By far the majority of Vodacom’s customers reside in South Africa, where the operator remains the market leader in the cellular industry with its 54% market share based on total customers.

Vodacom (Proprietary) Limited is the operating company responsible for the construction and maintenance of Vodacom’s GSM cellular network, consisting of some 5 713 base stations, providing coverage for more than 95% of the South African population. Vodacom Service Provider Company (Proprietary) Limited is South Africa’s biggest cellular service provider and its customers represent 65.3% of the total, and 70.6% of the group’s contract South African client base. Vodacom Service Provider Company (Proprietary) Limited also manages Vodaworld, the world’s first and only dedicated cellular shopping mall. A great success ever since its 1998 launch, Vodaworld has received thousands of visitors who are eager to enjoy the fascinating cellular experience Vodacom made possible.

Vodacom continues to demonstrate its commitment to black economic empowerment (BEE), human resources development and the spirit inherent in the employment equity legislation.

• 79% of employees are from designated previously disadvantaged communities, which is ahead of Vodacom’s employment equity targets.
• The value of business with BEE suppliers grew from 58% of commercial spending in the year ended March 2003 to 60% in the past financial year.
• Vodacom spent 3.1%, or R15.1 million, of its total salary budget on staff training and development in the past financial year, while R3.1 million went towards employees’ studies through its Yebo Bursary Scheme.

Vodacom believes that its employees make the difference between the success or the failure of strategy execution. Their collective dedication contributed towards making Vodacom one of the most preferred employers both in South Africa and beyond its borders.

CORPORATE GOVERNANCE

The Vodacom Group subscribes to the principles of integrity, transparency and accountability and strives to conduct all of its affairs in accordance with generally accepted corporate practice.

During the year under review, Vodacom increased its focus on enterprise-wide risk management and the group will continue to practise the recommendations of the King Committee Report on Corporate Governance 2002. In keeping with the objectives of the New Partnership for Africa’s Development (NEPAD), and to promote good governance in Africa, Vodacom is introducing its corporate governance practice in all its African operations.

AFRICAN EXPANSION

During the year under review, Vodacom expanded further into Africa when, after two years of negotiations, it launched on 15 December 2003, commercial operations in Mozambique. The group remains well placed for medium-term growth through leveraging opportunities in other African countries. The performance of Vodacom’s operations in Tanzania, Lesotho and the Democratic Republic of the Congo (DRC) has been encouraging.

This was a challenging but exciting year for Vodacom’s existing investments as the company further entrenched itself in all of its other African operations. Vodacom Tanzania consolidated its position as market leader with a 57% market share at year-end. Since its relaunch under the Vodacom brand in May 2002, Vodacom Congo has grown its market share significantly; from 9% at that time to 47% at year-end. Vodacom Lesotho positioned itself to capitalise on any future market growth and to minimise the impact of competitor activity.

Although Vodacom Mozambique is still in its infancy, initial market indications are promising. The number of connections during its first three months of operations exceeded expectations, and the operator rapidly gained an 11% market share against an established operator, mCel. Initial average revenue per customer (ARPU) levels are at R110, or $15 per month.

OVERVIEW OF THE YEAR TO 31 MARCH 2004

The Vodacom Group achieved remarkable results in an increasing competitive and demanding environment. Revenue continued to grow very strongly this year, exceeding the R20 billion mark to reach R23.5 billion, an 18.7% increase over 2003. South Africa was by far the biggest contributor to this growth, accounting for 93.6%, or R3.4 billion, of growth in revenue.

The buoyant South African market again ensured that local operations exceeded expectations as the stalwart of the group, Vodacom South Africa, attracted a record five million new gross connections – the highest level since Vodacom’s inception in 1994. This is a tribute to Vodacom’s consistent belief in the South African market and the company’s strong and loyal distribution channels.

Vodacom’s other African operations contributed 6.4% (2003: 6.2%) of total revenue. Their stable contribution is primarily due to their strong revenue growth, which was offset by these operations’ lower revenue growth in rand terms.

The year under review was indeed a year of records in South Africa. The 584 942 prepaid gross connections in December 2003 were 60% higher than the December 2001 record – the highest monthly figure ever. The 46 697 contract gross connections in March 2004, another record, were 8.7% higher than the December 2003 record. Vodacom therefore initiated a more aggressive network rollout, enabling it to soak up the extra traffic in the market and to reach more potential customers with a wider product offering.

