| Mon 17 Nov 2008, 7:05 | | TKG - Telkom - Vodacom Group interim results |
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TKG
TKG
TKG - Telkom - Vodacom Group interim results
Telkom SA Limited
(Registration Number 1991/005476/06)
ISIN ZAE000044897
JSE and NYSE Share Code TKG
("Telkom")
Vodacom Group interim results
Shareholders are referred to the announcement below issued by Vodacom Group
(Pty) Limited, a joint venture company in which Telkom holds a 50% interest:
HIGHLIGHTS
Total customers increased by 13.1% to 35.7 million
Customers increased by 8.4% to 25.2 million in South Africa
Customers increased by 34.1% to 4.9 million in Tanzania
Customers increased by 18.8% to 3.8 million in the Democratic Republic
of Congo
Customers increased by 35.5% to 450 thousand in Lesotho
Customers increased by 19.3% to 1.3 million in Mozambique
Revenue increased by 14.0% to R26.0 billion
Profit from operations increased by 12.5% to R6.4 billion
EBITDA increased by 13.9% to R8.7 billion
Net profit after taxation increased by 3.2% to R3.8 billion
Cash generated from operations increased by 15.6% to R8.0 billion
Interim dividend declared to Group shareholders increased by 9.1% to R3.0
billion
Vodacom Group (Proprietary) Limited announces its results for the six months
ended September 30, 2008.
South Africa
Customers
The total number of customers increased by 8.4% to 25.2 million (September
30, 2007: 23.3 million). The number of prepaid customers has increased by
8.1% to 21.4 million, while the number of contract customers has increased
by 9.6% to 3.7 million.
The growth in customers was a direct result of the increase in net
connections, with continued levels of handset support to service providers
in respect of the contract base.
Loyalty and retention programmes continue to play an integral role in
achieving the strategy of attracting new customers.
ARPU
During the period under review, total ARPU increased by 8.2% to R132
(September 30, 2007: R122) per month. This significant increase was mainly
due to strong growth in data revenue as a result of higher penetration
levels and the implementation of the supplementary disconnection rule during
September 2007.
Contract customer ARPU decreased by 1.2% to R481 (September 30, 2007: R487)
per month. The main contributing factor to this decrease was the rapid
growth in low end bundle data customers as well as a decrease in the
incoming ARPU.
The developing market through the prepaid service continued to drive market
penetration and made up 93.6% (September 30, 2007: 92.7%) of all gross
connections. The prepaid customer ARPU increased by 11.9% to R66 (September
30, 2007: R59) per month.
Community services ARPU decreased by 17.9% to R584 (September 30, 2007:
R711) per month due to increased competition. Community services revenue
however only decreased by 6.4%.
Churn
The cost of acquiring contract customers in a highly developed market is
considerable. Vodacom implemented upgrade and retention policies over the
last few years to retain its customers. Through the continued high level of
handset support to service providers and an improvement in service to
customers, Vodacom maintained a low contract churn rate of 9.7% (September
30, 2007: 8.3%).
During the period under review, prepaid churn decreased to 48.1% (September
30, 2007: 51.9%). The prepaid market is characterised by low acquisition
costs.
Traffic and minutes of use
Total traffic increased by 7.0% to 11.8 billion (September 30, 2007: 11.0
billion) minutes. This growth was mainly due to the 8.4% growth in the total
customer base from 23.3 million to 25.2 million at the end of September 30,
2008. Customer calling patterns continued the trend of the last few years
where total mobile-to-mobile traffic increased by 7.9% while total mobile-to-
fixed and fixed-to-mobile traffic only increased by 2.3%.
Contract minutes showed an 8.0% decrease to 161 (September 30, 2007: 175)
minutes per customer per month, as a result of high sales in hybrid products
at the low end of the market; prepaid minutes showed a 9.3% increase to 47
(September 30, 2007: 43) minutes per customer per month.
Estimated market share
Vodacom remained the leader in the South African market with an estimated
53% (September 30, 2007: 56%) market share as at September 30, 2008. The
decline in market share was a result of a more aggressive prepaid deletion
rule implemented during the previous year. The cellular industry in South
Africa, based on reported numbers, grew by an estimated 15.1% since
September 2007. The SIM card market penetration of the cellular industry is
now an estimated 100% (September 30, 2007: 87%) of the population with a
total cellular market of approximately 48 million (September 30, 2007: 42
million) mobile SIM cards. Prepaid customers continue to dominate the market
and comprise an estimated 85% of the customer base.
Non-South African operations
Vodacom`s non-South African operations provide communication services to
10.4 million customers (September 30, 2007: 8.3 million). Profit from these
operations increased by 6.5% to R375 million.
Vodacom Tanzania`s customer base increased by 34.1% to 4.9 million
(September 30, 2007: 3.7 million) at September 30, 2008. The Tanzanian
market remains highly competitive, but low mobile SIM card penetration,
estimated at 27% of the population combined with current economic growth
signals further potential. Vodacom Tanzania`s estimated market share
decreased to 46% (September 30, 2007: 54%) at September 30, 2008.
Vodacom Congo increased its customer base by 18.8% to 3.8 million (September
30, 2007: 3.2 million) at September 30, 2008. Vodacom Congo retained its
market lead with an estimated market share of 39% (September 30, 2007: 44%)
at September 30, 2008. The lower market share is the result of competitors
cutting retail prices and offering various packages to attract new
connections. The DRC had an estimated mobile SIM card penetration of 15%
(September 30, 2007: 11%).
Vodacom Lesotho is a small operation, but its estimated 80% market share at
September 30, 2008 enables it to achieve high levels of profitability.
