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TKG
TKG
Telkom - Vodacom Group (Proprietary) Limited group Results
Telkom SA Limited
(Registration Number 1991/005476/06)
ISIN ZAE000044897
JSE and NYSE Share Code TKG
("Telkom" or "Company")
Telkom SA Limited (TKG): Vodacom Group (Proprietary) Limited group Results
for the year ended March 31, 2006
Highlights
Total customers increased by 51.9% to 23.5 million
* Customers increased by 49.3% in South Africa to 19.2 million
* Customers increased by 74.1% in Tanzania to 2.1 million
* Customers increased by 52.2% in the Democratic Republic of Congo to 1.6
million
* Customers increased by 40.1% in Lesotho to 206,000
* Customers increased by 84.9% in Mozambique to 490,000
South Africa market share increased by 2% points to 58%
Revenue increased by 24.6% to R34.0 billion
Profit from operations increased by 36.9% to R8.9 billion
EBITDA increased by 23.1% to R11.8 billion
Net profit after taxation increased by 32.0% to R5.1 billion
Cash generated from operations increased by 10.8% to R11.1 billion
Dividends increased by 32.4% to R4.5 billion
Total customers graph
Profit from operations graph
Commentary
Vodacom Group (Proprietary) Limited, South Africa"s market leader in the
provision of cellular services announces its results for the year ended March
31, 2006.
SOUTH AFRICA
Customers
The South African customer base increased by 49.3% to 19.2 million (2005: 12.8
million) for the year ended March 31, 2006. The increase was driven by the
exceptional growth in the prepaid market although excellent growth was also
achieved in the contract market. The number of prepaid customers increased by
53.3% to 16.8 million, while the number of contract customers increased by 26.2%
to 2.4 million. The strong growth in customers was a direct result of the
remarkable number of gross connections achieved, coupled with decreased churn.
ARPU
Prepaid services have been the driving force behind market penetration in South
Africa and contributed 92.1% (2005: 90.1%) to all gross new connections. During
the period under review, ARPU decreased to R139 (2005: R163) per month. The
continued dilution of ARPU is caused by a higher proportion of lower ARPU as
well as lower usage customers being connected to the network. Contract customer
ARPU has decreased by 8.3% to R572 (2005: R624) per month. The main contributing
factor to this decrease has been the high growth in data customers as well as
the low end hybrid, Family Top Up package. The prepaid customer ARPU has
decreased by 11.5% to R69 (2005: R78) per month.
Churn
Vodacom continuously focuses on retention of existing customers and acquisition
of new customers. In 2006, Vodacom maintained a very low contract churn of 10.0%
(2005: 9.1%). The decrease in prepaid churn experienced during the year under
review to 18.8% (2005: 30.3%) is a result of a combination of the introduction
of innovative products and services, loyalty initiatives and changes in business
rules to ensure incentives are paid on factual connections.
Traffic
Total traffic on the network, excluding the impact of national and international
roaming, has shown an increase of 20.0% to 17.1 billion (2005: 14.2 billion)
minutes in 2006. This growth was mainly due to the 49.3% growth in the total
customer base from 12.8 million to 19.2 million as at the end of March 2006.
Also evident was a marked change in customer calling patterns, with total mobile
to mobile traffic increasing by 26.1% while total mobile to fixed and fixed to
mobile traffic increased by only 1.7%.
Regulatory
Light touch regulation by all regulatory bodies have played an important role in
the impressive market penetration achieved in South Africa. Both the Independent
Communications Authority of South Africa ("ICASA") Amendment Bill and the
Electronic Communications Bill ("ECB") (previously known as the Convergence
Bill), have been passed by Parliament in December 2005. The President has
assented to the ECB, but has referred the ICASA Amendment Bill back to
Parliament.
Vodacom made written and oral presentations to Parliament on both bills.
Although not all of Vodacom"s concerns with regard to the ECB were addressed,
the ECB was amended to address Vodacom"s two key concerns, i.e. the
grandfathering of all current licensees" rights and obligations, and the
provisions which dealt with price regulation and other market regulatory
interventions to include due process and proper market studies.
The draft Information and Communication Technology ("ICT") BEE Charter is
expected to be aligned with the Department of Trade and Industry ("DTI") Codes
of Good Practice during July 2006 and to be released for public comment. Vodacom
is committed to comply with the ICT BEE Charter when it is finalised.
ICASA has promulgated the Number Portability Regulations and the industry
implementation date is expected to be in September 2006. The introduction of
this facility could cause a flurry of market activities and it also presents
Vodacom with the opportunity to increase its market share.
The effective date of the Interception of Communication and Communication-
related Information Act ("RICA") was proclaimed at September 30, 2005. The
sections of the interception and monitoring legislation prescribing a customer
registration process comes into effect on June 30, 2006. This cumbersome prepaid
customer registration process will, however, have a significant negative impact
on market penetration.
Market share
Despite strong competition, Vodacom has retained its leadership in the highly
competitive South African mobile communications market with an estimated 58%
(2005: 56%) market share on March 31, 2006. The South African cellular industry
has grown by 44% in the last year and Vodacom has contributed to approximately
63% of this growth. The market penetration of the cellular industry is now an
estimated 71% (2005: 49%) of the population.
OTHER AFRICAN OPERATIONS
Vodacom"s other African operations, which provide a world-class global system
for mobile communications ("GSM") service to millions of customers, are all
faced with continued challenges such as competition from other operators as well
as rigorous regulatory changes. All these operations, with the exception of
Mozambique, showed excellent profit growth for the year ended March 31, 2006.
