Safaricom's success in the Kenyan market has been crucial in offsetting losses incurred in Ethiopia, where the company launched operations last year
Safaricom Plc, Kenya’s largest company by market value, has reported a 2.1% increase in net income. The company raked in 34.2 billion shillings ($225 million) in net profit, marking its first profit growth in two years. Bloomberg reports that this positive financial performance comes on the heels of strategic measures, including lower prices and a surge in M-Pesa income, which accounts for 42% of the company’s service revenue.
Safaricom’s shares, which had faced a 43% decline throughout the year, experienced a notable 5.6% surge in Nairobi, signalling investor confidence in the company’s recent earnings report.
According to Bloomberg, Safaricom attributed its profit increase to reducing prices to encourage users to spend on its network. Since 2020, the company has implemented substantial cuts, including a 65% reduction in data prices, a 44% cut in outgoing calls, and a 61% decrease in tariffs for its flagship mobile money product, M-Pesa.
According to Safaricom CEO Peter Ndegwa, this strategic move has led to an increase in service usage. In the six months leading up to September, there “was accelerated pressure on the consumer wallet” due to global and domestic factors that drove inflation, he told investors on Thursday.
“Businesses have also been under pressure having to deal with rising energy and foreign-exchange costs whilst balancing between operating an efficient business and also cushioning customers at a tough time,” Ndegwa said.
Another factor might be the relatively weak Kenyan economy, which is putting a strain on consumers. Additionally, they are facing the challenge of increased taxes, which further limits their spending power.
A similar report on the Kenyan company highlights that core earnings in the Kenyan business surged by 14.9%, driven by reduced prices of products and services. Despite challenges such as high living costs and tax hikes affecting consumers’ disposable incomes, the company experienced increased usage, boosting its Kenya operations.
Recall that last month, the company parted ways with 33 members of its staff due to allegations of corruption and fraud during the financial year that ended in March 2023.
Safaricom’s Kenya profit covers Ethiopia’s loss
Safaricom’s success in the Kenyan market has been crucial in offsetting losses incurred in Ethiopia, where the company launched operations last year. The Ethiopian venture is expected to incur peak investment losses this financial year but aims to break even in 2026.
Safaricom posted a loss of 25 billion shillings in Ethiopia, where in 2021 it won the country’s first private telecoms license.
Safaricom’s positive performance in Kenya is highlighted by the impressive 16.5% growth in revenue from its M-Pesa financial services platform, and mobile internet services, which grew by 12.5%. These figures are a testament to the company’s resilience in its domestic market, despite the challenging economic conditions.
Safaricom’s commitment to sustainability is also noteworthy. The company has been containing costs by using renewable energy to power its transmission sites instead of expensive diesel. In September, the telecom operator secured a sustainability-linked loan from a consortium of local banks and expressed plans to explore more green financing, potentially including a green bond.
According to analysts like Eric Musau from Standard Investment Bank, although the company’s entry into the Ethiopian market is considered a risky move with potential losses, the company’s strong performance in Kenya helps to balance out those losses, providing a positive outlook for investors.
“It is a big market, so the losses from there are an important concern, but because they are being offset by the Kenyan business, it is really pleasant for investors.”