Vodacom Group Limited (VOD) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Vodacom's FY '24 Annual Results and Strategy Update. It also happens to be our 30th anniversary this year, and hence, the lovely video we intro with. We're going to have a presentation now from Shameel and Raisibe and then we will join you on stage for Q&A.

Welcome to our synergy update and annual results highlights for the year ended 31st of March 2024. Vodacom is celebrating our 30th anniversary. And as I reflect on our past journeys over the past 3 decades, I'm filled with the profound sense of gratitude to have been part of the Vodacom growth journey. From our humble beginnings in South Africa, providing natural connectivity for calls and SMSs, we now reach more than 200 million customers across 8 countries through innovative digital and financial services, we empower to change lives. While I reflect proudly on the milestones we have achieved, it is our ongoing purpose to connect for a better future and drive inclusion that fuels my passion to lead this company. This year, we simplified and evolved our purpose to focus on empowering people and protecting the planet. This is underpinned by our commitment to maintain trust in anything we do. This evolution from our previous 3 pillar purpose approach reflects the importance of creating a digital society that is inclusive and sustainable. With connectivity at our core and supported by innovative new rural funding partnerships, we remain committed to closing the digital divide. This year, we rolled out an additional 2,300 4G base stations across our markets. 4G sites across our international businesses were up 21%. To empower people, we actively explore new ways to increase smartphone penetration, attain our connectivity services to promote digital inclusion. Our groundbreaking prepaid device financing bundles have been piloted across our markets. We believe this model can help close the digital gap for the 19 million customers in our base without a smartphone. Our tech for good platforms diversify our revenues and drive societal benefit. We actively contribute to creating a digital society by developing solutions across critical verticals, including education, health care and agriculture. In Egypt, we're partnership with the government to digitize the country's health care system which is more than 300 hospitals and turns more than 6 million people across Egypt. Agriculture productivity is vital for Africa's economic future. We partner with our businesses, Mezzanine, M-PESA and IoT.next, to enhance productivity through the efficient distribution of inputs, access to insurance and funding, connecting farmers with buyers and facilitating payments and subsidies. Mezzanine's eVuna, MyFarmWeb and e-vouching solutions lead over 6 million beneficiaries. In Tanzania, the M-Kulima agricultural platform, which is integrated with M-PESA in over 3 million registered farmers. Beyond our efforts to close the digital divide and drive financial inclusion, we aim to positively impact communities in the areas in which we operate, focusing on youth, underserved, marginalized people and victims of natural disasters. We continue to scale our Code like a Girl program to promote women empowerment through technological inclusion, reaching 16,000 young women in Africa. In the DRC, our I Am Capable program stained 1,450 women living with a disability to become M-PESA agents. We also continue to partner with governments to support a technology-based affordable emergency system known as m-mama in partnership with the Vodafone Foundation, which is now expanding beyond Tanzania. We navigate adversities with resilience and adaptability reimagining problems to create inclusive opportunities. Energy is the prime example of this mindset. Our virtual winning deal is a blueprint for other South African corporates to accelerate the country's energy transition. Significantly, we have also committed to net zero for our own operations by 2035. Pleasingly, our progress in ESG was again recognized by leading rating agencies in this past financial year. We retained our ESG leader AAA rating from MSCI. We also proudly recognized for leadership in addressing climate change, and we were awarded an A rating in the latest CDP climate change assessment. As I reflect on our 30 years as well to come each phase of our growth journey has been remarkable. As part of Vision 2020, the group's primary focus was anchored on reinforcing our commitment to purpose in building our core. Vision 2020 initiated our digital transformation journey, including CVM and Big Data as well as revenue diversification through the growth of financial services, IoT and cloud services. During this phase, the group reached 116 million customers and generated ZAR 91 billion in revenue. South Africa contributed the bulk of the group's operating profit at 71% a while our international businesses and Safaricom contributed 17%, 12%, respectively. Our Vision 2025 powered by our strategy, the system of Advantage leads to continued emphasis on extending our footprint across Africa through the acquisitions of Vodafone Egypt and our investment into Safaricom Ethiopia. This is sensible into a focus on healthy markets where leadership and pricing are top of mind. We also diversified and scaled new services, especially financial services, while investing significantly in world-class big data technologies to enable a deep understanding of our customers. With a year left in our current strategic cycle, our group revenue has surpassed ZAR 150 billion, our customer base is evenly split across our geographic segments, showcasing the breadth of our footprint, which covers more than 0.5 billion people across the continent. Our Beyond Mobile, our new services, which include digital and financial, fixed and IoT contributes 20% of group service revenue as we also advanced our product diversification. Our scale in financial services is evident by an 11.8% increase in financial service customers to 79 million and we now process more than USD 1.1 billion of transaction value a day. These outcomes were delivered through a period characterized by economic volatility. This year, we faced heightened geopolitical tensions, supply chain disruptions by inflation and interest rates. Energy uncertainty and foreign exchange rate pressures, including a 40% devaluation of the Egyptian bond. These factors have taken a toll on our bottom line in the current year, but not on our strategic ambitions. As we look into the next phase of our strategy, we will focus on sustained growth by amplifying our commitment to purpose with customers, strengthening the fundamentals, innovating for growth as we continue to scale our new services beyond mobile and embracing digital transformation. Core to this outlook we'll be accelerating mobile and fixed connectivity, scaling and to financing and deepening digital and financial inclusion in all our markets. We also intend to expand our partnerships to power our growth, increased rural and fiber connectivity and expand the reach of our tech for good platforms. As we execute on the next phase of our strategy, we see continued growth of our connectivity and financial service customers. We expect to exceed 230 million customers and 100 million financial service customers by FY '27. This customer growth provides the foundation of our upgraded high single-digit service revenue growth