Wrap Text
TKG - Telkom SA Limited - Vodacom Group (Proprietary) Limited, in which Telkom
has A 50% shareholding, announces its interim results for the six months ended
September 30, 2007
Telkom SA Limited
Registration no. 1991/005476/06
JSE and NYSE share code: TKG
ISIN: ZAE000044897
Vodacom Group interim results
Vodacom Group (Proprietary) Limited, in which Telkom has a 50% shareholding,
announces its interim results for the six months ended September 30, 2007
HIGHLIGHTS 2007
Total customers increased by 22.6% to 31.6 million
Customers increased by 15.3% to 23.3 million in South Africa
Customers increased by 41.8% to 3.7 million in Tanzania
Customers increased by 56.8% to 3.2 million in the Democratic Republic of Congo
Customers increased by 39.5% to 332 thousand in Lesotho
Customers increased by 55.5% to 1.1 million in Mozambique
Revenue increased by 17.2% to R22.8 billion
Profit from operations increased by 15.1% to R5.7 billion
EBITDA increased by 15.5% to R7.6 billion
Net profit after taxation increased by 17.5% to R3.7 billion
Cash generated from operations increased by 26.1% to R6.9 billion
Interim dividend declared in October 2007, increased by 10.0% to R2.75 billion
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, 2007.
SOUTH AFRICA
Customers
The total number of customers increased by 15.3% to 23.3 million (September 30,
2006: 20.2 million) for the six months ended September 30, 2007. The number of
prepaid customers increased by 13.5% to 19.8 million, while the number of
contract customers increased by 27.4% to 3.4 million.
It is Vodacom`s policy to disconnect inactive prepaid SIM cards after seven
months without a revenue generating activity on the Vodacom network, e.g. making
or receiving a call, sending or receiving an SMS or transmitting data. Network
activities relating to call forwarding to voicemail are classified as revenue
generating activities. Since implementing this rule, prepaid SIM cards remaining
in an active state on the network, with only call forwarding to voicemail and no
other revenue generating activities, increased significantly. It has therefore
been decided to implement a supplementary disconnection rule that will
disconnect inactive prepaid SIM cards after 13 months of being kept in an active
state, by call forwarding to voicemail only, and not having had any other
revenue generating activity on Vodacom`s network.
The implementation of the supplementary disconnection rule has led to the
disconnection of an additional 2.9 million prepaid SIM cards in September 2007,
increasing churn on the prepaid customer base to 51.9% for the period under
review. This rule change is expected to increase prepaid churn, but provides a
better reflection of active prepaid SIM cards on the network and hence results
in a higher average revenue per user (ARPU).
The implementation of this supplementary rule has no impact on the financial
performance of Vodacom South Africa.
Contract gross connections increased by 32.8% to 425 thousand (September 30,
2006: 320 thousand), while prepaid gross connections increased by 9.9% to 5.4
million (September 30, 2006: 4.9 million), bringing the total number of
connections for the six months ended September 30, 2007 to 5.8 million
(September 30, 2006: 5.3 million). The growth in contract connections was
largely due to the 3G/HSDPA mobile data card connections increasing by 170.2% to
149 thousand (September 30, 2006: 69 thousand) customers and 104 thousand
(September 30, 2006: 132 thousand) customers that converted from prepaid to
contract packages.
ARPU
During the period under review, ARPU decreased to R119 (September 30, 2006:
R124) per month due to the continued dilution caused by the higher proportion of
lower ARPU prepaid and contract connections made as the lower end of the market
is penetrated.
The contract customer ARPU decreased by 7.8% to R487 (September 30, 2006: R528)
when compared to the six months ended September 30, 2006, while prepaid customer
ARPU decreased by 3.3% to R59 (September 30, 2006: R61) per customer per month,
for the same period.
Community services ARPU decreased by 30.1% to R711 (September 30, 2006: R1,017)
per month.
Churn
Through the continued high level of handset support and an improvement in
service to customers, Vodacom maintained a very low contract churn of 8.3%
(September 30, 2006: 11.0%) for the six months ended September 30, 2007.
The prepaid churn is currently at 51.9% (September 30, 2006: 47.7%) for the six
months ended September 30, 2007, which includes the implementation of the
supplementary disconnection rule.
Traffic
Total traffic on the network, excluding the impact of national and international
roaming, showed an increase of 14.0% to 11.0 billion minutes (September 30,
2006: 9.7 billion) for the six months ended September 30, 2007. This growth was
mainly due to the 15.3% year on year growth in the total customer base from 20.2
million to 23.3 million.
Estimated market share
Vodacom`s leadership in the highly competitive South African mobile
communications market decreased to an estimated 56% market share on September
30, 2007 (September 30, 2006: 59%). The cellular industry in South Africa
increased in size by an estimated 21.5% in the last six months, of which Vodacom
has contributed approximately 42.0%. The market penetration, by SIM card, of the
cellular industry is now an estimated 86.8% (September 30, 2006: 72.2%) of the
population.
NON-SOUTH AFRICAN OPERATIONS
Vodacom`s non-South African operations provide a world-class global system for
mobile communications (GSM) service to 8.3 million customers. Profit from these
operations increased by 115.9% to R352 million.
