Vumatel-owner now a R25.4 billion fibre giant – despite losing money

Remgro has increased CIVH’s valuation to R25.42 billion despite the company’s loss of R134 million for the 2024 financial year.

This was revealed in Remgro’s results for the year through June 2024, which showed a massive drop in the holding company’s earnings and profit.

Community Investment Ventures Holdings (CIVH) is one of Remgro’s key investments. The company is active in the telecommunications and information technology sectors. 

Its operating companies are Dark Fibre Africa (DFA) and Vumatel, which construct and own fibre-optic networks. 

Following an internal restructuring in 2023, DFA and Vumatel are held under Maziv, a newly formed wholly-owned subsidiary of CIVH.

Maziv houses Vumatel and DFA, while Vumatel holds a 49.96% stake in Herotel, a South Africa-based Internet service provider.

Remgro has an equity interest of 57% in CIVH, and the company contributes 10.6% to Remgro’s net asset value.

In its 2024 results presentation, Remgro revealed that the CIVH group’s revenue increased by 2.3% to R6.35 billion. However, its EBITDA fell by 1.6%, and operating earnings dropped by 15.6%.

CIVH’s headline earnings for the year were in the red, dropping from a profit of R361 million in 2023 to a loss of R134 million – a 137% decrease.

Remgro’s 57% shareholding in CIVH means its contribution to Remgro’s headline earnings amounted to a loss of R75 million.

The company explained that this decrease is mainly due to higher finance costs resulting from increased interest rates and higher maintenance and security costs to ensure high network uptime.

CIVH’s subsidiaries, Vumatel and DFA, did not fare much better in the 2024 financial year. 

DFA’s revenue for the year ended 31 March 2024 increased by 2.3% to R2.72 billion, driven by demand in its fibre-to-the-business vertical. Its headline earnings fell by 39.6% but remained profitable at R345 million.

Vumatel’s revenue for the year ended 31 March 2024 increased by 3.2% to R3.54 billion, driven by its fibre infrastructure expansion programme and subscriber uptake growth.

However, Vumatel’s headline earnings dropped by over 550% – decreasing from a profit of R82 million in 2023 to a loss of R374 million in 2024.

Despite these significant losses, CIVH’s equity value increased from R25.08 billion in 2023 to R25.42 billion.

CIVH’s valuation is largely based on Maziv’s enterprise value, which currently stands at R50.98 billion, up from R49.35 billion in 2023.

Maziv’s equity value stands at R31.48 billion, up slightly from 2023’s R31.03 billion.

During the 2024 financial year, Maziv’s debt also increased from R18.32 billion in 2023 to R19.50 billion.

CIVH chairman Pieter Uys said CIVH’s financial performance should improve once interest rates come down, and in the meantime the business’ cash flow remains strong.

CIVH’s pre-capex cash flow for 2024 was R2.01 billion, down slightly from R2.19 billion in 2023.

Below is an overview of CIVH’s structure, including the potential impact of its proposed deal with Vodacom.

Vodacom deal

Pending regulatory approval, the struggling CIVH may get a significant investment boost by the end of the year.

Remgro and CIVH have signed an agreement with Vodacom to buy 40% of Maziv through a combination of assets of R4.2 billion and cash of at least R6.0 billion. However, this deal faces some challenges.

As a result of the proposed transaction, Remgro’s indirect interest in DFA and Vumatel will dilute with Vodacom’s entrance as a shareholder.

However, Remgro will also obtain an indirect interest in the fibre assets contributed by Vodacom.

The companies submitted the transaction to the Competition Commission and ICASA in December 2021.

In August 2023, the Competition Commission of South Africa recommended that the Competition Tribunal prohibit the transaction.

A month later, the Competition Tribunal allowed MTN and Rain to act as intervenors. MTN, Rain and the Department of Trade, Industry and Competition have confirmed their support of the transaction to the Tribunal.

The Tribunal hearings commenced in May this year, with final arguments set to be heard at the end of September.

Uys said the ruling is expected to be delivered at the end of October this year.

Remgro and CIVH said they remain committed to the proposed transaction because they believe it will deliver numerous benefits. 

These benefits include the following:

• Commitment to invest at least R10 billion over a five-year period.
• Pass at least 1 million new homes in lower-income areas over a five-year period.
• Commitment to creating up to 10,000 new jobs.
• Prioritising SMME development by establishing a new enterprise and supplier R300 million development fund. 
• Provide high-speed internet to adjacent schools.
• Investment by Vodacom in excess of R13 billion through the transaction.

Remgro and CIVH said the deal will deliver significant benefits to South Africa, the economy and lower-income households.