Safaricom

Safaricom Corporate Governance

Safaricom is one of the leading telecommunication firms in Kenya with its headquarters in Nairobi. The firm that ventures in various activities, encompassing Internet services, music streaming, ecommerce, cloud computing, money transfer, and electronics is one of the leading revenue earners in Kenya, East Africa, and central Africa. The facility presently regulates about 65% of the entire Kenyan market serving approximately 37 million customers. The facility covers 92% of short message service (SMS) market, and about 69% of the voice market. The group has grown exponentially since its formation in 1997 when it was under the full ownership of Telkom Kenya. In 2018, the company was termed the best employer in Africa by the Forbes Global 200, and has also garnered many other accolades for its significant impact on the telecommunication sector. The facility’s purpose is to develop opportunities for Kenyan nationals to be part of the firm’s growth story by empowering them with the appropriate mechanisms for economic advancement. The report pays attention to Safaricom’s governance structure, bondholder concerns, financial markets, and how the group relates to workers and the society. The paper identifies Safaricom as a focused company that is destined to achieve its mission and vision.  

Corporate Governance

Voting Structure

Safaricom leading shareholders have the right to vote on critical issues impacting on the organization’s operations. The government shares its shareholding capacity with Vodacom, which denies it veto powers when it comes to making decisions. The key shareholders at Safaricom have equal voting rights, other than Vodafone that has a relatively lower stake in the company. Today, chief shareholders enjoy the privilege to vote using their smartphones, and the company believes that this will help to cut on cost and time, as well as allow members to enjoy convenience.  

Ownership Structure

The facility commenced as a private limited liability firm before being changed into a public organization in 2002. Soon after it was changed into a public entity following the enactment of Chapter 446 of the Government Law Act, the government became its leading shareholder with as much as 60% shares. However, Telkom Kenya detained the government’s shares. The state had no other options but to offer its ten billion shares to the public through the NSE. The amount depicts 25% of all provided share capital of the company from the government’s shareholding in the firm. Today, the company serves as a public organization, and not a private company as some know it.

Top Shareholders

Safaricom’s shareholders expect the firm to remain a high-performing firm that balances offering sustainable financial returns against environmentally and ethical responsible activities. As a reflection of this, the group’s shareholders expect the firm to maintain a proven, experienced, and stable management team and to maintain the most suitable measures of corporate practices and governance. Safaricom’s shareholding structure has transformed over the years and presently comprises of the government of Kenya and Vodacom that have the largest shares at 35% each. Vodafon is also a shareholder with 5% stake while the free float is 25%. The company’s share price increased 1.2% at the declaration Vodafone would be transferring 35% of its shares in Safaricom to Vodacom in 2017, which us termed as a vote of confidence in the management team at the company.

CEO and Top Management

Michael Joseph who was born in South Africa but also has Kenyan citizenship was the founding Chief Executive Officer (CEO) for Safaricom. Joseph served as CEO from mid-2000 to late 2010. He is attributed to have introduced momentous changes at the firm from a subscriber base of less than 21,000 to more than 17 million during his previous practice. In his first term as CEO, the company recorded a 36.9% increase in pretax profit. Joseph also served as interim CEO following the demise of his predecessor CEO Bob Collymore who served as a leader from July 2019 to March 2020. Today, Peter Ndegwa is the CEO of Safaricom. Other top managers at the organization are Sylvia Mulinge (Chief Customer Officer), Dilip Pal (Chief Finance Officer), Stephen Chege (Chief Corporate Affairs Officer), Joseph Ogutu (Chief Special projects Officer), and Nicholas Mulila (Chief Corporate Security Officer).

Board of Directors

Safaricom’s Board of Directors is in charge for the overall operations of the organization’s business. The Chairman (Michael Joseph) takes charge for the operations, governance, and leadership of the Board, setting its agenda and ensuring it functions effectively. The Chief Executive (Peter Ndegwa) is in charge for the firm’s management and execution of Board’s policy and strategy. Also serving in the Board are Kathryne Maundu (Company Secretary), Professor Bitange Ndemo (Independent Non-Executive Director), Mohamed Shameel Aziz Joosub (Non-Executive Director), and Linda Watiri Muriuki (Non-Executive Director). Also part of the Board are Rose Ogega (Independent Non-Executive Director), Francesco Bianco (Non-Executive Director), Sitholizwe Mdlalos (Non-Executive Director), Dilip Pal (Alternate Director to CEO), Raisibe Kgomaraga (Non-Executive Director), Winnie Ouko (Independent Non-Executive Director), and Christopher Kiruga (Alternate Director to CS, National Treasury). The Board acts independently and can intervene in top management’s operations but consultatively.

