Vodacom Interim Results for the Six Months Ended September 30, 2003
JOHANNESBURG, Nov. 24 /PRNewswire-FirstCall/ -- COMMENTARY Vodacom
Group (Proprietary) Limited ("Vodacom" or "Vodacom Group")
(unlisted), South Africa's leading mobile communications group, in
which Telkom has a 50.0% holding, announced interim results for the
six months ended September 30, 2003. Revenue increased by 19.6%
over the same period last year to R11,296 million (US$1,592
million). Profit from operations increased 33.4% to R2,451 million
(US$345 million) and net profit after tax and minorities increased
49.7% to R1,374 million (US$194 million). Group financial
highlights (September 30, 2002 to September 30, 2003) * Group
operating margin increased from 19.5% to 21.7% * Group EBITDA
growth of 22.2% to R3,698 million * Group EBITDA margin increased
from 32.1% to 32.7% * Group capital expenditure reduced 34.3% to
R1,129 million * Capital expenditure as a percentage of revenue
down from 18.2% to 10.0% * Improved net debt to net tangible assets
ratio from 74.9% to 37.4% * Improved net debt to equity ratio from
66.8% to 34.7% * Interim dividend paid of R600 million Operating
indicators * Group total customers increased 25.1% to 9.6 million *
Other African customers increased 98.0% to 1.1 million * SA gross
connections increasing 38.3% to 2.2 million * SA customers
increased 19.5% to 8.5 million * SA ARPU of R179 per month, down
from R181 per month * SA contract ARPU up 8.3% to R663 per month *
SA contract churn down from 13.2% to 10.8% * SA prepaid ARPU of R87
per month, down from R88 per month * SA market share of 55% Group
financial review The recent strengthening of the Rand by 27.3%
against the US Dollar from a six-month average of $=R10.43 in 2002
to $=R7.58 in 2003 had a negative impact on the translation of the
results of Vodacom's other African operations as well as having a
significant impact on its operations. The rapid growth of start-up
operations in the Democratic Republic of the Congo and increased
competition in all markets in which Vodacom operates, put
significant pressure on margins. However, both consolidated profit
from operations and EBITDA margins increased as Vodacom
successfully continued to improve efficiencies, while maintaining
strict financial discipline. Revenue In ZAR millions Six months
ended September 30 2002 2003 (unaudited) (unaudited) % change South
Africa 8,892 10,605 19.3 Tanzania 408 431 5.6 Congo (51%) 95 205
115.8 Lesotho 46 55 19.6 9,441 11,296 19.6 Revenue continued to
grow at a healthy pace, increasing by 19.6% to R11,296 million for
the six months ended September 30, 2003 (September 30, 2002: R9,441
million). Vodacom's other African operations grew satisfactorily
considering the stronger Rand, contributing R691 million or 6.1%
(September 30, 2002: R549 million or 5.8%) to Group revenues for
the six months ended September 30, 2003. Vodacom Congo, in
particular, achieved very strong revenue growth albeit off a low
base, growing revenues by 115.8% to R205 million for the six months
ended September 30, 2003. However, growth was still primarily
driven by Vodacom's South African operations. The first six months
of the financial year has seen continued growth in the South
African mobile cellular industry. Exceptionally high industry-wide
gross connections were driven by low cost deals to prepaid
customers which, in turn, were driven by strong competition between
the South African operators. Vodacom South Africa's exceptionally
low contract churn has resulted in good net connections. All of
these factors worked in concert to produce strong revenue growth in
South Africa of 19.3%, to R10,605 million for the six months ended
September 30, 2003 (September 30, 2002: R8,892 million). Group
financial review (continued) Profit from operations In ZAR millions
Six months ended September 30 2002 2003 % change (unaudited)
(unaudited) South Africa 1,965 2,502 27.3 Tanzania 60 54 (10.0)
Congo (51%) (84) (6) 92.9 Lesotho 1 - - Holding companies (104)
(99) 4.8 1,838 2,451 33.4 Profit from operations margin (%) 19.5
21.7 The forces exercising pressure on operating margins continued
this year, namely increasing interconnect costs, the change in
traffic mix and a more competitive operating environment. In South
Africa, as expected, market share reduced to 55%, while competition
in all of Vodacom's other African ventures also increased. Despite
these challenging conditions, Vodacom again proved that it can
maintain its margins. Vodacom's profit from operations margin
increased to 21.7% for the six months ended September 30, 2003, up
from 19.5% for the corresponding six months in 2002. This is
promising, since Vodacom's results have historically been seasonal,
with the second six months of Vodacom's financial year delivering
stronger results and margins primarily because of the higher call
activity during the December holiday period in South Africa.
