| Tue 19 May 2009, 8:00 | | VOD - Vodacom Group Limited - Preliminary condensed consolidated annual |
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VOD
VOD
VOD - Vodacom Group Limited - Preliminary condensed consolidated annual
financial statements for the year ended 31 March 2009
Vodacom Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/005461/06)
Share code: VOD
ISIN: ZAE000132577
("Vodacom Group")
PRELIMINARY CONDENSED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS for the year
ended 31 March 2009
Vodacom HIGHLIGHTS
* 14.5% growth in revenue to R55.2 billion
* 16.5% growth in customers to 39.6 million
* 10.5% growth in EBITDA to R18.2 billion
* 28.8% growth in data revenue to R6.4 billion
* 80.0% growth in Vodacom SA broadband customers
* Almost 5 million Vodacom unique mobile internet users in South Africa
* BBBEE transaction completed
* Acquisition of Gateway, a leading pan-African communications provider
Consolidated Income Statement
for the year ended 31 March 2009
2009 2008 2007
Rm Rm Rm
Notes Reviewed Audited Audited
Revenue 55 187.1 48 177.8 41 146.4
Other operating 254.8 155.6 119.8
income
Direct network (30 421.6) (26 299.5) (22 439.8)
operating cost
Depreciation (3 948.0) (3 366.0) (2 901.8)
Staff expenses (3 618.7) (2 975.4) (2 372.5)
Marketing and (1 523.6) (1 264.3) (1 146.4)
advertising expenses
Broad-based black 3 (1 382.4) - -
economic empowerment
charge
Other operating (1 696.0) (1 362.4) (1 063.6)
expenses
Amortisation of (734.8) (545.2) (459.4)
intangible assets
Impairment of assets (112.2) (29.9) (22.9)
Operating profit 12 004.6 12 490.7 10 859.8
Finance income 108.2 72.3 74.5
Finance costs (1 459.5) (681.3) (369.3)
(Losses)/Gains on
remeasurement and
disposal
of financial (397.5) 185.1 (169.0)
instruments
Loss from associate (18.9) - -
Profit before 10 236.9 12 066.8 10 396.0
taxation
Taxation (4 045.0) (4 109.2) (3 836.0)
Net profit 6 191.9 7 957.6 6 560.0
Attributable to:
Equity shareholders 6 089.3 7 811.4 6 342.4
Minority interests 102.6 146.2 217.6
6 191.9 7 957.6 6 560.0
2009 2008 2007
Cents Cents Cents
Reviewed Reviewed Reviewed
Basic and diluted 2 409.2 525.0 426.3
earnings per share
Consolidated Balance Sheet
as at 31 March 2009 2009 2008 2007
Rm Rm Rm
Notes Reviewed Audited Audited
ASSETS
Non-current assets 35 224.5 24 468.3 20 844.3
Property, plant and 21 844.1 19 119.6 17 073.2
equipment
Intangible assets 11 793.6 4 224.1 2 700.3
Financial assets 239.1 244.2 209.5
Investment in associate 64.5 - -
Deferred taxation 782.7 455.1 386.1
Deferred cost 179.7 333.3 396.4
Trade and other 8.2 - -
receivables
Lease assets 312.6 92.0 78.8
Current assets 12 134.9 9 706.9 7 625.9
Deferred cost 711.9 705.9 574.8
Financial assets 227.9 444.9 207.5
Inventory 652.6 636.9 364.3
Trade and other 9 103.8 6 801.1 5 675.0
receivables
Lease assets 270.7 140.5 32.9
Taxation receivable 63.9 - -
Cash and cash 1 104.1 977.6 771.4
equivalents
Total assets 47 359.4 34 175.2 28 470.2
EQUITY AND LIABILITIES
Ordinary share capital * * *
Retained earnings 12 264.9 11 392.9 9 523.2
Other reserves 1 752.1 8.8 (97.4)
Equity attributable to 14 017.0 11 401.7 9 425.8
equity holders of the
parent
Minority interests 1 080.8 403.6 221.2
Total equity 15 097.8 11 805.3 9 647.0
Non-current liabilities 10 430.3 4 788.2 3 812.1
Interest bearing debt 4 8 309.6 3 025.8 2 051.4
Non-interest bearing 6.0 6.0 3.0
debt
Deferred taxation 1 360.9 776.5 757.3
Deferred revenue 240.7 358.8 412.3
Provisions 397.5 373.7 377.5
Other non-current 115.6 247.4 210.6
liabilities
Current liabilities 21 831.3 17 581.7 15 011.1
Trade and other payables 7 864.8 7 561.3 6 874.4
Deferred revenue 2 458.2 2 229.9 1 904.8
Taxation payable 549.0 580.5 1 112.7
Interest bearing debt 4 5 692.2 502.9 501.0
Provisions 800.3 909.5 741.8
Dividends payable 2 210.8 3 190.0 2 990.0
Derivative financial 52.8 10.8 7.2
liabilities
Bank borrowings 2 203.2 2 596.8 879.2
Total equity and 47 359.4 34 175.2 28 470.2
liabilities
* Share capital R100
Condensed Consolidated Statement of Changes in Equity
for the year ended Equity Minority Total