target. This slide captures the geographical diversification of our income. We are the market leader across our footprint, with the exception of our start-up operation in Ethiopia. This is an important differentiator 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 nearing 80 million, we have a clear path to drive inclusion and long-term growth. Another key differentiator for 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 hotels helps us to localize our operating costs. The Vodafone Egypt acquisition was key to us, advancing our strategic ambitions and enhancing our growth profile. The asset has delivered ahead of our business plan with its attractive returns on capital employed and profitability underpinned by its market leadership position and investment focused regulation. We've also dialed up the strategic focus on financial services, and this is evident in how quickly Voda Cash is standing. We see financial services as a long-term growth lever for this asset. Given our ability to scale group products and services into Egypt, we captured a massive addressable market opportunity. Our Vodafone Egypt presents significant opportunities for the group. It also comes with a foreign exchange rate risk. We took a sizable P&L knock in the fourth quarter as a result of the devaluation. We were, however, able to implement timely price ups to mitigate the impact into FY 2025. In addition, the recent macro reforms in Egypt have materially improved foreign exchange liquidity and we repatriated cash to South Africa in March. Switching to Ethiopia, we see this investment as a long-term growth vector for Safaricom and the Vodacom Group. In the year, we have made important progress in scaling this greenfield rollout. We reached 2,800 towers, setting the pace for our tower infrastructure build in Africa. As was showcased at the February Investor Day in Addis Ababa, our plan is to build more than 4,000 sites over the medium term. The launch of M-PESA will also help us scale this investment. We reached 600,000 M-PESA customers in our first year and will leverage our fintech toolbox to build a formidable business in the market. Our role as a new entrant in Ethiopia is a key variable to manage going forward. As we invest into the country, we are working with regulators to create a dynamic market for digital and financial inclusion. The regulator's recent decision on significant market power and mobile termination rates with supportive steps for creating a multi-2player market. Alongside our geographic diversification, we've also made significant progress in diversifying our product revenue mix. Connectivity is at the core of Vodacom, whether it be from space, on land or through the airways. We want to connect people for a better future. Prepaid voice is one of the Vodacom's lasting innovations from the 1990s and makes up 19.6% of our SaaS revenue. In our business plans, we expect prepaid voice to remain an important contributor to the group, and we will manage its decline over the medium term. Within prepaid voice, Egypt makes up 16.3% in their scope to grow. We deliver our high single-digit growth target, our other product segments are well positioned for growth. Prepaid data makes up close to 30% of service revenue, and we are excited about the segment's growth prospects. We intend to complement the structural growth in data traffic demand with network coverage, increased smartphone penetration and increased data monetization. Our smartphone strategy has several elements to drive inclusion. It combines local assembly with groundbreaking new prepaid handset financing models that we have piloted across several markets. This model creates the opportunity for a daily repayment option. If a customer is unable to pay, the device is locked until the payment is received much like a core box from the 1990s. Our contract revenue base is predominantly from South Africa. While all our customers demand a best-in-class experience, this is a nonnegotiable focus area for our customers. Our value proposition is also critical to our pricing power with loyalty and content, providing further scope to differentiate. Shifting to our fastest-growing product segment, our new services. In the fiber space, we are working on co-investment models to accelerate rollouts across our international markets. In South Africa, the massive transaction will be heard by the Competition Tribunal from the 20th of May and we look forward to showcasing the strong public interest and pro competitive advantages of the proposed deal. 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 strategic focus. In the next slide, I will talk through our road map for financial services, which we believe will see this revenue compound at a healthy growth rate. Pulling to gain our mobility and new services offerings, we partner with businesses to accelerate their growth and with governments to drive efficiencies for them. By transforming the ways of working through digital technology in high-growth areas like cloud, hosting, managed security, managed services and IoT. Key focus area for us in the business segment is SMEs, which are prevalent across all our markets. This slide sets at our growth road map for financial services and how we leverage our dual-sided ecosystem to deliver exceptional and personalized experiences to consumers and merchants. Vodacom Financial Services, M-PESA and Vodafone Cash have already made a meaningful contribution to financial inclusion across our footprint. Once financial included, we provide customers with an ecosystem that deepens their access to financial services or products like international remittances, global payments, bill payments, saving products, lending and insurance. In Tanzania, more than half of our M-PESA revenues already from services beyond peer to peer and cash out. Looking ahead, the next step in our road map is unlocking economic growth through financial services. This is something I'm passionate about. We want to partner with like-minded companies to create a savings culture for consumers through wealth products and an environment for SMEs to thrive. This is where our super apps play a critical role. They create an open platform where we can integrate our own products with thousands of external service providers. It removes the barriers of physical limitations for both consumers and merchants, which can then help them to expand well beyond the geographical boundaries. But simply, as the transactions compound, we take our cut, but like an iOS and Google Play store. As we execute on this road map, we expect to meaningfully scale our financial services customer base and revenue. Across our consolidated markets, we targeted around 20% compounded annual growth to FY 2027, supporting the group's earnings profile. We are making good progress in our dual-sided financial services strategy. On the merchant side, our M-PESA base surpassed 1 million merchants in the year, up 28%. 