Vodacom BEE deal hits earnings; user numbers up
Vodacom has reported growth in both revenue and customer numbers over the past financial year. However, costs from last year's R16.4 billion broad-based black economic empowerment (BEE) ownership deal reduced the group's dividend and impacted headline earnings.
Vodacom saw group revenue increase by 4.3% to R90.1 billionfor the year ended 31 March (using the IAS 18 accounting policy), while the group's service revenue was up 5% to R74.2 billion.
Headline earnings per share (HEPS) of 862cps were, however, down 6.6% from 923cps a year ago, but if excluding the one-off BEE costs, HEPS would have been up by 4.2%.
Vodacom and Safaricom together added another six million customers to their networks over the 12-month period, a 5.8% increase to a total of 110 million group subscribers.
"Despite the low economic growth environment in South Africa and our deliberate actions to reduce prices for all segments, service revenue in South Africa rose by 2.1%. We are particularly encouraged by the noticeable rise in new contract customers in the fourth quarter in both the consumer and enterprise segments," says Shameel Joosub, Vodacom group CEO.
"The financial impacts of delivering on our promise of further reducing the cost-to-communicate in South Africa, combined with costs associated with concluding our new R16.4 billion BEE deal, are evident in the subdued increase in our operating profit. This masks an otherwise solid operational performance for the group, where service revenue grew by 5%, led by strong performance in our international portfolio."
Vodacom invested close on R13 billion during the year in network and IT infrastructure, R9.6 billion of which was spent in South Africa.
The group declared a final dividend of 400c, bringing the full-year dividend up to 795cps. This was 2.5% less than last year's dividend of 815cps, due to an impact from additional shares issued for the BEE transaction.
Partnerships and deals
Going forward, the company says it is looking to strengthen its Internet of things and enterprise propositions through strategic partnerships.
"We have formed a strategic collaboration partnership with Amazon Web Services, which will help us accelerate our enterprise growth strategy, offering more integrated solutions to our enterprise customers," Joosub announced during a call with journalists this morning.
He also revealed the group has entered into an agreement to purchase a 51% equity interest in IoT.nxt, for an undisclosed amount, and the transaction is still subject to the approval of the Competition Commission.
Joosub says IoT.nxt "with their unique edge technology and tech-agnostic platform, plays a significant role in solving the challenges of legacy systems that have limitations of integration. It will position Vodacom extremely well in being the digitisation partner of choice for customers beyond connectivity."
In SA, the group added 1.5 million new subscribers, growing its customer base by 3.7% to 43.2 million. As a result, customer revenue increased 1.3% to R47.4 billion, while service revenue in SA increased 2.1% to R55.7 billion. Locally, the group's profit before tax from financial services doubled to R1 billion.
"[Service revenue] growth in the second half of the year was negatively impacted by the transition between national roaming partners and the change in call termination rates," Vodacom says.
However, Vodacom says a sharp reduction in its out-of-bundle (OOB) tariffs in SA contributed to a 37% decline in effective data prices since the end of March last year. Over a three-year period, Vodacom says its data prices have fallen by 57%, despite not having access to further available spectrum in SA.
The huge price gap between in- and out-of-bundle prices has been a concern for years and despite price drops from most operators, the gap between in- and out-of-bundle charges still remains high. The implementation of the regulator's End-user and Subscriber Service Charter (EUSSC) regulations in March will also have an impact on telco revenues going forward, as customers have to opt-in to OOB data billing.
Vodcaom says the effective price per MB has reduced 23.3% following the implementation of the EUSSC regulations and its OOB tariff drop. SA data revenue grew just 3.9% to R24.3 billion for the year.
Data bundle purchases increased 13% to 866 million and Joosub says Vodacom is seeing a trend of more customers opting for data bundles with shorter validity periods, like weekly, daily and hourly bundles.
Joosub told ITWeb that a wide range of pricing decreases equated to about R2 billion less in revenue in the last financial year, while revenue lost from a decrease in out-of-bundle rates added up to another R2 billion.
However, data traffic still grew by 35.6% and active smart devices on the Vodacom network increased by 7.6% to 19.9 million, of which 10 million are 4G devices. Average usage on these smart devices has improved 23.2% to 966MB.
Joosub says it was a "stellar year" for the international portfolio, where economic and political environments have improved, "although it remains challenging in various aspects".
Vodacom's international business grew service revenue by 15.6% and expanded margins, while the business outside of SA saw a 25.8% spike in data revenue.
Its strategic investment in Safaricom in Kenya contributed R2.8 billion to group operating profit, with Safaricom reporting a 7% increase in service revenue and a 13.1% improvement in earnings before interest and tax, underpinned by strong customer growth and M-Pesa revenue.
"The Safaricom acquisition has proven to be a catalyst for extending our mobile money leadership position on the African continent and in ensuring financial services have become a significant contributor to the group's revenue. In the past year, we effected 11 billion transactions worth R2 trillion to 36.1 million customers across our financial services network, including Safaricom."
M-Pesa revenue grew by 32.2% to R3.1 billion in the international operations and now makes up almost 16% of that portfolio's entire service revenue.
Joosub said Safaricom has proposed a special dividend, which could see a boost to the next interim dividend for Vodacom shareholders. At the current exchange rate, Vodacom's share of Safaricom's ordinary dividend equates to R2.3 billion, while Vodacom's share of Safaricom's proposed special dividend is R1.1 billion.