Vodacom Group Limited Investment case February 2017
Disclaimer The following presentation is being made only to, and is only directed at, persons to whom such presentations may lawfully be communicated ( relevant persons ). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. Information in the following presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments. This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the Group. Promotional material used in this presentation that is based on pricing or service offering may no longer be applicable. This presentation contains certain non-gaap financial information which has not been reviewed or reported on by the Group s auditors. The Group s management believes these measures provide valuable additional information in understanding the performance of the Group or the Group s businesses because they provide measures used by the Group to assess performance. However, this additional information presented is not uniformly defined by all companies, including those in the Group s industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Additionally, although these measures are important in the management of the business, they should not be viewed in isolation or as replacements for or alternatives to, but rather as complementary to, the comparable GAAP measures. This presentation also contains forward-looking statements which are subject to risks and uncertainties because they relate to future events. These forward-looking statements include, without limitation, statements in relation to the Group s projected financial results. Some of the factors which may cause actual results to differ from these forward-looking statements are discussed on slide 23 of this presentation. Vodafone, the Vodafone logo, Vodafone Mobile Broadband, Vodafone WebBox, Vodafone WebBook, Vodafone Smart tab, Vodafone 858 Smartphone, Vodafone Passport, Vodafone live!, Power to You, Vodacom, Vodacom M-Pesa, Vodacom Millionaires, Vodacom 4 Less and Vodacom Change the World are trademarks of Vodafone Group Plc (or have applications pending). Other product and company names mentioned herein may be trademarks of their respective owners. 2
Vodacom DRC Licenced 2002 Population 71 million Vodacom Mozambique Licenced 2003 Population 29 million Vodacom Tanzania Licenced 1999 Population 55 million A leading African mobile communication company providing a wide range of communication services including mobile voice, messaging, data and converged services to over 65 million 1 customers. Vodacom is majority owned by Vodafone Plc (65%) and we are listed on the JSE Limited. Market capitalisation of R225.1 billion #. Group revenue of R80.1 billion. Head office in Midrand, South Africa Vodacom South Africa Licenced 1993 Population 55 million Vodacom Lesotho Licenced 1995 Population 2 million History consistent track record of innovation 1996 2004 2008 2009 2011 2012 2016 All information in presentation is as at 31 March 2016, unless otherwise stated. # Market capitalisation value as at 17 February 2017. 1. As at 31 December 2016 First to launch prepaid services in the world on IN platforms Vodacom launches a 3G HSDPA network in South Africa Vodacom Business launches Vodacom listed on the JSE (18 May) Vodacom rebrands from Green and Blue to Vodafone RED First to launch 4G in South Africa LTE-Advanced launched 3
Share information As at 5 February 2017 Institutional shareholding 1 JSE Ticker symbol VOD ADR code Stock exchange VDMCY JSE Limited Shares in issue 1 487 954 000 Freefloat 35% 52 week low and high R139 R172 Market capitalisation Transfer agent R223.4 billion ComputerShare 20% 8% 2% 4% 66% PIC = 51% South Africa United States United Kingdom Rest of Europe Rest of world Indices FTSE/JSE Top 40 Index JSE Socially Responsible Index Nedbank BGreen Exchange Traded Fund 1. As at 27 January 2017 4
Five reasons to own Vodacom shares 1 Market leadership 2 Focus areas of growth potential 3 Scale benefits driving efficiencies 4 Experienced, diverse management team 5 Track record of delivering shareholder returns 5 5
