Vodacom Integrated Report 2017

We continue to make excellent progress in growing and

monetising data through our four-pronged approach: having

the best network; driving the sale of smart devices; offering

affordable data bundles across all customer segments; and

providing compelling reasons to consume data. We have extended

our 3G and 4G population coverage to 99.2% and 75.8%

respectively, expanded our high-speed transmission to 92.1% of

our sites, and are making good progress on our fibre deployment

by entering into strategic wholesale agreements with other

network providers. We continued to promote the uptake of smart

devices by providing financing and increasing availability of low-

cost Vodacom-branded devices. By year end, the number of active

smart devices on our network increased 18.0% to 16.8 million,

with growth slightly slower than anticipated due to weaker local

currencies. Data customers increased 8.3% in South Africa to

19.5 million, and 4G customers on the network increased

86.7% to 5.1 million, with the average monthly data usage on

smartphones increasing 25.0% to 560MB, driven in part by a

16.0% reduction in the price per MB.

Enterprise revenue growth was strong at 12.7% (of which 2.8ppts

relates to the impact of Autopage customer buy-backs in the prior

year), supported by our fixed-line and business managed services,

as well as our cloud and hosting revenue growth. We have secured

the mobile voice and data communications contracts for national

and provincial government departments for four years, enabling

us to partner with government to support greater innovation.

To drive enterprise growth, we are focusing on three principal

investment areas: building market leadership in IoT; realising

growth opportunities for digitalisation in the SME sector; and

scaling converged services through our targeted investment

in fibre, fixed wireless capillarity and next generation networks.

This year, our fixed-line and business managed services revenue

increased 8.3%, with cloud and hosting increasing 35.2%, and our

IoT revenue up 19.1% to R662 million.

We continued to deliver significant operational efficiencies

through our ‘Fit for growth’ programme, a Vodafone Group-wide

initiative that allows us to leverage global best practice on

optimising costs. We rebalanced our subsidies towards data-

enabled devices, resulting in improved take up of data services

and improved returns. We secured material savings across our

retail and distribution operations, and also benefited from

improved inventory management and reduced office

accommodation expenses, as we rationalised offices and

adopted the new ways of working.

This positive overall performance has been achieved despite the

challenges experienced in our International operations, where

service revenue declined 5.6% year-on-year; normalised for

currency fluctuations, we delivered 2.2%* growth in these

operations. Growth has been impacted by exchange rate volatility

and by the expected slowed growth resulting from the

disconnection of customers most notably in the prior year in

compliance with customer registration requirements in the DRC,

Mozambique and Tanzania. Short-term pressure remains, with

signs of improvement in Tanzania, very strong execution in

Mozambique and Lesotho, but a challenging macroeconomic

environment in the DRC. We have introduced ‘Just 4 You’

personalised offers across all our operations and take up is

progressing well, contributing to the demand for data with data

customers increasing 29.3% to 13 million. We continue to focus

on our commercial and network offering to drive data growth,

ensuring customers have access to better low cost smart devices,

especially Vodacom branded devices, increasing data network

speeds and driving the adoption of data bundles. Our inclusive

finance offering, M-Pesa, remains a significant source of growth:

we now have 12.9 million M-Pesa customers across our

operations, up 40.1% on the prior year, contributing to M-Pesa

revenue growth of 19.4%. We are building on our success with

M-Pesa through various new inclusive business initiatives that we

are developing in agriculture, health and education.

Subsequent to year end, Vodacom Group has agreed terms with

Vodafone to buy a strategic interest (34.94%) in Kenya’s market-

leading telco, Safaricom. Apart from being a household name in

Kenya, Safaricom is a high growth, high margin, high cash

generating business that operates in a high growth market with

28.1 million customers. Closer cooperation with a quality asset

such as Safaricom will create further value and lead to mutually

beneficial opportunities for both companies, such as best practice

sharing, replicating Safaricom’s success with M-Pesa, and creating

new pan-African enterprise solutions in other East African markets.

Safaricom’s leading mobile money platform, M-Pesa, is an important

driver of Kenyan economic growth, providing essential financial

services to over 19 million customers. The proposed transaction will

improve Vodacom Group’s presence in East Africa, jointly increasing

the company’s growth in financial services customers to 29 million

making it a formidable player in financial services on the continent.

Positioning ourselves for a changing

operating context

This year, we revised our strategy to ensure that we are best

positioned to seize the opportunities, and manage the risks, of a

rapidly changing marketplace, characterised by significant levels

of digitalisation, highly connected consumers, and a changing

landscape of competition and collaboration, with continuing

regulatory challenges.

Recent developments in digital technology – in areas such as big

data analytics, artificial intelligence and the rise of virtual and

augmented reality, autonomous vehicles and the Internet of

Things – present significant opportunities for business growth. Our

new strategy positions Vodacom to be a leading digital company

that empowers a connected society. Digitalisation offers valuable

opportunities for us to extend revenue streams beyond

connectivity, and requires us to rethink the networks and

technology of the future, redefine customer engagement and

develop a company culture that attracts the best digital talent.

It also presents unparalleled opportunities to drive positive social

change in areas such as education, healthcare, financial services

and agriculture.

Our Vision 2020 strategy has five key strategic elements:

Segmented propositions:

Using big data analytics and

machine learning, we will develop a complete 360 view of the

customer, and develop personalised customer propositions to

lead in our chosen segments. We have established dedicated

acceleration units to develop product and service offerings for

each of our targeted customer segments. Across each of these

segments we are identifying new opportunities to monetise data

and grow data usage by delivering relevant digital content

1. Number of unique customers who have generated revenue related to M-Pesa in the past 30 days.

Our business

Operating context

Delivering on our strategy

Our governance structure

Administration