Vodacom Interim Results for the Six Months ended September 30, 2003
JOHANNESBURG, South Africa, November 24 /PRNewswire/ -- 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).
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
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.
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.
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 Six months ended September 30
2002 2003
(unaudited) (unaudited) %
change
Depreciation and amortisation 1,189 1,247 4.9
Payments to other network 983 1,379 40.3
operators
Other direct network operating 4,338 5,013 15.6
costs
Staff expenses 502 632 25.9
Marketing and advertising 365 345 (5.5)
expenses
General administration expenses 234 300 28.2
Other operating income (8) (71) 787.5
7,603 8,845 16.3
Depreciation and amortisation
Depreciation and amortisation increased a marginal 4.9% over the same
period last year to R1,247 million for the six months ended September 30,
2003, primarily due to depreciation and amortisation of capital
expenditures Vodacom incurred in building out its network in South Africa
and other sub-Saharan African countries. The low growth in depreciation and
amortisation is the result of a slowdown of capital expenditure in
Vodacom's South African operations where Vodacom has substantially
completed building its network, including GPRS, MMS and 1800 MHz
capabilities. Furthermore, the stronger Rand had a positive impact on the
depreciation charge from other African operations, where network roll-out
is still aggressive.
Payments to other network operators
Payments to other network operators increased a substantial 40.3% in
the six months ended September 30, 2003 compared to the six months ended
September 30, 2002. Payments to other network operators consist mainly of
interconnection payments made by Vodacom's South African and other African
operations for terminating calls on other operators' networks and was
therefore affected by increased outgoing traffic from South Africa and
other African countries in line with increased customer growth. The trend
that Vodacom has observed in the past of outgoing traffic increasingly
terminating on mobile networks, rather than on fixed-line networks
(fixed-mobile substitution) has continued, resulting in higher
interconnection costs as the cost of terminating calls on other mobile
networks is generally higher than calls terminating on fixed-line networks. This trend has been most evident in its South African operations. The
increase was further due to the increase in interconnection tariffs on
January 1, 2003 in South Africa in terms of interconnection agreements and
more calls terminating on mobile networks as mobile traffic grows.
Other direct network operating costs
Other direct network operating costs have been well managed to have
increased 15.6% to R5,013 million in the six months ended September 30,
2003 (September 30, 2002: R4,338 million). Other direct network operating
costs are incurred to maintain and support the growth in operations. Vodacom has managed to contain the increases in these expenses at levels
below the growth in revenues, significantly aiding margins. Other direct
network expenses include commissions, cost of goods sold, regulatory and
licence fees, site and site maintenance costs and other distribution
expenses. The increased competition in the South African market has put
upward pressure on connection costs and other distribution expenses, but
has been offset to some extent by lower costs because of the stronger Rand.
Staff expenses
Vodacom's staff expenses increased 25.9% to R632 million in the six
months ended September 30, 2003 (September 30, 2002: R502 million) due
mainly to an increased deferred bonus incentive provision, resulting from
the increased consolidated profitability. Staff expenses consist mainly of
salaries and wages of employees as well as contributions to employee
pension and medical aid funds and benefits and expenses related to
Vodacom's deferred bonus incentive scheme. The amount of the deferred bonus
accruing to employees is linked to consolidated profit before tax, which
showed low growth in 2002 due mainly to the impact of IAS 39: Financial
Instruments: Recognition and Measurement, but increased markedly for the
period under review. The increase was also the result of an overall
increase in average salaries for employees of approximately 8.0% combined
with a 5.8% increase in the number of employees. Employee productivity, as
measured by customers per employee (including contractors and temps), again
increased by a pleasing 18.2% to 2,137 (September 30, 2002: 1,808). This
has been achieved because Vodacom managed to control headcount growth to
5.8% across all operations, to 4,489 as at September 30, 2003 (September
30, 2002: 4,242) despite solid growth in operations.
Marketing and advertising expenses
Marketing and advertising expenses decreased by 5.5% to R345 million in
the six months ended September 30, 2003 (September 30, 2002: R365 million)
primarily because of significant marketing expenses that were incurred in
the preceding six-month period for the launching of Vodacom Congo, which
was not repeated in the current period.