Vodacom Tanzania's profit from operations reduced from the prior
six-month period due to the strengthening of the Rand but in US
Dollar terms it increased by 22.4%. EBITDA In ZAR millions Six
months ended September 30 2002 2003 % change (unaudited)
(unaudited) South Africa 2,949 3,540 20.0 Tanzania 130 122 (6.2)
Congo (51%) (56) 33 158.9 Lesotho 14 12 (14.3) Holding companies
(10) (9) 10.0 3,027 3,698 22.2 EBITDA margin (%) 32.1 32.7 EBITDA
(continued) Group EBITDA increased by 22.2% to R3,698 million for
the six months ended September 30, 2003 (September 30, 2002: R3,027
million). Vodacom managed to increase its EBITDA margin by 0.6
percentage points to 32.7% (September 30, 2002: 32.1%). The
slightly smaller improvement in EBITDA margin compared to profit
from operations margin is the result of the lower growth in the
depreciation charge, resulting primarily from the slowing capital
expenditure in the South African operations. When low-margin
cellular phone sales are excluded from Group revenue, the EBITDA
margin increases to 37.8% for the six months ended September 30,
2003, up from 37.2% for the six months ended September 30, 2002.
Net profit In ZAR millions Six months ended September 30 2002 2003
% change (unaudited) (unaudited) Profit before taxation 1,539 2,153
39.9 Taxation (525) (772) 47.0 Minority interest (96) (7) 92.7 918
1,374 49.7 Net profit margin (%) 9.7 12.2 Net profit after taxes
and minority interests increased by 49.7% to R1,374 million for the
six months ended September 30, 2003 (September 30, 2002: R918
million). The significant increase in net profit was due primarily
to an improvement in profit from operations margin as well as a
4.7% decrease in finance costs to R653 million for the six months
ended September 30, 2003 (September 30, 2002: R685 million). The
reduced finance costs was a direct result of Vodacom's improved net
debt position, coupled with a lower interest rate environment in
South Africa and globally as well as a much reduced FEC book which
resulted in relatively lower finance charges being incurred because
of the strengthening of the Rand. The positive impact of the lower
finance charge was partially offset by a substantial increase of
47.0% in Vodacom's consolidated taxation charge. The increase of
1.8 percentage points in the effective tax rate to 35.9% for the
six months ended September 30, 2003 (September 30, 2002: 34.1%) is
primarily the result of R75 million STC payable on the interim
dividend of R600 million, as well as an increase in the deferred
taxation charge. Excluding the after-tax (at 30%) impact of the
effects of realised and unrealised FEC and foreign liability
revaluations, net profit after tax increased 44.4% to R1,506
million compared to R1,043 million for the same period in the
previous year. Revenue analysis In ZAR millions Six months ended
September 30 2002 2003 % change (unaudited) (unaudited) Airtime and
access 5,061 6,326 25.0 Interconnection 2,555 2,814 10.1 Equipment
sales 1,305 1,514 16.0 International airtime 343 470 37.0 Other
sales and services 177 172 (2.8) 9,441 11,296 19.6 Airtime and
access Vodacom derives airtime and access revenue mainly from
monthly access charges and airtime usage fees paid by contract
customers as well as fees paid by prepaid customers for starter
phone packages, airtime usage and revenue from mobile data
services. Vodacom's airtime revenue increased by 25.0% from the
corresponding six-month period in 2002 to R6,326 million for the
six months ended September 30, 2003. The growth was primarily
driven by substantial increases in Vodacom's customers, both in
South Africa and in its other African operations. However, the bulk
of its airtime revenue is still being generated by the South
African operations. Total South African customers increased 19.5%
since September 30, 2002 to 8.5 million, primarily due to strong
prepaid customer growth of 21.4%. Vodacom's consolidated data
revenue reached R512 million in the six months ended September 30,
2003, accounting for 4.5% of Group revenue. Comparable information
is not available because of a change in the way Vodacom accounts
for data revenue. Vodacom South Africa transmitted 910 million SMSs
over its network in the six months ended September 30, 2003
compared to 653 million SMSs in the six months ended September 30,
2002, an increase of 39.4%. Vodacom South Africa's SMS traffic
increased primarily due to competitions and TV programmes such as
"Big Brother" and the increasingly popular 4U package which is
priced to encourage SMS usage. Interconnection Interconnection
revenue includes revenue from CellC for national roaming services
and is driven by the volume of traffic and the interconnection
termination rates payable. The increase in interconnection revenue
of 10.1% over the previous period, is well below the increase in
total revenue and customers. This trend reflects the decreasing
incoming traffic from Telkom, due primarily to call substitution of
fixed for mobile calls. Equipment sales Vodacom purchases handsets
for the Group and for external service providers in bulk at
purchase discounts in order to lower the cost of handset
subsidisation. Vodacom's revenue from equipment sales increased
16.0% from the prior six-month period in 2002 to R1,514 million,
primarily due to the exceptionally high gross connections
experienced in South Africa, and to a lesser extent the growth in
Vodacom Congo. Handset prices benefited from the recent strength of
the Rand. International airtime International airtime comprise
mainly of international calls and roaming revenue from Vodacom's
customers and from international visitors roaming on Vodacom's
