Vodacom Group Ltd. (VOD.JO), a leading African mobile communications company, celebrated its 30th anniversary during its earnings call on October 30, 2024, by sharing a mixed financial report for the six-month period ending September 30, 2024. CEO Mohamed Shameel Aziz Joosub outlined the company's strategic achievements and challenges.
Despite significant currency devaluations, particularly in Egypt and Ethiopia, Vodacom reported a revenue increase of 10.4% to ZAR 73.5 billion. The company saw a decline in headline earnings per share (HEPS) by 19.4% to 353 cents but declared an interim dividend of 285 cents per share.
Vodacom's focus on financial services and beyond mobile offerings showed promise, with financial service revenue contributing 11.4% to group revenue, up from 10% the previous year.
Key Takeaways
- Vodacom connects 206 million customers and provides financial services to 83 million.
- The company added 1,133 new 4G sites and aims to digitally upscale 1 million young Africans.
- Revenue grew 10.4% to ZAR 73.5 billion, despite a 19.4% decline in HEPS to 353 cents.
- Financial services contributed 11.4% to group revenue, with over $421 billion processed in transactions.
- Vodacom declared an interim dividend of 285 cents per share, with a payout of 86% of HEPS.
Company Outlook
- Vodacom targets 300 million customers by 2025 and 120 million financial service customers by 2030.
- The company aims for Beyond Mobile services to contribute 25% to 30% of group revenue.
- Vodacom maintains its group service revenue and EBITDA growth outlook at high-single-digit rates.
- Net zero greenhouse emissions target set for 2035.
Bearish Highlights
- Currency devaluations in Egypt and Ethiopia impacted earnings, with a 60% devaluation of the Egyptian pound.
- Net profit attributable to equity holders decreased by 18.4% to ZAR 6.8 billion.
- Operating profit down by 5.2% to ZAR 16.1 billion.
Bullish Highlights
- Financial services revenue increased by 7.8% to ZAR 6.7 billion.
- Safaricom's service revenue in Kenya grew by 13.1%, with M-Pesa revenue up by 16.6%.
- Egypt's service revenue reached ZAR 13 billion, a 44.1% increase in local currency.
Misses
- HEPS declined by 19.4% to 353 cents, impacted by currency devaluations.
- The interim dividend decreased by 6.6% year-on-year.
Q&A Highlights
- The "Please Call Me" case is set for debate on November 21, with a judgment expected weeks to months later.
- Vodacom anticipates improved performance in the second half of the year in international markets and South Africa.
Vodacom Group Ltd. (VOD.JO) displayed resilience in the face of currency headwinds during its earnings call, underscoring the company's strategic expansion into financial services and beyond mobile offerings. The company's commitment to digital and financial inclusion remains strong, with significant investments in 4G infrastructure and digital upskilling programs. Despite the challenges, Vodacom's strategic focus positions the company for continued growth in a dynamic regional market.
Full transcript - None (VODAF) Q2 2025:
Mohamed Shameel Aziz Joosub: Welcome to our strategy update and interim results highlights for the period ended 30th of September 2024. As we celebrate Vodacom's 30th birthday, I'm particularly proud of the impact we have made on inclusion in Africa. Vodacom connects 206 million customers and provides financial services to 83 million customers, each representing significant milestones in our history. These milestones were achieved in the financial period characterized by significant currency headwinds on the one hand, and a resilient operational response on the other, to ensure that we continue to deliver on our medium-term financial targets. While Vodacom is adapted to evolving regulatory pressures and customer needs, our purpose was unchanged for the past three decades, which is to make sure that everyone is connected. To achieve this purpose, we are focused on empowering people and protecting the planet, while maintaining trust in everything we do. At the International Telecommunications Union's recent event at the UN General Assembly, we emphasized the urgency of empowering people through digital and financial inclusion. In low-income countries, only 35% of the population have access to 4G. We have adopted a holistic approach to address inclusion across our footprint that leverages Vodacom scale and partnerships. From new rural sites to fiber, to space by expanding our coverage to close the digital divide. The commitment is evident in the 1,133 new 4G sites added across the group over the last six months. As pioneers of mobile financial services, we also contribute significantly to Africa's financial inclusion. Our products are designed to support both consumers and merchants. Over the last 12 months, we added another 9 million financial service customers. In the DRC, our [Indiscernible] M-Pesa initiative empowers women living with disabilities, reintegrating them into society and lifting them out of poverty by halving them establish their own businesses. Beyond our initiatives, in connectivity and Financial Services went out if we empower people by supporting communities in SMEs. Whether it's through our various foundations or our tech for good platforms, we play a critical role in supporting agriculture, education, energy, health and water initiatives across our markets. We continue to scale our technology-based free emergency transport system, known as m-mama, in partnership with governments, USA and the Vodafone (NASDAQ:VOD) Foundation. This life-saving maternal transport system is now rolled out nationwide in Tanzania and Lesotho, is on track to launch in Kenya and Malawi. One of our other key medium-term initiatives is to digitally upscale 1 million young people across Africa through our [TechStart] (ph) program, building on the success of our Code Like a Girl program, which has trained over 23,000 young girls in Africa. We recognize the urgent need for digital future any skills in Africa. In response, we are creating multiple academic programs in collaboration with other leading tech companies such as AWS. For the planet, we have committed to net zero for Scope 1 and 2 greenhouse gas emissions by 2035. In addition to this commitment, we partner with governments and other stakeholders to provide solutions to meet Africa's environmental challenges, including the impact of climate on agriculture, the need for renewable energy and the scarcity of water. Vodacom business, Mezzanine and IoT.next are pioneering solutions to improve the access and quality of water, while also reducing leakages and unauthorized usage. By leveraging our existing Tech for Good platforms, we are well placed to support governments with water management, including South Africa's RT 29 National Treasury Smart Metering Project. On the first of June 1994, we signed up our first customer in South Africa. Fast forward to 2024, and our passion to connect is unwavering. As part of our Vision 2025 ambition, we launched the system of advantage. This multiproduct strategy is aimed at diversifying and differentiating our offerings to our customers and strengthening our relationships with them. We now serve 206 million customers across the footprint that includes the DRC, Egypt, Ethiopia, Kenya, Lesotho, Mozambique, South Africa and Tanzania and covers 570 million people. This geographical reach diversifies the group and unlocks exciting long-term growth opportunities. As Africa's population thrives, we will relentlessly drive inclusion, and focus on reaching the 300 million customer milestone. With connectivity at the core of our offerings want to connect our customers via land or space. Our infrastructure scale supports this ambition. With almost 47,000 sites across the continent, we are one of Africa's largest tower owners. Our connectivity reach is a key enabler of digital inclusion. Another critical element to inclusion is affordable access in our services and smartphones. While smartphone penetration is at 62%, I'm passionate about connecting the other 18 million of our customers to a digital world. Our groundbreaking prepaid device financing bundles can help bridge this gap, and will be a key focus as we move beyond our 2025 strategy. This model allows a customer to repay the phone daily as they generate income. For us, prepaid handset financing provides scope to reshape our prepaid proposition into a form of annuity or contract like revenue. In addition to the progress in connectivity and geographic reach, we have also driven product diversification as part of Vision 2025. At the heart of this evolution is our financial service business, which already has 83 million customers. We plan to grow this number towards 120 million by 2030. As I reflect on our strategic progress under Vision 2025, I'm very pleased on the shape of our group from a geographic and product perspective. But in my case, the word pleased will never mean I'm satisfied. As we look forward to Vision 2030, it is critical that we position Vodacom strategy to deliver double-digit growth, combining our innovative mindset with healthy markets will power this opportunity. A healthy market is characterized by its pricing dynamics and ability to generate strong returns. I look forward to unpacking this concept and our 2030 Vision at an Investor Day early next year. We have made significant progress in diversifying our product revenue mix. Prepaid voice makes up 18.9% of service revenue and declined 3.4% in the period. We expect prepaid voice to remain an important contributor to the group, and we will manage its contribution over the medium term. In fact, there are