Conference Call Transcript 17 May 2021 VODACOM TANZANIA PRELIMINARY RESULTS Operator Good day ladies and gentlemen and welcome to the Vodacom Tanzania preliminary results conference call for the 12 months ended 31st March 2021. Managing Director, Hisham Hendi, will host the conference call. I will read the following forward-looking disclaimer before handing over to Mr Hendi. This announcement, which sets out the consolidated preliminary results for the 12 months ended the 31st March 2021 of Vodacom Tanzania Public Limited Company and its subsidiaries, hereinafter referred to as ‘the Group’, contains forward-looking statements which have not been reviewed or reported on by the group’s auditors. These statements are in respect to the group’s financial condition, results of its operations and businesses, and certain information relating to the group’s plans and objectives. In particular such forward-looking statements relate to the group’s future performance, capital expenditure, acquisitions, divestitures, expenses, revenue, financial condition, dividend policy, future prospects, strategies relating to the expansion and growth of the group, impacts from regulation on the group’s businesses, expectations from the launch and rollout dates of products, services or technologies, expectations regarding the operating environment and market conditions, growth in customers and usage and the rate of dividend growth. During this call, unless otherwise specified, all growth rates stated will be year on year and all amounts stated will be in Tanzanian Shillings. If you do not have a copy of the results announcement, it is available on the investor relations section of our website. I would now like to hand the call over to the Managing Director, Mr Hisham Hendi. Please go ahead, sir. Hisham Hendi Thank you Claudia. Good afternoon everyone and thank you for taking the time to join us. I am here joined by Jacques Marais, our Finance Director. Vodacom Tanzania Plc is a purpose-led organisation, which means that we strive to balance economic growth with social inclusion, environmental protection and our vision for connecting for a better future. The harsh consequences of the COVID-19 pandemic reinforced the importance of our purpose-led approach as we quickly stepped up to the plate in support of society through a range of initiatives including prioritising the resilience of our network, accelerating support to government and facilitating cashless payments. Given the significant changes to the customer demands and behaviour patterns due to COVID-19 measures we responded rapidly to keep families connected and ensure customers could work, be educated and stay entertained through significant investment in our network. 1 C2 General From a financial perspective revenue and profitability were adversely impacted by the barring of services to 2.9 million SIM cards in the previous year and an associated step up in competitive intensity in addition to subdued economic activity due to the health crisis. While these factors contributed to a 5.7% decline in service revenue, there was a noticeable improvement in service revenue growth in the second half of the financial year largely supported by growth in data and M- PESA revenue. Importantly, we maintained our leadership position in customer market share at 30.5% and solidified our headline net promoter score lead with a 17-point gap to the next best competitor despite efforts of certain operators to drive unsustainable short-term customer growth. M-PESA remains a key revenue driver. M-PESA revenue increased 11.3% in the last quarter and accelerated further in April 2021. M-PESA customers grew 10.6% to 7.4 million representing 49.8% of our customer base. We continue to lead the industry with customer market share of 40.7%, up 1.4%. M-PESA continues to be a key enabler of financial inclusion while empowering customers to transact easily and effect cashless, contactless payments. In particular, our lending product, Songesha, continued to perform well with healthy growth recorded in the year. Our international money transfer also continues to play an important role in supporting financial inclusion with growth in receipts more than doubling to over TSh 500 billion and remittances exceeding TSh 70 billion, an increase of 35%. Our partnership with more than 900 companies continued to facilitate fast, convenient and secure payment through an expanded M-PESA ecosystem. With over 4 trillion transactions processed between businesses and their customers, this has contributed significantly to the growth of M- PESA. One important thing to note, effective from 1st April 2020 our mobile money business operated as a separate legal entity named M-PESA Limited, wholly owned by Vodacom Tanzania Plc. This separation is in compliance with the National Payment System Act. While M-PESA Limited