Vodacom Group Limited

Good morning, everybody, and thanks for joining our virtual interim results presentation. A special welcome to our new group CFO, Raisibe Morathi, who joins me on stage.

Also warm greetings to members of the board and my executive management team who have joined us online. Before we have a look at the financial results and strategic progress for the half year, I wanted to start with our response to the COVID-19 crisis.

The pandemic did not change our purpose as a company, but it did amplify the role that we play in supporting society. At the onset of COVID-19, we implemented a six point plan to ratchet up our support to governments, our customers, SMEs, suppliers, our staff and the [indiscernible].

Our first and ongoing priority is to ensure we maintain the quality of service across our networks to assist governments and citizens to stay connected. We front-ended our investments to ensure that we could keep up with the massive increase in traffic across our networks as the new mode of transport became data.

In South Africa alone, we spent ZAR5 billion as we accelerated investment to support a surge of 86% growth in data demand. We accelerated support to governments by donations of handsets, connectivity and medical equipment.

For example, we zero rated over 900 websites, donated 20,000 smartphones to the Department of Health in South Africa, launched 3 virtual doctor consults in partnership with Discovery, provided support and assisted with the dissemination of COVID information and prescreening across all our markets. The third point of our plan is to enhance digital accessibility and literacy.

To this end, we zero rated schools and university portals and discounted data bundles by up to 90% to allow for kids to be educated at home. In March of this year, we launched our ConnectU platform, which provides free access to basic Internet, essential services, job portals and cheaper connectivity pricing to the poorest communities.

To date, 10.9 million unique users have accessed ConnectU. Additionally, 1.4 million learners has accessed our e-school platforms.

To assist SMEs and businesses during this difficult time, we facilitated reduced rates and special work-from-home bundles to support working from home. We also extended preferential payment terms to small businesses and extended credit through our financial services platform VodaLend.

The fourth point of our plan is to enhance the strategies for our customers as they adapt to the new normal. Through targeted digital adoption, we can help with critical insights and resource planning.

And finally, we believe that promoting financial inclusion is key to improving lives and assisting the economies across our footprint. In our International portfolio, our free person-to-person M-Pesa payments, which despite having a material negative impact on our results was the right thing to do, because it played an important role in facilitating economic activity and contactless payments during the pandemic.

We will continue to provide interventions and support during this difficult time. Our organization is purpose led.

This means that we strive to balance economic growth with social inclusion, environmental protection and our vision of connecting for better future. This purpose underpinned our response efforts to COVID-19 and importantly, we believe that our purpose is aligned to the new normal with connectivity and financial services acting as enablers of inclusion and economic growth.

As customer behavior changed, we were able to support data traffic growth of 86% in South Africa and 50% in our international markets. Also, we were able to facilitate demand growth for M-Pesa.

Our M-Pesa ecosystems now processes $20.5 billion a month of transaction value, including Safaricom. This platform growth represents a new normal and our commitment to drive financial inclusion.

Let's now turn to the group's financial results for the six months. Considering the magnitude of challenges arising from the pandemic and the price decreases that we affected from the 1st of April in South Africa, it is pleasing that we were able to deliver such a strong financial performance.

Notably, group revenue increased 7.8% to ZAR47.8 billion. This was underpinned by strong growth in South Africa across all our areas of business.

Following a sustained period of strong growth, the performance of our international operations and Safaricom was impacted by weak economic activity in all markets in three, B2B and M-Pesa payments and the impact of biometric registration in Tanzania. The weak rand did, however, provide a currency hedge and boosted our reported numbers.

As a group, including Safaricom, we now connect close to 120 million customers, an increase of 4% to the customer base. Our data customers increased 3% to over 63.1 million customers.

From a CapEx perspective, we continue to invest significantly across our markets despite the rollout challenges presented by COVID-19. This investment was critical for us to keep ahead of the demand for our services.

Our CapEx spend for the period was ZAR6.6 billion, of which ZAR5 billion was invested in South Africa alone. This equates to capital intensity ratio of 13.7%, within our target range.

EBITDA grew by 7% to ZAR19.4 billion while operating profit grew 12.3% to ZAR14.5 billion. Headline earnings per share was up 15.7% and was supported by EBITDA growth and a line of deferred tax rate adjustment, which Raisibe will add-back for you later.