pockets of growth across the portfolio, including DRC, Egypt and Tanzania. To deliver on our high-single-digit growth target, our other product segments are well positioned for growth. Prepaid data makes up 28.2% of service revenue and grew 21.8% in the period. We remain excited about this segment's growth prospects. We continue to complement the structural growth in data traffic demand with network coverage, increased smartphone penetration and improved data monetization. Our contract revenue is largely from South Africa and contributes 26.3%. While all our customers demand the best-in-class experience, this is a non-negotiable focus area for our contract customers. Our value proposition in contract is further enhanced with loyalty and content offerings. Shifting to our fastest-growing product segment, our beyond mobile new service. In the fiber space, we are working on co-investment models to accelerate rollouts across our international markets. In South Africa, we were disappointed that the massive transaction was prohibited by the competition tribunal, especially given that it had received support from ICASA, our competitors and the South African government. As we assess our options in South Africa, we remain of the view that fiber cobalt is better than overbuild. In Financial Services, which is the pillar of Beyond mobile, we are growing across our markets with products that cut across consumers and merchants. Vodacom's success in this segment is a function of strategic focus. In the next slide, I will talk through our road map for financial services, which we believe will see this revenue compound at a healthy rate. Pulling together our mobility and new service offerings, we partner with businesses to accelerate their growth and with governments to drive efficiencies. We are transforming the ways of working through digital technology in high-growth areas like cloud, hosting, managed security, managed services and IoT. A key focus area for us in the business segment is SMEs, which are prevalent across our markets. This slide sets out our growth roadmap for financial services and how we leverage our dual-sided ecosystem to deliver exceptional and personalized experiences to consumers and merchants. Vodacom Financial Services, M-Pesa and Voda Cash make a meaningful contribution to financial inclusion across our footprint. Once financially included, we provide customers with an ecosystem that deepens their access to financial services with products like international remittances, global payments, bill payments, saving, lending and insurance. Tanzania is a prime example of how we have deepened inclusion. Today, only 43% of our M-Pesa revenue is from peer-to-peer and cash out. Whereas three years ago, this number was 83%. For the evidence of Tanzania's success, is its contribution of M-Pesa to service revenue. This now stands at 38.2%, and it's just behind Kenya. Looking ahead, the next step in our group's roadmap is unlocking economic growth through financial services. We want to partner with like-minded companies to create a savings culture for consumers through wealth products in an environment for SMEs to thrive. This is where our super apps play a critical role. They create an open platform where we can integrate our own products with 1,000s of external service providers. The apps remove the barrier of physical limitations for both consumers and merchants, allowing them to expand well beyond their geographical boundaries. As we execute on this roadmap, we expect to meaningfully scale our financial services customer base and revenue. Across our consolidated markets, we target around 20% compounded annual growth to FY 2027, supporting the group's earnings profile. In this slide, we provide proof points of our dual sided financial service strategy. Our M-Pesa merchant base increased 22% to 1.2 million merchants. This growth helps expand our addressable commission pool beyond peer-to-peer payments and withdrawals into both online and off-line commerce. In South Africa, our merchant acquiring business is also growing quickly, with over 11,000 merchants. Our super apps are scaling across the group. M-Pesa app users are up almost 1 million year-on-year to 5.3 million. This channel is supporting higher ARPU. In Egypt, Vodafone Cash is the go-to mobile wallet in the country, with over half the customer base using the Ana Vodafone app. In South Africa, we successfully merged our telecommunications app MyVodacom into VodaPay during the period. VodaPay users, buying something on a platform or what we refer to as transacting users, reached 1.4 million in the period. A key use case of the OneApp strategy is the distribution of airtime. In VodaPay, we have doubled our direct airtime sales to 8%. As users come into the app to top up, we leverage the rest of the marketplace to sell one more service. On the right-hand side of the slide, we call our key growth drivers for financial services in FY ‘25. Across our M-Pesa market, it is services that deepen financial inclusion. Our international markets, these average 40% of M-Pesa revenue. In Egypt, growth is underpinned by user adoption. We added 2.9 million customers over the last 12-months to reach 9.6 million customers. Given the extent of the unbanked population in Egypt, this growth looks set to continue. South Africa's growth was fueled by insurance Airtime advance, our payments and lending marketplace businesses. Insurance policies were up 10.2% to 2.9 million policies, a key growth driver of the revenue growth. As we diversify into new growth factors beyond peer-to-peer payments, our financial service product suite continues to broaden across global payments, e-commerce, payments, lending, insurance and savings. As a group, including Safaricom, we have grown our financial service customers by 12.7%. Scope for future growth is material with penetration of our base at just 40%. The scale of our financial service business is reflected in the transaction value and volumes process through our mobile money platforms. We processed more than $421 billion in the last 12 months, which equates to $1.2 billion a day. Our financial service revenue from our consolidated entities reached 6.7 billion in the period, up 7.8% in rands. The underlying growth trend of 17.6%, which adjusts for foreign exchange, confirms how quickly we are scaling the dual-sided ecosystem. With an additional 10.8 billion generated by Safaricom, this implies a total fintech footprint that is annualizing at ZAR35 billion. This is a formidable business. Overall, Financial Services contributed 11.4% to the group service revenue, up from 10% last year. This was supported by the rapid revenue growth in Egypt. At Safaricom, which is an associate, the contribution increased again and reached 43%. When looking at the contribution to profit before tax, which includes Safaricom, the weighting is around 20%. This bottom line contribution of financial services means that the Vodacom investment case offers something quite different to a typical emerging market telco. Turning to the group's results. Over the last two years, we have absorbed significant hikes in interest rates and major currency shots in Egypt and Ethiopia. Pleasingly, our Egyptian business is already delivering high currency bottom line growth, just six months after 60% devaluation. In Ethiopia, we are navigating through the recent devaluation, having already seen market price increases. With that said, these devaluations had a material impact on our reported results, especially earnings. Our HEPS declined 19.4% to 353 cents. Raisibe will fully unpack the impact of the currency moves in our slides. Whilst I'm not satisfied with our rand-based outcomes in the period, I'm particularly pleased with our commercial momentum, which is reflected in our normalized growth rates. Revenue grew 10.4% on a normalized basis, to ZAR73.5 billion. Normalized group service revenue grew 9.9% at the high-end of our medium-term target range. This result reflected excellent growth from Egypt of 44.1% in local currency, comfortably above inflation levels in the market and good growth in our beyond mobile services across the group. Group EBITDA was ZAR26.6 billion and declined 2.7%. The result was impacted by the translation effect of the Egyptian pound devaluation in March. On a normalized basis, group EBITDA growth was 8.5%, in line with our target range. Egypt delivered a particularly impressive local currency result, with EBITDA growth of 65.1%. South Africa's EBITDA grew 2.3%, supported by cost initiatives, which contained cost growth well below inflation. Our international business had a disappointing result, with EBITDA down 20%. Excellent growth in Tanzania of 18.6% was offset by one-off costs in the DRC and revenue pressure from repricing Mozambique. We expect a better performance from the International segment in the second-half of the year, with Mozambique stabilizing. We remain committed to spending within our capital intensity framework of 13% to 14.5% of revenue over the medium term. In the first-half of the year, we spent a little below this intensity target at 12% or ZAR8.8 billion. This was a function of phasing and the stronger rand. For FY '25, we will end closer to the lower end of our capital intensity range. And then looking at the dividend, the Board declared an interim dividend of 285 cents per share, which represents an 86% payout of headline earnings. This is above our dividend floor of a 75% payout as the Board considered the phasing of Ethiopia losses for the full financial year. Raisibe will unpack this more in her presentation. Vodacom's geographic mix balances growth