Through sound cost management Vodacom’s revenue growth was translated into increased profits. Profit from operations increased by 20.9% to R5.2 billion (2003: R4.3 billion) – a new Vodacom high. Operating expenses increased by 18.1% (2003: 23.3%), which was lower than revenue growth of 18.7% (2003: 22.5%). This increased Vodacom’s profit from operations marginally to 22.3% (2003: 21.9%).

Vodacom’s EBITDA (earnings before interest, tax, depreciation and amortisation) margin contracted slightly to 33.1% (2003: 33.9%) due to rand strength and a higher level of competition in all of Vodacom’s operations. Its consolidated EBITDA grew by a healthy 15.9% to R7.8 billion in 2004 (2003: R6.7 billion).

In the year to 31 March 2004, Vodacom remained at the forefront of cellular innovation. Top Up, an innovative product designed to facilitate migrations from existing prepaid packages to contract packages, was launched. The product combines the benefits of a contract service with the financial control offered by a prepaid service. Top Up has proved highly successful, and contributed to the growth in contract customers. Vodacom also launched a host of highly successful data applications such as Look4me and Look4it during the year.

As part of its broader strategy of margin leadership in South Africa, Vodacom is continuing the process of gaining control of its service provider channel and has acquired 51% of Smartphone SP (Proprietary) Limited, effective 1 March 2004. Subsequent to Vodacom’s year-end, Smartphone SP (Proprietary) Limited gained control of Smartcom (Proprietary) Limited. Vodacom South Africa now directly controls 70.6% of its contract customers and 97.8% of its prepaid customers.

THE FUTURE

Vodacom will continue to focus on growing its profits and cash flow. The company strives to maintain its position as market leader in South Africa, while growing its existing African operations and establishing new operations in other select African countries. Its strategy is to grow its revenue through an extended customer base and the continuous introduction of new high-utility services. At the same time margins will be improved by leveraging Vodacom’s better economies of scale. Initiatives such as the current drive to acquire customers from South Africa’s independent service providers, will also contribute to achieving these goals.

The South African market still offers huge potential and Vodacom believes that margins can be improved even further through economies of scale. Vodacom is also ready to capitalise on lower-margin new prepaid customers through its position as South Africa’s lowest-cost operator.

The African expansion strategy has started to bear fruit. At the operations level, all Vodacom’s other established African operations – Tanzania, Congo and Lesotho – are now profitable. At this stage Vodacom’s newly established business in Mozambique is still loss making but with more than 58 000 customers at 31 March 2004, a strong foundation for the future has been laid.

In the next decade Vodacom will continue to prioritise its partnership approach with an even wider base of suppliers, customers, regulators and governments, thereby growing its business responsibly and contributing in a tangible way to Africa’s future and sustainable economic development. Vodacom looks forward to an exciting new decade of growth, challenges and innovation.

Founded in 1990, Psitek (Proprietary) Limited (Psitek) is driven by its vision of becoming a leader in telecommunication product solutions for the world’s emerging economies.

With its innovative product development, brand and marketing expertise, Psitek has introduced a host of products in the fixed-line and cellular telecommunications arenas.

The strong brands which have been dominant in the local markets – the Adondo and Tici-B Supervised Payphone products and the Fusion range of wireless local loop products – are now also dominating Psitek’s newer market areas, i.e. Africa, the Asia Pacific region and South America. New product brands such as the Jembi Supervised Payphone and the VendingReady services vending portal are also starting to enjoy market acceptance in both Psitek’s existing and new markets.

OVERVIEW OF THE YEAR TO 30 JUNE 2004

In the year to 30 June 2004, Psitek actively positioned itself for growth in, and access to, new markets. Although some of the company’s market sectors matured in the past year, good sales and profit figures were still achieved.

Psitek’s growth in turnover held significant challenges for its business and product development processes. In response, the company improved the efficiency of its processes. Psitek also made efforts to strengthen its position, and ensured that all its employees have a good understanding of its longer-term strategies.

THE FUTURE

In the next year Psitek will focus on new market opportunities (specifically in the Asia Pacific region and rest of Africa) and on its ability to continuously and efficiently convert these into meaningful and sustainable revenue streams. Psitek will also continue to expand its skills.

Management remains committed to building a company in which all its employees can share with pride and passion and one that is recognised as an important role player in the telecommunication field.