General administration expenses
General administration expenses comprise a number of expenses including
accommodation, information technology costs, office administration,
consultants' expenses, corporate social investment and insurance. General
administration expenses increased by 28.2% to R300 million in September 30,
2003 (September 30, 2002: R234 million), due to a large once-off
reimbursement which was netted against the related expense in the preceding
six-month period. If the effect of this reimbursement is excluded, general
administration expenses increased by 7.5% from the prior six-month period,
in line with inflation.
Other operating income
Other operating income comprises income of a nature that Vodacom does
not view as part of its core activities, and is therefore shown separately.
Capital expenditure In ZAR millions Six months ended September
30
2002 2003
(unaudited) (unaudited) % change
South Africa 1,119 830 (25.8)
Tanzania 160 145 (9.4)
Congo (51%) 403 146 (63.8)
Lesotho 35 4 (88.6)
Holding companies 1 4 300.0
1,718 1,129 (34.3)
CAPEX as a percentage of revenue 18.2 10.0
Vodacom's capital expenditure for the six months to September 30, 2003
was down 34.3% to R1,129 million, or 10.0% of revenue from R1,718 million,
or 18.2% of revenue in the preceding six-month period. Cumulative capital
expenditure as at September 30, 2003 was R19.2 billion, compared to R18.3
billion as at March 31, 2003 and R17.1 billion as at September 30, 2002. It
is Vodacom's policy to economically hedge all foreign-denominated committed
orders from South Africa. However, because Vodacom does not qualify to
apply hedge accounting to these transactions in terms of International
Financial Reporting Standards, FEC profits and losses are reflected as
financing income and costs in its financial statements. Capital expenditure
for the period and the translation of foreign assets are sensitive to
movements in exchange rates, which has worked in Vodacom's favour during
the current period. Vodacom's South African network roll-out requirements
have substantially decreased and older orders are fast being completed. Subsequently, the historically large FEC book has also reduced rapidly from
R2,072 million at September 30, 2002 to R1,403 million at March 31, 2003
and finally to R801 million at September 30, 2003, a decrease of 61.3% from
September 30, 2002. Capital expenditure in Vodacom's other African
operations is still at relatively high levels, and this is expected to
continue until these markets are more mature and the network infrastructure
roll-out substantially completed. Vodacom's reduced consolidated capital
expenditure has a material positive impact on the cash generation and has
supported Vodacom paying an interim dividend. South African cumulative
network capital expenditure per customer is at an all-time low of R1,876, a
further 5.6% improvement from September 30, 2002. As an example of another
exciting Vodacom and South African first, Vodacom is in the process of
rolling out equipment to supply mobile coverage in one of AngloGold's
mines, the Great Noligwa Goldmine.
Funding In ZAR millions Six months ended September
30
2002 2003
(unaudited) (unaudited) % change
South Africa: finance leases 794 892 12.3
South Africa: short-term 421 - (100.0)
finance
South Africa: shareholders' 920 - (100.0)
loans
Tanzania: outside shareholders' 93 83 (10.8)
loans
Tanzania: project finance 474 422 (11.0)
Congo: extended and revolving
credit and
other loans (51%) 364 653 79.4
Net bank overdrafts and 1,168 570 (51.2)
non-interest-bearing debt
Net debt 4,234 2,620 (38.1)
Net debt as a percentage of 66.8 34.7
equity
Even after paying out R1.2 billion worth of dividends to its
shareholders and repaying R920 million worth of shareholder loans during
the six months ended September 30, 2003, Vodacom's balance sheet remains
very healthy. Net debt as at September 30, 2003 increased by only 14.1% to
R2,620 million from R2,295 million as at March 31, 2003, and actually
decreased markedly by 38.1% from R4,234 million as at September 30, 2002. Net debt as a percentage of equity as at September 30, 2003 was 34.7%,
compared to 33.6% as at March 31, 2003 and 66.8% as at September 30, 2002. Vodacom's consolidated net debt as at September 30, 2003 consists of R892
million Rand-denominated finance leases (September 30, 2002: R794 million
finance leases, R421 million short-term funding) and R1,158 million
foreign-denominated funding and other short-term loans (September 30, 2002:
R931 million) for its other African operations as well as R570 million in
net bank overdraft balances and non-interest-bearing debt (September 30,
2002: R1,168 million). Of the foreign-denominated funding loans, R422
million is ring-fenced project finance debt in Vodacom Tanzania, whereas
the rest of the foreign-denominated funding loans are not yet ring-fenced,
being primarily bridging finance facilities for Vodacom Congo. Consolidated
debt includes 51% of Vodacom Congo's debt. Non-consolidated recourse debt
amounts to R615 million. Vodacom is confident that, given its current
strong cash generation, it will be able to continue to fund its African
expansion strategy while also continuing to pay dividends to its
shareholders.
