Vodacom Faces Financial Setback with 18% Profit Drop in Africa

Vodacom's net income drops 18% as currency issues hit Egypt and Ethiopia markets

Vodacom Group Ltd., Africa's largest telecom company by market value, said first-half net income fell 18%. Much of the slide is due to currency devaluations in Egypt and Ethiopia, which have been heavy contributors to earnings. Net income for the period slid to 6.84 billion rand, or about $388 million.

For the third straight time, Vodacom cut its interim dividend, lowering it to 2.85 rand per share from 3.05 rand. Another challenge that has caused problems for companies in Africa and, indeed, Vodacom is currency fluctuations. The Ethiopian government ended the fixed exchange rate against the dollar, and Vodacom lost 1.1 billion rand. The devaluation is similar to what happened to Nigeria with the naira.

The chief executive of Vodacom, Shameel Joosub, said that Egypt's currency outlook is stable. "The real impact is Ethiopia's recent currency reform," he argued. "All the immediate changes related to dollar-pressed business dealings were affected by such reforms; however, all three markets are strategic bases for future growth.".

Vodacom-the largest African operator, with over 200 million customers across the continent keen on investing in data, content, fibre, and financial services, particularly in Egypt. The firm expects growth to resume as the currency challenge eases.

Analyst Peter Takaendesa from Mergence Investment Managers said revenue trends are indeed encouraging, though currency headwinds are huge, as of now. Vodacom shares dropped 5.4% in Johannesburg following the news, bringing the company's stock value down to 6.7% this year, now worth 205 billion rand.

Despite this, it expands its fibre presence across the continent as a joint venture. In South Africa, there are regulatory headwinds, with the antitrust tribunal blocking its multi-billion-rand fibre deal.

In the medium term, Vodacom will generate 25 percent to 30 percent of revenue from new services that include fintech and digital services. It is Africa's largest provider with 83 million fintech customers.