Vodacom Tanzania achieved exceptional customer and profit growth. The customer
base increased by 74.1% to 2.1 million (2005: 1.2 million) at March 31, 2006.
The Tanzanian market remains highly competitive, but with mobile penetration
estimated at 9.2% of the population, it still promises further growth potential.
Vodacom Tanzania"s market share decreased slightly to 58% (2005: 59%) at March
31, 2006.
Vodacom Congo remains the market leader with an estimated market share of 48%
(2005: 47%) at March 31, 2006. The DRC has the lowest estimated mobile
penetration of all Vodacom"s operations at 5.5% of the population.
Notwithstanding the uncertainties surrounding the planned elections in the
coming year, Vodacom Congo increased its customer base by 52.2% to 1.6 million
(2005: 1.0 million) at March 31, 2006.
Vodacom Lesotho is expected to remain a small operation, but has positioned
itself well to minimise the impact of competitive activity and has maintained
its estimated 80% market share at March 31, 2006. Vodacom Lesotho increased its
customer base by 40.1% to 206,000 (2005: 147,000). Mobile penetration in Lesotho
is now estimated at 12.9%.
Vodacom Mozambique"s estimated market share of 30.0% (2005: 33.0%) has decreased
due to strong competition from the established competitor mCel, despite offering
competitive coverage through an aggressive coverage roll-out programme. Vodacom
Mozambique increased its customer base by 84.9% to 490,000 (2005: 265,000) at
March 31, 2006. Mobile penetration is estimated at 8.4%.
SHAREHOLDER CHANGES
Vodafone increased its effective shareholding in Vodacom from 35% to 50% by
acquiring a 100% shareholding in VenFin Limited, who owns 15% in Vodacom Group
(Proprietary) Limited. This transaction highlighted Vodafone"s major commitment
to Vodacom and the African continent.
FINANCIAL REVIEW
REVENUE
Geographical split
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
South Africa, including holding 21,350 25,041 31,069 17.3 24.1
companies
Tanzania 897 959 1,312 6.9 36.8
DRC1 476 1,075 1,334 125.8 24.1
Lesotho 119 137 170 15.1 24.1
Mozambique 13 103 158 692.3 53.4
Revenue 22,855 27,315 34,043 19.5 24.6
DRC (49%)1 457 - - - -
Adjusted revenue 23,312 27,315 34,043 17.2 24.6
Note:
1. During the year ended March 31, 2004, 51% of Vodacom Congo was proportionally
consolidated in the Group financial statements. Effective April 1, 2004, Vodacom
Congo is being fully consolidated as a subsidiary after certain clauses granting
the outside shareholders participating rights have been removed from the
shareholders" agreement. The adjusted revenue for 2004 reflects 100% of Vodacom
Congo"s revenue for comparative purposes.
Revenue increased by 24.6% to R34.0 billion (2005: R27.3 billion), of which
Vodacom"s other African operations contributed 8.7% (2005: 8.3%). The increase
in revenue was primarily driven by the 51.9% increase in the Group customer base
coupled with a 7.2 percentage point drop in overall churn to 19.6%. Group ARPU
decreased by 16.0% to R127 per month mainly due to the majority of the growth in
the customer base being achieved in prepaid customers and the lower end of the
contract market.
Revenue composition
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
Airtime, connection and 12,738 16,191 20,085 27.1 24.1
access
Data revenue 1,039 1,340 2,038 29.0 52.1
Interconnection 5,785 5,924 6,697 2.4 13.0
Equipment sales 2,275 2,687 3,986 18.1 48.3
International airtime 659 887 971 34.6 9.5
Other sales and services 359 286 266 (20.3) (7.0)
Revenue 22,855 27,315 34,043 19.5 24.6
Airtime, connection and access
Vodacom"s airtime, connection and access revenue increased by 24.1% to R20.1
billion (2005: R16.2 billion) during the year ended March 31, 2006, primarily
due to the increase in the number of customers, offset by declining ARPUs in all
operations.
REVENUE continued
Data revenue - geographical split
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
South Africa 943 1,246 1,886 32.1 51.4
Tanzania 91 74 108 (18.7) 45.9
DRC - 9 25 - 177.8
Lesotho 5 9 16 80.0 77.8
Mozambique - 2 3 - 50.0
Data revenue 1,039 1,340 2,038 29.1 52.1
Vodacom"s data revenue increased by 52.1% to R2.0 billion (2005: R1.3 billion),
mainly due to new data initiatives such as 3G, HSDPA, Vodafone live!, BlackBerry
(R), Mobile TV as well as the popularity of SMS and other data products. Vodacom
South Africa transmitted 3.5 billion (2005:
2.4 billion) SMSs over its network during the year ended March 31, 2006, up
45.5% from 2005. The number of active data users on the South African network as
at March 31, 2006 was: MMS users 867,119 (2005: 328,974); GPRS users 1,386,329
(2005: 579,581); 3G Vodafone Mobile Connect data card users 37,798 (2005:
5,101); 3G active handsets 179,576 (2005: 10,878); Vodafone live! users 351,427;
Unique Mobile TV users 12,903. The contribution to data revenue from other
African operations increased to 7.4% (2005: 7.0%) of total data revenue. Data
revenue now constitutes 7.0% (2005: 5.6%) of service revenue (service revenue
excludes equipment sales, starter pack sales and non-recurring revenue).
Interconnection
During the year, Vodacom"s interconnection revenue increased by 13.0% to R6.7
billion (2005: R5.9 billion), primarily due to the growth in off-net incoming
mobile traffic.