Vodacom Tanzania
The Tanzanian market remains very competitive with the estimated mobile
penetration rate of the country increasing from 12.6% (September 30, 2006) to
17.3% as at September 30, 2007. Vodacom Tanzania`s estimated market share
decreased slightly to 54% (September 30, 2006: 55%) at September 30, 2007. The
customer base increased by 41.8% to 3.7 million (September 30, 2006: 2.6
million) whilst gross connections increased by 36.6% to 1.2 million (September
30, 2006: 909 thousand).
Vodacom Congo
Vodacom Congo remained the market leader with an estimated market share of 44%
(September 30, 2006: 49%) at September 30, 2007 under challenging circumstances.
The estimated mobile penetration rate increased substantially to 11.0%
(September 30, 2006: 6.6%) as at September 30, 2007. The growth achieved in the
customer base of 56.8% to 3.2 million (September 30, 2006: 2.0 million)
customers as at September 30, 2007 is a direct result of increased coverage in
strategic areas and the implementation of an improved sales and distribution
strategy.
Vodacom Lesotho
Vodacom Lesotho is well positioned to counter any competitive activity and has
retained its market share of 80% as at September 30, 2007 for more than three
years running. The estimated mobile penetration rate has grown to 22.1%
(September 30, 2006: 14.7%) as at September 30, 2007 on the back of strong
growth in the customer base of 39.5% to 332 thousand (September 30, 2006: 238
thousand).
Vodacom Mozambique
Although Vodacom`s estimated market share has grown to 38% (September 30, 2006:
33%) on the back of strong growth in the customer base of 55.5% to 1.1 million
(September 30, 2006: 694 thousand) customers, ARPUs remained low and the
annualised churn was high at 57.3% (September 30, 2006: 41.8%).
REVENUE
Geographical split
Rand millions % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
South Africa, including
holding companies 14,764 17,580 20,299 19.1 15.5
Tanzania 611 775 1,086 26.8 40.1
DRC 649 898 1,108 38.4 23.4
Lesotho 77 105 139 36.4 32.4
Mozambique 74 108 183 45.9 69.4
Revenue 16,175 19,466 22,815 20.3 17.2
Revenue composition
Rand millions
Six months ended September 30, 2005 2006 2007
Airtime, connection and access 9,581 11,313 12,947
Data 893 1,443 2,096
Interconnection 3,186 3,723 4,304
Equipment sales 1,910 2,312 2,393
International airtime 485 555 952
Other sales and services 120 120 123
Revenue 16,175 19,466 22,815
Revenue composition
% of total % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Airtime, connection
and access 59.2 58.1 56.7 18.1 14.4
Data 5.5 7.4 9.2 61.6 45.3
Interconnection 19.7 19.1 18.9 16.9 15.6
Equipment sales 11.8 11.9 10.5 21.0 3.5
International airtime 3.0 2.9 4.2 14.4 71.5
Other sales and services 0.8 0.6 0.5 - 2.5
Revenue 100.0 100.0 100.0 20.3 17.2
Revenue increased by 17.2% for the six months ended September 30, 2007
comprising mainly of a 45.3% increase in data revenue and an increase of 16.8%
in airtime revenue, interconnect revenue and international airtime,
collectively.
The increase in revenue was primarily driven by a 22.6% increase in the customer
base to 31.6 million customers, offset by declining ARPUs. Prepaid customers
represent 88.5% (September 30, 2006: 89.0%) of the total customer base.
Data revenue - Geographical split
Rand millions
Six months ended September 30, 2005 2006 2007
South Africa 821 1,347 1,947
Tanzania 50 65 92
DRC 13 19 37
Lesotho 7 10 14
Mozambique 2 2 6
Data revenue 893 1,443 2,096
Data revenue - Geographical split
% of total % change
Half year ended
September 30, 2005 2006 2007 05/06 06/07
South Africa 91.9 93.4 92.9 64.1 44.5
Tanzania 5.6 4.5 4.4 30.0 41.5
DRC 1.5 1.3 1.7 46.2 94.7
Lesotho 0.8 0.7 0.7 42.9 40.0
Mozambique 0.2 0.1 0.3 - n/a
Data revenue 100.0 100.0 100.0 61.6 45.3
Airtime, connection and access
Vodacom`s airtime, connection and access revenue increased primarily due to the
increase in the number of customers, offset by declining ARPUs in all
operations.
Data
Vodacom`s data revenue increased mainly due to new data initiatives. Vodacom
South Africa transmitted 2.2 billion (September 30, 2006: 2.2 billion) SMSs over
its network during the six months ended September 30, 2007. The total number of
data users (excluding SMS users) were 3.5 million (September 30, 2006: 2.1
million) on the South African network as at September 30, 2007. The number of
active data users includes: MMS users 1.3 million (September 30, 2006: 1.0
million); data card and USB modem users 266 thousand (September 30, 2006: 87
thousand); 3G/HSDPA handsets 945 thousand (September 30, 2006: 356 thousand);
Vodafone live! users 1.2 million (September 30, 2006: 687 thousand); Unique
Mobile TV users 35 thousand;(September 30, 2006: 23 thousand).
