EXPENSES EAT UP SAFARICOM'S PROFIT AS PROFIT BEFORE TAX DOWN TO 18.36 BILLION

Tweet

Safaricom today released its results for the year ending 31^st March 2011.

Revenue went up by 12.9% to Kshs. 94.832 Billion after receiving a boost from Data Revenue which went up 57.1%.

Mobile and Fixed data registered the highest growth rate of the 3 forms of data. It went up by 80.3 percent to Kshs.  5.368 Billion.

M-PESA continued its phenomenal growth by increasing by 56% to Kshs. 11.784 Billion.

SMS Revenue went up to Kshs. 7.544 Billion, a 45.3 percent gain.

Not surprisingly, voice revenue was down, albeit a marginal 1.7%. This was expected as voice tariffs have more than halved during the year in review. At Kshs. 63.5 Billion, it still contributes 66.96% of total revenue. This has reduced from the previous year’s contribution of 76%

But it is the increase in expenses that will have most investors chewing their nails.

Operating expenses increased to Kshs.  45.795 Billion, an increase of 25.3% from the previous Kshs. 36.554 Billion. Meanwhile Selling, General and Administrative expenses had a jump of 23.2%, to Kshs. 13.314 Billion

Operating profit was down 14.2% to Kshs. 19.39 Billion.

Profit Before Taxation (PBT) for the year stood at Kshs. 18.361 Billion from the previous year’s nearly Kshs. 21 Billion

Profit After Tax (PAT) was down 13.1% to Kshs. 13.159 Billion, ultimately leading to Earnings Per Share (EPS) falling to 0.333/=. Dividend was maintained at 20 cents per share.

It was not all gloom and doom though.

Customer numbers went up to 17.183 million, up from 15.793 million, an 8.8% jump

Registered M-PESA users went up to 13.8 million users, a 45.5% jump. This explains the 56% jump in M-PESA Revenue.

Fixed Data connections went up by a whopping 466%, to 4,483 connections.

Mobile Data customers increased to 4.9 million from 2.641 million. Data penetration will continue exponentially increasing in the coming years.

Safaricom’s churn has grown slightly by 3.6%. Churn refers to people leaving for other mobile networks. Mobile Number Portability (MNP), may give this figure a slight bump next year.

Earnings Before Interest Taxation Depreciation and Amortisation margin fell to 37.7 percent from 43.6%.

Operating Margin went down to 20.4% from almost 27% last year.

The reduction in PBT and PAT was not really a surprise. What was a surprise was the manner in which expenses shot up.

The humongous growth in data was expected and will most likely be replicated in the current financial year.

Safaricom only had a slight decrease in revenue. It is important to note that the voice price wars were for only half the financial year and that SMS, which contributed Kshs. 7.544 Billion in revenue, started being 1 shilling only towards the end of the financial year.

With this in mind, the current financial year will be a sterner test of Safaricom’s mettle. As the MNP system is refined, majority of porters are expected to move away from Safaricom, though this number is not expected to be large enough to significantly impact its performance. Nevertheless, an increase in customer numbers is not expected to be forthcoming again.

The resilience of Safaricom is mainly down to their many streams of revenue. They showed this when they recently clinched a deal for electronically clearing cheques by the Kenyan Bankers Association.

Data will take up a greater percentage of profits next year as Voice Revenue will be hit again. There will be an interconnection fee cut in July from 2.21/= per minute to 1.44/= per minute. There will be further cuts as the years go by.

Safaricom’s rivals have yet to launch their 3G Internet, for which there is expected to be another vicious price war. Can Safaricom do it all again?

It will take some time for Safaricom’s profit wagon to be really on the move again.

At Wednesday’s closing price of 3.90/=, the share is trading at a Price to Earnings Ratio of 11.82 and a dividend yield of 5.13%

MANAGING MONEY AS A COUPLE

Tweet

Money is the root of many marital problems that could be prevented. Not only can these problems be prevented, but managing money can actually be a great opportunity for building relationships.

Managing money together also helps with building relationships because it allows you to start setting goals as a couple.

Managing money will be more effective if you set these goals together as because you will hold each other accountable. These goals help in building relationships by strengthening future hopes for your relationship.

Things To Do To Effectively Manage Money As A Couple

Be sure not to hide anything

Large sums of debt may seem embarrassing or burdensome, but it is better you get things out in the open with your partner. Building relationships requires honesty and open communication. If you can’t handle being honest about your finances now, managing money as a couple will continue to be difficult.

