Lesley Stones
10 November 2009
Johannesburg — SEVERAL events have conspired to decimate Vodacom 's results in the p ast six months - and more issues are arising that could keep its figures from showing much improvement for the year .
Net profit slumped 98% to R59m on revenue up almost 10% from R26bn to R28,6bn for the interim period to September . Earnings per share tumbled from 248c to only 4c from a year ago.
The biggest hit was a R3,2bn impairment charge for its acquisition of pan-African voice and data carrier Gateway, with Vodacom CEO Pieter Uys admitting that in retrospect, the economic crisis meant Vodacom had overpaid for the business.
Buying Gateway had been a good move, but it had not performed as expected because the operators for which it carried traffic had demanded cheaper rates. Gateway was still doing well, but had needed restructuring to cope with falling revenue and profit margins, Uys said.
Trouble in the Democratic Republic of Congo and increased competition hit Vodacom's income in that country, where the reversal of a deferred tax asset wiped out R551m.
In SA, new legislation had slowed its subscriber growth, and Uys said a law requiring people to present proof of identification to buy a Sim card meant Vodacom may never add 1-million users a month as it used to.
It also faces the loss of billions of rand in revenue and hundreds of millions of rand in profit if politicians succeeded in halving the interconnection fees that operators charge for switching a call between networks.
In the interim period, Vodacom generated R4bn in revenue from interconnection fees and paid out R3,2bn, leaving a profit of R964m. For every 10% that is cut from the peak fee of R1,25 a minute, R200m would be wiped off its annual profit, Uys said.
Despite its tumbling profitability, Vodacom declared its first interim dividend of 110c per share, or R1,6bn. It had pledged to pay dividends and was not going to renege on that, Uys said.
However, the industry and the markets had changed in the past year. Certainty was needed quickly about the interconnection rates, and Vodacom also needed to become leaner and more efficient to adapt as the world around it changed, Uys said.
The latest results show Vodacom now serves 41,6-million customers, up 16,5% from a year ago. But high customer churn, as users defect from one network to another, remains a problem as it loses more than a third of its customers each year.
The new law that is now preventing some people from joining a network is having a worrying effect on all the operators. Vodacom signed up 1-million customers in July, but that dipped in August when the Regulation of Interception of Communications Act was introduced. "It will creep up again but it will never get to 1-million a month again," Uys said. MTN suffered even more, losing 750000 subscribers because of the act .
Next year the operators must ensure they have full identification details for existing customers too. Yet they are not convinced that the law -- designed to ensure customers can be traced if cellphones are used in criminal activities -- will prove useful. "It's not effectively used anywhere else in the world. We are one of the few countries trying to do this," Uys said.
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