Safaricom record Sh20.9billion profit

Wednesday May 26 2010

Safaricom Chief Executive officer, Michael Joseph, addresses participants at the Safaricom Annual General Meeting held at Safaricom House, on May 26,2010. Picture by William Oeri

Safaricom’s Sh20.9 billion profit for 2009 has set a new earnings record that has baffled mobile phone users and investment analysts.

The country’s leading mobile phone company grew its pre-tax profit by 37 per cent, from Sh15.3 billion last year, driven largely by data business, especially its revolutionary M-Pesa money transfer service.

According to financial results released yesterday M-Pesa, now three years old in the market, raked in Sh7.5 billion in the period under review, more than double what it earned the previous year. Texting, which many mobile phone users believe is a cheaper way of communicating, earned the company Sh5.1 billion.

The mobile money transfer service has moved Sh405.5 billion since inception in March 2007, according to company figures. Person-to-person transactions (where virtual cash moves within the system without being withdrawn) for March 2010, the firm noted stood at Sh28.59 billion.

M-Pesa has hugely been successful with 9.48 million registered users currently.

Even the man behind Safaricom’s money-machine had to defend the higher-than-expected profit, which makes it the best performing company in East Africa and places it among the top on the continent. “Compared to our peers in the region our profits are very normal,” Safaricom CEO Michael Joseph said. “However, locally they appear super because our closest competitors records losses as we register profits.”


Its share at the Nairobi Stock Exchange cheered the results touching Sh5.70 yesterday, from Sh5.40 on Tuesday. “Its performance was above expectations,” said Mr Einstein Kihanda, an investment expert at Sanlam Investment. “It’s hard to predict the share performance but its diversification into data gives it a long term stability.”

He said there’s huge potential in the data business, the latest battlefront for mobile companies, especially browsing on mobile phones and high-speed internet access, technically referred to us broadband.

“Safaricom is a major player in data,” said Mr Kihanda. “It’s not just relying on voice for revenue.”

During the 12-month period, the company’s total revenue grew by 19.1 per cent to Sh83.9 billion from the previous Sh70.4 billion. Earnings from data –  which includes short message service (SMS), M-Pesa and Broadband services for both mobile and fixed access – expanded 24.5 per cent to Sh15.7 billion.

As far as earnings go, Safaricom is in a class of its own. The closet company at the Nairobi Stock Exchange in terms of earnings is East African Breweries (EABL), which trails at Sh11.9 billion for 2008 verses Safaricom’s 15.3 billion. In its half-year ending December 2010, the brewer recorded an 8 per cent drop in pretax profit to Sh6.2 billion. This means  even if it earns the same in the second quarter it would make Sh12.4 billion, Sh8 billion less.

Safaricom was in April ranked among the top 50 companies in Africa as measured by market value, moving from its previous position 55 to 36 this year. EABL came 74, according to the African Business Magazine.

From  a second-rate operator in the early 2000, Safaricom has grown its subscriber base to 15.8 million, 18 per cent growth from last year. This gives it a commanding 78 per cent market share in a market where it has pulverised Zain, its one-time big rival, and the latest entrants, Telkom Kenya and yu.

Mr Joseph said Sh20 billion invested in the company in the financial year under review had paid off. This money was used in developing its network base that has given growth to its data business. “This is a capital intensive industry and one must be prepared to invest just as much to realise good results,” Mr Joseph told reporters and investors at a briefing at the company’s headquarters in Nairobi.

The firm netted Sh2.9 billion from mobile and fixed internet access business that it has lately been promoting aggressively. “There is still a strong demand for data and we are going to do more since the penetration is still low in the segment,” said Mr Joseph, who plans to retire by end of next year.

While voice market still remains their largest revenue earner, even though its growth slowed, earning Sh63.4 billion from Sh58.7 billion the previous year. This was salvaged by the additional 2.43 million new subscribers but the average revenue per user declined from a previous Sh7.3 to Sh6. 

With a dividend growth of 100 per cent, the firms’ shareholders can look forward to 20 cents dividend payout. This will be paid from the Sh8 billion it has declared as dividends for the financial year ended.

In the 2008 financial year, the company paid out 10 cents with a huge chunk of the local small- scale shareholders accounting for 37 per cent of the shareholder roll, taking home Sh500 or less as dividends. Of the dividend to paid for the concluded financial year, the government of Kenya and Vodafone Kenya are going to be the biggest beneficiaries with a combined shareholding of 75 per cent.