Vodacom Lesotho increased its customer base by 35.5% to 450 thousand
(September 30, 2007: 332 thousand). Mobile SIM card penetration in Lesotho
is now estimated at 30% (September 30, 2007: 22%).
Vodacom Mozambique increased its customer base by 19.3% to 1.3 million
(September 30, 2007: 1.1 million) at September 30, 2008. Vodacom Mozambique
increased its estimated market share to 42% (September 30, 2007: 38%)
despite tough economic conditions, by being the value leader in the market.
Mobile SIM card penetration is estimated at 15% (September 30, 2007: 14%).
FINANCIAL REVIEW
REVENUE
Segmental split
Rand millions % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
South Africa, including
holding companies 17,580 20,299 22,716 15.5 11.9
Tanzania 775 1,086 1,464 40.1 34.8
DRC 898 1,108 1,360 23.4 22.7
Lesotho 105 139 180 32.4 29.5
Mozambique 108 183 296 69.4 61.7
Revenue 19,466 22,815 26,016 17.2 14.0
Revenue composition
Rand millions
Six months ended September 30, 2006 2007 2008
Airtime and access 11,313 12,947 14,608
Data revenue 1,443 2,096 3,004
Interconnect revenue 3,723 4,304 4,744
Equipment sales 2,312 2,393 2,490
International airtime 555 952 974
Other 120 123 196
Revenue 19,466 22,815 26,016
Revenue composition
% of total % of change
Six months ended
September 30, 2006 2007 2008 06/07 07/08
Airtime and access 58.1 56.7 56.2 14.4 12.8
Data revenue 7.4 9.2 11.5 45.3 43.3
Interconnect revenue 19.1 18.9 18.2 15.6 10.2
Equipment sales 11.9 10.5 9.6 3.5 4.1
International airtime 2.9 4.2 3.7 71.5 2.3
Other 0.6 0.5 0.8 2.5 59.3
Revenue 100.0 100.0 100.0 17.2 14.0
Airtime and access
Vodacom`s airtime and access revenue increased primarily due to the number
of customers increasing by 13.1% to 35.7 million.
Data revenue
Segmental split
Rand millions
Six months ended September 30, 2006 2007 2008
South Africa 1,347 1,947 2,790
Tanzania 65 92 127
DRC 19 37 52
Lesotho 10 14 21
Mozambique 2 6 14
Data revenue 1,443 2,096 3,004
Data revenue as a % of
service revenue (%) 8.6 10.5 13.1
Data revenue
Segmental split
% of total % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
South Africa 93.4 92.9 92.9 44.5 43.3
Tanzania 4.5 4.4 4.2 41.5 38.0
DRC 1.3 1.7 1.7 94.7 40.5
Lesotho 0.7 0.7 0.7 40.0 50.0
Mozambique 0.1 0.3 0.5 200.0 133.3
Data revenue 100.0 100.0 100.0 45.3 43.3
Data revenue as a % of
service revenue (%) - - - 1.9pts 2.6pts
Data
Vodacom`s data revenue increased mainly due to higher penetration levels and
more affordable product offerings.
Vodacom South Africa transmitted 2.4 billion (September 30, 2007: 2.2
billion) SMSs over its network during the period ended September 30, 2008.
As at September 30, 2008 the number of unique packet switched data users on
Vodacom South Africa`s network was 4.3 million (September 30, 2007: 3.5
million), whilst the number of unique SMS users was 9.6 million (September
30, 2007: 8.8 million) and the number of unique MMS users was 1.5 million
(September 30, 2007: 1.3 million). The number of unique users accessing our
Vodafone Live! portal during September 2008 was 1.9 million (September 30,
2007: 1.2 million).
Data revenue now constitutes 13.1% (September 30, 2007: 10.5%) of service
revenue (service revenue excludes equipment sales, starter pack sales and
non-recurring revenue). Data revenue in all countries increased
substantially, reaffirming consumer demand for connectivity.
Interconnect revenue
Vodacom`s interconnect revenue increased by 10.2%, predominantly due to the
growth in the customer base and the related increase in incoming traffic.
Equipment sales
In South Africa, handset sale volumes increased by 2.0% to 2.4 million
(September 30, 2007: 2.3 million) units. The growth in equipment unit sales
was mainly driven by growth in customer bases and phone upgrades by
customers. The average price per handset sold was R1,099 compared to R1,114
in the previous period.
International airtime
International airtime revenue of R974 million, which increased by 2.3% year
on year, comprised international calls by Vodacom customers, roaming revenue
from Vodacom`s customers making and receiving calls while abroad and revenue
from international visitors roaming on Vodacom`s networks.
Other
Other includes sales and services not part of Vodacom`s core operations.
PROFIT FROM OPERATIONS
Segmental split
Rand millions % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
South Africa 4,745 5,389 6,048 13.6 12.2
Tanzania 134 180 294 34.3 63.3
DRC 133 172 101 29.3 (41.3)
Lesotho 34 56 79 64.7 41.1
Mozambique (138) (56) (99) 59.4 (76.8)
Holding companies 57 (27) 7 (147.4) 125.9
Profit from operations 4,965 5,714 6,430 15.1 12.5
Profit from
operations margin (%) 25.5 25.0 24.7 (0.5 pts)(0.3 pts)
Profit from operations for the Group increased by 12.5% to R6.4 billion,
based on revenue growth of 14.0% which was offset by cost increases in all
operations in a rising inflationary environment and the start up costs of
Vodacom Business. Operating expenses increased by 14.5% compared to revenue
growth of 14.0%, resulting in Vodacom`s profit from operations margin
decreasing slightly to 24.7% (September 30, 2007: 25.0%).