opportunities and cash generation. A look at our customers that shows that we have four similarly sized segments. Of our 206 million customers, 76% are now outside South Africa. From a revenue perspective, South Africa remains the largest component. Revenue in South Africa grew 2.4%, impacted by pressures in the wholesale segment. International revenue of ZAR15.4 billion was up 1.5% on a reported basis, impacted by stronger rand. The normalized growth was 6.4%, supported by good growth in data and M-Pesa. Egypt delivered revenue growth of ZAR14.3 billion, contributing almost 20% to the group. On a reported basis, growth was down 3.9% due to the pound devaluation in March. In local currency, revenue growth was up an impressive 52.9%, well ahead of inflation. Safaricom had an excellent period of revenue generation, up 21.9% in rands. This was driven by double-digit growth in Kenya and accelerated commercial momentum in Ethiopia. Turning to operating profit, the devaluation in Ethiopia had a material impact on the results in the period. This is flagged on the slide is ZAR1.1 billion. Excluding the impact of foreign exchange movements, our group operating profit was up 9.8%. In South Africa, operating profit growth was 2.4%, consistent with the revenue and EBITDA result. A flat operating margin in South Africa is a positive trend change from recent years. This was helped by moderated investment into energy resilient CapEx, with the heavy bad investment now hopefully behind us. In our International business segment, operating profit for the segment declined by 53%, a disappointing result. In addition to repricing pressure in Mozambique, we faced one-off cost in the DRC and felt the impact of the Ethiopian devaluation. Our direct 5,7% stake in Ethiopia is housed within the international segment. Egypt delivered a stellar result. Operating profit growth was 11.7% in rands, with normalized growth of 90.8%. This was a really encouraging trend, and provides good momentum for rand-based growth as we lap the March devaluation. Finally, to Safaricom, the contribution of our associates stake in Safaricom of ZAR1.3 billion was impacted by the devaluation in Ethiopia and hyperinflation accounting. Like the Egypt result, when the noise from the foreign exchanges removed, Safaricom's underlying result was excellent. In fact, Safaricom group's net income growth was 10.3%, excluding foreign exchange and hyperinflation adjustments. Now shifting to a product lens and looking at our contribution of our Beyond Mobile services to each of our geographic segments. We target a beyond mobile service revenue contribution of 25% to 30% of group service revenue over the medium term. These high-growth services include financial and digital services, IoT and fixed. In South Africa, 17.7% of service revenue is now attributable to Beyond Mobile, up from 16.6% in the prior period. Egypt Beyond Mobile contribution is scaling quickly due to Vodafone cash, digital and fixed services. At a 16.9% contribution, these services are collectively growing more than 60% year-on-year. Across our international business, the contribution of Beyond Mobile was 30.4%, while Safaricom continues to set the benchmark at 47.4%. We intend to scale each of these Beyond Mobile revenue streams into successful businesses. Turning now to our four segments. Service revenue was up 1.3% to ZAR31.1 billion, supported by the consumer contract segment, prepaid mobile data and Beyond Mobile services, but impacted by pressure in the wholesale segment. The headwind from wholesale was 2.3 percentage points in the period. So this pulls the underlying growth trend between 3% and 4%, not quite where we want it, but better than the reported result. Customers were up a healthy 4.2% in the period to ZAR49.2 million. Financial Services customers had strong growth of 13.5% to ZAR15.6 million due to growth of insurance policies and VodaPay's transacting users. Beyond Mobile services were up 8.1% and contributed ZAR5.5 billion. This result was supported by Financial Services growth of 9.5% and fixed growth of 16.7%. Mobile contract customer revenue grew by 3.6% to ZAR12.1 billion, supported by the consumer segment and contract price increases in the first quarter. Prepaid mobile customer revenue increased 2.2% to ZAR13.4 billion. The result was also supported by price adjustments, but also faced a headwind from a strong competitive period last year, which is associated with high levels of load shedding. Vodacom business service revenue was up 4.9%, excluding wholesale. Cloud hosting and security supported this growth, with revenue for the segment up 48.9%. Overall, Vodacom business revenue declined by 4% to ZAR8.3 billion, reflecting the pressure on wholesale revenue. Despite the subdued revenue performance, South Africa delivered EBITDA growth of 2.3%. This was a function of excellent cost control, with cost growth contained well below inflation. Egypt delivered service revenue of ZAR13 billion, contributing 22.1% to the group. Service revenue was up 44.1% in local currency, supported by market share gains in connectivity and selling growth in Vodafone cash. Egypt ended the period with 48.3 million customers, up 5.9%. Smartphones in the network were up 10.8%, with strong traction on Egypt's flex bundle offerings and integrated content offerings. Egypt's Beyond Mobile service revenue growth was 61.3%, supported by financial services and fixed. Financial Services grew 94.4% in local currency, and was supported by growth in users and volumes of transactions. Vodafone cash customers was up 43.1% to 9.6 million customers. The 10 million customer milestone is now within touching distance. Egypt delivered ZAR6.2 billion of EBITDA and made up 23.4% of the group's results. EBITDA growth was an impressive 58.3%, with margins improving to 43.4%. This growth rate would have been even higher were it not for some trading ForEx impacts in the period. In October, we announced a $150 million investment into a 5G license in Egypt and extended our existing licenses to 2039 for $17 million. As is the case in South Africa, 5G will not result in a sudden CapEx spike. Instead, we see 5G as an incremental opportunity to support the insatiable appetite for data in Egypt. Service revenue for our international business increased 1.3% on a reported basis to ZAR14.9 billion, with strong growth in data and M-Pesa, partially offset by foreign exchange transition headwinds. On a normalized basis, service revenue growth was 6.2%. From a market perspective, we delivered 19.1% local currency growth in Tanzania, 11.2% in Lesotho and 9% U.S. dollar service revenue growth in the DRC. Mozambique year-on-year performance remained under pressure in the period, declining 15.1% due to repricing. Encouragingly, the month-on-month trends stabilized in the second quarter due to improved commercial positioning. Customers were up 4.5% to 56.1 million, supported by double-digit growth in Tanzania. This commercial traction supported voice revenue growth in Tanzania and DRC in the second quarter. We added 3.2 million data customers, with data traffic growth of 30.5%. Our prepaid handset financing trials in DRC, Mozambique and Tanzania progressed well in the quarter, with smartphone users up 15%, and baseline revenue was up a healthy 10.4% on a normalized basis to ZAR4 billion. M-Pesa customers grew 13.3% to 23.8 million. Our international business EBITDA was ZAR4.3 billion and declined by 20%. This was a disappointing result given the segment's commercial momentum, and reflected foreign exchange pressures, one-off cost in the DRC and the year-on-year revenue pressure in Mozambique. The one-off cost in DRC included bad debts and ad hoc supply escalations, exacerbated by inflationary pressures. We expect to clear EBITDA improvement for international in the second half of the financial year. Safaricom delivered an excellent performance in Kenya, while commercial momentum in Ethiopia accelerated. Service revenue increased 13.1%, supported by strong growth in Kenya of 12.9%. The Kenyan growth was broad-based, M-Pesa was up an impressive 16.6%. Safaricom together with M-Pesa Africa, continued to develop products that deepened financial inclusion. Our first wealth product in the market, Mali, is a prime example, with assets under management reaching KES3 billion. Kenyan mobile data revenue grew 20.2% supported by customer and traffic growth with strong adoption of all 4G services. Fixed service revenue grew 14.7%, supported by fiber to the home, with homes passed reaching 640,000 in the period. In Kenya, EBITDA grew 13.7%, with best-in-class margins of 55.1%. This excellent performance supported an incremental 4% upgrade for Kenya's EBIT guidance. EBITDA for Safaricom Group was impacted by the devaluation of the Ethiopian birr in the second quarter and declined 5.8% in Kenyan shillings. Excluding this devaluation, EBITDA growth was 14%. Ethiopia EBITDA losses actually reduced by 7.7%, excluding the devaluation impact, providing comfort that the business is starting to scale. On that note, Ethiopia reached 6.1 million customers, up 47.1%, with total sites both exceeding 3,000. As a result of the devaluation, Safaricom revised the EBITDA breakeven target for Ethiopia to FY 2027 from FY 2026 and increased the expected EBIT losses for FY ‘25 by KES15 billion. The medium-term 15 million to 20 million customer target was reiterated, supported by the strong commercial momentum in the business. [Music]