#1 Market leadership #1 mobile operator in all markets 61.3 million customers in 5 countries in Sub-Saharan Africa R14 billion enterprise revenue from 30 countries in Africa > 18 000 base stations, >80% 3G 1 st to launch 4G in South Africa, Lesotho and Tanzania R13 billion Investment per annum to maintain our leading network quality All information is as at 31 March 2016 6
#2 Focus areas of growth potential FY14: +33% FY14: +24% Data (32% of Group service revenue) FY15: +25% FY16: +29% International (27% of Group service revenue) FY15: +10% FY16: +17% Group: 29 million active data customers; 57% of total base SA: 14 million active smart devices; 37% of active customers SA: 572MB per smart device growing 23% 27% of Group service revenue Data revenue growth +32% Active customers 27 million o Active customers now 44% of Group active customers Enterprise (21% of Group service revenue) FY14: +37% FY15: +13% FY16: +19% New services (SA) (4.2% of Group service revenue) Enterprise contributes 21% to Group service revenue SA fixed and managed services revenue +27% o o Pan African MPLS network Fibre to the business/home Insurance revenue +19% o Expanding portfolio: life, funeral, device, cover Capture Internet of Things opportunity Fibre to home +25 000 homes and businesses passed. 7 7
#3 Scale benefits driving efficiencies Focussed savings programmes Fit 4 Growth Reduced transmission rentals through self-provisioning Cost optimisation through sharing, outsourcing and supply chain management Improved return on investment in customer acquisition spend Reduced support costs offsetting inflationary pressures Benefits from being part of the Vodafone Group Global technology and product roadmap Better pricing through Vodafone Procurement Company Benefits from best practice sharing and benchmarking Talent and skills sharing 8 8
#4 Experienced, diverse management team 4 CEO: Shameel Aziz Joosub (45) 20 years industry experience Previously CEO of Vodafone Spain IT Person of the year 2015 CFO: Till Streichert (41) 15 years industry experience Previously CFO of Vodafone Romania European and emerging market experience Executive Committee (12 members) Male 83% Female 17% Black 58% White 42% South African 75% International 25% 9
#5 Consistently delivering shareholder returns Relative share price performance 1 Dividend per share Cents per share 775 795 1. As at 15 February 2017. 400 400 Total shareholder return 2 Telkom Millicom Bharti 15.1% 35.6% 34.3% 375 395 395 FY15 FY16 FY17 Vodacom MTN -12.8% 6.3% Interim dividend Final dividend -15.0% -5.0% 5.0% 15.0% 25.0% 35.0% 2. ZAR year to date for the 12 months ending 15 February 2017 10
Targets Group medium-term targets Service revenue growth Low to mid single-digit EBITDA growth Mid to high single-digit Capex intensity 12% to 14% 11 11
Continuing to deliver returns Best network --------------------- Best value --------------------- Best service Diversify revenue to deliver growth Deliver cost and process efficiency Best talent --------------------- Best practice Transform society and build stakeholder trust 12
Customer Best network, Best value, Best service Best network Best value Best service Network customer satisfaction #1 in all markets but one 4G coverage in SA at 58% International sites +17% SA dropped call rate @ 0.41% 1 st in SA with commercial mobile LTE-A Personalised pricing and offers Driving pricing transformation Reducing communication costs Stimulating bundle adoption Connectivity Always in control Rewarding loyalty Easy access Average download speeds in SA Source: MyBroadband (March 2016) (Mbps) Total prepaid bundle sales in SA Million SA Consumer NPS 1 points differentiation % 86 189 +6 ppts +15 ppts 23 18 17 10 Vodacom SA Operator A Operator B Operator C 314 387 383 369 1H15 2H15 1H16 2H16 Total prepaid bundle sales Just 4 You FY15 FY16 Vodacom Competitor A Competitor B 1. Net Promoter Score 13