Data revenue now constitutes 10.5% (September 30, 2006: 8.6%) of service revenue
(service revenue excludes equipment sales, starter pack sales and non-recurring
revenue). Data revenue in all countries increased substantially, confirming the
trend of increased data spend by customers.
Interconnection
Vodacom`s interconnection revenue increased by 15.6% to R4.3 billion (September
30, 2006: R3.7 billion) for the six months ended September 30, 2007, due to the
growth in incoming mobile traffic from other networks.
Equipment sales
In South Africa, handset sale volumes increased by 4.0% to 2.3 million units
(September 30, 2006: 2.2 million) for the six months ended September 30, 2007.
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. The average price per handset sold was R1,114 compared to R1,085 for
the period ended September 30, 2006.
International airtime
International airtime revenue increased by 71.5% to R952 million (September 30,
2006: R555 million) for the six months ended September 30, 2007. International
airtime comprises international calls by Vodacom customers, roaming revenue from
Vodacom`s customers making and receiving calls while abroad and revenue from
international visitors roaming on Vodacom`s networks.
Other sales and services
Revenue from other sales and services includes revenue from Vodacom`s cell
captive insurance vehicle, donor porting revenue, prepaid starter pack breakage,
mobile advertising, Telkom voucher sales, site sharing rental income as well as
other revenue from non-core operations.
PROFIT FROM OPERATIONS
Geographical split
Rand millions % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
South Africa 4,060 4,745 5,389 16.9 13.6
Tanzania 115 134 180 16.5 34.3
DRC 47 133 172 183.0 29.3
Lesotho 26 34 56 30.8 64.7
Mozambique (25) (138) (56) n/a 59.4
Holding companies 2 57 (27) n/a (147.4)
Profit from operations 4,225 4,965 5,714 17.5 15.1
Profit from operations
..margin (%) 26.1 25.5 25.0 (0.6 pts) (0.5 pts)
Profit from operations for the Group increased by 15.1% to R5.7 billion in the
six months ended September 30, 2007 (September 30, 2006: R5.0 billion), fuelled
by buoyant consumer spending, relatively low inflationary environments as well
as effective cost containment in all operations. Vodacom`s profit from
operations margin decreased to 25.0% in the six months ended September 30, 2007
(September 30, 2006: 25.5%). Operating expenses increased by 17.9% which was
slightly higher than the revenue growth of 17.2%.
Profit from operations` margins of all subsidiaries remained fairly constant for
the six months ended September 30, 2007 compared to the six months ended
September 30, 2006: South Africa, including holding companies, down by 0.9%
points to 26.4%, Tanzania down by 0.7% points to 16.6%, Lesotho up by 7.9%
points to 40.3%, DRC up by 0.7% points to 15.5% while Mozambique is not yet
profitable.
The Mozambique loss from operations includes an asset impairment reversal of
R18.4 million (2006: impairment of R38.2 million).
EBITDA
Geographical split
Rand millions % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
South Africa 5,214 6,009 6,904 15.2 14.9
Tanzania 206 244 330 18.4 35.2
DRC 171 276 357 61.4 29.3
Lesotho 30 47 64 56.7 36.2
Mozambique (61) (56) (32) 8.2 42.9
Holding companies 3 58 (23) n/a (139.7)
EBITDA 5,563 6,578 7,600 18.2 15.5
EBITDA margin (%) 34.4 33.8 33.3 (0.6 pts) (0.5 pts)
EBITDA margin excluding
equipment sales (%) 39.7 39.2 38.3 (0.5 pts) (0.9 pts)
Group EBITDA increased by 15.5% to R7.6 billion (September 30, 2006: R6.6
billion) for the six months ended September 30, 2007, with South Africa
contributing 90.8% (September 30, 2006: 91.3%). The decline in the EBITDA margin
is primarily the result of higher transmission and infrastructure costs as well
as higher telecoms maintenance costs in all operations. Indeed, the high cost of
transmission remains a key challenge within the Group.
OPERATING EXPENSES
Rand millions % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Depreciation,
amortisation and
impairment 1,338 1,613 1,886 20.6 16.9
Payments to other
network operators 2,168 2,675 3,154 23.4 17.9
Other direct network
operating costs 6,577 8,051 9,327 22.4 15.8
Staff expenses 952 1,078 1,464 13.2 35.8
Marketing and
advertising 488 578 667 18.4 15.4
Other operating
Expenditure 467 555 679 18.8 22.3
Other operating income (40) (50) (76) 25.0 52.0
Operating expenses 11,950 14,500 17,101 21.3 17.9
Operating expenses as
a % of revenue (%) 73.9 74.5 75.0 0.6 pts 0.5 pts
Due to the competitive and economic environment in which VM, S.A.R.L. operates
in Mozambique, the Group assesses the assets for impairment in accordance with
the requirements of IAS 36: Impairment of Assets. The recoverable amount of
these assets was based on the fair value less cost of disposal at September 30,
2007. The amount with which the carrying amount exceeded the recoverable amount
is recognised as an impairment loss. The impairment reversal of R18.4 million
(2006: impairment of R38.2 million) for the six months ended September 30, 2007
related to an increase in the fair value of infrastructure assets due to
exchange rate fluctuations.
