British telecoms giant Vodafone Plc has emerged as the biggest beneficiary of Safaricom’s super profit after pocketing more than Sh1.1 billion from M-Pesa, the money transfer service.
Safaricom, Kenya’s leading telecoms operator, paid Vodafone the money in the form of licence fees as provided for under an agreement that the two companies signed before the launch of the mobile money platform five years ago.
The fee is payable quarterly and is capped at 25 per cent of every quarter’s revenue with a floor of 10 per cent, but Vodafone has been earning about 11 per cent of M-Pesa revenues over the past two years.
The UK firm is estimated to have pocketed Sh1.1 billion of the Sh10.4 billion revenues that Safaricom said M-Pesa had generated in the half to September. This is up from the Sh866 million it earned the previous year.
Bob Collymore, Safaricom’s chief executive, on Thursday said that rising number of registered M-Pesa users continued to lift the service’s revenues, which grew faster than voice sales that were up 18.8 per cent.
“This growth in active customers, coupled with an increased number of transactions per active customer, led to a 32 per cent increase in revenue to Sh10.4bn,” said Mr Collymore at a press briefing on Thursday.
“M-pesa now makes up to 18 per cent of total revenues. We have actively increased our number of M-pesa agents by 6,000 over the last few months, closing at 45,540 agents nationwide.”
On Thursday, Safaricom announced that its profit had increased 93.7 per cent to Sh7.77 billion aided by last October’s tariff increase and improved performance from non-voice businesses like M-Pesa and data services. Its revenues increased 19.1 per cent to Sh59.1 billion.
(PDF Download: Statement on Safaricom half year results)
The firm, however, did not pay an interim dividend in line with its tradition of sharing the profits with its shareholders at the end of the financial year.
But Vodafone, which is the single largest shareholder in Safaricom with a 40 per cent stake and which holds proprietary rights over M-Pesa, has already got a piece of the earnings since fees on the money transfer service are paid quarterly.
The revenue-sharing agreement makes Vodafone the biggest beneficiary of Safaricom’s fastest growing business line.
The UK firm will earn Sh3.5 billion in dividends for its 40 per cent stake in the Kenyan associate in the year to March. Although Safaricom does not disclose the net profit it generates from M-Pesa, Mr Collymore said the money transfer service had just broken even.
M-Pesa is also seen as a pivotal arm of Safaricom’s operations that has helped sharpen the telecom giant’s competitive edge by locking in some subscribers in a market marked with cutthroat competition.
Safaricom has successfully grown M-Pesa since the service was launched in March 2007 to 15.2 million subscribers.
By the end of March last year, the cumulative worth of M-Pesa transactions stood at Sh828 billion (an average of Sh17 billion a month) and revenues have grown from Sh370 million in 2008.
M-Pesa is presently aiming at getting a larger share of the corporate business, especially transactions between businesses and individuals in the small and medium enterprises (SMEs) realm.
Vodafone has been earning royalties of between 10 per cent and 25 per cent from M-Pesa’s annual revenues since February 23, 2007, under a five-year agreement. The company extended the payment structure in February under the same terms.
Safaricom’s new deal with Vodafone emerged at a moment when the UK firm is tightening its grip on the operations of Safaricom with appointments of senior executives to the board.
These have effectively reduced the role of the government — which has a 35 per cent stake in Safaricom — in the running of the company.
Vodafone has since the launch of Safaricom 10 years ago reserved the right to appoint the CEO and Chief Finance Officer of the Kenyan firm.
At the board level, the number of Vodafone representatives has increased from three in 2008 when it had Michael Joseph as CEO and directors Collymore and Gavin Darby, to five, giving the UK firm a critical muscle in Safaricom.
The government has three seats in the board represented by Esther Koimett (the Investment Secretary at Treasury), Susan Mudhune and Nicholas Nganga (chairman).
Vodafone is represented by Mr Collymore, Timothy Harrabin, Karen Witts, Nicholas Read and former Safaricom CEO Michael Joseph, currently director of mobile money at Vodafone.
Besides M-Pesa and dividends, other sources of revenue for Vodafone’s trading with Safaricom includes marketing and roaming using the Vodafone brand and payment of goods and services to the UK firm.