Vodacom Group’s half-year headline earnings fell 9.5% due to start-up losses in Ethiopia and higher finance costs, but it expects core profit to improve in the second half, it said on Monday.

Vodacom is part of a consortium led by Kenya’s Safaricom and including Britain’s Vodafone that entered the Ethiopian market last month, becoming the first private operator in one of Africa’s largest telecoms markets.

It has launched its network in 16 cities in Ethiopia, with plans to expand services to 25 by April 2023, Vodacom Chief Executive Shameel Joosub said.

That expansion led the company to incur start-up losses in Ethiopia of R458 million. Higher finance costs of R391 million also dented earnings.

The company, majority-owned by Vodafone, said headline earnings per share, the main profit measure in South Africa, fell to 457 cents in the six months ended September 30 from 505 cents a year earlier.

Group operating profit decreased 5.6% to R13.3 billion on modest growth in earnings before interest, tax, depreciation and amortisation (EBITDA) due to higher operating costs.

On Friday Safaricom, which is partly owned by Vodacom and Vodafone, also reported a drop in its first-half net income, citing the network rollout in Ethiopia.

This resulted in Safaricom’s contribution to Vodacom’s operating profit falling 7.3% to R1.5 billion, Joosub said. 

Group Chief Financial Officer Raisibe Morathi told investors that Vodacom expects an improvement in normalised core earnings growth in the financial second half as it accelerates cost cuts and growth in operating costs eases.

Some of these initiatives, which are also aimed at taming inflationary pressures, include renegotiating wholesale prices with oil companies and sourcing electricity from renewable independent power producers, she told journalists.

The company also aims to contribute to the national grid, she added.

“Overall a lot of initiatives to try and limit discretionary costs and be cost efficient,” Morathi added.