CEO's statement

Our excellent performance this year reflects the successful execution of our well-planned strategy. The decision to invest significantly in our network and create a clear differentiation point has borne fruit, supported by our strong focus on enhancing the customer experience and providing customers more value and personalised pricing plans.

Shameel Aziz Joosub

Delivering on our strategy

While there have been some disappointments – most notably the termination of the Neotel deal – for the most part it has been a very pleasing year. Our sustained growth has been particularly encouraging given the tough macroeconomic environment.

Group revenue increased by 7.5% to R80.1 billion. Significantly, data revenue has continued its upward momentum, increasing 28.5% to R21.3 billion. The data revenue growth reflects the increased demand for data services as customers upgrade to 3G and LTE/4G devices, as well as the 8.6% growth in active data customers. It is pleasing to report that service revenue increased 7.4%, supported by continued customer growth, improving voice revenue trends and the expansion of our services in the enterprise market. The enterprise business has performed well, with demand growing for our cloud, hosting and virtual private network (VPN) services.

We have been encouraged to see that our strong focus on maximising the customer experience is delivering results across all our markets. In South Africa, we added 2.1 million new customers. Contract customer churn in South Africa has dropped to 8.5%. Our International customer numbers have been negatively affected by customer registration compliance.

We have performed very well in our markets in terms of customer satisfaction, as measured by net promoter score (NPS). We lead in all markets, except the DRC and Tanzania where we have improvement plans in place. In South Africa, our largest market, we have achieved a remarkable lead in overall NPS of 15 points over our nearest competitor, up from a six-point lead at the same time last year. In addition, we won the award for the Best NPS Performance across the Vodafone Group.

Differentiating on network performance

The basis of our competitive advantage lies in the superiority of our network, achieved through our investment in network infrastructure. Our capital investment this year of R12.9 billion has enabled us to further expand our 2G, 3G and LTE/4G network coverage, increase data speed, and reduce our dropped-call rate across the region, ensuring that we continue to deliver on our ‘Best network’ promise.

In South Africa, our 2G network now covers 99.9% of the country’s population, wider than any other service provider. Our 3G network covers around 98.9% and LTE/4G 58.2% of the population, well ahead of our competitors. Our investment in radio transmission and capacity has allowed us to connect 88.5% of our sites to high-speed transmission. Our dropped call rate of 0.41% is not only the best in South Africa, but is also below the Vodafone target for its operations.

Through our infrastructure investment, we have retained our top position in South Africa in network coverage, call quality rates and speed, securing a 29 point lead at year end for overall network NPS. In our International markets, we have increased the number of 3G sites by 28.5% and 2G sites by 16.7%, and have begun testing LTE/4G in several of our markets, with Lesotho already having an operational LTE/4G network. At year end, we were rated first for network quality in all of our markets in network NPS, except Tanzania where we were rated second.

By strengthening our network lead and enhancing access to affordable voice and data services, we are making a significant developmental contribution across all our operations. This is enhanced through various services, including most notably M-Pesa (our mobile phone-based money transfer and inclusive financing service), which has shown strong growth in our International markets. To support this growth we have invested in transferring our existing M-Pesa platforms to the new Vodafone Group Mobile Financial Services Platform; we have already migrated our DRC network to the new platform, and will be migrating Tanzania and Mozambique soon.

Differentiating on value and affordability

Having the best network is important, but we need to support this by ensuring we deliver a truly differentiated customer experience. Through our renewed focus on customer care we are striving to keep our promise of providing the best service. We are targeting clear market leadership in all our operations, with the goal of achieving a consistent five-point lead in NPS.

We have made significant progress this year in our pricing transformation strategy, offering more personalised packages that provide customers with greater value, improves ARPU and helps us to secure spend. At year end, 85.1% of our contract customers were on new integrated price plans with better value offerings. We are seeing the benefits of our contract pricing transformation, with record low contract churn of 8.5%, improved ARPUs, and underlying contract revenue returning to growth;
71.3% of our contract revenue is now in bundle. On the prepaid side, our strength in customer value management is being used effectively to target customers with personalised offers not publicly advertised. We are seeing very good results from our ‘Just 4 You’ platform, which profiles customers’ behaviour and presents them with personalised offers, resulting in us selling over 1.1 billion voice and data bundles this year. We have moved customers from legacy plans to new prepaid price plans. Our pricing transformation has resulted in a 16.9% reduction in the blended price per minute for calls, and a 13.6% reduction in the average effective price per megabyte of data.

Differentiating on customer service

In May 2015, we launched an ambitious three-year programme under the Vodafone global CARE initiative that focuses on four areas aimed at maximising the customer experience:

  • Connectivity – guaranteeing network satisfaction in terms of speed, reliability and coverage, and taking a more proactive approach in checking coverage and call quality.
  • Always in control – ensuring that customers have full control of their spend and do not have any surprises from bill shock.
  • Rewarding loyalty – incentivising long-term customers for being part of the Vodacom family, with personalised offers and refreshing of our existing postpaid and prepaid loyalty programmes.
  • Easy access – maximising the efficiency and availability of customer support, digitizing our customer experience, increasing functionality and improving processes.

