Safaricom Chief Executive Officer Bob Collymore Wednesday. The firm’s profit have declined due to increasing competition and rising operational costs.
Safaricom’s half-year earnings dropped by nearly 50 per cent on the back of a surge in operating costs inspired by the weak shilling and reduced revenues from voice calls.
Its profit after tax declined 47.4 per cent to stand at Sh4 billion as market price wars finally showed up on the company’s earnings radar. The firm last year recorded half-year profit of Sh7.6 billion. The listed firm’s share price is expected to hold at the current level of Sh3 at the Nairobi Securities Exchange in the short term, with analysts arguing that investors had expected the drop in earnings during the period under review.
Its share price has dropped by 11.7 per cent in the past six months to stand at Sh3 at Wednesday’s trading session where it moved 2.8 million shares. “The performance was good in the light of the tough operating environment,” said Renaldo D’Souza, an analyst at Genghis Capital. “We expect the recent increase in calling charges by Sh1 per minute to boost second half revenues.”
An analysis of the results shows that Safaricom managed to increase its revenues but shouldered a huge surge in operating costs which scaled up by 22 per cent to Sh26.5 billion.
The October 1 price rises, however, did not affect its revenues coming a day after the end of the half year, with the impact expected in current quarterly report.
Safaricom CEO Bob Collymore attributed the move to rising inflation that fell just shy of 19 per cent last month.
“The volatile shilling has had the highest impact on our operating costs during the period,” said the firm Wednesday. “The unprecedented devaluation of the shilling within the period has led to a net forex loss and associated costs on revaluation of trading balances of Sh1.4 billion.”
Other sources of the cost escalation were Communications Commission of Kenya fees accumulations as a result of the firm expanding its network and the 0.5 per cent universal license fees. Most of these costs are expected to be reflected across the board in the industry, having a worse impact on the other operators. However, the strengthening shilling holds some hope for them.
Mobile telephony firms are paying a heavy price in the wake of last year’s price wars sparked by Airtel after it was acquired by Indian firm Bharti Airtel.
“We made an unrealised forex loss due to the weak shilling. Should the macroeconomic situation improve, we could reverse this loss into gains,” said Chris Tiffin, Safaricom’s chief financial officer, during a press conference at Safaricom House in Nairobi Wednesday.
Safaricom managed a marginal increase in revenues which rose five per cent to Sh49.6 billion, indicating the firm remains one of the dominant companies in the country. But its voice revenue shrunk 5.5 per cent, from Sh33.3 billion to Sh31.4 billion due to what Safaricom partly attributed to falling consumer purchasing power as a result of higher food and fuel prices besides an 80 per cent average voice tariffs increase.
The falling voice revenues came against the backdrop of an 83 per cent increase in voice traffic which suggests talk is becoming ever cheaper for Kenyans.
“Mobile service average revenue per user (ARPU) declined mainly due to decline in voice ARPU as a result of tariff reduction and dilutive impact of new subscribers who tend to spend less,” said the statement. The falling revenues per user explain why Safaricom took the recent gamble to raise its voice tariffs by Sh1 even as the rest of the industry maintained rock-bottom calling rates.
The telecommunications firm indicated in its results that revenue continued to rise with money transfer data acting as a bulwark against competition.
The award-winning M-Pesa managed to increase revenue by 49.3 per cent to hit a fresh high of Sh7.9 billion as users hit 14.9 million. The service where 82.4 per cent of the 18.1 million Safaricom customers are hooked up now accounts for 16 per cent of the company’s revenue.
“We will continue to diversify into M-Pesa and data business to provide a permanent hedge against falling voice revenues,” said Mr Collymore. “M-Pesa still has a huge potential for growth, including in areas such as micro-insurance, micro-saving and micro-credit.”
Another profitable business in the Kenyan mobile industry, Short Message Service or SMS, also recorded reduced revenue as industry tariff cuts came to bear on revenues.
Promotions
Safaricom’s SMS sales fell by 0.4 per cent to Sh3.7 billion. The impact was cushioned by a rise in mobile and fixed data sales which rose 36.3 per cent to Sh3 billion. Revenue from SMS stagnated due to a slowdown in mobile-based promotions run by gaming and television companies. “This half has seen a reduction in these promotions,” Mr Tiffin said.
Overall, the 40 per cent government-owned firm said “92 per cent of all Internet subscriptions in Kenya (are) on Safaricom connected devices.” Mr Tiffin said that Safaricom will reduce its capital expenditure by 25 per cent in the second half.
Safaricom says watching its cost base and investing in its system remain key to maintaining market leadership. In the half year, it invested Sh15 billion in its 3G network, switching capacity and an upgrade of its 2G network among others.
