We are still fine, assures Safcom

November 13, 2008
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, NAIROBI, November 13 – Safaricom Chief Executive Officer Michael Joseph on Thursday sought to reassure investors that the business is viable despite the decline in profits announced on Wednesday.

The mobile service company announced a 14.7 percent decrease in profits for the half year compared to the same period last year.

While announcing the results, Mr Joseph had linked the decline to increased competition. But on Thursday, he downplayed the developing price wars: “We are not going to keep on slashing our prices in response to our competition because I don’t think it’s a sustainable and viable way to sustain and grow the business.”

While admitting that the company had lost a portion of the market share to the competition, Mr Joseph was emphatic on the strength of the company’s fundamentals which he said should be the basis upon which it is judged.

“It surprises me that sometimes people almost write us off because our competition has launched one product or another. We are still an enormously strong company (and) we are still one of the biggest – if not the biggest – company in the country, the most profitable and still have the potential to grow through voice and data and other businesses,” he said.

While admitting that investors will have to wait a while before making gains from the share, Mr Joseph revealed that the law does not provide the option for ‘buy back’ by the company in a case like the current one where the share is not doing too well despite the company’s strong fundamentals.

Mr Joseph revealed that the mobile company had strong plans for the future including more investment in data and intensively lobbying the government with other players in the industry to reduce excise tax on airtime which currently stands at 26 percent.

He explained that unlike in the past where just 2 players pushed the initiative, there now was an association to lobby both the government and the masses on this issue.

“This association of about 10 operators will try to put together a massive lobbying effort not only with the government (because if you just go to the ministry of finance whose duty is to look for sources of revenue, we become easy targets unless we give an alternative), but what we will do now is broaden our initiative by lobbying members of parliament and the masses,” he said.

According to mobile operators reduction of this tax will allow more subscribers to purchase airtime and thus cover up for the reduction in tax while allowing the government to still fetch the same amount of revenue from the mobile phone industry.

Mr Joseph said the tax reduction effort combined with investment in less expensive forms of energy as a way of mitigating on the huge cost of energy in the country should keep Safaricom ahead of its competition.

“We are not just sitting around waiting for the government to reduce electricity tariff rates. We are also investing in alternative forms of energy in the form of wind and solar energy as a way of mitigating on the huge energy costs,” he emphasised. 

Meanwhile Safaricom Chief Investment Officer Les Bailey has revealed that the high cost of disbursing interim dividends deterred the company from declaring one.

“Were we to declare an interim dividend we could have spent between Sh2.5 million and Sh1 billion to cover this cost and the board felt that this will not add any share holder value because this amount will have come from the shareholders profits and funds,” Mr Bailey said.

He however said in the near future the company was considering using the M-Pesa option as a way of curtailing this expense and making the effort worthwhile.

Mr Bailey went on to reassure shareholders that there was no massive dumping of the Safaricom share by foreign investors as some quarters have been implying.

“Over the last 5 months there has actually been very little movement within our shareholder base and most of it has been where we have lost 12, 000 of our individual shareholders, local corporate firms have been buying more, foreign investors have been buying more and foreign corporates have been staying reasonably the same,” he said.

A number of quarters have partly blamed the consistent bearish market in the bourse to the dumping of Safaricom shares by foreigners who participated in the initial public offering.

But data from safaricom indicates that the case may not be fully true although Mr Bailey admitted that the on-going global crunch has forced some foreign hedge fund managers to liquidate their shares.

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