Making sense of the Safaricom billions
The Sunday Nation
Nairobi,
19 May 2013
Every time Safaricom
Limited announces its financial results, Kenyans stop and gasp in
amazement. The numbers are simply mindboggling. This year was no
different; the company announced a profit before tax of Sh25.5 billion.
Being used to dealing
in trillions of shillings, Mr. Joseph Kinyua, the Permanent Secretary at
the Treasury is probably the only Kenyan who doesn’t think that Sh25bn
is large. Thee rest of us cannot even begin imagine the magnitude of
that kind of money.
One reaction that
never fails to emerge is that “such profits are obscene”. But my view is
that such a position is unfair to the company. Safaricom is by all
standards.
First of all; it
owned by over 700,000 people; even though two of the owners hold 75 per
cent of the shares. These are Vodafone Kenya Ltd with 16 billion shares
and The Treasury of Kenya with 14 billion shares. The remaining 10bn
shares out of the total 40bn are held by the other 720,000 or so
individual and institutional investors.
So, if we remove the
share of profit going to the two big guys, we are left with Sh6.25bn to
be divided amongst 720,000 people; that is an average of Sh8,700 per
shareholder. Now that isn’t a lot of money; it definitely can’t be
termed “obscene profit”!
But we have left out
a crucial step: the Sh25.5bn is profit BEFORE tax. Safaricom Limited
will fork out a cool Sh7.9bn and hand it over to the Kenya Revenue
Authority (actually, a significant portion of this has already been
surrendered through installment taxes). That leaves Sh17.5bn to be
shared by the shareholders (now you know why the ownership is called “a
share” – you share in the profits!)
The number of owners
is not a good measure of the size of a company. A better quantity is the
net worth. That is, the assets it owns minus the liabilities it owes to
others. For Safaricom, that figure stands at Sh80 billion. So the
question should be whether it is “OK” for a company worth Sh80bn to make
Sh25bn profit before tax.
Now billions of
shillings have a way of making your mind dance around! So let’s rephrase
the question as follows: Is it “OK” for a company worth Sh80,000 to make
Sh25,000 profit in one year?
Now we can relate more easily with thousands than with billions and the
new scenario sounds acceptable – at least to me.
Another way of
assessing the profitability of a business is to compare the profit to
the sales. Safaricom made sales of Sh124bn in 2012/13. So again we can
ask whether it OK for one to make Sh25,000 profit from Sh124,000 sales.
That’s a 20 per cent and it appears OK to me; especially considering
that this is a service provision company.
Finally, let’s not
forget that all this money was generated from over 19 million customers.
Thus the average sales from each customer was about Sh6,500 from which
the company made an average profit of Sh1,300. If you think this is too
much, ask yourself why you continue using Safaricom while there are
another three providers in the market.
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