Growth Diversifying revenue to deliver growth Data contribution International contribution FY16 FY14 21.4% 31.9% Growth +28.5% Average usage per smart device - 572MB 2G to 3G; 3G to 4G ARPU uplift +20% FY16 FY14 24.6% 26.6% Growth +17% EBITDA contribution 17.7% (FY14: 15.6%) M-Pesa revenue +19% Contribution to Group service revenue Contribution to Group service revenue Enterprise contribution FY16 FY14 20.5% 15.1% Enterprise service revenue +20% R3.2bn fixed-line & BMS revenue New services contribution (SA) FY16 4.2% FY14 3.5% Device insurance policies +25% IoT connections +28% Wholesale partnership agreements for fibre GDSP platform delivery Contribution to Group service revenue Contribution to SA service revenue 14 14
Operations Fit for growth SA Number of sites +9% 30.5% of SR 4 (FY15: 31.6%) Direct expenses 1 6.6% of SR 4 (FY15: 6.7%) Staff expenses 2 Actively managing costs Energy inflation Channel efficiencies Sophisticated IBRO management Credit management Hire in key growth areas Attract and retain talent Sharing and outsourcing to realise scale +13% Incentives volume vs revenue Digitisation self care and empowering customers Cost consciousness at an individual level Inflation +6% 2.5% of SR 4 (FY15: 2.7%) 14.4% of SR 4 (FY15: 14.1%) Publicity expenses Other operating expenses 3 1. Excluding equipment expenses. 2. Excluding BEE charge. 3. Excluding trading foreign exchange. 4. Service revenue Innovate Wage inflation +6% Consolidated agency spend Improved production cost efficiency Increased digital/social platform spend Increased share of voice Reduced network cost per site Improved digitisation and App penetration Leverage scale through sharing and outsourcing 15 15
People Attracting and retaining the best talent Driving people transformation through Enhancing diversity Growing talent Developing skills 73% black and 39% female staff 55% of EXCO black Vodacom Women in Red Awards 123 graduates in 2015 Graduate programme International Graduate programme in all our markets International assignee programme R103 million spent on skills development Capability build and succession programmes 16
Reputation Mobile for good R106m spent by Vodacom Foundation on CSI projects +600k TZN subscribers: Healthy pregnancy Healthy baby Vodacom eschool free education portal 105k registered learners 20 24 hour 3 087 volunteers for annual Change the World programme call center for victims of gender-based violence schools connected - Universal Service obligations 17 17
Reputation BEE Level 2 contributor 98.25 Most empowered telco in South Africa R841m R218m R112m spent on developing SMME ICT businesses R7.2bn to >51% blackowned suppliers spent on uplifting communities R5bn to >30% black women-owned suppliers spent on skills development R26bn weighted spend on BEE-status suppliers 18 Vodacom Group Limited IR presentation 17 5 September February 2017 2016 18
Additional information
Country data South Africa Tanzania DRC Mozambique Lesotho Population Ŧ (million) 55 55 71 29 2 GDP per capita Ŧ (USD) 4 770 855 495 456 887 GDP growth estimate Ŧ 2016 (%) 0.7 6.5 5.0 4.8 2.0 Ownership (%) 93.75 # 82.2 51 85 80 License expiry period 2029 2031 2028/2032 µ 2018/2026 µ 2036 Active customers (thousand) 36 375 12 419 9 702 5 208 1 465 ARPU (rand per month) 114 40 48 41 66 ARPU (local currency per month) 114 6 279 3.4 223 66 Minutes of use per month 145 162 48 122 90 Key indicators for the quarter ended 31 December 2016. Ŧ The Economist Intelligence Unit. # 6.25% held indirectly through special purpose entities which are consolidated in terms of SIC 12: Consolidation Special Purpose Entities as part of the broad-based black economic empowerment transaction. µ 2028/2018 relates to the 2G license and 2032/2026 relates to the 3G licence. 20 20
