Vodacom Tanzania – FY2023 Preliminary Results Conference Call Transcript

By Published On: May 29th, 2023Categories: Transcripts

12 May 2023

VODACOM TANZANIA PRELIMINARY RESULTS

Operator

Good day, ladies and gentlemen, and welcome to the Vodacom Tanzania preliminary results conference call for the 12 months ended the 31st of March 2023. Managing Director, Phillip Besiimire, will host the conference call. Before I hand over the call to Mr Besiimire, I will read the following forward-looking disclaimer which is also found on page 30 of the preliminary results announcement available in the investor relations section in our website, www.vodacom.co.tz.

This announcement, which sets out the consolidated preliminary results for the 12 months ended the 31st of March 2023 of Vodacom Tanzania Public Limited Company and its subsidiaries, hereinafter referred to as ‘the Group’, contains forward-looking statements which have not been reviewed or reported on by the group’s auditors. These statements are in respect to the group’s financial condition, results of its operations and businesses, and certain information relating to the group’s plans and objectives.

In particular such forward-looking statements relate to the group’s future performance, capital expenditure, acquisitions, divestitures, expenses, revenue, financial condition, dividend policy, future prospects, strategies relating to the expansion and growth of the group, impacts from regulation on the group’s businesses, expectations from the launch and rollout dates of products, services or technologies, expectations regarding the operating environment and market conditions, growth in customers and usage and the rate of dividend growth.

During this call, unless otherwise specified, all growth rates stated will be year on year comparing the 12 months ending the 31st of March 2023 to similar period ending 31st of March 2022, and all amounts stated will be in Tanzanian Shillings. I reiterate, if you do not have a copy of the results announcement, it is available on the investor relations section on our website, www.vodacom.co.tz. I would now like to hand over to the Managing Director, Mr Phillip Besiimire. Thank you, and you may proceed, sir.

Phillip Besiimire

Thank you, Claudia. Good afternoon, everyone, and thank you for taking the time to attend this call. I’m joined by Miss Hilda Bujiku, our Finance Director. It is my pleasure to present to you, the investing community, our full year preliminary results for the financial year ended 31st March 2023. It is pleasing that during the year we progressed well with implementation of our purpose led strategy. It was encouraging to see good progress and fulfilment of our social contract pledges and a solid financial performance.

From a social contract perspective, we leveraged our tech for good platforms to deliver various projects aimed at improving lives. These projects were undertaken in collaboration with partners, including the government. We accelerated farmers’ registration on our M-Kulima platform to reach 3.1 million farmers from just 140,000 registered farmers in March 2022. We distributed proceeds worth TSh 4.6 billion to the enrolled farmers via M-Pesa, which provided ease, security and speedy distribution. M-Kulima is designed to provide farmers with digital agricultural services, including cashless electronic payments, market information and weather forecasts, all delivered through mobile devices. In addition to digitising the farming community, farmers’ registration provides critical statistics to the government for the agricultural sector.

Our culture is to prioritise the customer in everything we do. In the second half of the financial year, we launched inclusive care initiatives aimed at facilitating convenient access to our services for people with special needs. The inclusive care initiatives include dedicated counters in our retail outlets and a sign language service in WhatsApp video. We also trained more than 30 customer service personnel on basic sign language knowledge. In the last four months of the financial year, 1,300 visitors enjoyed our service under the inclusive care initiatives in our various touch points. It is our commitment to continue implementing such impactful societal programs, making the best use of our world-class technological capabilities to facilitate innovative solutions to the community’s needs and challenges.

Consistent with our long-term plans and purpose, in October 2022, we participated in the spectrum auction conducted by the Tanzania Communications Regulatory Authority. In this auction, we successfully acquired four blocks of low and mid-band strategic spectrum for a price of US$63.2 million. The spectrum acquired will help us unlock the growth potential from products such as fixed wireless access and support our ambition of contributing towards bridging the digital divide.

During the year, we spent TSh 156 billion, equivalent to 14.5% of our revenue directed towards network coverage, capacity enhancement, and IT infrastructure improvements. We added 390 4G sites, 231 5G sites, and deployed 283 kilometres of fibre, which supported the significant increase in 4G and 5G traffic, as well as provided high-speed connectivity to the businesses.

From a strategy execution perspective, we continued with our customer-centric focus through personalisation and multiple products approach. Our efforts resulted in customer base growth of 8.9% and a double-digit growth in data and M-Pesa customers. We also focused into expanding our M-Pesa products portfolio aimed at building a diverse business while also expanding our contribution to financial inclusion. Firstly, we accelerated enrolment of businesses that accept electronic payments through our merchant payments system. Our merchant base reached 150,000, which recorded a significant growth. During the year, these merchants accepted payments worth over TSh 6 trillion from more than 2 million customers.