as a standalone business is profitable, the GSM business made a loss for the year. This impacted the business on which taxation was calculated in the current year resulting in materially higher tax charge compared with the prior year. We invested TSh 122.5 billion in capital expenditure which enabled us to expand our 4G network, enhance our IT infrastructure and maintain data availability at a time when customer demand patterns shifted significantly. Our sustained investment programme continued to deliver a better data experience for customers, evidenced by 47% increase in data usage per customer, reaching 1.4 GB per month. We were pleased to be able to reward our shareholders with special dividends of TSh 178.57 per share, a total of TSh 400 billion that was paid during the year. Looking ahead we are encouraged by early signs of industry reform that could bring back growth to the industry and accelerate investment. As we navigate through this period of reform we remain focussed on delivering great value and an exceptional experience to our customers. Our sustainable cost management programme and proactive measures to drive digital and financial growth are expected to improve profitability in the new financial year. While we continue to make good progress on SIM card registration, we remain cautious around the impact of COVID-19 and uncertainty about the pace of economic recovery that may weigh on disposable income as a result of reduced economic activities. 2 C2 General Now let’s look at the numbers. We reported a 5.7% decline in service revenue as mentioned earlier. The barring of service to 2.9 million SIM cards in the last quarter of the previous financial year and the step up in competitive intensity highly contributed to the decline. While the full year result was below our growth ambition, the trends improved through the course of the year and we posted positive growth of 6.3% in Q4. Looking at the key revenue drivers in more detail, absolute voice revenue was up TSh 311.6 billion and declined 16.5%. Despite the 6.3% increase in outgoing minutes of use, average price per minute declined by 21% accelerated by the decline in mobile termination rate as per the glide path as well as intense competition. Our focus on segmented offers using our CVM platform moderated the voice revenue decline in the fourth quarter to 8.3%. Voice revenue contribution to service revenue reached 32.3%, a decline of 4%. We believe this trend will continue as the mobile termination rate continues to decline, albeit at a slower rate. M-PESA revenue was at TSh 356.8 billion, which represents 36.9% of service revenue. It declined slightly by 4.4% during the year. Normalised for the suspension of maintenance fees charged on dormant accounts in line with financial consumer protection regulation, M-PESA grew 1.3%. The growth was impacted by the service barring to 800,000 SIM cards in the last quarter of the previous financial year as well as COVID-19 pandemic impact. However, more positively, M-PESA revenue increased 11.3% in the fourth quarter supported by service adoption and platform growth. Demand for our mobile financial services through the M-PESA platform remained strong. The M-PESA ecosystem processed more than TSh 69 trillion transaction values, up 20%. This growth rate accelerated in the fourth quarter to 29%. We added 710,000 customers to reach 7.4 million, representing 49.8% of our customer base. These customers are serviced by more than 120,000 active agents across the country, an increase of more than 35%. Our continued efforts in driving digital financial services proved to be a success. We grew our Lipa Kwa Simu, our merchant base, by more than 60% to above 15,000 active merchants across the country. These merchants processed more than TSh 3.9 trillion transaction value in the year, and increase of above 65%. This set up exciting medium term growth prospects for M-PESA. Mobile data revenue grew 3.3% to TSh 186.9 billion. Despite service barring to 600,000 customers in the last quarter of the previous financial year, data services remained a key lever of growth and essential to our commitment of connecting to a better future. The underlying data metrics were strong with data traffic increase of 47% in the year despite a 30% decline in average price per MB from intense competition pricing pressure. Our smartphone users increased 7% to [break in audio] million, representing 24.7% of our customer base, an increase of 2.6%. Data usage per customer reached 1.6 GB per month in the fourth quarter, an increase of 50%. I’m really encouraged by this behaviour as it means that customers are truly growing into higher data usage. The adoption of data services is an important medium-term growth driver from a Vodacom Tanzania perspective. From a profitability perspective EBITDA declined by 13.3% to TSh 316.1 billion.