Edited Transcript of VOD.J earnings conference call or presentation 14-May-18 2:00pm GMT

From a group perspective, we have seen strong customer growth, adding 7 million customers, Safaricom added a further 1.4 million customers. Together, we now have over 1.3 — sorry, we have over 103 million customers.

I’m very pleased that the successful delivery on our strategy has enabled us to secure an outright net promoter score lead in all our markets.

Group revenue was up 7.8% on a normalized basis, taking currency fluctuations into account. EBIT grew 4.4% or 2.8% normalized with good improvement in our International operations. EBIT has been impacted by the lower-margin business from handset sales and our roaming agreements with Rain.

Net profit increased 18.6% to ZAR 15.6 billion, which includes Safaricom. We spent ZAR 11.6 billion on expanding and improving all our networks. Headline earnings was flat at $0.923 per share, which is despite the 233 million shares issued for our stake in Safaricom.

And finally, the board declared a dividend of ZAR 4.25 per share in line with policy and translating into a yield of just over 5.1% on Friday’s closing share price.

Our South African operations continued to deliver good results, supported by strong customer additions and growth in data and enterprise services. Revenue growth was strong at 8.1% boosted by smartphone sales.

Our International operations performed particularly well with all operations posting second half results in the right direction. Tanzania has seen strong commercial execution with improvements coming through and the results from Mozambique and Lesotho delivered particularly well.

Performance in the DRC has improved as the currency and economic environment being unstabilizing in the second half of the year and action was taken to stay closely aligned to official rates between the U.S. dollar and the Congolese franc in this dual-currency market.

Safaricom performed very well, delivering net profit of 14.1% for the year, supported by strong data and M-Pesa revenue growth. We have included 8 months of profits of ZAR 1.5 billion after deducting the amortization of fair value assets and received a cash dividend during the year of around ZAR 1.6 billion, which has been passed on to investors.

Our results show that we continued to make good progress against the strategic priorities of net group differentiation offering customers more value through segmented and personal office through Just 4 You, while reducing effective pricing.

Our bundles strategy and personalized office are delivering good results, and this year, we sold 2.3 billion bundles, which is up 51.3% in South Africa with Big Data analytics being an enabler for revenue growth and efficiencies for the future.

Looking at some of the trends in South Africa in a little bit more detail. South Africa delivered robust performance, delivering service revenue growth of 4.9% for the year, despite the low GDP growth environment. We added 4.5 million customers for the year, supported by our segmentation strategy and personalized value office through Just 4 You. This included strong performance in prepaid and the customer base increased [13,4%] when compared to last year and contract continuing to do well with a 4.5% growth in the year. In the postpaid space, we launched more value packages, which has more included value, which we highlighted at the (inaudible).

When upgrading customers, we are now migrating them to more inclusive bundles for more spin. This creates some short-term effects, where customers first need to grow into these bundles with the results that we have to — with the results that we have to defer revenue for up to 1 month if customers use the bundles. Migrations to these packages now stands at 43%.

In prepaid, we are transforming pricing by proactively moving customers to our new plans and retiring old plans. We now have 99% of the base on these plans and have, therefore, effectively moved everyone to improve pricing.

I would also like to unpack data revenue growth in a bit more detail. We achieved data growth of [12,8%], while managing the effects of reducing out of bundle spending. Demand for data remains robust with traffic in the year still growing at 44%. The elasticity that this brings allows us to manage the effects of the reduction in pricing. Other data metrics are strong with more smartphones in the network, more data uses and higher usage per customer.

Overall, the effects of price changes or adoption of bundle usage has resulted in price per meg decreasing 21.6%.

On EBITDA in South Africa. I’m happy with the growth that we’ve seen in EBITDA of [4,7%]. We are managing operating expenses tightly maintaining OpEx growth of 2.8 percentage points, below service revenue growth. Margins have been impacted by expenses from the Rain agreement, moving expenses to the direct expenses line as well as the increased sales with a low-margin handset business.