Complementing this initiative, we have begun the migration on our Customer 3D (C3D) programme, a new customer management and billing system that is needed as we transition from a predominately mobile company to a unified communications provider. We are planning to move over all contract customers to this system in the first half of the new financial year.

Monetising data

We have made excellent progress in driving the uptake of data, our key engine for growth. Our data strategy is predicated on four pillars: having the best network; getting a device into every customer’s hands; offering affordable value across all segments; and providing more reason to consume data through the provision of content.

In addition to increasing our addressable market by extending 3G and LTE/4G network coverage, we have promoted access to more affordable data devices. This year, the number of active smart devices on our network increased by 22.8% to 14.2 million, with tablets increasing 56.3% to 1.7 million. The sale of Vodacom branded devices accounted for 25.7% of total device sales. In addition to promoting more affordable devices, we have launched differently priced data bundles, contributing to the 85.9% increase in total data bundle sales to approximately 343 million.

Providing digital content is another key driver for data growth. We have ambitious plans to be a formidable player in bringing targeted content to consumers – be it music streaming, gaming, TV and video, news or sport – through various distribution channels. In implementing our reseller strategy, we have secured valuable partnerships with content providers, and are focusing on forging more relationships going forward.

Our International operations

Our International operations delivered a solid performance this year, maintaining double-digit revenue growth at 16.6% to R18.4 billion. 22.9% of our revenue comes from our International portfolio. The operations continued to benefit from increased usage in voice and data, and growing adoption of M-Pesa. Data revenue increased 31.9% and there remains significant growth potential with only 37.1% of customers currently actively using data. To support this data growth and ensure wider voice coverage we have increased our network coverage across the regions. Service revenue increased by 16.2%, representing 9.6% growth when normalised in constant currency.

M-Pesa is progressing well in our International operations with a 15.4% increase in active customers to
9.2 million, fuelled by expansion in the distribution channel and a growing ecosystem. M-Pesa contributes 8.9% of International revenue, with R13.6 billion moved through the system monthly. It has been pleasing to see that M-Pawa, our savings and loans product, has been gaining traction with 1.6 million customers actively using the service. We have also recently launched international money transfer and are seeing good uptake on this service. Despite its success in our International markets, M-Pesa has had a slow uptake in South Africa, where there are key differences in the banking sector and as a result, we have decided to focus on M-Pesa only in our International operations.

Looking to the year ahead, we anticipate that the market may temporarily be slower whilst channels and customers familiarise themselves with customer registration requirements in the DRC, Tanzania and Mozambique.

Growth in Enterprise

It has been a good year for Enterprise, where our investment in infrastructure and skills building is now paying off. Our mobile enterprise business grew 9.9%1 this year. Our fixed-line and business managed services in South Africa increased 26.5% year-on-year to R1.7 billion; it now comprises 14.9% of total Enterprise service revenue. Growth was supported by the increased demand for fixed services, particularly our IP-VPN offers and our cloud and hosting services, as customers sign up for cloud solutions such as SAP HANA software and Microsoft Office 365. We are continually expanding our service proposition in the cloud and hosting space. Our collaboration with IBM, our extensive fixed and mobile infrastructure, our pan-African and global footprint, and our investment in data centre infrastructure, provides the ideal platform and environment to deliver cloud services to large and multinational enterprises. Vodacom Business Africa continues to expand, growing 16.6% year-on-year.

1. Growth excluding the impact of Nashua in the prior year and Autopage in March 2016.

Growth in new services

To maintain long-term growth, we are increasing our investment in new services, including insurance, Internet of Things (IoT, previously machine-to-machine (M2M)), fibre and content, with dedicated ‘acceleration units’ established to drive further uptake in these areas. During the year, our IoT connections grew 28.2% to 2.3 million, generating revenue of R556 million up 20.7%2, while insurance revenue grew 18.8% to R524 million. Our digital offerings in mobile health and agriculture are also gaining momentum, where we see exciting upside potential over the longer term. Our progress in rolling out fibre has been slower than anticipated. Despite the recent setback with the termination of the Neotel deal, I remain confident that we will see significant growth in this area as we implement our strategy around wholesale, self-build and co-build.

2. Growth normalised for consolidation of X-Link in the prior year.

Driving operational efficiencies

Given the impact of inflation, currency volatility, an increase in number of sites, and rising electricity and other input costs, we have been placing a strong focus on driving operational efficiencies across the Group. We are pleased with the positive progress we made this year with our ‘Fit for growth’ programme, a multi-year Vodafone Group-wide initiative that allows us to leverage global best practice on optimising costs.

