Vodacom Group Limited (VOD) Earnings Call Transcript & Summary

Welcome to our interim results presentation for the period ended 30th of September 2023. Vodacom is a purpose-led company, and we connect for a better future. Our core connectivity business provides us with the foundation to deliver on our 3 purpose pillars: digital society, inclusion for all and planet. Over and above these 3 pillars, Vodacom steps up when there is a crisis and help is needed. This is very evident in how we responded to the COVID pandemic, the subsequent drought in Kenya and floods in Mozambique and South Africa. In the period, we donated the health care packages following cholera outbreak in South Africa. In the DRC, following a devastating flood, we provided free connectivity and free M-Pesa transfers in the region to affected customers. To deliver lasting societal value, we have developed tech for good platforms. By design, these platforms are scalable and help us contribute to a digital society by developing solutions across critical verticals, including health care, education, energy and agriculture. In Egypt, we are leading the universal health insurance and the Egyptian University Hospitals programs. By digitizing medical records in hospital and insurance information, we are supporting the seamless delivery of medical care and improved outcomes for beneficiaries. This platform is live across 270 hospitals and serves over 6 million people. It also provides a case study for health care across the continent. I'm particularly proud of our Code like a Girl program, which we introduced in 2017. Code like a Girl tackles the low representation of girls in science, technology, engineering and mathematics education. It is curated to get more girls into careers that require coding skills. The program is accelerating across all of our markets with thousands of girls are retained this year. More recently, we hosted a coding boot camp in South Africa across our schools of excellence. We recognize that climate change is a major challenge of our time. It poses significant risk to our operations and associate value chains and the countries in which we operate. While the impacts of climate change are global, Africa is one of the most vulnerable continents to climate change, with effects being more pronounced here than anywhere else. Our first TCFD report was published in 2022 and communicated the initial steps in our climate journey. We recently published our second report in the alignment with the TCFD recommendations and undertook detailed climate-related scenario analysis of all our operating companies while improving our understanding of our resilience to material climate-related risks and embedding climate change into our risk management framework. In another historic first, we signed a virtual wheeling agreement with Eskom in South Africa. Under this agreement, we will sign up independent power producers and contribute this power to the grid for which Eskom will pass us a credit. This will have a positive impact on the country's power grid and serve as an important blueprint for other corporates to follow, while moving Vodacom South Africa closer to its goal of sourcing 100% of its electricity demand from renewable energy resources. Our group operates across 8 markets in Africa with a combined population of more than 500 million people. Based on the performance in the first 6 months, our consolidated operations are on track to deliver around ZAR 150 billion of revenue this financial year. Further, our 35% stake in Safaricom provides exposure to another major source of revenue and growth on the continent. We are the market leader across our footprint, with the exception of our start-up operation in Ethiopia. This is an important differentiator for our group and supports an attractive return on capital while also providing us with a unique opportunity to drive digital and financial inclusion. With smartphone penetration below 60% and our financial service customers at 74 million, we have a clear path to drive inclusion and long-term growth. Another key differentiator of our group is our asset-rich portfolio. We are one of the few multi-country operators in Africa that owns the vast majority of its towers and mobile infrastructure. Among other benefits, owning our towers helps us to localize operating costs. When looking at our operating profit and customer mix, the inclusion of Vodafone Egypt into the group materially changes our composition. From a customer perspective, Vodacom comprises 4 similarly sized segments with 76% of our 196 million customers from outside South Africa. We believe this portfolio mix provides us with the optimal combination of cash generative and growth assets. Vodacom has a powerful strategy that is expected to deliver superior returns for our shareholders. We call our strategy, the system of advantage, and it has 10 drivers of success. The first 2 drivers relate to our core connectivity offering. We have strengthened our footprint with a greenfield