Dividend bonanza for Vodacom shareholders

Mergers, Acquisitions and Financial Results

Vodacom will pay its shareholders a dividend of R2,7bn, or R1,80/share, an increase of 63,6% on a year ago, as a result of strong growth in cash generated from operations.

This is in spite of a sharp reduction in peak-time mobile termination rates in March, which knocked R800m off Vodacom’s top line and cut its earnings before interest, tax, depreciation and amortisation by R260m.

Termination rates are the fees the operators charge each other to carry calls on each other’s networks.

To offset the cuts, Vodacom is aiming to cut R500m in operating costs in the current financial year, says chief financial officer Rob Shuter.

In the six months to 30 September, the group generated R9,3bn in cash, up 6,5% from a year ago. In the same period, operating free cash flow jumped 21,8% to R6,5bn.

The improvement in cash generation flowed from good growth in operating profit and an increase in working capital. The group has also used its strong cash position to buy back about R1bn of shares.

Shareholders will receive the interim dividend payout of 6 December.

The improved dividend came on the back of a strong financial performance by Vodacom.

The group grew adjusted headline earnings per share by 11,1%, to R3,01.

Group revenue rose 2,9% (5,1% in constant currency). Service revenues in SA grew 4,6%, but would have climbed 8,4% if termination rates had not been cut in March.

“It’s been a really good start to our financial year and we’re seeing encouraging performance across all measures,” says Vodacom Group CEO Pieter Uys.

However, competition is intensifying, and Uys says rates are falling, adding pressure to the group’s revenues. Voice tariffs have declined 17% in the past year.

Offsetting this is strong growth in demand for broadband and data services, despite an average 16% cut in data prices.