Vodacom’s profits dip 10.8% on Ethiopia startup costs

Vodacom Group reported a 10.8 per cent decline in full-year earnings on Monday, citing start-up losses in Ethiopia and rising costs, Reuters reported on Monday.

However, the South African telecom giant also unveiled positive developments, including exceeding revenue expectations and upgrading its service revenue growth target.

Headline earnings per share fell to 846 cents for the year ending March 31st, down from 948 cents the previous year. Group CEO Shameel Joosub attributed this decline to a combination of factors:

Ethiopian Launch Costs: Start-up losses associated with the 2022 launch of Safaricom Ethiopia, a joint venture in the promising but nascent Ethiopian market, impacted the bottom line.

Rising Expenses: Increased costs for finance, energy, and inflation absorption across all markets contributed to the decrease.

Currency Devaluation: The recent devaluation of the Egyptian pound added to financial pressures.

Vodacom’s share price reflected these challenges, dropping 2.79 per cent by 09:40 GMT, as per the report.

Despite the earnings dip, Vodacom presented a brighter picture on the revenue front. Group revenue grew by a healthy 26.4 per cent to 151 billion rand ($8.21 billion), exceeding analyst expectations of 146 billion rand. This growth can be attributed to:

• Vodafone Egypt Acquisition: The 2022 acquisition of Vodafone Egypt significantly bolstered Vodacom’s service revenue, which surged 29.1 per cent to 120.9 billion rand.
• Strong Underlying Performance: Proforma service revenue still grew 9.2 per cent, exceeding the higher end of the company’s medium-term range.

Taking these positive factors into account, Vodacom upgraded its group service revenue target from mid-to-high single-digit growth to simply high single-digit growth.

Chief Financial Officer Raisibe Morathi attributed this upgrade to the resilience of the Egyptian business and impressive performance from other African operations, particularly Mozambique.

Vodacom aims for new services to contribute 25-30 per cent of group service revenue in the medium term. In South Africa alone, these services currently contribute 16.6 per cent of total service revenue.