rollout in Ethiopia through Safaricom and the Vodafone Egypt acquisition. I'll provide an update on the investment case for these assets in my next slide. Across all our markets, we are extending our connectivity, leadership through smartphone adoption, rural access and investment in fiber. Whether our customers want to connect via mobile, land or even space, we want to be the connectivity provider of choice. Our leadership in connectivity positions us to scale our digital ecosystem profitably. This ecosystem is powered by big data and spans across IoT, financial and digital services. Later in the presentation, I will provide more color on how we are using big data to support our world-class CVM and personalized pricing, behavioral loyalty programs and financial service products. In the enterprise space, we are partnering with business to accelerate their growth and with government to drive efficiencies. We are transforming the way of working through digital technology in high-growth areas like cloud, hosting, managed security, managed services and IoT. A key focus area for us in the business segment is SMEs, which are prevalent across all our markets. We are tailoring connectivity, financial services, cloud hosting and security services for them. In the financial services space, we have built a formidable business across our existing markets with products that cut across consumers and merchants. Vodacom's success in this segment is a function of our strategic focus and our clear sense of purpose to drive financial inclusion. As we implement our system of advantage, we put an equal focus on considerations to improve our overall customer proposition, return on capital employed and value creation. A key part of optimizing returns and powering our growth is leveraging scale and partnerships. This is particularly relevant, as we accelerate our deep rural and fiber aspirations, and we are hard at work creating scalable partnership models for both. Of all the elements on this slide, the most important is #10. Our purpose-led model shapes our outlook and our business strategy. The Vodafone Egypt acquisition was executed to advance our strategic ambitions and diversify and enhance our growth and returns profile. Since we announced the deal, the asset has delivered ahead of our business plan with its attractive ROCE and profitability underpinned by its market leadership position and investment-focused regulation. We have also dialed up the strategic focus on financial services, and this is evident in how quickly Vodafone Cash is scaling. We see financial services as a long-term growth lever for this asset, given our ability to scale group products and services into Egypt to capture a massive addressable market opportunity. Despite a big move in the Egyptian pound, since we announced the transaction in 2021, I'm pleased to report that Vodafone Egypt was earnings accretive in the first half. This positive contribution is after accounting for the funding cost of the deal, including the issuance of new shares and debt. This was a testament to the resilient margin structure of the business held by owning its towers. Looking ahead, we expect FX to remain an important theme. However, we believe that these results showcase how the business can mitigate headwinds to deliver bottom line growth. In addition to the FX rate, cash repatriation is a near-term focus area for us. We are exploring several different options to repatriate cash while also considering lucrative reinvestment options. Switching to Ethiopia. We see this investment as a long-term growth factor for Safaricom and the Vodacom Group. In this period, we have made important progress on the investment case of this greenfield rollout. We added the IFC into our consortium, a powerful partner, which injected USD 257 million of equity and debt funding. Separately, we're leveraging the group's learnings from high inflation markets like Turkey, we are accelerating the localization of costs in Ethiopia. Scaling this asset is key to us. The launch of M-Pesa will help with this scale. We are pleased to have launched this iconic service a couple of years earlier in our business than anticipated. Our role as a new entrant in the market is a key variable to manage going forward. As we invest into the country, we are working with the regulators and the government to shape regulation that promotes a dynamic market and digital and financial inclusion. Over a multiyear period, we have re-platformed Vodacom into a data-led organization, with truly impressive capabilities. Big Data is the engine of our digital ecosystem and supports our customer value management, loyalty and financial services. By powering CVM with Big Data, we are able to tail our offers to the segment of one. This capability is critical in a customer-focused sector like ours. In South Africa, more than 80% of our bundles already personalized. We are also leveraging Big Data into credit scorecards to support decision-making in our telco and financial service