Kenya’s leading telecom operator, Safaricom, has revised its earnings forecast for the year, following a significant drop in net income caused by the depreciation of Ethiopia’s birr currency.
Safaricom, which secured the first license to operate in Ethiopia in 2022 after the sector was opened up, has experienced challenges in the country despite strong customer growth. Factors such as security issues, high inflation, and currency fluctuations have hindered its progress.
The company reported a 31.9% year-on-year increase in its half-year earnings before interest and taxes (EBIT). However, its full-year earnings guidance was lowered to between 94 billion and 100 billion Kenyan shillings ($731 million to $778 million), down from the previous forecast of 103 billion to 109 billion shillings.
Safaricom’s total service revenue rose by 14.0% to 181.4 billion shillings for the six months ending in September. However, net income fell by 17.7% due to the 106% depreciation of Ethiopia’s birr, following the country’s move to a market-driven foreign exchange rate in July. The shift was part of broader reforms to liberalize the financial sector and secure an IMF lending agreement, as well as address Ethiopia’s ongoing debt crisis.
Peter Ndegwa, Safaricom’s CEO, expressed confidence in the long-term prospects for the company’s Ethiopian business, despite the short-term setbacks. He emphasized that the company remains optimistic about its commercial success in the country, and noted that its Ethiopian operations would reach profitability by the 2027 financial year.
Ndegwa further explained that the unpredictable exchange rate posed challenges for the business, stating that any 10% change in currency depreciation would impact the balance sheet by approximately eight billion shillings.
Despite the currency issues, Safaricom’s management expects the impact on its full-year results to be less severe than in the first half of the year. However, its shares on the Nairobi Securities Exchange fell by 2.75% in early trading.