network. The 37.0% increase from the prior six-month period is
primarily due to an increase in the number of Vodacom's South
African customers roaming internationally as well as an increase in
the number of international visitors roaming in South Africa,
coupled with increased usage. Vodacom now offers roaming in 131
countries on 247 different networks. Other sales and services Other
revenue includes revenue from various non-GSM-related revenue and
revenue from Vodacom's insurance cell captive. Vodacom's other
revenue decreased marginally by 2.8% from the prior six-month
period. Operating expenses analysis In ZAR millions Six months
ended September 30 2002 2003 (unaudited) (unaudited) % change
Depreciation and amortisation 1,189 1,247 4.9 Payments to other
network 983 1,379 40.3 operators Other direct network operating
4,338 5,013 15.6 costs Staff expenses 502 632 25.9 Marketing and
advertising expenses 365 345 (5.5) General administration expenses
234 300 28.2 Other operating income (8) (71) 787.5 7,603 8,845 16.3
Depreciation and amortisation Depreciation and amortisation
increased a marginal 4.9% over the same period last year to R1,247
million for the six months ended September 30, 2003, primarily due
to depreciation and amortisation of capital expenditures Vodacom
incurred in building out its network in South Africa and other
sub-Saharan African countries. The low growth in depreciation and
amortisation is the result of a slowdown of capital expenditure in
Vodacom's South African operations where Vodacom has substantially
completed building its network, including GPRS, MMS and 1800 MHz
capabilities. Furthermore, the stronger Rand had a positive impact
on the depreciation charge from other African operations, where
network roll-out is still aggressive. Payments to other network
operators Payments to other network operators increased a
substantial 40.3% in the six months ended September 30, 2003
compared to the six months ended September 30, 2002. Payments to
other network operators consist mainly of interconnection payments
made by Vodacom's South African and other African operations for
terminating calls on other operators' networks and was therefore
affected by increased outgoing traffic from South Africa and other
African countries in line with increased customer growth. The trend
that Vodacom has observed in the past of outgoing traffic
increasingly terminating on mobile networks, rather than on
fixed-line networks (fixed-mobile substitution) has continued,
resulting in higher interconnection costs as the cost of
terminating calls on other mobile networks is generally higher than
calls terminating on fixed-line networks. This trend has been most
evident in its South African operations. The increase was further
due to the increase in interconnection tariffs on January 1, 2003
in South Africa in terms of interconnection agreements and more
calls terminating on mobile networks as mobile traffic grows. Other
direct network operating costs Other direct network operating costs
have been well managed to have increased 15.6% to R5,013 million in
the six months ended September 30, 2003 (September 30, 2002: R4,338
million). Other direct network operating costs are incurred to
maintain and support the growth in operations. Vodacom has managed
to contain the increases in these expenses at levels below the
growth in revenues, significantly aiding margins. Other direct
network expenses include commissions, cost of goods sold,
regulatory and licence fees, site and site maintenance costs and
other distribution expenses. The increased competition in the South
African market has put upward pressure on connection costs and
other distribution expenses, but has been offset to some extent by
lower costs because of the stronger Rand. Staff expenses Vodacom's
staff expenses increased 25.9% to R632 million in the six months
ended September 30, 2003 (September 30, 2002: R502 million) due
mainly to an increased deferred bonus incentive provision,
resulting from the increased consolidated profitability. Staff
expenses consist mainly of salaries and wages of employees as well
as contributions to employee pension and medical aid funds and
benefits and expenses related to Vodacom's deferred bonus incentive
scheme. The amount of the deferred bonus accruing to employees is
linked to consolidated profit before tax, which showed low growth
in 2002 due mainly to the impact of IAS 39: Financial Instruments:
Recognition and Measurement, but increased markedly for the period
under review. The increase was also the result of an overall
increase in average salaries for employees of approximately 8.0%
combined with a 5.8% increase in the number of employees. Employee
productivity, as measured by customers per employee (including
contractors and temps), again increased by a pleasing 18.2% to
2,137 (September 30, 2002: 1,808). This has been achieved because
Vodacom managed to control headcount growth to 5.8% across all
operations, to 4,489 as at September 30, 2003 (September 30, 2002:
4,242) despite solid growth in operations. Marketing and
advertising expenses Marketing and advertising expenses decreased
by 5.5% to R345 million in the six months ended September 30, 2003
(September 30, 2002: R365 million) primarily because of significant
marketing expenses that were incurred in the preceding six-month
period for the launching of Vodacom Congo, which was not repeated
in the current period. General administration expenses General
administration expenses comprise a number of expenses including
accommodation, information technology costs, office administration,
consultants' expenses, corporate social investment and insurance.
