JOHANNESBURG — South Africa’s biggest mobile network by market cap and subscribers, Vodacom, released its interim results for the six months ended 30 September 2017. While the company has report solid revenues and subscriber growth, it’s a statistic about its data revenue that stands out. For the first time in South Africa, a major mobile network has reported that its data revenues have outstripped its voice revenues. Vodacom reported on Monday that its data revenue in South Africa grew by 15% to R11.4bn, contributing 42.6% of service revenue. This is a major milestone for a number of reasons, but it is significant that subscribers of the country’s biggest mobile network are becoming increasingly connected to the internet – a factor that will have all kinds of potentially positive wider ramifications for the free flow of information in the country. It couldn’t come at a better time. Here is my interview with Shameel Joosub, the CEO of Vodacom. – Gareth van Zyl
With me on the line from Johannesburg, I have Shameel Joosub who’s the CEO of Vodacom. Shameel, Vodacom today released its half-year results. The statistic that stands out for me is that your revenue from data services has surpassed voice for the first time in SA.
Yes, data has been growing quite significantly over the past couple of years and now it’s actually exceeded the amount of revenue that’s coming from voice and this is despite massive (data) price decreases, the 24% decrees in pricing in the half and obviously, an announcement that our bundle rates will be reduced by a further 50%.
A few years ago there were big calls for data prices to fall so what you’re essentially telling us now is that those prices have been falling and that, in itself, is spurring on demand?
It is falling and it continues to fall, firstly, through the bundles, as well as other bundle rates. With people taking up more bundles that’s also equating to better value for customers, especially through services being offered.
Do you think that people are going to completely switch away from voice in the future? Is this a sign that voice is dead?
No, I don’t think that people will ever stop talking. I think the way voice is carried may change. Voice becomes a package over a data network but people will always talk. In fact, even in the half, voice continues to expand. Albeit not at the growth rates that we saw years ago.
I remember a few years ago there was quite a lot of debate among operators about the likes of WhatsApp Voice taking away voice revenue. Are you more open to those kinds of services now in light of the data market exploding as it is?
Yes, I think your voice over WhatsApp signals the fact that people believe they’re not getting the right prices. I think with all the different bundles that you have, there are opportunities for you to buy, for instance, the ‘Power Hour,’ and get cheaper rates as well. I think there will also be some calls that will go over voice of IP and I think that’s completely acceptable, and the customer should have the ability to choose.
The last time that I spoke to you Vodacom had just announced a plan to acquire a 34.94% stake in Kenya’s Safaricom. Now obviously that plan has happened. How has that deal been received, particularly in the Kenyan market, which is quite a fast-developing mobile market?
I think it’s been a very good investment for us. It’s one of the prize assets in Africa, so a very big market and, really, a quality asset. Obviously, it makes us a very substantial financial services player on the continent with over 30 million financial service customers between our market and Safaricom so, quite an exciting acquisition and lots of opportunities still for data growth as well.
Now that deal has also knocked your dividends slightly today. The market has reacted negatively: your stock is down just over 3%. What do you make of the reaction so far?
I think your dividend share was always going to be knocked by the fact that you’ve issued more shares and that you’ve made a R35bn acquisition. So, there is a bit of rebasing that needs to happen. I think people are now seeing the impact of that coming through, in terms of acquisitions. But we’ll also get the benefit of this acquisition in many years to come.
How important is the Kenyan market for Vodacom?
I think it’s one of the most developed markets and obviously, Safaricom has a very big market share. It’s got an over 70% market share, so it is a prize asset. Their mobile money player is very big and very developed so, they’re very similar to us, in SA. They’re also providing fibre services as well so, it’s quite a substantial player in East Africa and one of the quality assets on the continent. To put it into perspective, our 35% of Safaricom equates to the same as all our other international operations combined. So, as you can see it’s quite a big part for us and it really gives us 3 different portfolios, SA, Kenya, and the internationals, if you like.
Vodacom also completed the listing of a 25% stake in Vodacom Tanzania, the listing happened on the Dar es Salaam stock exchange. What has the response there been like to Vodacom listing there?
It’s been fantastic. We’ve had 40 000 investors. Many of them for the first time that invested on the Tanzanian stock exchange so, it’s been very well received and we were the first telecoms company to list under the new legislation and I think it’s really been a fantastic listing all around.
What’s the benefit that Vodacom gets from listing on the Dar es Salaam stock exchange?