The decrease in the DRC profit from operations includes increases in various
indirect taxes levied by government, changes in interconnect rates and
traffic patterns, high fuel prices, high inflation rates and competition in
the market.
The Mozambique loss from operations includes an impairment of assets of
R21.1 million (September 30, 2007: reversal of R18.4 million).
EBITDA
Segmental split
Rand millions % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
South Africa 6,009 6,904 7,749 14.9 12.2
Tanzania 244 330 485 35.2 47.0
DRC 276 357 338 29.3 (5.3)
Lesotho 47 64 89 36.2 39.1
Mozambique (56) (32) (22) 42.9 31.3
Holding companies 58 (23) 15 (139.7) 165.2
EBITDA 6,578 7,600 8,654 15.5 13.9
EBITDA margin (%) 33.8 33.3 33.3 (0.5pts) -
EBITDA margin excluding
equipment sales (%) 39.2 38.3 38.1 (0.9pts) (0.2 pts)
Operating expenses
Rand millions % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
Depreciation,
amortisation and impairment 1,613 1,886 2,217 16.9 17.6
Payments to other
network operators 2,675 3,154 3,678 17.9 16.6
Other direct
network operating costs 8,051 9,327 10,489 15.8 12.5
Staff expenses 1,078 1,464 1,707 35.8 16.6
Marketing and advertising 578 667 771 15.4 15.6
Other operating expenditure 555 679 798 22.3 17.5
Other operating income (50) (76) (74) 52.0 (2.6)
Operating expenses 14,500 17,101 19,586 17.9 14.5
Operating expenses as a
% of revenue (%) 74.5 75.0 75.3 0.5pts 0.3pts
Depreciation, amortisation and impairment
The depreciation expense was largely driven by capital expenditure on
upgrading and expanding the Group`s networks. Capital expenditure on network
equipment has increased in recent years with the implementation and
expansion of 3G/HSxPA networks, but also through coverage strategies
followed in the international operations.
Payments to other network operators
Payments to other network operators increased as a result of an increased
amount of outgoing traffic terminating on other cellular networks, rather
than on fixed-line networks. As the cost of terminating calls on cellular
networks is materially higher than calls terminating on fixed-line networks
and as mobile substitution increases with the growing number of total mobile
users in South Africa, interconnection charges are likely to continue to
increase.
Other direct network operating costs
Other direct network operating costs include the cost to connect customers
onto the network as well as expenses such as cost of equipment and
accessories sold, commissions paid to the distribution channels, customer
retention expenses, regulatory and license fees, distribution expenses,
transmission rental costs as well as site and maintenance costs.
Staff expenses
Staff expenses increased primarily as a result of an increase in permanent
headcount of 5.6% to 6,588 (September 30, 2007: 6,240) employees. The
headcount increase was mainly the result of the expansion of customer care
operations and the strengthening of management structures to support the
growth in ongoing operations. Annual salary increases and increased
provisions for long-term incentive schemes also contributed to the increase
in staff expenses.
Employee productivity has improved in all of Vodacom`s operations, as
measured by customers per employee, improving by 7.1% to 5,417 (September
30, 2007: 5,058) customers per employee.
Marketing and advertising
Marketing and advertising expenses were mainly driven by advertising related
to new technology products and enhancing brand presence in all operations.
Other operating expenditure
The increase in other operating expenditure was primarily due to
inflationary factors and the growth in the business. Other operating
expenditure comprise of expenses such as accommodation, information
technology costs, office administration, consultant expenses, social
economic investment and insurance.
Other operating income
Other operating income comprises income that Vodacom does not consider as
part of its core activities such as cost recoveries for risk management and
consultancy services, franchise fees and rent received.
FINANCIAL INCOME, COSTS AND RELATED GAINS AND LOSSES
Rand millions % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
Finance income 35 47 34 34.3 (27.7)
Finance expenses (153) (289) (734) (88.9) (154.0)
(Loss)/gain on foreign
exchange forward
contract revaluation 446 (63) (182)(114.1) (188.9)
Gain/(loss) on revaluation
of foreign denominated
liabilities (317) (133) 226 58.0 >200.0
(Loss)/gain on revaluation
of foreign denominated assets - (12) (6) - 50.0
Loss on interest rate
swap revaluation (7) (5) (3) 28.6 40.0
Gain on sale of investments - 2 - - (100.0)
Gain on revaluation
of foreign denominated cash
and cash equivalents - 8 6 - (25.0)
Financial income, costs
and related gains and losses 4 (445) (659) (>200.0) (48.1)
Remeasurement of foreign exchange contracts ("FECs"), asset and liability
revaluations, interest rate swaps, cash and cash equivalents, and the gain
on sale of investments resulted in a net loss of R41 million (September 30,
2007: loss of R203 million).
In terms of the shareholders agreement, the minority shareholder in Vodacom
Congo (RDC) s.p.r.l., Congolese Wireless Network s.p.r.l. ("CWN") has a put
option which comes into effect three years after the commencement date,
December 1, 2001, and for a maximum of five years thereafter. In terms of
the option, CWN shall be entitled to put to Vodacom International Limited
such number of shares in and claims on loan account against Vodacom Congo
(RDC) s.p.r.l. as constitute 19% of the entire issued share capital of that
company. CWN can exercise this option in a maximum of three tranches and
each tranche must consist of at least 5% of the entire issued share capital
of Vodacom Congo (RDC) s.p.r.l.. The option price will be the fair market
value of the related shares at the date the put option is exercised. The put
option had a nil value as at September 30, 2008, 2007 and 2006. The
obligation to settle the put option in cash gives rise to an obligation
which represents a financial liability. The option liability had a value of
R328 million (September 30, 2007: R337 million) as at September 30, 2008.