The depreciation expense is largely driven by capital expenditure on upgrading
the Group`s networks. Capital expenditure on network equipment has increased in
recent years with the implementation and expansion of 3G/HSDPA networks.
Depreciation and amortisation excluding impairment increased by 20.9% (September
30, 2006: 12.0%).
The review by the Group of the estimated useful lives and residual values of
property, plant and equipment during the previous financial year had the effect
of reducing the depreciation charge for the six months ended September 30, 2006.
Other direct network operating costs include the cost to connect customers onto
the network as well as 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 rental costs as
well as site and maintenance costs.
Staff expenses increased by 35.8% to R1.5 billion (September 30, 2006: R1.1
billion) in the six months ended September 30, 2007 as a result of more
competitive salaries being offered, an increase in employee headcount of 13.5%
to 6,240 (September 30, 2006: 5,499), an increase in customer care flexi staff
costs as well as increased provisions for staff benefits.
Employee productivity has improved in all of Vodacom`s operations, as measured
by customers per employee, improving by 8.0% to 5,058 (September 30, 2006:
4,683) customers per employee.
Other operating expenditure comprise of expenses such as accommodation,
information technology costs, office administration, consultant expenses, social
economic investment, subsistence, travel, transport and insurance.
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.
INTEREST, DIVIDENDS AND OTHER FINANCIAL INCOME
Rand millions % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Interest and dividends
received 60 29 46 (51.7) 58.6
Gain on foreign
liability/asset 156 446 176 185.9 (60.5)
Gain on foreign exchange
contract revaluation 83 610 38 n/a (93.8)
Gain on interest rate swap - 7 4 n/a (42.9)
Interest, dividends and
other financial income 299 1,092 264 n/a (75.8)
FINANCE COSTS
Rand millions % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Interest paid 123 153 288 24.4 88.2
Loss on foreign liability/
asset revaluation 321 580 208 80.7 (64.1)
Loss on foreign exchange
contract revaluation 234 165 102 (29.5) (38.2)
Loss on interest rate swap 4 8 6 100.0 (25.0)
Loss on call/put option
revaluation - 183 105 n/a (42.6)
Finance costs 682 1,089 709 59.7 (34.9)
ACQUISITIONS
Smartphone SP (Proprietary) Limited and subsidiaries
On August 31, 2007 the Group increased its interest in the equity of Smartphone
SP (Proprietary) Limited from 70% to 100%. The purchase consideration of R935.0
million (excluding capitalised cost) was paid on September 3, 2007. At August
31, 2007 Smartphone SP (Proprietary) Limited owned 88% of Smartcom (Proprietary)
Limited.
Smartcom (Proprietary) Limited
On September 1, 2007 the Group increased its interest in the equity of Smartcom
(Proprietary) Limited from 88% to 100%. The purchase consideration of R18.0
million was paid on September 6, 2007.
OTHER MATTERS
Vodacom Ventures (Proprietary) Limited has acquired a 35% equity stake in XLink
Communications (Proprietary) Limited for R12.3 million. Furthermore, the Board
of Vodacom Group (Proprietary) Limited has approved the exercise of the option
to acquire a further 15.5% equity investment in WBS Holdings (Proprietary)
Limited should certain suspensive conditions be fulfilled.
TAXATION
The taxation expense decreased by 13.2% to R1.6 billion (September 30, 2006:
R1.9 billion) for the six months ended September 30, 2007, mainly due to a
significant decrease in secondary taxation on companies ("STC"), which was not
accrued for at interim due to the Vodacom Group (Proprietary) Limited dividend
being declared after September 30, 2007. Vodacom`s effective tax rate
consequently decreased to 30.6% (September 30, 2006: 37.3%).
GROUP SHAREHOLDER DISTRIBUTIONS
An interim dividend of R2.75 billion was declared on October 1, 2007, an
increase of 10.0% on the prior year interim dividend (September 30, 2006: R2.5
billion). The final dividend of R2.9 billion, for the 2007 financial year, was
paid on April 4, 2007.
