Safaricom's first-half income hit by rising cost of living

NAIROBI (Reuters) -Safaricom, Kenya's biggest telecoms operator, reported a drop in its first-half net income on Friday, citing higher cost of living, rapid inflation and an expensive network rollout in Ethiopia.

Core earnings at the company, part-owned by South Africa's Vodacom and Britain's Vodafone, fell 11.5% in the six months to the end of September, while net income slid by 10%.

Safaricom blamed the decline on higher inflation, which has cut consumers' ability to spend, regulatory changes in Kenya and an expensive new network in Ethiopia.

To offset the weakness, Safaricom said it is turning to emerging areas offering faster growth.

"There is a lot of focus on fibre. There is a lot of focus on expanding financial services," Dilip Pal, Safaricom's chief financial officer, told Reuters after an investor briefing.

The company has connected 200,000 homes out of a potential one million to the internet through its fibre network, said Safaricom's CEO Peter Ndegwa.

It is also seeing rapid growth in revenue from international money transfer services on its M-Pesa platform, merchant payments and lending, which are outperforming peer-to-peer cash transfers on the platforms and cash withdrawals.

In June, Safaricom partnered with Visa Inc to launch a new product, aimed at helping both companies tap the large international subscriptions services business in Africa.

Safaricom is also counting on other smaller business lines, including the provision of content and technology services for farmers, Ndegwa and Pal said.

Still, the company will continue to see earnings pressure in its earnings from the Ethiopia investment, which is expected to break even in four years.

"There is near-term impact but medium-to-long term it is very promising," Ndegwa said. "The bottomline will catch up when you get the scale of customers."

Safaricom expects the number of customers in Ethiopia will reach one million this month as it continues to roll out the network, he said.

It was not yet clear when the company will get a mobile financial services licence, since parliament has not yet approved the necessary legal change, Ndegwa said.

($1 = 121.7000 Kenyan shillings)

(Reporting by Duncan Miriri; Editing by Sherry Jacob-Phillips and Louise Heavens)

By Duncan Miriri