businesses. Safaricom is already benefiting from rich credit data analytics while in Tanzania, we have a prepaid handset finance scorecard, which will soon evolve into a full scorecard. Our credit scorecards in South Africa, Lesotho and Mozambique are ready to be commercialized with the rest of our markets to follow in the near term. Big Data is supporting smart CapEx decisions and cost savings. Smart CapEx is especially important in the context of delivering a best-in-class return on capital while ensuring we maintain network leadership across our markets. In the last 12 months, we have driven ZAR 1 billion of efficiency with our smart CapEx tool, a trend that is accelerating. Our intelligent automation takes robotics process automation, or RPA, to the next level. It is designed to deal with unstructured data and leverage AI in tools like optical character recognition to translate and structure information. A very simple example is invoice processing. The outcomes are far from simple ever, with us saving 2 million hours of time across the group. Big Data and AI is also helping us manage one of the most pervasive threats, fraud. In South Africa, we have blocked close to 1 million calls across our interactive voice response in TOBi channels and are scaling the fraud tool across our markets. Behind the scenes, we are dialing up our fraud prevention and detection tools to mitigate the impact of increasingly sophisticated fraud syndicates. And then on to the most exciting aspect of our big data and AI capabilities. Our 360-degree view of the customer is where the power of data pulls together insights from telco, financial services and loyalty to drive our global recommender engine. But this recommender helps us improve customer offerings and incentivize the next best activity. This is where the power of data can translate into a distinct competitive advantage and material revenue outcomes. And there are numerous examples of how we can use this predictive AI in the real world. One of my personal favorites is as you walk into a shopping center, we know you are hungry and fancy a hamburger. We then provide you with an eat now, pay later offer supported by our credit scorecard. Now that's food for thought. We are making good progress in our dual-sided financial services strategy. On the merchant side, our M-Pesa merchant base is close to reaching the 1 million mark at 950,000 merchants, up 41%. This growth helps expand our addressable commission pool beyond peer-to-peer payments and withdrawals into both online and off-line commerce. In South Africa, our merchant-acquiring business is also growing quickly with over 10,000 merchants. Our super apps are scaling nicely across the group with more than 4.4 million M-Pesa users adopting this channel. Importantly, we are seeing constantly higher M-Pesa ARPU on these super app users. In Egypt, Voda Cash is the go-to mobile wallet in the country with customers up an impressive 60% to 6.7 million. Our One app strategy in Egypt is a template for the rest of the group and means there's a clear part of Vodafone Egypt to convert its 14 million monthly users on the Ana Vodafone app into Vodafone Cash users. In South Africa, our super app, VodaPay, is again integral to our summer campaign in which 7.6 million downloads with over 100 mini apps launched. It's also worth mentioning the success of our insurance business in South Africa with revenues growing at double digit in the period. As we diversify into new growth vectors beyond peer-to-peer payments, our financial service product suite continues to broaden across global payments, lending, insurance and savings. Across our international markets, 2/3 of our revenue growth was from new services in the 6-month period, an impressive stat. The close working relationship of South Africa, Egypt and our M-Pesa Africa hub means we have a clear road map for new service growth across all markets. Turning to the group's results for the first half of the financial year, an encouraging revenue trend that we saw in the first quarter continued into the second quarter. Higher interest rates, elevated levels of inflation and currency volatility did however weigh on the group's earnings. Group revenue grew 35.5% in the 6 months to ZAR 72.8 billion. Excluding the contribution of Vodafone Egypt, group revenue growth was still an impressive 7.9%. Group service revenue grew 42.2% in the 6 months to ZAR 59.4 billion, positively impacted by the acquisition of Vodafone Egypt. And the rand depreciation of 12% against our basket of international currencies. Excluding the contribution of Vodafone Egypt, group service revenue growth was strong at 7.9%, supported by a resilient performance in South Africa. Our medium-term targets include Vodafone Egypt on a pro forma basis as if it was owned from the 1st of April 2022. On a target comparable basis, group service revenue growth was 9% for the interim period and the higher end of our medium-term range. Group EBITDA increased 35.1% to ZAR 27.3 billion