Segment commentary Vodacom South Africa operational overview Key operational indicators Six months ended September
30
2002 2003
(unaudited) (unaudited) %
change
Total mobile customers 7,130 8,522 19.5
(thousands)
Contract 1,139 1,251 9.8
Prepaid 5,961 7,242 21.4
Community services telephones 30 29 (3.3)
Gross connections (thousands) 1,625 2,248 38.3
Contract 110 110 -
Prepaid 1,513 2,135 41.1
Community services 2 3 50.0
3 month Inactive customers (%) 15.1 15.3 1.3
Contract (%) 4.9 5.6 14.3
Prepaid (%) 17.0 17.1 0.6
Churn (%) 30.7 39.1 27.4
Contract (%) 13.2 10.8 (18.2)
Prepaid (%) 34.3 44.1 28.6
Mobile market share (%) (at 59 55 (6.8)
period end)
Mobile market penetration (%) (at 26.6 34.9 31.2
period end)
Total traffic (millions of 5,007 5,774 15.3
minutes)
Outgoing 2,994 3,601 20.3
Incoming (interconnection) 2,013 2,173 7.9
Average monthly revenue per
customer
(ARPU) (ZAR) 181 179 (1.1)
Contract 612 663 8.3
Prepaid 88 87 (1.1)
Community services 1,766 1,912 8.3
Average monthly minutes of use
(MOU) per customer (outside the
bundle)
102 95 (6.8)
Contract 269 268 (0.4)
Prepaid 53 54 1.9
Community services 3,215 2,699 (16.0)
Cumulative network capital
expenditure per customer (ZAR, at
period end)
1,980 1,876 (5.3)
Number of employees (incl. temps
and contractors, at period end)
3,845 3,844 -
Number of customers per employee
(at period end) 1,854 2,217 19.6
Customer growth in South Africa has once again been driven by very
strong prepaid connections. Vodacom has seen the highest ever number of
gross connections, increasing 38.3% to total 2.2 million to September 30,
2003 compared to the same period in the preceding year. Vodacom continues
to have a firm belief in the depth of the South African market, with its
initial estimate of the total South African market of 19 million customers
already almost being tested, with no sign of the growth abating. As at
September 30, 2003 Vodacom estimates the total number of South African
mobile customers at 15.6 million, with Vodacom having the lion's share, at
an estimated 55%. Because of its exceptionally low contract churn of 10.8%,
Vodacom South Africa has managed to grow its contract base despite the
aggressive acquisition strategies of its competitors. The relatively high
prepaid churn of 44.1% can be attributed to the low cost of entry market
model which has become even more competitive. The increased deletions are
the result of a shortening of the time window lock period from 125 days to
94 days in the six-month period under review as well as a change to the
inactivity rule for customers, resulting in a higher number of customers
being classified as inactive and subsequently being deleted. The
implementation of the new activity rules will be completed during the
second half of the year. The significant reduction in MOUs from community
services phones by 16.0% to 2,699 minutes per month for the six months to
September 30, 2003 (September 30, 2002: 3,215) is a result of the tariff
increases that were effected November 1, 2002 to 85c incl. VAT per minute. The price-sensitivity of the target market resulted in a decrease in usage
although ARPUs still increased 8.3% in the same period. Prepaid and
contract MOUs remained stable. Growth in new service offerings is very
encouraging, with active MyLife GPRS users reaching 35,642 in September
2003 (January 2003: 4,846) with total usage of 24 gigabytes in the month of
September 2003 (January 2003: 4 gigabytes). MMS growth is just as exciting. On September 30, 2003, Vodacom had 19,592 active MMS users (January 2003:
1,421) with the number of messages sent reaching 128,757 for the month of
September 2003 (January 2003: 39,670 messages). Vodacom is very excited
about the further growth opportunities offered by the successful launch of
its business brand, Office Anywhere, on August 10, 2003. Productivity, as
measured by customers per employee, increased by 19.6% to 2,217 customers
per employee, again proving the quality of our workforce.