Increased borrowings coupled with higher interest rates contributed to an
increase in finance expenses of 154.0% to R734 million.
Taxation
The taxation expense increased by 23.8% to R1,995 million (September 30,
2007: R1,612 million) for the six months ended September 30, 2008, mainly
due to STC charge of R300 million. For the six months ended September 30,
2007, no STC was recognised as the Group interim dividend was declared in
October 2007. Vodacom`s effective tax rate increased by 4.0 percentage
points to 34.6% (September 30, 2007: 30.6%) primarily due to the STC charge
as set out above.
Group shareholder distributions
Interim dividends declared amounted to R3.0 billion (October 1, 2007: R2.75
billion), an increase of 9.1%.
Capital expenditure
Capital expenditure additions
Segmental split
Rand millions
Six months ended September 30, 2006 2007 2008
South Africa 2,487 1,613 2,014
Tanzania 288 253 609
DRC 269 259 251
Lesotho 11 19 45
Mozambique 49 20 55
Holding companies 38 125 2
Capital expenditure
for the period 3,142 2,289 2,976
Capital expenditure additions
(including software) as a
% of revenue (%) 16.1 10.0 11.4
Capital expenditure
Capital expenditure additions
Segmental split
% of total % change
Six months ended
September 30, 2006 2007 2008 06/07 07/08
South Africa 79.1 70.5 67.8 (35.1) 24.9
Tanzania 9.1 11.1 20.5 (12.2) 140.7
DRC 8.6 11.3 8.4 (3.7) (3.1)
Lesotho 0.4 0.8 1.5 72.7 136.8
Mozambique 1.6 0.9 1.8 (59.2) 175.0
Holding
Companies 1.2 5.4 - >200.0 (98.4)
Capital
Expenditure
for the period 100.0 100.0 100.0 (27.1) 30.0
Capital
expenditure
additions
(including
software)
as a
% of
revenue (%) - - - (6.1 pts) 1.4 pts
The Group`s investment for the six months ended September 30, 2008 amounted
to R2,976 million (September 30, 2007: R2,289 million) of which R2,506
million (September 30, 2007: R1,955 million) relates to property, plant and
equipment and R470 million (September 30, 2007: R334 million) to computer
software.
Cumulative capital expenditure
Segmental split
2007 2008
At September 30, R billions Foreign R billions Foreign
South Africa (R billions) 28.3 - 32.8 -
Tanzania (TSH billions) 2.8 501.9 4.8 672.1
DRC (US$ millions) 2.9 427.8 4.3 511.8
Lesotho (Maloti millions) 0.2 203.0 0.3 264.0
Mozambique (MT millions) 0.8 3.0 1.2 3.5
Holding companies (R billions) 0.5 - 0.3 -
Cumulative capital expenditure
(R billions) 35.5 43.7
Property, plant and equipment (including software) sold and scrapped,
amounted to R79 million (September 30, 2007: R535 million).
Foreign currency translation differences increased cumulative capital
expenditure by R531 million (September 30, 2007: decreased by R321 million).
It is Vodacom`s policy to hedge foreign denominated commitments of South
African operations above a certain minimum level. However, Vodacom does not
qualify for hedge accounting in terms of IAS 39 and therefore, all capital
expenditure in South Africa is recorded at the exchange rate ruling at the
date of acceptance of the equipment. Capital expenditure of Vodacom`s non-
South African operations is translated at the average exchange rate of the
Rand against the operation`s reporting currency for the period, while
closing capital expenditure is translated at the closing exchange rate of
the Rand against the reporting currency. For this reason, Vodacom`s capital
expenditure in any given year cannot be properly evaluated without taking
the exchange rate movements against the Rand into account.
Financial structure and funding
Vodacom`s net debt position decreased to R6.0 billion (September 30, 2007:
R6.2 billion) as at September 30, 2008.
The Group`s net debt to EBITDA ratio was 54.1% (September 30, 2007: 40.5%)
while Vodacom`s net debt to equity ratio increased to 93.2% (September 30,
2007: 56.6%). Debt (when calculating net debt to EBITDA and net debt to
equity) includes the current period interim dividend of R3.0 billion payable
to the Group`s shareholders as well as the STC thereon, due to the dividend
being paid very soon after half-year-end and the materiality thereof. In
addition, in terms of covenant calculations, certain intangible assets as
well as minority interest are excluded from equity.
Funding sources
Vodacom`s ongoing objective is to fund all its non-South African operations
by means of project finance, structured such that there is no recourse to
our South African operations. The Group utilises its own funds and supported
funding structures, subject to South African Reserve Bank approval, to fund
offshore investments in the initial stages of the investment, until the
project is able to support project funding. Non-recourse funding for non-
South African operations is not always suitable to a high customer growth
environment due to the capital expenditure requirements thereof.
Vodacom Congo and Vodacom Mozambique are still substantially dependent on
funding and guarantees from South Africa. These operations are funded by a
mix of market priced direct loans as well as security to facilitate their
own credit lines.
In South Africa, debt consists primarily of finance lease liabilities,
medium and long-term facilities and short-term money market borrowings at
variable interest rates.
Subsequent to September 30, 2008, the Group obtained funding from a
consortium of lenders to the amount of R6.5 billion. The funding will be
utilised to refinance existing short-term debt as well as for capital
expenditure and working capital requirements. The facility is linked to
JIBAR and is repayable between 3 and 7 years.
