Safaricom Plc, Kenya’s biggest company by market value, reported a drop in full-year profit as the costs of rolling out operations in neighboring Ethiopia weighed on earnings.
(Bloomberg) — Safaricom Plc, Kenya’s biggest company by market value, reported a drop in full-year profit as the costs of rolling out operations in neighboring Ethiopia weighed on earnings.
Net income for the 12 months through March was 62.3 billion shillings ($455.6 million), 10.6% lower than the previous year, according to financial statements released on Thursday. That’s the biggest drop in since 2011, according to data compiled by Bloomberg. The share declined.
Profit dropped as the company’s capital spending jumped 93% to 96.1 billion shillings, excluding the impact of hyperinflation in Ethiopia, driven by expenditure on rolling out operations in that country.
Ethiopian authorities granted Safaricom’s subsidiary a license to introduce its M-Pesa mobile money service in the country, Chief Executive Officer Peter Ndegwa said in the Kenyan capital, Nairobi. Safaricom will launch the financial platform in the second quarter, Ndegwa said in an interview. That “will also fuel the recruitment for mobile, data, voice customers,” he said.
Safaricom’s revenue increased 4.3% to 310.9 billion shillings, while its earnings before interest and taxes was 91.7 billion shillings excluding the impact of hyperinflation — both measures missed estimates. For the 2024 financial year, the company targets Ebit of 75 billion shillings to 81 billion shillings.
M-Pesa in Ethiopia
Safaricom is betting on Ethiopia, Africa’s second most populous nation of 120 million people, for growth. It wants to increase active customers to 10 million in the 2024 financial year. M-Pesa, which has been a money-spinner in Kenya, will be key to the company’s success in Ethiopia.
The National Bank of Ethiopia confirmed on Thursday it has issued a mobile money license to Safaricom — the first to a foreign investor — and said there’s strong demand for digital finance offerings in the country.
However, while M-Pesa will have a positive impact on Safaricom’s medium- to long-term financial metrics, most users in Ethiopia have low spending capacity, according to a Sterling Investment Bank note issued before the earnings.
“Safaricom is expected to use a dual mix of superior service quality and competitive pricing as its customer acquisition strategy once it rolls out M-Pesa in Ethiopia later this year,” Sterling said.
Safaricom proposed a 0.62 shilling final dividend, adding to an interim payout of 0.58 shillings and bringing the total return to shareholders for the year to 48.08 billion shillings.
Shares declined almost 3.3% to 14.8 shillings, by 12:13 p.m in Nairobi. The stock has fallen about 54% in the past 52 weeks.
The “share price has declined sharply over the last three years due to a combination of negative investor sentiment that sparked a bear market and pessimism on the short and medium growth prospects of a company near maturity,” Sterling said.
–With assistance from Fasika Tadesse.
(Updates with details throughout)
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