Safaricom’s full year profit forecast moves to Sh36bn

Telecoms operator Safaricom expects its full-year net income to hit Sh36.5 billion, buoyed by strong growth in data and mobile money segments of its business, the company’s management said, departing from the ongoing trend of gloomy profit warnings in corporate Kenya.  

Safaricom Thursday announced a 23 per cent growth in its half-year profits to Sh18.1 billion and raised its full-year earnings expectations from the Sh32 –34 billion range it made at the beginning of the financial year to a higher target of between Sh35.5 billion and Sh36.5 billion, signalling good tidings for shareholders if the expectation is realised.

The company’s chief finance officer John Tombleson said an increase in net income portends a rise in the dividend payout even as he insisted that the extent of the payout must await the end of the financial year.

“Generally if net income increases, then it follows that it is likely that the recommended dividend also increases (but the extent is not known yet),” said Mr Tombleson, adding that the size of the dividend payout must be determined by the board at the end of the financial year.

Safaricom paid a dividend of 64 cents per share for the financial year that ended in March 2015 — a 36 per cent rise from the previous year’s 47 cents.

The telecom operator’s share price has in the past six months shed 18.05 per cent and yesterday closed trading at Sh14.95, up 0.65 cents. 

Safaricom also upgraded its free cash flow range to between Sh27.5 billion and Sh28.5 billion (from Sh25–26bn).

At Sh18.1 billion, Safaricom’s six-month profit was Sh3.4 billion higher than the Sh14.7 billion it reported in the same period the previous year.

The company’s revenues rose 12 per cent to Sh84.9 billion, driven by a 24 per cent surge in non-voice income such as data and M-Pesa. Voice revenue grew modestly at the rate of four per cent.

Safaricom, which is the largest company by market capitalisation at the Nairobi Securities Exchange (NSE), shrugged off stiff competition to increase its customers by three million to 25.1 million in the period under review.

Voice revenues grew four per cent to Sh45.2 billion while M-Pesa revenue grew by 24 per cent to Sh19.4 billion. Messaging revenue stood at Sh8 billion.

Voice revenue

At Sh45.2 billion, voice revenue now accounts for 53 per cent of Safaricom’s total earnings, down from 58 per cent in a similar period last year. Mobile data, which accounted for 11 per cent of Safaricom’s half-year earnings, grew by 41 per cent, pointing to where the company’s future lies. 

Safaricom reported Sh31.9 billion profit after tax for the full year ended March 31, 2015, meaning the expected net income of Sh36.5 billion represents a 14.4 per cent growth projection.

The telecoms operator identified improvement of network quality, better customer service and continued focus on data as the route it would take to reach its target.

“Mobile data is our fastest growing revenue stream, and we will focus on increasing the numbers of 3G and 4G smartphones on our network,” said Bob Collymore, the Safaricom chief executive.

The voice average revenue per user (ARPU) fell by 9.1 per cent to Sh311, M-Pesa average spend per user increased by 4.7 per cent to Sh216 while data registered the highest average per user growth of 15.5 per cent to Sh119 during the six months to September.

Mr Collymore said Safaricom’s profit growth was also helped by a restructuring of the company’s sales and operations, enabling it to take services closer to the customers.

“We want to understand our customers better and to address their particular needs within their regions. It is a proactive reorientation of our business as we seek to apply the lessons we have learned in 15 years in the market,” Mr Collymore said.

Safaricom has created seven regions and deployed regional heads, who are tasked with among other things building tailor-made products that meet the demands of local subscribers.

Safaricom also attributed the growth to increased capital expenditure that stood at Sh20 billion or 62 per cent higher than the same period last year. The investment helped the operator improve network quality which in turn attracted additional 3.25 million customers.

“It is this increased customer base coupled with additional usage from pre-existing customers that has driven our growth,” Mr Collymore said.

The strong half-year results posted by Safaricom comes on the backdrop of a steep increase in production costs attributable to a recent depreciation of the shilling by approximately 15 per cent since the beginning of the year.

The half-year results show that Safaricom has defied the many economic challenges corporate Kenya is currently facing, forcing six listed companies to issue profit warnings. The warnings are an indication that the companies expect their net earnings to fall by at least a quarter of last year’s.

Declining profitability

Most companies have trimmed their payrolls or kept them flat since the beginning of the year, worsening a labour market that has been swamped by job seekers and slowing down tax revenues growth.

KRA commissioner-general John Njiraini recently told Parliament that major corporations have in recent months registered declining profitability, with a significant number projecting flat or declining growth for 2015/16.

Safaricom’s robust profit growth also comes at a time when salary increments and bonus payouts are expected to remain flat as a result of depressed profits.
The KRA said it did not succeed in hitting the tax target from salaries owing to the slowdown in jobs growth.

The taxman said payroll taxes grew at 9.5 per cent last year compared to an average of 20.7 per cent in the past three years, slowing down that segment of tax revenues.

Nicholas Ng’ang’a, Safaricom’s chairman, said the regulatory environment, especially the competition regulations, remains the company’s biggest challenge. “We don’t fear competition but competition must be with known and understood best international practices,” Mr Ng’ang’a said.

“I don’t believe that the authority can manage competition. Government is not the best placed institution to manage competition... This should be left to the market forces to determine.”

The regulations, which had been expected to be in effect by mid-June, include a Fair Competition and Equality of Treatment clause that seeks to empower the Communications Authority of Kenya to automatically declare any telecommunications firm with a market share of more than 50 per cent dominant.