(Bloomberg) -- Safaricom Group Plc reported lower-than-expected annual profit after the Kenyan telecommunications giant’s unit in neighboring Ethiopia booked losses in its first full year of operations.

Net income rose 1.2% to 62.99 billion shillings ($479.2 million) in the year through March 31, the Nairobi-based company said in a statement Thursday, missing the 67.6 billion-shilling median estimate by analysts in a Bloomberg survey. Its Kenyan unit reported $1.07 billion in operating profit, the first time that the measure exceeded the billion-dollar mark. 

“This is no mean feat — there’s no other company in our region that has achieved this,” Chairman Adil Khawaja said at an investor briefing in Nairobi.

The shares rose 3.7% by 12:46 p.m., having jumped as much as 9% in earlier trade. 

East Africa’s biggest company by market value in 2022 launched operations in Ethiopia, which has the continent’s second-largest population but one of the lowest rates of mobile penetration and internet connectivity.

That business posted an annual operating loss of 45 billion shillings for its first full year of operations and Safaricom estimates that could rise to as much 46 billion shillings this financial period.

“Ethiopia is at an investment phase and such a big greenfield with large investments is expected to have losses,” Chief Financial Officer Dilip Pal said. “Whatever losses Ethiopia had is within our expectations. As the business gains scale, Ethiopia will have a positive impact to our group performance in coming years.”

Break Even

Safaricom expects to double its subscribers in Ethiopia — where it competes with a state-owned operator that was a monopoly — to about 10 million this year. Ethiopian Telecommunications Corp, popularly known as Ethio Telecom, reported almost 75 million customers in January.

If it can reach customer-number goals, the Ethiopian unit could realize or even surpass its EBIT target in the 2026 financial year, according to Ronnie Chokaa, a senior research analyst at AIB-AXYS Africa.

“They need that critical mass of active consumers on a consistent 90-day basis,” he said. “Ten million customers would be a critical threshold to support consistent cash-flow generation.”

Safaricom introduced its mobile-money M-Pesa product in Ethiopia in August and had transactions valued at 24.5 billion shillings by end-March. In Kenya, transactions were about $307 billion, more than double the nation’s total economic output. The service now contributes 42% of the company’s service revenue.

“The worst is behind us from a group financial point of view,” Pal said.

(Updates with chairman’s comment from third paragraph.)

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