31 March 2009
shareholders interests equity
Rm Rm Rm
Balance as at 31 March 2006 8 389.0 283.3 8 672.3
(Audited)
Net profit for the period 6 342.4 217.6 6 560.0
Dividends declared (5 400.0) (170.8) (5 570.8)
Business combinations and - (136.4) (136.4)
other acquisitions
Net gains and losses not
recognised in the income
statement 94.4 27.5 121.9
Balance as at 31 March 2007 9 425.8 221.2 9 647.0
(Audited)
Net profit for the period 7 811.4 146.2 7 957.6
Dividends declared (5 940.0) (0.6) (5 940.6)
Business combinations and - (6.1) (6.1)
other acquisitions
Disposal of subsidiaries - (0.3) (0.3)
Minority shares of VM, S.A. - 0.8 0.8
Net gains and losses not 104.5 42.4 146.9
recognised in the income
statement
Balance as at 31 March 2008 11 401.7 403.6 11 805.3
(Audited)
Net profit for the period 6 089.3 102.6 6 191.9
Dividends declared (5 200.0) (13.5) (5 213.5)
Business combinations and (3.9) 34.4 30.5
other acquisitions
Broad-based black economic 1 382.4 522.0 1 904.4
empowerment transaction
Net gains and losses not 347.5 31.7 379.2
recognised in the income
statement
Balance as at 31 March 2009 14 017.0 1 080.8 15 097.8
(Reviewed)
Condensed Consolidated Cash Flow Statement
for the year ended 31 March 2009 2008 2007
2009
Rm Rm Rm
Reviewed Audited Audited
Cash generated from operations 16 351.2 16 333.5 13 866.1
Finance costs paid (1 388.3) (669.6) (326.6)
Finance income received 103.6 74.3 41.7
Realised net losses on
remeasurement and disposal of
financial instruments (556.5) (151.0) (38.8)
Taxation paid (4 123.2) (4 721.5) (3 303.3)
Dividends paid - equity (6 190.0) (5 650.0) (5 300.0)
shareholders
Dividends paid - minority (13.5) (90.6) (80.8)
shareholders
Net cash flows from operating 4 183.3 5 125.1 4 858.3
activities
Net cash flows utilised in (12 749.6) (7 502.2) (6 583.9)
investing activities
Net cash flows from/(utilised 8 872.8 3 233.8 (200.0)
in) financing activities
NET INCREASE/(DECREASE) IN 306.5 856.7 (1 925.6)
CASH AND CASH EQUIVALENTS
Cash and cash
equivalents/(bank borrowings)
at the
beginning of the year 836.8 (107.8) 1 760.3
Effect of foreign exchange (59.5) 87.9 57.5
rate changes
CASH AND CASH
EQUIVALENTS/(BANK
BORROWINGS) AT THE END OF THE 1 083.8 836.8 (107.8)
YEAR
Notes
BASIS OF PREPARATION
These preliminary condensed consolidated annual financial statements of Vodacom
Group Limited ("the Group") have been prepared in accordance with the
recognition and measurement criteria of International Financial Reporting
Standards as issued by the International Accounting Standards Board and comply
with the disclosure requirements of IAS 34: Interim Financial Reporting. The
preliminary condensed consolidated annual financial statements have been
prepared on the historical cost basis, except for financial assets and financial
liabilities (including derivative instruments) recorded at fair value or at
amortised cost, and have been presented in South African rand, as this is the
currency in which the majority of the Group`s transactions are denominated.
The principal accounting policies and methods of computation are consistent in
all material respects with those applied in the previous period, except where
disclosed elsewhere, and the accounting policies are available for inspection at
the Group`s registered office. There have been no material changes in estimates
of amounts reported in prior interim periods of the current financial year or
reported in prior financial years.
The financial information has been reviewed by Deloitte & Touche whose
unqualified review opinion is available for inspection at the Group`s registered
office.
The annual report containing a detailed review of the operations of the Group
together with the audited consolidated annual financial statements will be
posted to shareholders on or about Tuesday 30 June 2009.
2009 2008 2007
Rm Rm Rm
Reviewed Audited Audited
1.SEGMENTAL INFORMATION
The Group has changed the
structure of its internal
organisational reporting
resulting in a change of its
reportable segments. This
resulted in the restatement
of the comparative figures.
