Wrap Text
Vodacom Group (Proprietary) Limited - Group Interim Results for the six months
ended September 30, 2005
Vodacom
Driving the future of communication
Group Interim Results
for the six months ended September 30, 2005
GROUP INTERIM FINANCIAL HIGHLIGHTS
Group revenue up 22.3% to R16.2 billion
Group profit from operations up 66.7% to R4.2 billion
Group EBITDA up 32.8% to R5.6 billion
Group profit before tax up 50.4% to R3.8 billion
Group cash generated from operations up 27.9% to R4.9 billion
Interim dividend of R1.7 billion
OPERATING HIGHLIGHTS
Group total customers up 41.8% to 19.1 million
Group capex as a percentage of revenue at 15.3%
Group customers per employee improved by 28.1% to 3,524
COMMENTARY
Vodacom Group (Proprietary) Limited, South Africa"s market leader in the
provision of cellular services announces interim results for the six months
ended September 30, 2005.
South Africa
Customers
The South African customer base increased by 39.0% to 15.8 million (September
30, 2004: 11.3 million) compared to the six months ended September 30, 2004. 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 41.2% to 13.7 million, while the number of contract
customers increased by 26.7% to 2.1 million. The strong growth in customers was
a direct result of the remarkable number of gross connections achieved (4.2
million), coupled with low churn.
Churn
Vodacom continuously focuses on retention of existing customers and acquisition
of new customers. Contract churn remained low at 9.3%, although slightly higher
than the 8.6% contract churn for the six months ended September 30, 2004.
Prepaid churn was lower at 18.7% (September 30, 2004: 21.9%).
ARPU
Prepaid services have been the driving force behind market penetration in South
Africa and contributes 92.5%
(September 30, 2004: 88.7%) to all gross new connections. During the period
under review, ARPU decreased by 10.9% to
R147 (September 30, 2004: R165) per month. The continued dilution of ARPU is
caused by the higher proportion of lower ARPU connections, as the lower end of
the market is penetrated. Contract customer ARPU has decreased by 7.7% to R588
per month (September 30, 2004: decreased by 3.9% to R637) when compared to the
six months ended September 30, 2004, while prepaid customer ARPU decreased by
10.1% to R71 (September 30, 2004: decreased by 9.2% to R79) per customer per
month.
Traffic
Total traffic on the network, excluding national and visitor roaming traffic,
has increased by 19.3% to 8.0 billion minutes (September 30, 2004: 6.7 billion)
for the six months ended September 30, 2005. The growth was mainly due to the
39.0% year-on-year growth in the total customer base to 15.8 million as at
September 30, 2005. Also evident was continued fixed for mobile call
substitution, with mobile to mobile traffic increasing by 25.8% compared to the
six months ended September 30, 2004, while mobile/fixed traffic only increased
by 1.3% over the same period.
Operational
The South African business was rewarded with a number of top awards during the
recent Markinor Brand Survey, including top telecommunications brand and
favourite advertiser as well as the third most popular overall brand in South
Africa.
Although South Africa is experiencing a lot of regulatory challenges, the
business is growing fast while also focusing on customer satisfaction, by
introducing new products and services to the customer. A new happy hour tariff,
which was well received by the market, was launched on August 29, 2005 for
prepaid customers and October 1, 2005 for contract customers whereby call rates
were dropped to R1.49 per minute, between 5 and 8pm from Monday to Friday.
Vodacom also introduced a new service called Airtime Transfer whereby all
contract, top-up and prepaid Vodacom customers can send airtime credit from
their mobile phones to another prepaid or top-up customer free of charge.
Vodafone World, Vodafone"s new roaming service, was launched in September 2005.
It enables customers, who have activated roaming on their accounts, to calculate
the cost of each call they make whilst abroad.
Regulatory
Following Vodacom"s spectrum application to provide fixed links, ICASA issued a
spectrum licence to Vodacom, on September 12, 2005, for 2 X 56 MHz spectrum in
the 38 GHz band for the provisioning of fixed links.
On June 30, 2005 and September 14, 2005 ICASA approved Vodacom"s application for
two million numbers in the 0765 and 0766 ranges as well as two million numbers
in the 0767 and 0768 ranges.
ICASA has promulgated the Number Portability Regulations. In terms of these
regulations the number portability implementation date would be June 30, 2006.
Market share
Despite strong competition, Vodacom has retained its leadership in the highly
competitive South African mobile communications market with an estimated 57.0%
market share on September 30, 2005. The South African cellular industry has
grown by 20.5% in the last six months and Vodacom has contributed 62.4% of this
growth. The market penetration of the cellular industry is now an estimated
58.0% of the population.
Other African operations
Vodacom"s other African operations, which provide a world-class 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 six months ended September 30, 2005.
Vodacom Tanzania achieved exceptional customer and profit growth and its market
share remained stable at 58.0% at September 30, 2005 (September 30, 2004:
58.0%). The Tanzanian market remains highly competitive, but with mobile
penetration estimated at 7.6% of the population, it still promises further
growth potential. Vodacom Tanzania increased its customer base by 68.7% to 1.6
million
(September 30, 2004: 76.0% to 1.0 million) at September 30, 2005 compared to the
six months ended September 30, 2004.