On the back of a strong business performance, the Board resolved to declare an interim dividend of ZAR4.15 per share, up 9.2% on the interim dividend of ZAR3.80 per share last year. As I mentioned before, the acquisition of Safaricom and the static growth of our International operations has given us the opportunity to diversify the group's portfolio while still capturing the growth opportunities in South Africa.

The financial information presented in the bar graphs on the slide set out three geographic segments, with Safaricom on a proportionate basis at 34.9%. Just on 40% of the group service revenue and just under 35% of EBITDA comes from our international Opcos and Safaricom.

We have added an impressive ZAR3 billion in service revenue to the group in the half year and ZAR1.5 billion in EBITDA. And then switching to a customer lens, nearly 65% of the group's customers are outside South Africa.

We have added 5.1 million customers over the last 12 months. The last six months confirm the importance of our core services, but also accelerated our evolution from a telco to a techco.

We continue to expand our ecosystem of products across connectivity, digital and financial services. We have built a diversified portfolio of accelerators to enhance our revenue opportunities as we expand beyond our core services.

The intent being to embed ourselves in the lives of customers, underpinned by transformational big data and business intelligence capabilities, which generate next best activities for customers. On the connectivity side, I'd highlight our IoT businesses, which are delivering rapid revenue growth and important environmental savings.

In digital, our offering span across the entertainment segments with the recent Amazon Prime deal, another partnership milestone. Then in the financial services space, our execution is driving a meaningful bottom line impact.

This segment contributed 15.2% of profit before tax for our South African and international operations, with Safaricom setting the benchmark at well over third of its PBT coming from financial services. There's much more to come from this segment, especially as we launch our super app, which I will talk about later in the presentation.

Pulling these products together and enhancing the customer experience in the end ecosystem is our recently launched loyalty program VodaBox. This program, like many of our products is powered by our in-house capabilities and our in-house business intelligence and AI capabilities.

And way it will accelerate our return profile, we are willing and able to partner with the global tech leaders. A key highlight for the period is the platform growth we are seeing in financial services across the group.

We have 55 million customers, which is 46% of our customer base now using a financial service product from us. This has increased 12.6% since last year.

Revenues earned for this period, including Safaricom, amounted to ZAR9.2 billion and grew 3.1%. The performance was negatively impacted by our free rating of M-Pesa P2P payments as well as our COVID-19 intervention.

We estimated this intervention had ZAR1.6 billion negative impact on our results but in turn provided relief to our customers. In our ever supported accelerated platform growth through increased number of transactions and customer growth, which bodes very well for the future.

More about financial services in South Africa and M-Pesa a bit later in the presentation. In this slide, we wanted to reconcile our purpose led business model with a well-known ESG acronym and make our goals clear.

We want to improve the lives of the next 100 million people across our markets and half our environmental impact by 2025. We strongly believe that connecting more people to the Internet is a powerful tool for achieving socioeconomic development and promoting sustainable growth.

It is for this reason that Vodacom is guided by a clear social contract, highlighting a few of the initiatives across each of the ESG pillars and starting with the environment. We have, for many years now, been working on reducing our carbon footprint.

We have made meaningful progress over the last decade. For example, in South Africa in 2012, we generated 27.6 metric tons of carbon outside per terabyte of data.

Today, we are consuming less than 2 metric tons of carbon dioxide per terabyte of data. Whilst we are pleased with this progress, our ambition requires even more as we strive to halve our carbon footprint by 2025.

We continue to drive both financial and digital inclusion through partnerships. For example, with Google Loon, where we have provided connectivity through what I like to call base stations in the clouds as we strive to achieve digital inclusion to our next 100 million customers.

Free access to basic Internet and prepaid handset financing among the initiatives that we are driving to increase digital inclusion. From a governance perspective, Vodacom is committed to operating responsibly by acting with honesty and integrity and maintaining robust ethics, governance and risk management processes.

Our efforts have been recognized by Sustainalytics, a leading independent global provider of ESG ratings to investors. In September of this year, it ranked Vodacom second in global telecoms.

This is an excellent result. And then a good example of our efforts in ESG leading to better financial outcomes is a ZAR2 billion Standard Bank green loan we secured.

This is an industry first. It provides an added incentive through a lower interest rate to be a class leader in ESG.