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. We recently launched our tap and phone application that allows merchants within any android device to accept card payments without having to invest in a dedicated processing device. We expect this will support our merchant acquiring business, particularly in the small enterprise segment. Our super apps are scaling nicely across the group with almost 5 million M-PESA users adopting this channel. Importantly, we are seeing consistently higher M-PESA ARPU from these super app users. In Egypt, Vodafone Cash is the go-to mobile wallet in the country, with customers up an impressive 52% to 8.2 million. Our OneApp strategy in Egypt means that there is a clear path to convert our 15 million monthly users on the Ana Vodafone app into Vodafone Cash users. In South Africa, our super app, VodaPay, reached over 10 million downloads. Leveraging Egypt's OneApp's success, we merged our telecom app, MyVodacom into VodaPay during the year. The purchase of airtime is an important toothbrush for everyday use case for VodaPay that is supporting good growth in transacting users. It is also worth mentioning the success of our insurance business in South Africa with revenues growing at 13.8% in the year. As we diversify into new growth factors beyond peer-to-peer payments, our financial service product suite continues to broaden our global payments, e-commerce payments, lending, insurance and savings. Across our international businesses, more than 70% of M-PESA revenue growth in the year was from these new financial services. That's an impressive stat. The close working relationship of South Africa, Egypt and our M-PESA Africa hub means that we have a clear road map for growth across our markets. Turning to the group's financial results. This year was characterized by a strong commercial momentum despite several economic headwinds, including higher interest rates and foreign exchange pressures. Group revenue grew 26.4% to ZAR 150.6 billion, positively impacted by the acquisition of Vodafone Egypt. On a pro forma basis, which is comparable with our medium-term targets and includes Egypt in the base, revenue growth was 10.1%. This is the highest rate of constant currency growth in many years. Group service revenue grew 29.1% to almost ZAR 121 billion. Pro forma growth was 9.2% at the high end of our medium-term range. This reflects strong customer growth, accelerating trends in Egypt and a good growth in new services. As I mentioned earlier, customer growth was strong at 203 million customers and were up 9.3%. Financial service customers were up 11.8% to 79 million, and we now process an impressive USD 1.1 billion in daily transaction value. Our new services amounted to ZAR 24.2 billion in the year, and contributed 20% of group service revenue, up from 18.7% in the prior year. The growth in new services was driven by financial services. On a pro forma basis, group EBITDA growth was 7.8% accelerating in our target range of high single-digit growth in the second half. Egypt with EBITDA growth of 32.8%, including the devaluation impact was the key driver of the group result. South Africa's EBITDA grew modestly at 0.7%, impacted by subdued prepaid growth, wholesale revenue pressures and higher network costs. International business EBITDA growth was 8.2% on a reported basis as excellent results in Tanzania and DRC were offset by pressures in Mozambique. We remain committed to spending within our capital intensity framework of 13% to 14.5% of revenue. This level of investment is directed at enhancing customer experience through sustained investments in technology and network infrastructure. We invested ZAR 20.4 billion this year, which equates to 13.6% capital intensity as we accelerated investment in the network performance to retain our network leadership positions. Headline earnings per share, on the other hand, declined 10.8% to ZAR 8.46 per share. This result did not reflect our strong commercial momentum, which is disappointing. Earnings were impacted by the macroeconomic cycle with higher interest rates and foreign exchange losses diluting the result of ZAR 1.50 per share. Raisibe will unpack this impacts on earnings in more detail in our presentation. Separately, the Board declared a final dividend of ZAR 2.85 per share, which reflects our dividend policy of at least 75% of Headline earnings. This implies a total dividend of ZAR 5.90 per share this year. Unpacking the group performance by geography, we delivered revenue growth across each of our segments. South Africa service revenue grew at 2.6%. This is below our ambition of mid-single-digit growth as wholesale headwinds were compounded by a tough comparison for prepaid. Our international business reported service revenue growth of 13.1%, while Egypt's local currency growth was 31.6%. Safaricom had an outstanding year. We have reported service revenue growth of 13.4% in Kenyan shilling, driven by double-digit growth in Kenya. Group operating profit increased 20.8% or 5.9% on a pro forma basis to ZAR 35.3 billion. Safaricom's contribution to group operating profit was ZAR 2.7 billion, not far off from the ZAR 2.8 billion from last year. This was an encouraging result as 10 years stellar performance offset [ expectedity ] of losses. In South Africa, operating profit declined 3.6% as a result of higher depreciation and amortization of the new spectrum. Operating profit trend in our international business reflected the amortization of new spectrum but also the start-up losses for our direct stake in Ethiopia, which amounts to 5.7%. A look at our group customer split shows that we have diversified into 4 similarly sized segments. Of our 203 million customers, 75% are now outside South Africa. Shifting to a product lens. This slide sets out the contribution of our high-growth new services to each of our geographical segments. We target a new service revenue contribution of 25% to 30% of group service revenue over the medium term, including Vodafone Egypt. In South Africa, 16.6% of service revenue is now attributable to new services, up from 15.3% in the prior year. Vodafone Egypt's new service contribution is scaling quickly. In addition to the 6.5% weighting of Vodafone Cash, digital and fixed services are also meaningful contributors to Egypt's 15.6% from new services. Across our international business, the contribution from new services exceeded 30% for the first time, while Safaricom sets the benchmark at 46.5%. We intend to scale each of these new revenue streams into successful businesses. As the group, including Safaricom, we have 79 million financial service customers. While this is a very impressive number on a stand-alone basis, the scope for growth remains very material with penetration of our base at less than 40%. The scale of our financial service business is best reflected in the transactional value and volumes processed transactions through our mobile platforms. We processed more than USD 100 billion in the quarter, so annualizing at a rate of USD 400 billion. Our transaction volume of 33.7 billion means that we do almost 100 million transactions every day. Our financial service revenue from our consolidated entities reached ZAR 13 billion, up 20% on a pro forma basis, with an additional ZAR 18 billion generated by Safaricom. This implies a combined fintech footprint of ZAR 31 billion, or USD 1.6 billion. In South Africa, service revenue generated from financial services grew 7.9% to ZAR 3.2 billion. Revenue growth was underpinned by our insurance payments and lending businesses. Our international business delivered M-PESA revenue of ZAR 7.9 billion in the year, up 21.4%. Looking at the contribution of financial services to the group, the weighting increased to 11% in the year. At Safaricom, which is an associate the contribution increased again at 42%. Then looking at the contribution