Vodacom

Directors' report

 

Nature of business

Vodacom Group Limited (‘the Company’) is an investment holding company. Its principal subsidiaries are engaged in the provision of a wide range of communications products and services including but not limited to voice, messaging, converged services, broadband and data connectivity.

There have been no material changes to the nature of the Group’s business from the prior year.

Financial results

Earnings attributable to equity holders of the Group for the year ended 31 March 2016 were R12 917 million (2015: R12 672 million) representing basic earnings per share of 881 cents (2015: 864 cents).

Full details on the financial position and results of the Group are set out in these consolidated annual financial statements.

Dividends

Dividend distribution

An ordinary dividend of R11 829 million (2015: R11 978 million) was declared and paid for the year. Details of the final dividend in respect of the year ended
31 March 2016 are included under ‘Events after the reporting period’ in this directors’ report.

Rm	2016		2015
Declared 16 May 2014 and paid 30 June 2014	–		6 398
Declared 7 November 2014 and paid 1 December 2014	–		5 580
Declared 14 May 2015 and paid 29 June 2015	5 952		–
Declared 6 November 2015 and paid 7 December 2015	5 877		–
	11 829		11 978

Dividend policy

The Company intends to pay as much of its after tax profits as will be available after retaining such sums and repaying such borrowings owing to third parties as shall be necessary to meet the requirements reflected in the budget and business plan, taking into account monies required for investment opportunities. However, there is no assurance that a dividend will be paid in respect of any financial period and any future dividends will be dependent upon the operating results, financial condition, investment strategy, capital requirements and other factors. It is envisaged that interim dividends will be paid in December and final dividends in July of each year. There is no fixed date on which entitlement to dividends arises and the date of payment will be determined by the Board or shareholders at the time of declaration, subject to the JSE Listings Requirements.

The dividend policy to pay out at least 90% (2015: at least 90%) of headline earnings per share, remains unchanged. The Company declared dividends of 795 cents (2015: 775 cents) per share for the year ended 31 March 2016, in line with the Group’s policy of at least 90% (2015: at least 90%) of headline earnings for the year ended 31 March 2016.

Share capital

The authorised and issued share capital are as follows:

• Authorised – 4 000 000 000 ordinary shares of no par value; and
• Issued – 1 487 954 000 ordinary shares of no par value amounting to R100.

Full details of the authorised and issued share capital of the Company are contained in Note 16.

Repurchase of shares

Shareholders approved a special resolution granting a general authority for the repurchase of ordinary shares by the Group, to a maximum of 5.0% (2015: 5.0%) of shares in issue, at the annual general meeting held on Thursday 16 July 2015, subject to the JSE Listings Requirements and the provisions of the Companies Act of 2008, as amended. Any shares that may be repurchased for the time being shall be in connection with awards made in the normal course in respect of the Group’s forfeitable share plan. Approval to renew this general authority will be sought at the forthcoming annual general meeting on Tuesday 19 July 2016.

Treasury shares are held by Wheatfields Investments 276 (Pty) Limited (‘Wheatfields’), a wholly-owned subsidiary and do not carry any voting rights.

Forfeitable share plan (‘FSP’)

During the year the Group allocated 1 765 229 (2015:1 529 808) shares to eligible employees under its FSP and no restricted shares were allocated (2015: 48 210). Further details may be found in the ‘Remuneration report’ included in the integrated report as well as in Note 17.

Shareholder analysis

The Group’s shareholder analysis as at 31 March 2016 was as follows:

Note:
1. Includes treasury shares held by wholly-owned subsidiary, Wheatfields.
Note:
1. Direct shareholding held by Vodafone Investments SA (Pty) Limited, a South African entity, with the ultimate shareholder being Vodafone Group Plc, registered in the United Kingdom.

Borrowings

During the current year, the Group obtained an additional loan from Vodafone Investments Luxembourg s.a.r.l. with a nominal value of R2 000 million which was utilised to settle short-term overnight borrowings. The loan bears interest payable quarterly at three-month JIBAR plus 1.15%, is unsecured, and is repayable on 16 July 2018.