Equipment sales
Vodacom"s revenue from equipment sales increased by 48.3% to R4.0 billion (2005:
R2.7 billion) during the year. In South Africa handset sale volumes increased by
58.3% to 3.8 million (2005: 2.4 million) units. The growth in equipment unit
sales was primarily driven by growth in customer bases, cheaper Rand prices of
new handsets, coupled with added functionality of new phones based on new
technologies.
International airtime
International airtime increased by 9.5% to R971 million (2005: R887 million) for
the year ended March 31, 2006. International airtime revenues comprise
international calls by Vodacom customers, roaming revenue from Vodacom"s
customers making and receiving calls while abroad and revenue from international
customers roaming on Vodacom"s networks.
Other sales and services
Other sales and services decreased by 7.0% to R266 million (2005: R286 million).
Revenue from other sales and services includes income from Vodacom"s cell
captive insurance scheme, wireless application service provider ("WASP")
revenue, site sharing rental income as well as other revenue from non-core
operations.
PROFIT FROM OPERATIONS
Geographical split
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
South Africa, excluding holding 5,272 6,618 8,602 25.5 30.0
companies1
Tanzania 135 183 263 35.6 43.7
DRC2 10 50 117 400.0 134.0
Lesotho 1 25 51 - 104.0
Mozambique (88) (454) (144) (415.9) 68.3
Holding companies (105) 56 (23) 153.3 (141.1)
Profit from operations 5,225 6,478 8,866 24.0 36.9
DRC (49%)2 10 - - - -
Adjusted profit from operations 5,235 6,478 8,866 23.7 36.9
Notes
1. The Group restated lease payments and receipts under operating leases in
order to recognise the expenses and income on a straight-line basis over the
lease terms. The Group previously recognised the expenses and the income based
on the amount paid or payable and received or receivable for each period. The
impact of these restatements is immaterial.
2. During the year ended March 31, 2004, 51% of Vodacom Congo was proportionally
consolidated in the Group financial statements. Effective April 1, 2004, Vodacom
Congo is being fully consolidated as a subsidiary after certain clauses granting
the outside shareholders participating rights have been removed from the
shareholders" agreement. The adjusted profit from operations for 2004 reflects
100% of Vodacom Congo"s profit from operations for comparative purposes.
Profit from operations for the Group increased by 36.9% to R8.9 billion (2005:
R6.5 billion) for the year ended March 31, 2006, fuelled by buoyant consumer
spending and a low inflationary environment in South Africa as well as
successful cost containment in all operations. A healthy increase in on-net
traffic also contributed favourably to profit margins. Operating expenses
increased by 20.8% which was lower than revenue growth of 24.6%. This resulted
in Vodacom"s profit from operations margin increasing to 26.0% (2005: 23.7%).
The profit from operations for the Group was negatively impacted by losses in
Mozambique of R144 million, acquisition costs associated with high levels of
contract customer connections and retentions in South Africa and prepaid
customer connections in all operations.
EBITDA
Geographical split
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
South Africa, excluding holding 7,526 8,995 11,053 19.5 22.9
companies1
Tanzania 278 345 465 24.1 34.8
DRC2 97 252 373 159.8 48.0
Lesotho 27 48 67 77.8 39.6
Mozambique (71) (111) (129) (56.3) (16.2)
Holding companies (100) 61 (20) 161.0 (132.8)
EBITDA 7,757 9,590 11,809 23.6 23.1
DRC (49%)2 93 - - - -
Adjusted EBITDA 7,850 9,590 11,809 22.2 23.1
Notes
1. The Group restated lease payments and receipts under operating leases in
order to recognise the expenses and income on a straight-line basis over the
lease terms. The Group previously recognised the expenses and the income based
on the amount paid or payable and received or receivable for each period. The
impact of these restatements is immaterial.
2. During the year ended March 31, 2004, 51% of Vodacom Congo was proportionally
consolidated in the Group financial statements. Effective April 1, 2004, Vodacom
Congo is being fully consolidated as a subsidiary after certain clauses granting
the outside shareholders participating rights have been removed from the
shareholders" agreement. The adjusted EBITDA for 2004 reflects 100% of Vodacom
Congo"s EBITDA for comparative purposes.
EBITDA increased by 23.1% to R11.8 billion (2005: R9.6 billion) for the year
ended March 31, 2006, with South Africa (including holding companies)
contributing 93.4% and the other African operations contributing 6.6% to EBITDA.
The EBITDA margin decreased to 34.7% (2005: 35.1%). The decline in the EBITDA
margin is primarily the result of the full year impact of the global alliance
fees paid to Vodafone, higher transmission and infrastructure costs as well as
higher call centre costs, especially in South Africa and Tanzania. Vodacom"s
EBITDA margin, adjusted for the impact of the low margin cellular phone and
equipment sales, was 39.9% (2005: 40.1%).
OPERATING EXPENSES
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
Depreciation, impairment and 2,532 3,112 2,943 22.9 (5.4)
amortisation
Payments to other network operators 2,990 3,652 4,634 22.1 26.9
Other direct network operating costs 9,445 10,966 13,663 16.1 24.6
Staff expenses 1,332 1,653 2,042 24.1 23.5
Marketing and advertising 702 767 977 9.3 27.4
General administration expenses 687 751 1,043 9.3 38.9
Other operating income (58) (64) (125) 10.3 95.3
Operating expenses1 17,630 20,837 25,177 18.2 20.8
Note
1. The Group restated lease payments and receipts under operating leases in
order to recognise the expenses and income on a straight-line basis over the
lease terms. The Group previously recognised the expenses and the income based
on the amount paid or payable and received or receivable for each period. The
impact of these restatements is immaterial.