and was up 4.1% excluding Vodafone Egypt. On a target comparable basis, group EBITDA growth was 5.5%. We anticipate an acceleration of group EBITDA growth in the second half of the financial year, supported by cost phasing in our Fit4Growth cost program. We now serve 196 million customers across the footprint, up an impressive 11% with Egypt in the base. Our financial service customers reached 74 million, transacting $1 billion a day across our mobile wallet platforms. Headline earnings per share declined 4.2% to ZAR 4.38 per share. The decline was largely attributable to start-up losses in Ethiopia, higher interest rates and the prior year deferred tax asset recognized in Tanzania. Pleasingly, Vodafone Egypt contributed ZAR 0.16 per share to headline earnings per share despite having issued 242 million new group shares. Separately, the Board declared an interim dividend per share of ZAR 3.05 per share, which reflects our dividend policy of at least 75% of headline earnings. Looking at the drivers of group revenue, we delivered growth across each of our segments. I will unpack the segment results later in the presentation. But at a headline level, South Africa grew at 4%. Our international businesses reported service revenue growth of 16.6% and normalized service revenue growth of 4%, while Safaricom service revenue was up 9.8% in Kenyan shilling. Vodafone Egypt service revenue grew at 28% in local currency and contributed ZAR 14.3 billion in the period. Group operating profit increased 28.2% to ZAR 17 billion on a reported basis. In South Africa, operating profit declined 3.3% as a result of higher depreciation and the amortization of spectrum. Operating profit in our international portfolio grew 0.2% and was impacted by start-up costs associated with Vodacom's direct stake in Ethiopia. Across both South Africa and our international business, our recent spectrum acquisitions resulted in higher amortization. While this is a transient P&L effect, we have secured our future. Operating profit in Egypt grew 29.8% in local currency. On a rand reported basis, Safaricom contributed ZAR 1.5 billion to group operating profit, declining 1.1%. This was an encouraging outcome given that we expected Safaricom Ethiopia's EBITDA losses to peak in the current financial year. In fact, on a normalized basis and excluding the startup losses, Safaricom's contribution to operating profit would have increased an impressive 15.9%, highlighting the quality of the asset. The chart in the middle of the slide is new disclosure. Here, we show the group service revenue across our key products. Each of these segments as structural growth drivers. In prepaid data, smartphone penetration, regulation support of our investment and expanded rural coverage stand to benefit us. Aligned with our parent Vodafone, we see Vodacom business as an important growth opportunity over the medium term and expect to see its contribution to the group increasing from 19.3% today. Diving into our new services, a little bit more, the slide sets out the contribution of IoT, fixed financial and digital services to each of our geographic segments. In South Africa, 16.6% of service revenue is now attributable to new services, up from 14.5% a year ago. Across our international portfolio, the contribution of new services is closer to 30%, while Safaricom sets the benchmark at 46.6%. Vodafone Egypt's new service every contribution, the service revenue is 15.1%, reflecting its early-stage growth profile in Vodafone Cash. We intend to scale each of these revenue streams into successful businesses and target that new service revenues will contribute 25% to 30% of group service revenue over the medium term, including Vodafone Egypt. This slide sets out metrics that highlight the scale of our financial service businesses. As a group, including Safaricom, we now have 74 million financial service customers. While this is a very impressive number on a stand-alone basis, the scope for growth remains very material with the penetration of our overall customer base now at just 38%. The scale of our financial service business is reflected in the volume of transactions we process. Over the last 12 months, this reached 29.3 billion transactions. This is broadly double Africa's next biggest mobile money provider and was up 32.4%. In the period, our revenue on a consolidated basis was up 40% to ZAR 6.2 billion. Egypt's inclusion contributed to this growth while South Africa and International continued to grow in double digits. With an additional ZAR 8.8 billion range generated by Safaricom, this implies a combined fintech revenue footprint of around USD 1.5 billion. In South Africa, service revenue generated from financial services grew 10.8% to ZAR 1.6 billion. Revenue growth was underpinned by insurance. Our international businesses delivered M-Pesa revenue growth of ZAR 3.8 billion in the period, up 27%. Our peer-to-peer is still growing nicely, new areas such as lending and merchant services were the key growth