A loan from Old Mutual Specialised Financing (Pty) Limited and Minervois Trading No. 2 (Pty) Limited with a nominal value of R1 000 million was repaid on
30 September 2015. The repayment was funded by a drawdown of R1 000 million on an overall loan facility of R4 000 million from Vodafone Investments Luxembourg s.a.r.l. that was approved during the year. The new loan facility is unsecured and has a three year tenure with a repayment date of 28 September 2018. The loan bears interest at a fixed rate of 8.64% payable quarterly.

The residual R3 000 million drawdown on the R4 000 million facility was used to refinance a R3 000 million term loan provided by Vodafone Investments Luxembourg s.a.r.l. which matured on 22 March 2016. The repayment date for the new term loan is 22 March 2019 and the loan bears interest at a fixed rate of 9.39% per annum.

Capital expenditure and commitments

Details of the Group’s capital expenditure are set out in Notes 9 and 10, and commitments are set out in Note 25.

Holding company and ultimate holding company

The Group is ultimately controlled by Vodafone Group Plc which owns 65.0% of the issued shares through Vodafone Investments SA (Pty) Limited.

Vodafone Group Plc is incorporated and domiciled in the United Kingdom.

Directorate and secretary

Movements in the directorate during the year under review:

In terms of the Company’s memorandum of incorporation, Messrs T Streichert and M Pieters, having been appointed since the last annual general meeting of the Company, retire at the forthcoming annual general meeting to be held on Tuesday 19 July 2016. In terms of the memorandum of incorporation, Ms S Timuray and Messrs JWL Otty, PJ Moleketi and MS Aziz Joosub retire by rotation. All retiring directors are eligible and available for re-election. Their profiles appear in the ‘Notice of annual general meeting’ included in the integrated report.

As at the date of this report, the directors of the Company were as follows:

Independent non-executive
MP Moyo (Chairman), DH Brown, BP Mabelane, TM Mokgosi-Mwantembe, PJ Moleketi.

Non-executive
M Joseph^*, JWL Otty^{^}, M Pieters^•, RAW Schellekens^•, S Timuray^~.

Executive
MS Aziz Joosub (Chief Executive Officer), T Streichert (Chief Financial Officer)^@.

The Company Secretary is SF Linford and her business and postal addresses appear on the ‘Corporate information sheet’ included in the integrated report.

^* American, ^{^} British, ^•Dutch, ^@ German, ^~ Turkish

Interests of directors and prescribed officers

There have been no changes in beneficial interests that occurred between the end of the reporting period and the date of this report.
Note:
1. During the year the Group reduced its prescribed officers. Further details may be found in the ‘Remuneration report’ included in the integrated report.

Regulatory matters

Call termination rates (‘CTR’)

The application submitted by Cell C (Pty) Limited (‘Cell C’) with the High Court to review and set aside the Independent Communications Authority of South Africa’s (‘Icasa’) decision on CTR’s has been withdrawn by Cell C.

Competition Commission complaint lodged by Cell C

On 8 October 2013 a complaint was lodged at the Competition Commission in which it is alleged that the Group’s South African segment has abused their market dominance in contravention of Section 8 of the Competition Act of 1998. Investigations on this complaint are ongoing and the Group is in the process of complying with new information requests in this regard.

Customer registration

In each country where the Group is subject to customer registration requirements, the industry is engaging with authorities to improve the process to ensure customer registration. The difficulties experienced by the Group in the registration process include; limited number of national identity cards, the inefficiency of a paper based process, and the inability of mass market distribution partners to complete the registration processes correctly. Tanzania and Mozambique have replaced the paper based process with an electronic registration process. The Group is continuing to actively register customers and has action plans in each country to achieve full compliance. Further details may be found on click here of the Integrated Report.