Compensation Structure

Peter Ndegwa, the current CEO of Safaricom earns approximately 9 million Kenyan shillings, which amounts to 108 million shillings yearly. Ndegwa is among the most highly paid CEOs in Kenya, and the company constantly reviews the rate to match the firm’s performance. Ndegwa’s predecessor, Collymore earned about 10 million each month, which was considerably high. The CEO’s high salary could be attributed to the high profits the company has generated in the recent years. The group posted a 74.7 billion shillings net profit for the year ending March 2020, standing for a 20% increment in earnings from 2019. The group reportedly generates a profit of 195 million shillings each day in the last financial year. Similarly, Safaricom Share Price Performance has grown exponentially over the recent past, which could support why the company offers high compensation for its CEOs. The stocks have increased in volume and price from and 29 shillings in September 2020 to over 41 shillings by June 2021. Thus, Safaricom’s high profits and strong stock performance are the reason behind the appealing remuneration policy for CEOs.

Bondholder Concerns

Debt Type

Just like other companies that require funds to conduct their operations, Safaricom reaches out to potential donors to help it generate additional money, especially when things are tough. For instance, the company borrowed 24 billion from the Kenya Commercial bank in November 2020 to help it overcome the effects introduced by the COVID-19 pandemic. The borrowing comes after the firm witnessed a drop in its net profit. The company has witnessed an increased trend in borrowing in the recent past attributed to early payment in dividends and more investment in financial and mobile services, especially MPESA.

Debt Covenants

The primary debt covenant between Safaricom and its lenders revolves around agreeing on the amount of interest to pay after the specified period. For example, the facility would have to abide by the 7.35% interest rate that KCB offers for its loans. The group must also meet the other minimum requirements that financial lenders require, including the need to prove that the facility will service the loan and being in a steady relationship prior to the borrowing or lending.

Default Risk Measures

Citi Research has transformed the company’s shares to neutral, arguing that the risk award is in equilibrium after a current de-rating.  According to the report by Citi, the de-rating was necessary because of the recent competitive pressures, regulatory fears, and tax appraisals, which continue to escalate proceeding into the second half of 2020 financial year. Citi declared that at the present rate, it thinks the rewards and rates are balanced and assessment appears reasonable.

3. Financial Markets

a. Trading and Liquidity

The free float of share for trading at Safaricom is 25%. It means that the public are welcome to trade on these shares without much restriction. The free float usually alternate from time to time depending on the top management’s decisions. Concerning liquidity, Safaricom is stable because its trading volume is not so bad to hurt its performance. The trading volume has increased from about 2 million in September 2020 to more than 4 million in June 2021, which is convincing that the company performs well in its trading activities in the NSE and in terms of liquidity.

b. Analyst Following

Safaricom’s stock hit an all-time high in 2018, which dominated its market capitalization during the period to a high of 134 trillion shillings. The achievement makes Safaricom the only company in Kenya to have attained the 1 trillion mark in terms of market capitalization. Such achievements can only be attributed to effective planning. Safaricom attributes its good stock performance to the satisfying performance witnessed in voice, M-PESA, mobile data, messaging, fixed data, and handset that generated 89,500, 84,487, 40,667, 17,000, 8,960, and 7,630 million, respectively in 2020.

4. Society and other Stakeholders

a. Employee Satisfaction

The company, as already identified, is one of the leading firms in terms of taking care of its workers. The group remains dedicated to being a world-class employer and takes its duty to uphold a safe, supportive, and productive working environment for all members of staff. The group’s vision is to transform the lives of its workers and a key element of this vision is to form a supportive working condition that permits the firm to appeal to, build, and retain the best employees. The group continually asses its staff morale utilizing a yearly SEMA Survey as well as other approaches such as Sema na CEO chat room, the Staff Council, and staff turnover rates. Consequently, employee turnover rates are low, and worker satisfaction is high.

b. Society

Safaricom plays significant corporate social responsibility (CSR) roles, which gives it much fame and glory in the society. The Safaricom Foundation is in its sixth year since its formation and continues to work with partners to advance the livelihood of Kenyan communities. The Foundation has continually supported the execution of projects in a wide range of areas, encompassing disaster relief, sports, music and culture, health, education, economic advancement, arts, and environmental conservation. For instance, the company supported the Har Har development Group in Dadaab to progress a series of afforestation initiatives in nearby refugee camps and neighborhoods. The company is committed to increase its investment in CSR initiatives locally and abroad.

References

Safaricom. (2021). Safaricom. Retrieved from https://www.safaricom.co.ke/personal/