In our International operations, we continued to see good results with normalized service revenue increasing [7,4%] as the macroeconomic conditions began to stabilize in each country. We are also seeing good positive progress across the portfolio. These results were driven mainly in 2 areas, data and expansion of M-Pesa. Data increased 18.7% on a normalized basis. We achieved this by focusing efforts on being the best data network in all these operations. While we’ve expanded our 4G network in Tanzania and Lesotho, we are still awaiting licenses to roll out 4G in Mozambique and Tanzania. I’m happy to say that we have now switched on 4G in the DRC on Friday, following the issuance of the license.

So having affordable devices, it seems to excess across our operations, especially in Mozambique and Lesotho, where we’ve seen strong uptake in smartphone penetration. Now also forming social media partnership, so that we can give customers more of what they want through specific services and bundles. Tailor-made bundles continue to drive the adoption of these services across our base and contributed to the [27,5%] rise in overall data uses to ZAR [16,6] million.

M-Pesa revenue has grown strongly by 19.6% to 11 million people using this service. It now contributes ZAR 2.3 billion in revenue or 13.8% of the International segment service revenue. We have achieved this by expanding the reach of the M-Pesa network by adding more agents and expanding the ecosystem. In other words, reasons for customers to transact. Lipa-Kwa, our merchant payment system in Tanzania, has seen tremendous pickup with over 6,300 active merchants, outgrowing the number of card payment services in the country. From a profitability perspective, we are also seeing good progress across the portfolio, expanding EBIT margin by 2.5 percentage points. This was driven from scale benefits from strong top line growth, but also our vigorous focus on cost containment across these operations. We are now MPS leader across these markets. We have achieved this by focusing our efforts on network improvement in the year ensuring improved data performance and improvements in availability.

Safaricom released results last week. They reported 10% growth in service revenue and 12.6% growth in EBIT. We are building on Safaricom’s extensive M-Pesa experience to expand our merchant payment system in Tanzania and learnings in other operations. We’ll be sharpening our focus and in cooperation with Safaricom, particularly with mobile money, now a significant contributor to Vodacom Group revenues. M-Pesa remains a strong growth engine with 32 million customers across Africa and [1,3] trillion transactions processed through the system in ours and the Safaricom operations.

Revenue contribution from M-Pesa is ZAR [2,3] billion in our International operations and ZAR [7,9] billion in Safaricom. 70% of Safaricom customers are using M-Pesa, while only 30% — 37% of our customers in our International operations are utilizing this service. This remains a huge potential for growth.

Let’s move on to regulating, starting with out-of-bundle. We remain committed to reducing out-of-bundle exposure in a managed way, following the final amendments to the end-user and subscriber service charter regulations issued by ICASA, we will now prioritize its implementation within the set time lines. Naturally, these changes will reduce customer exposure throughout the bundle. We will manage this change through increased elasticity — to minimize the financial impact to driving more reasons to consume and increase penetration of data capable devices.

With regard to the amendments to the Electronic Communications Act, we have made our submissions to the minister and now await the next step in the process, which is the redrafting of the act before being submitted to cabinet. We’ve also had a number of high-level engagements in government in this regard. Our position ever remains unchanged. We have proposed a hybrid model, where we see the formation of a competitive wholesale network alongside the allocation of spectrum to current players.

We are engaging with government to speed up processes to open and allocate spectrum as soon as possible, especially in the face of 5G networks looming on the horizon. We are anticipating spectrum processes in Tanzania and Mozambique, in our International operations this year, which will be — which we will be participating in.

On the positive regulatory note, the competition commission has indicated that they will not pursue further investigation on the Rain matter if it does not constitute a merger.

Finally that we move over to our medium-term targets and provide an update and priorities. We are positioning ourselves as part of our vision 2020 to become a leading digital company. To this end, we are changing the way in which we operate to be more agile, we are utilizing Big Data and machine learning in a bigger way across the business. Data in M-Pesa will continue to drive growth on International operations. The key focus for me is to build corporation (inaudible) with Safaricom and also fast-tracking access to spectrum across our markets. Our group media target — median targets remain the same, mid-single digit growth for group service revenue, mid- to high single-digit growth for group EBIT and CapEx of 12% to 14% of group revenue. The Safaricom guidance is given separately, and you can access that on its website.

