Vodacom's Ethiopia bet: start-up losses weigh as earnings fall 10.8% in year to March 2024

South Africa's biggest telecoms operator, majority-owned by Britain's Vodafone, selling mobile and data services across its African markets.

That Ethiopia's huge population will power growth after about five years of investment — worth eating start-up losses that already drag Vodacom's group earnings.

In 2022 Vodacom co-launched Safaricom Ethiopia as part of a consortium, betting that the populous nation will power growth after about five years of investment. Vodacom holds a direct 5.7% stake in the venture.

For the year ended March 31, 2024, the Ethiopia start-up loss — along with higher finance and energy costs and inflationary pressure — helped cut Vodacom's full-year earnings 10.8%, with headline earnings per share falling to 846 cents from 948 cents. CEO Shameel Joosub added that weaker exchange rates, including the recent devaluation of the Egyptian pound, contributed. Group service revenue still grew 29.1% to 120.9 billion rand ($6.57 billion), helped by the acquisition of Vodafone Egypt, and EBITDA grew 24.3% to 56.1 billion rand. Safaricom confirmed the Ethiopian network roll-out was on track in Africa's second-most populous country after Nigeria.

Ethiopia is Africa's second-most populous country after Nigeria — a scale of untapped market that Vodacom said it expects to power growth.

Entering through the Safaricom-led consortium with a 5.7% direct stake spread the cost and risk of building a network from scratch.

The bet was explicitly priced as a multi-year sacrifice: about five years of investment before the populous nation delivers growth.

Vodacom's growing core — service revenue up 29.1% to 120.9 billion rand, helped by Vodafone Egypt — gives it the cash flow to absorb the loss years.

Executive leadership held the course: CEO Shameel Joosub reported the network roll-out on track and the board committed capex of 13% to 14.5% of revenue.

Incumbents can fund frontier-market bets out of the core business, but only if they price the loss years in advance: Vodacom framed Ethiopia as roughly five years of investment before growth arrives.

As of May 13, 2024, the Ethiopian start-up losses were showing up in Vodacom's group results, while Safaricom confirmed the network roll-out was on track. The start-up losses helped pull headline earnings per share down 10.8% to 846 cents, but the group kept spending — capex committed at 13% to 14.5% of 151 billion rand revenue — and paid a final dividend of 285 cents a share, staying the course on the multi-year bet.