Chairman's statement

Despite the challenging operating context, this has been a good year for Vodacom. We have continued to deliver on our integrated growth strategy, ensuring valuable returns to our shareholders while making a significant developmental contribution in our countries of operation.

Peter Moyo

Our delivery of both societal and shareholder value has been underpinned by our substantial investment in network infrastructure, and our strong customer focus.

This year, we invested R12.9 billion in our networks, targeted primarily at expanding our 2G, 3G and LTE/4G coverage, enhancing our network performance and improving the customer experience. Over the last five years, we have invested more than R55 billion in network infrastructure, reflecting our strong confidence in the countries we operate in. By enhancing access to voice and data, our network and service offerings are helping to transform lives and stimulate economic growth in these emerging markets.

This has been a satisfying year for our shareholders: we delivered a total shareholder return of 27.0%, with headline earnings per share (HEPS) up 2.7% to 883 cents per share. We have continued to return cash to shareholders in line with our dividend payout policy of at least 90% of HEPS.

Our positive results this year have been achieved as a result of our effective execution of the Group’s growth strategy and plan. Our performance on this strategy is reviewed throughout this report, and summarised in the CEO’s statement. This strategic focus has assisted us in delivering excellent performance in the face of the difficult market conditions across our operations.

Challenging business context in South Africa

During the latter part of the year, we have begun to see closer dialogue between government and business, with government leaders expressing their willingness to address some of business’s key concerns. While we welcome these commitments, we are still looking forward to greater clarity and speed in addressing some of the constraints to deliver economic growth. For the telecoms sector, a principal ongoing concern relates to the allocation of spectrum. As an industry, telecoms can assist in delivering on the country’s growth objectives; unfortunately the indecision in the allocation of spectrum hampers this execution. While we have been encouraged by the recent proposal by ICASA on how spectrum should be allocated, a decision on the way forward is still pending from government. We are hoping for clarity on this soon so that we can plan our investments accordingly.

We put a lot of energy and commitment into the proposed deal with Neotel, and were disappointed in the regulatory complexities and certain unfulfilled conditions that resulted in our final decision to terminate the deal. Our ambitions to execute on fixed-line still remain.

Responding to the operating environment in our International markets

We have seen pleasing performance this year across our International markets in customer and data penetration, net promoter score (NPS) and revenue growth. This growth has been achieved in the context of some significant regulatory and policy challenges.

Democracy is well entrenched in all the countries in which we operate. During the year, we had free and fair elections in Tanzania and Mozambique, and an election is due later this year in the DRC. Customer registration is a key focus in each of these countries where there is significant pressure to ensure rapid delivery under challenging conditions. We have been working closely with government in Tanzania and Mozambique in an effort to enhance the efficiency and integrity of the registration process by facilitating the transition from paper-based to electronic registration processes. In the DRC, revised customer registration regulations have been introduced that retain the existing paper-registration process, and that institute very tight timeframes for disconnecting all unregistered customers. We have implemented measures to ensure full compliance, and are working with others in the sector and with government to improve the efficiency of the process.

The regulator in Lesotho has recently commenced engagement with the sector on the proposed introduction of customer registration regulations in that country. Although these regulatory requirements pose some significant challenges, as a result customer growth has slowed in the latter part of the year as these regulations are implemented, I am confident that we have the structures in place to manage these risks.

One of the particularly encouraging developments in these markets has been the continued growth in M-Pesa, our mobile-based money transfer, financing and micro-financing service. To support this growth we have invested in migrating from our legacy M-Pesa platforms to the new Vodafone Group Mobile Financial Services platform, which offers improved stability, availability and performance. The DRC has already migrated to the new platform, and we are planning to migrate Tanzania and Mozambique soon.

Driving responsible business practice

An important aspect of the Group’s strategy is to ensure the responsible management of environmental, social and governance risks facing the company and our stakeholders.

One of the most significant risks facing our customers is the threat to privacy and information security associated with increased access to internet-based services. We have world-class policies, processes and technologies in place to manage this risk and ensure full compliance. As part of the Vodafone Group, we contribute to Vodafone’s industry-leading law enforcement disclosure report, which provides a detailed insight regarding the demands from law enforcement agencies across
28 countries. We believe that promoting such transparency is an important part of managing this tension.

Other important risks relate to the health and safety of our people and service providers, and the environmental footprint of our operations. The Board is satisfied that the Group is managing these risks effectively, the details of which are covered elsewhere in this report and in our sustainability report. It saddens me to report that this year we had four fatalities. We extend our sympathy to their family, friends and colleagues. In response to these accidents, we have introduced various new measures aimed at reducing the potential for road accidents.

Ensuring good governance

The main role of the Board is to provide informed and objective oversight of the Group’s strategy and activities to ensure that it delivers on its fiduciary duty. I believe that the Board’s effectiveness is a function of the skills, experience and diversity of its members, and their level of understanding of the Group’s activities and operating context. Every year, we perform an internal evaluation of the Board’s effectiveness. We were reassured by their findings that the Board has done well in fulfilling its duties, and that we have a good mix of directors with demonstrated commitment to working in Vodacom’s best interest.

During the year, there were various changes to the Board. Till Streichert, formerly Executive Director Finance for Vodacom South Africa, took over as Group CFO from August. In October, we welcomed Marten Pieters to the Board. As the former CEO and managing director of Vodafone India, Marten brings valuable practical experience of the emerging markets telecoms sector. We bid farewell to Ivan Dittrich, who stepped down as Group CFO, and to Hatem Dowidar, who resigned as a non-executive director. Although half of our non-executive directors represent Vodafone, and thus are not deemed independent as recommended by King III, the Board is satisfied that the balance of power and objectivity on the Board is sufficient and does not require additional independent voices.

We have made some changes in the short-term incentives for the year. The substantial investment in our network needs to be supported by a clear step-up in the customer experience and satisfaction. To ensure that this is reflected in the short-term incentives, the Board increased the percentage of the short-term incentive based on customer appreciation measures, to 40% (up from 25%). The customer appreciation assessment is based on a market-by-market assessment of measures, including NPS performance, relative revenue market share, brand consideration and churn. Our long-term incentives are intended to ensure that we retain the skills and motivation of executive directors and other employees over the longer term, and that we incentivise them to support the Group in meeting its objectives relating to sustainable performance and creating long-term shareholder value.

Looking ahead

Looking ahead, I anticipate some further challenges in the macroeconomic environment. The South African economy has faced a particularly tough year and these pressures will continue to place a strain on the economy in the next year. The sustained downturn in export commodity prices and the intensifying drought has resulted in job losses in the country’s labour-intensive mining and agricultural sectors. The low GDP growth rate has been accompanied by rising food and electricity costs, a weakening rand, high inflation and an increasing interest rate, all of which has led to depressed consumer confidence and reduced spending power.

I believe firmly, however, that by empowering people and communities through access to reliable and affordable voice and data services, we provide an important basis for addressing many of these underlying challenges. I am confident, too, that the Group has the right strategies in place, and the right team, to ensure our continued ability to deliver value for all our stakeholders.


In closing, I wish to express my gratitude to my colleagues on the Vodacom Board for their continuing wise counsel, and to Vodacom’s executive team, who have demonstrated effective leadership during this challenging year.

Peter Moyo

3 June 2016