External customers segment 55 187.1 48 177.8 41 146.4
revenue
South Africa 47 435.7 42 824.9 37 038.6
International 6 946.1 5 352.9 4 107.8
Gateway 805.3 - -
Management operating profit 12 262.4 12 616.4 11 000.4
South Africa 11 453.3 11 752.1 10 394.8
International 723.1 757.1 569.0
Gateway 77.0 - -
Corporate and eliminations 9.0 107.2 36.6
Reconciliation of segment
results
Management operating profit 12 262.4 12 616.4 11 000.4
Amortisation of licences, (145.6) (95.8) (117.7)
trademarks, patents and
customer bases
Impairment of assets (112.2) (29.9) (22.9)
Operating profit 12 004.6 12 490.7 10 859.8
2009 2008 2007
Rm Rm Rm
Reviewed Audited Audited
1. SEGMENTAL INFORMATION
(continued)
Net profit 6 191.9 7 957.6 6 560.0
South Africa 6 968.6 7 916.3 6 935.6
International 75.1 404.0 15.1
Gateway (36.0) - -
Corporate and eliminations (815.8) (362.7) (390.7)
Assets 47 359.4 34 175.2 28 470.2
South Africa 26 693.1 24 597.8 22 879.3
International 11 181.8 8 546.9 6 468.9
Gateway 8 013.5 - -
Corporate and eliminations 1 471.0 1 030.5 (878.0)
Liabilities (32 261.6) (22 369.9) (18 823.2)
South Africa (19 322.4) (17 776.7) (16 547.3)
International (8 490.6) (6 692.4) (4 874.7)
Gateway (3 130.8) - -
Corporate and eliminations (1 317.8) 2 099.2 2 598.8
2. EARNINGS AND DIVIDEND PER SHARE
2.1 Earnings and dividend per share
Subsequent to the year end Vodafone Holdings (SA) (Proprietary) Limited
increased its interest in Vodacom Group (Proprietary) Limited by acquiring an
additional 15% from Telkom SA Limited ("the share sale transaction").
Immediately following the share sale transaction Vodacom Group (Proprietary)
Limited was converted from a private company to a public company named Vodacom
Group Limited and underwent a capital restructuring during which the existing
issued share capital of 10 000 ordinary shares of R0.01 each was subdivided and
converted into 1 487 954 000 ordinary shares with no par value.
2009 2008 2007
Cents Cents Cents
Reviewed Reviewed Reviewed
Basic and diluted earnings per share 409.2 525.0 426.3
Headline and diluted headline 417.4 528.4 426.3
earnings per share
Dividend per share 349.5 399.2 362.9
Earnings and dividend per share calculations are based on
1 487 954 000 (2008: 1 487 954 000; 2007: 1 487 954 000) ordinary shares in
issue at the date of listing.
The calculation of basic and headline earnings per share is based on earnings of
R6 089.3 million (2008: R7 811.4 million; 2007: R6 342.4 million) and headline
earnings of R6 211.1 million (2008: R7 861.6 million; 2007: R6 328.9 million)
respectively. Due to no dilutive factors being present, basic earnings per share
equals diluted earnings per share.
The calculation of dividend per share is based on a declared dividend of R5
200.0 million (2008: R5 940.0 million; 2007: R5 400.0 million).
2009 2008 2007
Rm Rm Rm
Reviewed Reviewed Reviewed
2.2 Headline earnings
reconciliation
Basic earnings per the income 6 089.3 7 811.4 6 342.4
statement
Adjusted for:
Profit on disposal of shares in - (8.0) (17.4)
subsidiary
Net loss/(profit) on disposal of
property, plant
and equipment and intangible 13.3 39.3 (26.9)
assets
Impairment recognised 112.2 29.9 22.9
6 214.8 7 872.6 6 321.0
Taxation impact of adjustments (3.8) (11.0) 7.9
Minority interest in adjustments 0.1 - -
Headline earnings* 6 211.1 7 861.6 6 328.9
* The disclosure of headline earnings is a requirement of the JSE Limited
("JSE") and is not a recognised measure under International Financial Reporting
Standards. It has been calculated in accordance with the South African Institute
of Chartered Accountants` circular issued in this regard.
3. BROAD-BASED BLACK ECONOMIC EMPOWERMENT CHARGE
The broad-based black economic empowerment ("BBBEE") charge arose from the BBBEE
transaction which was implemented during the year. The Group`s shareholders
approved a BBBEE transaction which entailed the issue and allotment of ordinary
shares and "A" ordinary shares representing, in aggregate, 6.25% of Vodacom
(Proprietary) Limited`s issued share capital to permanent South African
employees of Vodacom Group Limited and any of its wholly owned South African
subsidiaries from time to time as well as Vodacom (Proprietary) Limited and its
wholly owned South African subsidiaries and shall include employees of the said
entities who are on secondment outside of South Africa ("Employees"), broad-
based black South African public ("Black Public"), black business partners
("Business Partners") and broad-based strategic partners ("Strategic Partners").
The transaction was introduced to assist the Group in meeting its empowerment
objectives and gives rise to an equity-settled share-based payment in terms of
IFRS 2: Share-based Payment.