CAPITAL EXPENDITURE
Capital expenditure additions - Geographical split
Rand millions
Six months ended September 30, 2005 2006 2007
South Africa 2,141 2,487 1,613
Tanzania 104 288 253
DRC 140 269 259
Lesotho 11 11 19
Mozambique 77 49 20
Holding companies 2 38 125
Capital expenditure for the period 2,475 3,142 2,289
Capital expenditure additions
(including software) as a %
of revenue (%) 15.3 16.1 10.0
CAPITAL EXPENDITURE
Capital expenditure additions - Geographical split
% of total % change
Half year ended
September 30, 2005 2006 2007 05/06 06/07
South Africa 86.5 79.1 70.5 16.2 (35.1)
Tanzania 4.2 9.1 11.1 176.9 (12.2)
DRC 5.7 8.6 11.3 92.1 (3.7)
Lesotho 0.4 0.4 0.8 - 72.7
Mozambique 3.1 1.6 0.9 (36.4) (59.2)
Holding companies 0.1 1.2 5.4 n/a n/a
Capital expenditure for
the period 100.0 100.0 100.0 26.9 (27.1)
Capital expenditure
additions (including
software) as a % of
revenue (%) - - - 0.8 pts (6.1 pts)
Cost of capital expenditure - Geographical split
2006 2007
At September 30, R billions Foreign R billions Foreign
South Africa (R billions) 25.8 28.3
Tanzania (TSH billions) 2.1 345.0 2.8 501.9
DRC (US$ millions) 2.8 362.2 2.9 427.8
Lesotho (Maloti millions) 0.2 235.6 0.2 203.0
Mozambique (MZN billions) 0.8 2.8 0.8 3.0
Holding companies (R billions) 0.1 0.5
Cumulative capital expenditure 31.8 35.5
The Group invested R2.3 billion (September 30, 2006: R3.1 billion) in total.
Property, plant and equipment comprised of R2.0 billion mainly consisting of
radio, switching and transmission network infrastructure and computer software
of R0.3 billion for 2007.
Foreign currency translation differences decreased the cost of capital
expenditure by R320.5 million (September 30, 2006: increase of R984.7 million).
It is Vodacom`s policy to hedge all foreign denominated commitments of the 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 non-South 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, which
are shown under the section "Financial instruments and risk management".
FINANCIAL STRUCTURE AND FUNDING
Summary of net debt and maturity profile
Rand millions
Repayment of debt
As at September 30, 2008 2009 2010 2011 2012 2013 Total
Onwards
Interest bearing debt
Finance leases
Vodacom (Proprietary)
Limited 98 119 49 79 45 52 442
Vodacom Service Provider
Company (Proprietary)
Limited 36 50 65 85 - - 236
Funding loans
Planetel Communications
Limited - 53 - - - - 53
Caspian Limited - 63 - - - - 63
Project finance in Vodacom
Tanzania Limited 46 - - - - - 46
Term loan in Vodacom
International Limited - 1,239 - - - - 1,239
Preference shares issued
by Vodacom Congo
(RDC) s.p.r.l. 255 - - - - - 255
Sekha-Metsi Investment
Consortium Limited 1 1 - - - - 2
Other short term loans
Vodacom Congo (RDC)
s.p.r.l. 20 - - - - - 20
Sub total 456 1,525 114 164 45 52 2,356
Non interest bearing debt
Shareholders` loan
provided to Number
Portability Company
(Proprietary) Limited 6 - - - - - 6
Debt excluding bank
overdrafts 462 1,525 114 164 45 52 2,362
Bank overdrafts 4,587 - - - - - 4,587
Gross debt 5,049 1,525 114 164 45 52 6,949
Bank and cash balances (799) - - - - - (799)
Net debt 4,250 1,525 114 164 45 52 6,150
Vodacom`s net debt position increased to R6.2 billion (September 30, 2006: R3.0
billion) as at September 30, 2007.
The Group`s net debt to EBITDA ratio was 40.5% (September 30, 2006: 22.8%) while
Vodacom`s net debt to adjusted equity ratio increased to 56.6% (September 30,
2006: 37.5%). For calculation purposes equity is reduced by certain intangible
assets in terms of loan covenants.
FUNDING SOURCES
Vodacom`s ongoing objective is to fund all its non-South African operations by
means of project finance, structured such that there is no recourse to our South
African operations. Strong South African cash flows would therefore be utilised
principally to pay dividends and make new growth-enhancing investments. The
Group utilises its own funds and supported funding structures, subject to South
African Reserve Bank approval to fund offshore investments in the initial stages
of the investment, until the project is able to support project funding. Non-
recourse funding for non-South African operations is not always suitable to an
explosive high customer growth environment due to the capital expenditure
requirements thereof.
While Vodacom has project funding in place for its Tanzania investment at this
stage, Vodacom Congo and Vodacom Mozambique are still substantially dependent on
funding and guarantees from South Africa. These operations are funded by a mix
of market priced direct loans as well as security to facilitate their own credit
lines.
In South Africa, debt consisted primarily of finance lease liabilities and short
term money market borrowings at variable interest rates. Bank borrowings
(excluding those used for financing activities) are regarded as part of the
Group`s integral cash management system.
Financial instruments and risk management
Subject to central bank regulations in the various countries as well as local
market restrictions, Vodacom actively manages foreign currency risk, interest
rate risk, credit risk and liquidity risk on an ongoing basis.
Foreign exchange rates
Rand exchange rate % change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
US Dollar ("US$")
Average 6.46 6.82 7.10 5.6 4.1
Closing 6.37 7.68 6.88 20.6 (10.4)
Tanzanian Shilling ("TSH")
Average 174.92 186.99 179.02 6.9 (4.3)
Closing 178.32 168.73 179.41 (5.4) 6.3
Mozambique Meticais ("MZN")
Average 3.66 3.87 3.66 5.7 (5.4)
Closing 3.87 3.39 3.75 (12.4) 10.6
CASH FLOW
Vodacom had a negative free cash flow before shareholder distributions and
financing activities of R582 million (September 30, 2006: positive R837
million), mainly due to the acquisition of the minority interest in Smartphone
SP (Proprietary) Limited and Smartcom (Proprietary) Limited and increased
payment to infrastructure providers for capital expenditure. The cash generated
from operations of R6.9 billion had a positive variance of R1.4 billion
(September 30, 2006: cash from operations of R5.5 billion) compared to the
previous year.
