Vodacom reports revenue growth despite headwinds

Vodacom Group reported strong financial growth for the year ended March 31, 2023, despite facing headwinds from power supply issues in South Africa, startup costs of a new operation in Ethiopia, supply chain challenges, higher interest and inflation rates, and foreign exchange volatility.

Vodacom Group revenue grew 16% year-on-year (YoY) to 119.2 billion South African rand (US$6.25 billion), positively impacted by the acquisition of Vodafone Egypt and rand depreciation against its basket of international currencies.

"The war in Ukraine, which followed hard on the heels of a global health crisis, resulted in supply-chain disruption and inflationary pressures. These factors have contributed to a higher cost of living, a sharp rise in interest rates and foreign exchange rate volatility across our markets," said Vodacom Group CEO Shameel Joosub at the group's results presentation on Monday.

"At the same time, we diversified and accelerated our growth profile by completing the acquisition of a 55% stake in Vodafone Egypt for R43.6 billion [$2.3 billion], the largest acquisition in the Vodacom Group's history and one that expands our population reach to over 500 million people across Africa," he added.

Since consolidating Vodafone Egypt on December 8, 2022, it has contributed R8 billion ($420 million) to group service revenues.

Power problems in SA

"We are pleased to have delivered improved profitability in the second half despite ongoing economic headwinds, including power availability challenges in South Africa," added Vodacom Group CFO Raisibe Morathi at the group's results presentation.

"South Africa's energy crisis has proven an important factor in shaping the financial year. Load shedding is a term that has become top of mind with us as management team and is a reference to the way available electricity is rotated in South Africa," she said.

South Africa's "energy crisis" continued to cost the telco dearly, the company spent an incremental R300 million ($15.7 million) in operating costs in the year mostly on diesel, Joosub told journalists on a media call.

Vodacom has spent R4 billion ($210 million) "on energy resilience capex" over the last four years.

"Unfortunately, this R4 billion investment was a clear trade off with new capacity and could have accelerated network expansion in 5G in South Africa. The upshot of our investment into energy resilience is that we have maintained network availability at above 90% throughout the year which facilitated the data traffic acceleration," Joosub explained.

"The number of load-shed hours has increased materially through the course of the year. In the fourth quarter, load-shed hours exceeded 2,000 which implies that somewhere in the country, there was no power almost every hour during the quarter," Morathi added.

Joosub said that during the financial year, the global energy outlook was put into sharp focus with the war in Ukraine, while South Africa faced heightened power availability challenges.

"We continue our quest to reduce our greenhouse gas emissions and have recently embarked on a massive project installing a new solar plant at our Midrand campus in South Africa. This plant will generate over 10.8 gigawatts of our own clean energy," Joosub added.

Resilient growth despite challenges

Group earnings before interest, tax, depreciation and amortization (EBITDA) grew 13.2% YoY, reflecting an improvement in second-half profitability, the group said.

Group service revenue grew 17.2% YoY, or 7.2% excluding Vodafone Egypt, supported by data and financial services revenue growth.

"Financial Services is the key contributor to our new services and our efforts to deepen financial inclusion continue. We now have 71 million customers [including Safaricom] using a financial service product and remain Africa's largest mobile money platform by transaction value, with a US$1 billion being transacted each and every day across our platforms," Joosub said.

Financial services revenue increased 29.2% to R9.9 billion ($519 million), contributing 10.5% to group service revenue.

Vodacom Group now has 185.8 million customers across South Africa, the Democratic Republic of Congo (DRC), Lesotho, Mozambique, Tanzania and Egypt, and including Safaricom's users in Kenya and Ethiopia.

Vodacom owns a 35% shareholding in Safaricom, and Vodacom is in turn 65.1% owned by UK-based Vodafone.

Joosub said he sees the 200 million user mark within reach for the group.

Investment focus continues

"We remain committed to spending within our capital intensity framework of 13% to 14.5% of revenue. This level of investment is directed in enhancing customer experience to sustain investments in technology and our network infrastructure. We invested R16.5 billion [$866 million] into capital expenditure this year as we accelerated investment into network performance," the CEO added.

At a South Africa Investment Conference in April 2023, Vodacom pledged to invest R60 billion ($3.15 billion) over the next five years in SA, after already delivering on its previous pledge of R50 billion ($2.63 billion) invested over the previous five years.

"These substantial investments have and will contribute significantly to enhancing network resilience to keep customers connected through the likes of elevated levels of load shedding, the acceleration of 5G coverage, as well as our rural coverage program to help bridge the digital divide," Joosub continued.

The Vodacom board declared a final dividend of R3.30 per share ($0.17), with a full year dividend equaling R6.70 per share ($0.35).

Headline earnings per share (HEPS) – a key profit measure in South Africa – however, declined 6.4% to R9.48 per share ($0.50). The decline was attributable to the issuance of new shares to fund the group's Vodafone Egypt acquisition, startup losses in Ethiopia and the higher net finance charges as interest rates increase back to pre-COVID levels.

Ethiopia eyes M-Pesa growth

Safaricom last week announced it had been granted a mobile money license in Ethiopia, seven months after the commercial launch of its GSM network in the country.

Safaricom Ethiopia launched its network in October 2022 and is now present in 22 cities in Ethiopia, covering 22% of the population. (Source: Safaricom)

Joosub said that launching mobile money platform M-Pesa in Ethiopia is a key part of the group strategy and will be key to Safaricom's success in the market.

"Launching M-Pesa and taking it to the market as a differentiation point and bringing some of the power of M-Pesa to the market, I think could be very powerful," he told Connecting Africa in an interview.

He said it's still early days in Ethiopia, but the group is focusing on making the required investment in the country to extend network coverage and gain active users in the Horn of Africa nation.

Vodacom expects the Ethiopia business to break even in its fourth year of operation.

Egyptian talent highlighted

"The contribution of [the Vodafone Egypt] asset to our human capital should not be understated. We see Egypt as a talent powerhouse that can power the broader group with its 800 IT software engineering in-source skills," Joosub added.

He said the Vodafone Egypt acquisition was a key milestone in Vodacom's history and is a key enabler of its strategic ambitions.

"The financial services opportunity in Egypt is very exciting. Egypt as a US$300 billion informal market, which provides a massive addressable market for us to penetrate. Vodafone Egypt has already created success in mobile wallets with an 85% market share and more than 5 million active wallets. This was enabled by regulatory progress, new use cases and an explosion in distribution outlets to more than 400,000," said Joosub.

"This opportunity for growth as we combine Vodafone Egypt's market position with the group's compelling fintech ecosystem is very exciting. Vodafone Egypt expects to deliver 70% compounded growth from financial services over the next three years, and this is just the start of this exciting opportunity," the CEO concluded.

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*Top image is of Vodacom Group CEO Shameel Joosub. (Source: Vodacom)

— Paula Gilbert, Editor, Connecting Africa