Summary financial information

Revenue

Other operating income has been incorporated into revenue to align accounting practices with the Group’s parent. This resulted in a reclassification of R74 million for the prior period. Vodacom adopted IFRIC 13 from 1 April 2009, and now accounts for customer loyalty credits as a separate component of the sales transaction in which they are granted. Included in other service revenue is an expense of R140 million of which R119 million relates to the prior year.

Revenue rose 9.9% to R28 675 million, largely due to the inclusion of Gateway (which contributed 5.3% to group revenue), the 16.5% growth in mobile customers to 41.6 million and the 30.1% increase in mobile data revenue to R2 031 million.

Revenue from the South African operations of R24 371 million was 6.8% higher, contributing 85.0% (2008: 87.4%) to group revenue. Revenue from the international operations declined 11.0% to R2 965 million, contributing 10.3% (2008: 12.8%) to group revenue. Since March 2009, excise duty has been deducted from revenue as opposed to previously being included in direct network expenses. In the prior period, excise duty of R89 million incurred by the international operations was included in direct network expenses, but the comparative figures have not been restated. Group normalised revenue growth was 4.7%.

Operating costs¹

Group operating costs increased by 11.1% to R19 387 million largely due to Gateway. Excluding Gateway, operating costs increased by 3.2%.

EBITDA

EBITDA of R9 347 million was up 8.0% from a year ago, mainly as a result of revenue growth and the expansion of the South African EBITDA margin from 34.0% to 35.3%. EBITDA of
R8 609 million from the South African operations was 11.1% higher, contributing 92.1% (2008: 89.5%) to group EBITDA for the period. EBITDA from the international operations declined 29.0% to R598 million, contributing 6.4% (2008: 9.7%) to group EBITDA for the period. Gateway contributed R144 million to group EBITDA. The group EBITDA margin decreased from 33.2% in September 2008 to 32.6% in September 2009.

¹ Excluding depreciation, amortisation and net impairment charges.

Operating profit

Operating profit decreased 45.0% to R3 535 million mainly due to the net impairment charges of R3 189 million and a 16.8% increase in depreciation and amortisation.

Net finance charges

Net finance charges rose significantly from R659 million to R1 111 million for the six months ended 30 September 2009. Finance costs for the period were R810 million compared to R734 million a year ago, mainly due to higher average debt. The average cost of debt reduced from 12.3% to 9.3% as a result of lower interest rates and the benefit of floating rate debt. Net finance charges were negatively affected by the remeasurement of loans granted of R232 million and the loss of R259 million mainly relating to forward exchange contracts.

Taxation

The taxation expense of R2 351 million for the period was 17.8% higher than in September 2008. The effective tax rate rose from 34.6% at 30 September 2008 to 97.6% at 30 September 2009, mainly due to the reversal of the DRC deferred tax asset and the Gateway impairment.

Earnings

Earnings per share for the period declined 98.4% from 248 cents per share to 4 cents per share, primarily due to the reversal of the DRC deferred taxation asset of R551 million and the net impairment charges of R3 189 million. Headline earnings per share, which exclude net impairment charges, decreased 12.4% to 219 cents per share.

Cash flow

Cash generated from operations grew 12.8% to R8 770 million. Net cash outflows used in investing activities increased from R3 708 million to R3 795 million. As a result of higher bank borrowings classified as financing activities, cash outflows from financing activities rose from R2 056 million to R3 103 million. Dividends were previously classified in cash flow from operating activities and are now included in cash flow from financing activities. Interest income was reclassified to investing activities and finance costs were reclassified to financing activities.

Operating free cash flow was up 26.2% at R5 152 million. Taxation paid decreased by 8.6% to R2 058 million.

Operating free cash flow

Capital expenditure

Vodacom’s capital expenditure for the period was R2 934 million, 1.4% less than a year ago. Lower capital expenditure of R1 839 million (7.5% of revenue) in South Africa was largely related to the RAN renewal project, where recovered equipment was redeployed, resulting in lower purchases of equipment. Capital expenditure of R1 019 million (34.4% of revenue) in the international operations was 6.1% higher mainly due to investment in Tanzania and Mozambique.

Statement of financial position

Property, plant and equipment and intangible assets were negatively impacted by foreign currency adjustments of R1 667 million and R1 396 million, respectively due to the rand strengthening against functional reporting currencies of the international markets since 31 March 2009.

Net debt before dividends and secondary taxation on companies (“STC”) rose to R14 840 million, compared to R6 062 million a year ago. The statement of financial position remains strong with the net debt to EBITDA ratio at 0.8 times at 30 September 2009, well within the target range. During the period, Vodacom refinanced the USD180 million loan in the DRC in the South African debt markets, with 93.4% of the debt now denominated in rand. R3 480 million of the debt matures in the next 12 months and 95.1% of total debt is at floating rates.

Net debt