In South Africa, despite economic disruptions and substantial data price cuts in April, we reported strong service revenue growth of 7.1% to ZAR27.6 billion. We captured increased demand for connectivity and financial services as customers continued to work, entertain and educate from home.

Our performance was supported by the accelerated investment into network and digital IT capabilities. Our strong results were evident across all our segments.

For example, Vodacom business revenue where we captured the work and educate from home opportunities was up 11.1% to ZAR7.6 billion. EBITDA grew at 9.9% as we delivered positive [draws].

The number of smart devices on our network increased 9.5% to $22.2 million while the average usage per smart device increased by an impressive 64% to 2.2 gigs per customer. We are grateful for the extension of the temporary spectrum, which has supported network capacity in the period.

Similarly, we are optimistic about the long awaited spectrum auction, which will be finalized by the 31st of March next year. We welcome the progress on spectrum assignments, seeing it is as instrumental in data pricing dynamics of our largest market.

Pleasingly, as we show with the pie chart on this slide, each of our customer segments posted service revenue growth in the period. This broad-based growth is supported by our strategy of one more service to customers and building diverse and sustainable revenue streams.

This strategy is paying off and we are seeing strong growth across our new revenue streams with our new services contributing 14% to service revenue. IoT revenue has grown 45.7% in the period with fixed revenue growing at 19.3%.

And our digital lifestyle and financial services businesses have grown 21.5% and 15% respectively. We hope you are ready to shake off 2020, our new summer campaign.

Earlier in my presentation, I talked about our ecosystem approach, which drives our system of advantage. At the center of this 360 customer experience strategy is our AI and business intelligence.

Our in house capabilities, which we invested in a few years ago, which is now paying off, has made us a data-led organization and a class leader in the sector. This slide sets out some of the metrics we track on a minute-by-minute basis, leaving nothing to chance or good fortune.

These capabilities have proven particularly important in delivering our South African performance for the six month period. The digital 360 view that we have both of our customers will help us further enhance customer experience through additional data points that will generate the relevant next best activities for our customers.

We continue to expand our service offerings of our financial service business in South Africa. Across the various pillars of insure, pay, lend and trade, we grew revenue 15% for the period to ZAR1.1 billion with 12.5 million customers using a financial service product from us in South Africa.

Profit before tax of our financial service portfolio exceeded ZAR600 million in the half year. Insurance policies increased 23.4% to ZAR2 million with revenue up 13.5%.

Our insurance policy offering is expanding both in the short-term and long-term portfolios. Our VodaPay application offers direct airtime purchases and electricity payments with more to follow in the future.

We have launched our own point-of-sale Android devices to merchants, which will give them the ability to do business advances, lend and then services and purchases, event services and purchase to a marketplace from the device itself. On the lending side, we advanced ZAR5.7 billion in airtime by our airtime advance platform to 10.1 million customers.

Our VodaLend product aimed at providing loans to SMEs is also gaining traction after being impacted by the lockdown. The financial services portfolio also includes the Vodacom trading bridge, which is a business to business e-commerce service that supports the automated and integrated exchange of transactions between businesses, which is a powerful big data platform.

There are currently 4,500 SMEs engaging on the platform with all of the major FMCG players also on our bridge. We will also be launching a number of innovative investment products in the future.

Watch this space. In July this year, we announced a technology partnership with Alipay, the world's leading digital lifestyle services platform to bring inclusive mobile solutions to South African consumers and merchants through innovative digital technologies.

The super app will make it easier than ever to manage your entire life and business through your smartphone. We are actively working on the integration of Alipay to leverage their global learnings and develop the super app that will not only offer stellar digital customer experience or bring to life a marketplace of goods and services tailored to the South African customer.

For consumers, the platform will offer user friendly end-to-end experience from where you will shop, be entertained, save, pay and lend in a single platform. Following a sustained period of strong growth, the performance of our international operations was negatively impacted by disrupted economies, our free person-to-person intervention and the impact of service buying in Tanzania due to biometric customer registration compliance.

Our reported results showed service revenue growth of 5.8% benefiting from rand weakness. Underlying service revenue growth was down 5.2%.

Our customer base increased 5.5% to 38.6 million. The customer base was negatively impacted by the barring of service to 2.9 million SIM cards in Tanzania, which happened in the final quarter of the previous financial year in accordance with local regulation.

