Vodacom Q1 profit falls on Ethiopia costs, Egypt lifts revenue

South African telecoms operator Vodacom’s earnings took a hit in the first half from start-up losses in Ethiopia but revenue growth benefited from the inclusion of Vodafone Egypt, which prevented further profit decline.

The company, the biggest telecoms operator in South Africa which is majority-owned by Britain’s Vodafone Group, bought a 55% stake in the Egyptian arm of Vodafone for about 43.6 billion rand ($2.3 billion) in 2021, the largest deal in the telecoms operator’s history.

The business was consolidated from Dec. 8, 2022.

Vodacom launched Safaricom Ethiopia last year with a consortium led by Kenya’s Safaricom, which is part-owned by the South African company and Vodafone, betting that the populous nation will power growth after about five years of investment.

Group Chief Financial Officer Raisibe Morathi told reporters that the Ethiopian business was expected to break even in year four, with peak earnings before interest, tax, depreciation and amortization losses expected in this fiscal year ended March.

Group headline earnings per share (HEPS), a profit measure, fell 4.2% to 438 cents in the six months ended Sept. 30, from 457 cents a year earlier. HEPS were also dragged down by a prior year deferred tax asset recognised in Tanzania and higher interest rates.

By 1046 GMT, Vodacom shares were down 4.26% at 103 rand.

Group service revenue grew 42.2% to 59.3 billion rand, thanks to the acquisition of Vodafone Egypt and rand depreciation against a basket of international currencies.

Vodafone Egypt contributed 16 cents to HEPS and 14.3 billion rand to group service revenue, Group CEO Shameel Joosub said.

Excluding the contribution of Vodafone Egypt, group service revenue growth was 7.9% or 4.1% on a normalised basis, supported by a resilient performance in South Africa, he added.

In South Africa, its largest market, investments to keep the network running during power cuts helped lift service revenue by 4%. Data traffic growth accelerated to 45.2% in the period.

After investing 4.5 billion rand over 4-1/2 years to mitigate the impacts of power cuts, Vodacom will spend about 1 billion rand in this fiscal year.

Telecom companies in the country have been spending heavily to install diesel generators, batteries and solar panels to keep their networks running in the face of struggling state utility Eskom’s power cuts of up to 10 hours a day. Reuters