Safaricom eyes 40pc long-term margins in Ethiopia business


Safaricom CEO Peter Ndegwa. PHOTO | POOL

Safaricom Plc has ambitions of achieving gross margins of 40 percent in its new Ethiopian operation in 10 years.

The financial targets, including breaking even in four years, have been disclosed by South Africa’s Vodacom Group which owns a 35 percent stake in the Nairobi Securities Exchange-listed firm.

“Safaricom Ethiopia to reach EBITDA break-even in four years and an EBITDA margin of 40 percent in 10 years,” Vodacom said in its latest annual report.

EBITDA refers to earnings before interest, taxes, depreciation, and amortization. It measures a company’s overall financial performance but excludes the cost of capital investments.

If Safaricom Ethiopia hits the target, the subsidiary will be close to the profitability of its Nairobi-based parent company.

Safaricom has a gross margin of 50 percent, the highest among the NSE-listed firms.

Achieving profitability in Ethiopia will boost Safaricom’s value, generating dividends and freeing significant capital investments that are currently required to build up the business.

The Ethiopia business reported a net loss of Sh4.8 billion in the 10 months ended March, reflecting the startup costs in a period when it did not have revenue.

Safaricom Ethiopia, in which the Kenyan multinational holds a 55.7 percent stake, was issued an operating licence in July 2021.

Earlier in May, the company said it had secured approvals for tower development, built two data centres, made the first test call, and sent out the first test SMS.

It has hired more than 300 employees with a target of having a workforce of 1,000 by March 2023.

Kenya’s largest mobile operator aims to be a major player in Africa’s second-most populous country with 115 million people.

The Ethiopian subsidiary plans to spend between $1.5 billion and $2 billion over the next five years to build infrastructure and roll out new services, among other capital expenditures.

The growth will be fueled by aggressive network expansion, SIM card penetration, and mobile money product launch.

The subsidiary intends to roll out 10,000 to 12,000 sites in the next 10 years.

Safaricom’s M-Pesa platform with over 30 million customers in Kenya is set to rival Ethio Telecom’s Telebirr with over 15 million subscribers in the Horn of Africa nation.

Safaricom and its partners in the Ethiopian joint venture will fund the heavy capital requirements through a mix of debt and retained earnings.

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