(Nairobi) – Kenya’s largest telecommunications operator, Safaricom, has revised its full-year earnings forecast downwards after experiencing a sharp decline in net income, primarily due to the depreciation of Ethiopia’s birr currency. The company, which entered the Ethiopian market in 2022 following the liberalisation of the country’s telecom sector, saw its group net income fall by 17.7% year-on-year.
Despite experiencing strong customer growth in Ethiopia, Safaricom’s operations in the country have faced significant challenges, including security issues, inflation, and the sharp depreciation of the birr. The company had originally forecast a full-year earnings before interest and taxes (EBIT) of 103 to 109 billion Kenyan shillings, but it has now lowered the estimate to a range of 94 to 100 billion shillings ($731 million to $778 million).
For the half-year period ending in September, Safaricom reported a 31.9% year-on-year increase in EBIT and a 14.0% rise in service revenue to 181.4 billion shillings. However, these gains were overshadowed by the effects of Ethiopia’s currency depreciation, which resulted from the government’s decision in July to adopt a market-determined exchange rate. This move is part of broader financial reforms aimed at securing an International Monetary Fund lending programme and addressing the country’s debt situation.
The depreciation of the birr, which has fallen by 106% since the reforms were implemented, has created significant headwinds for Safaricom’s Ethiopian operations. The company’s CEO, Peter Ndegwa, remains optimistic about the long-term potential of the business, stating that the company is encouraged by the commercial progress in Ethiopia despite the short-term challenges.
However, Safaricom’s Ethiopian operations are not expected to break even until the 2027 financial year, with the company forecasting further delays due to ongoing foreign exchange reforms. Ndegwa indicated that any 10% change in the currency’s value could have an impact of approximately 8 billion shillings on the company’s balance sheet.
Safaricom’s shares on the Nairobi Securities Exchange (NSE), where it is the largest listed company, dropped by 2.75% as of 0744 GMT on Thursday in response to the revised earnings outlook. Despite this, Safaricom remains confident that the adjustments in Ethiopia will ultimately support its growth in the region.