drivers. Safaricom, which sets the benchmark for financial services scale, delivered 16.5% growth in Kenyan shilling. This is really impressive given the size of the base. Looking at the contribution of financial services to the group, we generate just over 10% of consolidated service revenue from this product. In Safaricom, the contribution is 42%. And looking at the contribution to profit before tax, which includes Safaricom, the weighting is around 20%. This bottom line weighting of financial services means that Vodacom's investment case offers something quite different typical emerging market telco. Turning now to our 4 segments. Revenue from Vodacom South Africa reached ZAR 43.3 billion, up 5%, and was driven by service revenue and strong equipment sales as we grew smartphone penetration. Service revenue grew 4% to ZAR 30.7 billion, which is a good result given the ongoing macroeconomic challenges. Growth was supported by new services and mobile data. We added 3 million customers in the period to reach 47.3 million, up 7%. Mobile contract customer revenue was up 4.1%, supported by good growth in our consumer segment. Prepaid service revenue increased 3.1% and accelerated to 3.5% in the second quarter as we leveraged our Big Data and personalized offers to mitigate the soft consumer environment. Data traffic increased 45.2% in the period, supported by smartphone penetration and network availability. Data customers grew 8.5% to 26 million supported by network resilience and capacity together with our continued value commitment to our customers. New services was up a very healthy 18.1% and contributed ZAR 5.1 billion of South Africa's service revenue. Within the mix of new services, fixed was particularly strong and grew 25%. Vodacom business service revenue increased marginally to ZAR 8.7 billion and was impacted by pressure on wholesale. Excluding wholesale revenue, Vodacom business was up 3.8%, supported by good growth in cloud, hosting and security. EBITDA grew by 1.6% for the period as we reinvested cost savings into stronger network resilience and maintenance. We expect cost savings to accelerate into the second half of this year, supporting EBITDA growth. Raisibe will discuss this in more detail in her presentation. Vodafone Egypt contributed service revenue growth of ZAR 14.3 billion, up 28% on a comparable basis year-on-year, despite a challenging macroeconomic backdrop. Growth was supported by strong commercial traction in mobile and excellent growth in Vodafone Cash and fixed. Our value proposition in the market is enhanced with embedded entertainment, an interesting case study for the rest of the group. Customers grew 5.5% to 47 million, showing market share gain. Vodafone Cash and fixed line services are scaling rapidly. In local currency, Vodafone Cash revenues more than doubled in the period, with customers growing at 60% to 6.7 million. Vodafone Egypt is well on track to exceed EGP 1 trillion of transaction value in the financial year, a milestone we committed to at our March Investor Day. Data metrics was strong and supported by network investment and spectrum investments. Data traffic was up 43% in the period, supported by data customer growth of 13% to 28.2 million. Smartphones on the network were up by 7% to 32.2 million. EBITDA grew at 20% to ZAR 6.2 billion and contributed 23% of the group's EBITDA. We expect higher EBITDA growth in the second half of the financial year as base effects from one-offs in the prior period normalized. Service revenue for our international business increased 16.6% to ZAR 14.7 billion supported by strong growth in data and in M-Pesa revenue and foreign exchange translation tailwinds. Data growth was strong at 35% with M-Pesa revenue growth at 27%. From a market perspective, we delivered strong double-digit growth in Tanzania, while the DRC was subdued by the macroeconomic environment. Mozambique's performance was impacted by price transformation and we will start to lap this transformation in the second half of the financial year. Customers grew by 22.3% to 53.7 million, supported by strong commercial execution. Data revenue of ZAR 3.8 billion contributed 26.1% of international service revenue, supported by data traffic growth of 40.4%. Smartphone user growth was 19.6% to reach a penetration level of 33.9%. We see scope to accelerate smartphone adoption meaningfully over the medium term with innovative handset financing options. We are piloting a new daily repayment model in Tanzania, a product we believe, can be scaled to support digital inclusion. Our M-Pesa customers increased an impressive 15% to 21 million. M-Pesa revenue was up 27% to ZAR 3.8 billion, contributing 25.9% of international service revenue. Loans granted across our international business more than doubled to ZAR 8 billion. To grow and diversify the M-Pesa ecosystem, we have also accelerated our merchant strategy, more than doubling the number of active merchants to 292,000. Our M-Pesa app is now live across all our markets with our mini