NAIROBI, May 9 (Reuters) – Kenyan telecom operator Safaricom SCOM.NR on Thursday reported a 3.5% rise in its annual core earnings to 94.9 billion Kenyan shillings ($724 million) as solid growth in its home market helped cushion the costs of its nascent Ethiopian business.

The group, which is partly owned by South Africa’s Vodacom VODJ.J and Britain’s Vodafone VOD.L, said the Ethiopian business was gaining momentum and should start being a significant contributor to the group’s growth from next year.

It launched Safaricom Ethiopia in 2022, betting that the populous nation will power growth after about five years of investment.

In Kenya, the company achieved a 20.4% rise in earnings before interest and tax (EBIT) to 139.9 billion shillings, against a guidance of 129 to 132 billion, but overall group performance was dampened by the new business in Ethiopia.

Net income attributable to owners of the company grew 1.2% year on year to 62.99 billion Kenyan shillings.

The group EBIT exceeded the company’s forecast of 87 to 93 billion shillings, driven by “customer segmentation, public sector digitisation, investments in new technologies and better use of data and analytics to understand and serve customers better,” the company said in a statement.

“We are extremely pleased with what we have been able to achieve as a group despite the significant startup costs in our Ethiopia business,” Group CEO Peter Ndegwa told an investor briefing.

Safaricom’s active customer base in Ethiopia doubled to 4.4 million, he said.

“We expect that from 2025, Ethiopia will start being a significant growth contributor at group level for both top and bottom line,” he said, adding that the Ethiopia business was expected to break-even by the end of 2026.

The company forecast group EBIT of 103 billion to 109 billion shillings for the current year ending in March 2025.

Overall group service revenue grew 13.4% year on year to 335 billion shillings.

Safaricom group’s M-Pesa mobile financial services business grew 8.8% to 117.2 billion shillings, while mobile data revenue grew 11.4% to 54 billion shillings, the company said in a statement.

It proposed to pay shareholders a final dividend of 0.65 shillings per share, said company chair Adil Khawaja, bringing the total for the year to 1.20 shillings, same as the previous year.

“In Kenya, like many other companies, we faced major macroeconomic challenges. High inflation, a weakening shilling, effects of the prolonged drought and rising taxes,” Khawaja said.

“We pressed on with our expansion in Ethiopia and took all the startup obstacles in our stride,” he said.

($1 = 131.0000 Kenyan shillings)

(Reporting by Hereward Holland; Writing by Tannur Anders; Editing by Jamie Freed, Varun H K and Emelia Sithole-Matarise)