Safaricom posts 1.7% drop in net profit
Safaricom PLC has reported its full-year earnings for the period ended 31st March 2022 with the company seeing a 1.7 per cent decline in Profit After Tax. Safaricom reported its earnings as a group including the Ethiopia business which will launch commercial operations in the course of this year. Safaricom's Chief Finance Officer, Dilip Pal, joins CNBC Africa for more.
Mon, 16 May 2022 10:34:28 GMT
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AI Generated Summary
- Safaricom reports a 1.7% decline in net profit after tax for the fiscal year, driven by tax rate changes and operating expenses.
- Ethiopia operations and rising operating costs pose challenges, while revenue streams like mobile data and Empressor show strong growth.
- The company explores opportunities for future growth, including the launch of commercial operations in Ethiopia, maintaining M-Pesa's integrated model, and considering a green bond issuance for green energy initiatives.
Safaricom PLC recently released its full-year earnings for the period ending on March 31, 2022. The telecom giant reported a 1.7% decline in Profit After Tax, attributed mainly to changes in tax rates and operating expenses. The company's Chief Finance Officer, Dilip Pal, provided insights into the financial performance and future growth strategies during a CNBC Africa interview.
Pal highlighted the standalone Kenya operations, which displayed a 12.3% growth in service revenue and a robust 19% increase in operating profit year over year. Despite these positive numbers, the profit before tax saw a slight dip of 14% due to the tax impact of rate changes from 25% to 30%. However, Pal emphasized that the company's net income after tax still managed to grow by 1.4% when adjusting for minority interest.
One of the key areas of focus was Safaricom's Ethiopia business, set to launch commercial operations in the coming year. Operating expenses related to Ethiopia amounted to around 5 billion, contributing to the overall 1.7% decline in net income after tax when considering the consolidated group financials that include the Ethiopia entity. Pal underscored the strategic importance of Ethiopia and expressed confidence in meeting the launch timelines within 2022.
Despite the optimistic outlook, Safaricom witnessed a recent decline in its stock price on the Nairobi Securities Exchange, triggering a discussion on shareholder confidence. Pal attributed this downturn to global factors like foreign institutional investors reallocating funds amid geopolitical tensions, rather than reflecting Safaricom's performance.
In terms of revenue streams, Safaricom reported positive growth across mobile data, fixed services, and M-Pesa, with Empressor emerging as a star performer with a 30.3% growth rate. The company achieved an overall revenue growth of 2.9%, driven by robust performances in key divisions like mobile data and fixed services.
However, rising operating expenses, up by almost 20%, presented a challenge to the bottom line. Pal clarified that a significant portion of these expenses, totaling 5.1 billion, was linked to Ethiopia operations, while Kenya's operating expenses saw an 8.8% increase excluding the Ethiopia impact.
Looking ahead to 2022, Safaricom's focus remains on successfully launching commercial operations in Ethiopia and leveraging the momentum in mobile data, fixed services, and Empressor. The company aims to balance the rising operating costs through strategic initiatives and cost management.
Addressing the perennial topic of separating M-Pesa from Safaricom, Pal affirmed the company's satisfaction with the current integrated structure, emphasizing the role of M-Pesa in driving financial inclusion and serving customers effectively. Despite ongoing discussions about M-Pesa's standalone status, Safaricom sees no immediate need for a change in the existing setup.
Furthermore, Safaricom is exploring the possibility of a green bond issuance to support its green energy initiatives and contribute to its ESG goals. Pal mentioned the organization's focus on sustainability and modernization efforts that align with green financing principles, underscoring the potential benefits of such funding for Safaricom's environmental objectives.
In conclusion, Safaricom's earnings report reflects a mixed financial performance marked by revenue growth, tax challenges, and operational expenses. The company's strategic direction involves navigating market challenges, expanding into new territories, and maintaining a strong foothold in key service offerings like mobile data and financial services.