Raisibe Kgomaraga Morathi: In this video, I will unpack our results for the six-month period ended 30 September 2024. My opening slide sets out our group highlights. We achieved a 1% revenue growth for the period, driven by strong commercial momentum, despite facing significant foreign exchange headwinds. Given that the Egyptian pound devalued by more than 60% in March 2024, achieving revenue growth of 1% was a pleasing result. The impact of foreign exchange movements was an important thing in this reporting period, but more on that as we progress through my slides. Group service revenue and EBITDA, which declined 1.2% and 2.7%, respectively, were also impacted by foreign exchange headwinds. Our Beyond Mobile services continue to grow pleasingly, underpinned by financial services. We are well on track to meet our medium-term target of a 25% to 30% contribution from Beyond Mobile. The group EBITDA margin was 36.1%, down 1 percentage point year-on-year, owing to a soft performance in our international business. However, pleasingly, the EBITDA margin in South Africa was stable, while Egypt, we improved the margin by 1.5 percentage points to 43.4%. Headline earnings per share was impacted by a devaluation in Ethiopia, and a one-off course in DRC, which I will unpack later in my slides. Our balance sheet position remains robust as we limit exposure to foreign currency debt. In this period, we also favorably refinanced nearly ZAR14 billion of M&A-related debt, which should save us at least ZAR300 million in finance costs. From a shareholder perspective, we declared an interim dividend of ZAR2.85 per share, while this was down marginally year-on-year, we have largely absorbed material macro shops, including significant currency volatility. Moving to our income statement. We have set out reported, as well as normalized growth to help provide better insights into our underlying trends. Normalized growth presents performance on a comparable basis, adjusting for foreign currency fluctuations on a constant currency basis. On a normalized basis, Group service revenue growth was 9.9% and at the top end of our medium-term target range. This result reflected strong growth from Egypt of 44.1% in local currency and good growth in our Beyond Mobile services across the group. Group reported EBITDA was ZAR26.6 billion, with normalized growth of 8.5%, also within our target range. Egypt's strong performance was the main contributor and supported by excellent revenue momentum and cost containment. The net profit from associate and joint ventures declined 39% to ZAR0.8 billion. The result was impacted by a more than 100% devaluation of Ethiopian birr in the second quarter. On a normalized basis, and excluding this devaluation impact, associates declined by 2.9%. Net finance charges increased 15.5% to ZAR3.4 billion, largely as a result of losses on the remeasurement of financial instruments related to foreign exchange rate movements. Net profit attributable to equity holders of ZAR6.8 billion was down 18.4%. The decline, which I will unpack later, was attributable to Ethiopian devaluation, higher finance costs and one-off costs related to DRC. The group delivered excellent commercial momentum in the interim period and in the second quarter. Normalized sales revenue growth was 9.7% in the quarter at a similar level to recent quarters and at the top end of our guidance. South Africa service revenue grew 1.3% to ZAR31.1 billion in the first-half. Pressure in the wholesale segment was a key drag on our growth. This headwind amounted to 2.3 percentage points, so the rest of the business is running at closer to 3% or 4% growth. In the second quarter, service revenue eased to 0.7%, reflecting a strong prepaid comparative. On a normalized basis, our international business accelerated service revenue to 6.6% in the second quarter. The result was driven by an excellent performance in Tanzania and strong growth in DRC. Egypt delivered local currency growth of 44.3% in the second quarter, comfortably above inflation levels in the market. Growth was supported by strong customer engagement in connectivity and excellent growth in Vodafone cash. Shifting forecast to cash. Our operating free cash flow decreased 18.3%. This was a result of lower EBITDA and working capital absorption. The working capital stream was accelerated by the currency situation in Egypt. In March, devaluation of the pound materially improved access to foreign exchange, facilitating a repayment of foreign payables. Working capital is expected to improve meaningfully into the second-half, consistent with prior years, supporting a significant improvement in free cash flow. CapEx remains a key capital allocation priority, and we invested almost ZAR9 billion in the period to support network resilience and maintain our competitive edge across the markets in which we operate. From operating free cash flow, we paid cash of ZAR4.7 billion and incurred slightly higher net finance costs. We were a net payer of dividends to noncontrolling shareholders in our subsidiaries after dividends received from associates. More simply, the dividend paid to Egypt's minorities was largely offset by receipt from Safaricom. This slide provides a bridge from EBITDA to the net profit decline of 21.1%. Our depreciation and amortization charge in Safaricom Kenya were tailwinds for profitability. Pleasingly, the rate of depreciation and amortization in South Africa substantially moderated in the period as we let our investment into energy resilience and the new spectrum. Unfortunately, these tail ends were more than offset by the devaluation loss from Ethiopia, which amounted to ZAR1.1 billion. This resulted in our operating profit declining 5.2% to ZAR16.1 billion. Below the operating profit line, higher finance cost and taxation weighed on net income. Our effective tax rate was unusually high in this period, and I will take this in my next slide. The tax expense of ZAR4.9 billion was up 18.7%. This increase was as a result of DRC, where we made one-off top-up tax accrual, having had our assessed losses depleted. This means, going forward, 100% of our DRC income is now considered taxable. The effective tax rate at 38.4% was well above our statutory rate of 27%, but this was largely a function of timing and one-offs. In the period, withholding taxes on the subsidiary and associate dividends was a key reconciling factor. While we expect some dividend resist in the second-half, these are unlikely to be as material as the first-half. We also faced pressure on our tax rate from a non-deductibility of the finance costs associated with the purchase of Egypt and the funding of our operation in Ethiopia. Having refinanced this debt late in the first-half, we expect this tax rate headwind to moderate into the second-half. Finally, the DRC top-up increased the effective tax rate by 4.3 percentage points and was one-off in its nature. Given the timing and nature of these reconciling items, that I have discussed, we expect a substantial improvement in the effective tax rate into the second-half of the financial year. This slide provides the key drivers of our headline earnings per share decline. Firstly, Mozambique's performance remained under pressure in the period and contributed ZAR0.11 to the result. Mozambique's performance is stabilizing month-on-month, so we expect to -- we expect this headwind to moderate into the second-half. The material headwinds to earnings were related to DRC and Ethiopia's devaluation. DRC's one-off includes the tax payment, as I mentioned earlier, and separately, supplier escalations and some bad debts. For Ethiopia, the devaluation of the birr is in the second quarter, resulted in the remeasurement of foreign denominated assets and liabilities in Safaricom Ethiopia. The business was in a net dollar liability position and hence, the impact was adverse. After the minorities, the impact on net income was ZAR1 billion or ZAR0.53 per share. More importantly, the prevailing birr exchange rate provides scope for earnings tailwind into the second-half of the financial year, given that Ethiopia is currently in a loss-making position. Another positive callout was Egypt, which also faced a currency devaluation in March 2024. This segment posted net income growth of 75.1% in local currency and 10.1% in rands, and it contributed ZAR0.30 per share despite the devaluation. This highlights the asset growth trajectory and scope for strong rand returns over the medium term. If we remove the impact of foreign exchange headwinds, our headline earnings per share would have been 11.4%. Looking back over the last couple of years, the macro cycle has had a material impact on our earnings, but fortunately not a devastating one. Critically, our geographic and product revenue diversification, our largely localized cost structures and balance sheet position meant that we have been able to weather this adverse macro cycle with limited impact on cash generation or leverage. On the left-hand side of the slides, we quantify the impact of our higher interest rates and foreign exchange shocks. Post-COVID, with inflation surging, South Africa followed global central banks and increased the prime rate from 7% in the financial year ‘21 to 11.7% in the last financial year 2024. This materially impacted our finance costs, as almost 90% of our debt is rand based to avoid balance sheet exposure to hard currency. Then more recently, the Egyptian pound and Ethiopia birr faced material devaluations. These events impacted earnings by at least ZAR0.50 per share, respectively. Cumulatively, higher finance costs and foreign exchange devaluations have impacted our earnings by ZAR2.41 per share. While we cannot discount higher for longer rates and foreign exchange volatility, our competitive periods now include material shocks. Our