to profit before tax, which includes Safaricom, the weighting is around 20%. This bottom line contribution of financial services means that the Vodacom investment case offers something quite different to a typical emerging market telco. Turning now to our 4 segments. Revenue for South Africa reached ZAR 88.3 billion, up 4.2% with equipment revenue outpacing service revenue. Service revenue grew 2.6% to ZAR 61.6 billion. It was driven by new services. Our consumer contact segment and prepaid mobile data also contributed to the growth. Prepaid service revenue increased 1.7% as we leverage our customer value management capabilities to contain pressures on voice revenue while driving higher customer engagement and revenue in the data segment. Prepaid data revenue growth was 11.6% for the year. Into FY 2025, we are implementing price adjustments on a more-for-more basis to improve the outlook for prepaid. Mobile contract customer revenue increased by 3.9% to ZAR 23.5 billion, supported by customer growth and price adjustments. Our data metrics reflected the structural growth appetite for the service. Data traffic increased 36.2% while we added more than 3 million data customers to this 28.8 million, up 12.8%. Smart devices were up 8.4% to 31.8 million. New services were up 11.2% and contributed ZAR 10.2 billion or 16.6% of South Africa service revenue. Managed alongside financial services, our digital service portfolio had a strong year, up 13.6% to ZAR 1.6 billion. Vodacom business service revenue declined by 0.8% to ZAR 17.3 billion, impacted by a decline in wholesale revenue and pressure associated with a return to office. While we expect pressure on wholesale to persist in the near term, the growth drivers such as IoT, fiber, cloud, hosting and security provide us with comfort in the outlook for Vodacom business. EBITDA grew modestly for the year at 0.7%. In addition to the pressure in prepaid and wholesale, we faced higher technology costs associated with a 19% increase in the price of electricity, grid availability challenges and security. Vodafone Egypt delivered service revenue growth of ZAR 30.2 billion in the year, with the growth rates presented on a pro forma basis. In the fourth quarter, service revenue growth accelerated to 40.5% in local currency. This was well above inflation and was supported by strong customer engagement, mobile and fixed price adjustments and an excellent growth in Vodafone cash. Data metrics were strong and supported by network investment. Data traffic was up 41.8%, with data customers increasing 10.9% to 29.1 million. Smartphones in the network were up 7% to 33.1 million. Vodafone cash revenue more than doubled in local currency. The outlook for this business is really exciting, particularly as we leverage the group's product road map over the medium term. Reported EBITDA was ZAR 13.1 billion, accounting for 23.3% of the group. The result was impacted by a 40% currency devaluation in the fourth quarter. Excluding this impact, EBITDA would have been ZAR 14.5 billion and up almost 40% in local currency. This trend reflects excellent cost control in a high inflation environment and growth in Vodafone Cash, including fee income on deposits. Net income growth in local currency was excellent at 53.7% with the foreign exchange pressure offset by lower growth in depreciation and higher net finance income. This level of net income growth meant that even in hard currency terms, the business grew in FY '24 despite the devaluation in March. In euros, Vodafone Egypt net income was 6% higher than the full year FY '23. Service revenue for our international businesses increased 13.1% to ZAR 29.9 billion, supported by data and M-PESA. From a market perspective, we delivered strong double-digit local currency growth in Tanzania, while DRC service revenue growth improved in the second half. Mozambique's performance was disappointing with service revenue declining in the year. However, recent regulatory reforms implementing price floors that went live in early May should meaningfully improve the market's prospects going forward. In the international portfolio, we added 3.9 million customers to reach 54.1 million, up 7.7%, supporting strong commercial execution. Data revenue was up 30.5% to ZAR 8 billion on a reported basis and 21.9% on a normalized basis. Data revenue was supported by strong customer metrics and data customers reached 24.2 million, up 7.5%. Data traffic across the portfolio was up 44% and was reported by 14.4% Smartphone user growth to reach a penetration of 35.2% across our portfolio. Looking ahead, our new daily payment model for smartphone financing can meaningfully improve this penetration rate. We are already piloting this financing model across all our markets and expect to commercially launch it in FY 2025. M-PESA revenue was up 21.4% to ZAR 7.9 billion contributing 26.5% of international service revenue. Growth was supported by strong performances in the DRC, Lesotho and Tanzania. New growth areas such as lending and savings products continue to gain traction across the portfolio, contributing more than 70% of the gross. International EBITDA was ZAR 11 billion and grew by 8.2%, reflecting foreign exchange translation and tailwinds. EBITDA margins were 35.6% and 1.7 percentage points lower than the prior year. The margin outcome reflects a change in the country mix within the segment with Tanzania EBITDA growth outpacing the other markets with a growth of 19.7%. DRC delivered good U.S. dollar growth of 6.9%, while Mozambique weighed on the segment's performance with EBITDA down 22% in local currency. Safaricom delivered an excellent performance in Kenya and reported that Ethiopia delivered on important milestones in its first full financial year since launch. Service revenue increased 13.4% with Kenya delivering growth of 11.7% above its multiyear trend. EBITDA was up 16.8%, supported by Kenya which supported stellar growth of 16.6%. Kenyan EBITDA margins improved 2.8 percentage points to a best-in-class 54.7%. Supported by strong EBITDA results, Vodacom have come delivered ahead of its EBIT guidance for both group and Kenya. Safaricom's net profit attributable to equity shareholders was up 1.2% in the year. This is noteworthy -- a noteworthy result in itself, given that Ethiopia's EBITDA losses were guided to have peaked in the year. A key driver of the impressive Kenyan result was M-PESA where revenue growth was an impressive 19.4% off a very large base. Aligned to our financial services product road map, Safaricom launched Mali during the year, our first well product in the market. Creating a savings culture to a simple and rewarding wealth products will be a key enabler of cloud for the continent. Kenyan mobile data revenue grew 18%, also accelerating from the prior year. The growth was supported by the adoption of integrated bundles associated with Safaricom make your own bundle campaign, which allows customers to select a preferred touch point with [indiscernible] and mix of data and voice. The fixed result in Kenya was also strong at fiber-to-the-home customers grew 27% and homes passed exceeded 560,000. Safaricom is on track to pass 1 million homes over the medium term, confirming the consumer appetite for fiber across our footprint. Looking ahead, Safaricom's EBIT guidance for FY '25 suggests another strong year for Kenya, while Ethiopia continues to scale up its operations.

