently monopoly, Ethio Telecom has been granted and hopes to launch soon. It is expected that others who did not bid for mobile licenses such as Orange may bid for the partial privatization of Ethio Telecom which has 50 million subscribers.

Can Safaricom grow in this market 110 million population strong-market? That has been a goal of Safaricom’s management for the last few years. But a January 2021 report by Citi Bank was negative on the “high risk, high return” venture which will impact Safaricom’s earnings in the short to medium term. This was due to the impact of Covid-19 on the risk profile of all potential investors in Ethiopia, but also as, by taking a controlling stake in the consortium, the Ethiopia operations will be consolidated in Safaricom’s financials. Citi expects that Safaricom would raise half a billion dollars of debt to contribute to the consortium which would put an end to special dividends paid by the firm.

After technical and financial evaluations of the two qualified bids, a decision is expected by mid-May 2021.

Also, see more about MTN, from their Nigeria listing.

Safaricom 2020 results with CEO transition

Safaricom PLC announced its financial results at a unique event, streamed online, that featured its incoming and outgoing CEO’s.

Overall revenue grew 5% to Kshs 251 billion as M-Pesa revenue grew 12% to Kshs 84 billion with mobile data growing 12% to Kshs 40 billion. Voice and SMS revenue declined. Profit before tax increased to Kshs 105.77 billion up 17% from the previous year, and the company will pay out Kshs 56 billion as dividends to shareholders, up from 50 billion in 2019.

The firm’s Chairman Nicholas Ng’angá welcomed the new CEO Peter Ndegwa who has been in office for a few weeks now and thanked Michael Joseph who had been appointed interim CEO following the demise of Bob Collymore in July 2019.

Ng’angá asked that the country’s regulatory period, after Coronavirus, be designed to support the revival of businesses, not one that increases taxes for consumers and businesses, noting that the company had paid Kshs 111 billion in taxes and fees to the government during 2019.

Michael Joseph said that in his second stint as CEO they had simplified offers to customers and mobile data had double-digit growth while gaining market and increasing data revenue. Safaricom and Vodacom have acquired the M-Pesa brand from Vodafone and will roll out M-Pesa across Africa with new products and lower costs. Safaricom is also pursuing one of the new licenses in Ethiopia.

Sateesh Kamath, the Chief Financial Officer, said the results were adjusted for the one off-gain of acquiring M-Pesa and that service revenue still grew in the year, despite the decline of the sports betting and the reduction of tariffs the company had undertaken to support consumers during Coronavirus. He said that they plan to introduce more use cases to cannibalise M-Pesa “withdrawal” revenue and instead grow customer e-balances in the long run, while Joseph said that they plan to roll out a unit-trust investment product.

Peter Ndegwa, the incoming CEO, announced that the company would roll out a device financing offer to enable Kenyans to access 4G smartphones, with affordable data, by paying as little as Kshs 20 per day. He concluded by saying that Coronavirus made it impossible for the company to provide forward guidance on earnings and capital expenditure for 2021 and that they would do that at a later date.

Safaricom eye international expansion using M-Pesa

Safaricom announced another year of record earnings through innovation and payments, despite a tough economy in Kenya and with an extra bonus for their shareholders.

For 2018, Safaricom recorded revenue of Kshs 240.3 billion (~$2.4 billion), an increase of 7%, and a net profit of Kshs 63.9 billion. The growth was attributed to M-Pesa which, grew by 19% to Kshs 75 billion, and which accounted for 75% of the revenue growth in the year. They also reported that there were 22.6 million active M-Pesa customers and these customers made an average for 12.2 transactions a month, up from 7.4 transactions a month, three years ago.

Chairman Nicholas Ng’ang’a said it had been a challenging year with constrained credit (from bank interest rate caps) and inflation limiting discretionary income while the government had added taxes on mobile transactions  Unlike last year‘s event where the company had earnings before interest guidance of Kshs 89.6 billion, this year CEO Bob Collymore was present at the Friday morning investor briefing at the company’s headquarters complex in Nairobi where he announced that he was proud that the company had achieved an EBITDA of 50% which was unprecedented in the mobile world.

Ng’ang’a announced that the company would have to look for growth elsewhere beyond Kenya, while Collymore said this could be by taking charge of the M-Pesa brand from Vodafone and leading the expansion across Africa with new shareholder Vodacom and he cited new M-Pesa global partnerships that Safaricom had signed with  PayPal, Google (play store) Western Union and AliExpress.

This year the company rolled out Fuliza, the world’s first mobile phone overdraft that has seen over Kshs 45 billion borrowed so far. In terms of banks, Collymore said the era of competing with them was now over, and there would be more collaboration. Last week, Safaricom renewed a partnership with Equity Bank that will aim to improve financial inclusivity, cash management and security.

From the 2018 results, Safaricom will pay shareholders Kshs 1.25 per share, an amount totalling Kshs 50 billion. They will also, for a second time since listing, pay a special bonus dividend of Kshs 0.62 per share – totaling Kshs 24.84 billion.

EDIT: April 6, 2020:  Safaricom and Vodacom announced that they have completed the acquisition of the M-Pesa brand, product development and support services from Vodafone through a newly-created joint venture.

.. M-Pesa is the largest payments platform on the African continent, it has 40 million users and processes over a billion transactions every month. M-PESA is operational in Kenya, Tanzania, Lesotho, Democratic Republic of Congo, Ghana, Mozambique and Egypt.

.. The disposal of the M-PESA brand, support and product development services to Vodacom and Safaricom is broadly financially neutral for Vodafone Group.

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.