Safaricom Defies Rivalry to Return Sh7.6 Billion Half-Year Profit After Tax

Mergers, Acquisitions and Financial Results

Nairobi — Kenya's mobile phone giant Safaricom defied strong competition and regulatory pressure to report a 15.1 per cent growth in profit after tax for the half-year ending September 2010.

The company raked in Sh7.6 billion profit after taxation, up from Sh6.6 billion the previous year, at a time when revenues from voice and short message service came under pressure from its main rival Zain, which has wedged a vicious price war in the market.

Releasing his first results after taking over from Michael Joseph, Safaricom CEO Bob Collymore said the voice segment was nearing saturation, and so the company would focus more on data to increase revenues.

"Data is proving to be our next frontier," Mr Collymore said.

In the period under review, revenues from voice increased by a mere 3 per cent to reach Sh32.5 billion, while data revenues increased by 55.5 per cent to Sh11.2 billion. Profit before tax jumped by 14.3 per cent to reach Sh10.4 billion, while turnover rose from Sh40.6 billion to Sh47.1 billion, or a 15.9 per cent growth.

Without giving figures, Mr Collymore said revenues in the last two months of the half-year were hit by vicious mobile phone price wars.

"We were all affected. The voice calls were hit," he said.

Full-year figures will be in focus for analysts as they will reflect the full impact of the price war, especially after Zain halved calling rates, forcing Safaricom to follow suite. Market talk indicates Zain has taken a good chunk of Safaricom's voice and SMS revenues.

According to the Communication Commission of Kenya (CCK), total mobile phone customers at the end of September 2010 were 21.78 million with Safaricom taking 16.71 million. This represents a market share of 76.7 per cent.

"Innovative products, services and promotions have continued to defend our customer market share," Mr Collymore said.

He said Safaricom has invested more in its data infrastructure. The number of 3G enabled sites increased to 829 in the period, and the Wimax network grew to 164 sites.

"In order to strengthen our position in the data market, the company is finalising and has subsequently concluded the acquisition of 100 per cent stake in two Wimax service providers namely, IGO Wireless Ltd and Instaconnect Ltd," he added. "This will add 7MHz of spectrum to the existing 15MHz Wimax frequencies in the 3.5 GHz band."

In May 2010 the M-Kesho service was launched in partnership with Equity Bank with the aim of deepening financial access of M-PESA customers. M-Kesho is a mobile-centric bank account linked to M-Pesa where customers can deposit and withdraw money from their bank account, purchase insurance and apply for overdrafts.

"Initial take-up of M-Kesho is very encouraging with over 613,000 registered in the first 5 months," he said.

Safaricom has set the record as the most profitable company in the region, returning a pretax profit of Sh20.9 billion in the previous financial year, but investment analysts say increased competition and a slow-down in voice revenues could apply brakes on its earnings.