In this video, I will unpack our results for the year ended 31st March 2024. My opening slide sets out our key highlights for the year. We delivered excellent revenue growth supported by second half acceleration. This momentum has resulted in us upgrading our medium-term service revenue guidance, but more on that later. Egypt and our new services were the key drivers of revenue growth as we surpassed the ZAR 150 billion revenue milestone. ROCE increased to 23.1% as we sustained a track record of high returns and strong free cash flow. The group EBITDA margin was 37.3% for the year, a modest [ decrease ] year-on-year as we faced steep energy cost inflation across our footprint. Our balance sheet remains in a healthy position with leverage improving year-on-year as we limit our exposure to foreign currency debt. From this position of strength, we are able to deliver on our committed dividend payout ratio. Moving to our income statement. We have set out reported growth as well as pro forma growth will help provide better insight into our underlying trends. Pro forma growth provides a trend of the business. In constant currency, assuming Vodafone Egypt has been [indiscernible] on the 1st of April 2022. This is comparable with our medium-term targets. On a pro forma basis, service revenue increased by an impressive 9.2% supported by excellent growth in Egypt. Group EBITDA grew within our target range at 7.8%. Reported EBITDA reached ZAR 56 billion, despite a ZAR 1.4 billion foreign exchange headwind, which arose from devaluation in Egypt. The net profit from associate and joint ventures of ZAR 2.2 billion declined 15.3% on a reported basis as it was impacted by start-up losses from our new business in Ethiopia, and foreign exchange headwinds. Headline earnings per share declined 10.8% to ZAR 8.46 per share. The decline, which I will unpack later in my slide was attributable to foreign exchange losses, start-up losses in Ethiopia, higher finance cost was in the prior year, we had a deferred tax asset recognized in Tanzania. As set out on the previous slide, pro forma service revenue growth for the group was 9.2% in this financial year. This was consistent across most quarters of the year. South Africa reported a muted growth of 0.7% in the fourth quarter, impacted by a tough prepaid comparison and pressure in our wholesale business. We reported service revenue for our international business of 9.1% growth in the fourth quarter with strong growth in data and M-PESA and foreign exchange translation tailwinds. The normalized growth rate of 5.4% was impacted by a tougher quarter in Mozambique. Egypt delivered local currency growth of 40.1%, well above inflation. The acceleration was supported by strong customer engagement, mobile and fixed price adjustments and excellent growth in Vodafone Cash. In this slide, we provide more context around our group EBITDA growth. On a reported basis, group EBITDA increased 24.3% to ZAR 56.1 billion, representing an EBITDA margin of 37.3%. The material component of this growth was the Egypt transaction, which was consolidated from December 2022. We adjust for this impact in FY '23 pro forma EBITDA base of ZAR 53.5 billion, as reflected on the left of the slide. On a pro forma basis, we grew EBITDA 7.8% to ZAR 57.7 billion. The key drivers of growth was Egypt, while South Africa and international contributed modestly. On this basis, the group EBITDA margin was 38.3%. Our reported EBITDA in FY '24 was impacted by material foreign exchange losses that amounted to ZAR 1.6 billion. Egypt's recent devaluation in March was a driver for this loss and reflects the mark-to-market of hard currency payables such as CapEx [indiscernible]. Underlying EBITDA margin in Egypt at 44.5% was robust particularly given inflationary pressures in the market. This slide provides a bridge from EBITDA growth of 24.3% to net profit growth of 6.4%. From EBITDA, higher depreciation and amortization as well as the start-up costs in Ethiopia, and this costs offset the underlying growth in Safaricom, which is our associate. Higher depreciation and amortization in South Africa was as a result of our investment into [ metrics ], which are depreciated over a shorter time frame than most other network equipment. Below the operating profit line, higher finance costs weighed on net income. The higher finance costs were as a result of an increase in interest rates, new debt to fund Vodafone Egypt deal as well as the spectrum transactions. I will unpack the net debt movement in the upcoming slides. As mentioned in the overview, Headline earnings per share declined 10.8% to ZAR 8.46 per share. The decline was attributable to foreign exchange losses of ZAR 0.56 per share start-up losses in Ethiopia of ZAR 0.21 per share and higher finance costs in prior year deferred tax assets recognized in Tanzania. On a constant currency basis, Egypt added ZAR 0.34 per share. This is after accounting for its funding costs and the new group shares issued. The impact of the Egyptian pound devaluation is captured in the ZAR 0.56 impact from the foreign exchange losses. We're disappointed by the headline earnings per share result in the current year, but note that it does capture several material headwinds related with this precarious economic cycle. Shifting to free cash flow, we generated operating free cash flow of ZAR 30.3 billion, up 20.7%, having invested ZAR 20.4 billion in CapEx with further ZAR 6.2 billion applied to lease payments and ZAR 200 million absorbed in working capital. CapEx increased to 23.8% with inclusion of Egypt. Our group free cash flow, which captures our cash interest, tax, minority dividends was ZAR 18.2 billion and declined 1.7%. Pleasingly, the dividend declared by Egypt to the group in the first half of the current financial year was repatriated to South Africa in March 2024. The group free cash flow result was impacted by the phasing of Safaricom dividends, which positively impacted the prior year free cash flow by ZAR 1 billion. Adjusting for this -- for the phasing impact, group free cash flow grew irrespective of 4%. In the second half of the year, we generated ZAR 18.4 billion in free cash flow versus the previous cycles where the cash flow is stronger than in the first half. This phasing of free cash flow into the second half is expected to repeat in the financial year 2025. The chart also confirms a multiyear track record of strong free cash flow generation. Given the extent of macro pressures we have faced in recent years, including in the financial year '24, this is a pleasing outcome and showcases the resilience of our business. In the chart on the right, we capture our ROCE track record, which provides a similar perspective to free cash flow illustrating consistent and healthy returns. Positively, we've also seen a tick up in ROCE this year, supported by Egypt. Following the acquisition of Vodafone Egypt in the previous financial year, the dividend policy was set at least a minimum of 75% of Vodacom Group's headline earnings. With this level of payout, Vodacom offers one of the highest dividend payouts. Aligned to this policy for this period, the Board has declared a final dividend of ZAR 2.85 per share. This brings the full mass dividend to ZAR 5.90 per share, equating to ZAR 12.2 billion in cash paid. We finished the year with net debt of just under ZAR 50 billion, modestly higher than the prior year as a result of the spectrum payments of ZAR 3.4 billion in the year, which included the final ZAR 2.2 billion tranche in South Africa. Pleasingly, our key leverage ratio, net debt to EBITDA improved from 1.1x to 0.9x. The increase in net debt was more than offset by higher group EBITDA in the year. Looking ahead to the financial year, our proposed massive deal in South Africa is a key consideration. If this deal proceeds, as we hope it will, it is expected to modestly increase our net debt to EBITDA. Looking at the composition of our borrowings, 90% of our financial debt is rent based. This high weighting on the rent debt is deliberate and helps limit our exposure to foreign exchange risk. From an interest rate perspective, our financial debt is almost 80% floating rate or closer to 60% when leases are included. That mix provides us with an opportunity to benefit from stabilizing and even falling interest rate expectations when the cycle turns. From a position of balance sheet strength, we are well positioned to accelerate our growth. A key growth driver for us over the medium term is our 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 business scope, we saw our new services revenue contribution increasing from 19.3% to 20% in this year. Looking ahead, our ambition is to increase this to around 25% to 30% in the medium term. The largest weighting within our new services is our financial services portfolio. We see this scaling to a mid-teen contribution to group service revenue as we deepen financial inclusion across our markets. On this slide, we set out our capital allocation priorities. Our first priority is investment into organic growth, which includes our core connectivity business, in new growth areas. This investment is supported by our big data capabilities, which help us generate the best returns for each brand 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 to fund our CapEx intensity framework and also delever our balance sheet in due course. In my concluding slide, I set out the medium-term targets. Building on the strong momentum of the current financial year, we upgrade our service revenue target from currently mid- to high, the new target being high single-digit growth. Our group EBITDA growth expectation is unchanged at high single digit. First is our CapEx intensity, which would remain at 13% to 14.5% of revenue. These targets are on average over the next 3 years based on trailing economic conditions. These targets are not without challenges. Notably, the macro outlook remains uncertain with both global growth concerns and local factors. We do, however, anticipate that South Africa service revenue trend will improve from the fourth quarter exit into 2025. Within our International segment, we expect regulatory reforms in Mozambique to meaningfully improve outlook for the assets through the course of 2025. Separately, our associate Safaricom also provided guidance on Kenya, Ethiopia as well as theirGroup. For FY '25, Safaricom is guiding on another strong year for Kenya. While Ethiopia continued to scale up its operations. At a group level, EBIT guidance implies high single-digit growth. On that note, I will conclude and thank you for your attention.

