South Africa’s Vodacom Group (VODJ.J) reported a 10.8% decline in full-year earnings on Monday, significantly impacted by start-up losses in Ethiopia, increased finance and energy costs, and persistent inflationary pressures. The telecom giant, which is majority-owned by Britain’s Vodafone (VOD.L), witnessed its headline earnings per share (HEPS) drop to 846 cents for the fiscal year ending March 31, down from 948 cents the previous year.
Vodacom, which co-launched Safaricom Ethiopia in 2022 as part of a consortium, is betting on the populous nation for future growth after an anticipated five-year investment period. Currently, Vodacom holds a direct 5.7% stake in the Ethiopian venture. Despite the initial losses and high costs associated with setting up operations in Ethiopia, Safaricom has confirmed that its network roll-out remains on track in Africa’s second-most populous country, trailing only Nigeria.
Group CEO Shameel Joosub attributed the decline in HEPS not only to the start-up expenses in Ethiopia but also to weaker exchange rates across various markets, including a significant devaluation of the Egyptian pound. However, Joosub expressed optimism about the company’s long-term prospects in Ethiopia and other markets.
Despite these financial setbacks, Vodacom reported a robust 29.1% growth in group service revenue, reaching 120.9 billion rand ($6.57 billion), buoyed by the acquisition of Vodafone Egypt. On a pro-forma comparable basis, the service revenue growth was 9.2%, aligning with the upper end of the company’s medium-term growth expectations. Furthermore, group earnings before interest, tax, depreciation, and amortization (EBITDA) surged by 24.3% to 56.1 billion rand, with Egypt being a significant contributor to this growth.
Joosub reiterated the company’s commitment to continued investment, allocating 13% to 14.5% of its overall revenue of 151 billion rand to capital expenditure, despite the challenging economic conditions. The Vodacom board declared a final dividend of 285 cents per share.
The financial interplay between South Africa and Ethiopia is underscored by Vodacom’s strategic investments in the latter. While the immediate financial impact has been a decline in Vodacom’s earnings, the long-term relationship between the two nations is expected to strengthen through continued collaboration in the telecom sector. Ethiopia’s large market potential is seen as a significant opportunity for South African companies, promoting closer economic ties and fostering bilateral cooperation. This evolving partnership may pave the way for further investments and economic engagements, benefiting both nations in the long run.
Exchange rate: $1 = 18.4096 rand
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