app rollout continuing. International EBITDA was ZAR 5.4 billion and grew 14.1%, reflecting foreign exchange translation tailwinds. We expect a clear improvement in normalized EBITDA growth in the second half of the financial year, supported by cost efficiencies. Safaricom delivered an excellent performance in Kenya and confirmed that network rollout in Ethiopia is taking its guidance. Service revenue increased 9.8% in local currency, a clear acceleration from the 5.2% reported in FY '23. The acceleration was driven by an excellent performance in mobile data and M-Pesa revenue, both of which delivered growth well into the double digits. M-Pesa growth accelerated through the period and was an excellent 21.4% in the second quarter. The growth was supported by new services, including a successful partnership with government called the Hustler fund. Despite the massive base, the volume of M-Pesa transactions grew 44.5% to ZAR 7.2 billion in the period. Transaction values processed over the last 12 months, equated to USD 273.1 billion highlighting the scale of the business. Kenya's data revenue grew 12.5%, accelerating from the prior year [ exchange ] rate as price transformation supported strong usage growth. Fixed service revenue grew 9.1% to KES 7.4 billion, supported by 28.7% growth in consumer revenue. FTTH customers grew 28.8% to reach 223,000. EBITDA for the Kenyan operations was up 13% with margins improving 3.7 percentage points to 55.9%. The margin was supported by lower handset sales and cost control initiatives. Safaricom's overall EBITDA, including Ethiopia, increased 7.6% reflecting the expected start-up losses associated with the Ethiopian rollout. Safaricom Ethiopia reached 4.1 million customers in less than a year since its commercial launch. In August this year, Safaricom Ethiopia launched M-Pesa, allowing customers to send and receive money, purchase airtime and pay merchants. Safaricom Ethiopia will leverage the group's mobile financial services scale and expertise to transform the lives of Ethiopians in Africa's second most populous country. Given the excellent performance in the period, Safaricom upgraded its guidance for Kenya and the group. Safaricom now targets double-digit EBIT growth in Kenya, well ahead of inflation. To conclude our presentation, I'd like to set out how we plan to enhance value for our shareholders. Firstly, we will continue to execute on our multiproduct approach, our system of advantage. A key part of our strategy is to invest into fiber. In this context, we were disappointed by the Competition Commission's position to not recommend Vodacom's proposed purchase of a 30% stake in MAZIV. It is important to note that this is not the end of the process. The next step is for the proposed transaction to be presented to the Competition Tribunal, which will more than likely take place in May next year. We remain hopeful that the tribunal will recognize the pro competitive advantages that the proposed transaction would have on the fiber market and the country as a whole. To enhance our leadership in mobile, we are focused on accelerating the penetration across our markets with new spectrum unlocking fixed wireless opportunities. We also have exciting plans around new device financing models in the pipeline. Across our digital ecosystem, we have growth opportunities ahead of us of new products and scaling of existing platforms and our one-app strategy. I'm particularly excited about the structural growth opportunity on the recent launch of M-Pesa in Ethiopia. And we are very excited to scale our super apps, VodaPay and M-Pesa, considering the exceptional growth we have witnessed so far this financial year. At the same time, I will continue a renewed focus on simplifying customer journeys and enhancing customer experience in all our markets remains a key priority for us. In transforming to TechCo, we will include the optimizing of our assets through sharing. To this end, we aim to unlock benefits to partnerships in both rural coverage and fiber across our footprint. As we pull together the levers of our strategy, we are now positioned to accelerate our growth profile, and this is reflective in our updated targets. Mindful that this growth must be profitable, we remain focused on our return on capital employed. Finally, we will always prioritize our contribution to societies in which we operate and our purpose-led ambitions. We will focus on increasing our female representation at management levels, reducing our greenhouse gas emissions across the footprint and driving financial inclusion. These targets are including management's long-term incentives. We look forward to engaging with you over the coming weeks on our investor roadshows. This concludes my presentation. Thank you for your attention.