Vodacom Congo remains the market leader with an estimated market share of 49.0%
at September 30, 2005 (September 30, 2004: 48.0%). The DRC has the lowest
estimated mobile penetration rate of all Vodacom"s operations at 3.9% of the
population at September 30, 2005. Notwithstanding the uncertainties surrounding
the planned elections in the first half of 2006, Vodacom Congo increased its
customer base by 36.9% to 1.2 million (September 30, 2004: 97.2% to 0.9 million)
at September 30, 2005 compared to the six months ended September 30, 2004.
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 80.0% market share at September 30, 2005. Vodacom Lesotho
increased its customer base by 40.2% to 170,593 (September 30, 2004: 71.8% to
122,240) at September 30, 2005 compared to the six months ended September 30,
2004. Mobile penetration in Lesotho is now estimated at 11.2%.
Vodacom Mozambique has managed to increase its estimated market share to 26.0%
(September 30, 2004: 24.0%) despite strong competition from the established
competitor mCel, by offering competitive coverage through an aggressive coverage
roll-out programme. Vodacom Mozambique increased its customer base by 104.9% to
336,152 (September 30, 2004: 164,423) at September 30, 2005 compared to the six
months ended September 30, 2004. Mobile penetration is estimated at 7.0% at
September 30, 2005.
The financial results of Vodacom"s operations are analysed in more detail in the
segmental commentary of this report.
FINANCIAL REVIEW
The following changes need to be taken into account when analysing Vodacom"s
results for the six months ended September 30, 2005:
Vodacom identified certain items to be adjusted in the prior or current year(s)
financial statements due to the adoption of new International Financial
Reporting Standards (IFRS) or different accounting treatment of current IFRS.
Leases (IAS 17): Vodacom has always accounted for lease payments that escalate
based on a fixed rate in terms of the lease contract"s escalation instead of on
a straight-line basis. The debit adjustment to the opening retained earnings as
at April 1, 2005 amounts to R66.4 million.
Intangible Assets (IAS 38): Vodacom has reclassified software (R2.1 billion
cost; R1.4 billion accumulated depreciation) from property, plant and equipment
to intangible assets as at March 31, 2005. Interim comparatives were also
restated.
Property, Plant and Equipment (IAS 16): Vodacom has now recognised property,
plant and equipment in smaller components or units, estimated residual values
and reassessed the useful lives for these components. Vodacom has accounted for
the full impact of R115.4 million in the current financial year as a credit to
depreciation.
Revenue
In ZAR millions
for the six months ended September 30,
2003 2004 2005 % change % change
(reviewed) (reviewed) (reviewed) 2004/03 2005/04
Airtime, 5,974 7,823 9,581 31.0 22.5
connection and
access
Data revenue 512 586 893 14.5 52.4
Interconnection 2,814 2,940 3,186 4.5 8.4
Equipment 1,202 1,318 1,910 9.6 44.9
sales1
International 310 436 485 40.6 11.2
airtime
Other sales and 172 128 120 (25.6) (6.3)
services
10,984 13,231 16,175 20.5 22.3
1. South African equipment sales revenue and operating costs have been restated
for the six months ended September 30, 2003 and 2004 by R312 million and R363
million respectively, to eliminate revenue and costs relating to handset sales
to Vodacom"s own distribution channel. Margins have been restated accordingly.
The restatement does not impact the Group"s results for the six months ended
September 30, 2003 and 2004.
2. Financial results have been reviewed by our auditors, Deloitte & Touche, for
the six months ended September 30, 2003, 2004 and 2005.
Airtime, connection and access
Vodacom"s airtime, connection and access revenue increased by 22.5% to R9,581
million (September 30, 2004: 31.0% to
R7,823 million) in the six months ended September 30, 2005 compared to the six
months ended September 30, 2004, primarily due to the increase in the number of
customers, offset by declining ARPUs in all operations. Total customers
increased by 41.8% to 19.1 million (September 30, 2004: 40.6%) at September 30,
2005 compared to the six months ended September 30, 2004, mainly due to strong
prepaid and contract customer growth in South Africa and significant prepaid
customer growth in Vodacom"s other African operations.
Data revenue - geographical split
In ZAR millions
for the six months ended September 30,
% of % of % change
total total
2004 2005 2004 2005 2005/04
South Africa 542 821 92.5 91.9 51.5
Tanzania 35 50 6.0 5.6 42.9
Lesotho 4 7 0.7 0.8 75.0
DRC 4 13 0.7 1.5 >200.0
Mozambique 1 2 0.1 0.2 100.0
586 893 100.0 100.0 52.4
Vodacom"s data revenue increased by 52.4% to R893 million (September 30, 2004:
14.5% to R586 million) in the six months ended September 30, 2005 compared to
the six months ended September 30, 2004 mainly due to new data initiatives such
as 3G and BlackBerryRegistered as well as the popularity of SMS and other data
products. Vodacom transmitted 1,524 million SMS messages (September 30, 2004:
1,123 million) over its South African network during the six months ended
September 30, 2005, an increase of 35.7% compared to the six months ended
September 30, 2004. The number of active users on the network at September 30,
2005 was: BlackBerryRegistered users 6,737, MMS users 533,054, 3G data card
users 18,662, 3G active handsets 77,327 and Vodafone Live! users 102,404. Data
revenue contributed 5.5% to total revenue for the six months ended September 30,
2005 (September 30, 2004: 4.4%). The contribution to data revenue from other
African operations increased by 0.6 percentage points to 8.1% for the six months
ended September 30, 2005 (September 30, 2004: 7.5%) when compared to the six
months ended September 30, 2004.