Tanzania has since reconnected 800,000 of these SIM cards. Data services remained a key area of growth with data revenue up 19.1% to ZAR2.1 billion.

We added 459,000 new customers to end the period at 20.4 million data customers. We continue to drive the adoption of affordable smartphone devices by levering partnerships with global tech firms and innovative financing options and have grown the smartphone base by 5% in the period to 10.7 million.

But as you can see, only 28% of our customers are currently using a smartphone, indicating the still untapped opportunity. The M-Pesa revenue was impacted by the free P2P transactions but the underlying platform growth in number of transactions and customers bodes well for the future.

To this end, we saw an 8.8% increase in the M-Pesa customers to 15.5 million. I will add back on M-Pesa a little bit more on the next slide.

International EBITDA declined by 1.9%. The EBITDA performance reflects the pressure on service revenue, which was partly mitigated by cost entailment initiatives.

We expect consumer spend to recover as trading and economies reopen from the lockdowns. M-Pesa continues to deliver on its promise of financial inclusion.

In the second quarter of this year, an average of $20.5 billion per month was processed on the platform, a 30.94% increase. Our international operations, M-Pesa customers grew 8.8% to 15.6 million, which was just over 40% of the customer base using the service.

The penetration opportunity remains exciting. For Safaricom, M-Pesa customers grew 13.5% to 26.8 million.

70.2% of the customer base now uses M-Pesa in Kenya. From a platform perspective, we continue to enhance M-Pesa proposition through product development and innovation.

This is facilitated by our M-Pesa JV, which is building new products and enhancing partnerships across the group. We'll be leveraging our Alipay partnership in South Africa to launch mini apps in both Tanzania and Kenya in the coming months.

Another example that I'd call out is our lending capability. Across our international platform, $1.5 billion has been provided through our nano lending solutions in the period.

We've seen nano lending as an important liquidity bridge for customers and supportive of financial inclusion. Outside of lending, we're seeing a meaningful opportunity for our international markets in the insurance space, leveraging of our insurance platform and success in South Africa.

Safaricom announced the interim results last week with service revenue declining 4.8%, but boosted by the weaker end to a positive 8.8% in our reported numbers. Despite free P2P money transfers M-Pesa service revenue recovered from a decline of 21.5% in the first quarter to a 7.5% decline in the second quarter.

The recovery was supported by platform growth and product adoption with M-Pesa customers up 13.5% to 26.7 million. The total value of M-Pesa transactions was up 32.9% to KES9 trillion.

Overall, Safaricom service revenue decline of 8.4% in the first quarter improved to a decline of negative 1.2% in the second quarter, which is a good sign of the expected recovery. Data revenue reflects an encouraging 14.1% growth to ZAR3.6 billion, with data customers reaching 22.9 million.

Fiber to the home customers are up 56.8% as Safaricom increased its connectivity ratio to more than 50% in the period. Finally, the group's bid for license in Ethiopia will be done through a consortium led by Safaricom, which has submitted the expression of interest to the Ethiopian Telecom Authorities.

Safaricom will lead our consortium with a 51% stake. The remainder will be taken up by strategic financial investors.

We as Vodacom will take a small direct minority position of around 5% in the consortium. I will now hand over to Raisibe to take you through the financials.

Thank you, Shameel. As already introduced, my name is Raisibe Morathi, and I started my role two weeks ago.

My background is 26 years in financial services and the last 11 years as the group CFO of the Nedbank Group. My transition to Vodacom has been excellent and I'm looking forward to working with Shameel and my new colleagues to grow Vodacom as a technology communications group and to enhance the lives of all our stakeholders.

I'm also indebted to Sitho Mdlalose for his excellent role as the acting CFO when my appointment was in progress. Thank you, Sitho.

It is my pleasure to take you through my first set of results as a group CFO of the Vodacom Group. Overall, we have delivered strong results for the period, given the backdrop of COVID-19.

A key highlight for shareholders in the period is 9% growth in the interim dividend. Also, as I will set out later, we have restated our medium-term targets.

This is a testament to our operational execution and financial position both of which are a good context to navigate us through the uncertainties of COVID-19 pandemic better than most sectors. Moving to our financial performance.

For the six months period ended September, our income statement set out reported and normalized growth. I'll primarily draw attention to normalized growth numbers, which provide better insights into the operational trends.