Over 3 decades, we have built Vodacom Group into a purpose-led business with a footprint reaching 40% of Africa population. We are a market leader across our markets with a unique opportunity to drive improvement. Our asset-rich portfolio is another point of differentiation, and we own the vast majority of our towers and mobile infrastructure. The combination of our connectivity and financial services scale means that we can constantly deliver returns above our cost of capital. Looking ahead, with these attributes in place, we will continue to execute on our system of advantage to capture growth. We are hopeful that we can conclude the [ Mesa ] transaction this year as it will accelerate fiber reach in South Africa fostering economic development. We will also focus on accelerating the penetration of our existing connectivity services with new spectrum unlocking fixed wireless access opportunities. We're scaling our new device financing model. Across our digital ecosystem, we have growth opportunities ahead of us. It's been deepen financial inclusion and unlocking our customer growth potential. Transforming to [indiscernible] will include the optimizing of our assets to [indiscernible] and to this end, we will aim to unlock benefits through 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 guidance. Finally, we will always prioritize our contribution to the 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 road show. This concludes my presentation. Thank you for your attention.

Good morning, again. So I'm going to take a bit of Q&A. I do have some questions online, but is anyone in the room who would like to ask a question. Nadim, I think I can see you through a very bright light on me.

Just 2 questions from my side. Firstly, the thing that surprised me in this result was the deceleration in new services in South Africa in the fourth quarter. I think at half year, if I remember correctly, it was up 18% year-on-year. But for the full year, we ended up at about 11% year-on-year for South Africa. I would like to understand the substantial deceleration. It looks to me across the board of financial services, digital IoT, I'm not too sure, but I would like some color on that. And then secondly, just on prepaid, which has been another tough quarter down 0.1% year-on-year. I'd just like to understand, is there a bit of market share loss, seeing that your competitors are not facing as much load shedding? Is -- are some of the strategies that are not price up helping? And are you still seeing a lot of pressure in voice?

