ARC fund value increases, Rain accelerates 5G rollout

‘I think in the next six months [Alexander Forbes] will be certainly one of the key assets in terms of performance’: co-CEO Johan van Zyl.

FIFI PETERS: African Rainbow Capital, whose key investments include digital bank Tyme and mobile operator Rain, grew the value of its fund, the ARC Fund, to R11.5 billion in the six months to December. That’s 16.8% higher than in the same period a year ago. The group anticipates news that will be forthcoming from the recent spectrum auction, where Rain paid around R1.2 billion for two spectrum allocations.

We have the co-CEO of African Rainbow Capital, Johan van Zyl, on the Market Update for more. Johan, thanks so much for your time. Just on what Rain has received or been allocated so far, what’s that going to mean for your customers in terms of their network experience?

JOHAN VAN ZYL: Well, we are very happy with the two tranches that we got in the opt-in stage of the spectrum auction, two tranches in the sub-Gig, 10 MHz spectrum, that’s 700 MHz, and one above that, 10 MHz of the 2.6GHz band. It is critically important that we not only get our 5G and 4G networks to the home, but within the home or within the building – or within the shopping centre – [so] that we can evenly spread that.

Everybody is aware that Wi-Fi often works in one room and not in the next because it simply cannot penetrate the concrete wall or steel wall or whatever it is. The 700 sort of sub-1Gig spectrum actually allows us to get through the clean air with the long frequency, and then with the shorter frequency distribute that spectrum inside the house, so that you get consistent quality in a much better experience from clients, and at very low cost. That’s the key to us.

So overall we are very happy with what we got. As you said, we paid R1.2 billion for it. We think it’s worth substantially more in our hands and hopefully we can get our customers to benefit from that going forward.

FIFI PETERS: I see that we’re still awaiting the outcome of the main spectrum auction. I’m wondering if there’s anything else that you bid for and how much you paid for that?

JOHAN VAN ZYL: Yes, we were in the rest of the process and we still are, effectively, because we didn’t pay much more than the reserve prices for the three tranches that we got. We still have a little bit of capacity left and money in our pockets, but that would be much more of, I think, optionality creating for us. The three key parts that we wanted to get access to, we really got in the opt-in phase, the phase of the smaller players, to allow them to get their businesses away and not be dominated by the big gorillas like MTN and Vodacom.

FIFI PETERS: So in the event that the outcome of the main auction doesn’t go your way, you’re not too bothered because you believe you’ve already got what you really, really needed to take Rain to the next level at this stage.

JOHAN VAN ZYL: Yes. I think we’ve 90% now of what we aimed for. Here and there we can certainly strengthen what we have in the longer frequency levels. You know, the 2 600, 2 500, 3 600 [MHz] spectrum range. But 90% of what we wanted we already have pocketed. I think the important part [is that] we’ve paid – in our minds, certainly – a very low price for it.

FIFI PETERS: With the onset of the pandemic with the lockdowns and non-essential services being advised to work from home, there was a big demand [for] fibre and network coverage from most households in South Africa. In fact, I was one of your customers initially. But now a lot of us are going to the office. You look on the roads, traffic is back, and there’s a lot of us who are going to the office, notwithstanding the pressures from load shedding making working from home difficult. The question is, have you seen a slowdown in demand for services, fibre services offered?

JOHAN VAN ZYL: No, not at all. We’ve not seen it. Particularly for the high data users, we see our 5G network really being in massive demand. More than half of what we sell is in really the high-users category. It’s not only working from home, but what we see is [that] the peak demand is in the period from around six o’clock in the afternoon till nine. There’s a lot of streaming TV that uses data. There’s a lot of downloading of Netflix and a range of other kinds of thing that use data.

So overall I think a big part of it initially was people moving to homes, getting connectivity and that sort of a thing. But now that they have it, they use it for a range of other things. And as we see more towers in some of our larger towns, not only in the city areas, so we increase our coverage [and] many more people still come on board. So that’s one component of growth.

The other part is people use simply more of what they already have. So it’s growth from several sources, in fact, not only from people working from home. In fact we are fairly neutral on whether they use the data at home or whether they use it at the office or wherever.

FIFI PETERS: All right. Well, I suppose that’s good news for your business.

Let’s talk about some of your other investments in the form of TymeBank. Last time we spoke to the group they had announced the strategic partnership with the Foschini Group as part of their growth plans. Also of course there were the plans to expand in the Philippines. How’s all of that going in terms of onboarding new customers?

JOHAN VAN ZYL: Yeah, it’s going fairly well. Pick n Pay is still our main source of customers. Our own app is doing particularly well. We also get people onboarding via the internet. Those are high-quality customers, people who do their own thing and onboard, and who go the extra mile to really get on top.

Now we are rolling out our facilities with the Foschini Group. We haven’t completed the onboarding process, but we’ve rolled out a number of products like more time – this ‘buy now, pay over a period of time’ thing. We’ve set up a whole range of things with Foschini. They have 30 great brands operating in South Africa, servicing 50 million customers. So overall we are tapping into that. That’s a tad higher up on the LSM scale and income scale than we used to get in Pick n Pay. So overall it it’s a nice foot. We get the kind of growth that we want.

We are rolling out new products. We now have a health-insurance product that is very innovative. It’s another business of ours, National HealthCare. Overall I think we are very happy. It did take a little bit of time in Covid to get things going. We are a bit slower, say a month or two behind our plan and so forth, but we are quickly catching up. Overall I think we’re doing the right thing. As Dr Motsepe, our chairman says, we are not only doing well by growing the business and being world-class, but we are also doing good by bringing services to people who haven’t had [them at] low cost and that sort of thing.

FIFI PETERS: Yeah, sure. I think that’s the catchphrase now, as everyone, including companies, recognises the responsibility of being a good social citizen. So doing well by doing good.

Johan, just lastly, you’ve got a number of other entities in the holding company. There is Crossfin, there’s crops, there’s also Alexander Forbes. Which business are you most excited about in the year ahead, and which are you most worried about, and why?

JOHAN VAN ZYL: Look, I’m pretty excited about our big businesses, which are TymeBank, our phosphate business, and about Rain. They are simply big, and by having a small uptick they move the needle quite substantially.

But, looking forward, I think Alexander Forbes is certainly a business that’s been underperforming over past five years or so. But they now have a very strong focus on their core industry. They’ve sold off a few businesses that were non-core on the periphery, where they were competing in areas [where] they were not well placed with capital or big insurance. So they’ve sold their insurance businesses and now are they focusing on pension-fund provision and really retirement investments, and they are well placed there. The environment has really changed to favour them. If you look at the Reserve Bank’s policies and the government’s policies, it is really set to preservation within the funds.

[For] many, many people, the only savings that they really have is the pension part that they have. To get that going, there are a lot of incentives to get savings within the pension fund. That is working in our favour and, just at Forbes, buttoning down even in really tough times where there’s lots of unemployment, and so growing the funds under management, we are doing the right stuff. I think in the next six months that will be certainly one of the key assets in terms of performance.

FIFI PETERS: All right. We look forward to reporting on that expected turnaround in Alex Forbes. But for now we’ll leave it there. Johan, thanks much for your time, the co-CEO at African Rainbow Capital.

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