The normalized growth rates are adjusted for ForEx fluctuations, M&A activity and major one-off lumps and bumps. Pleasingly, revenue increased by 7.8% or 4.7% on a normalized basis, supported by service revenue growth, which was up 7% on a reported basis and 3.4% on a normalized basis.

Delivering revenue growth in this environment highlights an outstanding level of expectation by my new colleagues. EBITDA grew 5.1% on a normalized basis at a margin of 46%.

The EBITDA performance was supported by positive [draws] in South Africa, and I will come back to this a little later. The reported net profit from associate and joint ventures of ZAR2.6 billion includes a positive one-off of ZAR805 million.

The one-off relates to a lower corporate tax rate in Kenya, which resulted in a deferred tax adjustment. On a normalized basis, the net profit from associate and joint ventures declined by 6%.

Net finance charges increased by 21.3% as net foreign exchange remeasurements gains in the prior period results into net losses during this period. Headline earnings per share was up 15.7% to ZAR5.32 per share and also benefited from the deferred tax rate adjustment, as I mentioned earlier.

Adjusted headline earnings per share was up 6.1% and I will take you through the underlying numbers later in my presentation. As set out on the prior slide, normalized service revenue growth for the group was 3.4% for this six month period.

On a quarterly basis, growth accelerated from 2.6% in the first quarter to 4.1% in the second quarter. Our South African business supported the group's acceleration and delivered its best service revenue growth performance in several years.

This outcome is particularly noteworthy, given the price reductions of up to 40% in data, which were implemented on the 1st of April 2020. The result was underpinned by increased demand for connectivity from our customers who worked, entertained and lend from home during the more stringent lockdowns.

In the second quarter, the underlying growth in South Africa accelerated to 6.7%. The acceleration in customer service revenue more than offset the 2.3 percentage points growth, which was an impact of the Telkom Rain deal.

The second quarter reported trend benefited from ZAR142 million loyalty provision adjustment in this period. We removed this one-off from the underlying 6.7% growth.

Shifting forecast to international. As Shameel indicated earlier, our operations were negatively impacted by the lower economic activity and free or discounted P2P transfers on M-Pesa.

Positively, the service revenue decline stabilized into the second quarter as commercial momentum improved. The reported service revenue in both quarters benefited from the rand weakness.

With a focus on operational leverage, my colleagues across the group worked hard to contain cost growth in the period. Our fit for growth program and the ongoing digitization of our business are important medium-term drivers in this respect.

In South Africa, excluding the impact of Rain, our expenses increased 3%. COVID-19 provided a phasing tailwind in this period with constraints on publicity and travel spend.

We'll look to deploy some of these cost savings into the second half. The reported expenses growth in South Africa was impacted by our capacity agreement with Rain as it continues to roll out our size.

Our international markets worked hard to manage down costs with total expenses declining 2.8% on a normalized basis. The reported trend was also impacted by the rand weakness.

Moving to EBITDA. Group EBITDA grew by 5.1% on a normalized basis.

The operational leverage in South Africa was pleasing. South Africa posted EBITDA growth of 9.9% with margin expansion of 0.7 percentage points.

On an adjusted basis, growth of 7.4% was ahead of adjusted service revenue growth of 6.5%. International normalized EBITDA declined 8.1% with margins contracting 2.7 percentage points, impacted by the decline in revenue.

We see scope for international margins to recover with revenue growth as trading and economies reopen from the lockdown levels. Shifting forecast to cash flow.

Operating free cash flow declined 8.4% in this period. The decline reflects a strategic decision to accelerate the capacity and improve network availability during COVID-19 with both capital expenditure and working capital outflows higher year-on-year.

Our working capital was negatively impacted by the early payment of CapEx creditors. We expect a seasonal improvement in working capital into the second half.

Lease liability payments amounted to ZAR2.1 billion and consistent with our network expansion, this were 9.2% higher. Cash tax paid was ZAR3.7 billion, 17.9% higher than a year ago and this increase was primarily due to the timing of the Safaricom dividend and the consequential withholding tax.

In the current financial year, the Safaricom dividend was received in September boosting free cash flow growth to 92.1%. Net of withholding tax, the dividend amounted to ZAR2.8 billion and in the prior period, Safaricom dividend was received in November or the second half of our financial year.

Now over to headline earnings per share. Our HEPS grew 15.7% to ZAR5.32 per share.