Depreciation, amortisation and impairment
Depreciation, amortisation and impairment decreased by 5.4% to R2.9 billion
(2005: R3.1 billion) in the year ended March 31, 2006. The implementation of IAS
16: Property, Plant and Equipment contributed to the lower depreciation charge
for the period. A portion of Mozambique"s asset impairment of the prior year was
reversed due to an increase in the fair value of infrastructure assets (net
impairment reversal for the year: R53 million).
Payments to other network operators
Payments to other network operators increased by 26.9% to R4.6 billion (2005:
R3.7 billion) in 2006 as a result of an increased amount of outgoing traffic
terminating on other cellular networks, rather than on fixed-line networks.
Other direct network operating costs
Other direct network operating costs increased by 24.6% to R13.7 billion (2005:
R11.0 billion) in the year ended March 31, 2006. Other direct network operating
costs include the cost to connect customers onto the network as well as other
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 costs as well as site and maintenance costs.
Staff expenses
Staff expenses increased by 23.5% in the year ended March 31, 2006 to R2.0
billion (2005: R1.7 billion), primarily as a result of an increase in headcount
of 9.3% to 5,459 (2005: 4,993) employees in 2006, to support the growth in
operations, an increase in the provision for Vodacom"s bonus schemes due to
increased profits, the first time provision for long-term incentives payable to
executives as well as annual salary increases. Employee productivity has
improved in all of Vodacom"s operations, as measured by customers per employee,
improving by 38.9% to 4,308 (2005: 3,101) customers per employee.
Marketing and advertising
Marketing and advertising expenses increased by 27.4% in 2006 to R977 million
(2005: R767 million), mainly driven by new technologies and enhancing brand
presence in all operations.
General administration expenses
General administration expenses increased by 38.9% to R1.0 billion (2005: R751
million), where the increase was primarily as a result of the customer care
centre solutions and various other increases due to the growth in the business.
General administration expenses comprise expenses such as accommodation,
information technology costs, office administration, consultant expenses, social
economic investment and insurance.
Other operating income
Other operating income increased by 95.3% to R125 million (2005: R64 million).
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 and franchise fees received.
CAPITAL EXPENDITURE ("CAPEX")
Capital expenditure additions - geographical split
Rand millions % change
Year ended March 31 2004 2005 2006 05/04 06/05
South Africa, excluding holding 1,654 2,777 4,384 67.9 57.9
companies
Tanzania 351 234 318 (33.3) 35.9
DRC1 395 335 273 (15.2) (18.5)
Lesotho 7 10 26 42.9 160.0
Mozambique 478 115 121 (75.9) 5.2
Holding companies 6 23 16 283.3 (30.4)
Capital expenditure for the year 2,891 3,494 5,138 20.9 47.1
DRC (49%)1 380 - - - -
Adjusted capital expenditure 3,271 3,494 5,138 6.8 47.1
Note
1. During the year ended March 31, 2004, 51% of Vodacom Congo was proportionally
consolidated in the Group financial statements. Effective April 1, 2004, Vodacom
Congo is being fully consolidated as a subsidiary after certain clauses granting
the outside shareholders participating rights have been removed from the
shareholders" agreement. The adjusted capital expenditure for 2004 reflects 100%
of Vodacom Congo"s capital expenditure for comparative purposes.
Cumulative capital expenditure - geographical split
2005 2006
Year ended March 31 R Foreign R Foreign
billions billions
South Africa (R billions) 20.3 - 24.1 -
Tanzania (TSH billions) 1.4 240.1 1.5 297.6
DRC1 (US$ millions) 1.8 281.0 2.0 323.1
Lesotho (Maloti millions) 0.2 211.0 0.2 225.0
Mozambique (MZM billions) 0.7 2,173.7 0.6 2,644.6
Holding companies (R billions) - - 0.1 -
Cumulative capital expenditure 24.4 - 28.5 -
The total cumulative capital expenditure of the Group at March 31, 2006
increased by 16.8% to R28.5 billion (2005: R24.4 billion). The Group invested
R5.1 billion (2005: R3.5 billion) in property, plant and equipment and computer
software for 2006, of which R4.2 billion (2005: R2.8 billion) was for cellular
network infrastructure (excluding software).
It is Vodacom"s policy to hedge all foreign denominated commitments of South
African operations. 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 other 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.
FUNDING
Vodacom"s net debt position has increased to R709 million (2005: R426 million)
as at March 31, 2006. The Group"s net debt to EBITDA ratio was 6.0% (2005: 4.4%)
while Vodacom"s net debt to equity ratio increased to 8.2% (2005: 5.4%).
However, the final dividend of R2.8 billion, which was paid on April 5, 2006,
should be taken into account when evaluating the net debt to equity ratio. In
addition, in terms of covenant calculations, intangible assets are excluded from
the calculation. If the shareholders for dividends is included and intangible
assets are excluded from the calculation, the net debt to equity ratio at March
31, 2006, increased to 45.9% (2005: 32.0%).
