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Safaricom will take longer to break even in Ethiopia after depreciation of the Horn of Africa nation’s currency, birr, cut the telecoms operator’s net profit amid a thriving Kenyan business.
The telecoms operator posted a 17.7 percent decline in net profit for the six months to September to Sh28.1 billion as depreciation of birr inflated debt servicing costs for the Ethiopia unit, while also raising local-currency expenses such as leases.
Launched two years ago, the company’s Ethiopia arm will take a further year to break even because of the country’s foreign exchange reforms, achieving profit in the 2027 financial year, Safaricom said.
Ethiopia in July allowed its currency to trade freely for the first time in five decades, forcing the birr to depreciate 51.5 percent between March and September.
Safaricom’s Ethiopia business posted a loss of Sh19.3 billion in the half year compared to the Sh7.4 billion loss a year earlier, but its sales jumped 115.4 percent to Sh4.1 billion—reflecting the impact of the devalued birr.
In contrast, the Kenyan unit recorded a 14.1 percent growth in profit to Sh47.4 billion on increased revenues from across the business segments, including M-Pesa, voice, SMS and data.
“Despite the short-term challenges, we remain confident in the long-term commercial success of our Ethiopian business, and we are very encouraged by the commercial acceleration,” said Peter Ndegwa, Safaricom’s group chief executive officer.
“For Ethiopia on EBITDA (earnings before interest, tax, depreciation and amortisation, we have moved it forward by one year to year five from our earlier estimate of financial year 26 to financial year 27 due to the effect of foreign exchange reforms that we have spoken about, which mean we will require time to ensure we adapt and adjust our business to get there”.
Ethiopia adopted a market-determined foreign exchange rate in late July in a raft of reforms aimed at liberalising its financial sector to secure a new International Monetary Fund (IMF) lending programme and advance a long-delayed debt overhaul.
Dilip Pal, Safaricom’s chief finance officer, said the Ethiopia business was on track to turn a profit on the back of customer growth.
“We are on track in terms of the trajectory that we have. Last year represented the peak in losses after the normalisation of the currency losses. The only adjustment we have had to make on the forecast is related to the currency losses,” he said.
“When we went into the market, our competitor [Ethio telecom] dropped prices by 50 percent. After the depreciation, they increased their prices, which we also did to the effect of 25 percent. You don’t see that in a lot of markets. We are trying to recoup some of the effect of the currency losses.”
He added that while the impact of the birr’s exchange rate correction created a substantial drag in half-year results, the impact on the group’s full-year results would be “much lower”.
The telecoms operator’s shares on the Nairobi Securities Exchange, where it is the largest company, were down to Sh15.70 a piece from Sh16.35.
Safaricom posted a 14 percent increase in group service revenue to Sh181.4 billion for the period to the end of September.
Sales in Kenya grew by 12.9 percent to Sh177.4 billion, with M-Pesa revenues hitting Sh77.2 billion in the six months, up from Sh66.2 billion a year earlier.
Mobile data revenue grew 20.2 percent to Sh35.5 billion while voice and messaging revenue grew by 4.8 percent and 8.0 percent to Sh40.5 billion and Sh6.2 billion respectively.
“Our business is fantastic with the show of real, strong momentum in Kenya. Most importantly we are proud of the value we have been able to offer to our customers,” Mr Ndegwa said.
“We will continue simplifying our customer journeys and will intensify our focus on new growth areas to continue our momentum in the second half of the year.”
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