Interconnection
Vodacom"s interconnection revenue increased by 8.4% to R3.2 billion (September
30, 2004: 4.5% to R2.9 billion) for the six months ended September 30, 2005
compared to the six months ended September 30, 2004. The change in call patterns
of mobile phone users as well as the increase of these users through
fixed/mobile substitution, negatively affected traffic originating from Telkom
and terminating on the Vodacom network. This traffic only increased by 1.9% for
the six months ended September 30, 2005 compared to the six months ended
September 30, 2004.
Equipment sales
Vodacom"s revenue from equipment sales increased by 44.9% to R1.9 billion
(September 30, 2004: 9.6% to R1.3 billion) for the six months ended September
30, 2005 compared to the six months ended September 30, 2004. Equipment sales
were restated by R312 million for the six months ended September 30, 2003 and by
R363 million for the six months ended September 30, 2004. The growth in
equipment sales was primarily due to the growth of the customer base coupled
with added functionality of new phones based on new technologies.
International airtime
International airtime increased by 11.2% to R485 million (September 30, 2004: by
40.6% to R436 million) in the six months ended September 30, 2005 compared to
the six months ended September 30, 2004. International airtime comprises
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 6.3% to R120 million (September 30, 2004:
decreased by 25.6% to R128 million) in the six months ended September 30, 2005
compared to the six months ended September 30, 2004. Other sales and services
include revenue from non-core operations such as income from Vodacom"s cell
captive insurance scheme.
Operating expenses
In ZAR millions
for the six months ended September 30,
2003 2004 2005 % %
change change
(reviewed) (reviewed) (reviewed) 2004/03 2005/04
Depreciation,
amortisation
and
impairment 1,247 1,655 1,338 32.7 (19.2)
Payments to
other network
operators 1,379 1,804 2,168 30.8 20.2
Other direct
network
operating
costs1,2 4,704 5,705 6,577 21.3 15.3
Staff
expenses 632 760 952 20.3 25.3
Marketing and
advertising
expenses 345 393 488 13.9 24.2
General
administratio
n expenses2 302 412 467 36.4 13.3
Other
operating
income (71) (33) (40) (53.5) 21.2
8,538 10,696 11,950 25.3 11.7
1. Direct network operating costs less payments to other operators. South
African equipment sales revenue and operating costs have been restated for the
six months ended September 30, 2003 and 2004 by R312 million and R363 million
respectively, to eliminate revenue and costs relating to handset sales to
Vodacom"s own distribution channel. Margins have been restated accordingly. The
restatement does not impact the Group"s results for the six months ended
September 30, 2003 and 2004.
2. For the six months ended September 30, 2003 and 2004 an adjustment of R5
million and R4 million respectively was made, as a debit to profit from
operations, to recognise operating lease payments that escalate based on a fixed
rate over the lease term on a straight-line basis.
3. Financial results have been reviewed by our auditors, Deloitte & Touche, for
the six months ended September 30, 2003, 2004 and 2005.
Depreciation, amortisation and impairment
Vodacom"s depreciation and amortisation decreased by 19.2% to R1,338 million
(September 30, 2004: by 32.7% to R1,655 million) in the six months ended
September 30, 2005 compared to the six months ended September 30, 2004. The
strengthening of the Rand against most other currencies resulted in depreciation
on foreign-denominated capital expenditure in Vodacom"s African operations being
translated at a lower rate of exchange than in the past. This translation saving
contributed to a marginal increase in the depreciation charge in Vodacom"s other
African operations in the six months ended September 30, 2005. The
implementation of IAS 16: Property, Plant and Equipment which resulted in a
credit of R115.4 million to depreciation also contributed to the lower
depreciation charge for the period. A portion of the Mozambique impairment
(R68.4 million) of the prior year was reversed due to the weakening of the
Mozambican local currency against the Rand as well as the impact of the
appreciating Euro against other currencies (September 30, 2004: R236.8 million
loss).
Payments to other network operators
Vodacom"s payments to other network operators increased by 20.2% to R2,168
million (September 30, 2004: by 30.8% to
R1,804 million) in the six months ended September 30, 2005 compared to the six
months ended September 30, 2004, as a
result of an increase in outgoing traffic terminating on other cellular
networks, rather than on fixed-line networks.
Other direct network operating expenses
Other direct network operating expenses increased by 15.3% to R6,577 million
(September 30, 2004: by 21.3% to R5,705 million) in the six months ended
September 30, 2005 compared to the six months ended September 30, 2004. The low
growth was mainly as a result of cost controls as well as a positive impact of
the stability of the Rand on translation of foreign currency denominated
expenses. Other direct network operating expenses include the cost to connect
customers onto the network, which are incurred to support growth in the customer
base as well as other costs such as cost of goods sold, commissions, customer
retention expenses, regulatory and licence fees, distribution expenses and site
and maintenance costs.
Staff expenses
Staff expenses increased by 25.3% to R952 million (September 30, 2004: by 20.3%
to R760 million) in the six months ended September 30, 2005 compared to the six
months ended September 30, 2004. The increase was mainly as a result of an
increase in headcount of 10.7% to 5,426 (September 30, 2004: 4,903) in the six
months ended September 30, 2005 compared to the six months ended September 30,
2004, 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
lump sum payments to executives on retirement as well as annual salary
increases. Employee productivity has improved in all of Vodacom"s operations, as
measured by customers per employee, increasing by 28.1% to 3,524 customers per
employee (September 30, 2004: 2,751).