Vodacom Tanzania Key indicators Six months ended September
30
2002 2003
(unaudited) (unaudited) % change
Number of customers 305,953 541,285 76.9
Contract 7,687 5,027 (34.6)
Prepaid 297,933 533,259 79.0
Public phones 333 2,999 800.6
ARPU (USD) 23 18 (21.7)
Revenue (ZAR millions) 408 431 5.6
EBITDA (ZAR millions) 130 122 (6.2)
Profit from operations (ZAR 60 54 (10.0)
millions)
Revenue (USD thousands) 39,165 56,858 45.2
EBITDA (USD thousands) 12,502 16,038 28.3
Profit from operations (USD 5,800 7,102 22.4
thousands)
Project finance debt (ZAR 474 422 (11.0)
millions)
Cumulative capex (USD millions) 115 152 32.2
Number of employees (incl. temps
and contractors, at period end)
208 270 29.8
Mobile market share (estimate, %) 60 56 (6.7)
Vodacom owns a 65% interest in Vodacom Tanzania Limited ("Vodacom
Tanzania") which competes with four other mobile operators in Tanzania. Vodacom Tanzania became the largest mobile communications network operator
in Tanzania within one year of launching and has continued to dominate ever
since. The devaluation of the Tanzanian Shilling against the US Dollar,
Vodacom Tanzania's billing currency, together with increased competition,
has put pressure on ARPUs. However, management acted decisively by reducing
tariffs substantially in June 2003, thereby reducing time-window locked
handsets, churh and increasing the number of active customers. There is a
21.7% decline from the prior six-month period in ARPUs to $18 per month for
the six months ended September 30, 2003 (September 30, 2002: $23). Despite
the lower than anticipated ARPUs experienced, rapid customer growth has to
a certain extent offset the negative impact of the lower ARPUs. The net
effect of the increased competition and the devaluation of the currency has
been a decrease in EBITDA in the six months ended September 30, 2003 to
R122 million (September 30, 2002: R130 million) and profit from operations
to R54 million (September 30, 2002: R60 million) from the preceding
six-month period. It is evident from the table above that the strengthening
of the Rand against the US Dollar hurt Vodacom's profitability in Rand
terms. However, in US Dollar terms, revenue, EBITDA and profit from
operations increased significantly when compared to the same period last
year, with all three indicators showing growth in excess of 20%. Vodacom
Tanzania's cumulative capital expenditures through September 30, 2003 was
$152 million (September 30, 2002: $115 million). Vodacom Tanzania has
passed its peak funding requirement, and total drawn facilities as at
September 30, 2003 amounted to R422 million or $59.5 million (September 30,
2002: R474 million). Despite the changing market dynamics and lower than
anticipated results in Rand terms, management is confident that the
fundamentals are firmly in place to enable Vodacom Tanzania to deliver
strong returns in the future.
Vodacom Congo Key indicators (all indicators reflect 100% of Vodacom Congo) Six months ended September
30
2002 2003
(unaudited) (unaudited) %
change
Number of customers 142,477 457,707 221.2
Contract 1,778 5,934 233.7
Prepaid 137,502 442,757 222.0
Public phones 3,197 9,016 182.0
ARPU (USD) 22 24 9.1
Revenue (ZAR millions) 186 401 115.8
EBITDA (ZAR millions) (109) 64 158.9
Loss from operations (ZAR (165) (12) 92.9
millions)
Revenue (USD thousands) 17,767 53,024 198.4
EBITDA (USD thousands) (10,479) 8,514 181.8
Loss from operations (USD (15,849) (1,336) 91.6
thousands)
Drawn credit facilities (ZAR
millions)
714 1,280 79.3
Cumulative capex (USD millions) 91 157 72.5
Number of employees (incl. temps
and contractors, at period end) 119 305 156.3
Mobile market share (estimate, %) 24 45 87.5
Vodacom owns a 51% interest in Vodacom Congo (R.D.C.) s.p.r.l. ("Vodacom Congo"), while Congolese Wireless Network s.p.r.l. owns the
remaining 49%. Vodacom Congo's network was relaunched under the Vodacom
name in May 2002, and as such is still a relatively new operation. Vodacom
proportionally consolidates the results of Vodacom Congo due to certain
minority protection rights enjoyed by the other shareholder. Despite strong
competition, Vodacom Congo increased customers 84.6% in the last six months
alone and estimates that its 457,707 customers reflect a market share of
45%. Within this high customer growth stage, it is impressive to report an
increase in ARPUs from $22 to $24 especially as this reflects a turnaround
after the decline reported at March 31, 2003 to $20. Vodacom Congo's
