AccessKenya eyes cost-cutting as it issues profit warning

Internet service provider AccessKenya is betting on cutting costs and hedging its foreign currency debts to return to profit in 2011 as it warned that its earnings will be at least 25 per cent lower this year than in the previous year.

The firm is reducing its borrowing costs, hedged its foreign exchange risks and has negotiated afresh its bandwidth contracts with international cable owners in an effort to grow margins in an environment where price wars is keeping pressure on revenues.

This come as the firm issued a profit warning, making it the fifth company after Eveready, East Africa Cables, Sameer Africa and BOC Gases to issue an earnings alert.

AccessKenya posted a 59 per cent drop in net profit for the first half ended June to Sh30.6 million on reduced revenues due to the price war

“AccessKenya has renegotiated the key bandwidth contracts which will further improve the performance of the company and the benefits of all these actions will be seen in 2011,” said Jonathan Somen, the firm’s managing director.

The change in strategy from pursing top line growth to going deep into costs cutting is partly informed by the rising competition in Kenya’s data and internet market, which has attracted cash flush mobile telephony firms such as Safaricom, which has started a price war.

Its other competitors in the data market include Swift Global, Kenya Data Networks, Uunet and the Wananchi Group, which have intensified their activities in recent months.

“There has been pressure on pricing and a desire by customers to get higher speeds. Access has responded to both of these and will continue to do so,” said Mr Somen in response to the price war.

Its sales dropped to Sh876 million from Sh1.06 billion in the first half due to the price that saw AccessKenya lower its charges in an effort to remain relevant in the market place.

Investors at the Nairobi Stock Exchange —where the firm debuted in 2007—have taken note of its poor show as the share has lost 20.8 per cent in the past six months to trade at Sh13.55.

The counter was the third biggest loser after Eveready and Olympia Capital which declined by 32.1 and 26 per cent respectively in the period under review.

Although the company has a 40 per cent market share of the corporate internet clients, this niche market is becoming crowded.

“Competition is getting stiffer in the market and Safaricom has an eye for this market,” said George Bodo, an analyst with Genghis Capital.