In this video, I will unpack our results for the 6 months period ended 30th of September 2023. We have delivered excellent revenue growth in this period despite mounting macroeconomic challenges. We are also sharpening our focus on cost, but more on this in my presentation. From a shareholder perspective, we have declared an interim dividend of ZAR 3.05 per share, in line with our payout policy. Moving to our financial performance. Our income statement sets out reported growth and 2 other growth metrics to help provide better insights into our underlying trends. The pro forma growth provides the growth of the business in constant currency, assuming Vodafone Egypt had been acquired on the 1st of April 2022. This is comparable with our medium-term targets. Additionally, normalized growth sets out the constant currency growth of the business, excluding Vodafone Egypt, so a measure of the legacy Vodacom Group. On a pro forma basis, service revenue increased by an impressive 9%, supported by excellent growth in Egypt and a solid performance in South Africa. The normalized growth, excluding Vodafone Egypt was 4.1%. On a similar pro forma measure, group EBITDA grew 5.5% and the reported EBITDA reached ZAR 27.3 billion, representing a margin of 37.5%. The EBITDA margin was unchanged year-on-year, supported by inclusion of Vodafone Egypt, which generated a healthy 42% margin. The net profit from associate and joint ventures of ZAR 1.3 billion declined 8% on a reported basis as it was impacted by start-up losses from our business in Ethiopia. Excluding the impact of Ethiopia, associates increased 12.5%, reflecting an excellent performance in Safaricom in Kenya. Headline earnings per share declined 4.2% to ZAR 4.38 per share. The decline was slightly attributable to Ethiopia, higher finance charges and a prior year deferred tax asset recognized in Tanzania. As set out on the previous slide, pro forma service revenue growth for the group was 9% in this 6-month period. This was consistent across the first and the second quarter. South Africa delivered a modest improvement from 3.9% growth in the first quarter to 4.1% in the second quarter. This was pleasing, given the macro headwinds and the energy crisis in our largest market. Service revenue for our international business increased 4% in this half, supported by strong growth in data revenue and M-Pesa. In the second quarter, normalized service revenue growth of 3.1% was subdued by Mozambique's price transformation. We expect a better performance from International through the course of the second half. In this slide, we provide more context around our group EBITDA growth drivers. The chart on the left-hand side provides a year-on-year bridge for EBITDA. Group EBITDA grew 35.1% to ZAR 27.3 billion or 5.5% on a pro forma basis including Egypt. On an absolute basis, Egypt added ZAR 6.2 billion to group EBITDA, the key driver of reported growth. EBITDA was also supported by revenue growth in South Africa and International which outpaced cost growth. On the right-hand side, we set out the progress for our Fit4Growth cost program, a key component of EBITDA delivery and our growth outlook. This program is focused on operating cost and includes a big focus on network and technology. We deliver savings through rigorous supply chain management and as a result of efficiencies and optimization related to our digital agenda. In FY '23, an acceleration of cost savings in the second half of the prior year supported ETA improvement in group EBITDA growth. In South Africa, for example, operating cost growth of 10.5% in the first half was brought below inflation in the second half as a result of this cost savings. Year-to-date, we have already delivered over ZAR 1 billion of cost savings and plan to exceed last year's outcome. This is expected to support an improved EBITDA growth outlook into the second half. These slides provide a bridge from EBITDA growth of 35.1% to the net profit growth of 23.5%. From EBITDA, higher depreciation and amortization as well as the start-up costs in Ethiopia, offset the underlying growth in Safaricom, our associates. The higher depreciation and amortization in South Africa and International is as a result of capital expenditure growth over the recent years and the translation impact of a weaker rand. Below the operating profit line, higher finance income helped to partially offset higher finance costs. The change in finance costs were as a result of sharp increase in interest cost and higher net debt as a result of funding Vodafone Egypt deal as well as the spectrum acquisitions. I will unpack the net debt movement in the upcoming slides. Still focused on the bottom line, our headline earnings per share declined 4.2% to ZAR 4.38 per share. HEPS was impacted by the start-up losses in Ethiopia, higher finance costs and prior year deferred tax asset recognition in Tanzania. Pleasingly, Vodafone Egypt was accretive and contributed ZAR 0.16 per share despite higher shares in issue and associated funding costs. This means the remaining businesses did not contribute meaningfully to group HEPS, something we intend to address in the second half. Shifting forecast to cash flow. We generated operating free cash flow of ZAR 7.2 