As anticipated, Vox Telecom has announced lower earnings per share and headline earnings per share for the six months ended 28 February 2009, although it did grow revenue and gross profit.

For the period under review revenues grew by 22% over the same period to R1,059-billion. Gross profit increased by 20% to R235-million while gross margins reduced to 22% from 23% for the same period last year.
In addition, at the end of 2008 the company prospectively assessed the useful lives of the acquired customer bases to better align the accounting treatment with industry best-practice by applying a useful life of 25 years. This was disclosed in the annual report for the year ended 31 August 2008. This has meant an increase
in the amortisation rate of existing and acquired customer bases from 2% to 4%. This increased amortisation rate caused an increase in amortisation charge of approximately R13-million before taxation.
Worse than expected seasonality over December and January, higher finance charges and the comparative weighted average number of shares in issue are the primary reasons that operating profits and earnings per share are lower than the same period last year.
As a result, earnings per share and headline earnings per share are down 40%.
Cash generated from operations has improved significantly to R80-million from the negative outflow of R10-million in the prior period.
Over the six months, the group enjoyed continued organic growth across all business units, with particular emphasis on margin enhancement which in certain cases has meant the termination of low margin business.
The Vox Telepreneur business grew to over 7 000 customers with 6 300 Vox ADSL phones in use and 3 100 dealers. Average revenue per user has increased to R276.00 from R262.00 reported in November 2008. New products are being added to enhance the Telepreneur offering, such as PBX and ADSL offerings and the renewal rate of dealers after one year is in excess of 70%.
The company launched the "Fishbone" LineBonder broadband solution during the period, allowing customers to combine multiple access lines for increased speed and efficiency. Vox Datapro, in partnership with an international partner, has negotiated the exclusive distribution rights for this product in the South African market. Uptake has been better than expected.
The number of business customers has remained in excess of 18 000 with a contraction in the @lantic consumer base to just over 150 000 customers, primarily caused by churn and non-payment from a weakening economy.
Vox Amvia is in the final stages of launching its corporate faxing solution and services in the UK called "Faxster International" with further progress also being made in India and China.
During the six months, monthly contracted annuity revenue across the group remained relatively stable at R172-million per month as at 28 February 2009 (R175-million at August 2008) with growth expected in the remainder of the fiscal year.
The staff complement at Vox grew during the period, from 698 employees at 31 August to 737 employees at the end of February.
Vox has agree to supply Neotel products to its customer base and has also procured bandwidth on the Seacom undersea cable.
While Vox Telecom has gone through a period of consolidation after its acquisition spree in the last few years, the company has felt the effects of the economic downturn. However, while its interim results show a large drop in earnings per share, there is still much to recommend it.
“Vox borrowed quite a lot of money to fund its acquisitions and the cost of borrowing increased more than it anticipated,” says Frost & Sullivan ICT industry analyst Lindsey Mc Donald. “It’s re-assessment of amortisation on its customer base also had a significant impact on the earnings per share.”
Vox’s balance sheet however continues to look strong, with only a slight decrease in the net asset value per share from the comparable period. Despite its extensive acquisition spree, the significant improvement in cash generated from operations during the period means that the company still has a strong bank balance.
Mc Donald says that there is however increased competition in this market, which is placing downward pressure on prices and could affect future cash flows.
“It’s becoming more and more difficult for operators to achieve margin and to differentiate themselves,” Mc Donald says. “It’s a challenge to companies like Vox to demonstrate why a client should choose them and not someone else. I think we’re likely to see an increase in the bundling of services in the local telecommunications market because of this.”
The Vox Telepreneur programme, which allows small and medium enterprises (SMEs) to effectively become telecoms operators by re-selling Vox services, has continued to be successful for the company. Vox Telepreneur now has 3100 dealers and over 7000 customers. Average Revenue per user also increased to R276, up from R262 in the last reporting period.
Mc Donald adds that Vox’s innovative direct selling model remains a competitive advantage. The company’s size also means that it can also be quite flexible.
“SMEs still offer opportunities for growth,” she notes. “Neotel hasn’t been able to live up to all of its promises on its SME offering, so Vox has an important role to play there.”
She expects that the company will be moving into the provision of managed services such as data storage and VPN in the near future.
“It’s the way that most telecoms operators are moving,” Mc Donald says. “This is a way to ensure that they don’t just earn usage revenue, but service revenue as well.”