VODACOM BEE EQUITY TRANSACTION
Our envisaged BEE transaction has been impacted by pending shareholder activity
for the past four months. We are now pleased to announce that the Vodacom Group
Board has given the go ahead to proceed with the envisaged BEE equity
transaction of R7.5 billion.
CONCLUSION
The Vodacom Group`s success is inextricably linked to the innovation and
competencies of our employees and business partners. We express our appreciation
and hereby give recognition for the contribution that they have made to our
achievements over the six months ended September 30, 2007.
It is the Vodacom Group`s strategic intent to ensure that we meet the
expectations of our customers and to have the most advanced communication
products and solutions available to them.
Oyama Mabandla
Non-executive Chairman
Alan Knott-Craig
Chief Executive Officer
CONSOLIDATED KEY OPERATIONAL INDICATORS
SOUTH AFRICA
% change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Customers (`000)1 15,773 20,201 23,297 28.1 15.3
Contract 2,092 2,675 3,409 27.9 27.4
Prepaid 13,653 17,440 19,790 27.7 13.5
Community services 28 86 98 n/a 14.0
Gross connections
("000)2 4,181 5,308 5,845 27.0 10.1
Contract 222 320 425 44.1 32.8
Prepaid 3,955 4,929 5,416 24.6 9.9
Community services 4 59 4 n/a (93.2)
Total churn (%)3 17.4 43.0 45.9 25.6 pts 2.9 pts
Contract 9.3 11.0 8.3 1.7 pts (2.7 pts)
Prepaid 18.7 47.7 51.9 29.0 pts 4.2 pts
Total traffic (millions
of minutes)4 8,038 9,669 11,024 20.3 14.0
Outgoing 5,329 6,485 7,407 21.7 14.2
Incoming 2,709 3,184 3,617 17.5 13.6
ARPU (Rand per
Month)5 147 124 119 (15.6) (4.0)
Contract 588 528 487 (10.2) (7.8)
Prepaid 71 61 59 (14.1) (3.3)
Community services 1,960 1,017 711 (48.1) (30.1)
Minutes of use per
customer per
month6 76 68 64 (10.5) (5.9)
Contract (excluding
bundled minutes) 212 192 175 (9.4) (8.9)
Prepaid 49 46 43 (6.1) (6.5)
Community services 2,546 1,283 908 (49.6) (29.2)
Number of employees 4,119 4,137 4,509 0.4 9.0
Customers per
employee 3,829 4,883 5,167 27.5 5.8
Estimated mobile
market share (%)7 57 59 56 2 pts (3 pts)
Estimated mobile
market penetration
(%)8 58.0 72.2 86.8 14.2 pts 14.6 pts
Notes
1. Customer totals are based on the total number of SIMs registered on Vodacom`s
network, which have not been disconnected, including inactive SIMs, as at the
end of the period indicated.
2. The gross connections for the six months ended September 30, 2005 have been
restated due to a change in the Group`s reporting policy. Conversions between
categories have now been excluded from gross connections. The following are the
connections including conversions for the six months ended September 30, 2005
based on the old policy:
2005 Contract: 312
2005 Prepaid: 3,865
3. 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.
4. 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 the six months ended September 30, 2006 were restated to
exclude packet switch data traffic.
5. 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.
6. 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.
7. Market share is calculated based on Vodacom`s total reported customers and
the estimated total reported customers of MTN and Cell C.
