Covid wipes Sh2b from Safaricom’s half-year earnings

Safaricom has for the first time reported a fall in earnings as the effects of the coronavirus pandemic eroded earnings for the giant telco.

According to the company’s half-year results for the 2020 financial year, profit after tax stood at Sh33 billion, down from Sh35 billion recorded in a similar period last year, with M-Pesa standing out as the biggest driver for the decline in earnings.

“The impact of our response to Covid-19 in zero-rating M-Pesa transactions weighed heavily on our performance for the first half with service revenue posting a decline of 4.8 per cent and earnings before tax down 10.5 per cent,” said Safaricom’s interim Chief Financial Officer Ilanna Darcy. 

Following the outbreak of Covid-19, Safaricom announced a waiver on all transactions below Sh1,000 to promote cashless transactions.

The telco’s financial results indicate that M-Pesa revenue was down 14.5 per cent - from Sh41.9 billion in the first half of the last financial year to Sh35.8 billion in the six months ended September 2020. 

Revenue from voice fell 6.5 per cent from Sh42.9 billion in the first half of the 2020 financial year to Sh40.1 billion, while SMS revenue similarly recorded a 6.9 per cent drop to Sh7.1 billion over the same period.

The firm’s data earnings, however, marked the biggest growth in service revenues as demand for connectivity from Kenyans working and studying from home remained high.

Mobile data revenue rose 14 per cent from Sh19.4 billion recorded in the first half of the 2020 financial year to Sh22.2 billion while income from home fibre subscribers jumped from Sh1.1 billion to Sh1.6 billion over the same period.

Overall, the company registered a 12 per cent growth in total subscribers to 38.1 million, with monthly active M-Pesa customers now standing at 26.7 million.

“The growth, especially in our customer numbers across different key performance indicators, is a positive sign of the business’ resilience and the opportunities for the future,” said the company’s Chief Executive Peter Ndegwa.

The company also increased capital expenditure in the period under review despite the prevailing headwinds, with Sh22.7 billion spent in network development up from Sh18.1 billion in the first half of the 2020 financial year.

Safaricom’s lending products posted mixed performance with Fuliza enjoying immense popularity over KCB-Mpesa and Mshwari.

Fuliza, the M-Pesa overdraft facility introduced in January 2019, registered a 33 per cent growth in the value of disbursements from Sh112 billion in the first half of 2020 to Sh149 billion in the six months ended September 2020.

The value of loans disbursed through KCB-M-Pesa fell 60 per cent - from Sh68 billion last year to Sh27 billion this year.

The value of loan repayments on the product similarly went down 58 per cent to Sh27 billion in the six months ended September 2020.

M-Shwari, another lending product delivered in partnership with NCBA Bank, similarly registered a decline in performance, with the value of loans falling 14 per cent to Sh47.5 billion from Sh55.4 billion.

Last year’s move by the State to ban sports betting continues to be felt on the telco’s payments revenue.

Income from betting fell from Sh2.2 billion in the first half of the 2020 financial year to Sh1.4 billion with the business contracting 33.7 per cent year on year.

The company is, however, recording recovery on several fronts, driven by the lifting of movement restrictions. “We expect the earnings before interest and tax to be in the range of Sh91-94 billion, and we expect Capex to remain in the range of Sh35-38 billion,” said Safaricom chief executive while giving the company’s outlook for the 2021 financial year.