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Surging costs from Ethiopia foray eat into Safaricom earnings

Safaricom CEO Peter Ndegwa. PHOTO | DENNIS ONSONGO | NMG

Mobile phone operator Safaricom’s net profit for the full year ended March 31, 2023 dropped by 22 percent on account of a deteriorating business environment and a surge in operating costs linked to the Ethiopian operations.

The telco’s net profit fell, for the second year in a row, to Ksh52.48 billion ($383.34 million) from Ksh67.49 billion ($493 million) in 2022.
The 2022 net profit declined by 1.71 percent to Ksh67.49 billion from Ksh68.67 billion ($501.61 million) in 2021.

“This year under review was a challenging one for us all: One that was marked by slowed economic growth, currency depreciation, rising global inflation, a slowdown in business activity due to the General Election and the impact of the ongoing Russia-Ukraine war,” Peter Ndegwa, the group’s chief executive, told an investor briefing on Thursday.

“Perhaps the most devastating is yet another failed rain season that led to severe drought, which affected communities, their livestock and farms making worse the economic situation.”

Taxes impact

According to Ndegwa, the review of mobile termination rates (MTR) and introduction of additional taxes on SIM cards and mobile phones slowed down growth momentum in the telecom sector.

“We are optimistic of Kenya’s economic prospects. As a business, we were resilient and operated in a stable business environment despite the headwinds mentioned.”

According to the group’s audited financial statements, total revenues grew by 4.3 percent to Ksh310.9 billion ($2.27 billion) from Ksh298.07 billion ($2.18 billion) while operating costs jumped 34.2 percent to Ksh74.08 billion ($541.12 million) from Ksh55.18 billion ($403 million), with net finance costs increasing by 10.1 percent to Ksh7.08 billion ($51.7 million) from Ksh6.43 billion ($46.97 million).
Service revenue grew by 5.2 percent to Ksh295.69 billion ($2.16 billion) helped by M-Pesa, mobile data and fixed data growth.

M-Pesa transactions, which remain the biggest revenue earner accounting for 39.7 percent of service revenues, grew at a rate of 8.8 percent to Ksh117.19 billion ($856.02 million) from Ksh107.69 billion ($786.63 million).

But this was a slower growth rate compared to a growth of 30.3 percent to Ksh107.69 billion ($791.83 million) in the financial year ended March 2022.

Growth areas

The group’s mobile data revenue grew by 11.4 percent to Ksh53.95 billion ($394 million) from Ksh48.44 billion ($353.83 million) while messaging revenue grew by 4.6 percent to Ksh11.37 billion ($83.05 million) from Ksh10.87 billion ($79.4 million).

However, voice service revenue declined by 2.6 percent to Ksh81.05 billion ($592.05 million) from Ksh83.21 billion ($607.82 million), largely due to competition from other new technological influences.

The group’s total customer base increased by 8.1 percent to 45.9 million.

On October 6, 2022, Safaricom, through a consortium, began commercial operations in Ethiopia, with Addis Ababa promising to grant the telco a licence to launch the M-Pesa mobile money services in Africa’s fastest growing economy and the continent’s second most populous nation with over 115 million people.

The consortium, which also includes British development finance agency CDC Group and Japan’s Sumitomo Corporation, won a telecom licence with a bid of $850 million (Ksh116.37 billion) in 2021.

Ethiopia amended its laws to allow foreign investments in mobile money services as the government moves to liberalise its telecommunication sector that has for years been under the monopoly of the state-owned Ethio-telecom.