AccessKenya goes into the red in 2010

Mergers, Acquisitions and Financial Results

Stiff competition in the Internet market has pushed listed Internet service provider, AccessKenya into loss making. The firm, whose share price at the Nairobi Stock Exchange, early this month sank past its initial public offering price of Sh10, saw its full year 2010 profit after tax fall from Sh147.9 million in 2009 to a Sh7.9 million loss.

For the financial period ending December 31, profit before tax also dived from Sh182.3 million to return a loss of Sh5.3 million, while turnover went down from Sh2.07 billion the previous financial year to Sh1.7 billion, by 17.5 per cent. The firm attributed the loss to higher interest costs and a foreign exchange loss, coupled with higher administrative expenses.

"2010 has been a challenging year for the entire telecommunications and data industry, characterized by extreme competition and price wars," said a statement sent to the NSE by the firm's executive director David Somen. In December, the firm issued a profit warning that has hit on the share price and eroded investor confidence.

Growing competition from nimble rivals has not given the ISP breathing space.

Mobile operators led by Safaricom and corporate ISPs like MTN Business Kenya and Kenya Data Networks have stepped up their game, causing a major shift in market shares.
KDN has put its mass market business into its sister firm, SwiftGlobal, to focus on the wholesale and the corporate business - AccessKenya's strength. Wananchi Group has intensified its activities in the recent months.

"With most of our investment programme substantially completed, we also expect a reduction in capital expenditure in 2011. We will continue to invest in the areas of maximum potential, in particular our metro fibre network in Nairobi and Mombasa," Mr Somen said.

In a recent interview, Jonathan Somen, the managing director, said some of the decisions made two years ago have come to haunt the company. "There is no secret about our profitability," he says. "We have learned a lot of important lessons. There were a lot of things we did that affected our business, but we have put measures in place to rectify the situation." One of them was investing heavily in infrastructure then the ground shifted suddenly as mobile phones entered the fray.

Also, the acquisition of Openview Business Systems turned out to be disastrous, with the unit soon running into the red. The decisions tore the board apart, seeing the exit of the three directors - Ngugi Kiuna of TransCentury, Eddy Njoroge, the managing director of KenGen and Mungai Ngaruiya. They accused the Somen family of making decisions without independent directors' involvement yet the firm had been listed.

The company says it has implemented a number of cost cutting measures as a way out such as reducing borrowing expenses and renegotiating bandwidth contracts with international cable owners. It has hedged its foreign exchange risks by converting its dollar denominated debt to Kenya shillings.