Vodacom earnings fall due to Ethiopia, Egypt currency woes

Pan-African mobile operator, Vodacom Group, has reported a major decline in half-year headline earnings, impacted by currency devaluations in Egypt and Ethiopia.  

That is according to Vodacom Group's interim results for the six months ended September 30, 2024, which were published today.

Operating profit dropped 5.2% to 16.13 billion South African rand (US$909 million) and headline earnings per share (HEPS), a key profit measure, fell 19.4% to R3.53 ($0.20) in the period.

The HEPS drop was attributable to the currency depreciation in Ethiopia and one-off costs in Vodacom's international business  – which include its operations in Lesotho, Mozambique, Tanzania and the Democratic republic of Congo (DRC).

Vodacom Group CEO Shameel Joosub said that the first half of the current financial year was characterized by significant currency headwinds on the one hand and a resilient operational response on the other.

"Over the last two years, we have absorbed significantly higher interest rates and major currency shocks in Egypt and Ethiopia. Pleasingly, our business in Egypt is already delivering hard currency bottom line growth just six months after a 60% devaluation," he said, adding that the business is well placed to meaningfully accelerate its rand-based earnings going forward.

Related:SA Competition Tribunal prohibits Vodacom-Maziv deal

"In Ethiopia, we are currently navigating through the recent devaluation, having already seen market price increases. With that said, both these devaluations have had a material impact on our report to results in the period, especially on earnings," the CEO added.

Group revenue was up just 1% to R74 billion (US$ 4.17 billion) for the six-month period, due to significant foreign exchange headwinds. On a normalized basis revenue would have grown by 10.4%.

Group service revenue declined 1.2% to R58.6 billion ($3.3 billion).

Earnings before interest, taxes, depreciation, and amortization (EBITDA) also dropped 2.7% year-over-year to R26.6 billion ($1.5 billion) but the operator said it remains on track to invest 13% to 14.5% of revenue into capital expenditure going forward.

"While our bottom line was impacted by various one-offs, I am confident that we are poised for a stronger second half performance," Joosub said.  

The South African-headquartered operator is celebrating 30 years in operation this year and the group's full portfolio, including Safaricom, now has 205.6 million customers and 82.9 million financial services customers.

Vodacom said that over the past five years alone, it invested almost R80 billion ($4.5 billion) across its markets, "with a concerted effort to accelerate rural coverage."

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"This has resulted in Vodacom securing its network leadership in most markets where we operate and an additional 10.9 million customers joining our network over the last twelve months," Joosub said.

Vodacom reported growth in what it calls its 'beyond mobile services' - which include digital and financial services, fixed and Internet of Things (IoT) – which contributed 21.1% to group service revenue for the six months. This was underpinned by mobile financial services such as payments, savings, loans and merchant offerings.

The group's mobile money platforms, including Safaricom, processed US$421.3 billion worth of transaction value over the last twelve months.

Vodacom declared an interim dividend of R2.85 ($0.16) per share, a 6.6% decrease from a year ago.

Safaricom grows in Kenya and Ethiopia

Safaricom delivered strong results in Kenya, while the Ethiopian greenfield operation faced a material currency impact in the period.

A consortium led by Kenyan-based Safaricom, which is part-owned by Vodacom, was awarded a telecoms license in Ethiopia in May 2021, ending one of the world's last standing telecoms monopolies.

Safaricom launched its operations in Ethiopia in August 2022 in the city of Dire Dawa and in October 2022, it officially launched its national network in the capital, Addis Ababa, and ten other cities.

As of the end of September 2024 Safaricom Ethiopia had 6.1 million customers, up 47.1% over the past year.

Joosub told Connecting Africa in an interview that the group hopes to have between 8–10 million mobile users in Ethiopia by the end of this financial year and and is targeting between 15 and 20 million users in the market in the next two years.

He said he anticipates very good growth going forward with a focus on embedding even more financial services into the market where fintech adoption is still at an early part of the growth curve.

