Vodacom may have listed successfully on the JSE on Monday with 10-million shares trading hands, but on Tuesday the spotlight was on its annual results, especially the fact that it had posted a lower profit than last year.
Vodacom, majority owned by Vodafone, reported a 21% drop in full-year headline earnings per share as finance costs jumped on loans to fund a data acquisition, and due to one-off charges linked to an affirmative action deal.
Vodacom warned of tough conditions ahead in the key markets of South Africa and the Democratic Republic of Congo as an economic slowdown hits mobile spending.
Chief executive Pieter Uys said the company was poised to tighten its belt if conditions worsened.
The listing was part of a broader deal that gives Vodafone majority control as it seeks to expand in high-growth African markets.
“Yesterday [Monday] we listed after an eventful weekend,” said Uys, referring to the last-minute interdict by the Congress of South African Trade Unions and the Independent Communications Authority of South Africa (Icasa), which aimed to prevent the listing.
The results announcement was held at the Raddison Hotel in Sandton, rather than the usual Vodaworld, where in the past Telkom and Vodacom have held joint results announcements.
However, with Vodacom now standing on its own two feet, it is clear that things have changed.
Uys joked about Vodacom’s new independence when he said, “Vodafone has now become a majority shareholder, a 65% shareholder and I no longer have to ask Ruben [September, Telkom CEO] for permission.”
But while Vodacom is number one in South Africa, the results underscored how it lags rival MTN across the rest of the continent, with subscribers up 16,5% in the year to end-March to 39,6-million, compared with MTN’s 100-million users.
Vodacom, which is seeking to offset the effects of a maturing domestic cellphone market, plans to focus its energies on data provision in Africa, where it leads MTN, and Uys said it would keep expanding into corporate data and internet services.
African growth
Analysts say Vodacom is likely to face stiff competition in the data arena from its former joint owner, Telkom, as the fixed-line operator seeks new revenue streams after spinning off Vodacom, its main earnings driver.
“Everyone is going to expect Vodacom to make a serious play for the corporate slice of the market,” said Richard Hurst, a telecoms analyst at advisory firm IDC. “I see the real locking of horns in this space coming from Telkom rather than MTN.”
Vodacom has invested about R2-billion in establishing Vodacom Business to provide converged services to corporates, and it has expanded other data services.
Uys said he would also seek expansion opportunities in Africa, even though MTN and Kuwait’s Zain already dominate some of the most lucrative markets. He declined comment on whether Vodacom would bid for a stake in local mobile operator MTEL, which is up for sale.
“In terms of Africa, Vodacom has to come up with something fresh because MTN [dominates the market],” Hurst said.
Vodacom was listed on the JSE after a court on Sunday threw out a last-minute bid to block the deal by the Congress of South African Trade Unions, which opposes foreign ownership and fears job losses.