Vodacom trading update looks good

Vodacom came out with a very impressive trading update this morning managing to increase group revenue by 8.1% for the quarter. I must admit the trading update is very detailed. Almost looks like a results presentation. We were commenting in the office about how well Pieter Uys is doing. He has a different style to other CEO's making himself extremely visible and getting very much involved on the ground level. He seems like the type of guy you could approach about personal issues and he really would care. Well done to him.

Astonishingly they managed to grow their customers by 20.4%. Remember this is for the quarter. I suspect this was due to cancelations this time last year because of RICA laws so this growth comes off a low base. Plus we had the RICA deadline last month which would have forced people to get their contracts in order. The South African division which is responsible for 87% of revenues managed to grow their clients by 19.7%. This is why revenues were up so nicely.

It's very interesting to see the shifts in this business. ARPU's in SA were down 4.7% because of the 24.8% reduction in the price per minute charged. This was forced by the regulators of course. They managed to offset such a large decrease by a 16.3% increase in average minutes of use which was incentivised by off-peak promotional offers. Clever. Great to see how these companies are using innovation to counteract regulation headwinds. People love communicating and the more the better. This means that if prices decrease they will just consume more if correctly incentivised. Money spent on communication is money well spent.

The other shift we see in the business and one we of the reasons we love this sector as an investment is data consumption. Group data revenue grew 37.6% with active data customers increasing 43.3% to 10.9 million. That is just under 25% of all their clients so lots of potential to convert. In South Africa data revenue grew 35.4% to R1.8bn. That is 13.7% of the total South African revenue and becoming more and more significant. Most of this growth came from mobile internet bundle customers. So people are buying smartphones and consuming more data with these fantastic devices. Does not sound ex-growth to me. Active smartphones increased by 406 000 in the quarter to 3.7 million. That is only 13.4% of all clients using a smartphone. Again huge room for growth as these phones become more and more affordable and more and more useful.

As you can see from my above commentary I love the sector and I love what Vodacom are doing with their operations. The only negative I can see is that their international operations are too small. Only 15% of revenues. This is because they are restricted by their parent company Vodafone. In that case we prefer MTN who are not only growing and shifting in the same way but are doing this with 147 million customers as opposed to 45 million.