revenues increased 115.8% to R401 million in the six months to September
30, 2003, as a result of the higher than anticipated customer growth
numbers and ARPUs. Vodacom Congo has turned EBITDA positive at R64 million
for the six months ended September 30, 2003 (September 30, 2002: R109
million loss) and shows only a small operating loss of R12 million for the
six months ended September 30, 2003 (September 30, 2002: R165 million
loss). The loss from operations is reported after the deduction of a
management fee payable to Vodacom. The operations in Vodacom Congo are now
more predictable and progressing according to plan, although the somewhat
lower than anticipated margins achieved to date and the current strong
customer growth experienced indicates that the project will ultimately take
a longer time to turn profitable than initially expected. Vodacom Congo's
cumulative capital expenditures through September 30, 2003 were $157
million (September 30, 2002: $91 million). Pursuant to its shareholders'
agreement Vodacom is responsible for the funding of the operations for the
first three years which it has done in part through recourse to South
Africa. Only 51% of the debt is reflected on the consolidated balance
sheet. Vodacom Congo is in the process of seeking project finance for the
operation.
Vodacom Lesotho Key indicators Six months ended September
30
2002 2003
(unaudited) (unaudited) % change
Number of customers 91,898 70,524 (23.3)
Contract 5,639 3,031 (46.2)
Prepaid 86,001 66,875 (22.2)
Public phones 258 618 139.5
ARPU (ZAR) 87 119 36.8
Revenue (ZAR millions) 46 55 19.6
EBITDA (ZAR millions) 14 12 (14.3)
Profit from operations (ZAR 1 - -
millions)
Cumulative capex (ZAR millions) 158 198 25.3
Number of employees (incl. temps
and contractors,
at period end) 70 70 -
Mobile market share (estimate, n/a 78 -
%)
Vodacom owns an 88.3% interest in Vodacom Lesotho (Proprietary) Limited
("Vodacom Lesotho"). The Lesotho Telecommunications Corporation was issued
the second mobile communications licence in Lesotho and commenced
operations in April 2002, which has had a negative impact on the
profitability of Vodacom Lesotho. The decline in the number of customers is
the result of a concerted cleaning-up process of the customer base during
which time inactive customers were deleted from the base. Vodacom Lesotho's revenue grew by 19.6% to R55 million (September 30,
2002: R46 million) driven by an increase in active customers. Fierce
competition has resulted in significant margin squeeze, resulting in a
decrease in EBITDA of 14.3% and a very flat profit from operations
performance. Vodacom Lesotho's cumulative capital expenditure through
September 30, 2003 were R198 million (September, 30 2002: R158 million).
Vodacom Mozambique
The main obstacles that previously prevented Vodacom from utilising its
licence and commencing operations in Mozambique were the legal and
commercial separation of the incumbent fixed-line operator and the current
sole mobile operator in the country. These obstacles have been overcome and
commercially viable interconnect agreements have been entered into. With
all the prerequisites in place, Vodacom Mozambique started operational
roll-out at the beginning of October 2003. Vodacom Mozambique holds a
15-year mobile telecommunications licence, which officially commenced on
August 23, 2003. Vodacom Mozambique anticipates to launch its commercial
services in early December 2003.
Nigeria
Until Vodacom was invited by Econet Wireless Nigeria ("EWN") earlier
this year to acquire equity in EWN, Vodacom had no intention of
participating in the Nigerian cellular industry. Vodacom responded to the
invitation by the EWN Board by making an offer subject to a successful
financial and legal due diligence. This offer was accepted by the EWN Board
and shareholders. Vodacom is currently engaged in the necessary financial and legal due
diligence before the transaction can proceed. This due diligence work is
not as yet complete. Should this due diligence reveal any financial or
legal obstacle in pursuing the proposed transaction, then clearly such a
transaction cannot take place. It is Vodacom's information that the primary reason for EWN inviting
Vodacom to make an offer and accepting such an offer was a need on their
part to acquire more operational and marketing support, as well as
financial support, to compete more effectively in the Nigerian market.