Marketing and advertising
Marketing and advertising expenses increased by 24.2% to R488 million (September
30, 2004: by 13.9% to R393 million) in the six months ended September 30, 2005
compared to the six months ended September 30, 2004, mainly driven by the launch
of new technologies such as Vodafone Live!, 3G and BlackBerryRegistered.
General administration expenses
General administration expenses increased by 13.3% to R467 million (September
30, 2004: by 36.4% to R412 million) in the six months ended September 30, 2005
compared to the six months ended September 30, 2004. 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 comprises income that Vodacom does not view as part of
its core activities such as risk management services, consultant cost recoveries
and franchise fees and is therefore disclosed separately. Other operating income
increased by 21.2% to R40 million (September 30, 2004: decreased by 53.5% to R33
million) in the six months ended September 30, 2005 compared to the six months
ended September 30, 2004.
FUNDING
Summary of net debt and maturity profile
In ZAR millions
as at September 30, 2005 (reviewed)
2006 2007 2008 2009 2010 2011
onward Total
South Africa -
finance leases,
ZAR denominated 64 95 134 166 114 263 836
Funding loans
Tanzania -
outside
shareholders,
ZAR denominated - - - - 90 - 90
Tanzania -
project
finance,
various
denominations 101 101 34 - - - 236
Medium-term
loan to Vodacom
International
Limited, US$
denominated 1,146 - - - - - 1,146
DRC -
preference
share
liability,
US$ denominated 236 - - - - - 236
Other short-
term loans 43 - - - - - 43
Debt excluding
bank overdrafts 1,590 196 168 166 204 263 2,587
Bank and cash
balances (1,372)
Net debt 1,215
Vodacom"s consolidated net debt position has decreased by 37.1% to R1,215
million as at September 30, 2005 (September 30, 2004: by 26.3% to R1,932
million). The Group"s net debt to EBITDA ratio was 21.8% as at September 30,
2005 (September 30, 2004: 46.1%). However, this reflects the Group"s net debt
position before settlement of the R1,700 million dividend paid on October 3,
2005. If dividends payable and Secondary Tax on Companies (STC) were included in
net debt, Vodacom"s net debt to EBITDA ratio would increase to 56.2% (September
30, 2004: 89.1%). Vodacom"s net debt to equity ratio improved to 13.9% as at
September 30, 2005 (September 30, 2004: 26.4%). Inclusive of the R1,700 million
interim dividend payable, Vodacom"s net debt to equity ratio as at September 30,
2005 was 35.8% (September 30, 2004: 50.9%).
The improvement in net debt was principally the result of strong cash generation
in Vodacom"s South African operations. Changes in net debt were brought about
primarily as a result of further draw-downs of South African guaranteed credit
facilities by other African subsidiaries as well as the payment of the 2005
final dividend.
Revenue
Geographical split
In ZAR millions
for the six months ended September 30,
% change % change
2003 2004 2005 2004/03 2005/04
South Africa1 10,293 12,057 14,764 17.1 22.5
Tanzania 431 472 611 9.5 29.4
Lesotho 55 65 77 18.2 18.5
DRC2 205 594 649 189.7 9.3
Mozambique - 43 74 - 72.1
10,984 13,231 16,175 20.5 22.3
1. The Group restated its revenue for South Africa for the six months ended
September 30, 2003 and 2004 as previously mentioned. The restatement does not
affect profits.
2. During the six months ended September 30, 2003, 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.
Revenue increased by 22.3% to R16.2 billion (September 30, 2004: by 20.5% to
R13.2 billion) for the six months ended September 30, 2005 compared to the six
months ended September 30, 2004, of which Vodacom"s other African operations
contributed 8.7% (September 30, 2004: 8.9%). The increase in revenues was
primarily driven by strong customer growth in all operations.
EBITDA
Geographical split
In ZAR millions
for the six months ended September 30,
% change % change
2003 2004 2005 2004/03 2005/04
South Africa1 3,535 3,940 5,214 11.5 32.3
Tanzania 122 152 206 24.6 35.5
Lesotho 12 21 30 75.0 42.9
DRC2 33 110 171 >200.0 55.5
Mozambique - (69) (61) - 11.6
Holding
companies (9) 35 3 >200.0 (91.4)
3,693 4,189 5,563 13.4 32.8
EBITDA margin 33.6% 31.7% 34.4%
1. The impact of IAS 17 (Leases) resulted in a restatement of EBITDA for South
Africa for the six months ended September 30, 2003 and 2004 as previously
mentioned.
2. During the six months ended September 30, 2003, 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.
Group EBITDA increased by 32.8% to R5,563 million (September 30, 2004: by 13.4%
to R4,189 million) for the six months ended September 30, 2005 compared to the
six months ended September 30, 2004, of which Vodacom"s other African operations
contributed 6.3% (September 30, 2004: 5.9%). Vodacom"s EBITDA margin increased
to 34.4% in the six months ended September 30, 2005 (September 30, 2004: 31.7%).
