TRUE VALUE ASSESSMENT

We continually track whether we are successfully improving quality of life and contributing towards a sustainable livelihood for people throughout Kenya. Guided by a structured impact modelling tool, we are able to conduct holistic assessments and build a foundation from which to explore inclusive solutions to further increase the value we create for society.

The KPMG “True Value” methodology allows us to quantify the signifi cant indirect value contribution we make to the Kenyan economy, society and environment. By examining the positive and negative impact of the organisation on society, the environment and the economy in monetary terms, we are able to highlight how much actual value we contribute to Kenya and its people. The following is an independent analysis of our True Earnings by KPMG.

TRUE VALUE

IMPACT ON SOCIETY

The True Value assessment calculates that we sustained over 187,756 direct and indirect jobs during the year and, if the wider effects on the economy are included, this number increases to over 978,633 jobs.

9.6 x

PROFIT

We remain committed to our purpose of transforming lives. Our latest True Value Report indicates that the value to Kenyan society created by Safaricom increased by 11 per cent to KSh 601 billion, 9.6 times the financial profit the company earned during the same period, and we contributed a total of 6.3 per cent* to the gross domestic product (GDP) of the country. We continue to leverage the power of mobile technology to deliver shared value propositions that disrupt inefficiencies and impact lives positively in the health, agriculture and education sectors.

*This figure is based on the direct, indirect and induced economic impact of Safaricom (calculated using the Kenyan national economic impact assessment model) and the average estimated Kenyan GDP sourced from the Kenyan National Bureau of Statistics website

Source:
KPMG 2019, KPMG True Valuse Case Study – Safaricom Ltd

Definitions

True Value: A three-step methodology that enables companies to (i) assess their ‘true’ earnings including externalities, (ii) understand future earnings at risk and (iii) develop business cases that create both corporate and societal value.

True Earnings: The first step of the True Value methodology, which quantifies and monetises the material externalities of a company.

Total Economic Value: The nature and magnitude of the contribution to the Kenyan economy made by Safaricom.

Induced economic impact: Our operational and capital expenditure will stimulate additional employment and benefit the employees of our suppliers. A share of the additional income generated in this way will be spent on the consumption of goods and services, which, through linkages and multiplier effects, will benefit the broader economy by stimulating additional demand for the products and services produced within that economy.

THE 2019 TRUE EARNINGS BRIDGE

The economic impact made through our operations is the greatest contributor to the value we create. This has grown ten per cent since FY18. The value created through capital expenditure also increased in the year under review, by 18 per cent.

This graph demonstrates how all factors have contributed towards the “True Earnings” of Safaricom for this period. Most noteworthy was the growing contribution from social externalities, particularly in terms of the social value created by M-PESA as the product grew and evolved.

Throughout the period, the greatest contribution to “True Earnings” came from the economic value created through the operations and capital projects of Safaricom, whereas the negative environmental externalities, though recognised as a material topic, continue to have minimal impact.

Safaricom’ s contribution to the Kenyan economy, which takes into account economic value generated, tax paid and the estimated value eroded by corruption in the economy, amounts to KSh 317.6 billion.

The “Total Economic Value added” on the Safaricom True Earnings Bridge includes only the direct and indirect GDP impact associated with Safaricom operations and capital expenditure. The following is a breakdown of the total GDP impact if the wider effects on the economy are included:

The economic impact of the KSh 250.3 billion in annual revenues generated from Safaricom operations resulted in an estimated KSh 531,067 million contribution to Gross Domestic Product (GDP). This GDP impact can be separated into a direct impact of KSh 147,029 million, an indirect impact of KSh 91,818 million and an induced impact of KSh 292,220 million.

The total economic impact of our estimated KSh 37.3 billion capital expenditure resulted in Safaricom resulted in a total estimated GDP contribution of KSh 20.1 billion. This GDP impact can be separated into a direct impact of KSh 8.2 billion, an indirect impact of KSh 3.5 billion and an induced impact of KSh 8.4 billion.

Each year, a portion of the economic value generated by Safaricom is lost as a result of corruption that takes place in the Kenyan economy. It is important to note that this is not directly connected to the activities of Safaricom, but rather acknowledges the unfortunate reality that not all of this value is retained.

This graph provides a high-level overview of the annual contribution to employment. The numbers are derived from a Kenya-specifi c economic impact assessment (EIA) model and include direct and indirect contribution to employment, as well as the wider induced effects on employment in the economy. The positive social impact associated with the direct and indirect jobs sustained as a result of our business has been included in the True Earnings bridge.

The social value of M-PESA³ remains a signifi cant creator of value for Kenyan society, having increased by 12 per cent in the last fi nancial year. The major drivers of this growth have been the increase in numbers of customers, agents and merchants; the increase in the average number of transactions per customer; and the increase in the average value of transactions made per customer. The social value created by M-PESA in FY19, excluding transaction fees, has been calculated at KSh 213.5 billion. This is 3 times the total amount of transaction fees earned by Safaricom in the same period. The greatest value continues to be felt by customers, who benefi t from their improved ability to manage and save money, lower transaction costs, less theft, and the wellbeing that comes with access to goods, services and opportunities, and increased safety and security.

There were two recorded contractor fatalities in FY19, which negatively impacted the Safaricom True Earnings for the period.

The overall negative environmental impact on the Safaricom True Earnings increased. Our total water consumption increased due to the inclusion of a new call centre in Eldoret and a reduction in the amount of water we harvested. Carbon emissions increased in the year under review; the negative impact of these on the results was further increased by the higher cost of carbon.

All financial information can be found in the 2019 annual fi nancial report, including taxes paid by Safaricom and actual direct employment. Both capital and operational expenditure have been processed via the Kenyan national economic impact assessment model, set up to accept the economic structure of the communication industry according to the Kenyan Social Accounting Matrix (SAM).

Social Return on Investment (SROI) principles were used to quantify the social value created for stakeholders through our M-PESA product offering.

How we arrive at these numbers

KPMG first carried out a “True Earnings” exercise for Safaricom in 2015 to identify the most material socio-economic and environmental impacts of Safaricom and to quantify them in financial terms. During that year, Step 1 of the True Value methodology was carried out to estimate the True Earnings of Safaricom for the year in question.

Primary research enabled us to complete this exercise and to ascertain the social value created by M-PESA in particular. To quantify this social value, principles from the Social Return on Investment (SROI) methodology were used. SROI is an opensource, principles-based method used to account for social change. More detail regarding the 2014/15 True Earnings exercise can be accessed at: https://home.kpmg.com/content/dam/kpmg/pdf/2016/07/case-study-safaricom-limited.pdf

Since 2014/15, True Earnings has been used by Safaricom as a way of understanding and expressing the value that the company creates for society. A decision has been made not to carry out the same level of primary research in the following years, but to extrapolate existing primary data and research points from 2014/15, or other years in which relevant data has been publicly available, to create a picture of the relevant period that is as accurate as possible. This has necessitated making certain informed assumptions, all of which have been interrogated internally and confirmed to be the most appropriate in the specific Kenyan context. For the 2018/19 True Earnings update, secondary data was updated with the latest available information. The update for 2018/19 did not include new/additional M-PESA products, new primary data, nor a renewed examination of any of the activities of the company.

Further research will be undertaken in the current financial year and the assumptions updated accordingly. This will be reflected in the 2020 True Value bridge.