Safaricom lowers full-year earnings forecast due to Ethiopian birr drop, despite strong growth in East Africa’s telecom market.
Safaricom, Kenya’s largest telecom operator, has cut its full-year earnings forecast after a sharp drop in net income caused by the depreciation of Ethiopia’s birr. The revision, announced on November 7, 2024, highlights the risks facing Safaricom as it expands operations in Africa’s second-most populous nation.
Safaricom entered the Ethiopian market in 2022 after the government liberalized the telecoms sector. Although the company has seen strong subscriber growth in the country of over 120 million people, its Ethiopian operations have faced serious headwinds, including currency volatility, security issues, and high inflation.
Earnings Outlook and Currency Pressure
For the half-year ended September, group earnings before interest and taxes (EBIT) rose 31.9% year-on-year. Service revenue grew by 14.0% to KSh 181.4 billion. However, net income dropped 17.7%, largely due to the 106% depreciation of the Ethiopian birr, following a policy shift by the National Bank of Ethiopia to adopt a floating exchange rate.
Safaricom has now revised its full-year earnings forecast to between KSh 94 billion and KSh 100 billion ($731 million–$778 million), down from an earlier projection of KSh 103 billion to KSh 109 billion.
“Despite short-term challenges, we remain confident about the long-term success of our Ethiopian venture,” said Peter Ndegwa, CEO of Safaricom.
Ethiopia’s Reforms and Safaricom’s Future
In July 2024, Ethiopia adopted a market-based exchange rate regime to meet conditions for a new International Monetary Fund (IMF) lending programme and restructure external debt. The move, though necessary, severely impacted companies with foreign currency exposure, including Safaricom.
“A 10% further depreciation could shrink our balance sheet by up to KSh 8 billion,” Ndegwa warned.
Chief Financial Officer Dilip Pal added that while the birr depreciation weighed heavily on half-year results, its impact on full-year earnings should be less severe.
Breakeven in Ethiopia Pushed to 2027
Safaricom had previously targeted 2026 to break even in Ethiopia. However, due to the macroeconomic adjustments and currency risk, that breakeven point has now been moved to 2027.
Despite the setback, Ndegwa said the Ethiopian unit continues to see strong customer growth and adoption, with expanding mobile money and data services.
Market Reaction and Share Performance
Safaricom, the largest listed firm on the Nairobi Securities Exchange (NSE), saw its shares fall 2.75% on the day of the announcement. The company is jointly owned by Vodacom Group of South Africa and the UK-based Vodafone Group.
Despite the Ethiopian currency drag, Safaricom’s robust earnings and strong EBIT growth reflect its underlying financial health.
