Vodacom delivered a tough earnings report on Monday, highlighting the delicate balance between risk and reward that companies operating in Africa’s frontier markets face in the pursuit of growth.
Despite pushing up group revenue by a quarter, an impressive achievement in any sector, there were one-off costs, currency devaluations and high borrowing costs.
Vodacom CEO Shameel Joosub acknowledged that reporting on the full-year’s performance to end-March would not be easy.
“We’ve had a year where we’ve essentially taken a couple of big knocks. Let’s be honest,” Joosub said during an investor presentation.
“Those big knocks have come from the devaluation impact from Egypt. That was one. We’ve seen a big increase in interest rates, which has impacted us. We had a deferred tax issue in Tanzania. So there’s been a number of once-offs that would have given rise to healthier growth had they not occurred. But underlying, we’re quite positive in terms of where we are in our four segments.”
Vodacom reported a 10.8% drop in headline earnings for the year, citing a combination of start-up losses in Ethiopia and higher finance and energy costs as some of the factors that weighed on the bottom line.
Headline earnings per share (HEPS) for the year fell to 846c from 948c a year ago. Revenue grew 26.4% to R150.6bn, while net profit was 6.4% higher at R19.3bn. The group’s share was down 2.33% on Monday at R91.98.
The company said the effect of absorbing inflationary pressures and weaker exchange rates across markets, including the recent devaluation of the Egyptian pound, contributed to the fall in HEPS.
Group service revenue growth was 29.1% and, when Vodafone Egypt Telecommunications was included on a pro forma basis, 9.2%. Group earnings before interest, tax, depreciation and amortisation (ebitda) saw growth of 24.3% or 7.8% on a pro forma basis.
Vodacom now serves a combined 203.1-million customers across the group, including Safaricom on a 100% basis and 8.9-million financial services customers, including Safaricom, transacting $1.1bn a day, it said in a statement on Monday.
Financial services revenue increased 32.2% to R13bn, contributing 10.8% to group service revenue.
The group declared a final dividend of 285c per share, for a total dividend of 590c per share, down 11.9% from a year ago.
“Our acquisition of Egypt contributed significantly to the 29.1% increase in group service revenue, supported by a resilient performance in our largest market, SA,” Joosub said.
“Despite the economic backdrop, we remain committed to spending 13%-14.5% of our overall revenue on capital expenditure that ultimately results in an enhanced customer experience through sustained investments in technology and network infrastructure,” he said.
In SA, service revenue growth of 2.6% was largely due to new services, the consumer contract segment and prepaid mobile data. This was partly offset by pressure in Vodacom Business, as a shift away from work from home policies resulted in corporate customers recalibrating their spend.
New services in SA were up 11.2% and contributed R10.2bn, or 16.6%, of service revenue. The 7.9% service revenue increase from financial services to R3.2bn was largely driven by the group’s insurance business and payments, while Airtime Advance remained an important enabler of digital inclusion, it said.
Egypt now served 48.3-million customers, an increase of 6.2%, and contributed a quarter of group revenue supported by good customer engagement in connectivity, mobile and fixed price adjustments, and growth in its financial services platform, Vodafone Cash, it said.
The group’s international business in the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania produced a reported 13.1% increase in service revenue, supported by foreign exchange tailwinds, a 21.4% increase in M-Pesa revenue and a 30.5% rise in data revenue.
Safaricom delivered an “excellent performance” in Kenya with service revenue accelerating in the second half to end the year with growth of 13.4%, boosted by double-digit growth in mobile data and M-Pesa revenue.
Despite start-up costs associated with operations in Ethiopia, Safaricom confirmed that its rollout was on track in Africa’s second-most populous country, it said.
Looking ahead, the group will seek to expand its partnerships across Africa to power Vodacom’s growth, drive infrastructure sharing to increase rural and fibre connectivity and expand the reach of its Tech for Good solutions.
“While the global economic outlook is uncertain, we are encouraged by the recent macro reforms in Egypt and Kenya,” it said.
Update: May 13 2024
This story has been updated with additional information.
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