The result was impacted by various one-offs in the current and prior periods. The most significant of these one-off related to the lower corporate tax rate in Kenya and the resultant deferred tax rate adjustment.

Previously, I mentioned an impact of ZAR805 million at the operating profit level for this adjustment, accounting for noncontrolling interest, which in this case is Vodafone, the net impact was ZAR705 million or ZAR0.42 per share, making a larger proportion of the ZAR0.44 per share one-off HEPS impact. From an operational perspective, Safaricom's earnings growth in rands contributed ZAR0.04 per share, while our consolidated core companies contributed ZAR0.24 per share.

The adjusted growth, excluding the one-offs is 6.1% and we are particularly pleased that EBITDA growth filtered through to earnings growth. The Board has declared an interim dividend of ZAR4.15 per share, up 9.2% and this equates to ZAR7.6 billion.

In the prior period, our interim dividend was ZAR3.80 per share and in addition, we had declared a special dividend of $0.60 per share related to the Safaricom flow through. Importantly, both core consolidated businesses and Safaricom contributed to growth.

And again, we are very pleased that EBITDA growth will cut through to dividend growth. Our balance sheet remains one of our key strengths.

Pleasingly, we have reduced our net debt to EBITDA ratio from 1.1 times to 0.9 times year-on-year despite our accelerated network investment and COVID-19 interventions that I covered earlier. Our stress testing provides further comfort on our debt levels.

For example, annualized EBITDA could fall by ZAR14 billion before we bridged the 1.5x net debt-to-EBITDA target. We've also carefully managed our debt profile.

Our near-term debt repayments are skewed to rent denominated Vodafone term loans, which we expect to be refinanced favorably. More than 90% of our debt, excluding leases is rand based limiting our exposure to rand moves.

From an interest rate perspective, our debt structure is split 61% fixed and 39% floating rate. If we exclude leases and focus on financial debt, fixed component reduces to 46%, whilst floating rate is 54%.

And this balance protects us again significant adverse interest rate movements but allows us to participate in lower interest rates going forward. And to close out on the final funding point, we have doubled our committed facilities to ensure sufficient liquidity should any short-term pressures arise.

And this brings us to our medium-term targets. At our annual results in May 2020, we postponed issuing medium-term targets and this was as a result of COVID-19 and the associated economic uncertainties, along with an unknown full effect of our business and operations over the medium term.

Frankly, the shape of the global recovery remains a material uncertainty to our operating environment. However, as a business we've reacted responsibly, but also with agility to the changes in consumer behavior.

Our ability to operate in this new normal is reflected in our financial performance, in our interim results and provides us with improved visibility and comfort relative to our decision in May. And as a result, the board supported management's view to reinstate our targets.

Balancing economic uncertainty with our ability to operate in the new normal, we set out the following medium-term targets. Mid single-digit growth for both service revenue and operating profit and our group capital intensity ratio is a range of 13% to 14.5% of revenue.

I would add that our medium term target for operating profit is lower than the mid to high digit growth that we set at our interim results last year. It is important to note that these target ranges cover different forward looking three year periods and our current view reflects Safaricom's updated market guidance for FY '21.

Last week, Safaricom said, it will deliver EBIT of KES91 billion to KES94 billion, which implies a modest decline in the local currency. Finally, I would like -- we thought it would be useful and transparent to provide our FY '21 outlook.

In South Africa, we are preparing for some incremental pressure on the consumer wallet into the second half. Additionally, we will look to deploy some of the phasing related cost savings from the first half.

For international markets, we see scope for consumer spend to recover as trading and economies reopen from the lockdown levels, and this should improve M-Pesa monetization prospects. At a group level, we expect local currency operating profit growth to trend below our medium-term target levels, while the reported trend should benefit from expected ongoing rand weakness.

As I conclude, allow me to state my reception at Vodacom, and it confirms that it is an organization with a hard warming spirit. I'm firmly on the ground and look forward to engaging further with you, starting with the results roadshows coming up soon.

On that note, a quick reminder that you can post your questions to Shameel, Sito and myself in the space provided on the webcast link. I would like to hand back to Shameel for the group's priorities.

Thanks, Raisibe. To conclude our presentation today, I would like to highlight our six key immediate priorities.

Firstly, on spectrum. We remain optimistic as there has been some good progress by ICASA on the allocation of high demand spectrum, and we are looking forward to participating in the auction and the acquisition of much needed spectrum.