The following BBBEE participants acquired a direct or indirect ownership in
Vodacom (Proprietary) Limited`s share capital as follows:
Broad-based
black economic
Percentage Transaction empowerment
allocated value charge
Components of the % Rm Rm
transaction
Employees through
YeboYethu Employee
Participation
Trust 1.56 1 875.0 **67.8
Black Public and Business
Partners through
YeboYethu Limited 1.88 2 250.0 527.0
Royal Bafokeng Holdings 1.97 2 366.0 552.2
(Proprietary) Limited
Thebe Investment 0.84 1 009.0 235.4
Corporation (Proprietary)
Limited
6.25 7 500.0 1 382.4
** This amount represents the current year`s charge taking into account the
vesting conditions and the rights granted to employees. The total charge for
employees over the five-year period amounts to R377.0 million.
4. INTEREST BEARING DEBT
The Group increased its interest bearing debt during the current financial year
as follows:
The Group obtained a rand denominated term loan in the amount of R3 000.0
million from Absa Capital, a division of Absa Bank Limited. The loan is for a
term of one year and was used as bridge funding for the acquisition of Gateway
(note 5).
The Group entered into a syndicated loan with various banks and institutions for
R6 450.0 million. The funding will be utilised to refinance existing short-term
debt, as well as for capital expenditure.
The debt incurred as set out above had the impact of decreasing earnings per
share and headline earnings per share by 26.5 cents per share based on 1 487 954
000 ordinary shares in issue at the date of listing.
2009 2008 2007
Rm Rm Rm
Reviewed Audited Audited
5. MATERIAL BUSINESS COMBINATION
Gateway*
Effective 30 December 2008 the Group
acquired 100% of the carrier services
and business network solutions
businesses of Gateway
Telecommunications SA (Proprietary)
Limited. The fair values of the
assets and liabilities acquired were
preliminary determined as follows:
Fair value of net assets acquired (280.8) - -
Goodwill (5 417.0)
Foreign exchange gain 5.9
Purchase price (including capitalised (5 691.9) - -
costs)
Cash and cash equivalents 100.5 - -
Liabilities assumed (non-cash 337.7 - -
consideration)
Capitalised cost payable 53.6 - -
Discounting of deferred compensation (48.4) - -
paid
Cash consideration (5 248.5) - -
Carrying value of the assets and
liabilities immediately before the
combination:
Non-current assets 2 194.7 - -
Current assets 749.9 - -
Non-current liabilities (1 588.7) - -
Current liabilities (667.9) - -
688.0 - -
* Gateway comprises 100% of the shares in each of Gateway Telecommunications
Plc, Gateway Communications (Proprietary) Limited, Gateway Communications
Mozambique LDA, Gateway Communications (Tanzania) Limited and GS Telecom
(Proprietary) Limited and their respective subsidiaries.
2009 2008 2007
Rm Rm Rm
Reviewed Audited Audited
6. CAPITAL COMMITMENTS
Contracted for but not yet 2 213.9 1 599.5 1 181.5
incurred
Approved but not yet contracted 9 711.8 8 822.4 7 135.2
for
7. OTHER COMMITMENTS
Operating leases 3 533.8 4 570.9 2 765.2
Sport and marketing contracts 1 037.8 1 359.5 881.7
GSM transmission and data lines 6 643.5 - -
Other 1 000.4 1 544.2 775.3
12 215.5 7 474.6 4 422.2
Other commitments comprise other
accommodation, retention
incentives, activation bonuses
and activation commissions. The
Group also has commitments for
service provider agreements,
monthly cellular licence fees and
global alliance fees the amount
of which will be determined based
on future financial results.
8. CONTINGENCIES
21.7 7.0 7.6
8.1 Various legal matters
The Group is currently involved in various legal proceedings. The Group in
consultation with its legal counsel has assessed the outcome of these
proceedings and the likelihood that certain of these cases are not likely to be
in the Group`s favour. Following this assessment, the Group`s management has
determined that no provision is required in respect of these legal proceedings
as at 31 March 2009. Litigations, current or pending, are not likely to have a
material adverse effect on the Group.
8.2 Negative net current asset ratio
For the financial years ended 31 March 2009, 2008 and 2007 the Group had a
negative net current asset ratio. The Group`s management believes that based on
its operating cash flow, it will be able to meet liabilities as they arise and
that it is in compliance with all covenants contained in the borrowing
agreements. The funding loans obtained from a consortium of lenders in the
amount of R6.5 billion (note 4) will improve the negative net current asset
ratio. Depending on market conditions the Group will continue to seek longer
term funding opportunities which will further reduce the negative net current
asset ratio.
8.3 Universal Service Obligation
The Group has a potential liability in South Africa of approximately R147.5
million in respect of the 1800 MHz Universal Service Obligation in terms of
distribution costs of 2.5 million SIM cards and the cost of 125 thousand
handsets.