leverage position at 1.1 times net debt to EBITDA remains comfortable. The ratio is up slightly on the prior year due to spectrum payments over the last 12-months. Looking at the composition of our borrowings, as already mentioned, we are largely rand-based. This high weighting of rand debt is deliberate and helps limit our exposure to foreign exchange risk. From an interest rate perspective, our financial debt is 86% floating rate. This debt mix provides us with an opportunity to benefit from stabilizing and even falling interest rate expectations when the cycle turns. For example, our average cost of debt was 10.4% in the period, having been just 7.7% three years ago and having started to settle the refinance of some of the most expensive debt, we are hopeful that the new interest rate cycle will be beneficial to our business. Vodacom offers one of the highest dividend payouts on the JSE, reflecting our excellent cash generation. In the period, the Board declared an interim dividend of ZAR285 cents per share. This represents an 86% payout of headline earnings higher than our typical minimum payout of 75%. The payout was adjusted higher to exclude the devaluation loss from Ethiopia, which is weighted on the first-half. The prevailing ETB exchange rate provides scope for lower translated losses from Ethiopia in the second-half to help offset the devaluation losses of ZAR0.53 per share that we incurred in the first-half of the year. Given this dynamic for Ethiopia, the payout ratio was adjusted to reflect the potential phasing of losses for the full-year of 2025. The Board expects the total dividend for the year ended 31 March 2025 to be at the 75% payout of headline earnings. This implies a payout ratio below 75% for the second-half of the year. From a position of balance sheet strength, we are well positioned to accelerate our growth. Diversifying our Beyond Mobile services is a key priority for the group and improving our customer proposition. On a consolidated basis, with South Africa, Egypt and international business in scope, we saw our Beyond Mobile service revenue contribution continues to steadily increase from 19.8% in the first-half to 21.1% in the first-half of 2025. Looking ahead, our ambition is to increase this to around 25% to 30% in the medium term. The largest weighting within Beyond Mobile is our Financial Services portfolio. We see this scaling to a mid-teen contribution to group service revenue as we deepen financial inclusion across our markets. In this slide, we set out our capital allocation priorities. Our first priority is investment into organic growth, which includes our core connectivity business and new growth areas. This investment is supported by our big data capabilities, which help us generate best return for each rand that we have invested. Our dividend policy means that we do not need to compromise on our organic investments. With a payout of 75% of headline earnings, we are left with room to fund our capital intensity framework and also delever our balance sheet in due course. In my concluding slide, I set out our medium-term targets. The strong commercial momentum of the current financial year supports an unchanged outlook for group service revenue and EBITDA at high-single-digit growth. Our group capital intensity ratio is unchanged at between 13% and 14.5% of revenue. These targets are on average over the next three years based on prevailing economic conditions. These targets are not without challenges. Notably, the macro outlook remains uncertain with both global growth concerns and local factors. For our International segment, we expect an improved performance in the second half and return to EBITDA growth supported by a gradual recovery in Mozambique. Separately, our associate, Safaricom updated its guidance for the financial year 2025. And building on an excellent first-half, Safaricom upgraded its guidance for Kenya and Ethiopia guidance was also reviewed given the currency move. At a group level, Safaricom is still guiding to grow for the full-year. On that note, I will conclude, and thank you for your attention. [Music]
Mohamed Shameel Aziz Joosub: Over three decades, we have built Vodacom Group into a purpose-led business with a footprint reaching 40% of Africa's population. We are a market leader across our markets with a unique opportunity to drive inclusion. Our asset-rich portfolio is another point of differentiation as we own most of our towers and mobile infrastructure. The combination of our connectivity and financial services scale means we are constantly delivering returns above our cost of capital. Looking ahead, with these attributes in place, we'll continue to scale and execute on our system of advantage to capture growth. We will focus on accelerating the penetration of our existing connectivity services with new spectrum unlocking 4G, 5G and fixed wireless opportunities across our markets. Across our digital ecosystem, we have growth opportunities ahead of us as we drive smartphone adoption and deepen financial inclusion, helping unlock our customer growth potential. We are scaling our new prepaid device financing model. Transforming our business will include the optimizing of our assets through sharing. And to this end, we aim to unlock benefits through partnerships in both rural coverage and fiber across our footprint. As we pull together the levers of our strategy, we are now positioned to accelerate our growth profile, and this is reflected in our guidance. Finally, we will always prioritize our contribution to societies in which we operate and our purpose-led ambitions. Our drive to empower people encompasses several elements, including higher female representation at the management level, driving financial inclusion, closing the digital divide and supporting communities. For planet, in addition to reducing our greenhouse gas emissions, we are leveraging our tech-for-good platforms to support our markets in agriculture, energy and water. We look forward to engaging with you over the coming weeks on our investor roadshow. This concludes my presentation. Thank you for your attention. [Music]
A - Mohamed Shameel Aziz Joosub: Welcome to the highlights for our interim period ended 30 of September 2024. We've also added a comprehensive strategy and results update video on to our Investor Relations website. I'm joined by our Group CFO, Raisibe Morathi, as well as our Head of Investor Relations, JP Davids. As we celebrate our Vodacom's 30th birthday this year, I'm particularly proud of the impact we have made on inclusion in Africa. Vodacom now connects 206 million customers and provides financial services to 83 million customers, each representing significant milestones in our history. While Vodacom is adapted to evolving regulatory pressures and customer needs, our purpose was unchanged for the past three decades, which is to make sure that everyone is connected. To achieve this purpose, we are focused on empowering people and protecting the planet, while maintaining trust in everything we do. At the International Telecommunications Union's recent event at the UN General Assembly, we emphasized the urgency of empowering people through digital and financial inclusion. In low income countries, only 35% of the population have access to 4G. We have adopted a holistic approach to address inclusion across our footprint that leverages Vodacom's scale and partnerships. From new rural sites to fiber, to space, we're expanding our coverage to close the digital divide. The commitment is evident in the 1,133 new 4G sites added across the group over the last six months. As pioneers of mobile financial services, we also contribute significantly to Africa's financial inclusion. Our products are designed to support both consumers and merchants. In just the last 12 months, we added another 9 million financial service customers. Beyond our initiatives, in connectivity and Financial Services we thought if we empower people by supporting communities in SMEs. One of our key medium-term initiatives is to digitally upscale 1 million young people across Africa, the process such as Code Like a Girl program. This is an ambitious target, and we'll see as partner with Amazon (NASDAQ:AMZN) wireless services to scale digital skills across our footprint. For the planet, we have committed to net zero greenhouse emissions for Scope 1 and Scope 2 by 2035. Whether it's through our various foundations or tech for good platforms, we provide solutions to meet Africa's environmental challenges, including the impact of climate on agriculture and the need for renewable energy and the scarcity of water. Our purpose is enabled by our strategy for the system of advantage. An example of the overlap between our strategy and purpose is how we are driving down various smartphone launch. With our current smartphone penetration at 62%, I'm passionate about connecting the other 80 million customers to our digital world. Our groundbreaking prepaid device financing bundles can help bridge this gap. This model allows a customer to repay the phone in daily installments or as they generate income. Plus we've enhanced financing that provides scope to reshape our prepaid proposition into a form of annuity or contract-like revenue. As I reflect on our strategic progress over the last few years, I'm very pleased with the shape of our group from a geographic and product perspective. But in my case, the word pleased will never be satisfied. As we look ahead to the next five years, it's critical that we position the Vodacom's strategy to deliver double-digit growth. Combining our innovative mindset with healthy markets is the key