Dealing with the effects of COVID-19 crisis will of course be a key priority for us, and we'll continue to support our staff, governments, customers and our suppliers. Transforming our revenue into new verticals, such as digital services and IoT will continue to be a focus area.

These new verticals, together with the platforms that require are complementary to our traditional revenue streams but also can be further leveraged from our strong brand, reach and reputation in the countries where we operate. Our industry leading applications of big data and machine learning continue to differentiate us from our competitors.

We are very focused on our digital Vodacom project, and we are seeing good results so far. The opportunity for growth in fintech in South Africa in M-Pesa is significant and remains a key priority for us.

Data monetization in all our markets remains a priority, ensuring that our capital investment in networks across our footprint yields the desired returns. This concludes our presentation for this morning.

Thank you for joining. Raisibe, Sitho, and I will now be taking questions.

In confirmation that we are definitely in the new normal, your first question won't be from JP Davids. Instead, we've got Preshendran Adaya from Nedbank CIB who's got the following two questions.

And firstly, a remark to say congratulations on the strong results. Question one for South Africa, you mentioned that data growth, data traffic growth was up 86%.

Can you talk a little bit about the data revenue growth in the first half and in the quarter, given the data price cuts. So trying to reconcile the 86% of the sort of growth we're seeing on data in South Africa.

Second question on Tanzania. You still have 2.1 million subscribers that are not yet reconnected.

What is the financial impact of these subscribers? And when do you think you will get them reconnected?

Yes, let me start with the second one. Well, we've got 1.6 million customers that are still to be deleted.

The customers that have already been deleted and only 800,000 reconnected. I think some of that is disappeared forever, specifically because what's happening is the number of dual simming in the market would have reduced proportionately.

So some of it will never return and some, I guess, will return over time. There's about 1.6 million customers left to be disconnected with a monthly revenue of about $2 million a month is the remaining customers still to be bought once the regulator intact us to do so.

Sito, you want to…

Thanks, Shameel. I'll take the question on the data growth.

Just a reminder that we don't call out data revenue separately anymore post-IFRS 15 reporting. However, the underlying metrics on data revenue remain positive and encouraging.

Our data bundle sales were up 23% to ZAR580 million. We continue to see a strong trend on data growth, both in prepaid and the contract segment.

We expect that to continue as work from home and work from anywhere really solutions continue to be provided. We expect a slight tapering down of that as people return to the workplace.

But all in, we expect the data trends to hold as they are.

The next question comes from Jonathan Kennedy-Good from JPMorgan. His first question is around the post period end trends.

So can we provide some color on how SA postpaid and prepaid revenue growth has evolved after the interim period while the 2Q 21 growth rates still being maintained? That's question one.

Question two , probably best taken by our South Africa Financial Director is around expenses. SA direct expenses rose 11% despite stable equipment revenue, can you provide a little bit of color on the drivers of the direct cost growth related to the revenue growth?

So let me take the first one. I think what we have seen post the period is still good growth.

We are anticipating some step down in South Africa, as people start to return to normal. And we will still get an uplift from the big traffic growth that we see year-over-year, albeit that it may not be at the 86% level for the remaining part of the year.

So still strong growth in South Africa thus far, although we are expecting a slight weaker second half compared to the strong trends of the first half.

On second question on direct expenses, the direct costs were up 11% on a reported basis but that included the direct cost that we pay for Rain for spectrum roaming, that's really the core driver of that. Excluding that direct expenses were up about 5% which is well below our revenue growth.

We've grown our sites to about 5,500 from about 3,100 on Rain last year, and that's the biggest driver in the -- the remainder of the 5% is really driven by the service revenue growth. But equally, some of the bad debt has been slightly higher as we've seen pressure on consumers and our bad debt has crept up slightly from the traditional 1.3% of service revenue closer to the 2% mark.

The next two questions come from Ian Brink at Prima Research. Sorry, that's been slimmed down to one question.

Just coming back to the zero rating of peer-to-peer that you mentioned in the presentation. When will this end in Vodacom's International markets, and then separately, also for Safaricom?

He's aware that Safaricom had a deadline initially for June, but maybe we can just talk about when that was extended until?

So it's ended in a number of the markets already. GSEs until December.