8.4 Unresolved taxation matters
The Group is regularly subject to an evaluation by the taxation authorities of
its direct and indirect taxation filings. The consequence of such reviews is
that disputes can arise with the taxation authorities over the interpretation or
application of certain taxation rules applicable to the Group`s business. These
disputes may not necessarily be resolved in a manner that is favourable to the
Group. Additionally the resolution of the disputes could result in an obligation
for the Group.
The Group has discussions with relevant taxation authorities on specific matters
regarding the application and interpretation of taxation legislation affecting
the Group and the industry in which it operates. All reliable assessments of tax
exposure identified have been quantified and accounted for as appropriate.
The Group has considered all matters in dispute with the taxation authorities
and has assessed the deductibility of expenses initially disallowed for taxation
purposes.
Deferred taxation assets have only been recognised in this regard if it is
probable that the Group will succeed in its disagreements with the taxation
authorities.
8.5 Customer registration
The Group is required by law to register its customers in the Democratic
Republic of Congo and in South Africa. Non-compliance may result in penalties,
the amount of which the Group is currently unable to reliably assess.
8.6 Contingent asset
Litigation may be instituted for the recovery of certain fees paid by the Group.
9. EVENTS SUBSEQUENT TO YEAR END
Listing
Vodafone Holdings (SA) (Proprietary) Limited increased its interest in Vodacom
Group (Proprietary) Limited by acquiring an additional 15% from Telkom SA
Limited, which resulted in Vodafone Holdings (SA) (Proprietary) Limited holding
and beneficially owning in aggregate 65% of the entire issued share capital of
Vodacom Group (Proprietary) Limited ("the share sale transaction").
Immediately following the share sale transaction Vodacom Group (Proprietary)
Limited was converted from a private company to a public company named Vodacom
Group Limited. The capital restructure involved sub-dividing the authorised
share capital of 100 000 ordinary shares of R0.01 each, as at year end, into 14
879 540 000 ordinary shares with no par value after which 10 879 540 000
authorised but unissued ordinary shares with no par value were cancelled. This
resulted in the authorised share capital of Vodacom Group Limited comprising of
4 000 000 000 ordinary shares with no par value. The existing issued share
capital of 10 000 ordinary shares of R0.01 each was subdivided and converted
into 1 487 954 ordinary shares with no par value.
After the share sale transaction and the capital restructure Vodacom Group
Limited listed on the JSE in the "Telecommunications Sector" of the main board
of the JSE, under the abbreviated name Vodacom, effective from the commencement
of business on 18 May 2009. After the listing Telkom SA Limited unbundled its
remaining 35% stake to its shareholders.
PIETER UYS, GROUP CEO commented: "The last 14 months have been seminal for the
Vodacom Group. We concluded our BBBEE transaction and acquired the leading pan-
African carrier services and connectivity provider, Gateway. We said farewell to
one of our founding shareholders, Telkom, and became a subsidiary of the other,
Vodafone Group, making us part of the world`s leading mobile communications
group. And we listed on the JSE Limited, with some 200 000 new shareholders."
Statement from the CEO
In an eventful year for the Vodacom Group to 31 March 2009, in which the
pervasive impacts of the economic downturn took a heavy toll on many industries
worldwide, it is most gratifying to report that the Group continued to show its
quality and resilience. Overall we delivered a solid set of results, while
making significant progress in our strategy to become a leading provider of
total communications in sub-Saharan Africa. We added 5.6 million new customers
in the year, taking our total customer base to almost 40 million. In line with
our strategic intention to lead the market in affordable access to broadband, we
consolidated our position as South Africa`s largest broadband provider and by
year end had over 720 000 broadband customers.
The Group has been decisive in taking up the opportunities to deliver converged
services to corporates and consumers. We have moved strongly into providing
value-added data and online services, including mobile internet, mobile
advertising, money transfer services and social networking to consumers. In the
enterprise market, Vodacom Business in its first year attracted top talent in
the ICT industry and developed a full suite of 28 products providing access
services, managed network services, managed hosting services and converged
application services to corporate and SME customers. During the year we also
built a state-of-the-art data centre, expanded our data and transmission
backbone and made a small but strategic acquisition in the hosting environment -
StorTech.
The acquisition of Gateway, with customers in 40 African countries and a
physical presence in 14 countries, has given Vodacom Group a much larger
international footprint and a springboard for further expansion in sub-Saharan
Africa. Gateway provides new market entry points and local market understanding,
and as the leading provider of managed network IT solutions to blue-chip
multinational clients on the continent, provides attractive synergies and growth
impetus for Vodacom Business in particular.
In tandem with executing our growth strategy, we have continued to focus on
controlling costs and driving operational efficiencies. For instance, by
leveraging the procurement strength of Vodacom Group and the wider Vodafone
Group, we secured better pricing of handsets. Furthermore, besides exclusive
access to new product launches and R&D capability, the benefits of our
relationship with Vodafone also extend to benchmarking our operations against
global standards of excellence. As we become a subsidiary of Vodafone Group as
opposed to a partner network, the benefits that accrue from our relationship are
expected to increase.
