Safaricom pretax profits up by 2.2 percent

Safaricom has recorded a rise in pre-tax profits to 8.9 billion Kenyan shillings (US$121 million) for the six months ending September 30, a 2.2 percent increase from the 8.7 billion shillings recorded over a similar period last year.

The company's revenues increased by 20.4 percent to 34.5 billion shillings, driving up the earnings before interest, taxes, depreciation and amortization by 15.6 percent to 15 billion shillings.

But the reality of competition has started to affect Safaricom's margins, as it also announced a 14.7 percent reduction in after-tax profits compared to the same period last year.

The after-tax profits, which included "one-off" items, fell to 6.2 billion shillings from 7.2 billion shillings last year. Average revenue per user fell to 503 shillings from 665 shillings the previous year.

These figures suggest that the launch of Orange mobile and Zain's reinvigorated marketing campaign are taking their toll on Safaricom, which has enjoyed near-monopoly status for the last five years.

However, Safaricom CEO Michael Joseph blamed the financial results on the high inflation rate that has affected subscribers' spending power, as well as the ongoing recruitment of lower-income rural subscribers.

"The results reflect the marginal effect of additional subscribers with lower spending profiles as the network is rolled out to rural areas," Joseph said. "We are banking on the urban people calling the rural areas."

During the period under review, SMS (Short Message Service) and data revenues increased by 76.1 percent to 3.7 billion shillings, while revenues from call charges rose by 17.1 percent to 29.7 billion shillings.

The company saw a 20.4 percent increase in sales, as well as an additional four million subscribers. The subscriber base increased by 50.3 percent in the half-year period from 7.9 million to 11.9 million, giving Safaricom strong market leadership in Kenya with 81 percent of the country's total subscriber base.

Despite a drop in the company's share price at the Nairobi Stock Exchange, Joseph assured that the majority of the 880,000 shareholders who purchased shares during June's initial public offering have held onto them.

The IDG News Service is a Network World affiliate.