How your Sh20 a day helped Safaricom post Sh63b profit

From left,Sylvia Mulinge chief customer officer Safaricom PLC,Bob CollyMore Safaricom CEO,Sateesh Kamath chief financial officer Safaricom and Nicholas Nganga board chair Safaricom following the proceeding of the launch of Safaricom full year financial results for 2019 at Safaricom Micheal Joseph Center on 3rd May 2019. [Edward Kiplimo,Standard]

Twenty shillings might not appear much especially when talking about telecommunications firm Safaricom that has just reported revenues of Sh251 billion for the financial year to March 2019.

It is however that Sh20 paid every day by each of the 31.85 million customers that has contributed to the operator’s record profits.

Safaricom profit after tax grew by 14.7 per cent from Sh55.3 billion last year to Sh63.4 billion recorded in the year ended March 31, 2019 on the back of M-Pesa and mobile data revenue.

The company’s newly launched overdraft facility, Fuliza proved to be a gold mine as users borrowed more than Sh45 billion in just four months since its launch in January this year.

Total service revenue rose by seven per cent from Sh224 billion reported at the end of March 2018 to Sh240 billion with M-Pesa accounting for Sh75 billion of this revenue haul.

Voice declined

The record profits surpassed the combined net earnings reported by blue chip companies KCB Group, Equity Group and East African Breweries Limited, underscoring the telco’s heft in the country’s economy.

Earnings from voice - which has traditionally been the company’s bread and butter - have since declined and now account for 36 per cent of overall revenue, down from over 60 per cent five years ago. 

This means Safaricom is moving away from reliance on voice and SMS, with focus now shifting into broadening its mobile money and data offerings, which will provide the next revenue streams.

“The growth in M-Pesa has been driven by an increased number of users, higher velocity of funds within the ecosystem and adoption of new use cases,” said Safaricom Chief Executive Bob Collymore during the presentation of the company’s full year results yesterday.

“In the period, we added 2.1 million active M-Pesa customers. M-Pesa now accounts for 31.2 per cent of service revenue, further accelerating displacement of traditional voice and messaging services.”

The decline in voice and SMS has been attributed to the increasing adoption, particularly among young people, of third party applications such as WhatsApp that allow consumers to make voice and video calls and send texts free of charge.

This has directly impacted the firm’s bottom line. In the 2015/2016 financial year, for instance, Safaricom made Sh388 on average from every user through its voice service. This figure was down to Sh339 in the last financial year.

Mr Collymore said the company was now looking at spreading the M-Pesa brand into the region especially after signing a new agreement with Equity Bank earlier this week.

“The agreement Vodafone Group signed provides for an opportunity to take M-Pesa to other countries in the region and Equity Bank has a presence in Uganda, South Sudan and DRC and we’ll explore opportunities of working together to extend our offerings in some of these markets,” he said.

At the same time, the company highlighted the success of Fuliza which has enjoyed rapid adoption with more than Sh45 billion advanced through the facility in just four months.

“We launched Fuliza after we realised that consumers were cancelling millions of transactions every day because of inadequate funds in their wallets,” explained Collymore.

Safaricom Chairman Nicholas Nganga said the company was keeping an eye on developments in the regulatory front where Parliament is expected to debate legislation on dominance in the telecommunications sector as well as proposals to have players spin off their mobile money businesses.

“Legislation and regulation that seek to forcefully re-organise the operational structure of companies are not for business,” he said.

“We are comfortable with how the two main aspects of this business are running and we would wait for someone to give us perhaps a more comprehensive and convincing reason as to why that separation would be in the interest of the business and stakeholders.”  

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