Accounting Financial Analysis Report for Vodacom Group Limited

This report analyzes the financial performance of Vodacom Group Limited, including strengths such as customer value management and brand recall, weaknesses such as falling subscriber base and inadequate performance in Nigeria, key performance measures such as solvency ratios and profitability ratios, future prospects such as investment in digital services and infrastructure, and consistency with reported results.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting financial analysis report
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1ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Introduction................................................................................................................................2
Answer to question A:................................................................................................................2
Strength and weakness apparent from the review of yearly financial reports:......................2
Answer to question B:................................................................................................................4
Key performance measures....................................................................................................4
Answer to question C:................................................................................................................6
Future prospects and strategies for the improvement:...........................................................6
Answer to question D:................................................................................................................8
Consistency with the reported results and other available information:................................8
Answer to Question E:.............................................................................................................10
Conclusion and recommendation on investment.................................................................10
Reference List:.........................................................................................................................11

2ACCOUNTING FINANCIAL ANALYSIS REPORT
Introduction
Vodacom Group Limited started their operation during 1996. It delivers various
products and services related to data communication and telecommunication. It operates
under three segments that are South Africa, Corporate and international. It also offers
services related to business management to the enterprise over more than 40 countries in
Africa. The core services of the company are data, messaging and voice that are available on
contract basis or prepaid basis. It provides their services to more than 40 million customers.
The mobile network of the company covers more than 180 million customers all over
Tanzania, South Africa, DRC, Mozambique and Lesotho (Vodacom.com 2018).
Answer to question A:
Strength and weakness apparent from the review of yearly financial reports:
Strength:
Customer Value Management: Taking account of the strength of Vodacom the strength lies
in the customer value administration. The framework of customer value management serves
as an important tool in effectively targeting the customers with the personalized offers that
are not publicly advertised (Scott 2015). With the application of the customer value
management Vodacom has witnessed a positive growth in its customer profile which enable
the company in selling more than 1.1 billion voice and data bundles in the present accounting
year. Additionally, the company has moved the customers from the legacy plans to new
prepaid pricing plans. The transformation of the firm to customer value management has
resulted in 16.9% reduction in the blended call prices with 13.6% lowering of effective
megabyte of data.

3ACCOUNTING FINANCIAL ANALYSIS REPORT
Brand recall and brand valuation: The brand valuation of Vodacom is 19.386 billion.
Apart from this the brand equity and the brand recall of the Vodacom is very as well. To
attain further success, the company has constantly used its indirect channel to significantly
lower its mean time and meeting its SME customer orders (Nobes 2014). Vodacom has huge
amount of customer subscribers base. By the end of the financial year of 2017, the total
amount of subscribers of Vodacom has increased around 250 million subscribers.
Premium cost: While there are other telecom operators that are entering into the market
Vodafone is differentiating the services on a constant basis. With the strong marketing and
communication techniques Vodacom is successful in getting premium out of their customers
and float the same into the market at a margin where the other telecom operators are
struggling to maintain their positive margins.
Network and service differentiation: The capital expenditure of R 4090 million comprises
of 22.3% of the company revenue (Luez and Wysocki 2016). The company has constantly
invested in all the markets to significantly strengthen its network and service differentiation.
The company has further added the 54 LTE/4G during the year to assist the significant
growth in data with wider coverage of voice.
Weakness: The weakness of Vodacom are as follows;
Falling base of subscribers: Evidences has suggested that the subscriber base for Vodacom
has been on the declining trend over the last four years (Sunder 2016). Taking into the
account the problem for last four years this can be regarded as the major problem for the
Vodacom after observing the overall market condition. Vodacom is required to improve the
brand value and apply the strategies to obtain more customers.

4ACCOUNTING FINANCIAL ANALYSIS REPORT
Inadequate performance in Nigeria: With the prevalent of the poor economic conditions in
Africa, the performance of Vodacom in the Nigerian market has been poor (Kettunen 2017).
Furthermore, the company has not generated a large part of the revenue from the Nigerian
market. With other firms penetrating into the market the subscriber base of customers in
Nigeria has been relatively poor.
Losing market share in Ghana: Ghana is a nation where the company could have placed
their demand on the premium needs to keep the itself afloat (Acito et al. 2015). However,
with the fast losing market share in Ghana the company should consider expanding its market
base in order to gain higher market share.
Answer to question B:
Key performance measures
The financial analysis of Vodacom includes the financial analysis that covers the area
of income statement and ratio trend charts along with the cash flow statement and balance
sheet. However, the key performance ratios that is the profitability ratio, asset turnover ratio,
margin analysis, long-term solvency ratios, short-term liquidity ratios and credit ratios that
will assist in strengthening the decision making procedure of the company are not included in
the annual report of the company (Brooks 2015). Key performance indicators measure the
value that demonstrates the efficiency of the company to achieve the key objectives of the
business. KPIs are generally used at multiple levels for evaluating the success for reaching
their targets. High-level KPIs can focus on overall performance of the company while the low
level KPIs can focus on various processes of the company like sales department, marketing
department or administration department (Čermák 2015). However, the key performance of
the company can be computed and analysed in the following way –
Ratio Formula 2017 2016 2015 Industry