Financial instruments and risk management
Subject to central bank regulations in the various countries as well as
local market condition restrictions, Vodacom manages foreign currency risk,
interest rate risk, credit risk and liquidity risk on an ongoing basis. The
Group`s risk management procedures are described fully in the Group`s Annual
Financial Statements.
Foreign exchange rates
Rand exchange rate % change
Six months ended September 30, 2006 2007 2008 06/07 07/08
US Dollar
Average 6.82 7.10 7.78 4.1 9.6
Closing 7.68 6.88 8.34 (10.4) 21.2
Tanzanian Shilling
Average 186.99 179.02 152.79 (4.3)(14.7)
Closing 168.73 179.41 140.37 6.3 (21.8)
Mozambican Metical
Average 3.87 3.66 3.09 (5.4)(15.6)
Closing 3.39 3.75 2.89 10.6 (22.9)
Cash flow
Vodacom had a positive free cash flow before shareholder distributions and
financing activities of R1.4 billion (September 30, 2007: negative R582
million). The prior year figure was impacted as a result of the investment
in the Smart companies of R937.3 million. Cash generated from operations
increased by 15.6% to R8.0 billion (September 30, 2007: R6.9 billion).
Events subsequent to period end
Vodafone is acquiring a larger stake in Vodacom by buying an additional 15%
from Telkom and therefore will become Vodacom`s major shareholder with a
shareholding of 65%. Telkom will be unbundling their remaining 35% stake to
its shareholders and Vodacom expects to list on the JSE in 2009. The
transaction still requires the approval of Telkom`s shareholders and is
subject to the necessary regulatory approvals.
Business combinations initiated after the balance sheet date
Gateway Telecommunications SA (Proprietary) Limited ("Gateway")
The Group has agreed to acquire the carrier services and business network
solutions business of Gateway for approximately US$675 million, adjustable
based on certain factors as stipulated in the share purchase agreement. The
purchase agreement is subject to certain conditions precedent including
approval from the relevant competition authorities. Once these conditions
are met the transaction will be effective.
Storage Technology Services (Proprietary) Limited ("StorTech")
The Group has agreed to acquire a controlling interest of 51% in StorTech, a
managed services company for approximately R140.3 million, which could be
reduced should certain targets not be met. StorTech`s portfolio complements
the Group`s enterprise solutions-focused division and expands upon the
Group`s data centre services capabilities. The transaction remains subject
to certain conditions precedent, including approval from the relevant
competition authorities in South Africa. Once these conditions are met the
transaction will be effective.
Other transactions effected after the balance sheet date
WBS Holdings (Proprietary) Limited ("WBS")
On October 1, 2008 the Group exercised its call option to acquire an
additional 14.9% of WBS for R119.2 million.
Broad Based Black Economic Empowerment ("BBBEE")
Subsequent to the reporting date, the Group finalised a R7.5 billion BBBEE
equity deal whereby strategic business partners, the black public, business
partners and employees will have the opportunity to participate in the
ownership of Vodacom (Proprietary) Limited ("Vodacom SA") going forward. The
black public and business partners obtained ownership in Vodacom SA via a
public offer. The prospectus relating to the public offer was issued on July
30, 2008 and applications for shares closed on September 11, 2008. The
public offer was approximately three times oversubscribed and the share
allotment was therefore pro-rated according to the rules stated in the
prospectus. The final share issue took place on October 8, 2008. Proceeds
from the public offer are included under financing activities in the cash
flow statement. R607.0 million of this amount relates to the
oversubscription and will be repaid to the subscribers with interest,
calculated from the closing date until the date of the refund, in terms of
the rules of the prospectus.
VM, S.A.R.L.
On May 12, 2008 the Group entered into an agreement to sell 5% of its 90%
holding in VM, S.A.R.L., leaving the Group with an 85% equity investment in
VM, S.A.R.L.. The transaction was effective on October 2, 2008 since all
suspensive conditions were met on this date.
Indebtedness incurred subsequent to period end
Subsequent to September 30, 2008, the Group obtained funding loans from a
consortium of lenders in the amount of R6.5 billion. The funding will be
utilised to refinance existing short-term debt
as well as for capital expenditure and working capital requirements. The
facility is linked to JIBAR and is repayable between 3 and 7 years.
Conclusion
The Vodacom Group has started the journey of true convergence of technology
that will add more value to people`s lives. This journey will take Vodacom
far beyond being a mobile centric company and into the much bigger playing
field of total communications. Despite current economic uncertainty, Vodacom
will continue investing for the future and aim to maintain strong growth on
the back of a healthy balance sheet.
