Vodacom full-year net profit inches lower
Ebitda from SA declined as data prices were reduced and because of costs linked to a BEE deal
Vodacom, which reported its first annual decline in net profit in four years on Monday, prepared investors for more trouble in its home market as SA mobile operators face pressure to reduce data prices.
In April, the Competition Commission accused mobile operators of overcharging consumers, particularly low income earners. The companies charge more for data in SA than they do in other markets, the provisional findings of an ongoing data services market inquiry found.
In response, mobile operators have said the commission relied on old data — ignoring recent price reductions — and that the government is partly to blame for high data costs because it has not allocated new spectrum in almost 15 years.
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Vodacom CEO Shameel Joosub, who said on Monday Vodacom would make submissions to the commission in June, stated that while SA "is still a growth market", pricing pressure remained, particularly on out-of-bundle data rates.
"We’re trying to grow the usage to offset that, but there will be some pressure," Joosub said.
After giving back customers R2bn in the past year, he said the company would likely cut prices by the same amount in the current financial year. Vodacom reported a net profit of R15.4bn in the year to March.
The network operator said profit after tax was 0.8% lower in the year to end-March as a strong performance from outside SA was offset by a drop in earnings in its home market.
Joosub said the international business was likely to "continue with double-digit growth", and the group’s Kenyan associate, Safaricom, was poised for more "strong growth". Both units were being fuelled by rising data usage and the M-Pesa mobile money service.
To boost the South African business, Vodacom is looking to new revenue streams, including from digital products and financial services.
Joosub said the company planned to commercialise its new payment and "digital wallet" platforms. It would also introduce lending products in SA, which it already offers in other markets in partnership with financial institutions.
“Lending will become a bigger part of our services going forward," he said.
The group is also eyeing an entry into the Ethiopian market in partnership with Safaricom.
“Indications have been given that Ethiopia will open up a process for two new operators in about September this year. We will make a play to be in that market," he said.
Vodacom's shares closed 3.3% higher at R114.97 on Monday, its biggest one day gain in about four months.
The group's headline earnings result, which was affected by its costly BEE deal, was better than expected, said Unum Capital trader Michael Porter.
Headline earnings per share fell 6.6%, Vodacom said.
But Porter said while Vodacom was trading at a relatively attractive dividend yield of about 7%, "it's a very mature business" and growth in the telecommunications sector would be difficult to achieve considering pressure on data prices and a saturated consumer market in SA.
Vodacom’s full-year dividend was reduced to R7.95 a share from R8.15 previously, partly because new shares were issued as part of its BEE deal.
Joosub said Vodacom was due to receive a R1.1bn special dividend from Safaricom, which it would pass on to shareholders as part of its next set of interim results.
Vodacom said group revenue was up 4.3% to R90.1bn as the customer base rose 6-million to 110-million.
Earnings before interest, tax, depreciation and amortisation (ebitda) from SA declined 1.3% to R27.7bn as data prices were reduced and because of costs linked to the BEE deal. But the international business grew ebitda by 26.8%.