Vodacom hits first fall in 15 years

The timing will rattle investors who bought its shares in anticipation of ever-increasing growth, with exuberant trading on its listing day seeing stock worth R571m change hands.

Results issued yesterday, however, show that headline earnings per share have dived 21% from 528c to 417c. CEO Pieter Uys said new investors should not panic that its net profit of R6,19bn is down a severe 22% from R7,9bn a year ago.

The fall demonstrates the high cost of black empowerment compliance, with the damage inflicted by R1,4bn of costs incurred by selling 6,25% of its local operations to ordinary black citizens, business partners and staff.

The one-off transaction expenses include vesting rights granted to its staff, who own 1,56% of Vodacom SA.

Another one-off cost denting its performance for the year to March was a R200m start-up fee for Vodacom Business, a new division offering a range of 28 services including data storage to corporate clients. Uys said the division's sales were building up nicely, although it may not make a profit in the current financial year.

If those abnormal items were stripped out, the results demonstrated good growth, Uys said.

It clocked up a 14,5% rise in revenue from R48,1bn to R55,1bn and now serves 39,6 million customers in five countries, up 16,5% from a year ago. But its operating profit margin dipped from 25,9% to 21,8% as it invested for expansion. Its dividend also fell to 349c from 399c.

One country causing it grief is the Democratic Republic of Congo, and Vodacom would seriously consider pulling out if conditions deteriorated. Its international profits have plunged from R404m to just R75m this year because of the Congo, where its business has been slashed as 50 mines closed.

The value of the currency almost halved, leaving customers with little money to spend on a service billed in dollars. Its tax concessions ended, rivals had introduced almost free call fees forcing Vodacom to respond, and along with political unrest it added up to a tough environment, Uys said.

At the same time Vodacom is looking to enter other countries as the African arm of Vodafone, which became its majority shareholder this week with a 65% stake.

Frost & Sullivan analyst Lindsey McDonald suspects potential acquisition targets will have been assessed and either bid for or rejected by more active African rivals. “Finding new targets will be tough. MTN and Zain are likely to have already considered good targets and there might not be much left for Vodacom,” she said.

Uys said there were still opportunities worth exploring, particularly as the global meltdown put some businesses into difficulties or slashed their value, yet it must not lose focus on the operations it already had.

“Acquisitions are very important but it's easy to just focus on them and in difficult times you can't continue with the recipe you have. You have to tighten your belt and do things differently.”

Source: Business Day

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