Record losses in the first half of the 2020/2021 financial year but investors and creditors are confident the firm's future is brighter than it has ever been.
For the first time in nine years, Safaricom PLC has reported a drop in profits during the half year ending September 2020. The largest company in East and Central Africa has recorded a 6% drop in net profit from a 4% dip in revenues.
According to the company, the Covid-19 pandemic has had a direct toll on its first-half performance. Revenue from its M-Pesa services dropped by Kshs 6.1 billion during this period, mostly due to removal of fees on transactions less than Kshs 1,000. The government of Kenya, through the Central bank of Kenya (CBK), ordered the removal of the fees as a mitigation measure at the onset of the Covid-19 pandemic. Revenue from the voice services dropped by Kshs 2.8 billion which mirrors the hard economic times resulting from decreased economic activity during the pandemic.
The drop in profit has led Safaricom to borrow Kshs 24.7 billion from local lenders in order to manage its cashflow. The borrowed funds go to paying dividends and financing infrastructure development.
Over the years Safaricom could afford to operate without borrowed funds because it was making enough money to run its operations and pay dividends. Prior to the new round of borrowing, the firm was only Kshs 8 billion in debt.
The Company's good health means that investors and lenders have nothing but confidence in its stability. Nothing screams alarm and this is nowhere near distress. Local banks are confident of the firm's ability to retire its debt within an year. Investors seem even more optimistic.
Despite the current economic downturn, Safaricom shares continue to perform very well at the Nairobi Stock Exchange (NSE). The month of November saw its share price rise to the pre-Covid levels and analysts predict a record breaking rally before the end of the year. Safaricom's market capitalization now stands above Kshs 1.2 trillion which is more than half of the investor wealth at the NSE.
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