Latest Q3 results for the quarter ended 31 December 2016 Sustained service revenue growth Group service revenue up 1.3% (4.4%*) SA service revenue growth of 5.5% to R13 410 million SA added just under 690 thousand customers in the quarter Strong demand for data services Group data revenue up 18.4%, 37.4% of service revenue SA active data customers up 4.9% to 19.3 million 4.8 million 4G customers in South Africa International impacted by customer registration and currency Service revenue down 8.2% (+3.4%*); adding 876 thousand customers in the quarter M-Pesa revenue +12.4%; 12.0 million active customers R million Dec 2016 Dec 2015 YoY % Δ Group Service revenue 17 443 17 162 1.3 Revenue 21 222 20 249 1.2 Data revenue 6 533 5 520 18.4 Customers (m) 65 169 65 233 (0.1) South Africa Service revenue 13 410 13 037 5.5 Revenue 17 142 16 003 7.1 Data revenue 5 473 4 487 22.0 Customers (m) 36 375 34 103 6.7 International Service revenue 4 206 4 246 (8.2) Revenue 4 316 4 429 (8.9) Data revenue 1 059 1 032 2.6 Customers (m) 28 794 31 130 (7.5) * Normalised growth adjusted at a constant currency using the current year as the base. 21
Annual results for the year ending 31 March 2016 Improved revenue growth and margins Group service revenue up 7.4% (5.8%*) Group EBITDA up 12.8% (10.2%*) Headline earnings per share up 2.7% 400 cents final dividend per share Strong demand for data services Group data revenue up 28.5%. 31.9% of service revenue Group active data customers up 8.6% to 28.8 million 14 million active smart devices in South Africa Excellent International performance Service revenue up 16.2% (9.6%*), contributed 26.6% to Group service revenue M-Pesa revenue +19.3%; 9.2 million active customers R million Mar 2016 Mar 2015 YoY % Δ Service revenue 66 763 62 167 7.4 Revenue 80 077 74 500 7.5 EBITDA 30 345 26 905 12.8 Operating profit 21 059 19 516 9.5 Operating free cash flow 17 054 14 003 21.8 Free cash flow 9 807 7 763 26.3 Capital expenditure 12 875 13 305 (3.2) Net debt 21 287 16 760 27.0 Headline earnings per share (cents) 883 860 2.7 Dividend per share (cents) 795 775 2.6 EBITDA margin (%) 37.9.36.1 1.8 ppts Effective tax rate (%) 31.5 29.9 1.6 ppts Net debt/ebitda (times) 0.7 0.6 0.1 times Capex intensity (%) 16.1 17.9 (1.8 ppts) * Normalised growth adjusted for trading foreign exchange gains/losses and at a constant currency using current year as base (collectively foreign exchange ). 22
Five-year financials for the year ended 31 March R million 2016 2015 2014 2013 2012 16/15 % Δ 5-year CAGR Service revenue 66 763 62 617 62 047 59 261 58 125 7.4 3.8 Revenue 80 077 74 500 73 219 67 781 65 700 7.5 5.1 EBITDA 30 345 26 905 27 314 25 253 22 763 12.8 7.5 Operating profit 21 059 19 235 20 394 18 897 16 617 9.5 6.1 Operating free cash flow 17 054 14 003 19 410 18 158 16 934 21.8 0.2 Free cash flow 9 807 7 763 13 185 12 136 10 921 26.3 (2.7) Capital expenditure 12 875 13 305 10 779 9 456 8 662 (3.2) 10.4 Net debt 21 287 16 760 8 052 8 007 7 667 27.0 15.4 Headline earnings per share (cents) 883 860 896 872 709 2.7 7.0 Dividend per share (cents) 795 775 825 785 710 2.6 13.9 EBITDA margin (%) 37.9 36.1 37.3 37.3 34.6 Effective tax rate (%) 31.5 29.9 30.2 28.3 36.0 Net debt/ebitda (times) 0.7 0.6 0.3 0.3 0.3 Capex intensity (%) 16.1 17.9 14.7 14.0 13.2 Return on capital employed (%) 48.2 50.1 62.1 62.8 63.2 23
Dividend policy and payment history Current dividend payout is 90% of headline earnings per share The Company intends to pay out as much of its after tax profits as will be available after retaining such sums and repaying s uch borrowings owing to third parties as shall be necessary to meet the requirements reflected in the budget and business plan, t aking into account monies required for investment opportunities. There is no fixed date on which entitlement to dividends, arises and th e date of payment will be determined by the Board or shareholders at the time of declaration, subject to the JSE Listings Requirements. Dividend number Ex-dividend date Payment date Cents per share Policy payout (%) Actual payout (%) Interim dividend number 1 30 Nov 2009 7 Dec 2009 110 40 50 Final dividend number 2 28 Jun 2010 5 Jul 2010 175 40 60 Interim dividend number 3 29 Nov 2010 6 Dec 2010 180 60 60 Final dividend number 4 27 Jun 2011 4 Jul 2011 280 70 79 Interim dividend number 5 28 Nov 2011 5 Dec 2011 260 70 80 Final dividend number 6 18 Jun 2012 25 Jun 2012 450 90 117 Interim dividend number 7 26 Nov 2012 3 Dec 2012 355 90 90 Final dividend number 8 24 Jun 2013 1 Jul 2013 430 90 90 Interim dividend number 9 25 Nov 2013 2 Dec 2013 395 90 90 Final dividend number 10 23 Jun 2014 30 Jun 2014 430 90 94 Interim dividend number 11 24 Nov 2014 1 Dec 2014 375 90 90 Final dividend number 12 22 Jun 2015 29 Jun 2015 400 90 90 Interim dividend number 13 30 Nov 2015 7 Dec 2015 395 90 90 Final dividend number 14 20 Jun 2016 27 Jun 2016 400 90 90 Interim dividend number 15 30 Nov 2016 5 Dec 2016 395 90 90 24