The higher EBITDA margin achieved was mainly due to lower prepaid discounts on
airtime, a reduction in some distribution incentives as well as productivity
improvements in operational expenditure. Rate of exchange movements had a
negative impact of R1.2 million on EBITDA for the six months ended September 30,
2005. All EBITDA margins increased for the six months ended September 30, 2005
compared to the six months ended September 30, 2004: South Africa by 2.6
percentage points to 35.3%, Tanzania by 1.5 percentage points to 33.7%, Lesotho
by 6.7 percentage points to 39.0% and DRC by 7.8 percentage points to 26.3%. The
Group EBITDA margin excluding equipment sales increased by 5.3 percentage points
to 39.7% (September 30, 2004: 34.4%) for the six months ended September 30, 2005
compared to the six months ended September 30, 2004.
Profit from operations
Geographical split
In ZAR millions
for the six months ended September 30,
% change % change
2003 2004 2005 2004/03 2005/04
South Africa1 2,497 2,754 4,060 10.3 47.4
Tanzania 54 72 115 33.3 59.7
Lesotho - 9 26 - 188.9
DRC2 (6) 7 47 >200.0 >200.0
Mozambique - (341) (25) - 92.7
Holding
companies (99) 33 2 133.3 (93.9)
2,446 2,534 4,225 3.6 66.7
Profit from
operations
margin 22.3% 19.2% 26.1%
1. The impact of IAS 17 (Leases) resulted in a restatement of profit from
operations for South Africa for the six months ended September 30, 2003 and 2004
as previously mentioned.
2. During the six months ended September 30, 2003, 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.
Vodacom"s profit from operations increased by 66.7% to R4,225 million in the six
months ended September 30, 2005 (September 30, 2004: by 3.6% to R2,534 million)
compared to the six months ended September 30, 2004. Vodacom"s profit from
operations margin increased to 26.1% in the six months ended September 30, 2005
(September 30, 2004: 19.2%) compared to the six months ended September 30, 2004.
The exceptional increase of 66.7% (50.1% excluding the Mozambique impairment and
reversal) in profit from operations is due to revenue growing by 22.3% and the
operating expenditure only growing by 11.7%. Rate of exchange movements had a
negative impact of R0.2 million on profit from operations for the six months
ended September 30, 2005. The implementation of new IFRS resulted in a positive
impact of R23.5 million on profit from operations for the period under review.
The profit from operations margins of all subsidiaries increased for the six
months ended September 30, 2005 compared to the six months ended September 30,
2004: South Africa by 4.7 percentage points to 27.5%, Tanzania by 3.6 percentage
points to 18.8%, Lesotho by 19.9 percentage points to 33.8%, DRC by 6.1
percentage points to 7.2%, while Mozambique is not yet profitable.
Capital expenditure ("Capex")
Geographical split
In ZAR millions
for the six months ended September 30,
% change % change
2003 2004 2005 2004/03 2005/04
South Africa 830 1,109 2,141 33.6 93.1
Tanzania 145 83 104 (42.8) 25.3
Lesotho 4 2 11 (50.0) >200.0
DRC 286 187 140 (34.6) (25.1)
Mozambique - 27 77 - 185.2
Holding
companies 4 5 2 25.0 (60.0)
1,269 1,413 2,475 11.3 75.2
Capex as a
percentage of
revenue 11.6% 10.7% 15.3%
Vodacom"s capital expenditure increased by 75.2% to R2,475 million in the six
months ended September 30, 2005 (September 30, 2004: by 11.3% to R1,413 million)
compared to the six months ended September 30, 2004. Vodacom"s capital
expenditure was 15.3% of revenue in the six months ended September 30, 2005, up
from an adjusted 10.7% in the six months ended September 30, 2004. A stable Rand
and weak US Dollar again aided the Group with the majority of capital
expenditure being foreign currency denominated. In terms of IAS 21: The Effects
of Changes in Foreign Exchange Rates, all capital expenditure in South Africa is
recorded at the rate of exchange ruling at the date when risk and reward related
to ownership of the equipment passes on to Vodacom. Capital expenditure of
Vodacom"s other African operations is translated at the average rate of exchange
of the Rand against the operation"s reporting currency for the period, while
closing capital expenditure is translated at the closing rate of exchange of the
Rand against the reporting currency. The increase in South Africa"s capex
additions of 93.1% to R2,141 million in the six months ended September 30, 2005
compared to the six months ended September 30, 2004, is mainly driven by
capacity increases and the introduction of new technologies such as 3G, Vodafone
Live! and BlackBerryRegistered.
Effective tax rate
Vodacom"s effective tax rate decreased to 37.9% in the six months ended
September 30, 2005 (September 30, 2004: 43.4%) primarily because of the
reduction in the South African statutory tax rate of 1.0 percentage point to
29.0% (September 30, 2004: 30.0%), as well as no additional Mozambique
impairments being raised in the current period for which no deferred taxation
asset was recognised. In fact, a R68.4 million reversal of the prior year
impairment of R236.8 million was recognised for the period under review. In
addition, the impact of Secondary Tax on Companies (STC) as a percentage of
profit decreased by 2.3%. STC payments however remained stable.
Shareholder distributions
Dividends declared in the six months ended September 30, 2005 totalled R1,700
million and was paid to shareholders on October 3, 2005.
Outlook
Vodacom continues to deliver remarkable customer, margin and earnings growth.
South African and other African operations continue to perform very strongly,
with improved market share in almost all geographical segments. Favourable
economic conditions and healthy competition is playing an important role in the
rapid mobile telephony penetration, especially in South Africa.
