Wrap Text
Telkom SA Limited - Vodacom interim results for the six months ended September
30, 2003
Telkom SA Limited
(Registration Number 1991/005476/06)
ISIN ZAE000044897
JSE and NYSE Share Code TKG
("Telkom")
Vodacom interim results for the six months ended September 30, 2003
COMMENTARY
Vodacom Group (Proprietary) Limited ("Vodacom" or "Vodacom Group") (unlisted),
South Africa"s leading mobile communications group, in which Telkom has a 50.0%
holding, announced interim results for the six months ended September 30, 2003.
Revenue increased by 19.6% over the same period last year to R11,296 million
(US$1,592 million). Profit from operations increased 33.4% to R2,451 million
(US$345 million) and net profit after tax and minorities increased 49.7% to
R1,374 million (US$194 million).
Group financial highlights (September 30, 2002 to September 30, 2003)
* Group operating margin increased from 19.5% to 21.7%
* Group EBITDA growth of 22.2% to R3,698 million
* Group EBITDA margin increased from 32.1% to 32.7%
* Group capital expenditure reduced 34.3% to R1,129 million
* Capital expenditure as a percentage of revenue down from 18.2% to 10.0%
* Improved net debt to net tangible assets ratio from 74.9% to 37.4%
* Improved net debt to equity ratio from 66.8% to 34.7%
* Interim dividend paid of R600 million
Operating indicators
* Group total customers increased 25.1% to 9.6 million
* Other African customers increased 98.0% to 1.1 million
* SA gross connections increasing 38.3% to 2.2 million
* SA customers increased 19.5% to 8.5 million
* SA ARPU of R179 per month, down from R181 per month
* SA contract ARPU up 8.3% to R663 per month
* SA contract churn down from 13.2% to 10.8%
* SA prepaid ARPU of R87 per month, down from R88 per month
* SA market share of 55%
GROUP FINANCIAL REVIEW
The recent strengthening of the Rand by 27.3% against the US Dollar from a six-
month average of $=R10.43 in 2002 to $=R7.58 in 2003 had a negative impact on
the translation of the results of Vodacom"s other African operations as well as
having a significant impact on its operations. The rapid growth of start-up
operations in the Democratic Republic of the Congo and increased competition in
all markets in which Vodacom operates, put significant pressure on margins.
However, both consolidated profit from operations and EBITDA margins increased
as Vodacom successfully continued to improve efficiencies, while maintaining
strict financial discipline.
REVENUE
In ZAR millions
Six months ended September 30
2002 2003
(unaudited) (unaudited) % change
South Africa 8,892 10,605 19.3
Tanzania 408 431 5.6
Congo (51%) 95 205 115.8
Lesotho 46 55 19.6
9,441 11,296 19.6
Revenue continued to grow at a healthy pace, increasing by 19.6% to R11,296
million for the six months ended September 30, 2003 (September 30, 2002: R9,441
million). Vodacom"s other African operations grew satisfactorily considering the
stronger Rand, contributing R691 million or 6.1% (September 30, 2002: R549
million or 5.8%) to Group revenues for the six months ended September 30, 2003.
Vodacom Congo, in particular, achieved very strong revenue growth albeit off a
low base, growing revenues by 115.8% to R205 million for the six months ended
September 30, 2003. However, growth was still primarily driven by Vodacom"s
South African operations. The first six months of the financial year has seen
continued growth in the South African mobile cellular industry. Exceptionally
high industry-wide gross connections were driven by low cost deals to prepaid
customers which, in turn, were driven by strong competition between the South
African operators. Vodacom South Africa"s exceptionally low contract churn has
resulted in good net connections. All of these factors worked in concert to
produce strong revenue growth in South Africa of 19.3%, to R10,605 million for
the six months ended September 30, 2003 (September 30, 2002: R8,892 million).
GROUP FINANCIAL REVIEW (CONTINUED)
PROFIT FROM OPERATIONS
In ZAR millions
Six months ended September 30
2002 2003 % change
(unaudited) (unaudited)
South Africa 1,965 2,502 27.3
Tanzania 60 54 (10.0)
Congo (51%) (84) (6) 92.9
Lesotho 1 - -
Holding companies (104) (99) 4.8
1,838 2,451 33.4
Profit from operations margin (%) 19.5 21.7
The forces exercising pressure on operating margins continued this year, namely
increasing interconnect costs, the change in traffic mix and a more competitive
operating environment. In South Africa, as expected, market share reduced to
55%, while competition in all of Vodacom"s other African ventures also
increased. Despite these challenging conditions, Vodacom again proved that it
can maintain its margins. Vodacom"s profit from operations margin increased to
21.7% for the six months ended September 30, 2003, up from 19.5% for the
corresponding six months in 2002. This is promising, since Vodacom"s results
have historically been seasonal, with the second six months of Vodacom"s
financial year delivering stronger results and margins primarily because of the
higher call activity during the December holiday period in South Africa. Vodacom
Tanzania"s profit from operations reduced from the prior six-month period due to
the strengthening of the Rand but in US Dollar terms it increased by 22.4%.
