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Monday, November 5, 2012


Safaricom CEO Bob Collymore.
The management of Safaricom, fresh off receiving its umpteenth trophy for being the top taxpayer in the country, and by extension most profitable company, face investors on Thursday, to give the half-term report of their operations and whether those operations resulted in a profit or loss.

The half-year earnings, under the International Financial Reporting Standards, are presented in a format known as the Statement of Income.

This is one of the reports that a company's management is expected to prepare for external entities such as shareholders/investors, regulatory authorities, the taxman, financiers etc.

CEO Bob Collymore and his Chief Financial Officer will be expected to tell us on Thursday, how much revenue they generated from their operations in the six months to September 30, 2012, how much it cost them to generate that revenue, and whether a profit or loss was made.

Last year at this time the company announced a precipitous 48 per cent drop in pre-tax profits from Sh10.4billion the previous year to Sh5.3billion on the back of falling voice revenues and surging costs of doing business - this was when inflation was mounting and the shilling was taking a battering on the currency markets.

This year BobCollymore will do the following:

He will paint the overall business environment Safaricom is operating in - this will include but will not be limited to:

  1. The possibility of another slash in mobile termination rates across networks - this could see rivals especially Airtel unleash another round of tariff wars the likes of which, as the UK's Guardian observed, saw a drop in the country's overall inflation rate and also dropped the jaws of a few telecom executives. Newly-confirmed CCK boss Francis Wangusi, has shown a disturbingly (from the telecoms perspective) independent streak on this issue and looks to be raring to slash the MTRs.
  2. Competition across Safaricom's various business units - voice, financial services and data. Some rivals have started offering free money transfer services and independent services are being launched continously including an upcoming one that is said to eliminate the need for third party applications to interface with M-PESA for mobile commerce and online transactions.
  3. M-PESA has had some downtimes that will necessarily force people, especially businesses to have a second live mobile money service to reduce dependence on M-PESA. The issue of migration of servers from Germany to Kenya will need to be addressed but more importantly, the Central Bank of Kenya's patience might be tested to the limit especially as more and more of the nation's transactions pass through M-PESA - CBK may seek a permanent solution to these problems.
  4. The 4G/LTE issue - a consortium of sorts has been announced, Ericsson has offered to build the country an LTE network for free - where is Safaricom in all this - Again Collymore should address it.
  5. The counterfeit phones switch off and likely impact on full-year results and the upcoming switch off of unregistered SIM cards is also likely to feature.
  6. Unclaimed Financial Assets and M-PESA - A major storyline that could emerge is how much M-PESA holds in unclaimed funds either from people who passed away, moved out of the country or changed networks. How much Safaricom expects to remit will be of interest both in unclaimed M-PESA funds and unclaimed dividends.


Since this is just the half-year, these results will not be audited and then again, the auditors work is only to give his opinion as to whether or not, the presented statements have been prepared in conformity with accepted accounting standards.

  1. Revenues - Investors will want to see the revenues generated during the period under review and who these break down in terms of voice, SMS, M-PESA, data and devices. Voice has been growing but not as fast as in periods past so that will be an area investors will be keen on. Ditto SMS. M-PESA revenues will generate a lot of interest given the phenomenal growth of this service and also projections going forward. Data will be expected to show momentum but in the face of a shared LTE network being rolled out, the future growth of data will need to be scrutinized more closely.
  2. Costs - It costs Safaricom a lot of money to generate its enormous revenues whether it is in putting up Base Stations (CAPEX), marketing and commissions, administration and staff costs, overheads including fuel for its base stations generators and vandalism. How well it is managing these costs and how they compare to revenues on a ratio basis will be important to see if the company is getting more efficient or not.
  3. Profits - During the period under review, did the company's operations result in profits or losses and how does it compare to last year? The company will be expected to show a significant improvement in its earnings given that inflation has been dropping, the shilling has been stable, fuel prices have also been stable and MTRs have not changed.
  4. Statement of Cash Flows - It is important to see what sort of working capital (Money to run its operations) that the company has. 
  5. Ratios - Safaricom has indicated that it intends to lay some fibre to give it better control of its network operations. A good gearing ratio will show if the company can leverage and perhaps issue a cash call (Bond) to the market to raise the Sh4billion it needed for this effort. Currently, interest rates are falling so it might be opportune for the company to come to the market.
  6. Units P&L - Several customer facing business units have Profit and Loss responsibilities - It would be important to see how each of these are faring in both generating the revenue but doing so efficiently by managing costs. Peter Arina's Consumer Business needs to show improving efficiency in managing its dealer network and reducing losses in commissions and reported activations and in this regard the average settlement period of accounts payable and receivables will be of interest, Sylvia Mulinge's Enterprise and the Marketing divisions will also need to show improving times in getting products to market as Safaricom's IT bureacracy is known to frustrate a lot of ideas brought to the company for new innovations and in particular Bob Collymore's stated zero-tolerance policy on corruption needs to be shown to be applying here - particularly a dropoff point for complaints and whistleblowers should be instituted to clamp down on this vice and save the company money wasted on padded supply contracts.
All the same the company could report impressive numbers but there remains much to be done in terms of efficiency but also in bringing new innovations to the market especially on the data side.