Vodacom set to report slump in earnings

VODACOM expects to post a drop in first-half profit mainly due to a R3,2billion impairment charge arising from an acquisition.

VODACOM expects to post a drop in first-half profit mainly due to a R3,2billion impairment charge arising from an acquisition.

Vodacom, majority-owned by Britain's Vodafone, said yesterday it expected headline earnings per share for the six months to end-September to be 10 to 20percent lower than the corresponding six months last year.

It said headline earnings had been hit by impairment losses relating to its acquisition of Gateway, where trading was poor due to increased price competition and tough economic conditions.

"The big one was that they have impaired Gateway by R3,2billion. The concerning thing there is that they purchased this asset less than a year ago, and within nine months they have now impaired it by more than half," said David Lerche, a telecoms analyst at Avior Research.

Vodacom said headline earnings had also been hit by the reversal of a deferred taxation asset of about R500million due to the reduced profitability of its business in the Democratic Republic of Congo.

"If you are writing off deferred tax assets, it means you are not expecting to make a profit. That says that the margins in DRC have just dropped dramatically," Lerche said.

"The DRC is Vodacom's biggest possible expansion area, just because of the large population there, so if we're not seeing growth in that large market, it's rather negative for Vodacom."

Vodacom said group basic earnings per share were seen to be between 95 to 105percent lower, while revenue is expected to rise by about 10 percent.

The company is expected to release its interim results on November 9. - Reuters

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