 |
Vodacom Group Limited Annual Report - for the year ended 31 March 2009 |
|
Group overview
|
Performance review
|
| Curently viewing: CFO’s review » Next: South Africa |
|
|
| Chief Financial Officer’s review
Highlights
A number of significant events affected the financial results: the Vodacom SA BBBEE transaction, the acquisition of Gateway and the raising of new debt.
During the latter part of the financial year, the effect of the deteriorating global macroeconomic conditions were felt in all the businesses, particularly in the DRC where the dramatic impact on the economy of declining mineral resource prices and the closing of many mines, affected revenue and profitability. The slowdown in the South African economy has to some degree filtered through to the mobile market. While the prepaid market in South Africa remained relatively resilient and showed increased usage, contract customer spending declined compared to the prior year and a preference for lower value handsets affected equipment revenue. The depreciation of the rand against the functional currencies of the international operations had a positive effect on the Group’s trading results. The depreciation of the rand against the US dollar negatively impacted South African maintenance costs, handset purchases and capital expenditure, but to a lesser extent. Summary financial information
Group operating results
Exchange rates
Revenue Revenue rose 14.5% to R55 187 million, largely due to a 16.5% increase in the customer base to 39.6 million, the 28.8% increase in data revenue to R6 441 million and the inclusion of R808 million from Gateway for the final quarter of the year. Revenue from the South African operations increased 10.8% to R47 483 million, contributing 86.0% (2008: 88.9%) to group revenue for the year ended 31 March 2009. Revenue from the international operations grew 29.9% to R7 003 million, contributing 12.7% (2008:11.2%) to group revenue. Organic revenue growth for the year was 12.9%. Group revenue
Profitability EBITDA increased 10.5% to R18 196 million, mainly as a result of strong revenue growth offset by BBBEE transaction expenses of R95 million and margin pressure in the DRC. EBITDA from the South African operations was up 9.7% to R16 222 million, contributing 89.2% (2008: 89.8%) to group EBITDA for the year. EBITDA from the international operations increased 18.7% to R1 835 million, contributing 10.1% (2008: 9.4%) to group EBITDA. Gateway contributed R100 million to group EBITDA for the three months from the acquisition date. The group EBITDA margin decreased from 34.2% in the prior year to 33.0%. Group EBITDA
Group operating profit
Operating profit for the year was down 3.9% to R12 005 million primarily due to the BBBEE charge of R1 382 million. Excluding this charge, operating profit increased 7.2% to R13 387 million, lower than EBITDA growth due to an increase of 17.3% in depreciation to R3 948 million. Finance charges Net finance charges rose from R424 million in the prior year to R1 749 million. Finance costs for the year ended 31 March 2009 increased substantially to R1 460 million, compared to R681 million in the prior year, due to increased borrowings and the higher effective cost of borrowings. The loss on the foreign exchange forward contract revaluation of R567 million includes R408 million in foreign exchange losses incurred in respect of the Gateway acquisition. The gain on the revaluation of foreign denominated liabilities of R228 million mainly relates to the gain on the revaluation of the minority shareholder’s put option in the DRC. Group finance charges
Taxation The taxation expense for the year was 1.6% lower at R4 045 million mainly due to lower profit before taxation and a reduction in the South African corporate tax rate to 28% (2008: 29%), partly offset by the disallowable BBBEE charge and non-deductible interest charges. The effective tax rate increased from 34.1% to 39.5%. Earnings Headline earnings per share decreased 21.0% to 417 cents for the year, compared to 528 cents in the prior year. Excluding the BBBEE charge of R1 382 million, headline earnings per share decreased 3.4% to 510 cents per share. The reduction in headline earnings per share is largely due to the substantial increase in finance charges resulting from the higher average net debt. Group earnings per share
Segment performance South Africa
Revenue Revenue from Vodacom SA for the year ended 31 March 2009 increased by 10.8% to R47 483 million, primarily due to the 11.3% increase in customer base to 27.6 million and growth in data revenue. Airtime and access revenue increased 9.2% to R25 771 million, largely as a result of the growth in customers and the 8.2% increase in outgoing voice traffic minutes. Data revenue accounted for 14.1% of South African revenue (excluding equipment sales) and rose 27.9% to R5 973 million. Revenue from messaging services (included in data revenue) increased 4.2% to R3 096 million as a result of the 8.2% growth in the number of messages sent to 5.4 billion. Revenue from data connectivity and usage services increased by 69.3% as a result of the 80.0% increase in the number of broadband customers to 720 000. Interconnection revenue, which includes revenue from Cell C for national roaming services, increased by 8.6% to R8 632 million. Equipment sales revenue increased 5.0% to R5 190 million largely due to an 8.2% increase in handset sales to 5.5 billion, offset by an increase in the number of lower-end handsets distributed. Operating