Vodacom Delivers Mild Interim Performance - Frost & Sullivan

- Vodacom releases interim financial results

CAPE TOWN, South Africa, Nov. 11, 2013 /PRNewswire/ -- Vodacom and MTN, the country's two largest mobile operators, have faced challenges over the last few periods, which they have not had to endure over the last five or six years. The local mobile market is rapidly approaching saturation; with Cell C and Telkom Mobile offering greater competition and the regulator playing a bigger role in driving prices down. This pressure is being reflected in performance, as Vodacom posted very moderate growth from local operations. The operator, however, continues to benefit from its geographic diversification as operations in other parts of Africa remain a major source of growth.

Today, Vodacom released interim results for the six month period ended 30 September to reveal a mild improvement in revenue. Group revenues for the six months rose 6.6 percent to R36,668 million from R34,426 million the year before. Headline Earnings Per Share (EPS) / Earnings Before Interest, Taxes, Depreciation (EBITDA) for the period grew by 9.6 percent to R13,221 million. The performance came on the back of declining revenue in the South African operations, countered by a positive performance in the Group's international operations. Interconnect revenue for the current period fell by 23.6 percent. With the introduction of the asymmetric mobile termination rate (MTR) looming, interconnect revenue is expected to drop further in subsequent periods. 

"Interconnect revenue was on the decline anyway, as the operator had reported a 18 percent drop in its interim from 2011 to 2012; Vodacom and MTN were already looking to content and data, in order to counter the impact on service revenue", stated Frost & Sullivan Information & Communication Technologies Research Analyst, Lehlohonolo Mokenela. "What will be interesting to see is the impact on subscriber shares as Cell C and Telkom Mobile become relatively more competitive on off-net tariffs."

Local operations delivered a flat performance, with revenue falling by 0.04 percent, from R23,757 million in 2012 to R23,747 million in the current period, coming under pressure from continuing price drops and rising competition. While voice revenue continued to decline, the rising smartphone penetration saw the operator's data revenue improve by 20.6 percent for the period. The drop in Average Revenue Per User (ARPU) was largely attributed to a decline in the out-of-bundle spend of contract subscribers and the increase in telemetry SIM cards that tend to consume less data.

International operations in the DRC, Lesotho, Mozambique and Tanzania posted a 8.7 percent growth in revenue compared to a 36.5 percent growth from the year before. Their performance has primarily been driven by increasing data revenue, which grew by over 100 percent on the back of a 41 percent increase in data subscribers. M-PESA continues to be central to the international operations' strategy, already contributing 18.7 percent to Vodacom Tanzania's service revenue. M-PESA has subsequently been launched in the DRC, Lesotho and Mozambique. EBITDA for the period from these operations also rose 39.2 percent to R1,806 million.

As talks of the operator's possible takeover of Neotel continue, Capital Expenditure (CAPEX) has dropped by 4.9 percent to R3,058 million. Should the deal proceed, it is touted that Vodacom's enterprise business will be boosted by close to 50 percent. In a move that would mirror the acquisition of Cable & Wireless by parent company, Vodafone UK, the deal will give Vodacom access to Neotel's 15,000 kilometres of fibre-optic network.

Mokenela believes that this will provide Vodacom with the platform to be a key provider of fixed and mobile services in the retail and wholesale markets, much in line with what is expected of Vodafone.

Vodacom is also looking at other areas for growth, including mHealth and machine-to-machine (M2M) solutions in other verticals. In the latter part of 2012, the operator introduced the Global Data Service Platform (GDSP) in the M2M market. This was yet a further alignment of its strategy with Vodafone, with the expectation of replicating the parent company's dominance of the European M2M market.

The operator announced a dividend of 395 cents per share, 11.2 percent up from 2012.

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