General administration expenses increased by 28.2% to R300 million
in September 30, 2003 (September 30, 2002: R234 million), due to a
large once-off reimbursement which was netted against the related
expense in the preceding six-month period. If the effect of this
reimbursement is excluded, general administration expenses
increased by 7.5% from the prior six-month period, in line with
inflation. Other operating income Other operating income comprises
income of a nature that Vodacom does not view as part of its core
activities, and is therefore shown separately. Capital expenditure
In ZAR millions Six months ended September 30 2002 2003 (unaudited)
(unaudited)% change South Africa 1,119 830 (25.8) Tanzania 160 145
(9.4) Congo (51%) 403 146 (63.8) Lesotho 35 4 (88.6) Holding
companies 1 4 300.0 1,718 1,129 (34.3) CAPEX as a percentage of
revenue 18.2 10.0 Vodacom's capital expenditure for the six months
to September 30, 2003 was down 34.3% to R1,129 million, or 10.0% of
revenue from R1,718 million, or 18.2% of revenue in the preceding
six-month period. Cumulative capital expenditure as at September
30, 2003 was R19.2 billion, compared to R18.3 billion as at March
31, 2003 and R17.1 billion as at September 30, 2002. It is
Vodacom's policy to economically hedge all foreign-denominated
committed orders from South Africa. However, because Vodacom does
not qualify to apply hedge accounting to these transactions in
terms of International Financial Reporting Standards, FEC profits
and losses are reflected as financing income and costs in its
financial statements. Capital expenditure for the period and the
translation of foreign assets are sensitive to movements in
exchange rates, which has worked in Vodacom's favour during the
current period. Vodacom's South African network roll-out
requirements have substantially decreased and older orders are fast
being completed. Subsequently, the historically large FEC book has
also reduced rapidly from R2,072 million at September 30, 2002 to
R1,403 million at March 31, 2003 and finally to R801 million at
September 30, 2003, a decrease of 61.3% from September 30, 2002.
Capital expenditure in Vodacom's other African operations is still
at relatively high levels, and this is expected to continue until
these markets are more mature and the network infrastructure
roll-out substantially completed. Vodacom's reduced consolidated
capital expenditure has a material positive impact on the cash
generation and has supported Vodacom paying an interim dividend.
South African cumulative network capital expenditure per customer
is at an all-time low of R1,876, a further 5.6% improvement from
September 30, 2002. As an example of another exciting Vodacom and
South African first, Vodacom is in the process of rolling out
equipment to supply mobile coverage in one of AngloGold's mines,
the Great Noligwa Goldmine. Funding In ZAR millions Six months
ended September 30 2002 2003 (unaudited) (unaudited) % change South
Africa: finance leases 794 892 12.3 South Africa: short-term
finance 421 - (100.0) South Africa: shareholders' loans 920 -
(100.0) Tanzania: outside shareholders' 93 83 (10.8) loans
Tanzania: project finance 474 422 (11.0) Congo: extended and
revolving credit and other loans (51%) 364 653 79.4 Net bank
overdrafts and non- 1,168 570 (51.2) interest-bearing debt Net debt
4,234 2,620 (38.1) Net debt as a percentage of equity 66.8 34.7
Even after paying out R1.2 billion worth of dividends to its
shareholders and repaying R920 million worth of shareholder loans
during the six months ended September 30, 2003, Vodacom's balance
sheet remains very healthy. Net debt as at September 30, 2003
increased by only 14.1% to R2,620 million from R2,295 million as at
March 31, 2003, and actually decreased markedly by 38.1% from
R4,234 million as at September 30, 2002. Net debt as a percentage
of equity as at September 30, 2003 was 34.7%, compared to 33.6% as
at March 31, 2003 and 66.8% as at September 30, 2002. Vodacom's
consolidated net debt as at September 30, 2003 consists of R892
million Rand-denominated finance leases (September 30, 2002: R794
million finance leases, R421 million short-term funding) and R1,158
million foreign-denominated funding and other short-term loans
(September 30, 2002: R931 million) for its other African operations
as well as R570 million in net bank overdraft balances and
non-interest-bearing debt (September 30, 2002: R1,168 million). Of
the foreign-denominated funding loans, R422 million is ring-fenced
project finance debt in Vodacom Tanzania, whereas the rest of the
foreign-denominated funding loans are not yet ring-fenced, being
primarily bridging finance facilities for Vodacom Congo.
Consolidated debt includes 51% of Vodacom Congo's debt.
