Operating results
2009 financial year compared to the 2008 financial year
Africa and Central Europe(1)
| Vodacom | Other(2) | Africa and Central Europe |
% change | |||
|---|---|---|---|---|---|---|
| £m | £m | £m | £ | Organic(3) | ||
| Year ended 31 March 2009 | ||||||
| Revenue | 1,778 | 3,723 | 5,501 | 11.2 | 3.9 | |
| Service revenue | 1,548 | 3,565 | 5,113 | 10.7 | 3.1 | |
| EBITDA | 606 | 1,084 | 1,690 | 1.3 | (2.4) | |
| Adjusted operating profit | 373 | 279 | 652 | (13.3) | (12.9) | |
| EBITDA margin | 34.1% | 29.1% | 30.7% | |||
| Year ended 31 March 2008 | ||||||
| Revenue | 1,609 | 3,337 | 4,946 | |||
| Service revenue | 1,398 | 3,219 | 4,617 | |||
| EBITDA | 586 | 1,083 | 1,669 | |||
| Adjusted operating profit | 365 | 387 | 752 | |||
| EBITDA margin | 36.4% | 32.5% | 33.7% | |||
Notes:
- (1)
- The Group revised its segment structure during the year. See note 3 to the consolidated financial statements.
- (2)
- On 1 October 2007, Romania rebased all of its tariffs and changed its functional currency from US dollars to euros. In calculating all constant exchange rate and organic metrics which include Romania, previous US dollar amounts have been translated into euros at the 1 October 2007 US$/euro exchange rate.
Revenue increased by 11.2%, including the contribution of favourable exchange rate movements and the impact of merger and acquisition activity. Organic revenue growth was 3.9%, as sustained growth in Vodacom was offset by weakening trends in Turkey and Romania. Service revenue growth was 3.1% on an organic basis, reflecting the 9.9% increase in the average customer base, partially offset by an impact from termination rate cuts of around three percentage points.
EBITDA increased by 1.3%, with the contribution of favourable exchange rate movements partially offset by merger and acquisition activity. EBITDA decreased by 2.4% on an organic basis, with the EBITDA margin decreasing in the majority of markets, reflecting the continued network expansion, investment in the turnaround plan in Turkey and increased competition in Romania.
The impact of merger and acquisition activity and foreign exchange movements on revenue, service revenue, EBITDA and adjusted operating profit are shown below:
| Organic growth % |
M&A activity pps |
Foreign exchange pps |
Reported growth % |
|
|---|---|---|---|---|
| Revenue | ||||
| Africa and Central Europe | 3.9 | (0.7) | 8.0 | 11. 2 |
| Service revenue | ||||
| Vodacom | 13.8 | 2.1 | (5.2) | 10.7 |
| Other | (0.9) | (1.5) | 13.1 | 10.7 |
| Africa and Central Europe | 3.1 | (0.6) | 8.2 | 10.7 |
| EBITDA | ||||
| Vodacom | 7.3 | 0.5 | (4.4) | 3.4 |
| Other | (7.0) | (5.9) | 13.0 | 0.1 |
| Africa and Central Europe | (2.4) | (4.0) | 7.7 | 1.3 |
| Adjusted operating profit | ||||
| Vodacom | 6.3 | 0.3 | (4.4) | 2.2 |
| Other | (27.5) | (10.5) | 10.1 | (27.9) |
| Africa and Central Europe | (12.9) | (5.6) | 5.2 | (13.3) |
Vodacom
Service revenue grew by 13.8% on an organic basis, as strong growth in Vodacom’s average customer base continued, increasing by 11.2%, which took the closing customer base to 39.6 million on a 100% basis. Revenue growth was driven by the prepaid voice market and data services. Voice usage per customer in the prepaid market, which represents the majority of the customer base, grew as the higher usage driven by revised tariffs in South Africa was offset by the dilutive effect of the increased customer base in both Tanzania and Mozambique, which both have lower than average ARPU. Data revenue grew by 59.7% at constant exchange rates, as the higher revenue base partially offset the benefit from increased penetration of mobile PC connectivity devices, with the absence of fixed line alternatives making mobile data a popular offering. Relatively low contract voice revenue growth resulted from reduced out of bundle usage as customers cut back on spending due to economic conditions. Equipment revenue was adversely impacted by consumer preference for lower value handsets. Trading conditions in the Democratic Republic of Congo (‘DRC’) have worsened significantly due to the impact of lower commodity prices on mining which is central to the DRC’s economy.
Organic EBITDA growth was 7.3%, despite lower margins, as the growth in revenue more than offset the increasing cost base, which benefited from stable customer costs as a percentage of revenue as the South African market matures. The cost base was adversely impacted by an increase in operating expenses due to continued expansion, investment in enterprise services, Black Economic Empowerment share charges and high wage inflation.
On 30 December 2008, Vodacom acquired the carrier services and business network solutions subsidiaries (‘Gateway’) from Gateway Telecommunications SA (Pty) Ltd. Gateway provides services in more than 40 countries in Africa. On 20 April 2009, the Group acquired an additional 15.0% stake in Vodacom and on 18 May 2009, Vodacom became a subsidiary undertaking following the termination of the shareholder agreement with Telkom SA Limited, the seller and previous joint venture partner.
Other Africa and Central Europe
Service revenue declined by 0.9% on an organic basis, due to the performance in Turkey combined with the impact of deteriorating economic conditions across Central Europe, most notably in Romania in the fourth quarter. At constant exchange rates, service revenue in Turkey decreased by 7.6%, with an 18.4% fall in the fourth quarter. Termination rate cuts adversely impacted revenue by 6.9% and revenue was further depressed by a higher rate of churn and a decline in prepaid ARPU due to intense competition in the market. Consumer confidence in Turkey fell with the deterioration in the macroeconomic environment, impacting revenue. Competition also intensified, with the launch of mobile number portability in November 2008 leading to aggressive acquisition and pricing campaigns, especially in the fourth quarter of the year. Mobile ARPU fell in the second half of the year but stabilised in the fourth quarter following successful promotions. In Romania, service revenue grew by 1.1% at constant exchange rates, but deteriorated during the year, with a 10.3% decline in the fourth quarter at constant exchange rates. The market continues to mature, with the decline in ARPU resulting from local currency devaluation against the euro – whilst tariffs are quoted in euros household incomes are earned in local currency – in addition to market led price reductions impacting performance in the fourth quarter in particular. These effects were partially offset by data revenue growth following successful data promotions and flexible access offers, which led to a rise in the number of mobile PC connectivity devices.
On an organic basis, EBITDA decreased by 7.0%, with the EBITDA margin also declining due to the fall in revenue and investment in the turnaround plan in Turkey. EBITDA in Turkey declined by 37.3% at constant exchange rates, as a result of the decline in revenue and increased operating expenses, reflecting higher marketing costs, higher technology costs due to expansion of the network and organisational restructuring as part of the turnaround plan. In Romania, EBITDA decreased by 4.0% at constant exchange rates, as aggressive market competition and higher gross customer additions led to the rise in the cost of acquiring and retaining customers.
In May 2008, the Group changed the consolidation status of Safaricom from a joint venture to an associated undertaking, following completion of the share allocation for the public offering of 25.0% of Safaricom’s shares previously held by the Government of Kenya and termination of the shareholders’ agreement with the Government of Kenya. In August 2008, the Group acquired 70.0% of Ghana Telecommunications Company Limited, which offers both mobile and fixed services. The Group also increased its stake in Polkomtel from 19.6% to 24.4% in December 2008.