Vodacom CFO talks SA downgrade and the next evolution in mobile

Vodacom chief financial officer, Till Streichert, says that the company is aware of the need to mitigate risks caused by the recent sovereign credit rating downgrades.

In his annual review, Streichert said that the rating downgrade in South Africa increases uncertainty and may lead to increased rand volatility, consumer pressure and debt exposure.

In May, Vodacom reported a 3.9% jump in revenue to R64.73 billion for the year ended March 2017, with operating profit up 5.3% to R20.238 billion.

South Africa’s largest mobile operator by customers saw a 5.6% jump in service revenue for the year ended March 2017, to R52.1 billion, while customer numbers increased by 8.6% to 37.1 million, with 3.0 million customer net additions, the group said.

“In South Africa, we have seen continued growth in service revenue of 5.6%, driven largely by a growing demand in data, supported by our network infrastructure investment, successful pricing strategy execution and strong customer growth, with three million new customers,” Streichert said.

He said that network superiority is at the heart of Vodacom’s strategy of ensuring excellent quality for customers. He pointed out that the group invested R11.3 billion mainly in the network and IT (representing 13.9% of Group revenue), adding to the R26.2 billion spent in the previous two years.

“In South Africa, we further extended our high-speed transmission to 92.1% of our sites, and completed the development of our new customer management and billing systems to future proof our operations, having migrated all of our consumer contract customers to this new platform. We also entered into a commercial agreement with WBS which will enable us to roam on their 4G network.

“Our investment into new growth areas like IoT, FTTx, big data and video services is preparing us for the next evolution in telco, assisting us to continue to deliver good returns to our shareholders.”

Vodacom’s data customers were up 8.3% to 19.5 million in SA, while in the International markets data customers were up 29.3% to 13.0 million, the finance chief said.

“In South Africa, the average monthly data used by customers on smart devices continued to increase, this together with incentives to migrate to better data devices, resulted in benefits to ARPU. There was an ARPU uplift of approximately 25% when a customer migrated to a 4G device,” Streichert said.

The financial lead said that the company’s footprint has exposed it to volatile macroeconomic and regulatory conditions, including access to spectrum, fluctuating foreign exchange rates, inflation, interest rates and sovereign credit rating downgrades, “all of which had a negative impact on consumer and enterprise spend, operating costs and capital expenditure”.

Streichert said that the recent sovereign credit rating downgrade in South Africa increases uncertainty and may lead to increased rand volatility, consumer pressure and debt exposure.

“This highlights the need for us to be agile to mitigate such risks. We are already driving the localisation of foreign-denominated costs, utilising hedging instruments, using big data to further enhance our personalised and segmented offers, and reviewing our fixed-to-floating debt structure to balance financing cost and risk exposure.”

He said that the company’s balance sheet remains strong, “providing us with sufficient capacity for leverage, enabling us to execute our growth strategy and realise possible M&A opportunities where these contribute to adding shareholder value”.

Streichert also pointed out that Vodacom agreed terms with Vodafone to buy a 34.94% stake in Kenya’s Safaricom. He said that the transaction would offer the company an opportunity to diversify Vodacom Group’s financial exposure in a single transaction.


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Vodacom CFO talks SA downgrade and the next evolution in mobile