Calendar FY2017 plan Reporting dates Date Event Location Roadshows/conferences Date Event Location 15 May FY 2017 results released Vodacom/Website 14 15 March Merrill Lynch conference Sun City 15 June FY 2017 integrated report Website 28 March UBS Telco day Johannesburg 18 July Group AGM Vodacom 29 May 8 June FY 2017 roadshow UK/Europe/USA 20 July Q1 2018 results released Vodacom/Website 13 November H1 2018 results released Vodacom/Website 25
Contact information Visit our website for more information Follow us on social media @vodacom Facebook.com/vodacom Contact us VodacomIR@vodacom.co.za http://www.vodacom.com Shaun van Biljon (Head of Investor Relations) Revini Padayachi Sarah Chetty Faheem Moosa
Definitions Active customers Active data customers ARPU Contribution margin EBITDA Free cash flow HEPS International MOU Normalised growth (*) Operating free cash flow South Africa Traffic Active customers are based on the total number of mobile customers using any service during the last three months. This includes customers paying a monthly fee that entitles them to use the service even if they do not actually use the service and those customers who are active whilst roaming. Number of unique users generating billable data traffic during the month. Also included are users on integrated tariff plans, or who have access to corporate APNs, and users who have been allocated a revenue generating data bundle during the month. A user is defined as being active if they are paying a contractual monthly fee for this service or have used the service during the reported month. Total ARPU is calculated by dividing the average monthly service revenue by the average monthly active customers during the period. Revenue less direct expenses as a percentage of revenue. Earnings before interest, taxation, depreciation and amortisation, impairment losses, profit/loss on disposal of investments, property, plant and equipment, and intangible assets, profit/loss from associate and joint venture, restructuring cost and BEE income/charge. Cash generated from operations less additions to property, plant and equipment and intangible assets, proceeds on disposal of property, plant and equipment and intangible assets, tax paid, net finance charges paid and net dividends received/paid to minority shareholders. Headline earnings per share. International comprises the segment information relating to the non-south African-based cellular networks in Tanzania, the Democratic Republic of Congo, Mozambique and Lesotho as well as the operations of Vodacom International Limited and Vodacom Business Africa Group (Pty) Limited and its subsidiaries. Minutes of use per month is calculated by dividing the average monthly minutes (traffic) during the period by the average monthly active customers during the period. Adjusted for trading foreign exchange gains/losses and at a constant currency (using current year as base) (collectively foreign exchange ). Cash generated from operations less additions to property, plant and equipment and intangible assets other than licence and spectrum payments and purchases of customer bases, net of proceeds on disposal of property, plant and equipment and intangible assets, other than license and spectrum payments and disposals of customer bases. Vodacom (Pty) Limited, a private limited liability company duly incorporated in accordance with the laws of South Africa and its subsidiaries, joint ventures and SPV s. Traffic comprises total traffic registered on Vodacom s mobile network, including bundled minutes, promotional minutes and outgoing international roaming calls, but excluding national roaming calls, incoming international roaming calls and calls to free services. 27
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