Secondly, our lending products portfolio served more than 4 million customers, who benefited from TSh 1 trillion microloans issued in the year. The beneficiaries of microloans included 75,000 agents who received over TSh 100 billion, which supported the agents in fulfilling their short-term financing needs. Thirdly, we continued to see a recovery of peer to peer and cash transactions volume following the reduction of levies. We commend the government for taking the decision to reduce the levies. This decision has contributed to the revival of the mobile financial service industry and improved our contribution to financial inclusion through M-Pesa. We are proud that M-Pesa continues to play a pivotal role in supporting the country’s socio-economic development.

From the financial performance perspective, it was pleasing to record a top line growth of 10.2% year on year. This growth is underpinned by a good business environment which translated into strong performance in data, a recovery in M-Pesa, and accelerated fixed revenue growth. On profitability, we made TSh 44.6 billion profit after tax, an improvement from a loss of TSh 20.3 billion in the prior year. This was positively influenced by good growth in operating profit and the recognition of a deferred tax asset in relation to our GSM business, following an improved medium-term outlook.

Looking at the numbers in more details, we generated TSh 1.1 trillion service revenue, largely supported by solid results in data, M-Pesa and fixed revenue, reflecting good strategy execution. This performance has proven the resilience of our business with emerging revenue streams covering for the declining voice revenue.

And just to give some more colour on key revenue lines, we generated TSh 283.5 billion voice revenue, which was a 1.2% decline year on year, but an improvement compared to what we recorded in half one. The competitive pricing pressure fuelled by the reduction in the mobile termination rate led to a 22% decline in average price per minute with a modest increase in minutes of use.

M-Pesa revenue grew 8.4% to TSh 357.1 billion, an improvement from a decline of 3% recorded in half one. This growth mainly reflects a good uptake of our new services, particularly lending, insurance, IMT, and merchant payments. Revenue contribution from these new services more than doubled to exceed 25% and offset the decline in our traditional peer to peer transfers and cash out. This reflects the considerable diversification we have built in our products portfolio.

Mobile data revenue increased 34.2% to TSh 273.7 billion, reflecting strong demand for data services and stable data price albeit at a lower price compared to other African markets. This revenue growth was supported by our continued investments into the network and acceleration of smartphone adoption. Smartphone users increased by 27.9% and monthly average usage per customer grew 9.5% to reach an average of 2 GB. Data continues to be our key growth driver and an enabler to our contribution to digital inclusion.

Fixed revenue grew 27.3% to reach TSh 19.5 billion, with contribution to service revenue expanding albeit still at a lower rate. The growth was underpinned by accelerated customer acquisition following the increased investment in the infrastructure. We look forward to leveraging our investment to further expand our customer reach and capture opportunities in the fixed broadband market.

On profitability measures, EBITDA increased 9.7% to TSh 329.4 billion, underpinned by good growth in top line and good outcome in our cost containment measures. These measures assisted to partially mitigate pressures on expenses.

Now, let me unpack a bit more on the expenses. During the year, we have had various cost pressures emanating from global headwinds as well as operational headwinds. The increase in global fuel price contributed significantly to the increase in energy costs, while chipset shortage led to an increase in acquisition costs as well as devices costs.

Operationally, the increase in expenses was mainly contributed by the additional investments, including new technologies such as 5G and annual escalation of service contracts, particularly relating to tower leases. We were pleased that our cost containment measures delivered more than TSh 40 billion savings, which partially mitigated the increase in expenses. Operating profit increased 26.5% to TSh 81.5 billion, driven by the increase in EBITDA, partially offset by the increase in depreciation and amortisation charge, reflecting additional investments made, including the newly acquired spectrum.

Looking forward, we aspire to grow our business over the medium term by executing on our purpose-led strategy and connecting Tanzanians for a better future. With our focus on improving customer experience, we’ll continue to expand our reach and deliver the best experience, including access to high-speed data services. We’ll continue to invest in our network and supporting infrastructures to deliver on our growth ambitions. We will leverage on our system of advantage to offer diversified and differentiated products to our customers. We are committed to continue to develop and roll out innovative and transformative M-Pesa products. Supporting financial and digital inclusion remains high on our agenda, aiming at driving positive societal change. It is our commitment to continue engaging with the government on all matters relating to our business and continue to nurture the good relationship. That concludes my comments. Thank you all for attending this call, and now Hilda and I are ready to take your questions. Thank you.

Operator

Thank you very much, sir. Ladies and gentlemen, if you would like to ask a question, please press * and then 1 on your touchtone phone or on the keypad on your screen. If you decide to withdraw your question, please press * and then 2 to remove yourself from the list. Again, if you would like to ask a question, please press * and then 1. We will pause to see if we have questions. The first question comes from Mpoki Thomson from Mwananchi Communications. Please proceed with your question.

