Vodacom first-half profit drops, cautious on outlook

Vodacom, South Africa’s biggest cellphone operator, reported a drop in first-half profits and gave a cautious outlook as consumers struggle in the country’s first recession in nearly two decades.

Vodacom, majority owned by Britain’s Vodafone, said on Monday headline earnings per share (EPS) for the six months to end-September fell 12,4% to 219 cents, having forecast last month a drop of between 10% and 20%.

The company said headline EPS was hit by R3,2-billion impairment losses relating to its acquisition of pan-African satellite interconnection services firm Gateway, where trading was poor due to price competition and tough economic conditions.

“If I look at the future, what is laying around the corner, the macroeconomic outlook is uncertain but we’re seeing early signs of recovery, specifically in South Africa,” Pieter Uys, Vodacom’s CEO said in a conference call.

“[But] it is too soon to be confident in a sustained recovery across all customer segments.”

Vodacom said profit was also hit by the reversal of a deferred taxation asset of R551-million due to the reduced profitability of its business in the Democratic Republic of Congo (DRC).

The company, which debuted on the JSE in May after a deal with Vodafone, said the number of mobile users increased by 16,5% to 41,6-million.

But Uys said regulatory hurdles such as the new law, Rica (Regulation of Communications and Provisions of Communication-related Information Act), which compels consumers to register all and existing phone numbers, would knock subscriber growth rates.

“Our South Africa business is continuing to feel the impact of Rica, by end of next year we have to have all [mobile users] registered, so Rica would definitely have an impact in short to medium term both on revenue and our number of subscribers,” Uys said.

Rica, which became effective on July 1, already resulted in “significantly lower gross connections in August and September 2009”.

In South Africa, Vodacom and its rival, MTN, are faced with other regulatory issues including an investigation of pricing by the competition watchdog. The South African government also wants interconnection fees to be cut to 60 cents per minute during peak times by November.

MTN boosted subscribers by 5% in the third quarter thanks to strong growth in key markets Nigeria and Iran, and expects zero subscriber growth for the year in its local operation.—Reuters

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