Vodafone books Sh5bn loss from M-Pesa cash firm sale

M-pesa sign along Banda Street on January 9, 2024. 

Photo credit: Lucy Wanjiru | Nation Media Group

UK multinational Vodafone Group Plc says it has recorded a loss of €37 million (Sh5.1 billion) from the sale of the company holding M-Pesa funds to Safaricom at a token price of $1 (Sh128).

The loss represents the transfer of a valuable subsidiary – M-Pesa Holding Company Limited— for almost nothing in a deal that is part of a years-long plan to put Safaricom in charge of the critical aspects of the mobile money platform.

Vodafone disclosed the loss, which it describes as a non-cash item, in its latest annual report for the year ended March 2024 in the section aggregating disposals in the review period. The transaction was concluded on September 28, 2023. "Under UK accounting rules we recorded a significant non-cash accounting loss on this sale. This loss was non-tax deductible, and therefore, this gave rise to the €37 million item in our tax reconciliation,” Vodafone said in response to our queries. “The €37 million is just an accounting disclosure, to note that we cannot utilise the recorded loss to reduce our tax burden.”

The disclosure indicates that M-Pesa Holding is worth more than Sh5 billion, but the multinational surrendered the business almost for free after negotiations that started more than a year ago.

In the report, Vodafone defines disposals as the difference between the value of net assets sold and the fair value of consideration received. The amount is recorded as a gain or loss on disposal. Vodafone’s disclosures show that M-Pesa Holding had substantial cash and short-term investments funded by deposits from M-Pesa customers at the time the deal was concluded on September 28, 2023.

“Balances included in the Group’s consolidated statement of financial position at the date of disposal included cash of €63 million, together with short-term investments of €1,195 million and €1,156 million due to M-Pesa customers recorded within Other investments and Trade and other payables, respectively [on disposal date],” Vodafone said of the financial position of M-Pesa Holding.

Despite the substantial interest income earned by M-Pesa Holding, Safaricom has taken a decision not to incorporate the financial statements of the subsidiary in its group results.

“The results of M-Pesa Holding Company have not been consolidated in these financial statements,” Safaricom, which now owns 100 percent of the M-Pesa cash firm, says in its latest annual report.

In contrast, Vodafone used to include the performance of M-Pesa Holding in its financial statements prior to the disposal.

“Balances included in the Group’s consolidated financial statements for M-Pesa Holding Company at 31 March 2023 include short-term investments of €1,247 million and €1,226 million due to M-Pesa customers, recorded within Other investments and Other creditors, respectively,” the multinational said previously.

The transaction was expected to boost Safaricom’s cash flows besides earning the company interest income through investment of part of the M-Pesa war chest in short-term securities like Treasury bills and bank deposits.

“Going forward, Safaricom will have the overall responsibility for the entire payment service system, including operations of the trust. M-Pesa Holding undertakes and carries on the office and duties of corporate trustee for the funds held in trust for M-Pesa account holders in Kenya,” the Kenyan telco says in the report.

“The funds held in M-Pesa Holding are due to customers and agents and relate to M-Pesa units not yet redeemed. M-Pesa Holding holds these amounts in cash, deposits, and treasury bills in its bank accounts (Trust accounts).”

Under Vodafone, interest earned from investing M-Pesa deposits was available for use for either charity or corporate purposes at the discretion of the multinational, according to a review of M-Pesa Holding’s trust deed.

Vodafone, however, now says that it has never benefited from controlling the M-Pesa cash firm.

“For the avoidance of doubt, M-Pesa Holding has never generated any economic benefit to Vodafone Group. No funds, interest, or investments relating to M-Pesa Holding have ever left Kenya,” Vodafone said in a statement.

M-Pesa Holding keeps customer funds on trust for the benefit of M-Pesa customers in Kenya. It acts as the independent trustee for M-Pesa customers, administering the trust and holding all funds in the mobile money service. It is also a cash cow, holding and investing hundreds of billions of shillings on a short-term basis amid rapid growth in customer deposits as well as transaction volumes and values.

The transfer of M-Pesa Holding to Safaricom marks the telco’s increased control of the major aspects of the mobile money service, which was pioneered in Kenya but whose intellectual property was previously held by Vodafone.

Safaricom and South Africa’s Vodacom Group Limited –in which Vodafone has effective stakes of 27.7 percent and 65.1 percent, respectively— in March 2020 teamed up to acquire the M-Pesa brand from the UK multinational at a cost of Sh2.1 billion.

The companies now hold the mobile money brand in their joint venture firm M-Pesa Africa, which is registered in Kenya and which they own on a 50/50 basis.

The move saved Safaricom significant licence fees it was paying to Vodafone to use the brand.

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Note: The results are not exact but very close to the actual.