Safaricom's current one is until December. So if it doesn't get extended, then we should be able to resume charging for both entities from January, all the others have basically come to an end which then, of course, bodes well for the stronger second half.

Then we have a question from John Kim from UBS. Given the events in Ethiopia, can you please update us on the timing of a decision with respect to licenses?

And are there any specific timing requirements at this point from the government regarding CapEx deployment?

So it's still early days. We've, of course, submitted an expression of interest.

Just to be clear, as I stated earlier in the presentation, the Voda family consortium will be led by Safaricom with a 51% stake. Vodacom's direct interest will only be 5%.

So essentially, we've decided that the investment be done through Safaricom. Of course, we're monitoring the situation on the ground, given the recent developments.

But so far, they haven't given full clarity yet on what CapEx and so on will be required once more information is available, it's anticipated that the auction will end up happening in February, March next year in Ethiopia. So I mean we're kind of monitoring it.

We're not sure whether some of the developments will cause delays or not but of course, we've prepared our business cases and so on.

With that answer -- Louise is asking in relation to the 5% minority stake. Maybe just to provide some rationale while we're limiting our exposure to 5%, and does that mean we're prioritizing spend for M&A opportunities in South Africa?

I think the important part is, of course, there's a number of reasons why we've decided to do it via Safaricom. I think it will be a very good exposure to Safaricom from the perspective of geographical closeness on the one perspective, but also giving Safaricom additional exposure to more growth areas.

So I think that's a strong part. We've limited it to 5%.

What they intend that later on we could potentially increase our stake a couple of years into the, let's say, into the launch. Of course, we've got a strong balance sheet in South Africa, and we are all in Vodacom.

And we have been clear that, that does give us some flexibility in terms of looking at growth opportunities, which could be inorganic or organic.

Peter Crumbridge from Merger Market had a question that was similar in nature. I just wanted to see if you wanted to add anything to it.

He asks, given the company's significant debt headroom, under what conditions would it consider increasing its leverage to 1.5x.

On compelling opportunities to grow revenue and profit.

Good. Then we have a follow-up question from Ian Brink from Primary Research.

What do you make of Telkom's argument that Vodacom's relationship with Rain constitutes a merger? Could this in any way hamper Vodacom's ability to secure spectrum it desires from the upcoming high demand spectrum auction?

Well, I think, firstly, the Rain arrangement is no different to the arrangement with Telkom is with us. So remember, Telkom is roaming on the Vodacom network.

Cell C for that matter is roaming on both Vodacom and the MTN networks. So roaming is very much part of it.

We have made no secret of the fact that because we're CapEx constrained and Rain had capacity, we have bought capacity from them through a roaming arrangement. These agreements have been tested in front of the competition commission as well as ICASA previously.

So we see this more as employed to try and get a bigger allocation of spectrum to be frank. And I think quite unfortunate because one of the realities that we face with these operators in South Africa is that we've had to use roaming arrangements to be able to keep up with the capacity demand that's required to like the 86% and which is unfortunate, because we should really be getting this additional capacity through the availability of spectrum directly to the operators.

We have a question from Peter Takaendesa an investor at Merchants. It's probably tying to the comments you made earlier, Shameel, but can you give us any color on when you expect M-Pesa to normalize across your markets in terms of revenues?

And then separately, is there a regulatory push to make sure that M-Pesa fees that are removed or done permanently or if this is just a temporary relief measure.

Yes. I think what we've said is that we do expect it to recover a lot of the free P2P has now stopped.

And so we should start to see the benefit coming in the second half. And I think the big one of course is Safaricom, which should expire in December and as well as the DRC.

So I think it bodes well probably for a better fourth quarter in terms of being able to charge for P2P. I think what's encouraging for me on M-Pesa is that what this has done, the free P2P has almost created a platform like response where because of the zero rating of P2P, you have seen a big increase in the number of customers across all the markets and significant increase in the number of transactions with transactions growing by 39%.

So I think that bodes well for post the period. So you've got to remember, in platform economics normally you have a free period and then you monetize later.

So this is a bit weird because midstream, it's happened, it's happened. But it has boosted the number of transactions and the adoption of M-Pesa, which I think bodes well for the future.

Okay. That concludes the Q&A that is coming through on the webcast.

I'll hand back to you to conclude, Shameel.

Thank you, everybody, and thank you for joining us today.