5ACCOUNTING FINANCIAL ANALYSIS REPORT
Average
Long-term Solvency
Risk
Debt equity Ratio Total liabilities/
Shareholder's equity
2.53 2.42 2.29 1
Interest coverage
ratio
Operating income/Interest
expenses 7.72 9.59 11.07
2 or more
Short-term liquidity
risk
Current ratio Current asset/ Current
liabilities 1.09 1.07 0.95 1
Quick Ratio
Current asset less
inventories/ current
liabilities 1.04 1.01 0.91 1
Profitability and
efficiency ratio
Operating profit
margin Operating profit/ Net sales 0.27 0.26 0.25 0.25
Net profit margin Net profit / Net sales 0.16 0.16 0.16 0.12
Return on equity NPAT/ Shareholder's equity 0.57 0.56 0.58 0.20
Return on assets NPAT/ Total assets 0.16 0.16 0.18 0.12
Analysis of key performances –
Solvency ratios – the solvency ratios measure the ability of the company to meet its
obligation efficiently. If the company has lower solvency ratio the company will be exposed
to solvency risks whereas the higher ratio will represent that the company is strong, stable
and sustainable for long term period (Heikal, Khaddafi and Ummah 2014). Looking into the
debt equity ratio of the company it is identified that the same for Vodacom for last 3 years are
2.29, 2.42 and 2.53 respectively whereas the industry average is 1. Therefore, it can be stated
that the debt equity ratio ratio of the company is better than the industry average. Further, the
interest coverage ratio measures the efficiency of the company to pay off its interest
obligation with the available operating profit (Jones and Kulish 2013). Generally, the ratio of
at least 2 or more than that is considered good. It is found that the interest coverage ratio of

6ACCOUNTING FINANCIAL ANALYSIS REPORT
Vodacom for all the 3 years is significantly higher as compared to the industry average.
Therefore, the company is efficient in paying its interest with the operating profit.
Liquidity ratio – the liquidity ratio represents the ability of the company to pay off its short-
term obligation with the current assets when the obligations become due. Generally, the
current ratio of 1 is considered good for any company. It is observed from the liquidity ratios
of the company that the current ratio and the quick ratio of Vodacom for 2016 and 2017 are
more than 1. Further, though for 2015 both the ratios are less than 1, it is slightly lower than
1. Therefore, the company is able to pay off their short term obligation efficiently. Further,
the liquidity ratio of more or less 1 represents that the company is using their working capital
efficiently (Drehmann and Nikolaou 2013).
Profitability and efficiency ratio – it states the profit earning capability of the company and
the efficiency with regard to provide the return to the shareholders. It is identified from the
calculation table that the all the profitability and efficiency ratios of the company for all the 3
years are considerable better as compared to the industry average (Hevert 2013).The
operating profit margin of the company is more than 25% for all the years. Therefore, it can
be stated that the the company is managing its operating expenses efficiently to generate
higher level of operating profit. Further, the net profit margin of the company for all the years
is consistent at 16%. Therefore, the company will be considered as a profitable and stable
company. Further, the return on equity of the company for all the years are ranging from 0.56
to 0.58 that is significantly better than the industry average (Prasetyorini 2013). On the other
hand, the return on assets of the company is stable and strong. The company is efficient in
generating return from the shareholder’s investment.
Answer to question C:
Future prospects and strategies for the improvement:

7ACCOUNTING FINANCIAL ANALYSIS REPORT
The company has the strong record of converting its revenue and optimising the cash
flow. Taking into the account the future prospects, Vodacom has strategically placed its focus
on capital spending on new system of billing. This is because the transition from the
predominantly mobile firm to unified communication provider has enable the firm for making
investment in future prosperity of the business (Chand, Patel and White 2015). Cash
generation from the activities enable the firm to maintain the generous shareholder return
with the dividend policy of around 90%. The company also places emphasis on the material
interest as it is focused on building skills that are in line with the future expansion of
business.
Vodacom is constantly investing in its future infrastructure to strategically position
the company more elastic. Vodacom is progressively making an investment in the digital
services. The company is constantly maintaining a very strong emphasis on attaining
customer excellence. Vodacom has implemented a care programme which is designed to
make sure that the company understand and expect their customer requirements (Tschopp and
Huefner 2015). The company has adopted subdivision strategy of its consumers in cluster that
are more insight oriented rather than being spend led. This would help in driving an insight
driven organization which would help the company in bringing closer to its customer and
probable customers. This would help Vodacom in becoming more customer responsive to the
probable variations across the consumer sector.
Vodacom believes the future lies in data. In order to gain wider market share, it is
easy for the customer, Vodacom analyses, stores and consumes data. This would require
Vodacom to make an increase investment and intelligent infrastructure in order to scale and
adopt with the customer needs (Bull et al. 2016). In order to be relevant in meeting the
customer needs in future, Vodacom would make itself vigorous in both the areas of services
and infrastructure. Considering the level of infrastructure, Vodacom would remain to remain