Did you want to start on the new services?

Sure. So I think what we have found is that one of the impacts that we had during this year on new services was IoT. So one of the things that didn't grow as well was IoT and that was had to do with government's basically are [indiscernible] on services. what's happened towards the end of the year now going into the new year, that issue has been resolved. So that had a big impact on some of the new IoT services especially our Mezzanine platforms and it's now that we're selling into government. But that's not resolved, and we now qualify and basically all eyes open up, so we can start supplying again. So that's put a -- So that's the one thing that did affect the IoT services. On airtime advance and obviously, tax the performance of prepaid, so that didn't grow as strongly as it did in previous years. Hence, the 7.9% in financial service growth and not a double-digit growth. So that's the -- so that was the big impact. And then, of course, digital services at a very strong -- some of the -- some contracts, we also did a more rigid [indiscernible] on some of the services, meaning that making sure there's double opt-ins, all of those type of things. So we keep doing that to make sure that we have proper growth in our digital services portfolio. So all of that contributed to slightly lower growth, and I think still a healthy growth rate for the year, just over 13% in the new services category. In terms of prepaid, basically no loss in market share. So I don't think we're losing share to anyone. In fact, if we look at over the year and even the last quarter, we have gained share slightly. So that's the one part. The second part is load shedding affects everybody. No one gets affected by less load shedding or more load shedding. I wish it was the case, but it's not. So I think everybody gets affected by load shedding. I think the entire industry was under pressure this year because of the higher levels of load shedding and the related costs that were associated with pushed up tech OpEx and then, of course, energy costs went up quite a bit as well. So we had energy is about 15% of the South African cost and that grew by 19%. So that weighed onto our cost profile. Going forward, of course, we've planned to deal with that through a more-for-more price up strategy, which effectively be implementing on contract. And for the first time, we're implementing home prepaid.