FUNDING continued
Summary of net debt and maturity profile
Rand millions Repayment of 2006 debt
Year ended 2005 2006 2007 200 2009 2010 2011 2012
8
March 31 onwards
Finance leases
South Africa 858 808 79 114 192 99 162 162
Funding loans
Vodacom
Tanzania 369 275 184 - - - - 91
shareholder and
project finance
loans
Vodacom Congo
medium term 1,129 1,114 1,114 - - - - -
loan
Vodacom Congo 232 229 229 - - - - -
preference
share liability
Vodacom Lesotho
minority 4 4 4 - - - - -
shareholders"
loan
Other 7 39 39 - - - - -
Debt excluding 2,599 2,469 1,649 114 192 99 162 253
bank overdrafts
Bank overdrafts 1,817 1,386
Gross debt 4,416 3,855
Bank and cash (3,990) (3,146)
balances
Net debt 426 709
EFFECTIVE TAX RATE
Vodacom"s effective tax rate decreased to 37.5% (2005: 40.2%) primarily as a
result of the reduction in the statutory South African tax rate of 1.0% to 29.0%
(2005: 30.0%), as well as no additional Mozambique impairments being raised in
the current period for which no deferred taxation asset was recognised.
Secondary taxation on companies ("STC") increased Vodacom"s effective tax rate
by 6.9% (2005: 6.6%).
SHAREHOLDER DISTRIBUTIONS
Dividends declared for the 2006 financial year totalled R4.5 billion (2005: R3.4
billion), an increase of 32.4%. The final dividend of R2.8 billion was paid on
April 5, 2006.
CONCLUSION
Vodacom has performed well in an evolving and competitive African market. The
South African market continues its robust trend and management believes that the
market is far from being saturated. The strong cash generation ability of
Vodacom"s South African operations ensured a healthy consolidated balance sheet,
despite substantial dividend payouts. In South Africa, Vodacom intends to
strategically position itself to negate the impact of the pending deregulation
of the South African market and plans to seize any emerging opportunities. With
its strong brand and strong balance sheet, the Group is well positioned to
remain the leading player in the main markets in which it operates.
Affordability is the key to market penetration in all markets and Vodacom will
continue to re-evaluate its tariffs and introduce innovative products to
stimulate demand. In an ever-changing economic and regulatory environment,
Vodacom is well positioned to maintain and even improve its current market
leadership.
Adv OA Mabandla
Non-executive Chairman
ADC Knott-Craig
Chief Executive Officer
Segment key operational indicators
SOUTH AFRICA
Consolidated key operational indicators (Vodacom South Africa, Smartcall,
Smartcom and Cointel)
Year ended March 31 % change
2004 2005 2006 05/04 06/05
Customers (`000)1 9,725 12,838 19,162 32.0 49.3
Contract 1,420 1,872 2,362 31.8 26.2
Prepaid 8,282 10,941 16,770 32.1 53.3
Community services 23 25 30 8.7 20.0
Gross connections (`000) 4,998 6,180 9,140 23.6 47.9
Contract 377 610 702 61.8 15.1
Prepaid 4,617 5,566 8,422 20.6 51.3
Community services 4 4 16 - 400.0
Inactives (3 months - %) n/a 7.9 8.7 n/a 0.8
Contract n/a 1.5 2.4 n/a 0.9
Prepaid n/a 9.0 9.6 n/a 0.6
Total churn (%)2 36.6 27.1 17.7 (9.5) (9.4)
Contract 10.1 9.1 10.0 (1.0) 0.9
Prepaid 41.3 30.3 18.8 (11.0) (11.5)
Traffic (millions of minutes)3 12,172 14,218 17,066 16.8 20.0
Outgoing 7,647 9,231 11,354 20.7 23.0
Incoming 4,525 4,987 5,712 10.2 14.5
ARPU (Rand per month)4 177 163 139 (7.9) (14.7)
Contract 634 624 572 (1.6) (8.3)
Prepaid 90 78 69 (13.3) (11.5)
Community services 2,155 2,321 1,796 7.7 (22.6)
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. Traffic for 2005 was restated to exclude packet switch data traffic.
4. ARPU is calculated by dividing the average monthly revenue during the period
by the average monthly total reported customer base during the period. ARPU
excludes revenues from equipment sales, other sales and services and revenues
from national and international users roaming on Vodacom"s networks.
SOUTH AFRICA continued
Consolidated key operational indicators (Vodacom South Africa, Smartcall,
Smartcom and Cointel)
Year ended March 31 % change
2004 2005 2006 05/04 06/05
Minutes of use per month5 96 84 74 (12.5) (11.9)
Contract 263 226 206 (14.1) (8.8)
Prepaid 56 52 49 (7.1) (5.8)
Community services 3,061 3,185 2,327 4.1 (26.9)
South Africa cumulative 18,132 20,358 24,095 12.3 18.4
capex6
Vodacom South Africa 18,101 20,308 24,035 12.2 18.4
Other 31 50 60 61.3 20.0
Capex per customer (Rand) 1,720 1,515 1,257 (13.5) (17.0)
Number of employees 3,848 3,954 4,148 2.8 4.9
Vodacom South Africa 3,848 3,809 3,893 (1.0) 2.2
employees
Smartcall and Smartcom - 145 206 - 42.1
employees
Cointel employees - - 49 - -
Customers per employee 2,527 3,247 4,619 28.5 42.3
Market share (%)7 54 56 58 2.0 2.0
Notes
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. Market share is calculated based on Vodacom"s total reported customers and
the estimated total reported customers of MTN and Cell C.
VODACOM TANZANIA
Key indicators
Year ended March 31 % change
2004 2005 2006 05/04 06/05
Customers (`000)1 684 1,201 2,091 75.6 74.1
Contract 5 5 7 - 40.0
Prepaid 676 1,193 2,081 76.5 74.4
Community services 3 3 3 - -
Gross connections (`000) 404 746 1,353 84.7 81.4
Churn (%) 30.0 29.6 28.5 (0.4) (1.1)
ARPU (Rand)2 128 81 67 (36.7) (17.3)
Cumulative capex (Rand 1,146 1,359 1,503 18.6 10.6
millions)
Number of employees3 316 340 438 7.6 28.8
Customers per employee 2,165 3,532 4,774 63.1 35.2
Mobile penetration (%)4 3.3 5.1 9.2 1.8 4.1
Mobile market share (%)4 57 59 58 2.0 (1.0)
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 during the period
by the average monthly total reported customer base during the period. ARPU
excludes contract connection revenue, revenue from equipment sales, other sales
and services and revenue from national and international users roaming on
Vodacom"s networks.