Dividends and shareholder distributions
Vodacom has delivered excellent returns to its shareholders in the past
due to its impressive profitability and cash generation. Vodacom has made
the following payments in the six months to September 30, 2003: - R920 million shareholders loans repaid June 30, 2003 - R600 million final 2003 dividend paid June 30, 2003 - R600 million interim 2004 dividend paid September 30, 2003 Despite its ambitious African expansion, Vodacom remains confident that
it will continue to pay dividends to its shareholders.
CONDENSED CONSOLIDATED INCOME STATEMENTS For the six months ended
September 30
2002 2003
Rm Rm %
(unaudited) (unaudited) change
Revenue 9,440.8 11,295.6 19.6
Other operating income 8.3 71.1 756.6
Direct network operating cost (5,320.6) (6,391.5) 20.1
Depreciation (1,084.8) (1,148.0) 5.8
Staff expenses (501.7) (632.5) 26.1
Marketing and advertising expenses (364.8) (344.8) (5.5)
General administration expenses (234.4) (300.1) 28.0
Amortisation of intangible assets (104.6) (98.9) (5.4)
Profit from operations 1,838.2 2,450.9 33.3
Interest, dividends and other
financial income 385.4 354.5 (8.0)
Finance costs (685.1) (652.8) (4.7)
Profit before taxation 1,538.5 2,152.6 39.9
Taxation (524.7) (772.1) 47.2
Profit after taxation 1,013.8 1,380.5 36.2
Minority interest (95.7) (7.0) (92.7)
Net profit 918.1 1,373.5 49.6
Note: % Change may differ from that disclosed elsewhere because of
rounding differences.
Condensed consolidated balance sheets As at As at
March 31 September 30
2003 2003
Rm Rm %
(audited) (unaudited) change
ASSETS
Non-current assets 12,125.9 12,030.1 (0.8)
Property, plant and equipment 10,675.0 10,502.1 (1.6)
Intangible assets 551.1 550.8 (0.1)
Investments 195.1 249.4 27.8
Deferred taxation 704.7 727.8 3.3
Current assets 4,689.7 5,083.3 8.4
Inventory 238.8 246.6 3.3
Accounts receivable 3,158.9 3,680.7 16.5
Current portion of investments 50.9 95.3 87.2
Foreign currency derivatives 34.6 0.7 (98.0)
Bank and cash balances 1,206.5 1,060.0 (12.1)
Total assets 16,815.6 17,113.4 1.8
EQUITY AND LIABILITIES
Capital and reserves 6,837.4 7,551.2 10.4
Ordinary share capital - - -
Non-distributable reserves (132.3) (192.6) 45.6
Retained earnings 6,969.7 7,743.8 11.1
Minority interest 88.0 85.0 (3.4)
Non-current liabilities 2,881.6 2,615.4 (9.2)
Interest bearing debt 1,732.2 1,382.7 (20.2)
Deferred taxation 993.1 1,083.9 9.1
Provisions 156.3 148.8 (4.8)
Current liabilities 7,008.6 6,861.8 (2.1)
Accounts payable 3,799.0 3,938.2 3.7
Taxation payable 315.2 224.9 (28.6)
Shareholder loans 920.0 - (100.0)
Non interest bearing debt 4.3 4.3 -
Current portion of interest 286.1 667.7 133.4
bearing debt
Provisions 324.4 329.2 1.5
Dividends payable 600.0 - (100.0)
Foreign currency derivatives 200.6 72.5 (63.9)
Bank overdrafts 559.0 1,625.0 190.7
Total equity and liabilities 16,815.6 17,113.4 1.8
Condensed consolidated statements of changes in equity Share Non-
capital and Retained distributable
premium earnings reserves Total
Rm Rm Rm Rm
Balance at March 31, 2002 - 5,357.7 106.1 5,463.8
- audited
Net profit for the period - 918.1 - 918.1
Contingency reserve - 1.3 (1.3) -
Net gains and losses not
recognised in the income
statement
Foreign currency
translation reserve
- - (54.1) (54.1)
Foreign currency
translation reserve
- deferred taxation
- - 9.2 9.2
Balance at September 30, - 6,277.1 59.9 6,337.0
2002 - unaudited
Balance at March 31, 2003
- audited
- 6,969.7 (132.3) 6,837.4
Net profit for the period - 1,373.5 - 1,373.5
Dividends declared - (600.0) - (600.0)
Contingency reserve - 0.6 (0.6) -
Net gains and losses not
recognised in the income
statement
Foreign currency - - (65.3) (65.3)
translation reserve
Foreign currency
translation reserve
- deferred taxation
- - 5.6 5.6
Balance at September 30,
2003 - unaudited
- 7,743.8 (192.6) 7,551.2
Condensed consolidated cash flow statements For the six months