8. Market penetration is based on Vodacom estimates.
CONSOLITAED KEY OPERATIONAL INDICATORS (CONTINUED)
VODACOM TANZANIA
% change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Customers (`000)1 1,606 2,593 3,678 61.5 41.8
Contract 6 12 13 100.0 8.3
Prepaid 1,597 2,573 3,654 61.1 42.0
Public phones 3 8 11 166.7 37.5
Gross connections
(`000) 604 909 1,242 50.5 36.6
Churn (%) 28.7 35.2 46.8 6.5 pts 11.6 pts
ARPU (Rand)2 73 53 48 (27.4) (9.4)
Number of employees 371 482 569 29.9 18.0
Customers per
employee 4,330 5,379 6,465 24.2 20.2
Estimated mobile
market share (%)3 58 55 54 (3 pts) (1 pts)
Estimated mobile market
penetration (%) 7.6 12.6 17.3 5.0 pts 4.7 pts
VODACOM CONGO
% change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Customers (`000)1 1,236 2,027 3,178 64.0 56.8
Contract 11 16 20 45.5 25.0
Prepaid 1,209 1,988 3,102 64.4 56.0
Public phones 16 23 56 43.8 143.5
Gross connections
(`000) 373 724 1,182 94.1 63.3
Churn (%) 30.5 30.0 43.3 (0.5 pts) 13.3 pts
ARPU (Rand)2 89 83 64 (6.7) (22.9)
Number of employees 597 513 739 (14.1) 44.1
Customers per
employee 2,070 3,951 4,301 90.9 8.9
Estimated mobile
market share (%)3 49 49 44 - (5 pts)
Estimated mobile market
penetration (%) 3.9 6.6 11.0 2.7 pts 4.4 pts
VODACOM LESOTHO
% change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Customers (`000)1 171 238 332 39.2 39.5
Contract 3 3 4 - 33.3
Prepaid 166 231 323 39.2 39.8
Public phones 2 4 5 100.0 25.0
Gross connections
(`000) 42 55 80 31.0 45.5
Churn (%) 23.4 20.5 17.9 (2.9 pts) (2.6 pts)
ARPU (Rand)2 77 76 72 (1.3) (5.3)
Number of employees 65 63 63 (3.1) -
Customers per
employee 2,625 3,771 5,267 43.7 39.7
Estimated mobile
market share (%)3 80 80 80 - -
Estimated mobile market
penetration (%) 9.3 14.7 22.1 5.4 pts 7.4 pts
VODACOM MOZAMBIQUE
% change
Six months ended
September 30, 2005 2006 2007 05/06 06/07
Customers (`000)1 336 694 1,079 106.5 55.5
Contract 5 11 18 120.0 63.6
Prepaid 331 682 1,060 106.0 55.4
Public phones - 1 1 n/a -
Gross connections
(`000) 123 327 391 165.9 19.6
Churn (%) 34.5 41.8 57.3 7.3 pts 15.5 pts
ARPU (Rand)2 41 27 27 (34.1) -
Number of employees 148 126 153 (14.9) 21.4
Customers per
employee 2,271 5,507 7,054 142.5 28.1
Estimated mobile
market share (%)3 26 33 38 7 pts 5 pts
Estimated mobile market
penetration (%) 7.0 10.7 13.7 3.7 pts 3.0 pts
Notes
1. Customer totals are based on the total number of SIMs registered on Vodacom`s
network, which have not been disconnected, including inactive SIMs, at the 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 revenues, revenue from equipment sales, other sales
and services and revenue from national and international users roaming on
Vodacom`s networks.
3. Market share is calculated based on Vodacom estimates.
CONDENSED CONSOLIDATED INCOME STATEMENTS
for the six months ended September 30, 2006 and 2007
For the six months ended September 30,
2006 2007
Rm Rm
(reviewed) (reviewed)
Revenue 19,465.6 22,814.9
Other operating income 49.8 76.4
Direct network operating cost (10,726.1) (12,481.3)
Depreciation (1,335.2) (1,639.9)
Staff expenses (1,078.1) (1,464.0)
Marketing and advertising expenses (578.0) (666.9)
Other operating expenses (555.1) (678.9)
Amortisation of intangible assets (239.3) (264.4)
Impairment of assets (38.2) 18.4
Profit from operations 4,965.4 5,714.3
Interest, dividends and other
financial income 1,092.4 264.2
Finance costs (1,088.6) (709.4)
Profit before taxation 4,969.2 5,269.1
Taxation (1,855.7) (1,611.6)
Net profit 3,113.5 3,657.5
Attributable to:
Equity shareholders 3,072.4 3,596.4
Minority interests 41.1 61.1
For the six months ended September 30,
2006 2007
R R
(reviewed) (reviewed)
Basic and diluted earnings per share 307,240 359,645
Dividend per share 250,000 -
CONDENSED CONSOLIDATED BALANCE SHEETS
As at March 31, As at September 30,
2007 2007
Rm Rm
(audited) (reviewed)
ASSETS
Non-current assets 20,844.3 21,859.1
Property, plant and equipment 17,073.2 17,165.3
Intangible assets 2,700.3 3,754.7
Financial assets 209.5 177.7
Deferred taxation 386.1 314.7
Deferred cost 396.4 383.4
Lease assets 78.8 63.3
Current assets 7,625.9 9,125.1
Deferred cost 574.8 647.5
Short-term financial assets 207.5 188.6
Inventory 364.3 818.9
Trade and other receivables 5,707.9 6,646.1
Taxation receivable - 25.2
Cash and cash equivalents 771.4 798.8
Total assets 28,470.2 30,984.2
EQUITY AND LIABILITIES
Ordinary share capital * *
Retained earnings 9,523.2 13,118.7
Non-distributable reserves (97.4) (162.1)
Equity attributable to equity
holders of the parent 9,425.8 12,956.6
Minority interests 221.2 265.1
Total equity 9,647.0 13,221.7
Non-current liabilities 3,812.1 3,606.8
Interest bearing debt 2,051.4 1,899.0
Non-interest bearing debt 3.0 6.0
Deferred taxation 757.3 716.2
Deferred revenue 412.3 414.9
Provisions 377.5 309.4
Other non-current liabilities 210.6 261.3
Current liabilities 15,011.1 14,155.7
Trade and other payables 6,874.4 6,079.5
Deferred revenue 1,904.8 2,120.0
Taxation payable 1,112.7 209.0
Short-term interest bearing debt 501.0 456.4
