Overview

Vodacom SA produced a good set of results for the year ended 31 March 2009. We continued to enjoy strong customer growth, adding 2.8 million customers to grow the base 11.3% to 27.6 million. Record gross connections of more than 13 million were achieved and the focused retention campaigns and loyalty programmes proved effective and reduced overall churn.

Segments of the business were affected by the sharp downturn in the economy. The impact of higher interest rates, higher than budgeted inflation and the 24.2% decline in the average rand/US dollar exchange rate over the past year, as well as the hike in electricity costs in South Africa, made for difficult trading conditions. Contract customer revenue grew by only 4.2% compared to robust revenue growth of 16.5% in the prepaid customer base.

We responded decisively to the worsening conditions, introducing more affordable products and bundles allowing customers to better control their spending. We also increased our focus on containing costs. Despite higher foreign currency-denominated costs and our investment in Vodacom Business, these proactive measures enabled us to maintain healthy margins.

Vodacom remained the mobile market leader in South Africa with an estimated 53% market share as at 31 March 2009, down from 55% in the prior year. The decline can be attributed to the ongoing impact of the deletion rule change and aggressive pricing by the competition, which we countered with focused campaigns to provide greater value to customers.

We extended our lead in data and broadband services and by year end we had nearly 5 million unique mobile data (GPRS and 3G) users and 720 000 broadband customers, up 80.0% on the prior year. We also have 2.8 million 3G-enabled handsets on our network, presenting a significant opportunity for further broadband penetration.

Vodacom SA’s 6.25% BBBEE transaction, together with the progress we have made in skills development and preferential procurement have resulted in an improved BBBEE rating to Level 4 according to the DTI Codes.

Vodacom was recognised as the top telecommunications brand in South Africa for the fifth successive year and the fourth most popular brand overall in South Africa in the Sunday Times Ipsos/Markinor Brand Survey.

The Electronic Communications Act was finalised in the year, with ICASA issuing licences in January 2009 to approximately 250 individual ECS and ECNS licensees. The final licence fee regulations were published in March 2009, setting the fee at 1.5% of gross profit effective 1 April 2009. The new licence fee regulation, once implemented, is expected to have a positive impact as the previous licence fee was set at 5% of net operating income. The Regulation of Interception of Communications and Provision of Communication Related Information Act (“RICA”) was signed into law by the President in January 2009, with implementation expected in August 2009. RICA will require every customer to be registered within an 18-month period. We expect this to contribute to further lowering churn but it is also likely to moderate the growth in gross connections.

Management priorities for the year ahead

This financial year is set to be as challenging, if not more so than the past year, but we will continue to build on our achievements by staying focused, disciplined and responsive to changing market conditions. We will concentrate on the following priorities:

• Maintain revenue market share;
• Continue to reduce churn through targeted campaigns informed by customer analytics;
• Drive contract customer usage through value-added product and service offerings;
• Drive further data penetration and usage;
• Win market share in converged services, in both the consumer and enterprise market; and
• Actively seek opportunities to extract further operational efficiencies and cost savings.