Mpoki Thomson

Yes. Greetings. Yes, so I hope I am audible enough.

Operator

Yes, you are.

Mpoki Thomson

Okay, perfect. So, I was looking at the figures, and I just wanted to get a bit of insights in terms of the major contributions to the profits, because as I can see here, it’s been largely driven by recovery in mobile data and then of course the government’s reversal in the transaction levies. That’s withdrawal and also making the active transactions. But then again, there are new revenue growth areas that have been listed such as lending, insurance and international money transfers, including also merchant services. So, I just want to get a sense of the sustainability plan as Vodacom Tanzania is coming off from the massive losses that were incurred in the year 2022 to now a profit of more than 200% to TSh 44 billion in the year 2023.

So, the sustainability of this growth that you have recorded in 2023, will it be contingent to the new revenue growth areas, as you’ve listed, the lending, insurance, and the international money transfer, or what will be the key drivers of revenue and sustainability? I want to get the confidence that Vodacom has in ensuring that the profits that have been recorded in the past year will be sustainable. And then again, if a situation arises whereby a regulation is put in place by the government which might adversely impact Vodacom’s performance, how is Vodacom as a company prepared to mitigate such kind of external impacts to the business? Thank you.

Phillip Besiimire

Can I go ahead, Claudia, to answer that?

Operator

Yes, you can, sir.

Phillip Besiimire

Okay thank you. Okay thank you Mpoki. I’ll give an answer and then I’ll also request Hilda to jump in later on. So, you’re right, the performance that we are reporting is contributed by a number of drivers within the business. And correctly so, we’ve had all the engines of the business firing. So, you will notice that we are reporting growth in our data revenue. We are reporting growth in our M-Pesa revenue. And although there is a decline on voice revenue, we’re also reporting that that decline decreased compared to the first half of the year. We are also reporting that fixed line business started to contribute reasonably to the business.

So, when you look at the various portfolios of our business from a top line point of view, they’ve all been pointing in the right direction. And we’re convinced that we’ve put in place the right foundation and infrastructure to allow for these engines to continue firing, now that’s to continue growing going forward. Now, all this is possible if we continue to execute relentlessly across the business. So, whether it’s in our enterprise business, consumer business, financial services business, all of these business units, we need to continue executing relentlessly in our strategies. So, that’s on the top line side.

On the cost side, and the Financial Director will come in shortly, on the cost side we’re also running a very efficient ship, if I may call it that, trying to optimise our cost structures across the board. Obviously, there are costs that are somewhat outside of our control, for example, the energy costs. But even in those spaces, we are continuing to deploy energy-efficient features on most of our network infrastructure so that we can minimise the costs that comes out of that space. Obviously, the cost is one thing in terms of deploying those energy efficient features, but there’s also the environment side of things in terms of clean energy. So, on the cost side as well, we continue to optimise and make sure that we’re running an efficient business in that regard.

So going forward, I believe that we’ve got a fit for purpose strategy, a strategy that will help us continue delivering on the expectations that we are setting fourth and the guidance that we’re providing going forward in terms of the year’s performance. Now, you raise an important question with regards to headwinds when it comes to, for example, changing policy from government and so on. We try to proactively manage in that space. We have had very robust engagements with government, especially to try and generate certainty in terms of policy direction. But that said, we’ve also, I think, learned from the past that it’s important to have a diversified business that’s not reliant on just one stream.

So, if you look at our M-Pesa business as an example, following the levies that were introduced on peer to peer transactions, cash in cash out, we’ve had to grow other business streams or other revenue streams in terms of financial services, which is lending, insurance and so on, to try and diversify just the financial services business. And that’s the way to go, not just because of the levies, but there is a need in the market. But also, we find that it future proofs that business. So, we anticipate a stable regulatory and government policy going forward. But should anything as well happen, I think we have built the necessary foundation to help us withstand any storms. I mean, I’ll ask Hilda to also chip in.

Hilda Bujiku

Thanks, Phillip. I think you’ve pretty much covered everything. Probably from the profitability sustainability, profitable sustainability of it going forward, again, in our results we have called out the deferred tax asset that has boosted the net profit after tax. But important to realise there is, where is the deferred tax aspect coming from? It’s usually coming from the GSM business, which is literally your business of voice, SMS and data, with the improved medium-term outlook. So, if you look at where the business was coming from, it was making a huge loss over a couple of years. And when these two businesses were separated, as in M-Pesa Limited became a separate entity, then it was for GSM business future outlook, which was not really promising in terms of recognition of the deferred tax asset as per the accounting standards.

So, if I take that one off, our underlying performance to