Vodacom posts slight rise in earnings that shows muted growth, data continues upward trend

 

Vodacom on Monday posted a slight rise in earnings for the year to end-March 2016, boosted by mobile data usage but the mobile phone operator’s performance is not demonstrating consistent growth. By Gugu Lourie

The mobile phone operator, owned by British cellular giant Vodafone, reported a fairly muted 2.7% rise in headline earnings per share (EPS) to 883 cents for the year to end March 2016, negatively impacted by remeasurement of foreign currency denominated intergroup loans and one-off BEE charges. Headline EPS is the main profit gauge in South Africa.

At home in South Africa, Vodacom EBITDA growth was negatively hit by a R531million foreign exchange gain, which was offset by a one-off BEE charge of R127 million included in the staff expenses and a R308 million voucher release in the previous year.

The group revenue rose 7.5% to R80 billion and South Africa accounts for R63 billion of this total revenue, putting more pressure on Vodacom to find ways to diversify its income stream.

Vodacom operate mobile phone units in South Africa, Mozambique, the Democratic Republic of Congo (DRC), Tanzania and Lesotho, while its enterprise business’s footprint spans a number of African countries.

The year ahead is to remain tough and the telco is likely to deliver muted earnings for the next three financial years.

The company on Monday informed investors that it expect the performance in its markets to remain highly competitive and regulatory and macroeconomic risks to persist.

Vodacom warned that the challenges in South Africa’s macro environment will continue to keep customer spend under pressure.

“In our International operations, customer registration will continue to have a dampening effect on customer growth. Volatile currency rates will have further impact on these operations. Although not immune to these risks, we believe that through the execution of our strategies, we will continue to show resilience in all our operations,” the company said.

“Due to these expected challenges, Vodacom has revised its medium-term targets upwards-to-low to mid-single digit group service revenue growth, mid to high single digit group EBITDA growth and group capital expenditure of 12 – 14% of group revenue over the next three years”.

Vodacom added that the targets are on average, over the next three years and are presented on a normalised basis, and exclude any possible acquisitions and spectrum purchases.

Vodacom is interested in buying state-owned entity Broadband Infraco after talks to buy Neotel collapsed. It is also anticipating that the country’s regulator will in the financial year auction much-needed spectrum to deliver broadband.

That said, Vodacom’s growth engine – data usage continues to lift up the company’s performance. Vodacom South Africa’s data revenue was up 27.7% to R17.3 billion, driven by improved access to more affordable devices and increased data coverage.

The smart devices on its South African network increased 22.8% to 14.1 million, driven by its low-cost branded smartphones. It also saw the number of active data users on the network increased 12.7% to 18.7 million customers.

“Our compelling data offers through Just 4 You – this propelled growth in data bundle sales by 85.9% with average monthly data usage increasing 49.8% to 350MB per customer; we continue to see good ARPU growth with customers migrating from 2G to 3G and 3G to 4G, growing by 20.5% and 19.7% respectively,” the company said.

Vodacom data revenue in its international operations grew 31.9%, supported by an increase of 73.1% in data traffic and 1.8% in active data customers to 10.1 million, reflecting strong demand for mobile data services in all our markets.

But customers in its international operations dropped 8.1% to 27.1 million, largely due to the customer registration requirements in DRC and Mozambique.  Vodacom said in the DRC, the Government ordered all unregistered customers to be disconnected in December 2015.

The company explains, “Vodacom has suspended customers with no registration records and communicated to such customers the requirement to register to avoid disconnection. In Mozambique, there has been a phased suspension since November 2015 and a disconnection programme for unregistered customers agreed by the Government and operators”.

Going forward, Vodacom is planning to grow its fire to the home and fibre to the business, accelerating data growth, while expanding on other services such as M-Pesa, insurance and the Internet of things.

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