The Vodacom Group (Pty) Limited continued to maximise efficiencies and productivity and posted a 32% increase in net profit after tax to R5.1 billion (2005: R 3.9 billion), despite decreasing tariffs across most of its product lines, for the financial year ended 31 March 2006. Vodacom rewarded shareholder confidence with a R4.5 billion dividend payout (up 32.4%).
In the year under review the Vodacom Group invested R5.1 billion (2005: R3.5 billion) in infrastructure bringing the cumulative capital expenditure to R28.5 billion (2005: R24.4 billion) at 31 March 2006. Notably R903 million was spent in South Africa on upgrading the high-speed wireless data infrastructure for 3G and HSDPA.
Customer numbers reached new highs. In South Africa Vodacom strengthened its position as market leader by increasing its estimated market share from 56% to 58%. Growth was driven by a 53.3% increase in prepaid customers to 16.8 million, contributing 92.1% of gross new connections and increasing the total number of Vodacom subscribers in South Africa by 49.3% to 19.2 million at year-end. Vodacom South Africa recorded its highest annual contract customer growth to 2.4 million reflecting an increase of 26.2%.
The inactive base of the South African operation remains low at 8.7% while churn for contract customers was pegged at 10% (2005: 9.1%). Prepaid churn decreased significantly to 18.8% (2005: 30.3%), this as a result of a combination of the introduction of innovative products and services, loyalty initiatives and changes in business rules to ensure incentives are paid on factual connections.
"Growth in South Africa is far from saturated," said Alan Knott-Craig, Chief Executive Officer of the Vodacom Group. "The three cellular networks now have a combined estimated penetration of 71% (2005: 49%) of the population and the industry grew by an estimated 44% during the year under review. As the market leader, Vodacom was responsible for approximately 63% of this growth."
Knott-Craig said growth in Africa continued to exceed expectations in spite of highly competitive markets and rigorous regulatory challenges. "With infrastructure at a minimum, the operational challenges are enormous. But we have been able to get synergies in distribution, marketing and tariffs and have had success in transplanting concepts that work well from one country to another."
Vodacom Tanzania showed spectacular growth and increased its customers by 74.1% to 2.1 million (2005: 1.2 million) with an estimated 58% market share. In the Democratic Republic of Congo, Vodacom customers grew by 52.2% to 1.6 million (2005: 1 million) and increased market share by a percentage point to 48%. Although its market share dropped slightly to 30%, Mozambique grew its customer base by 84.9% to 490 000. Lesotho is expected to remain small, but has maintained its estimated 80% market share and showed respectable growth of 40.1% to 206 000 customers.
"The opportunity for growth within the countries we operate in remains significant," said Knott-Craig. "In the five countries where Vodacom operates networks, we now have some 25 million customers out of a total population of about 170 million. With the exception of South Africa, penetration in these countries hovers well below or just above 10%."
Vodacom continued to maximise the contribution of all business units. Revenue from equipment sales increased by 48.3% to R4 billion (2005: R2.7 billion), driven by customer growth, more affordable handsets and feature-rich phones based on new technologies.
Data revenue of R2 billion (up 52.1%) also made a positive impact on turnover. The popularity of SMS continued with 3.5 billion SMSes sent in South Africa during the year, 45.5% more than in 2005. "In addition, services such as 3G, HSDPA, Vodafone live!, BlackBerry and Mobile TV boosted data revenue and will continue to grow its contribution to the business," said Knott-Craig.
Looking ahead, he said a significant change in the South African landscape would be the implementation of number portability later this year.
Knott-Craig remained concerned about the possible negative impact that the proposed interception and monitoring legislation (RICA) could have on the prepaid market when it comes into effect on 30 June. "The intention of the Act is to fight crime by registering all cellphone users. However, the suggested registration process is so cumbersome that it will have a significantly negative impact on prepaid customers, which will slow market penetration. With 85% of small businesses in South Africa reliant on a prepaid cellphone, this could have negative implications for the economy."
He said Vodacom would position itself strategically and seize any emerging opportunities, particularly in South Africa in related industries. "With our strong brand and strong balance sheet, Vodacom is well positioned to remain the leading player in the markets where we operate.
"Affordability is the key to market penetration in all markets and we will continue to re-evaluate tariffs and introduce innovative products to stimulate demand. In an ever-changing economic and regulatory environment, Vodacom intends to maintain and even improve our current market leadership," Knott-Craig said.
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