Safaricom PLC, Kenya’s largest telecommunications company, reported a 17.7% drop in its half-year net profit to KSh 28.1 billion from KSh 34.1 billion. The earnings slump is attributed to a steep 106% depreciation of the Ethiopian Birr, which significantly impacted its fledgling Ethiopian operations. This adverse currency shift inflated Safaricom’s expenses in Ethiopia, costing the company KSh 17.5 billion in currency devaluation and forex losses over the past six months.
Service Revenues Grow, But Challenges Remain
Despite currency woes, Safaricom’s service revenues rose by 12.9% to KSh 177.5 billion, with strong performance across all service segments and a continued growth in customer base. CEO Peter Ndegwa expressed optimism about the Ethiopian market, emphasizing the potential for long-term growth despite recent setbacks.
“Despite the impact of foreign exchange regime reforms, we remain optimistic about the commercial success of this venture even as we increase our customer acquisition efforts and continue to innovate to deliver value to our customers,” Ndegwa said.
Ethiopia’s currency depreciated sharply against the U.S. dollar following the government’s decision to adopt a free-floating exchange regime in July. The Ethiopian Birr plummeted from 57.69 in June to 118.99 in September. This devaluation resulted in a lengthened break-even timeline for Safaricom’s Ethiopian operations, now extended to March 2027. The company remains hopeful, however, that the effect of this currency correction will be less severe in the full-year results.
Kenyan Operations Provide a Silver Lining
On the domestic front, Safaricom’s Kenyan operations showed resilience, with double-digit profit growth of 14.1%, bringing profits to KSh 47.5 billion. This growth has been driven by a surge in service revenues, particularly in the mobile money platform M-Pesa, which saw revenues rise by 16.6% to KSh 77.2 billion due to increased customer engagement and a boost in M-Pesa agents to 266,070. Voice and messaging services also saw moderate growth, contributing to 26.4% of the total service revenue with a 4.8% and 8.0% increase, respectively.
Mobile data, a growing revenue stream, reported a 20.2% rise to KSh 35.6 billion. This increase is largely due to higher device penetration, personalized customer offerings, and a rising data user base, which grew by 10.5% to 28.9 million customers. Safaricom’s customer base reached 52.01 million by mid-year, with a dominant market share of 65.4% in Kenya as of June 2024.
Capital Expenditure Adjustments and Earnings Guidance
Amid these mixed results, Safaricom’s management has adjusted its earnings guidance for the year, with expectations that EBIT (Earnings Before Interest and Tax) will range between KSh 94 billion and KSh 100 billion, lower than initially projected. Capital expenditure, on the other hand, is expected to increase to a range of KSh 80 billion to KSh 86 billion as the company continues its investment in both Kenyan and Ethiopian infrastructure and customer acquisition.
Safaricom’s Chief Finance Officer, Dilip Pal, noted that while the company is prioritizing strategic growth investments, it remains mindful of the near-term financial pressures stemming from the Ethiopian operations and broader economic challenges.
Read: Safaricom’s M-PESA Continues to Soar, Driving Profits Amidst Price Reductions
Market Response and Share Performance
In response to the earnings report, Safaricom’s stock fell by 6.1% to KSh 15.50 per share on Thursday, reflecting investor caution amid lower profit guidance and heightened expenditure. The company, listed on the Nairobi Securities Exchange under the ticker SCOM, chose not to declare an interim dividend for this period.
As Safaricom navigates the volatility in Ethiopia’s market and macroeconomic challenges, the company’s stronghold in Kenya offers a foundation for continued revenue growth. The telco’s expanded service portfolio and substantial market presence are anticipated to provide stability as it looks to overcome regional hurdles and focus on long-term profitability in East Africa’s dynamic telecommunications sector.