Agree on accounts 

At the very beginning of the marriage, the couple needs to decide whether they will have joint accounts, separate accounts, or a combination of both.

Understand each others money personality 

Are you a spend thrift and your spouse a saver?  If so, you as a couple can compromise on a strategy to handle the family finances.

Accept equal responsibility

Don't put the onus of all money decisions on one person.

Decide who is in charge of managing and paying the monthly bills

However, the other party should remain actively involved and review all bills before they are paid.  Then, in case of death, the surviving spouse will be aware of the family finances and can pick up the managing and payment of bills without a lot of extra anxiety.

Don't play the blame game

Don’t bring up past financial indiscretions in your financial discussions. Each conversation should focus on what you can do from that day.

Be realistic about your financial situation

Don’t be too optimistic on what you can achieve. Have some degree of caution.

Talk regularly about money

Money is a difficult subject to talk about, even in the closest of marriages.  Couples should have frank and open discussions about money on a regular basis.  Don't wait until a problem crops up.  Set a certain time each month and review all the money coming in as well as all the money going out.

Relax and approach the conversation with anticipation for what you can achieve by putting your heads together. Take a break if your conversation becomes heated and unproductive.

All the best

DEFENSIVE STOCKS AT THE NSE

Tweet

With inflation starting to bite hard at the Kenyan economy, some investors may opt to put their money in defensive stocks in order to preserve their capital. Many people think of investment only as an avenue for capital appreciation. They tend to forget that capital preservation is equally as important as investments can get wiped out during periods of uncertainty.

A defensive stock is one that tends to remain stable under difficult economic conditions and thus one that investors tend to want to own during uncertain times

These stocks tend to hold up in hard times because demand for their goods and services does not decrease dramatically as it may in other sectors and therefore companies which operate in defensive industries can grow revenue even in bad times.

Defensive stocks provide a constant dividend and stable earnings regardless of the state of the overall stock market. They remain stable during the various phases of the business cycle. During recessions they tend to perform better than the market; however, during an expansion phase it performs below the market.

Industries that are considered to be defensive include food, beverages, tobacco, drugs/health, oil and utilities

These companies will continue to perform well during hard times as can be seen from the following scenarios:

People still have to drink water

Soda, Tea and Coffee are nowadays considered essential in everyday life.

Beer will be consumed regardless of the economic conditions. One can argue that people even drink more alcohol during tough. I don’t disagree.

The cigarette industry subscribes to the same argument as the beer industry.

The advantage to investors in the beer and cigarette industries is that their products are addictive and the customers are hooked. They can also pass on costs to their customers when necessary thus maintaining or increasing revenue during tough economic periods.

The drug industry is a defensive one as people get sick all the time and they need medicine.

Those who drill for oil are having a ball at the moment due to the high oil prices

Water companies, power generators and power distributors are also not expected to record much reduced demand for their goods and services.

 

Investors at the Nairobi Stock Exchange (NSE) are limited in their scope of investing due to the few number of companies listed. Without going into too much detail, I will highlight some of the defensive stocks at our market.

East African Breweries Limited (EABL)

Kenyans love their beer! So much that price increases of their favourite brands will not deter them. EABL was expected to suffer from newly enacted alcohol laws, but they will probably weather the storm as they increased the prices of their products and they have customer loyalty. EABL has one of the highest dividend yields at the NSE.

British American Tobacco (BAT)

The cigarette maker has been facing price wars which have forced it to cut its prices. Counterfeit cigarettes have also been making its way into the market. BAT has for long been almost 100% of its earnings as dividends. It has been a great defensive stock in the past, though its ability to maintain its performance will be given its sternest test yet in its current financial year.

Kenya Electricity Generating Company (KENGEN)

The power producer has been focusing on adding much needed capacity to the national grid. The company is focusing on green energy with generation of electricity from hydro, geothermal and wind sources to the tune of 528MW by 2015. This has enabled it to start earning carbon credits.

The first tranche of its carbon credits of Sh300 million arising from its development of geothermal Olkaria II Unit 3 that generates 35MW of electricity will start getting paid in 2012

Kenya Power and Lighting Company (KPLC)

Fresh from a fully subscribed rights issue, the power distributor is set to improve its cash flow position by installing pre-paid meters.

Electricity demand is expected to increase steadily over the years