Key Performance Measures And Financial Analysis Of Vodacom Group Limited

Customer Value Management

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).

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. 

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.

Brand recall and brand valuation

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.

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. 

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 (ÄŒermák 2015). However, the key performance of the company can be computed and analysed in the following way –

Ratio	Formula	2017	2016	2015	Industry 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 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.

Premium cost

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.  

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.

Network and service differentiation

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 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. 

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 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.

Weakness

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 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.  

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. 

Reference List:

Acito, A., Hogan, C., &Imdieke, A. (2015). Integrated Auditing Standards and Financial Reporting Quality. Working paper, Michigan State University.

Brooks, R. 2015. Financial management: core concepts. Pearson

Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K., Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E., 2016. Strengths, Weaknesses, Opportunities and Threats: A SWOT analysis of the ecosystem services framework. Ecosystem services, 17, pp.99-111.

ÄŒermák, P. 2015. Customer profitability analysis and customer life time value models: Portfolio analysis. Procedia Economics and Finance, 25, 14-25.

Chand, P., Patel, A. and White, M., 2015. Adopting international financial reporting standards for small and mediumâ€Âsized enterprises. Australian Accounting Review, 25(2), pp.139-154.

Drehmann, M., and Nikolaou, K. 2013. Funding liquidity risk: definition and measurement. Journal of Banking & Finance, 37(7), 2173-2182.

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Heikal, M., Khaddafi, M., and Ummah, A. 2014. Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), 101.

Hevert, S. R. B. 2013. Return on Equity.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Jones, C., and Kulish, M. 2013. Long-term interest rates, risk premia and unconventional monetary policy. Journal of Economic Dynamics and Control, 37(12), 2547-2561.

Kettunen, J., 2017. Interlingual translation of the International Financial Reporting Standards as institutional work. Accounting, Organizations and Society, 56, pp.38-54.

Luez, C. and Wysocki, P., 2016. Economic Consequences of Financial Reporting and Disclosure Regulation: A Review and Suggestions for Future Research. J. Acct. & Econ., 50, p.525.

Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.

Prasetyorini, B. F. 2013. Pengaruh ukuran perusahaan, leverage, price earning ratio dan profitabilitas terhadap nilai perusahaan. Jurnal Ilmu Manajemen, 1(1), 183-196.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Sunder, S., 2016. Rethinking financial reporting: standards, norms and institutions. Foundations and Trends® in Accounting, 11(1–2), pp.1-118.

Tschopp, D. and Huefner, R.J., 2015. Comparing the Evolution of CSR Reporting to that of Financial Reporting. Journal of Business Ethics, 127(3), pp.565-577.

Vodacom.com. 2018. Home | Vodacom Group. [online] Available at: https://www.vodacom.com/ [Accessed 10 Feb. 2018]