UPDATE 2-Safaricom expects return to earnings growth after pandemic hit

(Recasts with CEO’s comments)

NAIROBI, May 13 (Reuters) - Safaricom, Kenya’s biggest telecoms operator, expects core earnings to return to growth this year after the coronavirus crisis hit revenue from financial services and calls in the year to the end of March.

Growth will come from a recovery in the company’s financial services platform, M-Pesa, and a focus on increasing 4G network coverage, the company said.

“We are not slowing down investments,” CEO Peter Ndegwa told Reuters after an investor briefing.

Safaricom is also running a scheme to provide 4G enabled phones to customers through affordable credit, partnering with global firms like Google, he said, to drive internet usage.

The company, partly owned by South Africa’s Vodacom and Britain’s Vodafone, expects earnings before interest and taxes to rise to 105 billion shillings ($981 million) and 108 billion shillings in the year to the end of March 2022.

Rapid growth in active customers will also help to drive the recovery, after the company last year achieved the fastest growth in customer numbers in four years, said Dilip Pal, Safaricom’s chief financial officer.

Earnings before interest and taxes fell 5.3% to 96.2 billion shillings in its year to the end of March, mainly due to a drop in revenue from M-Pesa and calls. The 96.2 billion shillings in EBIT was ahead of initial guidance of 91-94 billion shillings issued last November.

M-Pesa revenue was hit in the first half by a removal of tariffs on small peer-to-peer transfers, in line with a government directive aimed at curbing the spread of the coronavirus through cash.

The charges were re-instated at the start of this year.

The drop in M-Pesa and calls was partly offset by an 11.5% jump in revenue from home internet services, as the population worked and studied at home for most of the year.

Safaricom reported cost savings of 6.9 billion shillings for last year, a key part of its strategy.

When asked if there would be job cuts, Ndegwa said: “Our intention is not to reduce numbers... Indeed we will bring more IT resources because you will need that to be a full technology organisation.”

The company is combining its commercial and technology teams, a move it says will transform it into a technology company and help it to deliver more products faster.

Domestic media outlets and the main workers union in the country have said in the past that the exercise will lead to job losses, which Safaricom’s management denies.

$1=106.9000 Kenyan shillings Reporting by Duncan Miriri; Editing by Jane Merriman