Any other questions in the room? Okay. I've got quite a few coming through online here. So just kicking off with Rohit from Citi. He's got 2, probably both for you, Shameel. Can you share what's driving the sequential decline in the SA contract subscriber base in the final quarter of the year? And then please share what the importance of service revenue growth in Egypt was driven by the price increase that we implemented?

Yes. So I think -- so we did a little bit of cleanup as we normally do a contract. So there isn't any change in train. I think it's better to look at the contract over the full year, and you'll see we've grown the base by 125,000 which is higher than anybody else in the market. So effectively, the contract part is still got good growth and so on. So no issues. We normally do just a little bit of cleanup look for basically what we can prepaid on what we call [indiscernible] and weakening up some of those things periodically. So I think still good contract growth in the customer base. In terms of the price increase, we put a price increase in Egypt through in January, that accelerated revenue from circa 30% to over 40% growth. And a lot of that has come from the price up itself with a 15% price up, but it also came from continued growth in the financial services part in enterprise, which continues to gain momentum. So there's some strong growth levers in the Egyptian numbers, specifically financial services and enterprise that continues to add to the growth. And then on top of that, of course, we had the price up.

Madi from HSBC has got a few. So I'll just bucket them into firstly, questions for you, Shameel, and then a question for you, Raisibe. The first one, Mary, just talking firstly about that growth slowdown in South Africa in the fourth quarter. I was trying to reconcile that to the price increases that we talked about, so the timing of that. Then he just had a detailed question on prepaid voice, which I see pops up later, so maybe I'll quickly take that. So prepaid voice was actually fine even a little bit better in the fourth quarter, down about 6%. They had been high single digits. So that wasn't really the issue in the quarter. It was more the tough comparative with data where we faced that compares of load shedding this time last year. And so Shameel, the 4Q on price increases and then any more price hikes or Egypt that we can talk about looking forward?

So I think on the price increases, the price increase only take effect from 1st of April. So there's nothing of price increases in the South African numbers in the fourth quarter. So it only came in from 1st of April. And then the prepaid one is essentially over like a ZAR 2 billion, ZAR 2.5 billion business to be done sequentially. So that's still ongoing. But the contract ones were implemented from 1st of April. In terms of further price ups in Egypt, we're pushing for more price ups. We're trying to link it towards more inflationary base price ups, but it will take some time. But essentially, we will continue to put 4 price ups in Egypt, and we're confident we will get there just it takes a while.

Janet from Perpetua has a couple -- sorry, Raisibe [indiscernible]. Madi had a question on the FX impact for Egypt. So he's asking, is there any sustained FX impact on EBITDA and earnings in Egypt? Or is the FX impact one offs in nature?

So the FX impact was occasioned by the devaluation, which took place on the 6th of March. And as a result, it's a one-off charge, which is obviously relating to the adjustments on the working capital, and that was roughly about ZAR 1.6 billion. And then we also had a circa ZAR 400 million, which is the FX impact on the dividend that we repatriated. So obviously, with the devaluation, the maturation happens after the devaluation. So altogether, around ZAR 2 billion of the FX impact of devaluation. The good news is the macros in Egypt are stabilizing. The Egypt is now full trading, and we don't see any likelihood of a further devaluation in the next 12 months or so or even better than that. I think things have kind of stabilized. So I think it is a one-off. And fortunately, the growth in business has such strong momentum, but we have actually been able to grow despite that devaluation impact.

Which answers one of Janet's questions from Perpetua. She's asking for the currency outlook in Egypt, which I think you've covered. Also 2 specific ones, which I'll quickly take. At what rate did you repatriate the cash out of Egypt. And then the second one is, do you have any outstanding balances to be repatriated out of Egypt? So firstly, on the exchange rates that we repatriated at that was at the prevailing rate after the deval, around 47 to the dollar. So that was at the screen price at the time, no deviation from that. And then have we got any money outstanding balances in Egypt? The answer is no. So all the cash or the dividends were repatriated to South Africa.

Let me give a bit more color on that is that the country has actually caught up with the backlog. So they paid the outstanding supplier commitments as well as dividend commitments. So now things are pretty much back to normal.

Good. Then just while we're on the theme of Egypt, Myuran from MIBFA says, well done on the hard currency growth rate in Egypt this year. So you picked up on that euro net income growth. And then I guess asking a trickier question, which is can we expect the same for the coming year, another year of euro growth?

Yes, I think for us, we've got strong momentum. I think with the price sets in, what the price flow is in place, what the data grows, what the financial services growth that's happening with the enterprise growth and also the health the solutions growth and so on. We feel confident that we can still deliver or we will deliver a very strong performance in Egypt, and that will again deliver hard currency growth as well.