3. Headcount includes secondees.
4. Penetration and market share is calculated based on Vodacom estimates.
VODACOM CONGO
Key indicators (All indicators include 100% of Vodacom Congo)
Year ended March 31 % change
2004 2005 2006 05/04 06/05
Customers (`000)1 670 1,032 1,571 54.0 52.2
Contract 8 10 14 25.0 40.0
Prepaid 653 1,010 1,538 54.7 52.3
Community services 9 12 19 33.3 58.3
Gross connections (`000) 513 565 892 10.1 57.9
Churn (%) 20.2 23.1 28.1 2.9 5.0
ARPU (Rand)2 150 98 86 (34.7) (12.2)
Cumulative capex (Rand 1,432 1,759 2,000 22.8 13.7
millions)
Number of employees3 334 527 479 57.8 (9.1)
Customers per employee 2,006 1,958 3,279 (2.4) 67.5
Mobile penetration (%)4 2.3 3.5 5.5 1.2 2.0
Mobile market share (%)4 47 47 48 - 1.0
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 during the period
by the average monthly total reported customer base during the period. ARPU
excludes contract connection revenue, revenue from equipment sales, other sales
and services and revenue from national and international users roaming on
Vodacom"s networks.
3. Headcount includes secondees.
4. Penetration and market share is calculated based on Vodacom estimates.
VODACOM LESOTHO
Key indicators
Year ended March 31 % change
2004 2005 2006 05/04 06/05
Customers (`000)1 80 147 206 83.8 40.1
Contract 3 4 3 33.3 (25.0)
Prepaid 76 142 200 86.8 40.8
Community services 1 1 3 - 200.0
Gross connections (`000) 51 70 98 37.3 40.0
Churn (%) 65.1 17.3 22.3 (47.8) 5.0
ARPU (Rand)2 125 92 78 (26.4) (15.2)
Cumulative capex (Rand 201 211 225 5.0 6.6
millions)
Number of employees3 68 63 67 (7.4) 6.3
Customers per employee 1,176 2,333 3,071 98.4 31.6
Mobile penetration (%)4 5.1 7.4 12.9 2.3 5.5
Market share (%)4 80 80 80 - -
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 during the period
by the average monthly total reported customer base during the period. ARPU
excludes contract connection revenue, revenue from equipment sales, other sales
and services and revenue from national and international users roaming on
Vodacom"s networks.
3. Headcount includes secondees.
4. Penetration and market share is calculated based on Vodacom estimates.
VODACOM MOZAMBIQUE
Key indicators
Year ended March 31 % change
2004 2005 2006 05/04 06/05
Customers (`000)1 58 265 490 356.9 84.9
Contract 1 4 8 300.0 100.0
Prepaid 57 261 482 357.9 84.7
Gross connections (`000) 58 225 342 287.9 52.0
Churn (%) 0.3 11.3 32.2 11.0 20.9
ARPU (Rand)2 110 52 36 (52.7) (30.8)
Cumulative capex (Rand 478 696 605 45.6 (13.1)
millions)
Number of employees3 43 109 170 153.5 56.0
Customers per employee 1,349 2,431 2,885 80.2 18.7
Mobile penetration (%)4 2.6 4.2 8.4 1.6 4.2
Mobile market share (%)4 11 33 30 22.0 (3.0)
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 during the period
by the average monthly total reported customer base during the period. ARPU
excludes contract connection revenue, revenue from equipment sales, other sales
and services and revenue from national and international users roaming on
Vodacom"s networks.
