Safaricom First-Half Profit Drops as Ethiopian Birr Plummets
Safaricom Plc, Kenya’s biggest company by market value, said first-half profit fell 18% because of the devaluation of Ethiopia’s currency.
The Nairobi-based company’s net income fell to 28.1 billion shillings ($218 million) from a year earlier, Chief Executive Officer Peter Ndegwa said at a briefing on Thursday. Earnings from mobile-money product M-Pesa now account for about 43% of service revenue.
The birr’s has depreciated more than 50% against the dollar since the authorities in the Horn of Africa nation allowed the currency at the end of July to trade freely, inflating debt-servicing costs for Safaricom’s unit and raising local-currency expenses such as leases. The weakening of the currency cost the company about 17.5 billion shillings, according to a results presentation.
“As a business we’re optimistic to be in Ethiopia when positive critical reforms are happening. In the long term, this is good for Ethiopia,” Ndegwa said. “This is the start of being able to repatriate dividends. But we must take into account the financial impact in the short term.”
To mitigate that hit, Safaricom has renegotiated foreign-currency denominated contracts, taken on local suppliers and reviewed pricing. About 85% of its capital expenditure and 15% of operational costs are in foreign currency, Chief Financial Officer Dilip Pal said. The impact in the second half of the year is expected to be much lower.
Cuts Outlook
Safaricom slashed its forecast for the group’s operating profit by about 8% to a range capped at 100 billion shillings after widening its operating loss outlook for Ethiopia to as much as 61 billion shillings. That unit has signed up 6.1 million customers in the two years of operations against a target range of 7 million to 10 million users by the end of the year in March.
It now expects an Ethiopian break-even in the 2027 financial year, one year later than initially anticipated, due to the effect of the currency reforms.
“In Ethiopia, we’re happy with the momentum gained and we’ll sustain this via aggressive customer acquisition and retention and also starting to deal with the impact of the foreign exchange reforms,” Ndegwa said.
Safaricom’s stock, which accounts for about 39% of the Nairobi’s main share index, fell as much as 3.4% and was 2.75% lower at 15.90 shilling at 11:34 a.m. local time.