8ACCOUNTING FINANCIAL ANALYSIS REPORT
the leader in the market of telecommunication but with large number the increased system
portfolio, the company aims to cover not only the mobile communication but also in the areas
of fixed and other services. Additionally, the company would make investment in internet as
the company believes there is a huge opportunity for growth area for Vodacom which would
need specializing the webs and other essential systems.
To strategically expand Vodacom in future Vodacom looks to virtualize the
transformation networks and systems as this would enable the company to convey flexible
and cost operative amenities through all the regions of actions. In the recently concluded
business year, Vodacom has held meeting on the forthcoming work in order to converse the
change from the past models of the work subjugated by the separation of labour, the
management of labour and imbursement to workforces for shift in services and globalization
of the supply chains (Grant 2016). To create a resilient revenue stream and secure future
opportunities for growth, Vodacom is diversifying the its business across the range of focus
areas.
Answer to question D:
Consistency with the reported results and other available information:
In spite of the challenging business environment there has been a good year for
Vodacom. The company in line with the its business strategy has continuously delivered
integrated strategy of growth by assuring that a valuable return to shareholders are provided
whereas making a noteworthy development in influencing the operational activity performed
across each nation. The conveyance of both the communal and stockholder worth has been
supported by its considerable investment in the system infrastructure with robust consumer
emphasis (Hill et al. 2014). In the financial year of 2016, Vodacom has invested around 12.9
billion in its network and has targeted primarily in expanding its future 2G, ,3G and LTE/4G

9ACCOUNTING FINANCIAL ANALYSIS REPORT
network coverage to improve the performance of network and customer experience. Taking
into the account the satisfaction of shareholders, Vodacom has delivered an overall
shareholder return of 27.0% by headlining an increase in the EPS of 2.7% to 883 cents each
share.
In line with its business strategy Vodacom has been constantly returning cash to its
shareholders by paying out dividend of around 90% of HEPS. The positive result of
Vodacom has been attained with its actual accomplishment of the organization development
plan (Grant 2016). Vodacom has witnessed a pleasing performance in the present year across
its overseas market in the areas of customer and data penetration along with the growth in
revenue. This development has been attained in relation to the regulatory and strategy
challenges.
The revenue of Vodacom has improved by 7.5% to R 80.1 billion. More expressively
the income from data has constantly represented an upward momentum which increased by
28.5% to R 21.3 billion. The growth in the revenue data has demonstrated large demand for
the data service as the customer upgrade to 3G and LTE/4G plans along with the 8.6% rise in
the consumer of active data. The service revenue for Vodacom has increased by 7.4% which
is supported by continuous customer growth with improved revenue in voice trends and
increasing growth of service in the enterprise market.
The overseas operations of Vodacom have delivered strong performance by
maintaining the revenue rise of 16.6% to R 18.4 billion. Around 22% of the revenue of the
firm has been derived from the international portfolio. The operations of Vodacom have
constantly benefitted from the increasing usage of the voice and data. The revenue from data
has increased by 31.9% and potentially there remains a potential growth in voice data with
only 37.1% of the consumers presently enthusiastically using the data (Schaltegger and

10ACCOUNTING FINANCIAL ANALYSIS REPORT
Burritt 2017). Overall it can be stated that Vodacom has driven cost efficiency in order to
make sure that the cost growth of 0.5% is lower than the sales growth. The company has
driven transformation through diversity, skills and talent growth.
Answer to Question E:
Conclusion and recommendation on investment
From the above analysis it can be concluded that the company is efficient in
generating returns from the shareholder’s investment and providing good returns to their
shareholders. This can be concluded from the findings that the return on equity as well as the
return on assets of the company is higher as compared to the industry average. Further, it is
found from the annual report of the company that it is regular in paying dividend to the
shareholder. For the year 2016 and 2017 it paid 795 cents of dividend per share to the
shareholders. Further, the company is consistent in earning return as the net margin of the
company for all the 3 years are 16%. Therefore, from the investor’s perspective, Vodacom
will be considered as an ideal company for the purpose of investment.

11ACCOUNTING FINANCIAL ANALYSIS REPORT
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12ACCOUNTING FINANCIAL ANALYSIS REPORT
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Vodacom.com. 2018. Home | Vodacom Group. [online] Available at:
http://www.vodacom.com/ [Accessed 10 Feb. 2018].