I think the biggest thing is, obviously, local ownership and meeting the local regulatory requirements, if you like – that we had to list 25%. That has, obviously, given us cash in the Tanzanian operation and that gives us the opportunity to further expand the operation and, also to consider in-market consolidations.
Vodacom recently announced 5G trials in SA as well. Can you explain more around that because I thought they we were still getting to a stage where we were trying to get 4G rolled out everywhere, but now it seems like we’re leapfrogging to 5G?
It’s a trial and I think it’s important for us to do these trials so that we can learn. There’s always the theory but doing a live trial is very beneficial from a learning perspective because we’ve got to ready our networks and make the right decisions today even though 5G might not be right upon us tomorrow. I think there is an opportunity, as you say, to leapfrog 4G into 5G because the spectrum in 5G is available. In terms of 4G spectrum, it still needs the digital migration on TVs to move from analogue to digital. Whereas with 5G, the spectrum is available so, there is an opportunity to leapfrog. Although, I think it’s not either/or, it’s probably going to be both. When 2G launched we were one of the first countries in the world to launch IT. When 3G launched we were one of the first. Even 4G we were up there, amongst the first networks in the world. So it would be really great and leading for SA if we could lead in 5G again.
It’s very interesting that you say that we still need both. Why do we need 4G if government is dragging its feet in the spectrum stakes? Can’t we just skip 4G entirely and go to 5G, if the spectrum is already available, as you say?
They’re very different technologies because the way spectrum works in that 5G will be a higher band spectrum, which means that it’s more for capacity and you’d use it where there’s a lot of traffic in a particular area. It can obviously carry faster speeds and so on so, it gives you more of a fibre-like services. That said, it doesn’t penetrate as well that the lower band spectrum that you would get in 4G. So, you need to the 4G to penetrate indoors and you need the 5G to absorb the capacity.
So, they’re quite fundamentally different technologies in a way?
Also, just to talk about some of the issues that you’ve had with competition authorities in SA. Obviously, they’ve flagged up a deal that you had with government. What’s the status there so far?
Basically, we’re cooperating fully with the Competition Commission and we’ve provided them with all the information that they’ve requested but we’re very much of the opinion that it was a very well-run process and that we did everything by the book.
Amid some of these challenges that you have with government do you chat to them? Do you have good relations with them?
Very much so. We’re in constant engagement with the different departments and with the different ministries and so on. So, very good cooperation all around.
Great, Shameel Joosub, thanks a lot for chatting to me on your results day today.
Vodacom Falls After Cutting Dividend Amid Economic Weakness
By Janice Kew and Loni Prinsloo
(Bloomberg) — Vodacom Group Ltd. shares fell the most in more than a month after Africa’s biggest wireless operator by market value reduced its first-half dividend amid weaker economic conditions in some of its key markets.
The stock slumped as much as 4.6 percent, the most since Oct. 4, and traded 3.2 percent lower at 147.50 rand as of 10:29 a.m. in Johannesburg. That compared with a 0.6 percent gain on the FTSE/JSE Africa Top40 Index.
Shareholders will receive an interim dividend of 3.90 rand a share, compared with 3.95 rand a share a year ago, the Johannesburg-based company said in a statement on Monday. Earnings per share excluding one-time items rose 1.1 percent to 4.45 rand. The dividend reduction was partly due to the impact of issuing shares for the purchase of a 35 percent stake in Safaricom Ltd., Kenya’s biggest company.
“The operational performance was weaker than expected and that impacted the dividend,” Peter Takaendesa, an analyst at Mergence Investment managers in Cape Town. He was looking for earnings to rise 6 percent to 7 percent in the first half.
Vodacom, which is 65 percent owned by Newbury, England-based Vodafone Group Plc, is investing in data services in South Africa and international operations as more customers start using internet and smartphones while voice usage declines. The company is the market leader in its home market, ahead of MTN Group Ltd., and now has 40 million customers in a country with population of about 56 million.
Revenue from data services surpassed voice for the first time in South Africa, Vodacom’s biggest market, as more customers switched to internet-enabled phones. Helped by promotions, the wireless operator added more customers at home and in markets such as Tanzania, it said.
“We expect that data contribution in our international markets could surpass that of voice in the next five years or so,” Chief Executive Officer Shameel Joosub said on a call with reporters.
Vodacom reiterated growth targets for the next three years. Service-revenue growth is expected to be in the mid single-digit percentage, while earnings before interest and taxes will probably rise in the mid-to-high single-digit percentage.