billion, up 49.1%, having invested ZAR 9.5 billion into CapEx, a further ZAR 3.2 billion applied to lease payments and ZAR 7.7 billion absorbed into working capital. The working capital outflow is seasonal, and we expect this negative growth to unwind into the second half, supporting strong free cash flow generation. From operating free cash flow, we received some finance income but this was offset by finance costs, net dividend paid to minorities as well as taxation. As we set out in the call-out box on the right-hand side of the slide, the net dividend page to minorities was higher than the associate dividend from Safaricom. This was a function of timing with us having received 2 Safaricom dividends, i.e., the interim and the final in the same period last year. We received Safaricom's interim dividend for FY '23 ahead of 31st March, being a week earlier than payment as usual. Our cash flow in the period was impacted by some timing anomalies. I've already mentioned the Safaricom dividend timing having pulled forward its interim payment into the second half of last year. This amounted to ZAR 1.3 billion. Additionally, our Egypt business makes its final top-up tax payment in the first half. This means that the cash tax of Egypt was ZAR 700 million more than the P&L tax, however, will normalize in the second half. Whilst free cash flow was a small negative, this trend of a soft first half is very much in line with our multiyear pattern. The chart on the right shows that our free cash flow generation is skewed to the second half. We expect the same trend to play out this year. Following the acquisition of Vodafone Egypt, in the previous financial year, the dividend policy was set at, at least 75% of Vodacom's headline innings. At this level of pay Vodacom offers one of the highest dividend payouts. Aligned to this policy for this period, the Board has declared an interim dividend of ZAR 3.05 per share. Our dividend payment for this period equates to around ZAR 6.3 billion in cash paid. The ZAR 3.40 interim dividend in the prior year was based on 80% payout ratio as the Vodafone Egypt deal had not yet closed. Our net debt-to-EBITDA ratio improved from 1.1x to 1x in this period with the increase in net debt offset by higher group EBITDA in this period. We provide the key drivers of this change in the waterfall chart. Dividends paid in this period exceeded seasonally low free cash flow, was ZAR 1.1 billion was directed towards spectrum across our international markets. Looking ahead to the second half, we expect significantly stronger free cash flow generation and a lower dividend payout to support our leverage outlook. Looking at the composition of our borrowings, 86% of our debt, excluding leases, is rand-based, limiting our exposure to foreign exchange movements. From an interest rate perspective, our debt structure is split, 37% fixed and 63% floating rates. This mix provides us with an opportunity to benefit from stabilizing and even falling interest rate expectations when the cycle turns. And now our medium-term targets. We aim to grow service revenue in mid- to high single digit and EBITDA at high single digit. Our group capital intensity ratio remains in a range of between 13% and 14.5% of revenue. These targets are on average over the next 3 years, based on prevailing economic conditions and include Egypt on a pro forma basis. Our associate, Safaricom, also provides guidance on Kenya, Ethiopia and their group. It was encouraging to see that Safaricom upgraded its FY '24 EBIT guidance for Kenya and group on the back of excellent first half results. Safaricom also reiterated its Ethiopia guidance where the trough in its losses occurs this year. It is anticipated that the EBITDA breakeven will be reached in 4 years, implying that there are still some losses to come from Ethiopia, but less so than in FY '24. In this slide, we see -- we set out our capital allocation priorities. Our first priority is investment into organic growth, which includes our core connectivity business and new growth areas. This investment is supported by our Big Data capabilities which helped us generate the best return for each rand invested. Our dividend policy means that we do not need to compromise on our organic investment. With a payout of 75% of headline earnings, we are left with room to fund our CapEx intensity and also delever our balance sheet in due course. In my concluding slide, I would like to reconcile our medium-term growth target with the shape of our business in years to come, and in particular, our ambitions around new services. These new services encompass digital and financial services, fixed and IoT, and are key to our diversifying our revenue portfolio and improving our customer proposition. On a consolidated basis, with South Africa, Egypt and International businesses scope, we see our new service revenue contribution increasing from 19.8% to around 25% to 30% in the medium term. On that exciting note, I will conclude, and thank you for your attention.