Safaricom ups dividend payout after Sh21b profit

Kenya’s largest telecoms firm Safaricom posted a 37 per cent jump in pre-tax profits to Sh21 billion in the year to March 2010, propelled by a surge in data revenue that smoothened out a slow growth in the traditional voice business.

The robust growth, in a year when a turbulent first half of the year results had removed the shine from the firm’s performance, was also helped by aggressive cost-cutting measures that cut back operational expenditure by Sh1 billion, leaving it with enough headroom to tackle a new wave of competition in the market.

Safaricom’s return to the robust growth curve is being seen as a signal that economic recovery that the country has witnessed in recent months may have began in the last quarter of 2009.

“Weak margins in the first half were reflective of an aggressive customer acquisition strategy (competition) and network running costs (inflation) in a soft economy,” said Ivan Kim, an analyst at Renaissance Capital.

“The cost-cutting initiatives introduced by management are however bearing fruit. The outlook for Safaricom is contingent upon growth in the data segment and M-Pesa as well as its ability to improve profitability,” said Mr Kim, in a note to investors.

The company proposes to pay a dividend of 20 cents per share to shareholders— a significant move that points to a more generous payout policy.

The Sh8 billion dividend is 53 per cent of the firm’s net profit of Sh15.1 billion.

The company’s dividend has been of concern to shareholders, especially those who bought small volumes during the 2008 IPO largely because of the company’s volume of 40 billion issued shares.

The company has been pondering options including consolidating the shares but has not dealt with regulatory hurdles.

An improvement in the economic environment helped Safaricom successfully launch its foray into the data market, making 2009 the year when the telecoms operator departed from its heavy reliance on the voice market for revenue growth.

The growth in Safaricom’s revenues to Sh83 billion from Sh70 the previous year is the latest confirmation of the enduring power that the telecoms firm possessed in an operating environment subdued by the economic slowdown.

That growth also proves wrong analysts who have in the past couple of years been warning investors of a possible erosion of profitability in the telecoms market as more players came on board, raising the intensity of competition while the recruitment of new subscribers reached the bottom end of the market.

Safaricom chief executive Michael Joseph said the net income rose by 43 per cent to Sh15 billion, while EBITDA (earnings before interest, tax, depreciation and amortisation) jumped to Sh36 billion from Sh27 billion the previous year.

The firm reported a slowdown in the pace of revenue growth from the voice business, reflecting the decline of average revenue per user (ARPU) to Sh362 in 2009 from Sh376 in 2008 as competition for market-share pulled down tariffs and recruitment of new subscribers knocked on the doors of rural residents with less spending power.