Upgrading of network and distribution infrastructures and strengthening of
business and governmental relationships will ensure improved market conditions
in all of the other African operations. Affordability is key in these markets
and Vodacom will continue to introduce innovative products to stimulate the
market and increase penetration. In an ever-changing economic and regulatory
environment, Vodacom is well positioned to maintain and even improve its current
market leadership.
WYN Luhabe ADC Knott-Craig
Non-executive Chairman Chief Executive Officer
SEGMENT KEY OPERATIONAL INDICATORS
VODACOM SOUTH AFRICA OPERATIONAL OVERVIEW
Key operational indicators
for the six months ended September 30,
2003 2004 2005
(unaudited) (unaudited) (unaudited)
Customers ("000)1 8,522 11,346 15,773
Contract 1,251 1,651 2,092
Prepaid 7,242 9,671 13,653
Community services 29 24 28
Gross connections
("000) 2,248 2,681 4,181
Contract 110 302 312
Prepaid 2,135 2,378 3,865
Community services 3 1 4
3 month inactive
customers (%) 15.3 19.7 7.9
Contract (%) 5.6 5.8 1.8
Prepaid (%) 17.1 22.1 8.9
Churn (%) 39.1 20.0 17.4
Contract (%) 10.8 8.6 9.3
Prepaid (%) 44.1 21.9 18.7
Mobile market share
(%)3 55 56 57
Mobile market
penetration (%)
(at period end)3 34.9 43.1 58.0
Total traffic
(millions of minutes) 5,774 6,735 8,038
Outgoing 3,601 4,326 5,329
Incoming
(interconnection) 2,173 2,409 2,709
Average monthly
revenue per customer
(ARPU) (ZAR)2 179 165 147
Contract 663 637 588
Prepaid 87 79 71
Community services 1,912 2,381 1,960
Average monthly
minutes of use (MOU)
per customer (outside
the bundle) 95 85 76
Contract 268 234 212
Prepaid 54 51 49
Community services 2,699 3,316 2,546
Cumulative network
capital expenditure
per customer (ZAR, at
period end) 1,876 1,692 1,422
Number of employees
(including temps
and contractors, at
period end) 3,844 3,988 4,119
Customers per employee
(at period end) 2,217 2,845 3,829
% change % change
2004/03 2005/04
Customers ("000)1 33.1 39.0
Contract 32.0 26.7
Prepaid 33.5 41.2
Community services (17.2) 16.7
Gross connections
("000) 19.3 55.9
Contract 174.5 3.3
Prepaid 11.4 62.5
Community services (66.7) >200.0
3 month inactive 4.4 pts (11.8 pts)
customers (%)
Contract (%) 0.2 pts (4.0 pts)
Prepaid (%) 5.0 pts (13.2 pts)
Churn (%) (19.1 pts) (2.6 pts)
Contract (%) (2.2 pts) 0.7 pts
Prepaid (%) (22.2 pts) (3.2 pts)
Mobile market share
(%)3 1 pt 1 pt
Mobile market
penetration (%)
(at period end)3 8.2 pts 14.9 pts
Total traffic
(millions of minutes) 16.6 19.3
Outgoing 20.1 23.2
Incoming
(interconnection) 10.9 12.5
Average monthly
revenue per customer
(ARPU) (ZAR)2 (7.8) (10.9)
Contract (3.9) (7.7)
Prepaid (9.2) (10.1)
Community services 24.5 (17.7)
Average monthly
minutes of use (MOU)
per customer (outside
the bundle) (10.5) (10.6)
Contract (12.7) (9.4)
Prepaid (5.6) (3.9)
Community services 22.9 (23.2)
Cumulative network
capital expenditure
per customer (ZAR, at
period end) (9.8) (16.0)
Number of employees
(including temps
and contractors, at
period end) 3.7 3.3
Customers per
employee (at period
end) 28.3 34.6
VODACOM TANZANIA
Key operational indicators
for the six months ended September 30,
2003 2004 2005
(unaudited) (unaudited) (unaudited)
Customers ("000)1 541 952 1,606
Contract 5 5 6
Prepaid 533 944 1,597
Public phones 3 3 3
Gross connections
("000) 172 326 604
Churn (%) 30.9 26.1 28.7
Mobile market share
(%)3 56 58 58
Average monthly
revenue per customer
(ARPU) (ZAR)2 136 91 73
Cumulative network
capital expenditure
per customer (ZAR, at
period end) 1,993 1,358 904
Number of employees
(including temps
and contractors, at
period end) 270 342 371
Customers per
employee (at period
end) 2,005 2,785 4,330
% change % change
2004/03 2005/04
Customers ("000)1 76.0 68.7
Contract - 20.0
Prepaid 77.1 69.2
Public phones - -
Gross connections
("000) 89.5 85.3
Churn (%) (4.8 pts) 2.6 pts
Mobile market share
(%)3 2 pts -
Average monthly
revenue per customer
(ARPU) (ZAR)2 (33.1) (19.8)
Cumulative network
capital expenditure
per customer (ZAR, at
period end) (31.9) (33.4)
Number of employees
(including temps
and contractors, at
period end) 26.7 8.5
Customers per
employee (at period
end) 38.9 55.5
VODACOM LESOTHO
Key operational indicators
for the six months ended September 30,
2003 2004 2005
(unaudited) (unaudited) (unaudited)
Customers ("000)1 71 122 171
Contract 3 4 3
Prepaid 67 117 166
Public phones 0.6 1 2
Gross connections
("000) 20 32 42
Churn (%) 73.3 14.0 23.4
Mobile market share
(%)3 78 80 80
Average monthly
revenue per
customer (ARPU)
(ZAR)2 119 91 77
Cumulative network
capital expenditure
per customer (ZAR,
