Why Vodacom Tanzania lost Sh30 billion

Dar es Salaam. Vodacom Tanzania Plc shareholders will not receive a dividend this year after the company announced a net loss of Sh30 billion for the year to March 31, 2021, primarily on account of recalculated taxes.

“Following the net loss after tax for the year, the board of directors has decided not to recommend dividends in relation to the financial year ended March 31, 2021,” the company announced in its preliminary financial results. However, the company’s managing director, Mr Hisham Hendi, says looking forward, the firm’s cost management programme and proactive measures to drive digital and financial growth will improve the profitability of the Group in the new financial year.

“While we continue to make good progress on SIM cards registration, we remain cautious on the impact of Covid-19 and uncertainty about the pace of economic recovery that may weigh on disposable income as a result of reduced economic activities,” he says. It is the first time that Vodacom Tanzania has reported a net loss since it was listed on the Dar es Salaam Stock Exchange (DSE) in August 2017.

Vodacom Tanzania chief executive Hisham Hendi said in the firm’s financials that the GSM business made a loss during the year. This impacted the basis on which taxation was calculated in the current year, resulting in a higher tax charge compared with the previous year.

He added that the barring of services to 2.9 million customers has had a significant impact on the revenue and profits of the company.

“In addition, subdued economic activity due to the health crisis dampened customer spend,” Mr Hendi said.

In the preceding year that ended on March 31, 2020, the telecommunications firm announced a net profit Sh45.76 billion, while during the year ending March 31, 2019, the net profit stood at Sh90.76 billion.

Last year’s profit drop was attributed to extra costs that were brought about by the implementation of the biometric registration and Covid-19 expenses along with depreciation (as calculated using the adopted International Financial Reporting Standard 16 (IFRS-16) coupled with continuous investment in network expansion.

With a history of performing well, the company’s shareholders have been receiving dividends each year whereby during the year ending March 2020, Vodacom’s equity shareholders received a total of Sh54.5 billion as dividends.

In addition, last year, the company also declared a special dividend payout of Sh178.57 a share, totalling Sh400 billion in all for its shareholders.

In 2018, the company paid out a total of Sh38.8 billion in dividends to its shareholders.

But according to the latest financial statement, the company’s finances on revenue and profitability would continue to suffer if the ongoing tax disputes with the Tanzania Revenue Authority (TRA) is not resolved favourably.

In its financial statement the company has warned that the ongoing open tax disputes with the authority is reasonably expected to alter the future profitability and revenue.

“The Group’s future tax charge, effective tax rate and profit before tax could be affected by several factors including tax reforms conducted in Tanzania and the resolution of open tax disputes with the TRA,” the company statement reads in part.

Some of the tax matters include the application and interpretation of some of the tax rules, including the classification to some of the telecommunication equipment, where lack of clear category of it in the Income Tax Act has put the two organisations in a disagreement.

Other tax matters according to Vodacom include the issue of withholding tax on satellite, international roaming and undersea cable services and the dispute that arose on the transfer pricing aspects after an audit done by the TRA.

Moreover, Vodacom Tanzania has revealed to its shareholders that services revenue for the year has fallen by 5.7 percent to Sh966.01 billion from Sh1.02 trillion of 2020.

The decline in the service revenue is attributed to the competitive pricing pressure and subdued economic activities as a result of the Covid-19 pandemic, says Vodacom.

Key revenue generator, M-Pesa declined by 0.4 percent to Sh356.8 billion, as customers’ spending fell while 800,000 Sim cards were barred.

Voice and messaging revenue declined by 16.5 percent and 24.8 percent to Sh11.5 billion and Sh31.9 billion respectively. However, revenue from mobile data which is one of the company’s key focuses recorded a growth.

Vodacom stated, “Mobile data revenue grew 3.3 percent to Sh186.9 billion despite the intense competitive pricing pressure that led to a 30 percent decline in average price per megabyte while usage per customer grew 47 percent to reach 1.4GB per month”.

Regardless of the tough year going forward the company chief executive Mr Hendi has stated optimism in the coming financials.

“Our sustainable cost management program and proactive measures to drive digital and financial growth are expected to improve the profitability of the Group in the new financial year,” he said.