Oyama Mabandla Pieter Uys
Non-executive Chairman Chief Executive
Officer
KEY OPERATIONAL INDICATORS
VODACOM SOUTH AFRICA
Six months ended September 30, % change
KEY INDICATORS 2006 2007 2008 06/07 07/08
Customers (thousands)1 20,201 23,297 25,245 15.3 8.4
Contract 2,675 3,409 3,735 27.4 9.6
Prepaid 17,440 19,790 21,391 13.5 8.1
Community services 86 98 119 14.0 21.4
Gross connections
(thousands) 5,308 5,845 5,693 10.1 (2.6)
Contract 320 425 349 32.8 (17.9)
Prepaid 4,929 5,416 5,328 9.9 (1.6)
Community services 59 4 16 (93.2) >200.0
Inactives (3 months - %) n/a 10.9 9.3 n/a (1.6 pts)
Contract n/a 3.4 3.3 n/a (0.1 pts)
Prepaid n/a 12.3 10.4 n/a (1.9 pts)
Churn (%)2 43.0 45.9 42.3 2.9 pts (3.6 pts)
Contract 11.0 8.3 9.7(2.7 pts) 1.4 pts
Prepaid 47.7 51.9 48.1 4.2 pts (3.8 pts)
Traffic
(millions of minutes)3 9,669 11,024 11,793 14.0 7.0
Outgoing 6,485 7,407 7,976 14.2 7.7
Incoming 3,184 3,617 3,817 13.6 5.5
ARPU (Rand per month)4 126 122 132 (3.2) 8.2
Contract 528 487 481 (7.8) (1.2)
Prepaid 61 59 66 (3.3) 11.9
Community services 1,017 711 584 (30.1) (17.9)
Minutes of use per month5 68 64 66 (5.9) 3.1
Contract 192 175 161 (8.9) (8.0)
Prepaid 46 43 47 (6.5) 9.3
Community services 1,283 908 741 (29.2) (18.4)
Gross capex spend
(Rand millions)6 2,487 1,613 2,014 (35.1) 24.9
Capex as a % of revenue (%) 14.2 8.0 8.9 (6.2 pts) 0.9 pts
Cumulative capex
(Rand millions)6 25,835 28,260 32,696 9.4 15.7
Capex per customer (Rand) 1,279 1,213 1,299 (5.2) 7.1
Number of employees 4,137 4,509 4,740 9.0 5.1
Customers per employee 4,883 5,167 5,326 5.8 3.1
Estimated mobile
SIM card penetration (%)7 72 87 100 15 pts 13 pts
Estimated mobile
market share (%)7 59 56 53 (3 pts) (3 pts)
Notes
1. Customer totals are based on the total number of customers registered on
Vodacom`s network, which have not been disconnected, including inactive
customers, as at the end of the period indicated.
2. Churn is calculated by dividing the average monthly number of
disconnections during the period by the average monthly total reported
customer base during the period.
3. Traffic comprises total traffic registered on Vodacom`s network,
including bundled minutes, outgoing international roaming calls and calls to
free services, but excluding national roaming and incoming international
roaming calls.
4. ARPU is calculated by dividing the average monthly revenue (recurring
mobile) by the average monthly total reported customer base during the
period. ARPU excludes revenues from equipment sales and other sales and
services. With effect from April 1, 2008, ARPU calculations include revenues
from national roamers and international visitors roaming on Vodacom`s
network. Historical ARPU numbers have been restated in line with this new
methodology.
5. Minutes of use per month is calculated by dividing the average monthly
minutes during the period by the average monthly total reported customer
base during the period. Minutes of use exclude calls to free services,
bundled minutes and data minutes.
6. Cumulative capital expenditure ("capex") includes software.
7. Estimated mobile penetration and market share is calculated based on
Vodacom`s total reported customers and the estimated total reported
customers of MTN and Cell C.
KEY OPERATIONAL INDICATORS
VODACOM TANZANIA
Six months ended September 30, % change
KEY INDICATORS 2006 2007 2008 06/07 07/08
Customers
(thousands)1 2,593 3,678 4,931 41.8 34.1
Contract 12 13 18 8.3 38.5
Prepaid 2,573 3,654 4,905 42.0 34.2
Community services 8 11 8 37.5 (27.3)
Gross connections
(thousands) 909 1,242 1,723 36.6 38.7
Churn (%) 35.2 46.8 44.2 11.6 pts (2.6 pts)
ARPU (Rand)2 54 50 53 (7.4) 6.0
Gross capex spend
(Rand millions) 288 253 609 (12.2) 140.7
Capex as a % of
revenue (%) 37.3 23.3 41.4 (14.0 pts) 18.1 pts
Cumulative capex
(Rand millions) 2,044 2,797 4,788 36.8 71.2
Number of employees3 482 569 663 18.0 16.5
Customers per
employee 5,379 6,465 7,437 20.2 15.0
Estimated mobile SIM
card penetration (%)4 13 17 27 4 pts 10 pts
Estimated mobile
market share (%)4 55 54 46 (1 pts) (8 pts)
VODACOM DRC
Six months ended September 30, % change
KEY INDICATORS 2006 2007 2008 06/07 07/08
Customers
(thousands)1 2,027 3,178 3,776 56.8 18.8
Contract 16 20 24 25.0 20.0
Prepaid 1,988 3,102 3,647 56.0 17.6
Community services 23 56 105 143.5 87.5
Gross connections
(thousands) 724 1,182 1,425 63.3 20.6
Churn (%) 30.0 43.3 53.9 13.3 pts 10.6 pts
ARPU (Rand)2 79 61 65 (22.8) 6.6
Gross capex spend
(Rand millions) 269 259 251 (3.7) (3.1)
Capex as a % of
revenue (%) 29.9 23.4 17.9 (6.5 pts) (5.5 pts)
Cumulative capex
(Rand millions) 2,780 2,945 4,266 5.9 44.9
Number of employees3 513 739 679 44.1 (8.1)
Customers per
employee 3,951 4,301 5,561 8.9 29.3
Estimated mobile
SIM card
penetration (%)4 7 11 15 4 pts 4 pts
Estimated mobile
market share (%)4 49 44 39 (5 pts) (5 pts)
Notes
1. Customer totals are based on the total number of customers registered
on Vodacom`s network which have not been disconnected, including inactive
customers, as of end of the period indicated.
2. ARPU is calculated by dividing the average monthly revenue (recurring
mobile) by the average monthly total reported customer base during the
period. ARPU excludes revenues from equipment sales and other sales and
services. With effect from April 1, 2008, ARPU calculations include revenues
from national roamers and international visitors roaming on Vodacom`s
network. Historical ARPU numbers have been restated in line with this new
methodology.
3. Headcount includes secondees.
4. Estimated mobile penetration and market share is calculated based on
Vodacom estimates.
