Telecommunications group Vodacom on Monday reported a 5.5% decline in headline earnings a share to 415c for the six months ended September 30, mainly owing to the mobile termination rate (MTR) cuts, as well as increased depreciation as a result of accelerated capital investments.

Vodacom’s revenue, however, increased 2.3% to R37.5-billion during the period.

The group said the lower MTRs had reduced its service revenue by almost R1-billion; however, service revenue still grew 1.7% to R30.73-billion during the interim period.
Excluding the impact of the 50% cut in MTRs, group revenue and service revenue would have increased by about 5%.

Further, owing to the MTR cuts, Vodacom’s South African service revenue declined by 1.3%.

“However, excluding the impact of the MTR cuts, which reduced interconnect revenue by 42.2%, [South African] service revenue grew 2.9%,” Vodacom said.

“We had to cope with a number of issues during this period, South African MTRs being the most pressing issue. We are glad that this issue is now behind us and that there is now certainty on MTRs,” Vodacom CEO Shameel Joosub said at a presentation of the group’s interim results.

He added that the most significant impact from the MTRs would be evident in the current financial year, with a lesser impact expected in years to come.

The group added that owing to the significant impact of the change in MTRs, the board had revised its medium-term earnings before interest, taxes, depreciation and amortisation (Ebitda) guidance to mid-single-digit growth, from the previously expected mid-to-high single-digit growth.

The medium-term guidance of low single-digit growth in service revenue and capital expenditure of between 14% and 17% of group revenue remained unchanged.

Joosub noted that, to help offset the impact of lower MTRs, the company continued to implement a range of cost management programmes.

“Our commercial strategy centres on offering better value to customers in each market segment. In the prepaid market, our low-cost bundles have proven extremely popular with more than 40-million sold per month. The postpaid approach has been to offer integrated packages covering all voice, data and SMS needs at a fixed price, allowing customers to more effectively manage their spend.

“This strategy has enabled us to reduce our blended average effective price per minute by 19% – [resulting] in a 17.6% increase in total outgoing traffic,” Joosub said.

Vodacom CFO Ivan Dittrich noted that, during the six-month period, the company’s South African business’ operating expenditure (opex) as a percentage of service revenue increased to 23.2%, compared with 22.6% in the prior corresponding period, while the international business’ opex as a percentage of service revenue remained flat at 37.8%.

“We have maintained strict discipline on costs. Excluding the MTRs in South Africa [and] foreign exchange translations of the international operations, we maintained relatively flat opex as a percentage of service revenue. This is commendable given the rise in wages, fuel, electricity costs and increased network operating costs as a result of our accelerated capital investment roll-out,” he said.

Joosub pointed out that Vodacom had invested R1.4-billion on its network in South Africa, adding more than 1 000 new long-term evolution base station and 745 new third-generation sites.

The additional capacity supported the group’s 18% increase in outgoing voice traffic and a 75% increase in data traffic.

“This investment also positions us well to capitalise on data demand, which is expected to accelerate as the penetration of smart devices increases,” noted Joosub.

Meanwhile, Vodacom also completed a six-year project to replace radio equipment at all of its base stations, meaning it was fourth-generation ready country-wide.

Further, during the period under review, the group’s active customer base expanded by 13.2% to 61-million, while group data revenue grew by 24.7%, with active data customers up 27.6% to 25.9-million.

Joosub stated that, in addition to the MTRs, increased pressure on consumers owing to higher household debt and increases in living costs also impacted on Vodacom’s results, in addition to intense competition in all markets where it operates.

Vodacom declared a dividend of 375c a share, in line with its dividend policy.

INTERNATIONAL BUSINESS
Dittrich said the company’s international division had performed well during the period under review boosted by the devaluation of the rand, having achieved a 13% increase in service revenue to R7.37-billion.

Joosub stated that competitive pressure on the division’s voice revenue had been offset by a 41% increase in data revenue, increasing the contribution of data to the business’ service revenue to 18.9%.

However, the overall growth of the international division had been impacted on by intense price competition and regulatory challenges.

Tanzania, specifically, was progressing through a prolonged pricing repair; however, improvements had become evident towards the end of the reporting period, Dittrich stated.