This concludes my comments, and Till and I are now ready for your questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) Our first question is from Cesar Tiron of Bank of America Merrill Lynch.

——————————————————————————–

Cesar Adrian Tiron, BofA Merrill Lynch, Research Division – Research Analyst [2]

——————————————————————————–

I have a couple of questions, I apologize for that. First on International. Do you think you can continue to grow International revenues by double digits on a recurring basis, of course, excluding any FX impact? Second question, on the tax rate. It was a little bit lower than usual this year. Is that a good basis to forecast? Third question, can you please update us on the upcoming BEE transaction and would you expect it to be significantly larger than the one you’ve done about 10 years ago? And then last question. Finally, I mean I think on the lower-than-expected dividend, I mean, it seems to be coming mainly from noncash items, especially from the increase in the net loss on measurements. Is there any way to accurately forecast the site time? Do you expect it to decline in 2019?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [3]

——————————————————————————–

Okay. I’ll take the double-digit growth and the BEE transaction. Till will deal with the other 2. On the International portfolio, I think, for us, double-digit growth should be — it should be achievable in the International operations, particularly because we’re seeing more stability around the economic environments. But also we’re seeing a strong uptake in data and M-Pesa revenues. And so we believe that we can achieve double-digit growth in that segment. In terms of the BEE transaction, we’re not in a position to announce the detail as yet, but will be soon. A lot of the negotiations have already happened with the interested parties, and basically we are reaching finality around that process. The deal is designed to basically replace the current ownership percentages that we have. It is not designed to be a — it is not designed to increase the ownership more than the current percentages.

——————————————————————————–

Phil Till Streichert, Vodacom Group Limited – CFO & Executive Director [4]

——————————————————————————–

Perfect. Cesar, I’ll take the 2 other questions, starting off with the tax one. So I think, it is a good basis to work off from where we are just now. So on a effective tax rate kind of between 29% and 30%. And remember, last year, we accounted for the Helios Towers adjustment, which we quantified at about 1.4 percentage points. That was out of the system this fiscal year. Hence, we reported a 29.6% ETR. And again, I’ve given the breakdown in terms of the benefits that we’ve got from the Safaricom transaction. But equally, kind of the other items that reconcile back to the 29.6%. So in short, I think, it is a good reflection of our effective tax rate going forward.

And the second question on the [BPS] side. First of all, I just like to remind everyone that we have gotten our share base, the 233.5 million additional shares that we issued to finance the Safaricom transaction that is, of course, the main item in terms of dilution. Talking about the other aspects that you mentioned on financing cost, let me just unpack that and give you a bit of my view in terms of forecasting or the way we manage it. Number one, we have taken steps last year, and I did comment on it, to reduce the exposure on remeasurement by reducing foreign-denominated loans both in Tanzania, where the U.S. dollar loan got fully repaid, and the same in Mozambique, where half of the U.S. dollar loan got repaid. That was a benefit. And there is, of course, an element of protecting ourselves against volatility. The second item, which is less in our control, is foreign-denominated cash balances and that relates particularly to the DRC, where we were affected already at the interims by Congolese franc balances with a devaluing U.S. dollar. They got revalued and that we needed to account for. Now what makes me a bit more confident — but again the DRC is a volatile economic environment — but what makes me a bit more confident is that we recently have seen the cash collection — remember, it’s a dual-currency market — the cash collection swinging back from a high share of Congolese franc collection to a higher share of U.S. dollar. And that naturally gives us some protection.

And the third element, which is — relates a little bit to a particular item on the South African side around FECs that we had taken out in November and December for terminals, and that happened before the elective conference, the ANC elective conference. And remember, following that, the rand strengthened a lot and as some of those FECs needed to be revalued and some of those FECs equally due to timing differences in terms of deliveries needed to be rolled, respectively surrendered. On closeout, we had a negative effect. We haven’t had such an effect before. So I would attribute that to the particular situation with the rand gaining a lot in terms of strength during the fourth quarter.

——————————————————————————–

Operator [5]

——————————————————————————–

The next question is from Myuran Rajaratnam with MIBFA.