VODACOM LESOTHO
Six months ended September 30, % change
KEY INDICATORS 2006 2007 2008 06/07 07/08
Customers (thousands)1 238 332 450 39.5 35.5
Contract 3 4 5 33.3 25.0
Prepaid 231 323 435 39.8 34.7
Community services 4 5 10 25.0 100.0
Gross connections (thousands) 55 80 97 45.5 21.3
Churn (%) 20.5 17.9 20.0 (2.6 pts) 2.1 pts
ARPU (Rand)2 76 73 69 (3.9) (5.5)
Gross capex
spend (Rand millions) 11 19 45 72.7 136.8
Capex as a % of revenue (%) 10.4 13.6 24.5 3.2 pts 10.9 pts
Cumulative
capex (Rand millions) 235.6 203.0 264.0 (13.8) 30.0
Number of employees3 63 63 79 - 25.4
Customers per employee 3,771 5,267 5,692 39.7 8.1
Estimated mobile SIM
card penetration (%)4 15 22 30 7 pts 8 pts
Estimated mobile
market share (%)4 80 80 80 - -
VODACOM MOZAMBIQUE
Six months ended September 30, % change
KEY INDICATORS 2006 2007 2008 06/07 07/08
Customers (thousands)1 694 1,079 1,287 55.5 19.3
Contract 11 18 24 63.6 33.3
Prepaid 682 1,060 1,250 55.4 17.9
Community services 1 1 13 - >200.0
Gross connections(thousands) 327 391 476 19.6 21.7
Churn (%) 41.8 57.3 72.7 15.5 pts 15.4 pts
ARPU (Rand)2 30 28 38 (6.7) 35.7
Gross capex
spend (Rand millions) 49 20 55 (59.2) 175.0
Capex as a % of revenue (%) 45.4 10.6 17.6 (34.8 pts) 7.0 pts
Cumulative
capex (Rand millions) 837 809 1,222 (3.3) 51.1
Number of employees3 126 153 188 21.4 22.9
Customers per employee 5,507 7,054 6,846 28.1 (2.9)
Estimated mobile
SIM card penetration (%)4 11 14 15 3 pts 1 pts
Estimated mobile
market share (%)4 33 38 42 5 pts 4 pts
Notes
1. Customer totals are based on the total number of customers registered on
Vodacom`s network which have not been disconnected, including inactive
customers, as of end of the period indicated.
2. ARPU is calculated by dividing the average monthly revenue (recurring
mobile) by the average monthly total reported customer base during the
period. ARPU excludes revenues from equipment sales and other sales and
services. With effect from April 1, 2008, ARPU calculations include revenues
from national roamers and international visitors roaming on Vodacom`s
network. Historical ARPU numbers have been restated in line with this new
methodology.
3. Headcount includes secondees.
4. Estimated mobile penetration and market share is calculated based on
Vodacom estimates.
CONDENSED CONSOLIDATED INCOME STATEMENTS
for the six months ended September 30, 2007 and 2008
for the six months ended
September 30, 2007
2008 Rm Rm
(reviewed) (reviewed)
Revenue 22,814.9 26,016.2
Other operating income 76.4 73.8
Direct network operating cost (12,481.3) (14,167.5)
Depreciation (1,639.9) (1,879.4)
Staff expenses (1,464.0) (1,706.5)
Marketing and advertising expenses (666.9) (771.3)
Other operating expenses (678.9) (798.2)
Amortisation of intangible assets (264.4) (316.0)
Impairment of assets 18.4 (21.1)
Profit from operations 5,714.3 6,430.0
Finance income 46.6 33.5
Finance costs (288.1) (733.6)
Gains/(Losses) on remeasurement
and disposal of financial instruments (203.7) 41.3
Profit before taxation 5,269.1 5,771.2
Taxation (1,611.6) (1,994.8)
Net profit 3,657.5 3,776.4
Attributable to:
Equity shareholders 3,596.4 3,693.6
Minority interests 61.1 82.8
for the six months ended
September 30,
2007 2008
R R
(reviewed) (reviewed)
Basic and diluted earnings per share 359,645 369,355
Dividend per share - 300,000
CONDENSED CONSOLIDATED BALANCE SHEETS
as at March 31, 2008 and September 30, 2008
as at March 31, as at September 30,
2008 2008
Rm Rm
(audited) (reviewed)
ASSETS
Non-current assets 24,468.3 25,859.3
Property, plant and equipment 19,119.6 20,228.9
Intangible assets 4,224.1 4,328.0
Financial assets 244.2 262.2
Deferred taxation 455.1 550.1
Deferred cost 333.3 283.9
Lease assets 92.0 206.2
Current assets 9,706.9 10,359.9
Deferred cost 705.9 735.7
Short-term financial assets 444.9 172.6
Inventory 636.9 878.3
Trade and other receivables 6,801.1 7,423.8
Lease assets 140.5 143.9
Taxation receivable - 183.2
Cash and cash equivalents 977.6 822.4
Total assets 34,175.2 36,219.2
EQUITY AND LIABILITIESOrdinary share capital *
* Retained earnings 11,392.9 12,086.3
Non-distributable reserves 8.8 89.4
Equity attributable
to equity holders of the parent 11,401.7 12,175.7
Minority interests 403.6 524.7
Total equity 11,805.3 12,700.4
Non-current liabilities 4,788.2 3,265.5
Interest bearing debt 3,025.8 1,528.7
Non-interest bearing debt 6.0 6.0
Deferred taxation 776.5 891.2
Deferred revenue 358.8 319.6
Provisions 373.7 364.7
Other non-current liabilities 247.4 155.3
Current liabilities 17,581.7 20,253.3
Trade and other payables 7,561.3 8,492.0
Deferred revenue 2,229.9 2,284.2
Taxation payable 580.5 522.5
Short-term interest bearing debt 502.9 1,984.8
Short-term provisions 909.5 567.7
Dividends payable 3,190.0 3,000.0
Derivative financial liabilities 10.8 38.1
Bank borrowings 2,596.8 3,364.0
Total equity and liabilities 34,175.2 36,219.2
* Share capital R100