expenses Direct network operating cost, which includes cost of connection and retention, interconnection and other direct network operational expenses, increased 11.4% to R26 357 million. The increase is largely due to the increased cost of connecting prepaid customers and retaining contract customers. Employee expenses increased 13.3% to R2 447 million, largely as a result of the 9.5% increase in the closing number of employees and the annual salary increases, offset by lower performance based remuneration. Other operating expenses rose 12.7% to R1 620 million, largely due to costs associated with the BBBEE transaction and the listing. EBITDA EBITDA increased 9.7% to R16 222 million with a slight decline in the EBITDA margin from 34.5% to 34.2%. Excluding the BBBEE transaction expenses of R95 million, EBITDA growth was 10.3% and margins were maintained at 34.4%. Depreciation, amortisation of intangible assets and impairment of assets Depreciation, amortisation of intangible assets and impairment of assets increased by 13.1% to R3 456 million, largely due to the increase in capital investment during the year. Operating profit Operating profit of R11 372 million includes a non-tax deductible BBBEE charge of R1 382 million. Excluding the BBBEE charge, operating profit increased 9.0% to R12 754 million. The lower growth in adjusted operating profit as compared to EBITDA is largely due to the increase in the amortisation of intangible assets. International
Revenue Revenue from the international operations for the year ended 31 March 2009 increased 29.9% to R7 003 million, largely driven by the 30.7% increase in the customer base to 12.0 million. Revenue was positively impacted by the appreciation of the functional currencies against the rand and negatively impacted by excise duty in Tanzania. Excluding the impact of excise duty, revenue in the international business increased 33.7%. The growth in the customer base was primarily driven by a combination of the launch of new products and services, extensive sales and marketing campaigns and enhanced network coverage. Gross connections increased 32.9% to 7.9 million. Churn increased to 48.1% from 47.1% for the international operations due to the increased competition. Average revenue per user (“ARPU”) in local currency declined in most international operations due to the growth of lower-usage customers, the impact of macroeconomic pressures on disposable income as well as competitive pressures on tariffs. Airtime and access revenue increased 30.3% to R4 560 million, primarily due to the increase in the customer base. Data revenue accounted for 6.8% of revenue (excluding equipment sales) and increased by 41.0% to R468 million, which was largely driven by an increase in SMS volumes as well as the appreciation of the local currencies. Interconnect revenue increased 23.6% to R1 187 million, largely due to the growth in the customer base offset by an increase in on-net traffic across the mobile operators in the key markets and the proliferation of dual SIMs in these markets. International airtime revenue grew 36.5% to R654 million as a result of the growth in the customer base. Operating expenses Direct network operating cost for the year ended 31 March 2009 increased 31.2% to R3 575 million, largely due to an increase in network operational expenses relating to the rollout of additional sites. Employee expenses increased 53.1% to R807 million as a result of the 6.2% increase in headcount, the annual salary increases and the classification of the Tanzanian secondee expenditure under employee expenses in this year, whereas it was previously classified as other operating costs. Marketing and advertising expenses increased 46.2% to R408 million as a result of campaigns to counter competition. Other operating expenses increased 45.4% to R474 million, largely due to increased fuel and transmission costs. EBITDA EBITDA from the international operations for the year ended 31 March 2009 increased 18.7% to R1 835 million with EBITDA margins of 26.2% compared to 28.7% in the prior year. EBITDA margins were negatively impacted by the significant increase in employee expenses and to a lesser extent the increase in direct network operating and marketing expenses. EBITDA margins expanded in all the international operations except for the DRC, where the performance of the business was impacted by deteriorating economic conditions. Depreciation, amortisation of intangible assets and impairment of assets Depreciation for the year ended 31 March 2009 increased 42.5% to R1 057 million. The increase is attributable to the increase in capital investment during the year in Tanzania and Mozambique. Amortisation of intangible assets increased 19.6% to R67 million. The impairment of assets charge increased to R106 million as compared to R30 million in the prior year largely due to the impairment of the Mozambique network assets. Operating profit Operating profit from the international operations for the year ended 31 March 2009 decreased 15.6% to R606 million due to the substantial increase in depreciation. The operating profit margin decreased from 13.3% in the prior year to 8.7%. Gateway Revenue, operating profit and EBITDA for Gateway for the three month period to 31 March 2009 were R808 million, R33 million and R100 million, respectively. The operating profit margin and EBITDA margin for the three-month period ended 31 March 2009 were 4.1% and 12.4%, respectively. The operating profit margin