——————————————————————————–

Myuran Rajaratnam, Metal Industries Benefit Funds Administrators – Analyst & Portfolio Manager [6]

——————————————————————————–

Just firstly, I have a couple of questions, but ask them one at a time. The BEE deal, you recon that it’s pure replacement rather than an increase in size. But if the regulation requires 30%, does this deal automatically get there? Or will you come back to the market with a bigger deal if that’s the new requirement?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [7]

——————————————————————————–

So just to be clear, the current legislation does not require 30%. I mean, there’s always a risk that, that can happen. But I think, it will be more aligned to the BEE charters. Previously it was 30% or level 4. We do comply for the level 4 requirements.

——————————————————————————–

Myuran Rajaratnam, Metal Industries Benefit Funds Administrators – Analyst & Portfolio Manager [8]

——————————————————————————–

Okay. The second question is, I see you contained costs very well. I mean, you’ve had below inflationary increases in staff cost. And for the couple of years, I have noticed now, in publicity costs, it’s negative actually — negative growth. How sustainable is this longer term? I mean, you can’t really cut cost forever. I mean, these aren’t below inflationary increases to your staff, right?

——————————————————————————–

Phil Till Streichert, Vodacom Group Limited – CFO & Executive Director [9]

——————————————————————————–

.

Let me take that question. Look, taking a cost-cutting approach is far too simplistic. And I think we’ve stayed away from that. We have successfully, nonetheless, worked over the past few years on putting efficiency measures in place and that’s also what we intend to do going forward. And remember, a lot of the efficiencies has been coming from just doing things smarter and basically, more efficiently. Take our call center, for example. Over the past year, we’ve seen a number of calls dropping due to the improvement of first call resolution. We are now putting chat box into our call center, and we’re targeting, again, another 20% to 25% call volume reduction, which in the end will translate into financial benefit. On the staff side, we are going with inflationary increase in each of our markets to attract and retain best talent, and we are investing as well into new growth areas to support our digital transformation. So on that end, I think we are pretty well positioned in the approach that we are taking to cost.

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [10]

——————————————————————————–

I mean, just on the staff part it’s not from underpaying and so on. It’s more from optimization of the current — on the current portfolio.

——————————————————————————–

Myuran Rajaratnam, Metal Industries Benefit Funds Administrators – Analyst & Portfolio Manager [11]

——————————————————————————–

Right. It’s just the numbers that you see suggest the staff cost flat year-on-year or slightly up, if I remember. Okay, that’s fine. On depreciation and amortization, that’s growing faster than revenue, because you are just coming off of the big CapEx program. And the direct costs are growing faster than revenue in the reporting period, because Rain, you’re already more on Rain, because as you data, revenues grow, you start offloading traffic on to Rain. There is a much bigger competitive environment now in South Africa, given (inaudible) is getting back together, Cell C recapitalize, Telecom is batting well. And there is all this regulatory pressures, marketing queries and so on. So my question, I suppose, is a more general question. You have this revenue guidance mid-single digits and EBIT guidance, which implies an operating leverage. But all I see is costs either going faster than revenue or at sustainably low level — unsustainably low levels. I mean, how credible is the medium-term guidance is my question, I suppose. I mean, I’m just trying to get my head around how are you going to manage to get this operating leverage, given revenues guided to go at mid-single digits, but operating profit is guided to grow faster. So where you’ve got operating leverage coming from?

——————————————————————————–

Phil Till Streichert, Vodacom Group Limited – CFO & Executive Director [12]

——————————————————————————–

Okay. Let me — I think, you’ve raised a number of questions or points. Let me start off, and I’ll try to cover each of them, and Shameel will weigh in. Just on your final note on the staff expenses, because you came back that this appears to be unsustainable, let me just clarify that what you’re looking at is when you look at the group picture, and I would encourage you to look at the split between SA and international, of course, you’ve got the translation effect as well in those numbers. Hence, they appear to be flat. In reality, each of the markets has got the requisite, inflationary, salary increase. And as Shameel has said, in some markets, we try to achieve efficiencies from an essence a bit of reorganization and restructuring, like in the market, like DRC. So that’s on the cost side.