EBITDA
In ZAR millions
Six months ended September 30
2002 2003 % change
(unaudited) (unaudited)
South Africa 2,949 3,540 20.0
Tanzania 130 122 (6.2)
Congo (51%) (56) 33 158.9
Lesotho 14 12 (14.3)
Holding companies (10) (9) 10.0
3,027 3,698 22.2
EBITDA margin (%) 32.1 32.7
EBITDA (continued)
Group EBITDA increased by 22.2% to R3,698 million for the six months ended
September 30, 2003 (September 30, 2002: R3,027 million). Vodacom managed to
increase its EBITDA margin by 0.6 percentage points to 32.7% (September 30,
2002: 32.1%). The slightly smaller improvement in EBITDA margin compared to
profit from operations margin is the result of the lower growth in the
depreciation charge, resulting primarily from the slowing capital expenditure in
the South African operations. When low-margin cellular phone sales are excluded
from Group revenue, the EBITDA margin increases to 37.8% for the six months
ended September 30, 2003, up from 37.2% for the six months ended September 30,
2002.
NET PROFIT
In ZAR millions
Six months ended September 30
2002 2003 % change
(unaudited) (unaudited)
Profit before taxation 1,539 2,153 39.9
Taxation (525) (772) 47.0
Minority interest (96) (7) 92.7
918 1,374 49.7
Net profit margin (%) 9.7 12.2
Net profit after taxes and minority interests increased by 49.7% to R1,374
million for the six months ended September 30, 2003 (September 30, 2002: R918
million). The significant increase in net profit was due primarily to an
improvement in profit from operations margin as well as a 4.7% decrease in
finance costs to R653 million for the six months ended September 30, 2003
(September 30, 2002: R685 million). The reduced finance costs was a direct
result of Vodacom"s improved net debt position, coupled with a lower interest
rate environment in South Africa and globally as well as a much reduced FEC book
which resulted in relatively lower finance charges being incurred because of the
strengthening of the Rand. The positive impact of the lower finance charge was
partially offset by a substantial increase of 47.0% in Vodacom"s consolidated
taxation charge. The increase of 1.8 percentage points in the effective tax rate
to 35.9% for the six months ended September 30, 2003 (September 30, 2002: 34.1%)
is primarily the result of R75 million STC payable on the interim dividend of
R600 million, as well as an increase in the deferred taxation charge. Excluding
the after-tax (at 30%) impact of the effects of realised and unrealised FEC and
foreign liability revaluations, net profit after tax increased 44.4% to R1,506
million compared to R1,043 million for the same period in the previous year.
GROUP FINANCIAL REVIEW (CONTINUED)
REVENUE ANALYSIS
In ZAR millions
Six months ended September 30
2002 2003 % change
(unaudited) (unaudited)
Airtime and access 5,061 6,326 25.0
Interconnection 2,555 2,814 10.1
Equipment sales 1,305 1,514 16.0
International airtime 343 470 37.0
Other sales and services 177 172 (2.8)
9,441 11,296 19.6
Airtime and access
Vodacom derives airtime and access revenue mainly from monthly access charges
and airtime usage fees paid by contract customers as well as fees paid by
prepaid customers for starter phone packages, airtime usage and revenue from
mobile data services. Vodacom"s airtime revenue increased by 25.0% from the
corresponding six-month period in 2002 to R6,326 million for the six months
ended September 30, 2003. The growth was primarily driven by substantial
increases in Vodacom"s customers, both in South Africa and in its other African
operations. However, the bulk of its airtime revenue is still being generated by
the South African operations. Total South African customers increased 19.5%
since September 30, 2002 to 8.5 million, primarily due to strong prepaid
customer growth of 21.4%. Vodacom"s consolidated data revenue reached R512
million in the six months ended September 30, 2003, accounting for 4.5% of Group
revenue. Comparable information is not available because of a change in the way
Vodacom accounts for data revenue. Vodacom South Africa transmitted 910 million
SMSs over its network in the six months ended September 30, 2003 compared to 653
million SMSs in the six months ended September 30, 2002, an increase of 39.4%.
Vodacom South Africa"s SMS traffic increased primarily due to competitions and
TV programmes such as "Big Brother" and the increasingly popular 4U package
which is priced to encourage SMS usage.
Interconnection
Interconnection revenue includes revenue from CellC for national roaming
services and is driven by the volume of traffic and the interconnection
termination rates payable. The increase in interconnection revenue of 10.1% over
the previous period, is well below the increase in total revenue and customers.
This trend reflects the decreasing incoming traffic from Telkom, due primarily
to call substitution of fixed for mobile calls.
REVENUE ANALYSIS (continued)
Equipment sales
Vodacom purchases handsets for the Group and for external service providers in
bulk at purchase discounts in order to lower the cost of handset subsidisation.
Vodacom"s revenue from equipment sales increased 16.0% from the prior six-month
period in 2002 to R1,514 million, primarily due to the exceptionally high gross
connections experienced in South Africa, and to a lesser extent the growth in
Vodacom Congo. Handset prices benefited from the recent strength of the Rand.
International airtime
International airtime comprise mainly of international calls and roaming revenue
from Vodacom"s customers and from international visitors roaming on Vodacom"s
network. The 37.0% increase from the prior six-month period is primarily due to
an increase in the number of Vodacom"s South African customers roaming
internationally as well as an increase in the number of international visitors
roaming in South Africa, coupled with increased usage. Vodacom now offers
roaming in 131 countries on 247 different networks.
Other sales and services
Other revenue includes revenue from various non-GSM-related revenue and revenue
from Vodacom"s insurance cell captive. Vodacom"s other revenue decreased
marginally by 2.8% from the prior six-month period.
OPERATING EXPENSES ANALYSIS
In ZAR millions
Date: 24/11/2003 08:05:09 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
Sharenet Sites 