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the six months ended September 30, 2007 and 2008
Attributable to equity shareholders
Share Retained Non- Total capital
earnings distributable
reserves
Rm Rm Rm Rm
Balance at
March 31, 2007 * 9,523.2 (97.4) 9,425.8 Net
profit for the period - 3,596.4 - 3,596.4
Contingency reserve - (0.9) 0.9 -Disposal of
subsidiaries - - - -Other acquisitions
- - - -Minority shares
of VM, S.A.R.L. - - - -Net gains
and losses not
recognised in
the income statement
Foreign currency
translation reserve - - (66.1) (66.1)
Capital contribution
on remeasurement
of shareholder loan
to fair value - - 0.5 0.5
Balance at
September 30, 2007
- Reviewed * 13,118.7 (162.1) 12,956.6
Balance at March 31, 2008 * 11,392.9 8.8 11,401.7Net profit
for the period - 3,693.6 - 3,693.6
Dividends declared - (3,000.0) -
(3,000.0)Contingency reserve - (0.2) 0.2 -
Net gains and losses not
recognised in the
income statement
Foreign currency
translation reserve - - 81.4 81.4
Revaluation of
available-for-sale
investment - - (1.0) (1.0)
Balance at
September 30, 2008
- Reviewed * 12,086.3 89.4 12,175.7
* Share capital R100
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the six months ended September 30, 2007 and 2008
Minority Total
interests equity
Rm Rm
Balance at March 31, 2007 221.2 9,647.0Net profit
for the period 61.1 3,657.5Contingency reserve
- -
Disposal of subsidiaries (0.3) (0.3)
Other acquisitions (6.1) (6.1)
Minority shares of VM, S.A.R.L. 0.8 0.8
Net gains and losses not
recognised in the income statement
Foreign currency translation reserve (11.1) (77.2)
Capital contribution on remeasurement
of shareholder loan to fair value (0.5) -
Balance at September 30, 2007
- Reviewed 265.1 13,221.7
Balance at March 31, 2008 403.6 11,805.3
Net profit for the period 82.8 3,776.4
Dividends declared - (3,000.0)
Contingency reserve - -
Net gains and losses not
recognised in the income statement
Foreign currency translation reserve 38.3 119.7
Revaluation of available-for-sale
investment - (1.0)
Balance at September 30, 2008
- Reviewed 524.7 12,700.4
* Share capital R100
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
for the six months September 30, 2007 and 2008
for the six months ended
September 30,
2007 2008
Rm Rm
(reviewed) (reviewed)
CASH FLOW FROM OPERATING ACTIVITIESCash receipts from customers
22,417.6 25,733.4
Cash paid to suppliers and employees (15,538.2) (17,781.5)
Cash generated from operations 6,879.4 7,951.9
Finance costs paid (219.2) (463.1)
Finance income received 0.3 27.4
Realised net losses on remeasurement and
disposal of financial instruments (95.2) (21.1)
Taxation paid (2,506.1) (2,249.5)
Dividends paid - equity shareholders (2,900.0) (3,190.0)
Dividends paid - minority shareholders (90.0) -
Net cash flows from operating activities 1,069.2 2,055.6
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property,
plant and equipment
and intangible assets (3,678.1) (3,883.2)
Proceeds on disposal of
property, plant and equipment
and intangible assets 4.1 34.8
Disposal of subsidiaries 15.7 -
Business combinations and other acquisitions (953.0) -
Other investing activities (30.2) (38.8)
Net cash flows utilised
in investing activities (4,641.5) (3,887.2)
CASH FLOW FROM FINANCING ACTIVITIES
Interest bearing debt repaid (49.4) -Finance
lease capital repaid (50.7) (66.1)
Bank borrowings 4,551,0 698.5
Broad Based Black Empowerment public offer - 964.2
Other financing activities 7.1 -
Net cash flows generated
from financing activities 4,458.0 1,596.6
NET (DECREASE)/INCREASE
IN CASH AND CASH EQUIVALENTS 885.7 (235.0)
Cash and cash equivalents/
(Bank borrowings) at the
beginning of the period (107.9) 836.8
Effect of foreign exchange rate changes (14.9) 11.2
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD 762.9 613.0
DISCLAIMER
This publication has been prepared and published by Vodacom Group (Pty) Ltd.
Many of the statements included in this document are forward-looking
statements that involve risks and/or uncertainties and caution must be
exercised in placing any reliance on these statements.
The statements contain time sensitive information and the information
contained herein is only accurate as of the date thereof.
The information is subject to change and may be updated, amended,
supplemented or otherwise altered by subsequent presentations, reports
and/or filings by Vodacom Group (Pty) Ltd.
The information contained in this document may be condensed.
Insofar as the shareholders of Vodacom Group (Pty) Ltd are listed and offer
their shares publicly for sale on recognised stock exchanges locally and/or
internationally, potential investors in the shares of Vodacom Group (Pty)
Ltd`s shareholders are cautioned not to place undue reliance on this
document.
Johannesburg
17 November 2008
Sponsor
UBS South Africa (Pty) Ltd
Date: 17/11/2008 07:05:14 Produced by the JSE SENS Department.
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