Share price R125.88 Vodacom FY 2021 Results Fair Value R135.81 Date 18 May 2021

RESULTS SUMMARY

Vodacom finished the year on a strong footing with revenue up 7.4% in constant currency. Growth was driven by SA, where data usage, IoT connections and mobile financial services accelerated amid the COVID-19 pandemic. Group growth was moderated lower by a depressed performance from international markets that initially struggled with work and education from home, as well as the group’s decision to zero- rate M-Pesa peer-to-peer services at the onset of the pandemic. As economic lockdowns lifted, SA’s growth moderated, while international markets accelerated. This mixed performance saw group operating profit increase 2.2% to R27.7bn.

The group spent R13.3bn on network upgrades, R10.1bn of which was spent in SA in response to increased data usage. This together with the non-recurrence of a Safaricom special dividend saw free cash flow decline 8% to R14.9bn. However, the group’s dividend policy was maintained and the Board declared a final dividend of R4.10 per share, resulting in a total dividend of R8.25 for the year, up 5.1% from 2020. A strong recovery in international markets, particularly M-Pesa and Safaricom, prompted management to increase their three-year operating profit growth target, guiding for mid-to-high single-digit growth.

OUR LONG-TERM INVESTMENT VIEW

§ Vodacom remains our preferred exposure to the South African and African telecommunications sector. In addition to maintaining a strong balance sheet supported by healthy cash flow generation, the management team have proven themselves adept at growing the business amid an environment of changing regulation and evolving consumer preferences. § The long-term shift from voice to data is well underway and Vodacom have done well to keep pace with infrastructure and network upgrades, increasing coverage and maintaining superior service quality. To this end, Vodacom have become the continent’s first operator to reach 90% population coverage on a 4G network. § Growth into Africa presents an attractive opportunity for revenue diversification and customer growth. While this is not without risks, there is significant upside as customers are skipping fixed lines entirely in favour of wireless technologies. With meaningful ownership in Safaricom, Vodacom will rely on their superior network quality to drive growth and differentiate themselves from peers.

UNPACKING THE FY 2021 RESULTS

High level numbers Informal economies recover COVID losses § Revenue was up 7.4% in constant currency to R98.3bn § International operations, unlike SA, were driven by a strong SA performance and group service less resilient during initial COVID-19 revenue growth of 4.7%. lockdowns due to an immature digital § Normalised operating profit was up 2.2% to R27.7bn, eco-system that struggled to support the driven by a 4.1% increase in SA, partially offset by a 5% transition to work and educate from decrease in International markets. home. As lockdowns lifted and § Headline earnings per share (HEPS) was up 3.7% to economic activity resumed, operational R9.80. performance has recovered. § Operating free cash flow was up 1.1% to R22bn, § Normalised service revenue (in constant supported by a 4.5% increase in EBITDA. Free cash flow currency) was down 1.9% to R22.1bn. was down 8% to R14.9bn impacted by non-recurrence Lower revenue drove a 5% decrease in of a special dividend received by Safaricom in the operating profit; however, this was prior year. materially better than the 22.5% operating profit decline reported at the SA finishes strong interim result. § § SA’s revenue was up 10.3% to R76.3bn, driven by In response to the pandemic, Vodacom increased service revenue, a recovery in equipment zero-rated M-Pesa peer-to-peer services sales and growth in tower sharing revenue. in most markets until January 2021. While this was the correct response, it cost the § Material data price reductions implemented during the year cost SA R3bn in service revenue, however, a group R2bn in lost service revenue. M- 55.6% increase in data usage drove overall service Pesa’s popularity has since improved, revenue growth of 7% to R56.4bn. with transaction volumes up 63.5% to § The group experienced strong demand for its offerings US$24.5bn per month in the fourth as prepaid customers increased 7.4% while contract quarter. M-Pesa revenue was up 5.4% in customers increased 2.2%, ending the year with a total constant currency to R4.5bn. of 44m SA customers (+6.7%). Increased data and Safaricom’s service revenue was muted mobile phone usage saw average revenue per user (-0.3%), impacted by the zero rating of M- increase 13% for prepaid customers and 2.1% for Pesa peer-to-peer services at the onset of contract customers to R61 and R296 respectively. the pandemic and depressed economic § Vodacom Business service and fixed-line revenue grew 11.3% and 6.4% respectively, supported by work-from- activity. Growth in mobile data and fibre home solutions, strong growth in cloud, hosting and to the home partially offset the adverse increased connections. IoT connections increased impacts related to the COVID-19 6.4% to 5.6m driving revenue growth of 32.8%. pandemic. Safaricom’s contribution to § Operating profit was up 4.2% driven by strong revenue growth, partially offset by increased bad debt Vodacom’s operating profit was up 2.5% provisions, the 5G roaming deal with Liquid and a (to R3.5bn) on a normalised basis. 10.2% increase in depreciation and amortisation on the back of increased capital expenditure in SA. Looking ahead

§ Vodacom remains cautious about the pace of economic recovery in SA as pressure on consumers’ disposal income is exacerbated by increased un- employment. § A strong recovery in international markets prompted management to upgrade their medium term (three year) operating profit growth target from mid- single-digit growth to mid-to-high single- digit growth.