Kenya: Safaricom Profits Take a Covid-19 Hit, Drops Marginally to Sh68.7 Billion

Safaricom has announced a 6.8 percent drop in full year net profits to Sh68.7 billion in 2020, down from the Sh73.6 billion recorded in the previous year as it took a hit from the Covid-19 pandemic and absorbed costs from the free mobile transactions.

The telco, which saw a marginal reduction in its fortunes in the first half of the year, however rebounded in the second half to report Sh250.3 billion in revenues.

The company said it was not spared from the tough operating environment, as evidenced the dip in its service revenue, earnings before interest and tax and net income.

"Covid-19 altered the environment for all businesses. We were not spared. Perhaps the most impactful was facilitating reduced cash handling through temporary zero-rating all transactions below Sh1,000," Safaricom Chief Executive Peter Ndegwa told investors on Thursday.

The firm, which has declared Sh56.09 billion in dividends, said that over 1.7 billion transactions valued at Sh4.4 trillion were zero-rated during this period.

"Following return to charging on zero rated M-PESA transactions, we also reduced our M-PESA tariffs by up to 45 percent for lower value transaction bands. We also made it easier for our customers to pay hospital bills by zero-rating Paybill costs to health facilities across the country," Ndegwa said.

Its service revenue recorded a marginal decline of 0.3 percent to close at Sh250.35 billion driven by double-digit growth in mobile data business, which grew by 11.5 percent to Sh44.79 billion.

The firm said its mobile money platform, M-Pesa accounted for 33 percent of the total service revenue down from 33.6 percent last year, impacted by the waiver of the Peer-to-Peer (P2P) transactions fees.

M-Pesa recorded a 2.1 percent drop in revenues year on year to Sh82.64 billion and voice dropped by 4.6 percent to register revenue of Sh82.55 billion.

"We remained resilient in a disruptive year, demonstrating strong operational capacity, diligence and commitment in supporting the country, our customers and shareholders through this uncertain time," Ndegwa said.

" Our immediate focus in the year has been to ensure that network capacity, operations and financial services are prioritized to limit disruptions," the Safaricom CEO added.

The telco said its fiber to home performed well due to demand from working and learning from home as Mpesa bounced back in the second half.

The firm has issued a guidance of Sh40 billion to Sh43 billion in capital expenditure in 2022 and is projecting to earnings before interest and taxes (EBIT) of between Sh105 billion to Sh108 billion next year.

Dilip Pal, the Chief Finance Officer said zero rating of M-Pesa transactions weighed heavily on its performance but it recovered in the second half of the year.

Pal said that Smart procurement, digitisation helped the company cut its operating costs.

Ndegwa said the company is evolving its business model to transform into an agile organisation.

In 2020 the company declared for the first time, an interim dividend of Sh0.45 per ordinary share held amounting to Sh18.03 billion.

The board has now declared a final dividend per share (DPS) of Sh0.92 dividend per share amounting to Sh36.86 billion, bringing the total dividend pay out to Sh56.09 billion

In 2020, the company invested Sh34.96 billion in its network, achieving in line with the guidance of Sh35-38 billion for the year.

Currently the company holds 69.2 percent voice traffic share and 35.6 percent for fixed data subscriptions.

Key highlights

· 5.3 percent YoY decline in EBIT (Earnings before Interest and Tax) to Sh96.16bn with an EBIT margin of 36.5 percent, down 2.2ppts YoY.

· Net Income reduced by 6.8 percent YoY to Sh8.68bn.

· Free Cash Flow down 8.2 percent YoY to Sh64.52bn.

· Service revenue contracted by 0.3 percent to Sh250.35bn.

· Voice service (outgoing) revenue reduced by 4.6 percent YoY to Sh82.55bn.

· M-Pesa revenue dropped by 2.1 percent YoY to Sh82.65bn.

· Mobile data revenue increased by 11.5 percent YoY to Sh44,79bn.

· Messaging revenue declined by 11.7 percent YoY to Sh13.60bn.

· The total one-month active customer base increased by 9.9 percent to Sh31.45m.

· One month active M-PESA customers increased 13.6 percent to Sh28.31mn.

· One month active mobile data customers increased 8.1 percent to Sh23.77m.

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