On behalf of all the people of Vodacom Group, I extend our thanks to the
outgoing board members and to Telkom for their contribution to the Group`s
success. To Alan Knott-Craig, we record our deepest appreciation for his
visionary leadership. We extend a warm welcome to our new chairman, Peter Moyo,
and new board members and look forward to the wealth of experience they bring to
the Group.
Financial review
The financial results were impacted by a number of significant events: broad-
based black economic empowerment ("BBBEE") transaction, the acquisition of
Gateway and the raising of new debt.
* In October 2008, the Group concluded its BBBEE transaction, selling a 6.25%
stake to black partners, black public and employees. There were once-off BBBEE
transaction expenses of R95 million which affected EBITDA in the year ended 31
March 2009. The BBBEE charge relating to the IFRS 2 share-based payment of R1.4
billion is not reflected in EBITDA but affected operating profit.
* The acquisition of Gateway was completed on 30 December 2008 and was financed
through a combination of cash and existing and new debt facilities. The equity
purchase price, including capitalised costs, was R5.7 billion with a fair value
of net assets acquired of R281 million, resulting in goodwill arising from the
transaction of R5.4 billion. The Group results include Gateway for the three
months ended 31 March 2009.
* Vodacom Group more than doubled its net debt over the year, successfully
obtaining long-term funding of R6.5 billion in October 2008, a further R3.0
billion in December 2008 and increased bank borrowings to refinance existing
debt and to fund both the Gateway acquisition and for capital expenditure. This
has achieved a more efficient for capital structure, but has resulted in
substantially higher finance charges.
During the latter part of the financial year, the effect of the deteriorating
global macroeconomic conditions were felt in all the businesses, particularly in
the DRC where the dramatic impact on the economy of declining mineral resource
prices and the closing of many mines affected revenue and profitability. The
slowdown in the South African economy has to some degree filtered through to the
mobile market. While the prepaid market in South Africa remained relatively
resilient and showed increased usage, contract customer spending declined
compared to the prior year.
The depreciation of the rand against the functional currencies of the
international operations had a positive effect on the Group`s trading results.
The depreciation of the rand against the US dollar negatively impacted South
African maintenance costs, handset purchases and capital expenditure, but to a
lesser extent.
Revenue
Revenue rose 14.5% to R55 187 million, largely due to a 16.5% increase in the
customer base to 39.6 million, the 28.8% increase in data revenue to R6 441
million and the inclusion of R808 million from Gateway for the final quarter of
the year. Revenue from the South African operations increased 10.8% to R47 483
million, contributing 86.0% (2008: 88.9%) to group revenue for the year ended.
Revenue from the international operations grew 29.9% to R7 003 million,
contributing 12.7% (2008: 11.2%) to group revenue. Organic revenue growth for
the year was 12.9%.
Profitability
EBITDA increased 10.5% to R18 196 million, mainly as a result of strong revenue
growth offset by BBBEE transaction expenses of R95 million and margin pressure
in the DRC. EBITDA from the South African operations was up 9.7% to R16 222
million, contributing 89.2% (2008: 89.8%) to group EBITDA for the year. EBITDA
from the international operations increased 18.7% to R1 835 million,
contributing 10.1% (2008: 9.4%) to group EBITDA. Gateway contributed R100
million to group EBITDA for the three months from the acquisition date. The
group EBITDA margin decreased from 34.2% in the prior year to 33.0%.
Operating profit for the year was down 3.9% to R12 005 million primarily due to
the BBBEE charge of R1 382 million. Excluding this charge, operating profit
increased 7.2% to R13 387 million, lower than EBITDA growth due to an increase
of 17.3% in depreciation to R3 948 million.
Finance charges
Net finance charges rose from R424 million in the prior year to R1 749 million.
Finance costs for the year ended 31 March 2009 increased substantially to R1 460
million, compared to R681 million in the prior year, due to increased borrowings
and the higher effective cost of borrowings. The loss on the foreign exchange
forward contract revaluation of R567 million includes R408 million in foreign
exchange losses incurred in respect of the Gateway acquisition. The gain on the
revaluation of foreign denominated liabilities of R228 million mainly relates to
the gain on the revaluation of the minority shareholder`s put option in the DRC.
Taxation
The taxation expense for the year was 1.6% lower at R4 045 million mainly due to
lower profit before taxation and a reduction in the South African corporate tax
rate to 28% (2008: 29%), partly offset by the disallowable BBBEE charge and non-
deductible interest charges. The effective tax rate increased from 34.1% to
39.5%.
Earnings
Headline earnings per share decreased 21.0% to 417 cents for the year, compared
to 528 cents in the prior year. Excluding the BBBEE charge of R1 382 million,
headline earnings per share decreased 3.4% to 510 cents per share. The reduction
in headline earnings per share is largely due to the substantial increase in
finance charges resulting from the higher average net debt.
