Vodacom posts 10.9% rise in earnings

Telecoms giant Vodacom group released its interim results this morning, posting a 10.9% rise in first-half earnings

The performance is largely attributed to strong performance in the South African market that contributes around 80% of revenue and the announcement follows a decent set of results for the financial year ending March 2013.

Group revenue was up 6.6% and service revenue up 2.0%; attributed to strong growth in international operations and improved growth in South Africa. Active customers increased 9.7% to 53.8 million; with net connections at 949 000 for South Africa and 2.3 million in international operations for the six month period. Vodacom has been a good payer of dividends with a yield around 5% over the last financial year, and announced an interim dividend per share of 395 cents. In March, the total gross dividend per share for the year period increased 11% to 785cps (2012: 710cps)

Industry challenges

It’s not all good news though, as Vodacom and its rival MTN are facing an anti-trust complaint by smaller competitor Cell C for discriminatory pricing. Cell C, run by former Vodacom CEO Allan Knott-Craig, has lodged a lengthy campaign against termination rates (charges for connecting calls on another network) with local regulator ICASA seeking to implement pricing cuts of 75 percent over the next three years. This will greatly affect Vodacom’s comparative performance as around 80% of revenue is derived from its South African business compared with 30% at MTN.

Broader strategy

Last year saw new CEO Mohamed Joosub take the helm. He has been implementing a broader strategy based on the pillars of competitive value, best network experience and best service. To do this Vodacom's customer experience strategy requires building sufficient network capacity to cater for increased voice and data traffic. Recently Vodacom announced that they were in exclusive talks with data provider Neotel (controlled by India’s Tata Communications) to help reach this objective in Southern Africa. Neotel is well positioned as it currently utilizes 15,000km of high-speed fixed fibre and has access to undersea landing stations.

Progress in Africa

In South Africa, Vodacom has expanded its LTE coverage to 727 sites and increased its 3G base stations to cover 88.9% of the population. On the international front, the group accelerated its roll out by adding 318 3G and 438 2G base stations, expanding its fibre network and being the first operator to connect to the WACS undersea cables in the DRC. Vodacom continues to refine its customer focus and expand its footprint with plans to add 23 new retail outlets and refresh all branded stores in South Africa. The company is also making progress across Africa with its operations in the DRC and Mozambique well underway.

Source: JSE SENS

Telecom sector stocks and JSE All Share index
Chart source: I-Net Bridge

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