Vodacom adds sales, customers but misses earnings estimates after heavy network spending

Vodacom media release:

Highlights

• Group revenue grew strongly at 6.3% to R86.4 billion; normalised growth, excluding currency translation effects, was 7.8%^*.
• Group service revenue grew 3.4% to R70.6 billion; normalised growth, excluding currency translation effects, was 5.1%*.
• We added 7.0 million customers during the year, 4.5 million in South Africa, 2.5 million in our International operations. Safaricom added 1.4 million customers. In combination, we now reach over 103 million customers across the Group.
• South Africa revenue growth accelerated to 8.1% boosted by strong device sales. Service revenue increased 4.9% to R54.6 billion.
• International operations continue to improve with normalised service revenue growth of 7.4%* or 0.3% on a reported basis.
• Group EBIT improved 4.4% (2.8%*) to R23.1 billion, with good improvement in our International operations.
• Significant investment of R11.6 billion used to expand our coverage and improve quality in our networks; R8.9 billion in
  South Africa alone.
• Safaricom contributed R1.5 billion profit for the eight months since acquisition, after deducting the amortisation of fair valued assets and before minority interest.
• Net profit increased 18.6%, boosted by the Safaricom acquisition and by the profit from the sale of Helios Towers Tanzania Limited.
• Headline earnings per share remained constant at 923 cents per share, impacted by shares issued to acquire the Safaricom stake.
• Final dividend per share of 425 cents

Shameel Joosub, Vodacom Group CEO commented:

This has been an extraordinary year for Vodacom. In addition to completing the acquisition of a strategic 34.94% stake in Safaricom and a record-breaking listing in Tanzania, over 8.4 million customers joined the Vodacom and Safaricom networks. Our sustained investment in customer and network experience across our operations was a major factor in attracting the additional 4.5 million customers in South Africa and 2.5 million internationally. Safaricom added 1.4 million customers to push the combined total to over 103 million customers. Securing an outright Net Promoter Score (NPS) lead over competitors in all our operations is another key milestone attained this year.

Despite a tougher economic environment in South Africa, 'Big Data' led innovations contributed to robust demand for personalised bundles and a 4.9% growth in service revenue. Strong device sales, cost optimisation measures and the effective execution of our pricing transformation programme also played a major role in the sound commercial performance in our largest market.

This was a solid achievement given the revenue impact from reducing out-of-bundle data prices by as much as 50% in October last year as well as the early phase investments in new revenue streams, including fibre, content propositions and financial services. Over the past three years, we have reduced effective voice and data prices by 36.3% and 42.5% respectively, while maintaining revenue growth. Our accelerated rural coverage programme was instrumental in Vodacom becoming the continent's first operator to reach 80% population coverage on a 4G network.

In our International operations, it was a particularly pleasing year for Mozambique and Lesotho, while our commercial actions in Tanzania and DRC continue to show good momentum. This portfolio produced a 7.4%* increase in normalised service revenue on the back of rising customer numbers, strong demand for data and the accelerated uptake of M-Pesa.

Despite a turbulent political context, Safaricom delivered net profit growth of 14.1% for the year. This was underpinned by strong growth in data and M-Pesa revenues and a 5.1% increase in customers to 29.6 million. Safaricom contributed R1.5 billion profit for the eight months since acquisition, after deducting the amortisation of fair valued assets and before minority interest.

Revenue from mobile money has become a significant contributor to the Group. The combined customer base, including Safaricom, grew 11.5% in the past year and now exceeds 32.3 million. During this period, the M-Pesa platform in our International operations, processed transactions worth USD1.9 billion, generating a 19.6% increase in M-Pesa revenue to R2.3 billion. In addition, Safaricom showed impressive results processing $6.5 billion worth of transactions for the year and grew M-Pesa revenue by 14.2% to KES63 billion.

Our investment and efforts to drive revenue diversification and digital transformation across the Group are having the desired effect. Changing the way we operate, means we are well positioned to drive new and exciting growth opportunities as we seek to change people's lives through building a connected society.

Looking ahead, we are encouraged by renewed economic and political stability in most of our operations including South Africa and Kenya. Our operations benefit from stability in foreign exchange and macro-economic environments and this is expected to bring a greater degree of predictability to the results across our markets.

We are encouraged by these developments and are reaffirming our three year targets[2] of mid-single digit service revenue growth, mid-to-high single digit EBIT growth and capital intensity of 12% – 14% of Group revenue, to build on this momentum.