The company’s shares plunged on Oct. 5 after South Africa’s antitrust regulator started a probe into a contract with the National Treasury. “We are fully cooperating,” Joosub said. “We believe that the awarding was a well-governed process.”
Statement from Vodacom
Vodacom Group Limited interim results for the six months ended 30 September 2017
- Group revenue grew strongly at 4.6% to R42.0 billion; normalised growth, excluding currency translation effects, was 6.9%*.
- Group service revenue grew 2.0% to R34.7 billion; normalised growth, excluding currency translation effects, was 4.6%*.
- South Africa revenue growth accelerated to 7.7% boosted by stronger device sales. Service revenue increased 4.7% to
- We added 4.3 million customers during the first half of the year, 2.9 million in South Africa and 1.4 million in our International operations, to reach just over 71 million customers across the Group, up 11.8%.
- Group EBIT declined 0.2% (-1.4%*) to R10.8 billion, impacted by higher growth in depreciation and amortisation charges.
- Revenue for International operations declined 5.2% and service revenue declined 4.8%. On a normalised basis, revenue and service revenue grew 5.0%* and 5.5%* respectively.
- Concluded acquisition of 34.94% interest in Safaricom, contributing R349 million profit for first two months, including amortisation of fair valued assets.
- Net profit increased 7.0%, boosted by Safaricom acquisition.
- Headline earnings per share (HEPS) up 1.1% to 445 cents per share.
- Interim dividend per share of 390 cents.
|Six months ended 30 September||Year-on-year % change|
|Revenue||41 995||40 151||4.6||6.9|
|Service revenue||34 654||33 968||2.0||4.6|
|EBITDA||15 731||15 278||3.0||3.1|
|EBIT||10 830||10 847||(0.2)||(1.4)|
|Net profit from associate and joint ventureD||349||–||–|
|Operating profit||10 964||10 717||2.3||(2.2)|
|Net profit||6 712||6 275||7.0|
|Capital expenditure||5 378||5 714||(5.9)|
|Operating free cash flowŦ||6 311||7 655||(17.6)|
|Free cash flowŦ||2 028||3 541||(42.7)|
|Headline earnings per share (cents)||445||440||1.1|
|Interim dividend per share declared (cents)||390||395||(1.3)|
Shameel Joosub, Vodacom Group CEO commented:
We concluded two key milestones during the first half of the year: Successfully acquiring a 34.94% strategic stake in Safaricom and completing the listing of a 25% stake in Vodacom Tanzania. 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.
In addition we delivered another good financial performance for the first six months of the financial year, despite weaker economic conditions in some of our key markets, the Group increased normalised service revenue by 4.6%*, boosted by a strong increase in customer gains in South Africa and significant gains in data and M-Pesa revenue internationally.
In South Africa, we gained 2.9 million customers to breach the 40 million mark for the first time. We now also have 3.3 million sim card connections in our Internet of Things offerings. This growth in both areas shows that our segmented markets approach and the delivery of greater value through innovative personalised bundles is continuing to produce results. An increase in smartphone device sales contributed to the 7.7% increase in revenue growth.
We have consistently said throughout the year that we would accelerate the reduction in data prices and address out-of-bundle prices. These are promises that we have delivered on, with effective data prices decreased by 24.2% during the six-month period. On 1 October 2017 we further reduced out-of-bundle prices by up to 50%.
We have managed to do this while continuing to invest significantly in infrastructure at a time when the lack of available spectrum is pushing our 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. Over the six month period, we invested R3.9 billion to maintain our network lead and enhance our IT systems.
Stripping out exchange rate volatility, our International operations continue to gain momentum as evidenced by the 5.5% growth in normalised service revenue and the 1.4 million increase in customers to 31.1 million. Our investment in a new M-Pesa platform has had an immediate impact resulting in a 70.9% increase in transactions and an average of R24 billion processed through the enhanced system on a monthly basis. We expect that the Safaricom transaction will further drive M-Pesa development and penetration outside of South Africa. Efforts to drive down the cost of smart devices coupled with increased data speeds and wider coverage contributed to normalised data revenue growth of 6.6%* in our International markets.
Looking ahead, our strategy to become a leading digital company and empower a connected society remains a key focus. We anticipate that our investments in big data and sophisticated machine learning will increasingly allow us to provide customers with relevant Just 4 You propositions. In turn, this should continue to drive revenue and customer growth across all markets.