Towards Total Communications Group overview Contents Group overview Sustainability review Highlights 2 Sustainability review 76 Group at a glance 4 Highlights 77 Group structure 6 Stakeholder engagement 80 The Vodafone advantage 7 BBBEE 84 Our history 8 Workplace 86 Our values 9 Access 89 Our strategy 10 Environment 91 Outlook 12 CSI 93 Five-year review 14 Corporate governance statement 95 Communications Total Towards Value added statement 100 Performance review Annual financial statements Chairman’s statement 18 Board of directors 22 Annual financial statements 105 Executive committee 26 CEO’s review 28 Administration Contents CFO’s review 34 Corporate administration 231 Business review Shareholder analysis 232 Notice of annual general meeting 233 South Africa 50 Definitions 239 International 62 Disclaimer 240 Gateway 70 Proxy Perforated 1 Group Annual Report 2009 Group at a glance Vodacom is a leading African communications group providing mobile communications and related services to 39.6 million customers as at 31 March 2009. Our mobile network covers a total population of approximately 182 million people in five countries: South Africa, Tanzania, the DRC, Lesotho and Mozambique. Vodacom’s presence in Africa was strengthened by the acquisition of Gateway, a leading provider of communications services to multi-national companies and telecommunications network operators. The Vodacom Group provides a wide range of communications products and services, including voice, messaging, broadband and data connectivity, and converged services. We launched Vodacom Business in 2008 to offer converged business network and related IT services to the enterprise market. Vodacom employs some 7 255 people and is headquartered in Midrand, South Africa. Group overview Group Business segments South Africa International Gateway Vodacom SA is the largest mobile Vodacom owns mobile network Gateway is Africa’s largest provider network operator in South Africa with operations in Tanzania, the DRC, of satellite and terrestrial network an estimated 53% market share as Mozambique and Lesotho, with a infrastructure and interconnection at 31 March 2009. Vodacom SA combined 12.0 million customers. services for African and international had 27.6 million customers as at The international operations cover a telecommunications companies. 31 March 2009, or 69.7% of the total population of approximately Gateway also provides an extensive Group’s customer base. Vodacom SA 134 million, which have a blended range of high quality, end-to-end contributed 86.0% to group revenue mobile penetration rate of less than connectivity solutions to multinational Towards Total Communications Total Towards and 94.7% to group operating profit 25%. The international operations corporations operating across Africa. for the year ended 31 March 2009. contributed 30.3% to group customers Gateway services customers in as at 31 March 2009. 40 countries. Segment contribution Group revenue Group EBITDA Group capital expenditure South Africa 86% South Africa 89% South Africa 67% International 13% International 10% International 35% Gateway and other 1% Gateway and other 1% Gateway and other 2% 4 Group Annual Report 2009 Group structure 65% Vodafone 14% Government of South Africa 21% Public Vodacom Group1 Vodacom SA Vodacom 93.75% 2 Service Provider 100% Vodacom Tanzania Vodacom Ventures 65% 3 100% Group overview Group Vodacom DRC 51% 3 Vodacom Mozambique Towards Total Communications Total Towards 85% 3 Vodacom Lesotho 88.3% 3 Gateway 100% 1 Listed on the JSE Limited 2 6.25% of Vodacom SA was aquired by BBBEE parties in the Vodacom BBBEE transaction 3 The remaining issued shares in these companies are held by local partners in the respective companies 6 Group Annual Report 2009 The Vodafone advantage Vodafone has a significant global presence, with equity interests in over 30 countries and over 40 partner networks worldwide. Vodafone is organised in three geographic regions – Europe, Africa and Central Europe; Asia Pacific and Middle East; and Verizon Wireless in the US. The benefits of being a subsidiary of Vodafone are central to Vodacom’s value proposition and growth strategy, and include: U Shared communications expertise and experience; U Access to world-class research and product innovation; U Procurement savings through global economies of scale; U Benchmarking operations against global standards of excellence; and Towards Total Communications Total Towards U Powerful brand association. Vodacom will be Vodafone’s exclusive investment vehicle in sub-Saharan Africa. Group overview Group Equity interests Competitive position Vodafone has three key attributes which strongly differentiate it from its competitors: its scale in technology, which allows network and IT savings through consolidation and centralisation of core activities; its strong presence in the enterprise market, among large corporates as well as small and medium sized businesses; and its brand, recently rated in the top ten leading global brands. 