And I think, with the track record that we’ve shown over the past few years, I’m feeling reasonably confident and comfortable that we are on a solid basis with regard to our cost management. And you will see going forward us a lot more talking about and showing efficiencies from the digital space. That’s further automation. That’s [SO set] kind of check bot transformation in call centers, to some extent retail, but also on the internal side within the organization, adding an element of machine learning and artificial intelligence, they’re going to help us become faster and more agile.

Secondly, on the D&A side, of course, we continue to invest. We always said we need to capitalize each of our markets properly. And hence, this explains in line with guidance, the growth on the D&A line. From an EBIT guidance point of view, what I do expect going forward — and you’ve seen it basically this year happening — is that the International markets are giving us already a boost. Mozambique had fantastic performance. You did see the EBIT margin expanding by 6.1 percentage points. Lesotho, strong performance, again. And I do expect that also Tanzania and the DRC that are showing good top line growth, this flowing as well into bottom line. And in combination between the International segment and our South African operations, we will — we target — we’ve issued — we’ve reconfirmed our target range of the mid-single digit service revenue growth and mid- to high single-digit EBIT growth.

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [13]

——————————————————————————–

Maybe just to add 1 or 2 points. I think, obviously, we — either way that you can’t save yourself to success and that’s not the intention. That said, we have a number of countries where the margin is still low. And to the effect that these are generally prepaid markets, and essentially, there is still opportunity to grow because they have very little subsidy. So you see, our intention is to try and get everybody to kind of the 40% mark and above. Today, we have 3 countries, which is South Africa, Lesotho and Safaricom that meets that criteria, okay? With Mozambique progressing well towards revenue. You’ve seen the margin expansion coming through, DRC a little bit longer to get and then, obviously, Tanzania. So as Till was explaining, what we’re trying to do is, while we’re trying to optimize the services as best as we can, we’re also trying to optimize in a number of different ways. First, the shared platforms, an example would be machine learning. Machine engine or the machine learning engine gets written in South Africa, and the implementation happens in the different countries. But also digitalization, the implementation of chat box and so on, will have a meaningful impact on our cost going forward. An example would be we set ourselves a target this year to take out 20% of calls in South Africa, and we intend doing that by making sure with the implementation of chat box and digitalizing our processes and also using the agile methodology to be able to do it. The same in distribution. More and more, you’ll see it move towards direct distribution, especially it will start with contracts in upgrade. We will — that will be also a big target for this year. So these are the type of things that will chip away at the — at some of the underlying costs. But we are also looking at how we can share more platforms and how can we look at more shared services to try and drive down the underlying costs in each of the operations, which we also think is important to be able to deal with any regulatory threats, and so on, that might present itself. One further clarification, you said that publicity in South Africa declined. It has not. It has increased by 5%. So your publicity in South Africa had actually increased by 5%. The other countries, Tanzania and so on, which had a much higher publicity to sales ratio decreased as we introduced more efficiency measures. But also as we implemented global agreements with the likes of the MECs and media houses and so on, but also optimize, and we’re optimizing more spend using social media and digital channels.

——————————————————————————–

Operator [14]

——————————————————————————–

The next question is from Madhvendra Singh with Morgan Stanley.

——————————————————————————–

Madhvendra Singh, Morgan Stanley, Research Division – Former Executive Director [15]

——————————————————————————–

On the revenue performance in South Africa, can you throw some color on that, especially on the data revenues? As you — as I remember correctly, you said exit rate for the third quarter was around 13% data revenue growth. Seems like fourth quarter was also not very different from that. Would you be able to give some color on why the — it didn’t accelerate further? And what is the outlook on data revenues from this year, especially given the implementation of the ICASA rules on the data pricing?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [16]

——————————————————————————–

Look, so just to be clear, I mean, you’re seeing the extension of data revenues coming through, but you’re also seeing that it’s becoming a bigger and bigger portion of the base. So just mathematically, you know, your growth rate then starts to slow down. I think the trends could, obviously, getting on continuing and so on. However, I do have the issue of implementation of the ICASA regulations. That will have an impact on the financials. We’re, obviously, trying to look at how we best implement that to reduce the impact, on the one side. On the other side, we’ve got to be happy that we’ve got a very good outcome of the discussions that, I would say, a more balanced outcome. And finally, we then need to offset the impacts with increased utilization and other revenue streams. And we’re seeing some good uptick on some new revenue streams, like Airtime Advance. But also launching of new services, like our video platforms and so on, which we think will increase the reasons to consume.