Cash flow
Cash generated from operations remained stable at R16 351 million, compared to
R16 334 million in the prior year. Negative movements in working capital of R1
831 million offset the growth in EBITDA of R1 733 million. Working capital was
affected by the once-off impact of normalising creditors payments for year end
purposes, as well as the repayment of R602 million relating to a cancellation of
a guarantee held for a distributor.
Net cash flows from operating activities decreased 18.4%, largely due to the
higher finance charges. Net cash flows utilised in investing activities
increased from R7 502 million to R12 750 million mainly due to the R5.3 billion
for the acquisition of Gateway and increased capital expenditure. As a result of
the debt raising activities cash flows from financing activities increased from
R3 234 million in the prior year to R8 873 million.
Capital expenditure
Vodacom Group`s capital expenditure for the year ended 31 March 2009 was 16.7%
higher at R6 906 million. The increase in South African capital expenditure to
R4 627 million (or 9.7% of revenue) largely relates to continued investment to
improve coverage and increase capacity for both the voice and data networks. The
increase of 58.4% in the capital expenditure in the international operations to
R2 406 million (or 34.4% of revenue), was mainly due to expanding coverage in
Tanzania and Mozambique.
Balance sheet
Total assets grew by R13 184 million to R47 359 million as at 31 March 2009,
largely as a result of the increase in intangible assets from R4 224 million to
R11 794 million, with goodwill comprising the largest element at R5 533 million,
attributable mainly to the acquisition of Gateway.
Net debt rose to R17 537 million as at 31 March 2009, compared to R8 663 million
at 31 March 2008. Debt was raised to refinance debt, support higher capital
expenditure and acquire Gateway. Net debt as at 31 March 2009 includes the final
dividend and related STC of R2 430 million paid to Vodacom Group`s shareholders
on 8 April 2009. 93% of the total debt is at a floating rate and R5 692 million
will mature in less than a year. R2 977 million of the total debt is denominated
in foreign currencies. The balance sheet remains strong; with the net debt to
EBITDA ratio at 1.0x at 31 March 2009.
Operational review
South Africa
Vodacom SA revenue grew 10.8% with customer growth of 11.3% or 2.8 million
additional customers to 27.6 million. A record 13 million gross connections were
achieved and churn was down 2.2 percentage points to 40.1% as a result of
focused retention campaigns and loyalty programmes. Vodacom maintained its
market leadership position with 53.0% market share of mobile customers as at 31
March 2009.
Contract and prepaid customer revenue grew by 4.2% and 16.5% respectively.
Prepaid ARPU increased 9.7% to R68 per month, driven by the introduction of more
affordable products and lower denomination vouchers. Yebo4Less, the dynamically
priced prepaid product, attracted 4.8 million customers, representing 20.4% of
the prepaid customer base. Contract customer ARPU was 2.5% lower at R474 per
month due to the growth in low-end hybrid contract customers and customers not
exceeding their bundles.
Vodacom SA extended its leading position in data and broadband services with
year-on-year data revenue growth of 27.9% to R6.0 billion. Data revenue from
connectivity and usage (excluding messaging revenue) increased by 69.3%, largely
as a result of the 80.0% increase in broadband customers to 720 000 at year end.
The introduction of Mobile Internet in June 2008, which makes accessing the
internet easier and cheaper, substantially increased the number of customers
accessing the internet via their mobile phones to nearly 5 million. In February
2009, Vodafone Connect via the Phone was launched, which enables customers to
use a 3G phone as a modem to access the internet from their PCs or laptops.
Despite the increase in costs as a result of the depreciation of the rand, the
BBBEE transaction expenses and the costs related to establishing Vodacom
Business, EBITDA margins were relatively flat at 34.2% compared to 34.5% in the
prior year.
Vodacom SA`s capital expenditure of R4.6 billion includes the investment in the
radio access network, which is expected to be more cost efficient and improve
network coverage. 316 2G and 322 3G base transceiver stations were rolled out
during the year, bringing the total number of 2G sites to 7 481 and 3G sites to
2 880. A new WiMAX network was deployed on behalf of WBS consisting of 141 sites
at the year end. The programme to self-provide transmission capacity is well on
track in South Africa, with eight of the 11 fibre rings planned nationally for
metropolitan areas completed in the year. Agreement has been reached for the
construction of a national long-distance fibre network jointly with MTN and
Neotel.
On the regulatory front, the Electronic Communications Act was finalised, with
ICASA issuing licences in January 2009 to approximately 350 individual ECS and
ECNS licensees. The final license fee regulations were published in March 2009,
setting the fee at 1.5% of gross profit effective 1 April 2009. The RICA act was
signed into law by the President in January 2009, with implementation expected
in the latter part of 2009.
Vodacom SA`s 6.25% BBBEE transaction, together with the progress made in skills
development and preferential procurement have resulted in an improved BBBEE
rating to Level 4 based on the DTI BBBEE Codes.