Short-term provisions 741.8 678.9
Dividends payable 2,990.0 -
Derivative financial liabilities 7.2 25.0
Bank borrowings 879.2 4,586.9
Total equity and liabilities 28,470.2 30,984.2
* Share capital R100
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the six months ended September 30, 2006 and 2007
Attributable to equity shareholders
Share Retained Non-distributable
Capital earnings reserves
Rm Rm Rm
Balance at March 31, 2006 * 8,583.0 (194.0)
Net profit for the period - 3,072.4 -
Dividends declared - (2,500.0) -
Contingency reserve - (0.7) 0.7
Other acquisitions - - -
Net gains and losses not
recognised in the income
statement
Foreign currency translation
reserve - - 122.9
Foreign currency translation
reserve - deferred taxation - - (9.0)
Capital contribution on
remeasurement of shareholders
loan to fair value - - (1.2)
Balance at September 30,
2006 - Reviewed * 9,154.7 (80.6)
Balance at March 31, 2007 * 9,523.2 (97.4)
Net profit for the period - 3,596.4 -
Contingency reserve - (0.9) 0.9
Disposal of subsidiaries - - -
Other acquisitions - - -
Minority shares of VM, S.A.R.L - - -
Net gains and losses not
recognised in the
income statement
Foreign currency translation
reserve - - (69.5)
Foreign currency translation
reserve - deferred taxation - - 3.4
Capital contribution on
remeasurement of shareholders
loan to fair value - - 0.5
Balance at September 30,
2007 - Reviewed * 13,118.7 (162.1)
*Share Capital R100
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
for the six months ended September 30, 2006 and 2007
Total Minority Total
Interests equity
Rm Rm Rm
Balance at March 31, 2006 8,389.0 283.3 8,672.3
Net profit for the period 3,072.4 41.1 3,113.5
Dividends declared (2,500.0) (35.4) (2,535.4)
Contingency reserve - - -
Other acquisitions - (22.3) (22.3)
Net gains and losses not
recognised in the
income statement
Foreign currency translation
Reserve 122.9 26.0 148.9
Foreign currency translation
reserve - deferred taxation (9.0) - (9.0)
Capital contribution on
remeasurement of shareholders
loan to fair value (1.2) 1.2 -
Balance at September 30,
2006 - Reviewed 9,074.1 293.9 9,368.0
Balance at March 31, 2007 9,425.8 221.2 9,647.0
Net profit for the period 3,596.4 61.1 3,657.5
Contingency reserve - - -
Disposal of subsidiaries - (0.3) (0.3)
Other acquisitions - (6.1) (6.1)
Minority shares of VM, S.A.R.L - 0.8 0.8
Net gains and losses not recognised
in the income statement
Foreign currency translation
reserve (69.5) (11.1) (80.6)
Foreign currency translation
reserve - deferred taxation 3.4 - 3.4
Capital contribution on
remeasurement of shareholders
loan to fair value 0.5 (0.5) -
Balance at September 30,
2007 - Reviewed 12,956.6 265.1 13,221.7
*Share Capital R100
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
For the six months ended September 30,
2006 2007
Rm Rm
(reviewed) (reviewed)
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipts from customers 18,589.6 22,417.6
Cash paid to suppliers and employees (13,135.2) (15,538.2)
Cash generated from operations 5,454.4 6,879.4
Finance costs paid (574.5) (408.6)
Interest, dividends and other
financial income received 394.0 94.5
Taxation paid (1,792.0) (2,506.1)
Dividends paid - equity shareholders (2,800.0) (2,900.0)
Dividends paid - minority shareholders (35.4) (90.0)
Net cash flows from operating activities 646.5 1,069.2
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment and intangible assets (2,629.0) (3,678.1)
Proceeds on disposal of property, plant
and equipment and intangible assets 3.1 4.1
Disposal of subsidiaries - 15.7
Other acquisitions - (953.0)
Other investing activities (19.3) (30.2)
Net cash flows utilised in
investing activities (2,645.2) (4,641.5)
CASH FLOW FROM FINANCING ACTIVITIES
Interest bearing debt repaid (77.2) (49.4)
Finance lease capital repaid (34.6) (50.7)
Bank borrowings - 4,551.0
Other financing activities - 7.1
Net cash flows generated from/
(utilised in) financing activities (111.8) 4,458.0
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENT (2,110.5) 885.7
(Bank borrowings)/Cash and cash
equivalents at the beginning
of the period 1,760.3 (107.9)
Effect of foreign exchange rate changes 89.6 (14.9)
CASH AND CASH EQUIVALENTS/
(BANK BORROWINGS) (260.6) 762.9
AT THE END OF THE PERIOD
DISCLAIMER
This publication 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 publication and will not be held liable for any reliance placed on the
information contained in this publication.
The information contained in this publication is subject to change without
notice and may be incomplete or condensed. In addition, this publication 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 foregoing, it should be
noted that:
- Many of the statements included in this publication 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 publication either to conform them to actual results or to
changes in its 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 publication.
Date: 19/11/2007 07:05:01 Supplied by www.sharenet.co.za
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