Safaricom profit up to Sh8.9bn

Safaricom is betting on alternative income sources to complement voice-generated revenue as it seeks to maintain super profit levels in the face of increased competition.

The company announced this as it released its financial results for the half year ending September 30 reporting a marginal increase in pretax profit of about two per cent.

The pretax profit rose to Sh8.9 billion up from Sh8.7 billion recorded over a similar period in 2007.

The pretax profit increase is after a “one-off” adjustment amounting to Sh1.7 billion under financing cost on the 2007 half-year financial results.

Before the adjustment it would have recorded 14.8 per cent fall in pretax profit, from Sh10.5 billion to Sh8.9 billion.

Currently ranking as the most profitable listed company in East Africa, Safaricom is looking to grow its data services - internet use, short messages and money transfer services - to retain this position.

“This is something that will differentiate us from other players as we go on,” Safaricom chief executive Michael Joseph said of the data services. “It will provide us with a tremendous growth.”

During the six months, data services revenue grew by 76 per cent, although overall still contributing to about 10 per cent of the total revenue.

Voice, revenue generated by calls charges, grew by about 17 per cent to Sh29.7 billion contributing over 86 per cent of the total income.

But increased competition from new mobile phone service providers - Orange and an aggressive Zain puts a strain on reliance of voice revenue.

Already the market has experience a price correction characterised by slashing of tariff charges to as low as one shilling per minute.

To respond to competition, Safaricom last month cut its charges to a low of three shilling from a high of Sh10 per minute.

Its subscriber acquisition and retention strategy has also resulted in operating expenses going up by 26 per cent from Sh12 billion in six months to September 30 in 2007 to Sh15 billion in a similar period in 2008.

The increase went in subsiding low-end mobile phones and new lines as it makes an entry into rural areas.

New subscribers

“This is in line with our strategy to acquire new subscribers and also lay important building blocks for the future growth,” Safaricom chief finance officer Chris Tiffin said.

To address competition and as diversification strategy the company in August, bought a majority stake in One Communication as way to increase its data service offering.

One Communication holds a Wimax, an internet wireless license which Safaricom hopes to use to leverage its 3G, internet enabled voice network.

This has enabled the company to offer internet services to its mobile phone subscribers and other additional products.