3. Headcount includes secondees.
4. Penetration and market share is calculated based on Vodacom estimates.
Consolidated income statements
for the three years ended March 31, 2006
2004 2005 2006
Restated Restated
Rm Rm Rm
Revenue 22,855.2 27,315.3 34,042.5
Other operating income 57.6 63.8 125.1
Direct network operating cost (12,435.1) (14,617.8) (18,297.2)
Depreciation (2,316.9) (2,413.6) (2,651.6)
Staff expenses (1,331.6) (1,652.9) (2,042.1)
Marketing and advertising expenses (702.0) (767.3) (976.9)
General administration expenses (687.2) (751.3) (1,042.7)
Amortisation of intangible assets (214.8) (429.6) (344.2)
Impairment of assets - (268.4) 52.8
Profit from operations 5,225.2 6,478.2 8,865.7
Interest, dividends and other 656.6 662.8 659.3
financial income
Finance costs (1,107.5) (641.7) (1,318.2)
Profit before taxation 4,774.3 6,499.3 8,206.8
Taxation (1,722.0) (2,613.0) (3,077.8)
Net profit 3,052.3 3,886.3 5,129.0
Attributable to:
Equity shareholders 3,026.1 3,855.5 5,012.3
Minority interests 26.2 30.8 116.7
2004 2005 2006
R R R
Basic and diluted earnings per share 302,610 385,550 501,230
Dividend per share 210,000 340,000 450,000
Consolidated balance sheets
as at March 31, 2006
2004 2005 2006
Restated Restated
Rm Rm Rm
ASSETS
Non-current assets 12,851.3 13,888.4 16,079.2
Property, plant and equipment 10,912.5 11,576.9 13,386.6
Investment properties 9.9 - -
Intangible assets 1,002.7 1,644.3 1,954.9
Financial assets 222.4 93.3 92.1
Deferred taxation 277.8 308.1 297.6
Deferred cost 403.8 236.9 311.2
Lease assets 22.2 28.9 36.8
Current assets 7,322.7 8,706.4 8,688.6
Deferred cost 859.8 428.3 451.8
Short-term financial assets 354.3 187.1 149.3
Inventory 288.5 479.5 454.3
Trade and other receivables 3,450.0 3,621.4 4,487.1
Cash and cash equivalents 2,370.1 3,990.1 3,146.1
Total assets 20,174.0 22,594.8 24,767.8
EQUITY AND LIABILITIES
Equity 7,604.2 7,887.9 8,672.3
Ordinary share capital * * *
Retained earnings 7,836.1 8,057.2 8,567.3
Non-distributable reserves (324.9) (298.0) (178.3)
Minority interests 93.0 128.7 283.3
Non-current liabilities 2,317.5 3,233.1 2,236.6
Interest bearing debt 1,216.6 2,213.5 819.2
Deferred taxation 410.1 472.1 602.3
Deferred revenue 403.8 240.7 320.3
Provisions 178.4 184.4 372.3
Operating lease liabilities 108.6 122.4 122.5
Current liabilities 10,252.3 11,473.8 13,858.9
Trade and other payables 3,862.1 4,830.8 5,104.7
Deferred revenue 1,883.4 1,411.4 1,604.5
Taxation payable 852.0 632.6 630.2
Non-interest bearing debt 4.3 4.3 4.3
Short-term interest bearing debt 839.9 381.6 1,645.5
Short-term provisions 473.7 595.0 623.0
Dividends payable 1,500.0 1,800.0 2,800.0
Derivative financial liabilities 64.5 1.0 60.9
Bank borrowings 772.4 1,817.1 1,385.8
Total equity and liabilities 20,174.0 22,594.8 24,767.8
* Amounts less than R50 000.
Consolidated statements of changes in equity
for the three years ended March 31, 2006
Attributable to equity
shareholders
Share Retained Non- Total Minorit Total
capita earnings distribu y equity
l table interes
reserves ts
Rm Rm Rm Rm Rm Rm
Balance at
March 31, 2003
- previously * 6,962.8 (141.0) 6,821.8 88.0 6,909.8
reported
Changes in - (53.6) - (53.6) - (53.6)
accounting
policies,
reclassificatio
ns and
restatements
Balance at
March 31, 2003
- restated * 6,909.2 (141.0) 6,768.2 88.0 6,856.2
Net profit - 3,026.1 - 3,026.1 26.2 3,052.3
for the year
Dividends - (2,100.0) - (2,100.0) - (2,100.0)
declared
Contingency - 0.8 (0.8) - - -
reserve
Net gains and
losses not
recognised in
the
consolidated
income
statement
Foreign - - (194.0) (194.0) (21.2) (215.2)
currency
translation
reserve
Foreign
currency
translation
reserve
- deferred - - 10.9 10.9 - 10.9
taxation
Balance at
March 31, 2004
- restated * 7,836.1 (324.9) 7,511.2 93.0 7,604.2
Net profit - 3,855.5 - 3,855.5 30.8 3,886.3
for the year
Dividends - (3,400.0) - (3,400.0) (3.8) (3,403.8)
declared
Contingency - (1.0) 1.0 - - -
reserve
Acquired - (233.4) 82.1 (151.3) - (151.3)
reserves from
the minorities
of Vodacom
Congo (RDC)
s.p.r.l.
Acquisition - - - - 10.1 10.1
of subsidiary
Revaluation - - 0.2 0.2 0.1 0.3
of available-
for-sale
investments
Net gains and
losses not
recognised in
the
consolidated
income
statement
Foreign - - (56.4) (56.4) (1.5) (57.9)
currency
translation
reserve
Balance at
March 31, 2005
- restated * 8,057.2 (298.0) 7,759.2 128.7 7,887.9
Net profit - 5,012.3 - 5,012.3 116.7 5,129.0
for the year
Dividends - (4,500.0) - (4,500.0) (0.9) (4,500.9)
declared
Contingency - (2.2) 2.2 - - -
reserve
Acquisition - - - - 46.5 46.5
of subsidiary
Minority - - - - 8.0 8.0
share of VM,
S.A.R.L.
Revaluation - - (0.2) (0.2) (0.1) (0.3)
of available-
for-sale
investments
Net gains and
losses not
recognized in
the
consolidated
income
statement
Foreign - - 117.7 117.7 (15.6) 102.1
currency
translation
reserve
Balance at * 8,567.3 (178.3) 8,389.0 283.3 8,672.3
March 31, 2006
* Amounts less
than R50 000.
Consolidated cash flow statements
for the three years ended March 31, 2006
2004 2005 2006
Restated Restated
Rm Rm Rm
Cash flow from operating activities
Cash receipts from customers 22,175.5 27,078.8 33,132.7
Cash paid to suppliers and (14,578.8) (17,066.8) (22,042.4)
employees
Cash generated from operations 7,596.7 10,012.0 11,090.3
Finance costs paid (512.3) (259.2) (446.4)
Interest, dividends and other 368.7 246.8 338.6
financial income received
Taxation paid (1,463.3) (2,744.4) (2,980.3)
Dividends paid - equity (1,200.0) (3,100.0) (3,500.0)
shareholders
Dividends paid - minority - (5.2) (0.9)
shareholders
Net cash flows from operating 4,789.8 4,150.0 4,501.3
activities
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and (2,813.8) (3,048.0) (4,346.3)
equipment
Proceeds on disposal of property, 5.0 20.1 29.6
plant and equipment
Acquisition of intangible assets (121.1) (205.4) (442.1)
Proceeds on disposal of intangible - - 1.6
assets
Acquisition of subsidiaries 149.6 (289.8) (0.4)
Change in business combinations - - 0.3
Acquired cash from Vodacom Congo - 12.9 -
(RDC) s.p.r.l.
