Vodacom Sees Lower Profit Growth to 2017 as Mobile Fees Cut

By Chris Spillane

Vodacom Group Ltd. (VOD), the wireless operator with the most subscribers in South Africa, reduced its earnings forecast as cuts to mobile termination rates and weak consumer spending in its home market curb growth. The shares fell the most in more than nine months.
Earnings before interest, taxes, depreciation and amortization will increase by a mid-single digit percentage over three years, compared with a previous forecast of mid-to-high single digits, the Johannesburg-based company said in a statement today. Profit by that measure fell by 1.7 percent to 13 billion rand ($1.16 billion) in the six months through September.
“We have faced tough macroeconomic conditions in all markets, increased competitive intensity, and have also seen a significant impact from lower mobile termination rates
in South Africa,” Chief Executive Officer Shameel Joosub said in the statement. “We have continued to implement a range of cost management programs.”
Vodacom, 65 percent owned by Newbury, England-based Vodafone Group Plc (VOD), is exploring acquisitions in sub-Saharan Africa and is expanding into Internet services to help offset declining sales from its domestic voice division. South Africa’s economy is set to grow 1.4 percent this year, the slowest pace since a 2009 recession, due to strikes and a power shortage, according to National Treasury estimates.

Shares Fall

Vodacom shares fell as much as 5.9 percent, the biggest intraday drop since Jan. 29, and were 5.4 percent lower at 125.92 rand as of 9:38 a.m. in Johannesburg. The stock has declined 5.3 percent this year, compared with a 4.6 percent gain for its main competitor, MTN Group Ltd.
South Africa’s communications regulator reduced the price of calling other networks, known as mobile termination rates, to help smaller companies such as Cell C Pty Ltd. to compete. The Independent Communications Authority of South Africa scaled back the proposed rate cuts after opposition from Vodacom and MTN (MTN), the country’s biggest operators.
“Conditions are expected to remain challenging in the short term,” Joosub said. In South Africa, “the continued impact of lower mobile termination rates, constrained consumer spend, and intense competitive pressure are all factors.”
Vodacom data sales grew 25 percent to 7.6 billion rand, which helped offset a 1.3 percent decline in South African service revenue.

Government Sale

Vodafone, which reports first-half earnings tomorrow, has an opportunity to tighten its grip on Vodacom as South Africa’s government considers a sale of its minority holding, people familiar with the matter said last month.
The state’s 13.9 percent stake in Vodacom is valued at about 27.5 billion rand. The South African government is exploring a sale of listed assets as it seeks funds to rescue state utility Eskom Holdings SOC Ltd.
Vodacom’s number of active customers increased by 13 percent to 61 million, in