Safaricom acquisition helps Vodacom buck low growth trend

Vodacom CEO Shameel Joosub. (Pic: Gallo Images)
Vodacom CEO Shameel Joosub. (Pic: Gallo Images)

Johannesburg – Mobile communications company Vodacom [JSE:VOD] has managed to overcome tough economic conditions reporting growth in its profits, helped by the acquisition of Safaricom.

Safaricom is a leading mobile network operator in Kenya.

According to the interim financial results for the six months ended September 30, 2017, released on Monday, Vodacom's revenue grew 4.6% to R42bn.

Particularly revenue growth in SA was up 7.7% mainly due to stronger device sales and service revenue grew 4.7% to R26.7bn. Operating profit was up 2.3% to R10.9bn. Net profit was up 7% to R6.7bn, boosted by the acquisition of a 34.94% stake in Safaricom earlier in the year.

The Safaricom acquisition contributed R349m to profit for the first two months, the report read.

Headline earnings per share was up 1.1% to 445c and an interim dividend of 390c per share was declared.

The two key milestones for the group during the period include the Safaricom acquisition and the listing of its 25% stake in Vodacom Tanzania, said CEO Shameel Joosub.

The underlying performance of Safaricom remains strong, according to the report. “It achieved local currency service revenue growth of 12% for the six months period to Kenyan Shilling 109.7bn (R15.23bn).  Safaricom’s customer base is at 29.5 million. Data and M-Pesa revenue also continued to grow.

Speaking on the listing, Joosub said: “The listing, the largest IPO on the Dar es Salaam Stock Exchange since it launched 19 years ago, resulted in almost 40 000 Tanzanians investing directly in capital markets for the first time.”

The results showed that service revenue grew 4.6% to R34.7bn. This was mainly boosted by an increase in customer gains in South Africa and gains in data and M-Pesa revenue in its international operations, Joosub said in the report.

Data prices

Joosub added that the group had delivered on its promises to reduce data prices and addressing out-of-bundle prices.

“These are promises that we have delivered on, with effective data prices decreasing by 24.2% during the six-month period. On October 1, 2017, we further reduced out-of-bundle prices by up to 50%,” he said.

Joosub explained that the group had invested R3.9bn over a six-month period in infrastructure to meet the data growth demands as the limited available spectrum was pushing data costs higher.

“Without new spectrum we are forced to build more base stations to meet data growth demand. Additional spectrum will allow us to invest more efficiently and accelerate our rural coverage programme.”

South Africa operations

Regarding its operations in South Africa, the group’s service revenue increased 4.7% to R26.7bn, boosted by “stronger customer gains” and growth in its data and enterprise services.

Revenue growth was up 7.7% to R33.9bn. This was boosted by equipment revenue growth of 18.4% which reflects the improved exchange rate against the US dollar.

“The sale of smartphones grew by 18.3%, comprising 59.5% of total device sales,” the report read.

Customers increased by 2.9 million or 12.1% to reach 40 million for the first time. The group added 356 000 data users, bringing total data customers to 19.9 million. Data revenue grew 15% to R11.4bn and this contributed 42.6% of service revenue, exceeding voice revenue.

The capital expenditure of R3.9bn was directed to maintaining its network lead, supporting the widest coverage and fastest internet and to enhance the group’s IT systems.

“Our continued investment in infrastructure resulted in 76.7% 4G and 99.3% 3G population coverage, compared with 68.7% 4G coverage a year ago.”

International operations

Regarding its international operations, exchange rate volatility negatively impacted growth. Service revenue declined by 4.8% to R8.3bn. Taking out exchange rate volatility growth would have been 5.5%. This was driven by both data and M-Pesa revenue.

Data revenue declined by 2.7%, but comprised 13.6% of international operations’ service revenue. M-Pesa revenue grew 14%.

“We added 1.1 million customers in the first half of the year, reaching 14.8 million.”

Customer growth for this service remains strong with 56% of customers using the service in Mozambique, 35.3% in Lesotho and 22.2% in the DRC. “Tanzania remains the leader in international operations with 61.7% of customers using M-Pesa,” the report read.

“We expect that the Safaricom transaction will further drive M-Pesa development and penetration outside of South Africa.”

The group’s capital expenditure of R1.5bn was directed towards strengthening network and service differentiation and to support wider voice coverage and data growth.

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