to empowering this opportunity. A healthy market for us is characterized by its pricing dynamics and ability to generate strong returns. I look forward to unpacking this concept in our 2030 vision at our Investor Day in February next year. Switching gear from our strategy to the results. Over the last two years, we have absorbed significantly higher interest rates in major currency shops in Egypt and Ethiopia. Pleasingly, our Egyptian business is already delivering high currency bottom line growth just six months after 60% devaluation. As we lap the March devaluation in Egypt, we are well placed to meaningfully accelerate rand-based earnings. In Ethiopia, we are currently navigating through the recent currency reforms having already seen market prices increase. But that's -- with that said, both these devaluations have had a material impact on reported results in the period especially on earnings. At a group level, revenue of ZAR73.5 billion was up 1%, impacted by the Egyptian devaluation. On a normalized basis, equivalent to constant currency measure, group sales revenue increased to 9.9%. This compares favorably to our target of high-single-digit growth over the medium term. Group EBITDA decreased 2.7% to ZAR26.6 billion, impacted by the Egyptian devaluation and foreign exchange and [indiscernible] pressures in international that I will unpack later. On a normalized basis, EBITDA growth was up 8.5%, in line with our medium-term target. Our headline earnings per share declined 19.4% to ZAR3.53 per share. The decline was largely attributable to the currency reforms in Ethiopia and one-off operating cost and taxation in the DRC. The devaluation in Ethiopia resulted in the restatement of foreign liabilities and negatively impacted HEPS at ZAR0.53. As we look into the second-half of the year, this weaker exchange rate provides scope for lower translated losses from Ethiopia having offset the negative earnings impact in the first-half of the year. Given the space and the impact, the Board declared an interim dividend based on 86% payout ratio or ZAR2.85 per share. While the dividend is down 6.6% year-on-year, it is flat with the final dividend of FY 2024. Looking into the second-half, we are optimistic about our earnings growth prospects, particularly as we lap the impact of the Egyptian-pound devaluation. Shifting the discussion now to our performance at a product level. Beyond mobile, which I have previously referred to as new services, reached 21.1% of group service revenue. We bought Beyond mobile includes fixed, IoT, digital and financial services, and we target a 25% to 30% contribution in the medium term. Financial services is key to our growth ambitions and the largest component of Beyond mobile. We remain Africa's leading fintech operator with $421 billion of transactions or $1.2 billion per day processed through our mobile platforms over the last 12-months, including Safaricom. Our Financial Service business was up 7.8% in rands or 17.6% on a normalized basis and made up 11.4% of group service revenue. The scaling of this business is important to our earnings and return outlook, given the lower capital intensity of financial services. And then moving on to our geographic segments. In South Africa, we delivered modest topline growth, but improved the shape of our P&L with flat EBIT margins. Service revenue grew 1.3% to ZAR31.1 billion. The result was negatively impacted by 2.3 percentage point headwind from wholesale services. So this puts the underlying growth trend between 3% and 4%. This is not quite what we want, but better than the reported result. Our prepaid revenue grew 2.2% in the half, supported by pricing adjustments implemented in the first quarter. In the second quarter, prepaid revenue growth eased to 1% as we lapped a strong competitive quarter associated with high levels of loadshedding. Mobile contract customer revenue increased by 3.6% to ZAR12.1 billion, supported by good growth in our consumer segment. We also reported good growth in our Beyond mobile services. Fixed service revenue was up 16.7%, excluding low margin also wholesale transit revenue. Service revenue generated from financial services was up 9.5% to ZAR1.7 billion, driven by very good growth in our insurance portfolio. The EBITDA margin was stable at 37%, while operating profit increased 2.4% as we moderated our investment into energy resilience. We were disappointed that the MAZIV transaction was prohibited by the competition tribunal, especially given that it had received support from ICASA, our competitors and the South African government. As we assess our options in South Africa, we remain of the view that fiber cobalt is better than overbuild. Egypt's performance was stellar and fully absorbed the currency devaluation. Service revenue in local currency was up 44.1%, well above inflation. The result was broad-based with strong growth in consumer mobile and fixed business and Vodacom cash. In the second quarter, growth accelerated marginally to 44.4%. Vodafone Cash revenue grew 94.5% and increased its contribution to 7.6% of Egypt's service revenue. EBITDA from Egypt was ZAR6.2 billion, broadly flat year-over-year with the margin improving to 43.4%. Given the extent of the currency devaluation in March, this was an excellent outcome and supported by margin expansion. The bottom line result from Egypt was even more impressive. Net income was 75.1% in local currency and translated to a 10.1% growth in rands despite the devaluation. Our international business reported good service revenue growth, but had a disappointing EBITDA performance. International Business Service revenue was ZAR14.9 billion, up 1.3% or 6.2% on a normalized basis. From a market perspective, we delivered 19.1% local currency growth in Tanzania, 11.2% in Lesotho and 9% U.S. dollar service revenue growth is the DRC. Mozambique's year-on-year performance remained at the pressure in the period declining 15.1% due to the pricing. Customers across international was up 4.5% to ZAR56.1 million, supported by double-digit customer growth in Tanzania. This commercial transaction growth support an improved voice performance for the international business in the second quarter, with Tanzania and DRC both delevering local currency voice revenue dropped. International business EBITDA was ZAR4.3 billion and declined by 20%. This was a disappointing result given the segment's commercial momentum and the reflected foreign exchange pressures -- and reflected foreign exchange pressures, once-off results in the -- once-off costs in the DRC and year-on-year revenue pressure in Mozambique, due to the repricing. The once-off in DRC included bad debts and ad hoc supplier escalations exacerbated by inflationary pressures. By contrast, Tanzania delivered local currency EBITDA growth of 18.6%. We expect a clear improvement in international EBITDA in the second-half. Our fourth quarter business -- our fourth business segment reported earnings driver is our associate Safaricom. The Vodacom is also impacted by the Ethiopian devaluation but delivered excellent growth in the core Kenyan operation. Service revenue increased 13.1% with Kenya delivering service revenue growth of 12.9%. Kenya's growth was broad-based with M-Pesa up 16.6%, mobile data growing 20.2% and fixed, higher by 14.7%. EBITDA in Kenya grew 13.7% with margins at 55.1%. This excellent performance support an upgrade of Safaricom's EBIT guidance for Kenya by 4%. EBITDA for Safaricom Group was impacted by the devaluation of the Ethiopian birr in the second quarter and declined 5.8% in Kenyan shillings. Ethiopia EBITDA losses actually reduced by 18% excluding the devaluation impact, providing comfort that the business is starting to scale. On that note Ethiopia customers reached 6.1 million, up 47.1% and total sales both exceeded 3,000. At the net income level, Safaricom reported a decline of minus 17.7%, but encouragingly, net income growth was 10.3%, excluding the foreign exchange and hyperinflation adjustments. As a result of the devaluations of Safaricom revised the EBITDA breakeven target for Ethiopia to FY '27 from FY '26 and increased the expected EBIT losses for FY '25 by KES 15 billion. The medium-term 15 million to 20 million customer target was reiterated, supported by the strong commercial momentum in the business. As I mentioned earlier, there are some early signs of progress with pricing in the market. That concludes my review. Raisibe and I are ready to answer any questions you may have.
Unidentified Company Representative: Yes. So good afternoon, again, everyone. Sorry about that technical glitch. The good news is you haven't missed much. So we did press pause when we found out about it. We are now ready to move into the live Q&A session, which I will moderate and ask Raisibe and Shameel to jump in with the answers. Just to reiterate or just to confirm that if you did miss any of the messaging, our videos are available on our website to watch on demand, both Shameel's video and the Raisibe's video. But with that, let me kick off the Q&A. And Shameel, Raisibe, we've had, I guess, several questions around similar themes. So I'm going to try and bucket them together. Preshendran from Nedbank; Rohit from Citi; Madi from HSBC (LON:HSBA), asking similar questions around prepaid in South Africa. And I guess there are a couple of elements to the question, but the overall remark is perhaps 1%, a little bit below expectations. So what's driving that? What's the outlook? And then as we talk through that, what does the voice dynamic look like within that trend, that 1% trend. So Shameel, I'll ask you to kick off the discussion there.
