Safaricom cuts Interim Dividend for First Time After Profit Drop

Safaricom has reduced its interim dividend by Sh2.4 billion due to lower earnings in the half-year period, the first reduction since the company began distributing profits to shareholders before the end of a fiscal year.

The board of directors of the giant telco has approved a pay out of Sh0.58 per ordinary share, or the equivalent of Sh23.24 billion, to shareholders on record by March 15.

The total interim dividend, which is less than the Sh25.64 billion paid last year, will be wired on or about March 31, the company announced on Monday after a board meeting last Friday.

“The board of Safaricom PLC is pleased to announce that at a meeting that was held on 24th February 2023, it was resolved to approve the payment of an interim dividend of Sh0.58 per ordinary share held amounting to Sh23.42 billion, for the year ending 31st March 2023,” Safaricom said in a note to shareholders.

The 9.38 percent drop in interim profit distribution to shareholders follows a 10% drop in net profit for the six months ending September last year to Sh33.5 billion.

The firm’s profitability for the period was slowed by a reduction in the rate mobile phone operators charge each other for interconnecting customers, which occurred at a time when the company was investing heavily in its entry into Ethiopia.

The Communications Authority of Kenya (CA) reduced interconnection charges, also known as mobile termination rates (MTR), from Sh0.99 to Sh0.12 in late December 2021 to reflect technological advances that have made mobile telephony more efficient.

Safaricom CEO Peter Ndegwa blamed the lower half-year profitability on a “slowdown in business operations due to the election period, increase in excise duty on SIM cards and mobile phones, and a failed rain season leading to more economic hardship for the country” in November.

For its 35 percent stake in the region’s most profitable firm, the Treasury will be one of the biggest beneficiaries of the dividend windfall.

The Treasury will be paid a gross of Sh8.13 billion for its 14.02 billion shares in the company, a decrease from Sh8.97 billion last year.

Multinationals Vodacom Group Limited and Vodafone Group Plc, on the other hand, will split a gross pay out of Sh9.28 billion for their combined 40% stake in the Nairobi Securities Exchange-listed company. This is a decrease from the previous figure of Sh10.24 billion.

When it releases its results for the fiscal year ending March of this year, Safaricom is expected to declare a final dividend.

The telco has a dividend pay-out policy of at least 80% of net income. Safaricom’s share price has dropped 9.8 percent since the company announced a lower half-year profit last November.

On Monday, it traded at an average of Sh23 per share on the Nairobi bourse, down from Sh25.50 per unit on November 11.

The announcement came on the same day that President William Ruto’s administration sought to increase its influence on the company’s board of directors.

Karen Kandie has been appointed as the Treasury Cabinet Secretary Njuguna Ndung’u’s alternate director, succeeding Stanley Kamau.

The change came about a month after lawyer Adil Khawaja was appointed board chairman, succeeding John Ngumi, who was seen as an ally of former President Uhuru Kenyatta.