Safaricom’s profit soars to Sh35.7 billion, eyes Ethiopia

Safaricom PLC CEO (Interim) Michael Joseph. [Wilberforce Okwiri, Standard]
Safaricom PLC CEO (Interim) Michael Joseph. [Wilberforce Okwiri, Standard]
Safaricom’s half-year profit to September 30, soared by 14.4 per cent despite the harsh economic times, cementing its position as the region’s most profitable company.

The telco, which is eyeing the Ethiopian market, reported a net profit of Sh35.65 billion for the first six months compared to Sh31.2 billion over a similar period in 2018.

As revenue from voice and texting plateaus, M-Pesa and data have become the key revenue earners for the company. With the tough operating environment, its customers are spending less on airtime and instead opting for alternative calling and texting platforms such as WhatsApp and Facebook.

Its revenues grew 5.8 per cent to Sh129.9 billion during the six months, from Sh122.83 billion in 2018. Revenues from M-Pesa grew 18.2 per cent to Sh41.97 billion. Revenue from the mobile money service has steadily grown over time and is now almost at par with voice revenues, which though remains the largest earner at Sh46.8 billion, has stayed flat over the recent past.

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Over the first half of Safaricom’s financial year, voice calls earned the firm Sh46.87 billion, a decline of 1.4 per cent from Sh47.53 billion last year. Revenue from text messaging dived 11 per cent to Sh8.6 billion. The firm noted that a tough operating environment had resulted in declining voice and messaging revenues, but these drops were offset by growth in M-Pesa and data revenues.

“In the past year, many organisations faced significant business challenges due to rising costs, reducing customer purchasing power and an increase in regulatory actions. A good number of Kenyans lost their jobs in the last one year through retrenchments, involuntary retirements and business closures. Fifteen listed companies at the Nairobi Stock Exchange have so far issued profit warnings,” said Safaricom chairman Nicholas Nganga at an investor briefing yesterday.

“And as recently noted by the Central Bank Governor Patrick Njoroge, most Kenyans have not felt the effects of the GDP growth as it is largely driven by Government spending on infrastructure which has not trickled down to the consumers.”

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While M-Pesa sustains the growth momentum, it took a hit following months of little betting after the Government declined to renew licences of some of the industry operators. Firms such as SportPesa and Betin have recently shut down their Kenyan operations citing the state’s hostility. The industry has in the recent past been a big driver of mobile money transactions in the country.

Growth in new M-Pesa services such as Fuliza and International Money Transfers plugged the gap created by a decline in gaming revenues, which the firm said it had recognised as ‘toxic’ partly because of how fast it shot up as well as the moral issues that came to haunt the industry.

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Fuliza, the overdraft facility launched earlier this year, has advanced Sh140 billion to Safaricom’s customers this year. Fees from the facility have earned the firm Sh1.3 billion over the first half.

The firm’s fixed data service, which includes fibre-to-home, earned Sh4.55 billion, an 18.4 per cent growth from Sh3.8 billion last year.

Safaricom has made steady progress in growing its relatively new service and according to the Communications Authority of Kenya’s latest data, the firm has grown its share of the fixed Internet market to 32.7 per cent and inching close to catching up with Zuku (with a 34.8 per cent share) that has for long remained the market leader in the segment.

The firm is now eyeing entry into Ethiopia, where its government plans to open up the telecommunications market, which has Ethio Telecoms as the only operator.

Michael Joseph said Safaricom is in talks with its parent company Vodacom as well as two international banks in evaluating the mechanisms of getting into Ethiopia. Ethiopian government this month plans to auction two telecommunications licences and bidders have up to end of this month to express their interest. The country is also looking to sell a 49 per cent stake in Ethio Telecom. Safaricom said it is evaluating the options and would decide whether to buy into the telco or go for a greenfield operation.

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“The country is an attractive proposition partly because of the size of the market. We are in talks with Vodacom and Vodafone, to consider what approach we will take… so far nothing has been decided,” said Joseph.

The move that will increase competition in the industry is part of efforts by Prime Minister Abiy Ahmed, who took office last year, to liberalise the economy.

Safaricom last week said it had hired Peter Ndegwa, currently in charge of Diageo’s operations in continental Europe, as its next chief executive. He is expected to start work at the firm on April 1, 2020.  

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SafaricomM-PesaProfitMichael JosephPeter NdegwaBob Collymore