7 Group Annual Report 2009 Our strategy Vodacom aims to be a leading total communications provider in sub-Saharan Africa. To realise this aim, we are focused on maintaining our leading market positions in our existing markets and expanding profitably into new communication products, services and geographies. Group overview Group Grow core mobile business Leadership in broadband U Grow our customer base through continued investment in U Build infrastructure to support broadband growth our networks and distribution capability U Increase international capacity through U Increase mobile usage by launching affordable and investment in satellite and undersea cables innovative products U Improve access by introducing lower-cost handsets and U Enhance customer care to maximise customer retention bundled laptop packages U Target efficiencies to ensure economies of scale U Improve affordability of data usage are realised Towards Total Communications Total Towards Achievements Achievements UÊ Record gross connections of 13 million and churn reduced UÊ Grew 3G network to more than 2 880 sites by 2.2 percentage points to 40.1% in SA UÊ Eight of the11 metropolitan fibre rings completed in SA UÊ Îä°Ç¯Ê}ÀÜÌ ÊÊLiÊVÕÃÌiÀÃÊÕÌÃ`iÊvÊ-ÊÌÊ UÊ 720 000 mobile broadband customers in SA 12.0 million UÊ 2.8 million 3G-enabled handsets, presenting a significant UÊ Top telecommunications brand in SA for the fifth year opportunity for further broadband penetration UÊ Lower denomination vouchers and dynamically priced UÊ Vodacom’s Mobile Internet services successfully launched prepaid product introduced in SA in SA UÊ Short- and long-term efficiency programmes put in place 10 Group Annual Report 2009 Vodacom’s strategic direction is underpinned by ongoing investments in key areas: maintaining brand leadership; enhancing customer care and deepening customer loyalty; developing our distribution platforms and supply chain management capability; continually improving the coverage, quality and efficiency of our network infrastructure; and inspiring, developing and supporting the sustainable wellbeing of our employees and communities. Towards Total Communications Total Towards Develop new converged ICT solutions Expand in sub-Saharan Africa U Expand into converged services closely connected to our U Evaluate further licence and acquisition opportunities core mobile business in sub-Saharan Africa overview Group U Retain customers through valued-added total U Accelerate international expansion into key regional communication services markets through Gateway U Build market leadership position with competitively U Strengthen our total communications offerings priced, high quality offerings into Africa U Leverage converged capabilities to other African U Realise synergies across Vodacom, Gateway’s countries through Gateway sub-Saharan footprint and Vodafone Achievements Achievements UÊ 5 million unique internet users, 962 000 active email accounts UÊ VÀi>Ãi`ÊÛiÃÌiÌÊÊÃÕL>ÀiÊV>LiÊ«ÀiVÌÃ]ÊÃ>ÌiÌiÊ and 2.6 million unique Vodafone live! users in SA capacity and pan-African network infrastructure UÊ Vodacom Mobile Media pioneers mobile advertising and UÊ Gateway increases customer reach and network footprint posts strong growth with new offices opened in Kenya and Uganda UÊ The Grid, a unique location-based social networking UÊ Expanded satellite capacity with over 20 additional platform developed by our Social Media division, attracts transponders added in the last 12 months some 320 000 users UÊ Gateway launches Africa IPJetDirect, for mobile internet UÊ Vodacom Business gains traction, attracting top talent connectivity, and AfricaConnect, for connectivity in retail and developing a portfolio of 28 products and finance sectors in rural areas 11 Group Annual Report 2009 Outlook As customers continue to contain their spending in the face of ongoing economic weakness, Vodacom will seek to offer greater value. To further mitigate the pressure on top-line growth and preserve margins, driving efficiencies across the business will continue to be a priority. Gateway and the relationship with Vodafone will be key to unlocking further synergies. The Group will weather the economic storm by staying efficient and competitive. We will continue to invest in positioning the Group for growth in the sub-Saharan African communications markets, which remain among the fastest growing in the world. Vodacom Group’s capital expenditure is expected to be R8.0 billion for the year ending 31 March 2010. The Group’s strong cash flow and balance sheet is expected to