After two years in operation in Ethiopia Safaricom now has over 3,000 towers and about 46% of the population is covered by the network. Joosub said the group will continue to expand its tower portfolio every year to keep up with capacity demand and improve network coverage.  

In Kenya, service revenue growth of 12.9% was supported by strong adoption of 4G services and sustained M-Pesa growth.

Vodacom said M-Pesa's 16.6% growth in revenue was supported by business payments.

Safaricom's contribution of R1.3 billion ($73.3 million) to operating profit was impacted by the currency reforms in Ethiopia. However, Vodacom said that in contrast, Safaricom's underlying net profit result demonstrated strong growth.

Egypt ticks up, SA faces wholesale pressure

The Vodacom CEO said he was particularly pleased with how the Egyptian business had navigated its way through a material currency devaluation to produce R13 billion ($733 million) in service revenue, underpinned by 44.1% growth in local currency.

Vodafone Egypt grew its customer base by 5.9% year-over-year, to 48.3 million, and reported strong growth in its mobile money offering Vodafone Cash.

Vodacom acquired a 55% stake in Vodafone Egypt in December 2022.

Joosub told Connecting Africa that the Egyptian business has reported growth across many areas including data traffic, fintech, content services and the enterprise segment.

Vodacom acquired a 55% stake in Vodafone Egypt in December 2022. (Source: David Evers on Flickr CC 2.0)

In its home market of South Africa, Vodacom now has 49.2 million customers, an increase of 4.2%, since last year.

Driven primarily by 'beyond mobile services', the consumer segment and prepaid mobile data, service revenue in South Africa grew 1.3% to R31.1 billion ($1.75 billion) impacted by pressure in the wholesale segment.

Joosub admitted that growth in South Africa has been a bit subdued.

"Part of that is because of wholesale pricing, which will rebase next year, and then we'll get that growth back. The second part is continuing to grow data, managing the voice decline, continuing to expand on our platform play in enterprise, but also continuing to expand cloud hosting and security. So that's really where we're putting the focus in to try and ensure that we continue to grow. We want to at least grow by inflation every year," he told Connecting Africa.

Joosub also highlighted "excellent service revenue growth" in Tanzania of 19.1%, double-digit growth in Lesotho and 9% growth in DRC, which helped boost the commercial performance in its international business.

He said there was solid growth in the DRC but there were also a number of one-off costs in DRC to do with tax and leases.

In Mozambique the group reduced its prices to better compete with other local operators, resulting in a revenue declined of about 15%, but the telco anticipates revenues will swing back up in the second half of the year.

Denying Maziv deal 'a travesty'

In October 2024, Vodacom's proposed acquisition of a 30% to 40% stake in South African fiber operator Maziv was prohibited by South Africa's Competition Tribunal.

"We were disappointed that the Maziv transaction was prohibited by the Competition Tribunal, especially given that it had received support from ICASA [the Independent Communications Authority of South Africa], our competitors and the South African government. As we assess our options in South Africa, we remain of the view that fiber co-build is better than overbuild," Joosub said.

"I think it's a travesty for South Africa that we've lost the opportunity for such a material investment, which should have been between R14 billion and R17 billion [$789 million - $ 958 million] investment, plus an additional R25 billion [$1.4 billion] in capex. So, it's a major, major loss for the South African fiber industry," Joosub said.

"I think South Africa really needs this fiber investment, it is a massive investment, which, frankly speaking, I don't see anybody else standing up and saying, let me put the money in," he told Connecting Africa.

Vodacom is still awaiting the Competition Tribunal's detailed reasons for prohibiting the deal and said this could take up to two months to be released.

Once it has seen the reasons it will consider its options, including a possible appeal in the Competition Appeal Court.

However, Joosub said Vodacom was not looking at any other M&A fiber deals because it does not want to be "stuck in the competition authorities for another three years."