Implementation of Numbering Plan Regulations 2016

Icasa published Numbering Plan Regulations (‘Regulations’), in terms of section 68 of the Electronic Communications Act, 2005 (Act 36 of 2005), as amended, on
24 March 2016. The Group is in the process of implementing these Regulations.

Broad Based Black Economic Empowerment (‘BBBEE’)

On 29 February 2016, the Department of Trade and Industry (‘dti’) published the revised draft information and communication technology (‘ICT’) Sector Code for a 60 day public comment period. This code follows the May 2015 implementation of the revised generic dti Codes on BBBEE, which saw a complete overhaul of the current targets and requirements. The revised codes are expected to be finalised in June 2016, with the effective date being 1 April 2016.

In February 2016, the North Gauteng High Court made the following order on the matter of regulatory requirements emanating from the Electronic Communications Act: Compliance with the 30% equity ownership to be held by historically disadvantaged persons (‘HDI’) is peremptory and that Icasa does not have any discretion to either waive or relax the immediate requirement to comply with the minimum 30% HDI equity ownership threshold.

Audit, Risk and Compliance Committee (‘ARC Committee’)

The ARC Committee discharged all of those functions delegated to it in terms of its mandate, section 94(7) of the Companies Act of 2008, as amended and the JSE Listings Requirements. Further details on the role and function of the ARC Committee may be found in the ‘Risk management report’ included in the integrated report.

The auditors’ business and postal address appear on the ‘Corporate information’ sheet included in the integrated report.

Competence, appropriateness and experience of the Company Secretary

In compliance with JSE Listings Requirements, the Board has considered and is satisfied that Ms Sandi Linford, the company secretary, is competent, has the relevant qualifications and experience and maintains an arm’s length relationship with the Board. In evaluating these qualities, the Board has considered the prescribed duties and responsibilities of a company secretary which includes the Companies Act of 2008, as amended, JSE Listings Requirements and governance requirements as set out in King III.

Other matters

Shared Networks Tanzania Limited (‘Shared Networks’)

Vodacom Tanzania Limited has entered into an agreement with the shareholders of Shared Networks to acquire 100% of their issued share capital for US$15 million. The acquisition will be funded through available cash resources. The transaction remains subject to the fulfilment of a number of conditions precedent, including the requisite regulatory approvals.

Neotel (Pty) Limited (‘Neotel’)

The Group and Neotel have confirmed that the agreement between the parties has lapsed due to regulatory complexities in concluding the transaction as well as certain conditions not being fulfilled. Accordingly, the parties have agreed that the proposed restructured transaction can no longer be progressed.

Vodacom Payment Services (Pty) Limited

In March 2016, a decision was taken to phase out the South African M-Pesa product offering during the course of the 2017 financial year.

Events after the reporting period

Kenneth Makate
On 26 April 2016, the Constitutional Court overturned the South Gauteng High Court’s decision to dismiss Makate’s case, and instructed the Group to enter into negotiations for compensation. Further details may be found in Note 26 and 28.

Final dividend
A final dividend of R5 952 million (400 cents per ordinary share) for the year ended 31 March 2016, was declared on Friday 13 May 2016, payable on Monday 27 June 2016 to shareholders recorded in the register at the close of business on Friday 24 June 2016. The net dividend after taking into account dividend withholding tax for those shareholders not exempt from dividend withholding tax is 340.00000 cents per share.

Other matters
The Board is not aware of any matter or circumstance arising since the end of the reporting period, not otherwise dealt with in the consolidated annual financial statements, which significantly affects the financial position of the Group as at 31 March 2015 or the results of its operations or cash flows for the year then ended.

Auditors

During the current year, PricewaterhouseCoopers Inc. (‘PwC’) were appointed as the Group’s auditors. At the annual general meeting on Tuesday 19 July 2016, shareholders will be requested to appoint PwC as the Group’s auditors for the 2017 financial year and it will be noted that Mr DB von Hoesslin will be the individual registered auditor who will undertake the audit.