was impacted by the amortisation of the customer base value recognised on acquisition. A net loss of R36 million (before taking into account the finance charges related to funding the acquisition) was recorded for the three month period to 31 March 2009. Cash flow Cash generated from operations remained stable at R16 351 million, compared to R16 334 million in the prior year. Negative movements in working capital of R1 831 million offset the growth in EBITDA of R1 733 million. Working capital was affected by the once-off impact of normalising creditors payments for year end purposes, as well as the repayment of R602 million relating to a cancellation of a guarantee held for a distributor included in trade and other payables. Net cash flows from operating activities decreased 18.4%, largely due to the higher finance charges. Net cash flows utilised in investing activities increased from R7 502 million to R12 750 million mainly due to the R5.3 billion for the acquisition of Gateway and increased capital expenditure. As a result of the debt raising activities cash flows from financing activities increased from R3 234 million in the prior year to R8 873 million. Group operating free cash flow
Capital expenditure Vodacom’s capital expenditure for the year ended 31 March 2009 was 16.7% higher at R6 906 million. South African capital expenditure at R4 627 million largely relates to continued investment to improve coverage and increase capacity for both the voice and data networks. The increase of 58.4% in capital expenditure in the international operations to R2 406 million (or 34.4% of revenue), was mainly due to expanding coverage in Tanzania and Mozambique. Group capital expenditure (including software, excluding licences)
Group cumulative capital investment at cost
Balance sheet Total assets grew by R13 184 million to R47 359 million as at 31 March 2009, largely as a result of the increase in intangible assets from R4 224 million to R11 794 million, with an increase in goodwill comprising the largest element at R5 533 million, attributable mainly to the acquisition of Gateway. Refer to note 34 to the Consolidated Financial Statements for further information on business combinations and other acquisitions. Property, plant and equipment (“PPE”) increased by R2 724 million to R21 844 million at 31 March 2009, predominately as a result of the R5 958 million additions, R333 million in relation to the acquisition of Gateway, R710 million for the translation of foreign PPE, partially offset by R3 948 million depreciation and R56 million due to disposals. Trade debtors increased by 34.0% to R9 112 million as at 31 March 2009 due to revenue growth, Gateway debtors of R665 million, the early settlement in the prior period of a debtor and an increase in dealer balances. Non-distributable reserves The non-distributable reserves increased substantially from R9 million to R1 752 million due to the BBBEE transaction. Net debt rose to R17 537 million as at 31 March 2009, compared to R8 663 million at 31 March 2008. Debt was raised to refinance existing debt, fund both higher capital expenditure and the acquisition of Gateway. Net debt as at 31 March 2009 includes the final dividend and related STC of R2 430 million paid to Vodacom’s shareholders on 8 April 2009. 93% of the total debt is at a floating rate and R5 692 million will mature in less than a year. R2 977 million of the total debt is denominated in foreign currencies. The balance sheet remains strong with the net debt to EBITDA ratio at 1.0x at 31 March 2009. Group net debt
Trade payables Trade and other payables increased by only 4.0% to R7 865 million as at 31 March 2009. The lower growth in trade payables is largely due to the once-off impact of normalising creditor payments for year-end purposes, as well as the repayment of R602 million relating to a cancellation of a guarantee held for a supplier. Capital commitments Group capital commitments for the year ended 31 March 2009 are R11 926 million, of which R9 712 million is approved but not contracted. South African capital commitments are R8 540 million. Capital expenditure committed in the international operations and in Gateway is R3 773 million and R628 000, respectively. Shareholder distributions Dividends declared for the year ended 31 March 2009 totalled R5 200 million, compared to R5 940 million for the year ended 31 March 2008. The final dividend for the year ended 31 March 2009 of R2 200 million was paid on 8 April 2009. Vodacom Group has historically, as a private company, paid a dividend equal to approximately all of its free cash flow on a semi-annual basis. However, for the financial year ending 31 March 2010, Vodacom Group anticipates a dividend payout ratio of approximately 40% of headline earnings. The first dividend is expected to be the interim dividend for the 2010 financial year. Vodacom Group intends to pay so much of its after tax profits as will be available after retaining such sums and repaying such debts owing to third parties as shall be necessary to meet the requirements reflected in the budget and business plan, taking into account monies required for expansion and other growth opportunities.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
From 2000, Vodacom’s growth was driving more stock through our supply chain than it could comfortably
carry. Infrastructure was fragmented across too many locations and systems, limiting the growth potential
of the business.Copyright © Vodacom 2009.
|