Non-consolidated recourse debt amounts to R615 million. Vodacom is
confident that, given its current strong cash generation, it will
be able to continue to fund its African expansion strategy while
also continuing to pay dividends to its shareholders. Segment
commentary Vodacom South Africa operational overview Key
operational indicators Six months ended September 30 2002 2003
(unaudited) (unaudited) % change Total mobile customers (thousands)
7,130 8,522 19.5 Contract 1,139 1,251 9.8 Prepaid 5,961 7,242 21.4
Community services telephones 30 29 (3.3) Gross connections
(thousands) 1,625 2,248 38.3 Contract 110 110 - Prepaid 1,513 2,135
41.1 Community services 2 3 50.0 3 month Inactive customers (%)
15.1 15.3 1.3 Contract (%) 4.9 5.6 14.3 Prepaid (%) 17.0 17.1 0.6
Churn (%) 30.7 39.1 27.4 Contract (%) 13.2 10.8 (18.2) Prepaid (%)
34.3 44.1 28.6 Mobile market share (%) (at period 59 55 (6.8) end)
Mobile market penetration (%) (at 26.6 34.9 31.2 period end) Total
traffic (millions of minutes) 5,007 5,774 15.3 Outgoing 2,994 3,601
20.3 Incoming (interconnection) 2,013 2,173 7.9 Average monthly
revenue per customer (ARPU) (ZAR) 181 179 (1.1) Contract 612 663
8.3 Prepaid 88 87 (1.1) Community services 1,766 1,912 8.3 Average
monthly minutes of use (MOU) per customer (outside the bundle) 102
95 (6.8) Contract 269 268 (0.4) Prepaid 53 54 1.9 Community
services 3,215 2,699 (16.0) Cumulative network capital expenditure
per customer (ZAR, at period end) 1,980 1,876 (5.3) Number of
employees (incl. temps and contractors, at period end) 3,845 3,844
- Number of customers per employee (at period end) 1,854 2,217 19.6
Customer growth in South Africa has once again been driven by very
strong prepaid connections. Vodacom has seen the highest ever
number of gross connections, increasing 38.3% to total 2.2 million
to September 30, 2003 compared to the same period in the preceding
year. Vodacom continues to have a firm belief in the depth of the
South African market, with its initial estimate of the total South
African market of 19 million customers already almost being tested,
with no sign of the growth abating. As at September 30, 2003
Vodacom estimates the total number of South African mobile
customers at 15.6 million, with Vodacom having the lion's share, at
an estimated 55%. Because of its exceptionally low contract churn
of 10.8%, Vodacom South Africa has managed to grow its contract
base despite the aggressive acquisition strategies of its
competitors. The relatively high prepaid churn of 44.1% can be
attributed to the low cost of entry market model which has become
even more competitive. The increased deletions are the result of a
shortening of the time window lock period from 125 days to 94 days
in the six-month period under review as well as a change to the
inactivity rule for customers, resulting in a higher number of
customers being classified as inactive and subsequently being
deleted. The implementation of the new activity rules will be
completed during the second half of the year. The significant
reduction in MOUs from community services phones by 16.0% to 2,699
minutes per month for the six months to September 30, 2003
(September 30, 2002: 3,215) is a result of the tariff increases
that were effected November 1, 2002 to 85c incl. VAT per minute.
The price-sensitivity of the target market resulted in a decrease
in usage although ARPUs still increased 8.3% in the same period.
Prepaid and contract MOUs remained stable. Growth in new service
offerings is very encouraging, with active MyLife GPRS users
reaching 35,642 in September 2003 (January 2003: 4,846) with total
usage of 24 gigabytes in the month of September 2003 (January 2003:
4 gigabytes). MMS growth is just as exciting. On September 30,
2003, Vodacom had 19,592 active MMS users (January 2003: 1,421)
with the number of messages sent reaching 128,757 for the month of
September 2003 (January 2003: 39,670 messages). Vodacom is very
excited about the further growth opportunities offered by the
successful launch of its business brand, Office Anywhere, on August
10, 2003. Productivity, as measured by customers per employee,
increased by 19.6% to 2,217 customers per employee, again proving
the quality of our workforce. Vodacom Tanzania Key indicators Six
months ended September 30 2002 2003 (unaudited) (unaudited) %
change Number of customers 305,953 541,285 76.9 Contract 7,687
5,027 (34.6) Prepaid 297,933 533,259 79.0 Public phones 333 2,999
800.6 ARPU (USD) 23 18 (21.7) Revenue (ZAR millions) 408 431 5.6
EBITDA (ZAR millions) 130 122 (6.2) Profit from operations (ZAR 60
54 (10.0) millions) Revenue (USD thousands) 39,165 56,858 45.2
EBITDA (USD thousands) 12,502 16,038 28.3 Profit from operations
(USD 5,800 7,102 22.4 thousands) Project finance debt (ZAR
millions) 474 422 (11.0) Cumulative capex (USD millions) 115 152
32.2 Number of employees (incl. temps and contractors, at period
end) 208 270 29.8 Mobile market share (estimate, %) 60 56 (6.7)
Vodacom owns a 65% interest in Vodacom Tanzania Limited ("Vodacom
Tanzania") which competes with four other mobile operators in
Tanzania. Vodacom Tanzania became the largest mobile communications
network operator in Tanzania within one year of launching and has
continued to dominate ever since. The devaluation of the Tanzanian
Shilling against the US Dollar, Vodacom Tanzania's billing
currency, together with increased competition, has put pressure on
ARPUs. However, management acted decisively by reducing tariffs
substantially in June 2003, thereby reducing time-window locked
handsets, churh and increasing the number of active customers.
