Vodacom in big fibre drive

Vodacom plans to expand its fibre business to other markets if it gets approval for its latest deal with Remgro, valued at about R13.2 billion.

The Johannesburg-based company will use the planned venture with Remgro’s Community Investment Ventures Holdings to expand its fibre offering into some of its other operating countries, including Tanzania and the Congo, Vodacom Chief Executive Officer Shameel Joosub said in an interview Monday. It is still awaiting regulatory approvals for the deal.

“We are waiting to finalise the deal,” Joosub said. “And to do the fibre roll out to Tanzania, DRC, Mozambique and Lesotho. Those are the countries we will focus on first.”

African operators have been investing in infrastructure as they seek to monetise services offered on their networks, towers and data centers.

Wireless carriers expect the continent’s fast-growing, young and increasingly tech-savvy population will turn to their smartphones to access a wide range of services from entertainment to banking and insurance.

While Vodacom plans to expand its fibre business, the company is setting up separate units for its tower businesses in its operating markets. It has already carved out its nearly 10,000 towers in South Africa to form the biggest tower company in the country, said Joosub.

Vodacom will further expand lending, insurance and payment products offered on its super-app VodaPay, which was developed in partnership with China’s AliPay, while creating new business cases for remittances and wealth management, according to Joosub.

The firm, together with the substantial mobile money business it operates via Safaricom, wants about a third of its revenues to come from financial services in the future.

“Vodacom is working on growing its new services and on having the optionality to list some of its units separately, but it is not there yet,” Joosub said.

On Monday, the company slashed its full-year dividend for fiscal 2023, as Africa’s biggest phone operator by value plans investments in new ventures in Egypt and Ethiopia.

The dividend will be R6.70, down from R8.50 the previous year, Vodacom said in a statement. That compares to an average estimate of R6.76 per share, according to analysts surveyed by Bloomberg.

The wireless carrier maintained a policy of paying at least 90% of its adjusted headline earnings since 2013 until last year, when it said it would cut the payout to at least 75% of headline earnings. It reported headline earnings of 9.48 rand per share for its fiscal 2023, which ended in March.

While Joosub is battling a deepening power crisis, unemployment and vandalism of its infrastructure in South Africa, the firm increased sales by 16% to R119.2 billion in 2023. Analysts expected sales of R117.6 billion.

The company upgraded its medium-term targets for group service revenue growth to mid- to high-single-digit from mid-single digit.

The power cuts have been “disastrous” for South Africa’s economy and industry and pushed Vodacom to boost investment in power resilience, Joosub said in the statement.

The operator has spent R4 billion in backup power equipment such as batteries and generators since 2020, and R300 million this year on additional diesel, maintenance and security of its sites, he said.

That money could have otherwise been spent on expanding the country’s 5G networks, Joosub said on a call with journalists.

“Vodacom’s doing a good job in combating the same domestic headwinds of power cuts and inflation as MTN,” said Bloomberg Intelligence analyst John Davies. “Outside the home market, underlying revenue growth continues to benefit from data and mobile money demand in particular and the Ebitda margin improved.”

Still, Vodacom continues to face tough macro trends across many of its markets, while its expansions into Egypt and Ethiopia have increased its risk profile, according to Davies.