at period end) 2,789 1,659 1,271
Number of employees
(including temps
and contractors, at
period end) 70 62 65
Customers per
employee (at period
end) 1,007 1,971 2,625
% change % change
2004/03 2005/04
Customers ("000)1 71.8 40.2
Contract 33.3 (25.0)
Prepaid 74.6 41.9
Public phones 66.7 100.0
Gross connections
("000) 60.0 31.3
Churn (%) (59.3 pts) 9.4 pts
Mobile market share
(%)3 2 pts -
Average monthly
revenue per
customer (ARPU)
(ZAR)2 (23.5) (15.4)
Cumulative network (40.5) (23.4)
capital expenditure
per customer (ZAR,
at period end)
Number of employees
(including temps
and contractors, at
period end) (11.4) 4.8
Customers per
employee (at period
end) 95.7 33.2
VODACOM CONGO
Key operational indicators
for the six months ended September 30,
2003 2004 2005
(unaudited) (unaudited) (unaudited)
Customers ("000)1 458 903 1,236
Contract 6 10 11
Prepaid 443 885 1,209
Public phones 9 8 16
Gross connections
("000) 240 305 373
Churn (%) 18.2 18.4 30.5
Mobile market share
(%)3 45 48 49
Average monthly
revenue per
customer (ARPU)
(ZAR)2 182 111 89
Cumulative network
capital expenditure
per customer (ZAR,
at period end) 2,432 1,821 1,555
Number of employees
(including temps
and contractors, at
period end) 305 426 597
Customers per
employee (at period
end) 1,500 2,119 2,070
% change % change
2004/03 2005/04
Customers ("000)1 97.2 36.9
Contract 66.7 10.0
Prepaid 99.8 36.6
Public phones (11.1) 100.0
Gross connections
("000) 27.1 22.3
Churn (%) 0.2 pts 12.1 pts
Mobile market share
(%)3 3 pts 1 pts
Average monthly
revenue per
customer (ARPU)
(ZAR)2 (39.0) (19.8)
Cumulative network
capital expenditure
per customer (ZAR,
at period end) (25.1) (14.6)
Number of employees
(including temps
and contractors, at
period end) 39.7 40.1
Customers per
employee (at period
end) 41.3 (2.3)
VODACOM MOZAMBIQUE
Key operational indicators
for the six months ended September 30,
2004 2005 % change
(unaudited) (unaudited) 2005/04
Customers ("000)1 164 336 104.9
Contract 3 5 66.7
Prepaid 161 331 105.6
Gross connections
("000) 108 123 13.9
Churn (%) 2.7 34.5 31.8 pts
Mobile market share
(%)3 24 26 2 pts
Average monthly
revenue per customer
(ARPU) (ZAR)2 63 41 (34.9)
Cumulative network
capital expenditure
per customer (ZAR, at
period end) 3,387 1,886 (44.3)
Number of employees
(including temps and
contractors, at
period end) 85 148 74.1
Customers per
employee (at period
end) 1,934 2,271 17.4
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 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. Penetration and market share is calculated based on Vodacom estimates.
None of the comparative period key operational indicators have been restated
based on the current period adjustments.
CONDENSED CONSOLIDATED INCOME STATEMENTS
for the six months ended September 30, 2004 and 2005
In ZAR millions
2004 2005
(restated) (reviewed)
Revenue 13,230.5 16,175.2
Other operating income 33.2 39.9
Direct network operating cost (7,510.1) (8,745.4)
Depreciation (1,170.5) (1,282.2)
Staff expenses (760.3) (951.7)
Marketing and advertising expenses (393.1) (488.0)
General administration expenses (411.5) (466.9)
Amortisation of intangible assets (247.3) (124.2)
Impairment of assets (236.8) 68.4
Profit from operations 2,534.1 4,225.1
Interest, dividends and other
financial income 335.7 324.0
Finance costs (316.0) (708.5)
Profit before taxation 2,553.8 3,840.6
Taxation (1,108.2) (1,454.4)
Net profit 1,445.6 2,386.2
Attributable to:
Equity shareholders 1,427.4 2,362.3
Minority interests 18.2 23.9
2004 2005
R R
(restated) (reviewed)
Basic and diluted earnings per
share 142 738 236 235
CONDENSED CONSOLIDATED BALANCE SHEETS
as at March 31, 2005 and at September 30, 2005
In ZAR millions
as at as at
March 31, September 30,
2005 2005
(restated) (reviewed)
ASSETS
Non-current assets 13,932.6 15,184.0
Property, plant and equipment 11,527.2 12,516.6
Investment properties 49.7 47.6
Intangible assets 1,644.3 1,933.4
Financial assets 137.5 135.4
Deferred taxation 308.1 264.4
Deferred cost 236.9 257.0
Operating lease asset 28.9 29.6
Current assets 8,662.2 10,172.9
Inventory 479.5 471.8
Trade and other receivables 3,621.4 4,313.7
Deferred cost 428.3 457.2
Short-term financial assets 142.9 127.8
Cash and cash equivalents 3,990.1 4,802.4
Total assets 22,594.8 25,356.9
EQUITY AND LIABILITIES
Capital and reserves 7,887.9 8,735.6
Ordinary share capital * *
Non-distributable reserves (298.0) (181.1)
Retained earnings 8,057.2 8,718.9
Minority interests 128.7 197.8
Non-current liabilities 3,233.1 2,140.2
Interest bearing debt 2,213.5 997.3
Deferred taxation 472.1 493.1
Deferred revenue 240.7 257.4