There is a 21.7% decline from the prior six-month period in ARPUs
to $18 per month for the six months ended September 30, 2003
(September 30, 2002: $23). Despite the lower than anticipated ARPUs
experienced, rapid customer growth has to a certain extent offset
the negative impact of the lower ARPUs. The net effect of the
increased competition and the devaluation of the currency has been
a decrease in EBITDA in the six months ended September 30, 2003 to
R122 million (September 30, 2002: R130 million) and profit from
operations to R54 million (September 30, 2002: R60 million) from
the preceding six-month period. It is evident from the table above
that the strengthening of the Rand against the US Dollar hurt
Vodacom's profitability in Rand terms. However, in US Dollar terms,
revenue, EBITDA and profit from operations increased significantly
when compared to the same period last year, with all three
indicators showing growth in excess of 20%. Vodacom Tanzania's
cumulative capital expenditures through September 30, 2003 was $152
million (September 30, 2002: $115 million). Vodacom Tanzania has
passed its peak funding requirement, and total drawn facilities as
at September 30, 2003 amounted to R422 million or $59.5 million
(September 30, 2002: R474 million). Despite the changing market
dynamics and lower than anticipated results in Rand terms,
management is confident that the fundamentals are firmly in place
to enable Vodacom Tanzania to deliver strong returns in the future.
Vodacom Congo Key indicators (all indicators reflect 100% of
Vodacom Congo) Six months ended September 30 2002 2003 (unaudited)
(unaudited) % change Number of customers 142,477 457,707 221.2
Contract 1,778 5,934 233.7 Prepaid 137,502 442,757 222.0 Public
phones 3,197 9,016 182.0 ARPU (USD) 22 24 9.1 Revenue (ZAR
millions) 186 401 115.8 EBITDA (ZAR millions) (109) 64 158.9 Loss
from operations (ZAR millions) (165) (12) 92.9 Revenue (USD
thousands) 17,767 53,024 198.4 EBITDA (USD thousands) (10,479)
8,514 181.8 Loss from operations (USD thousands) (15,849) (1,336)
91.6 Drawn credit facilities (ZAR millions) 714 1,280 79.3
Cumulative capex (USD millions) 91 157 72.5 Number of employees
(incl. temps and contractors, at period end) 119 305 156.3 Mobile
market share (estimate, %) 24 45 87.5 Vodacom owns a 51% interest
in Vodacom Congo (R.D.C.) s.p.r.l. ("Vodacom Congo"), while
Congolese Wireless Network s.p.r.l. owns the remaining 49%. Vodacom
Congo's network was relaunched under the Vodacom name in May 2002,
and as such is still a relatively new operation. Vodacom
proportionally consolidates the results of Vodacom Congo due to
certain minority protection rights enjoyed by the other
shareholder. Despite strong competition, Vodacom Congo increased
customers 84.6% in the last six months alone and estimates that its
457,707 customers reflect a market share of 45%. Within this high
customer growth stage, it is impressive to report an increase in
ARPUs from $22 to $24 especially as this reflects a turnaround
after the decline reported at March 31, 2003 to $20. Vodacom
Congo's revenues increased 115.8% to R401 million in the six months
to September 30, 2003, as a result of the higher than anticipated
customer growth numbers and ARPUs. Vodacom Congo has turned EBITDA
positive at R64 million for the six months ended September 30, 2003
(September 30, 2002: R109 million loss) and shows only a small
operating loss of R12 million for the six months ended September
30, 2003 (September 30, 2002: R165 million loss). The loss from
operations is reported after the deduction of a management fee
payable to Vodacom. The operations in Vodacom Congo are now more
predictable and progressing according to plan, although the
somewhat lower than anticipated margins achieved to date and the
current strong customer growth experienced indicates that the
project will ultimately take a longer time to turn profitable than
initially expected. Vodacom Congo's cumulative capital expenditures
through September 30, 2003 were $157 million (September 30, 2002:
$91 million). Pursuant to its shareholders' agreement Vodacom is
responsible for the funding of the operations for the first three
years which it has done in part through recourse to South Africa.
Only 51% of the debt is reflected on the consolidated balance
sheet. Vodacom Congo is in the process of seeking project finance
for the operation. Vodacom Lesotho Key indicators Six months ended
September 30 2002 2003 (unaudited) (unaudited) % change Number of
customers 91,898 70,524 (23.3) Contract 5,639 3,031 (46.2) Prepaid
86,001 66,875 (22.2) Public phones 258 618 139.5 ARPU (ZAR) 87 119
36.8 Revenue (ZAR millions) 46 55 19.6 EBITDA (ZAR millions) 14 12
(14.3) Profit from operations (ZAR 1 - - millions) Cumulative capex
(ZAR millions) 158 198 25.3 Number of employees (incl. temps and
contractors, at period end) 70 70 - Mobile market share (estimate,
%) n/a 78 - Vodacom owns an 88.3% interest in Vodacom Lesotho
(Proprietary) Limited ("Vodacom Lesotho"). The Lesotho
Telecommunications Corporation was issued the second mobile
communications licence in Lesotho and commenced operations in April
2002, which has had a negative impact on the profitability of
Vodacom Lesotho. The decline in the number of customers is the
result of a concerted cleaning-up process of the customer base
during which time inactive customers were deleted from the base.
Vodacom Lesotho's revenue grew by 19.6% to R55 million (September
30, 2002: R46 million) driven by an increase in active customers.