Mohamed Shameel Aziz Joosub: Sure. So I think you've gone on the prepaid revenue. I think firstly, we had a strong second-half last year, because of loadshedding, but we are betting against a very strong quarter last year. In terms of the underlying trends and so on, very much similar to the first quarter with data revenue in the half growing over 9%. So you're seeing good strong growth in data revenue, offset a little bit by prepaid voice decline where we managed to curtail the overall 2.5% to round about 3.5% voice declined by 1% in the first quarter and 5% in the second quarter. But it's also coming from us pushing more and more customers into bundles and into integrated office specifically, which will then help with an improved performance into the future.
Unidentified Company Representative: Super perhaps just staying with South Africa, there are a number of different questions, but related to the same topic being CIVH. So again, Preshendran asking a couple of there, and also Jonathan from Absa asking around CIVH and maybe there I'll read off a few of them. So I guess, firstly, reaction to the Competition Tribunal's decision would be question one. Question two would be what's Plan B or plan -- what's the plan if the deal is ultimately prohibited. And just more broadly, I guess, what is the strategy of Fiber to the Home in South Africa from here?
Mohamed Shameel Aziz Joosub: Yes. So look, I think -- so for me, it's a travesty for South Africa, more than the travesty for Vodacom that the fiber deal was approved because I think the growth competitive benefits of the deal far outweigh any potential competitive issues, and that's a core competitors that we intervene is actually in support of the deal at the end and that recommended to tribunal to approve. So that's why it was disappointing. In terms of the deal itself, I think where we are, firstly, of course, we -- one option would be to appeal, which we're currently considering. We'll have to do that before the reasons actually come out. We will, of course, use the opportunity to also locking a new set of terms and conditions including pricing and long-stop dates and all of those types of things. Because it can take as much as six to nine months for the application process. Actual hearing is one day and the results come on fairly quickly after that. So that's the one option that we are looking at. Further to that, of course, we do have other options, most importantly for me, the money still is in the bank. So we have opportunities both locally and in the rest of our markets, where, as you know, we have a lot of different fiber opportunities where Fiber to the Home, Fiber to the Business is a nascent opportunity in all our markets. So yes, we're not short of opportunities, and we will make the appropriate changes to it. I think for fiber in South Africa, I think it's a travesty. Because I think the level of investment could have shaped in South Africa differently. And frankly speaking, the logic escapes me because we're only have 2.5% market share in fiber. So that's important. What we clear on though is that we prefer co-builds to overbuilds. That will be the dominant feature of how we pursue fiber both locally and internationally.
Unidentified Company Representative: And staying with South Africa, but switching gear maybe more to the margin side. Raisibe maybe you can take this one. I think we've couple of different questions, but maybe Madi has asked it the best way, which is, is there more to be done around the margins in South Africa. And maybe just to explain some of the cost initiatives that we were able to deliver on in the first-half of the year to deliver the EBITDA results?
Raisibe Kgomaraga Morathi: Good afternoon, everyone. So yes, in terms of margin, so we just mindful that the mix in our business is changing. So from an enterprise perspective as we do some of the transactions like in the cloud and so on. Those come at low margins, but there are still very strong opportunities contributing to sales revenue and from the bottom line perspective, there continues to be strong. So a little bit of that effect is to be expected. But in terms of the long-term look, of course, we continue with our Fit for Growth program. It's an old program that has been in Vodacom for a very long time, and we continue to identify opportunities where we renegotiate some of the terms with the suppliers, we issue RFPs for areas that need to be refreshed. Package the services differently, manage the demand side to make sure that we buy right, and we only obviously incur costs that are necessary. We also had some reduction in head count in SA where we have 80 voluntary exists. And whilst we have frozen head count in terms of the new vacancies or deferred some of the vacancies, et cetera. So lots of initiatives, how we manage LEAP, as an example. So there's a lot of initiatives that increase sharing, deep sharing as we call it to manage the costs. So we're very pleased with the performance in terms of costs in this season, and we expect to continue that journey for the rest of the year. And of course, it's not just in South Africa but across all our markets and managing costs very tightly. So in terms of debt cost contribution. We do believe that if continue to support margin. So margin levels that we reported roughly around 36%, that is sustainable.
Unidentified Company Representative: And then just sticking with the theme of margins and costs, Madi's got some follow-up questions on the international markets. So I guess, firstly, just to help everyone understand. These one-off costs we pulled out in DRC, if you can provide a little bit more context there. And I guess this general observation is that the international margins stuck in the hig-20s, low-30s seems quite low versus some other markets across sub-Saharan Africa, is there opportunity to improve here?
Raisibe Kgomaraga Morathi: So certainly the one-offs in DRC. So there are components that I call out. So firstly, we took care about some supplier contract renegotiations where we were negotiating some of the terms that we were unhappy with the pricing of a particular contracts. And by the time we close out, I would say that we walked away both ourselves and the supplier slightly unhappy, but which is a good thing that we ended up in a much better structured contract. And happy from our side in that we obviously picked up a bit of extra costs that we are -- that we have reported in September. But from the supplier's perspective, we managed to solve that we needed to be solved, and as a result, we fixed the contract, not just for the one year, but for the next couple of years. So we're quite pleased with the outcome, but obviously, we ended up with that one-off, so clearly it will not look into the second-half. The second part is relating to bad debts. So here, I need to point out that apart from South Africa that has a postpaid market that is quite weak. The rest of our markets are 99% prepaid so however, in that small slice of postpaid and in particular, I'm thinking about DRC, the postpaid will cover -- there's a lot of mining entities, quite large companies, banks and few corporates and also government. And as you know, governments in the emerging markets, in general, they tend to be slow payers. So we couldn't extend our services to the Ministry of Finance, minister of anything in government. But unfortunately, there are slow payers. So whilst you know that they would pay us, they just have delayed payments and of course, from a technical accounting perspective, in running the models, it was necessary for us to make some provisions, because in terms of the necessary accounting statements that is required. So as a result to those provisions, which we do believe that there will account for that on recovery basis. So it will be cash accounted as the government pays us. So that is mainly the main issue. Again, I don't expect that to come through in the second-half. So the other one of which is below the line is related to tax. And here, in DRC, we had asset losses for a better part of the last many years. But we have now fully utilized that assets loss and noting that there is a de minimis principle in that -- even when we have assets loss, you still pay tax, you have [Technical Difficulty] tax player. So we have now depleted that, so obviously then, in terms of the tax that we pay, misses the benefit of that asset loss. Secondly, as you do the provisional tax payments like you do in all other markets, when the assessment is done in the following year then you do the catch-up payment, so our tax included that catch-up related to the prior period. So that will also not repeat. And we also have the withholding taxes and in paying that dividend from M-Pesa entity to the GSM entity. There's withholding tax of 10%. In some markets, that will wash its face because it is within the same group, but that doesn't work like that in DRC. So that also somewhat -- not something that will repeat in the second-half. So our outlook for saying that DRC will look better in the second-half is based on those number of one-offs and we are encouraged by the fact that the topline growth was very strong at roughly close to 10% in dollars. So margins from the IB markets perspective are in large affected by this DRC situation. So 20% is definitely not the run rate or margin in this environment. So we expect that to normalize post this period where we have gone through the one-offs in the DRC.
Unidentified Company Representative: Thanks, Raisibe, a couple of questions from Nadim, I might take one or two and then ask Shameel to jump in on one or two. So Nadim from SBG, asking a couple -- let me start the ones I'll ask -- answer, excuse me, is what drove the acceleration in fixed service revenue in 2Q? And then what percentage of SA recharges are from airtime advance? So just quickly, the answer is there being fixed service revenue, 2Q had a very good performance in Fiber to the Business, so a nice strong result in the enterprise segment there. And then what also helped in that segment was cloud hosting and security a really excellent quarter for cloud hosting and security, supporting the fixed results in the quarter. Percentage of SA recharges from airtime advance in Q2 for South Africa that's around 50%, about half of recharges. And I'll hand over to Shameel for the second part of that question is, could it go higher from here, I'll let him chat to that. And then also Nadim has asked a separate question around the 5G investment and opportunity in Egypt. So referencing the $150 million. We're investing into the 5G license. Any color we can add around the 5G market potential in Egypt?
