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Safaricom CEO, Mr Michael Joseph, (right) and company chairman Mr Nicholas Ng’ang’a, address investors when the firm released results for the year ended March 31, 2009 on Thursday. / Fredrick Onyango
Safaricom retained its position as Kenya’s largest company by market value despite post-election violence early last year, soaring inflation, vicious competition and fluctuating fuel prices.
But the super normal growth that has defined the company for the last nine years slowed down, with its profits falling by 11 per cent from last year’s levels to stand at Sh16 billion, the biggest drop faced by the company and following what it termed a “resilient” performance for the year.
External forces
“The landscape was tricky for the company last year. Safaricom’s product is a bottom of the pyramid one—and that is where inflation hit the hardest. Considering the competitive pressures and the underlying economic conditions I believe the performance is commendable even though market expectations were higher,” said Aly Khan Stachu, an investment analyst at Rich Management.
Safaricom’s annual results reveal the company faced a monumental struggle to prop up its revenues as it battled new foes within its industry and its business was affected by external forces such as a weakening shilling, rising fuel costs and a higher cost of living.
The mobile service firm recorded depressed performance on its profit before tax levels, which dipped by 23 per cent to rest at Sh15 billion, as well as EBITDA, which fell by 0.3 per cent to Sh27 billion, down from Sh28 billion the year before.
A rise in subscribers — three million were added during the year — also meant the firm had to contend with lower revenues per user (ARPU) figures, which also dropped from about Sh616 to Sh475 in the course of the year.
“This was the most challenging year for the company since 2001. Inflation posed the biggest threat as it meant a choice for our subscribers between purchasing airtime and spending on food,’ said Michael Joseph, Safaricom managing director.
With 13 million subscribers, the company maintained its place as the market leader by defending its market share from new competitors in the form of a rebranded Zain, Telkom Kenya’s Orange brand and Essar’s Yu, who all engaged in a vicious price war that characterised the last six months.
As the cost of making a call in the industry dropped by 40 per cent, Safaricom maintained its pricing structure which saw it offer calls for Sh8 for on-net calls and Sh15 for off-net calls, a factor that shielded it from greater losses as ARPUs fell industry-wide.
Safaricom managed to defend its ARPU margins which remained the highest in the industry, indicating that its cautious reaction to an industry price war may have paid off in revenue gains.
“The company endured unsustainable tariff pressure as a result of intense competition in the industry. This was mitigated by a cautious approach to the price war,” said Chris Tiffin, the firm’s chief financial officer.
But the firm remains confident that opportunities still exist within the voice market, which analysts say is slated to grow by 20 per cent in the next four years.
Industry analysts say growing competition and reduced profit margins from active voice customers coupled with increased spending on network maintenance could translate to reduced earnings for the company in coming years — a problem shared with most mobile operators in countries across the world.
Operationally, the cost of maintaining the backbone of Safaricom’s business, the network, increased due to the high cost of the fuel and electricity which is used to run and maintain the base stations that make up the network.
Added stations
Safaricom added 642 base stations to its network last year, with its total now standing at 2,200, investing Sh33 billion on upgrades and maintenance.
Going forward, the mobile firm hopes to position its business as a telecommunications service provider as it broadens its portfolio of products and services to suit the shifting ICT market.
Safaricom is banking on data — its fastest growing business — to boost flagging revenues from voice as that market nears saturation and attracts rural subscribers who typically spend less. During the last year, data grew by 89 per cent, representing 12 per cent of the company’s total revenues.
Safaricom forecasts earnings from this segment to grow to 20 per cent by next year as it leverages two new revenue centres, M-Pesa and internet services.
Mobile money transfer service M-Pesa now has over six million users and Safaricom said it was moving to make the product a revenue centre as it was already contributing to four per cent of the firm’s total revenues.
M-Pesa also acts as a subscriber retention tool that keeps users on the Safaricom network, a key factor as increasing competition in the industry results in more customer movement between networks.
Internet service provision has seen the company invest heavily in owning proprietary 3G and Wimax technologies.
Source:
Business Daily