Fierce competition has resulted in significant margin squeeze,
resulting in a decrease in EBITDA of 14.3% and a very flat profit
from operations performance. Vodacom Lesotho's cumulative capital
expenditure through September 30, 2003 were R198 million
(September, 30 2002: R158 million). Vodacom Mozambique The main
obstacles that previously prevented Vodacom from utilising its
licence and commencing operations in Mozambique were the legal and
commercial separation of the incumbent fixed-line operator and the
current sole mobile operator in the country. These obstacles have
been overcome and commercially viable interconnect agreements have
been entered into. With all the prerequisites in place, Vodacom
Mozambique started operational roll-out at the beginning of October
2003. Vodacom Mozambique holds a 15-year mobile telecommunications
licence, which officially commenced on August 23, 2003. Vodacom
Mozambique anticipates to launch its commercial services in early
December 2003. Nigeria Until Vodacom was invited by Econet Wireless
Nigeria ("EWN") earlier this year to acquire equity in EWN, Vodacom
had no intention of participating in the Nigerian cellular
industry. Vodacom responded to the invitation by the EWN Board by
making an offer subject to a successful financial and legal due
diligence. This offer was accepted by the EWN Board and
shareholders. Vodacom is currently engaged in the necessary
financial and legal due diligence before the transaction can
proceed. This due diligence work is not as yet complete. Should
this due diligence reveal any financial or legal obstacle in
pursuing the proposed transaction, then clearly such a transaction
cannot take place. It is Vodacom's information that the primary
reason for EWN inviting Vodacom to make an offer and accepting such
an offer was a need on their part to acquire more operational and
marketing support, as well as financial support, to compete more
effectively in the Nigerian market. Dividends and shareholder
distributions Vodacom has delivered excellent returns to its
shareholders in the past due to its impressive profitability and
cash generation. Vodacom has made the following payments in the six
months to September 30, 2003: * R920 million shareholders loans
repaid June 30, 2003 * R600 million final 2003 dividend paid June
30, 2003 * R600 million interim 2004 dividend paid September 30,
2003 Despite its ambitious African expansion, Vodacom remains
confident that it will continue to pay dividends to its
shareholders. CONDENSED CONSOLIDATED INCOME STATEMENTS For the six
months ended September 30 2002 2003 Rm Rm % (unaudited) (unaudited)
change Revenue 9,440.8 11,295.6 19.6 Other operating income 8.3
71.1 756.6 Direct network operating cost (5,320.6) (6,391.5) 20.1
Depreciation (1,084.8) (1,148.0) 5.8 Staff expenses (501.7) (632.5)
26.1 Marketing and advertising expenses (364.8) (344.8) (5.5)
General administration expenses (234.4) (300.1) 28.0 Amortisation
of intangible assets (104.6) (98.9) (5.4) Profit from operations
1,838.2 2,450.9 33.3 Interest, dividends and other financial income
385.4 354.5 (8.0) Finance costs (685.1) (652.8) (4.7) Profit before
taxation 1,538.5 2,152.6 39.9 Taxation (524.7) (772.1) 47.2 Profit
after taxation 1,013.8 1,380.5 36.2 Minority interest (95.7) (7.0)
(92.7) Net profit 918.1 1,373.5 49.6 Note: % Change may differ from
that disclosed elsewhere because of rounding differences. Condensed
consolidated balance sheets As at As at March 31 September 30 2003
2003 Rm Rm % (audited) (unaudited) change ASSETS Non-current assets
12,125.9 12,030.1 (0.8) Property, plant and equipment 10,675.0
10,502.1 (1.6) Intangible assets 551.1 550.8 (0.1) Investments
195.1 249.4 27.8 Deferred taxation 704.7 727.8 3.3 Current assets
4,689.7 5,083.3 8.4 Inventory 238.8 246.6 3.3 Accounts receivable
3,158.9 3,680.7 16.5 Current portion of investments 50.9 95.3 87.2
Foreign currency derivatives 34.6 0.7 (98.0) Bank and cash balances
1,206.5 1,060.0 (12.1) Total assets 16,815.6 17,113.4 1.8 EQUITY
AND LIABILITIES Capital and reserves 6,837.4 7,551.2 10.4 Ordinary
share capital - - - Non-distributable reserves (132.3) (192.6) 45.6
Retained earnings 6,969.7 7,743.8 11.1 Minority interest 88.0 85.0
(3.4) Non-current liabilities 2,881.6 2,615.4 (9.2) Interest
bearing debt 1,732.2 1,382.7 (20.2) Deferred taxation 993.1 1,083.9
9.1 Provisions 156.3 148.8 (4.8) Current liabilities 7,008.6
6,861.8 (2.1) Accounts payable 3,799.0 3,938.2 3.7 Taxation payable
315.2 224.9 (28.6) Shareholder loans 920.0 - (100.0) Non interest
bearing debt 4.3 4.3 - Current portion of interest bearing 286.1
667.7 133.4 debt Provisions 324.4 329.2 1.5 Dividends payable 600.0
- (100.0) Foreign currency derivatives 200.6 72.5 (63.9) Bank
overdrafts 559.0 1,625.0 190.7 Total equity and liabilities
16,815.6 17,113.4 1.8 Condensed consolidated statements of changes