Mohamed Shameel Aziz Joosub: Yes. So on airtime advance I have to be honest, there is always opportunity, but we're reluctant, of course, to push too much, because effectively, what than happens is you start to increase your NPL rates. So we carefully manage it and make sure we only provide credit to those who can afford it. What we said focus on is trying to get the customers -- I'm using it to either to increase the amounts that they utilize, but also looking at opening up new opportunities like buy now, pay later type opportunities that use similar kind of capabilities that we use in airtime advance but beyond airtime for vouchering and so on. In terms of Egypt, basically, where we are is we've now obtained the 5G license. The opportunity is huge because what -- because of the strong data growth, data is growing between 35% to 40% consistently. So effectively, what that means is that you can -- if you can divert some of that into 4G -- into 5G, effectively, what will happen is it gives better network optimization in terms of how you utilize it because on 5G, let's say, the costs are lower, but that also opens up more to fixed wire opportunity going forward. So given the big growth of data generally in the Egyptian market and the price stability that helps us because of the regulated pricing. That gives you a nice opportunity to further expand your revenue on.
Unidentified Company Representative: Okay. Spot on. So then just staying with Egypt, again, I'll probably just quickly take these ones. So Preshendran is asking about just the split -- from Nedbank is just asking about the split of service revenue between some of the components being you build out voice and data. So data makes up more than 50% of the revenues in Egypt and voices in the teens. And -- the -- and you just want a clarity of whether that growth rate fall for data of 46.9% was the growth rate for data for the quarter. And yes, that is the case. I mean, data in that market is growing at that sort of level, high-40s, close to 50%. Then perhaps a couple of questions back to you Raisibe, in terms of -- firstly, on free cash flow, and then we're going to talk a little bit about tax. On the free cash flow side, John just pulling up the working capital outflow in the first-half of the year, noting that there was a step up relative to this time last year. It calls out ZAR1.3 billion delta, so asking if we can expect a similar unwind in free cash flow, working capital in the second-half of the year, as we've seen in prior years, and then separate to the free cash flow question, asking around the tax rate for the second-half of the year. Based on the discussion you were running us through earlier, could we see the effective tax rate normalized back into historic levels of pull it between 27% and 30%.
Raisibe Kgomaraga Morathi: So in terms of the free cash flow, the working capital, this is lastly, as a result of the acceleration of payments in Egypt. So just a reminder that the devaluation in Egypt happened on the 6 of March and soon thereafter we start coming into the market and the payment of kind of the backlog of clients and so on continued progressively for the next couple of weeks. So part of that is closing out of that as liquidity became available. And again, looking that as FX became available, liquidity became available with the banks as soon as you have been waiting were obliged to take and, of course, the suppliers will also be waiting for those payments. So that acceleration comes from Egypt in that sense, and it is not expected to repeat, because it was dealing with those particular circumstances. In terms of the second-half. Therefore, the second-half, we expect it to be normal as per usual. And in fact, the shape in terms of our cash flow tends to be more strong cash flow in the second-half than in the first-half, because the first-half -- normally we would have been paying things like CapEx and so on. So for that reason, we do not expect that to be any different. So the next question about tax. Yes, the effective tax rate was high at 38%. There are a few factors that drove that. So I spoke about taxes in DRC, the second. And however, the bigger contributor to that is the withholding tax with the dividends that we received from Egypt. So there's a 10% withholding tax. So this is that would in that line. And then we also, as per usual, received a dividend from Safaricom. So that also the withholding tax, which is also 10%. We also called out the non-deductible costs and that bucket into the finest cost. So I'm glad to say that, that has been deal because -- in the first six months, we managed to refinance out of the debt that was not taxable, as well as paid back some of that as we have indicated that we will be looking to optimize our debt structure to reduce the burden of finance costs. So -- but in the line in terms of what contributed to that 38%, we also include debt. And lastly, one of the key offsets for the tax rate is the contribution for associated income. So given that Safaricom is included if they can resolve their losses from Ethiopia. So as a result, we lost out on that offset. But the long-term picture is that our effective tax rate, we're guiding at levels of roughly around between 28% and 30%, not the 38%, 38% is inclusive of the one-offs in DRC as well as the withholding taxes that did not have a base, particularly the 1 from Egypt did not have a base. So the normalization is expected.
Unidentified Company Representative: Super and while you've got the microphone and Raisibe, there's a question here from Preshendran just to follow-up on the Please Call Me matter. He’s ask for an update and specifically around whether we do or don't provide in our balance sheet for this. And if so, if you can just provide a little bit of color around that?
Raisibe Kgomaraga Morathi: So this is a contingent liability as we indicated in terms of the court process and obviously, once the Supreme Court judgment came out, the fact that we have lodged our appeal suspended the execution of that and therefore, crystalize as contingent liability. But in our notes, we do say that we hold an immaterial provisioning.
Unidentified Company Representative: And then perhaps next steps in terms of the -- Please Call Me matter, court dates, et cetera?
Raisibe Kgomaraga Morathi: Court date. Thank you. The court date, so the constitutional court has given the date of the 21 of November, where they will debate the merits of the case. The judgment will not be issued on the same day. So now I'd be after going through that debating of the matter, they will need time to go and document, their debit. So we'll be waiting for that. Obviously, in the courts, it's never definitive, how long it will take, but hope to be a couple of weeks or months from the time that we would hear the matter on the 21 of November.
Unidentified Company Representative: Okay. Super. So I think in short, a lot of the themes today are around the CIVH transaction at around prepaid growth in South Africa, the international margin, the tax rate, I think Raisibe has covered off those last two. But Shameel, we're done with the Q&A. So maybe just in your closing to reiterate a couple of messages around the growth outlook for South Africa. And I guess, where to from here I may say find it.
Raisibe Kgomaraga Morathi: Yes. So I think, look, the -- so maybe a couple of messages, I'll do a little bit broader than that. I think, firstly, on the international side, I think compared to second-half as anticipated. You'll see some abatement of the repricing in Mozambique. So that should help as well in terms of a better overall result, both in revenue and EBITDA for the second-half. Also in the international numbers is the day one impacts of Ethiopia. And then, of course, will improve in the second-half, because dividing losses by lower exchange rates. So that will also improve some of the numbers. So that's the one part. Then, of course, Egypt will continue in the trajectory. It's growing strongly -- currency is a lot more stable. So that will help. Kenya continues to do well and Ethiopia outside of the -- Ethiopia is gaining quite a nice traction as well in terms of customer numbers. And we have seen some price adjustments already. So I think that is definitely improving. In terms of South Africa, well, firstly, the -- we do see a better second-half performance coming from essentially lapping of stronger Q2 results last year. So we should see a better Q3, Q4, but also a continued focus on the cost containment will deliver a better result in SA in the second-half. In terms of the private deal, I think -- well, I think really, I've said it all, but essentially, we are considering our options and whether we should appeal, but also using the opportunity to make sure that the value equation is corrected will stand the test of time if I can put it that way, that takes into account that the process lasts for six to nine months. So we need to make sure that whatever the price is -- reflects that weight and so on. So that's part of what we're busy negotiating.
Unidentified Company Representative: Good. Okay. Thank you, everyone, for dialing in. Thank you very much for the questions. Obviously, we are available to take your questions off-line and you can direct those through the Investor Relations department. And then if we don't catch you on our road show then you're very welcome to set up and request follow-up pools if that is required. But otherwise, look forward to seeing you in person over the next few days and wishing you a good Monday.
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