——————————————————————————–

Madhvendra Singh, Morgan Stanley, Research Division – Former Executive Director [17]

——————————————————————————–

Just in terms of the expected data revenue growth spend for this year? Should we expect still around 13% growth. That’s what, I think, the guidance was previously, mid-teens kind of growth for the data revenues?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [18]

——————————————————————————–

I think, it will be early teens. We’re not giving specific guidance on that. But I think, early teens is probably more realistic, also given the ICASA regulations.

——————————————————————————–

Operator [19]

——————————————————————————–

Our next question is from Michael Gresty of Citigroup.

——————————————————————————–

Michael R. Gresty, Citigroup Inc, Research Division – Former Director [20]

——————————————————————————–

Just a couple of questions from my side. First of all, Shameel, just one for you perhaps. If you look at the DRC and perhaps Mozambique, the macro picture there is not great. Geopolitics and DRC seem to be deteriorating. You’ve got [core] issues about aid coming into Mozambique since they had that flood a little while ago. And particularly, in Mozambique, you’ve got such a big disconnect between kind of the results you’re printing and what the macro backdrop looks like. I just was wondering if you could perhaps chat a little bit around sort of how you see the outlook there and possibly some risks to performance in the year ahead in those markets, in particular? And then this morning, you alluded to, it sounded like optimism that we were going to see some movements on spectrum in South Africa, which suggests you’re confident on how the negotiations are with the Department of Postal and Telecommunications on the new policy. And obviously, that didn’t work out so well when you saw the amendments to the legislation or proposed amendments. Can you just touch on how you see that progressing subsequently, and why you’re more positive that those negotiations are looking better than they were before?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [21]

——————————————————————————–

Okay. So let me start off with Mozambique. I think firstly, if we look at the macro environment in Mozambique, certainly from the indications that we’re looking, at, inflation was below 5% this last quarter. So you start to see some of the benefits coming through. The currency decrease was only 5% or 6% against the U.S. dollar and the rand, so a lot more stability in terms of the high-level factors. I think we’re seeing — we are seeing a recovery come through. But also I think, you’re also seeing the benefit of the level of investment coming through. So we continue to invest heavily in Mozambique. And I think, we’re seeing that coming through in performance. You’ve got MCEL, which is continuously weakening because of lack of investment. And you’ve got a Viettel, which is slightly dissected, I would say, with Tanzania’s BoT. So you’re seeing market share growth, you’re seeing customer growth. So we’re very encouraged that the factors are very positive in terms of growth, and also from a market stability perspective, that you are starting to see improvements. Now obviously, we don’t have a crystal ball. But by all measures, I would say, getting a lot more stable.

The DRC on the other hand is a little bit more the one in the portfolio where you’ve got to take, I guess, a little bit more cautious approach, specifically because of the political environment not being completely — or not, let’s say, not having full resolution with the elections. Elections are planned for later this year. But that — I suppose in the end, we have to watch that — those developments. That said, I say that we’ve mitigated a lot of the risk associated with it by making sure that our pricing now is effectively changes almost daily, aligned to the currency fluctuation. So we’ve taken away the dollar-Congolese franc differential, which, I mean, if you want to look at it a little bit harder, you can say it’s actually been a price-up in terms of what people are experiencing on it. But before that, we were — and the industry was — absorbing it. So this is being done by the industry at large, and those adjustments happen weekly. So that leads to a much more stable environment, if you like. Also we start to see more dollar availability in the market. So, I think, those all lead to a much more positive environment. But there, one would say we’re cautiously optimistic because the election has still hasn’t happened. Yes, there could still be some unrest and so on.

