Safaricom Sees 18% Profit Drop as Ethiopian Currency Declines Sharply

• Nov 07, 2024

Safaricom Plc reported a significant drop in profits for the half-year period, attributing the 17.7% decline to the sharp depreciation of the Ethiopian Birr, which eroded its earnings from Ethiopian operations. The company’s net profit fell to KSh 28.1 billion from KSh 34.1 billion during the same period last year. This decline comes as Ethiopia’s currency, the Birr, lost 106% of its value against the U.S. dollar, largely due to recent currency reforms intended to stabilize the country’s financial sector and attract funding from the International Monetary Fund (IMF).

Despite the challenges posed by currency devaluation, Safaricom’s service revenue grew 12.9% to KSh 177.5 billion, driven by robust customer growth and increased usage across all service lines. The company’s core business in Kenya performed strongly, with profits growing 14.1% to KSh 47.5 billion, bolstered by higher revenues from its various services, particularly the popular mobile money service, M-Pesa.

The Ethiopian Birr’s depreciation has been a significant obstacle, especially since Ethiopia moved to a free-floating exchange rate in July. The Birr’s decline, closing September at 118.99 to the dollar from 57.69 in June, cost Safaricom KSh 17.5 billion in forex losses and increased local currency expenses. In response, Safaricom has adjusted its profit expectations for the full year and raised its capital expenditure targets to support growth in both the Kenyan and Ethiopian markets. According to CEO Peter Ndegwa, while the currency adjustments have impacted profits, the company remains committed to expanding its customer base and enhancing service innovation in Ethiopia to support long-term success.

Notably, Safaricom extended its break-even target for its Ethiopian business by one year, now aiming for March 2027. Chief Finance Officer Dilip Pal stated that the Ethiopian currency correction significantly impacted half-year earnings but expects a smaller effect on full-year results.

M-Pesa has been a major contributor to Safaricom’s revenue, with a 16.6% increase to KSh 77.2 billion in the six months to September. The surge in M-Pesa usage saw agent numbers rise to 266,070, supporting the platform’s continued growth. Additionally, mobile data revenue grew 20.2% to KSh 35.6 billion, thanks to more customers and better device penetration, alongside personalized offers that encouraged higher data use. The customer base expanded 7.8% to 52.01 million, with data customers rising 10.5% to 28.9 million. Safaricom’s market share in Kenya remains strong at 65.4% as of June 2024.

Given these financial pressures, Safaricom has revised its earnings guidance, with anticipated earnings before interest and taxes (EBIT) now between KES 94 billion and KES 100 billion. Capital expenditures are also expected to increase, projected between KES 80 billion and KES 86 billion for the year. However, despite the revenue growth in some areas, the company did not declare an interim dividend for this period.

Safaricom’s stock price was affected, trading down 6.1% on Thursday to close at KSh 15.50 per share on the Nairobi Securities Exchange, where it remains the largest listed company by market value, trading under the ticker symbol SCOM.