Safaricom trims forecast on Ethiopia's birr depreciation
Half-year EBIT grew 31.9% but expected to ease
Net income fell 17.7% y/y due to birr depreciation
Ethiopia operation will take another year to break even
CEO says remains confident on Ethiopia success
Releads, adds quotes, details throughout
By Hereward Holland
NAIROBI, Nov 7 (Reuters) -Kenya's biggest telecoms operator, Safaricom SCOM.NR, lowered its full-year earnings guidance on Thursday, after reporting a sharp fall in net income due to the depreciation of Ethiopia's birr currency.
The company won the first licence to operate in Africa's second most populous country, with about 120 million people, in 2022, following the liberalisation of the sector.
Despite strong customer growth, it has had a bumpy ride so far due to security, inflation and currency challenges.
Safaricom said the group's half-year earnings before interest and taxes (EBIT) grew 31.9% year-on-year, but expected full-year earnings to ease to 94 billion to 100 billion Kenyan shillings ($731 million to $778 million) from 103 billion to 109 billion previously.
The company, partially owned by South Africa's Vodacom VODJ.J and Britain's Vodafone VOD.L, posted a 14.0% increase in group service revenue to 181.4 billion shillings for the period to the end of September.
However, the group's net income fell 17.7% on the year, dented by a depreciation of 106% in Ethiopia's birr currency, an effect of the government's free float of the unit, said Peter Ndegwa, Safaricom's group chief executive officer.
"Despite the short-term challenges, we remain confident in the long-term commercial success of our Ethiopian business, and we are very encouraged by the commercial acceleration," Ndegwa said.
Ethiopia adopted a market-determined foreign exchange rate in late July in a raft of reforms aimed at liberalising its financial sector to secure a new International Monetary Fund lending programme, and advance a long-delayed debt overhaul.
Launched two years ago, Safaricom's Ethiopia arm will take a further year to break even because of the country's foreign exchange reforms, achieving profit in the 2027 financial year, Ndegwa said.
"Due to the uncertainty of what (exchange) rate we will have at the end of the year, we are guiding that any 10 percentage points change in terms of currency depreciation, would result (in) about eight billion shillings ... in terms of balance sheet impact," he said.
Chief Finance Officer Dilip Pal said that while the impact of the birr's exchange rate correction created a substantial drag in half-year results, the impact on the group's full-year results would be "much lower".
Its shares on the Nairobi Securities Exchange, where it is the largest company, were down 2.75% by 0744 GMT.
($1 = 128.5000 Kenyan shillings)
Reporting by Hereward Holland; Editing by Bate Felix and Clarence Fernandez
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