In our network, we have achieved significant efficiencies in managing our capital and operating costs relating to energy, leases and rentals, transmission rental and maintenance. Our Technology Efficiency programme has delivered on its cost savings objectives, keeping technology operating expenditure at 8.7% of service revenue in South Africa, as well as achieving savings in capital expenditure by driving equipment standardisation, network sharing and procurement benefits. In South Africa, we share approximately 74% of shareable sites with other network operators and third parties; we are engaging in site sharing to varying degrees in our International markets.

1. Growth excluding the impact of Nashua in the prior year and Autopage in March 2016.
2. Growth normalised for consolidation of X-Link in the prior year.

We have also tightened efficiencies in our customer engagements and across our retail and distribution operations, renegotiating key agreements, consolidating media spend, achieving better leverage in our sponsorship activities, and reducing the number of calls to the call centre by 14% through improved self-service facilities, such as the MyVodacom App and web-chat, as well as process improvement.

Delivering societal value

Providing access to reliable and affordable voice and data is a key enabler of socioeconomic development, and has been shown to make a material contribution to GDP growth and job creation. Through our continuing leadership in infrastructure investment and the provision of low cost devices and mobile data services – in inclusive finance, education, agriculture and health – we are making a meaningful impact on individuals and communities in each of our markets.

The societal value of our core activities is enhanced through the work of the Vodacom foundation. Our social investment expenditure this year was R106 million, focusing on three key areas: using technology to improve access to education, addressing community health challenges, and combating gender-based violence.

Given the critical role of education, I’m particularly proud of our work with the Vodacom e-school platform, which provides around 105 000 students with free access to online learning materials. Vodacom e-school is zero rated for all Vodacom customers on a mobile device. We have connected 3 087 schools with data access, and exceeded our target for our universal service obligations. Each school receives free Internet connectivity as part of this project. In addition to this, we also donated 26 tablets, a laptop, an interactive whiteboard, a data projector, a printer and educational aids.

Through our Mobile Education initiative – built on a successful partnership with the South African Department of Basic Education, Microsoft, Cisco and Mindset – we have connected 81 regional ICT resource centres. This has enabled us to train teachers on how to use ICT to improve their teaching in maths and science and integrate ICT in the classroom. We are running similar education programmes in our International operations, partnering with Samsung on the Smart Schools initiative in Tanzania, piloting an iSchool programme in Lesotho, and providing online educational content via tablets in the DRC.

Our health projects are similarly delivering valuable benefits. In South Africa, our partnership with the National Department of Health on a mobile-based stock visibility solution is now active in 1 600 clinics. The immediate and accurate reporting of stock levels using mobile phones is contributing to avoiding shortages of chronic medication at clinics. Together with our partners, we have continued with a nationwide awareness campaign using Vodacom technology in the ‘text-to-treatment’ approach to get the message on treatment to as many affected people as possible. In Lesotho, we have progressed in our goal of ensuring that 40 000 children are on continuous HIV treatment by 2017, using text-to-treatment to support patients’ adherence to antiretroviral therapy. We use a similar model in Mozambique, sending text messages to encourage patients to take their medication and attend their appointments while our Girls Empowerment project in Tanzania has benefited over 10 200 girls with education on reproductive health.

The Vodacom foundation funded the development of the technology used by the national gender-based violence command centre in South Africa, which has been recognised globally and awarded highly acclaimed service awards. The centre provides


Looking ahead

We anticipate a weaker outlook for consumers in the year ahead in most of our markets, due to the depressed levels of economic growth, interest rate increases, inflation and the impact of the drought on food prices and disposable incomes. While we haven’t yet seen a large deterioration in customer spend, we believe that this will be more progressive as consumers come under pressure. Given this context, our strategy of taking a segmented consumer view, personalising consumer offers through ‘Just 4 You’, and offering smaller-sized ‘hand-to-mouth’ bundles, is particularly relevant.

Despite the tough macroeconomic pressures, we will continue to make the investments needed to diversify our revenue streams and achieve our ambitious revenue growth targets for data, enterprise, fibre and new services. We will be increasing our rollout of fibre, driving demand for our enterprise and content services, and maintaining a strong focus on pricing transformation, data monetisation and the customer CARE initiative, while at the same time ensuring further progress in cost efficiencies.

A priority focus will be on securing access to spectrum across our markets, which is critical to delivering value for all our stakeholder groups. The lack of access to spectrum in South Africa is hindering our rollout of LTE/4G and LTE-Advanced over wider areas, and preventing us from delivering on Government’s broadband performance targets and delivering on the full developmental potential of enhanced connectivity. We welcome ICASA’s recent proposal on how spectrum should be allocated, and hope to see clear direction soon from government so that we can make our longer-term investment decisions.

I remain confident that our substantial investment in our network and in maximising the customer experience will continue to differentiate us from our competitors, and will translate into sustained growth and added-value for all our stakeholders.

Shameel Aziz Joosub
Chief Executive Officer

3 June 2016