Safaricom Lowers Earnings Forecast Amid Ethiopian Currency Woes

:Safaricom adjusts full-year earnings outlook due to Ethiopian birr depreciation, impacting revenue despite strong growth in Africa’s second-largest telecom market.
Kenya’s largest telecom operator, Safaricom, revised down its full-year earnings forecast on November 7 2024, citing a sharp drop in net income driven by the depreciation of Ethiopia’s birr.

Safaricom, which won the first telecom license in Ethiopia in 2022 after sector liberalisation, is expanding in Africa’s second-most populous nation, with approximately 120 million people. However, despite strong customer growth, it has faced hurdles, including security concerns, inflation, and currency volatility.

The company reported that group earnings before interest and taxes (EBIT) rose 31.9% year-on-year for the half-year period, but it now expects full-year earnings to reach between 94 billion and 100 billion Kenyan shillings ($731 million to $778 million), down from its previous estimate of 103 billion to 109 billion shillings.

Safaricom, partly owned by Vodacom of South Africa and Vodafone of the UK, recorded a 14.0% increase in group service revenue, reaching 181.4 billion shillings by the end of September. Nonetheless, net income fell 17.7% year-on-year, impacted by the Ethiopian birr’s 106% depreciation, following the government’s decision to let the currency float freely, said Peter Ndegwa, Safaricom’s CEO.

“Despite the short-term challenges, we are optimistic about the long-term success of our Ethiopian venture and encouraged by the accelerating commercial performance,” Ndegwa said. Ethiopia adopted a market-driven foreign exchange rate in July as part of reforms to liberalise its financial sector, aiming for a new IMF lending program and a long-delayed debt restructuring.

Safaricom’s Ethiopian business launched two years ago, is now expected to break even in 2027 due to the foreign exchange reforms, according to Ndegwa. “Given the uncertainty around the exchange rate by year-end, a 10% currency depreciation would impact our balance sheet by around eight billion shillings,” he added.

CFO Dilip Pal noted that while the birr’s depreciation weighed heavily on half-year results, its effect on full-year earnings should be less significant.

Safaricom’s shares on the Nairobi Securities Exchange, where it is the largest-listed company, fell 2.75% by 0744 GMT.