, NAIROBI, Kenya, Nov 10 – Listed telecoms firm Safaricom on Wednesday shocked the market by announcing a 47.4 percent decline in net profit to Sh4.01 billion for the half year to September 2011.
The huge dip, which was largely unexpected, was attributed to the fierce price wars as well as the harsh operating environment which affected their customers’ disposable income.
“The Kenyan economy has experienced one of the toughest economic climates in the recent past which has made it a more challenging environment in which to operate. The effects of high inflation, rising interest rates and a volatile shilling have all combined to reduce the spending power of our customers and driven up our operating costs,” Safaricom Chief Executive Officer Bob Collymore explained.
The firm was not spared by the devaluation of the shilling which led to a net forex loss and associated costs on revaluation of trading balances of Sh1.4billion.
In perhaps an indication of how ‘bad’ the results were, Collymore side-stepped the net income during an investor briefing with the company instead posting the figures on their website.
Given the results, many questions are likely to be raised as to why the firm did not issue a profit warning as is expected of listed companies.
Although the number of active customers grew by eight percent to 18.1 million it did not significantly impact the revenues which only managed a 5.3 percent growth to Sh49.6 billion.
This was partly due to the fact that earnings from voice took a hit, dropping marginally to Sh31.48 billion due to lower average tariffs. This was reflected in the Average Revenue Per User (ARPU) which was down to Sh438.90 from Sh456.60 in the corresponding period last year.
“Our voice business has shown considerable resilience with a traffic increase of 83 percent and a marginal decline in voice revenue of 5.5 percent,” Collymore said of the results which were achieved in a highly competitive
Net income on the other hand declined to Sh4.01 billion as did the company’s Earnings Per Share (EPS) which stood at 10 cents down from 19 cents in the corresponding period last year.
Solid results were however returned in the data segment as Safaricom’s positioning as a big data operator in the market begin to bear fruit.
Revenues in this section rose to Sh31.7 billion driven largely by the growth in internet penetration in the country.
“Our data customers now account for just over 10 percent of the Kenyan population, with 92 percent of all Internet subscriptions in Kenya on Safaricom connected devices,” Collymore asserted.
Its money transfer service, M-Pesa also contributed greatly to the growth rising to Sh7.88 billion up from Sh5.27 billion on the back of nearly 15 million subscribers.
In spite of the mixed results, the telecoms firm did invested heavily in network upgrade and fibre connectivity.
The CEO was hopeful that the Sh15.5 billion investment in the first half this year would cushion them in the future and enable them to post favourable results in the second half.
Analysts however were cautious given the fact that the tough times do not seem to be letting up.
Independent Market Analyst Aly-Khan Satchu pointed out that the Safaricom results showed the extent to which inflationary pressures, high interest rates and a weak shilling have affected Kenyans and this trend is likely to be maintained in the second half.
“We have crossed the worst for this company and I think typically it should be an excellent page but with so many customers at the bottom of the pyramid, people have really suffered and discretion spending has gone down drastically,” he said.
The results are also likely to be reflected in the Nairobi Securities Exchange with Satchu expecting a ‘knee-jerk’ reaction in the share price on Thursday but it should improve further in coming days.
The share price has been weak losing about 28 percent this year and many analysts concur that it has probably bottomed-out.
On Wednesday, the share traded flat as many foreign investors waited to see what results would be announced.