Other investing activities (219.5) 136.0 (33.5)
Net cash flows utilised in investing (2,999.8) (3,374.2) (4,790.8)
activities
CASH FLOW FROM FINANCING ACTIVITIES
Shareholder loans repaid (920.0) - -
Interest bearing debt incurred 186.9 1,165.3 32.3
Interest bearing debt repaid (55.6) (1,332.3) (89.7)
Finance lease capital repaid (9.6) (28.1) (50.2)
Net cash flows utilised in financing (798.3) (195.1) (107.6)
activities
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS 991.7 580.7 (397.1)
Cash and cash equivalents at the 647.5 1,597.7 2,173.0
beginning of the year
Effect of foreign exchange rate (41.5) (5.4) (15.6)
changes
CASH AND CASH EQUIVALENTS AT THE
END OF THE YEAR 1,597.7 2,173.0 1,760.3
Disclaimer
This report has been prepared and published by Vodacom Group (Proprietary)
Limited.
Vodacom Group (Proprietary) Limited is a private company and as such is not
required by the Companies Act 61 of 1973, as amended, to publish its results.
Vodacom Group (Proprietary) Limited makes no guarantee, assurance,
representation and/or warranty as to the accuracy of the information contained
in this report and will not be held liable for any reliance placed on the
information contained in this report.
The information contained in this report is subject to change without notice and
may be incomplete or condensed. In addition, this report may not contain all
material information pertaining to Vodacom Group (Proprietary) Limited and its
subsidiaries.
Without in any way derogating from the generality of the aforegoing, it should
be noted that:
* Many of the statements included in this report are forward-looking
statements that involve risks and/or uncertainties and caution must be
exercised in placing any reliance on these statements. Moreover, Vodacom
Group (Proprietary) Limited will not necessarily update any of these
statements after the date of this report either to conform them to actual
results or to changes in our expectations.
* Insofar as the shareholders of Vodacom Group (Proprietary) Limited 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 (Proprietary) Limited"s shareholders are cautioned not to
place undue reliance on this report.
Special note regarding forward-looking statements
All of the statements included in this document, as well as oral statements
that may be made by us or by officers, directors or employees acting on behalf
of us, that are not statements of historical facts constitute or are based on
forward looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995, specifically Section 27A of the U.S. Securities
Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act
of 1934, as amended. These forward looking statements involve a number of
known and unknown risks, uncertainties and other factors that could cause our
actual results and outcomes to be materially different from historical results
or from any future results expressed or implied by such forward looking
statements. Among the factors that could cause our actual results or outcomes
to differ materially from our expectations are those risks identified in Item
3. "Key Information-Risk Factors," of Telkom"s most recent Annual Report on
Form 20-F filed with the US Securities and Exchange Commission (SEC) and its
other filings and submissions with the SEC, including, but not limited to,
increased competition in the South African fixed-line and mobile
communications markets; developments in the regulatory environment; continued
mobile growth and reductions in Vodacom"s and Telkom"s net interconnect
margins; Vodacom"s and Telkom"s ability to expand their operations and make
investments in other African countries and the general economic, political,
social and legal conditions in South Africa and in other countries where
Vodacom and Telkom invest; our ability to attract and retain key personnel;
our inability to appoint a majority of Vodacom"s directors and the consensus
approval rights at Vodacom may limit our flexibility and ability to implement
our preferred strategies; Vodacom"s continued payment of dividends or
distributions to us; our ability to improve and maintain our management
information and other systems; our negative working capital; changes and
delays in the implementation of new technologies; our ability to reduce theft,
vandalism, network and payphone fraud and lost revenue to non-licensed
operators; our ability to improve our internal control over financial
reporting; health risks to related mobile handsets, base stations and
associated equipment; our control by the Government of the Republic of South
Africa; the outcome of regulatory, legal and arbitration proceedings,
including tariff approvals, and the outcome of Telkom"s hearing before the
Competition Commission related to the VANs litigation, its proceedings with
Telcordia Technologies Incorporated and others; our ability to negotiate
favourable terms, rates and conditions for the provision of interconnection
services; our ability to implement and recover the substantial capital and
operational costs associated with carrier pre-selection, number portability
and monitoring and interception; Telkom"s ability to comply with the South
African Public Finance Management Act and South African Public Audit Act and
the impact of the Municipal Property Rates Act; fluctuations in the value of
the Rand; the impact of unemployment, poverty, crime and HIV infection, labour
laws and exchange control restrictions in South Africa; and other matters not
yet known to us or not currently considered material by us.
We caution you not to place undue reliance on these forward looking
statements. All written and oral forward looking statements attributable to
us, or persons acting on our behalf, are qualified in their entirety by these
cautionary statements. Moreover, unless we are required by law to update these
statements, we will not necessarily update any of these statements after the
date hereof, either to confirm them to actual results or to changes in our
expectations.
www.vodacom.com
Date: 05/06/2006 07:10:32 AM Produced by the JSE SENS Department