International
The international operations continued to record strong customer growth, up
30.7% to 12.0 million in the year, which lifted revenue by 29.9%. The growth in
customers was driven by the launch of new products and services, aggressive
sales and marketing campaigns, and enhanced network coverage.
Gross connections were 32.9% higher at 7.9 million. Churn remained relatively
constant at 48.1% for the year, contained by various loyalty programmes such as
Tuzo Points and Tuzo Draw in Tanzania. ARPU in local currency declined in most
of the international operations due to the growth in lower-usage customers, the
impact on disposable income of the economic conditions and competitive pressure
on tariffs, which has taken the form of various discounted airtime and free on-
net call promotions by competitors.
Following the successful launch of M-PESA by Vodafone`s affiliate, Safaricom, in
Kenya, Vodacom has this year launched a similar mobile money transfer product in
Tanzania. With over 250 000 customers already registered for the service,
Vodacom has appointed over 835 agents to facilitate the registration of
customers and to support cash-in and cash-out activities. The target is to have
over 2 000 agents appointed within the next financial year.
The international EBITDA margin declined from 28.7% to 26.2% due to the lower
DRC profitability. EBITDA margins increased in all the other international
operations.
Capital expenditure of R2 406 million was primarily allocated to expanding
coverage, with more than 400 new base stations added during the year in the four
countries. The largest share of this investment was made in Tanzania.
Gateway
In the quarter ended 31 March 2009, Gateway achieved revenue of R808 million and
EBITDA of R100 million, with its largest market Nigeria growing 43.5% year on
year. Gateway`s network footprint was strengthened during the period with the
opening of two new offices in Kenya and Uganda. IPJetDirect, a new service
offering for mobile operators, was launched to provide high speed, low-latency
internet connectivity. Progress has been made in identifying synergies with
Vodacom, specifically in international voice and carrier data services. In April
2009, Gateway was awarded "Satellite Service Provider of the Year" at the SatCom
Star Awards 2009.
Shareholder distributions
Dividends declared for the year ended 31 March 2009 totalled R5 200 million,
compared to R5 940 million in the prior year. The final dividend for the year of
R2 200 million was paid on 8 April 2009. As a private company, Vodacom Group has
historically paid a dividend equal to approximately all of its free cash flow on
a semi-annual basis. As a publicly listed entity and for the financial year
ending 31 March 2010, Vodacom Group anticipates a dividend payout ratio of
approximately 40% of headline earnings. The first dividend is expected to be the
interim dividend for the 2010 financial year.
Outlook
In South Africa lower interest rates, inflation and fuel prices have provided
some relief to consumers. However, the deterioration in global macroeconomic
conditions is expected to deepen further the negative impact on the business
segment as well as result in increased unemployment. As customers continue to
contain their spending, the Group will seek to offer them greater value. To
further mitigate the pressure on top-line growth and preserve margins, greater
operational efficiencies will be driven across the business.
Trading conditions are expected to remain challenging for the international
operations, with economic weakness persisting particularly in the DRC and
aggressive competition in all the markets. Vodacom will ensure it remains
competitive and efficient to mitigate the pressures.
Vodacom Group will continue to invest to position the Group for growth in the
sub-Saharan African communications markets, which remain among the fastest
growing in the world. Vodacom Group`s capital expenditure is expected to be R8.0
billion for the year ended 31 March 2010. The Group`s strong cash flow and
balance sheet will provide the flexibility both to invest prudently in strategic
growth opportunities and to return cash to shareholders on a sustainable basis.
For and on behalf of the board
Pieter Uys Johan van der Watt
Chief Executive Officer Acting Chief Financial Officer
19 May 2009
Midrand
Corporate Information
VODACOM GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration No. 1993/005461/06
(ISIN: ZAE000132577 Share Code:VOD)
("Vodacom")
Directors
MP Moyo (Chairman), PJ Uys (CEO), MS Aziz Joosub, TA Boardman, M Joseph1, M
Lundal2, JCG Maclaurin3, P Malabie, TM Mokgosi-Mwantembe, RAW Schellekens4, RC
Snow3, J van der Watt
Alternate directors
TJ Harrabin, HM Mahmoud5
1 American 2 Norwegian 3 British 4 Dutch 5 Egyptian
Company Secretary: Sandi Linford
Registered Office
Vodacom Corporate Park, 082 Vodacom Boulevard,
Vodavalley, Midrand 1685
(Private Bag X9904, Sandton 2146)
Transfer secretary
Computershare Investor Services (Pty) Limited
(Registration number: 2004/003647/07)
70 Marshall Street, Johannesburg 2001
(PO Box 61051, Marshalltown 2107)
Detailed results available on www.vodacom.com
Sponsor: UBS South Africa (Pty) Ltd
Date: 19/05/2009 08:00:01 Produced by the JSE SENS Department.
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