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Safaricom lifts outlook after 94pc profit leap

Higher tariffs and low operation costs helped Safaricom to grow its net profit by 94 per cent in the six months to September this year.

The telco’s net profit stood reached Sh7.7 billion in the review period when it raised its call tariffs by Sh1 per minute compared to Sh4 billion a year earlier.

From October 1, 2011, the company raised its on-net call rates from Sh3 per minute to Sh4 per minute, with those of calls to other networks being raised from Sh4 per minute to Sh5 per minute.

The higher tariffs saw revenues from voice services grow from Sh33.8 billion to Sh37.4 billion, raising total sales to Sh59.1 billion from Sh49.6 billion, a 19 per cent increase. “There is good recovery from damaging price wars,” Safaricom CEO Bob Collymore said in a statement. Its average revenue per user for voice services rose 11.8 per cent to Sh319.5 from Sh287.7.

The company also benefited from low expenses as cost of goods sold (COGS) grew by a marginal 3.9 per cent to Sh27.5 billion from Sh26.5 billion.

“Our cost efficiency is constantly being improved in order to mitigate inflationary pressures and to achieve best in class cost ratios.

Key focus areas include process re-engineering, reduction of transmission costs and reducing the diesel costs in the network,” Mr Collymore said. Safaricom’s share price yesterday remained unchanged at Sh4.45, representing a 27.1 per cent gain over the past six months in what brokers attributed to higher demand for the stock on expectation of better performance.

Standard Investment Bank (SIB) forecast that the telco would lift its dividend to 28 cents from last year’s 22 cents.

The strong performance in the first half saw Safaricom project that its full-year turnover would grow by a low double digit (between 10 per cent and 13 per cent) compared to an earlier expectation of a low-to-mid single digit.

The telecom industry has lost billions of shillings since August 2010 when call rates dropped from a high of Sh8 per minute to an average of Sh3 per minute.

The first half performance matched expectations of analysts led by Standard Investment Bank (SIB), which had projected the telco’s revenues to rise 21.4 per cent to Sh60.2 billion.

SIB said the firm’s decision to pull out of the debilitating price war with rivals Airtel, Yu and Orange, coupled with its non-voice revenues, would boost its performance in the medium term. “We think Safaricom is in very good shape especially supported by revenues from its financial services division (M-Pesa) as well as a strong recovery in voice revenue following a decision to increase calling rates in October 2011,” SIB said in a research note.

Safaricom acquired 1.2 million more customers to 19.2 million as of September despite the higher tariffs, underlining the impact of its popular money transfer service M-Pesa in customer retention.

The company controls 80.7 per cent market share in terms of voice traffic indicating that the price war has not shifted the players’ stakes significantly.

Airtel’s share of the market stood at 10.9 per cent in the year to June while Essar had 7.7 per cent, according to the latest CCK data. Safaricom’s voice market share based on subscribers stood at 64 per cent in June.

Contribution of voice revenue to Safaricom’s total sales dropped to 66.7 per cent from 68.3 per cent, with the company saying it would continue to invest heavily in data and financial services as a cushion.

Earnings from M-Pesa rose by 32 per cent to Sh10.4 billion with the number of subscribers to the money transfer service rising to 15.2 million from 14.8 million.

M-Pesa’s contribution to total revenue rose to 18.6 per cent from 17.1 per cent, with Safaricom’s parent company Vodafone set to take the service global by signing more partnerships in multiple markets.

The recent move by the government to introduce a 10 per cent excise duty on fees paid for mobile money transfers could, however, slow down earnings from services like M-Pesa.

Mr Collymore said Safaricom would invest more in infrastructure to support its various services as it seeks to boost sales of integrated offerings to companies and individual cusrtomers.

The company plans to build a fibre network that would, together with leased capacity from other players, connect 60 per cent of its base stations with most commercial buildings in cities.

“This will position us as an integrated solutions provider of choice to our enterprise customers,” Mr Collymore said.

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