In terms of spectrum in South Africa, my — there’s, obviously, been a number of high-level engagements for myself with various members of government. And I’d just say, we’re encouraged by the rhetoric around finding a solution to the problem. And can I say that under the new leadership one is optimistic that a solution will be found.

——————————————————————————–

Operator [22]

——————————————————————————–

The next question is from Slava Degtyarev of Goldman Sachs.

——————————————————————————–

Vyacheslav Degtyarev, Goldman Sachs Group Inc., Research Division – Equity Analyst [23]

——————————————————————————–

So I think you’ve considered still the M&A deals following the acquisition of the Safaricom, but basically, you haven’t announced any other deals yet. So do you still find attractive assets in Africa? And can you see the M&A as part of your strategy?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [24]

——————————————————————————–

So I think, for us, the big one and first and foremost, is to make sure that all our markets are appropriately capitalized. So that’s what we prioritized first. Secondly, where in-market consolidations present itself, example, in the results we spoke about Tanzania, we’d be very keen to look at in-market consolidation in that market. And also, in the particular market, if assets can enhance our strategy and as an acquisition, that could be aligned to that, like fiber, like content, those type of things, we would consider it in a particular market. As far as international expansion goes, we are very cautious and if a good asset presents itself, of course, we’ll look at it and if the price is right. What we will not do is go buy other people’s problems or [plant flags]. So I think you can be rest assured that we’re just not going to rush off and acquire assets. So it’s — we’re quite happy with our portfolio right now. And we see a lot of opportunities for growth. With only 16% data penetration in both Safaricom and the rest of the International markets. So still a huge opportunity for growth. And also, on that basis, you’ve got 70% growth in — or 70% penetration of the base in Safaricom, but only 37% in the International. So a huge opportunity still to go in Internationals to get to the level of Safaricom. And then, obviously, across the board, there’s a lot of digital content partnerships that we’re tying up from South Africa into the markets, which they can be leveraged off, like the relationship with Facebook.

——————————————————————————–

Operator [25]

——————————————————————————–

(Operator Instructions) Our next question is from Ziyad Joosub of HSBC.

——————————————————————————–

Ziyad Joosub, HSBC, Research Division – Former Analyst [26]

——————————————————————————–

My question is specifically on your fixed line business, the new revenue stream, the carrier business. It does seem that in quarter 4, enterprise revenues accelerated quite strongly. I was just wondering is carrier business, which is more than ZAR 0.5 billion revenue business, when did it get launched? How quickly has it scaled up? And maybe you can give us some guidance of how should it — we should expect this business to scale next year in full year ’19? And also, any insights, I mean, I’d assume it might be a low-margin business, but it probably consumes no incremental CapEx as well. Is that assumption correct on my side?

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [27]

——————————————————————————–

Okay. Ziyad, thanks for the question on the fixed line part. Look, carrier business, in essence, kind of, we’ve moved a lot of our business that we’ve got from our International markets, which previously had been routing basically just with other carriers. We’ve consolidated that business and focused a bit on increasing as well our external sales in that space. That gave you basically this — a bit more than ZAR 500 million turnover that we’ve got in that category. Look, I think it’s going to grow going forward, pretty much driven by traffic and a little bit of share gains as, obviously, we’ve got a pretty sizable platform that we can also attract basically third-party business into it. But, of course, in our year 1, there was a bit of consolidation of existing business from inside Vodacom that we have — we put together. From a margin point of view, yes, you’re right, by nature, carrier business is low margin. You see it also partially eliminated in the group consolidation line. And nonetheless, from an operating company point of view, in particularly International markets, for them, it’s obviously, as they get basically — as we’ve got the scale advantages at good rates.

——————————————————————————–

Operator [28]

——————————————————————————–

And it would appear that we have no further questions in the queue at the moment.

——————————————————————————–

Mohamed Shameel Aziz Joosub, Vodacom Group Limited – CEO & Executive Director [29]

——————————————————————————–

Okay. Thank you. Thank you, everyone, for joining us.

——————————————————————————–

Operator [30]

——————————————————————————–

Thank you very much, sir. Ladies and gentlemen, that concludes this conference call, and you may now disconnect your lines.