Provisions 184.4 270.0
Operating lease liability 122.4 122.4
Current liabilities 11,473.8 14,481.1
Trade and other payables 4,830.8 5,146.8
Deferred revenue 1,411.4 1,507.9
Taxation payable 632.6 556.4
Non-interest bearing debt 4.3 4.3
Short-term interest bearing debt 381.6 1,585.7
Short-term provisions 595.0 442.7
Dividends payable 1,800.0 1,700.0
Derivative financial liabilities 1.0 106.4
Bank overdraft 1,817.1 3,430.9
Total equity and liabilities 22,594.8 25,356.9
* Amounts less than R500 000
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the six months ended September 30, 2004 and 2005
In ZAR millions
Share Retained Non-
capital earnings distributable
reserves
Balance at March 31, 2004
as previously reported * 7,896.6 (324.9)
Changes in accounting
policies, reclassifications
and restatements
- (60.5) -
Balance at March 31, 2004 -
restated * 7,836.1 (324.9)
Net profit for the period - 1,427.4 -
Dividends declared - (1,600.0) -
Contingency reserve - (1.8) 1.8
Acquired reserves from the
minorities of
Vodacom Congo (RDC) s.p.r.l. - (233.4) 82.1
Acquisition of subsidiary - - -
Net gains and losses not
recognised in the income
statement
Foreign currency translation
reserve - - 14.1
Balance at September 30,
2004 - unaudited * 7,428.3 (226.9)
Balance at March 31, 2005 as
previously reported * 8,123.6 (298.0)
Changes in accounting
policies, reclassifications
and restatements
- (66.4) -
Balance at March 31, 2005 -
restated * 8,057.2 (298.0)
Net profit for the period - 2,362.3 -
Dividends declared - (1,700.0) -
Contingency reserve - (0.6) 0.6
Acquisition of subsidiary - - -
Net gains and losses not
recognised in the income
statement
Foreign currency translation
reserve - - 116.3
Balance at September 30,
2005 - unaudited * 8,718.9 (181.1)
* Amounts less than R500 000
Minority Total
interests
Balance at March 31, 2004
as previously reported 93.0 7,664.7
Changes in accounting
policies, reclassifications
and restatements
- (60.5)
Balance at March 31, 2004 -
restated 93.0 7,604.2
Net profit for the period 18.2 1,445.6
Dividends declared - (1,600.0)
Contingency reserve - -
Acquired reserves from the
minorities of
Vodacom Congo (RDC) s.p.r.l. - (151.3)
Acquisition of subsidiary 10.1 10.1
Net gains and losses not
recognised in the income
statement
Foreign currency translation
reserve 6.2 20.3
Balance at September 30,
2004 - unaudited 127.5 7,328.9
Balance at March 31, 2005 as
previously reported 128.7 7,954.3
Changes in accounting
policies, reclassifications
and restatements
- (66.4)
Balance at March 31, 2005 -
restated 128.7 7,887.9
Net profit for the period 23.9 2,386.2
Dividends declared - (1,700.0)
Contingency reserve - -
Acquisition of subsidiary 46.5 46.5
Net gains and losses not
recognised in the income
statement
Foreign currency translation
reserve (1.3) 115.0
Balance at September 30,
2005 - unaudited 197.8 8,735.6
* Amounts less than R500 000
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
for the six months ended September 30, 2004 and 2005
In ZAR millions
2004 2005
(reviewed) (reviewed)
Cash flow from operating activities
Cash receipts from customers 13,035.4 15,327.2
Cash paid to suppliers and employees (9,186.0) (10,405.6)
Cash generated from operations 3,849.4 4,921.6
Finance costs paid (160.6) (228.8)
Interest, dividends and other
financial income received 186.8 96.9
Taxation paid (1,408.2) (1,513.2)
Dividends paid - shareholders (1,500.0) (1,800.0)
Dividends paid - minority
shareholders (1.4) -
Net cash flows from operating
activities 966.0 1,476.5
Cash flow from investing activities
Additions to property, plant and
equipment and intangible assets (1,541.5) (2,229.4)
Proceeds on disposal of property,
plant and equipment and intangible
assets - 6.8
Acquisition of subsidiaries (249.7) (0.2)
Acquired cash from Vodacom Congo
(RDC) s.p.r.l. 12.9 -
Short-term investments
realised/(made) 137.0 (8.5)
Net cash flows utilised in investing
activities (1,641.3) (2,231.3)
Cash flow from financing activities
Finance lease capital repaid (10.4) (21.1)
Interest bearing debt incurred 1,164.9 32.5
Interest bearing debt repaid (1,276.2) (46.4)
Net cash flows utilised in financing
activities (121.7) (35.0)
(797.0) (789.8)
Cash and cash equivalents at the
beginning of the period 1,597.7 2,173.0
Effect of foreign exchange rate
changes (46.2) (11.7)
Cash and cash equivalents at the end
of the period 754.5 1,371.5
Financial results have been reviewed by our auditors, Deloitte & Touche, for the
six months ended September 30, 2003, 2004 and 2005.
www.vodacom.co.za
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