ended
September 30
2002 2003
Rm Rm %
(unaudited) (unaudited) change
Cash flow from operating
activities
Cash receipts from customers 9,009.8 10,789.2 19.7
Cash paid to suppliers and (5,838.0) (7,798.2) 33.6
employees
Cash generated from operations 3,171.8 2,991.0 (5.7)
Finance costs paid (513.4) (353.3) (31.2)
Interest, dividends and other
financial income received 286.9 181.1 (36.9)
Taxation paid (707.9) (787.0) 11.2
Dividends paid - shareholders (600.0) (1,200.0) 100.0
Net cash flows from operating
activities
1 637.4 831.8 (49.2)
Cash flow from investing
activities
Additions to property, plant and
equipment
(2,081.3) (1,000.5) (51.9)
Proceeds on disposal of property,
plant and equipment 4.6 0.2 (95.7)
Acquisition of intangible - (114.1) 100.0
Loans to minority shareholders (153.9) - (100.0)
Current portion of investments (172.9) (140.0) (19.0)
Other investing activities (11.9) - (100.0)
Net cash flows utilised in
investing activities
(2,415.4) (1,254.4) (48.1)
Cash flow from financing
activities
Shareholder loans repaid - (920.0) 100.0
Interest bearing debt incurred 336.4 145.8 (56.7)
Funding received from minority
shareholders
157.8 - (100.0)
Net cash flows from/(utilised in)
financing activities
494.2 (774.2) (256.7)
Net decrease in cash and cash
equivalents
(283.8) (1,196.8) 321.7
Cash and cash equivalents at the
beginning of the period
(857.6) 647.5 (175.5)
Effect of foreign exchange rate
changes
(23.1) (15.7) (32.0)
Cash and cash equivalents at
the end of the period (1,164.5) (565.0) (51.5)
Johannesburg 24 November 2003 www.telkom.co.za Special note regarding forward-looking statements
All statements contained herein, as well as oral statements that may be
made by us or by officers, directors or employees acting on behalf of the
Telkom Group, that are not statements of historical fact constitute
"forward-looking statements" within the meaning of the US Private
Securities Litigation Reform Act of 1995, specifically Section 21E of the
U.S. Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that could cause our actual results to be materially different from
historical results or from any future results expressed or implied by such
forward-looking statements. Among the factors that could cause our actual
results or outcomes to differ materially from our expectations are those
risks identified under the caption "Risk Factors" contained in item 3 of
Telkom's most recent annual report on Form 20-F filed with the U.S. Securities Exchange Commission (SEC) and our other filings with the SEC,
available on Telkom's website at www.telkom.co.za/ir, including, but not
limited to, increased competition in the South African fixed-line and
mobile communications markets; developments in the regulatory environment;
Telkom's ability to reduce expenditure, customer non-payments, theft and
bad debt, the outcome of arbitration or litigation proceedings with
Telcordia Technologies Incorporated and others; general economic,
political, social and legal conditions in South Africa and in other
countries where Vodacom invests; fluctuations in the value of the Rand and
inflation rates, our ability to retain key personnel; and other matters not
yet known to us or not currently considered material by us. You should not
place undue reliance on these forward-looking statements. All written and
oral forward-looking statements, attributable to us, or persons acting on
our behalf, are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to update these statements, we will
not necessarily update any of these statements after the date hereof either
to conform them to actual results or to changes in our expectations.
Telkom SA Limited (Registration Number 1991/005476/06) ISIN ZAE000044897 JSE and NYSE Share Code TKG ("Telkom") Belinda Williams, Investor Relations, email
williabb@telkom.co.za, tel + 27 12 311 5720 |