Safaricom pays Sh56bn dividend as profit rises

Safaricom #ticker:SCOM is set to pay a total dividend of Sh56 billion after posting a 19.5 percent jump in net profit in the year ended March, boosting its shareholders' cash flow — including the government’s — in the face of the coronavirus crisis.

The Nairobi Securities Exchange-listed firm declared a payout of Sh1.40 per share to shareholders, up from Sh1.25 paid a year earlier. The growth was driven by higher revenue from its internet provision business and its financial services business, M-Pesa, as well as its first ever drop in operating expenses. This saw its sales rise 4.9 percent to Sh265.5 billion while net profit grew to from Sh62.49 billion to Sh74.7 billion, reflecting a growth of 19.5 percent.

From its 35 percent stake in the telco, the Treasury is set to receive Sh19.6 billion while South Africa’s Vodacom Group and its UK affiliate, Vodafone Group Plc, will earn Sh22.4 billion from their combined 40 percent equity in the firm.

In a statement to the media Wednesday, Safaricom said: "The board remains committed to investing in the business and continuing our strong record for paying progressive dividends each year."

The company said the dividend payout is equivalent to 80 percent of its normalised earnings.

The upcoming distribution takes the company’s cumulative dividend payouts since its 2008 listing to Sh356.9 billion, underlining the lucrative returns earned by its long-term investors, including the government.

For the previous year (ended March 31, 2019), the company paid a normal dividend of Sh1.25 and a special payout of Sh0.62, bringing the total to Sh1.87 or an aggregate of Sh74.9 billion.

The Sh19.6 billion to be paid to the government will help the Treasury to plug revenue shortfalls, with Kenya Revenue Authority (KRA) collections expected to take a hit in the wake of the Covid-19 pandemic containment measures that have reduced economic activities.

"Measures taken to slow down the rate of infection, including home confinement, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings and conferences, and a nightly curfew are expected to affect both production and consumption," the World Bank said yesterday.

The reduced production and consumption together with the government’s move to cut taxes for companies and individuals to cushion the economy are expected to hit tax collections.

The Parliamentary Budget Office (PBO) — the unit that advises lawmakers on financial, budgetary and economic matters — said revenue collection would drop by Sh122.2 billion between April and June following the tax cuts.

At the stock market, investors reacted by sending Safaricom’s share price up 4.5 percent to Sh29.40 at the close of yesterday’s trading.

The telco’s share price has rebounded the most among blue chip firms from the stock market rout that was sparked by the spread of Covid-19, partly due to the observation that there is increased demand for its services from people working and studying from home.

Safaricom’s earnings growth was driven by higher sales, reduced costs and one-off gains from the acquisition of M-Pesa, its mobile money service brand, which is also its second largest revenue stream.

For instance, Safaricom increased its subscriber base by 12.2 percent to 35.6 million. This helped lift voice revenue — the largest sales item — by 1.4 percent to Sh94.4 billion.

Revenue from mobile data, where Safaricom has been aggressively fighting for market share by offering internet bundles without expiry, rose 12.1 percent to Sh40.7 billion, after recording 21 per growth in the second half.

Earnings growth was also driven by the first-ever drop in operating expenses, Safaricom’s finance chief Sateesh Kamath said. He attributed the drop to digitisation, increased efficiencies and the maximisation of the use of the assets.

Revenue from M-Pesa jumped 12.6 percent to Sh84.4 billion, a third of Safaricom’s service revenue.

Safaricom said the coronavirus pandemic has made it impossible to issue guidance for the year to March 2021.

Peter Ndegwa, who became CEO this month after heading Diageo’s continental Europe business, said the uncertainty was mainly due to a lack of clarity on how long the crisis would last.

The company is foregoing about Sh5.5 billion in revenue from M-Pesa after it removed charges on small transfers, to facilitate cashless transactions and help slow the spread of the coronavirus.

"If the crisis takes longer, we will need to support our customers even more," Mr Ndegwa told investors his first online briefing.