in equity Share Non- capital and Retained distributable premium
earnings reserves Total Rm Rm Rm Rm Balance at March 31, 2002 - -
5,357.7 106.1 5,463.8 audited Net profit for the period - 918.1 -
918.1 Contingency reserve - 1.3 (1.3) - Net gains and losses not
recognised in the income statement Foreign currency translation
reserve - - (54.1) (54.1) Foreign currency translation reserve -
deferred taxation - - 9.2 9.2 Balance at September 30, - 6,277.1
59.9 6,337.0 2002 - unaudited Balance at March 31, 2003 - audited -
6,969.7 (132.3) 6,837.4 Net profit for the period - 1,373.5 -
1,373.5 Dividends declared - (600.0) - (600.0) Contingency reserve
- 0.6 (0.6) - Net gains and losses not recognised in the income
statement Foreign currency - - (65.3) (65.3) translation reserve
Foreign currency translation reserve - deferred taxation - - 5.6
5.6 Balance at September 30, 2003 - unaudited - 7,743.8 (192.6)
7,551.2 Condensed consolidated cash flow statements For the six
months ended September 30 2002 2003 Rm Rm % (unaudited) (unaudited)
change CASH FLOW FROM OPERATING ACTIVITIES Cash receipts from
customers 9,009.8 10,789.2 19.7 Cash paid to suppliers and
employees (5,838.0) (7,798.2) 33.6 Cash generated from operations
3,171.8 2,991.0 (5.7) Finance costs paid (513.4) (353.3) (31.2)
Interest, dividends and other financial income received 286.9 181.1
(36.9) Taxation paid (707.9) (787.0) 11.2 Dividends paid -
shareholders (600.0) (1,200.0) 100.0 Net cash flows from operating
activities 1,637.4 831.8 (49.2) CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,081.3) (1,000.5)
(51.9) Proceeds on disposal of property, plant and equipment 4.6
0.2 (95.7) Acquisition of intangible - (114.1) 100.0 Loans to
minority shareholders (153.9) - (100.0) Current portion of
investments (172.9) (140.0) (19.0) Other investing activities
(11.9) - (100.0) Net cash flows utilised in investing activities
(2,415.4) (1,254.4) (48.1) CASH FLOW FROM FINANCING ACTIVITIES
Shareholder loans repaid - (920.0) 100.0 Interest bearing debt
incurred 336.4 145.8 (56.7) Funding received from minority
shareholders 157.8 - (100.0) Net cash flows from/(utilised in)
financing activities 494.2 (774.2) (256.7) NET DECREASE IN CASH AND
CASH EQUIVALENTS (283.8) (1,196.8) 321.7 Cash and cash equivalents
at the beginning of the period (857.6) 647.5 (175.5) Effect of
foreign exchange rate changes (23.1) (15.7) (32.0) CASH AND CASH
EQUIVALENTS AT THE END OF THE PERIOD (1,164.5) (565.0) (51.5)
Special note regarding forward-looking statements All statements
contained herein, as well as oral statements that may be made by us
or by officers, directors or employees acting on behalf of the
Telkom Group, that are not statements of historical fact constitute
"forward-looking statements" within the meaning of the US Private
Securities Litigation Reform Act of 1995, specifically Section 21E
of the U.S. Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause our actual results
to be materially different from historical results or from any
future results expressed or implied by such forward-looking
statements. Among the factors that could cause our actual results
or outcomes to differ materially from our expectations are those
risks identified under the caption "Risk Factors" contained in item
3 of Telkom's most recent annual report on Form 20-F filed with the
U.S. Securities Exchange Commission (SEC) and our other filings
with the SEC, available on Telkom's website at
http://www.telkom.co.za/ir, including, but not limited to,
increased competition in the South African fixed-line and mobile
communications markets; developments in the regulatory environment;
Telkom's ability to reduce expenditure, customer non-payments,
theft and bad debt, the outcome of arbitration or litigation
proceedings with Telcordia Technologies Incorporated and others;
general economic, political, social and legal conditions in South
Africa and in other countries where Vodacom invests; fluctuations
in the value of the Rand and inflation rates, our ability to retain
key personnel; and other matters not yet known to us or not
currently considered material by us. You should not place undue
reliance on these forward-looking statements. All written and oral
forward-looking statements, attributable to us, or persons acting
on our behalf, are qualified in their entirety by these cautionary
statements. Moreover, unless we are required by law to update these
statements, we will not necessarily update any of these statements
after the date hereof either to conform them to actual results or
to changes in our expectations. Telkom SA Limited (Registration
Number 1991/005476/06) ISIN ZAE000044897 JSE and NYSE Share Code
TKG ("Telkom") DATASOURCE: Telkom SA Limited CONTACT: Belinda
Williams, Investor Relations of Telkom SA Limited, +27-12-311-5720,
Web site: http://www.telkom.co.za/
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