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Nairobi - Kenya's top telecoms firm Safaricom expects to maintain its almost 40% earnings margin this year but "premature taxes" could stifle growth of lucrative mobile phone-based money transfers, its chief executive said on Tuesday.
Safaricom, 40% owned by Britain's Vodafone, said pretax profit climbed to 25.5 billion shillings ($304.30m) in its year to end-march, off the back of 16% growth in total revenue.
The company has had a very successful year. Its 39.6% margin on earnings before interest, tax, depreciation and amortization (EBITDA), is near the top of the range for telecoms globally and its shares have surged 36% in 2013 - twice as fast as Kenya's blue chip index.
Its promise of a 41% increase in dividend to 0.31 shillings per share pushed the shares another 3.6% higher on Tuesday.
But Chief Executive Bob Collymore was concerned that the new 10% tax on the cost of transfers by its M-Pesa mobile service would stifle both company revenues and the use of a service that has made transfers possible for millions of poor Kenyans.
Before mobile companies began to offer money transfer five years ago, Kenyans had to pay up to 1,000 shillings ($12) to send money by bank transfer to relatives, many of whom are living on less than a dollar a day.
Now a transfer of 500 shillings would typically cost just 25 shillings and the service is credited with making transfers usable for a third of the country's 40 million population who were cut off from traditional financial services.
"This is such a nascent industry it is important that we don't kill it at birth," Collymore said. "We are cautioning against viewing mobile telephony in general as being a bit of a milking cow."
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Kenya's new government is still in the process of forming after an election in March, but its last finance minister said that the tax was not aimed at punishing success. It was imposed to bolster budget revenue at a time when ministers were battling to settle strikes by teachers and health workers.
Safaricom has done well from the service. M-Pesa contributed 22 billion of its 124 billion shillings in revenue last year. Despite the imposition of the tax in October the company handles annualised total transfers of 1.1 trillion shillings, the equivalent of 27% of Kenya's gross domestic product.
Safaricom raised M-Pesa tariffs after the tax hikes but shouldered some of the additional costs related to the tax - some 400 million shillings in its 2012/13 financial year.
Overall, the company's EBITDA earnings, the key measure of performance for telecom companies, grew 31% to 49.2 billion shillings. Its margin was up 4.5% compared to the same period a year earlier.
Revenues are expected to continue to grow faster than costs but M-Pesa revenue may not match the rate of growth in previous years due to the high base, the company said.
"People are used to seeing M-Pesa growth over 30%. That will not happen this year," said John Tombleson, the firm's chief financial officer.
Investors were also cheered by Safaricom's plan to invest more than 20 billion shillings this year in the network.
"That is a key element because it says they are viewing the industry as growing, which is really positive," said Eric Musau a research analyst at Standard Investment Bank.
