RYK VAN NIEKERK: Telecoms giant Vodacom is one of the biggest mobile operators on the continent, and operates networks in South Africa, Lesotho, Mozambique, the DRC, Tanzania and Kenya through its subsidiary Safaricom. Vodacom also recently bought 55% of Vodacom Egypt, and entered the Ethiopian market.
The group announced financial results for its year to the end of March today. Revenues rose by 4.5% to R103 billion, the headline earnings rose by 3.3% to R17.1 billion – R10.13/share. A final dividend of R4.30 was declared, which means the total dividend for the year is R8.30. That is 3% higher. And Vodacom added six million new customers to its various operations. The total customer base now numbers 130 million.
Shameel Joosub is on the line. He is the Vodacom CEO. Shameel, thank you so much for joining me. You described the year under review as a watershed year for Vodacom, and you say this in the context of Vodacom’s expansion into other African markets. But your biggest market by far is still the South African market, and it contributes around 80% to the group results. Do you foresee this contribution coming down in the foreseeable future?
SHAMEEL JOOSUB: Yes, very much so. I think when we bring Egypt into the group, it will basically bring South Africa down to about 55% coming from South Africa. It will give us big revenue diversification going forward.
RYK VAN NIEKERK: Yeah, that is significant because MTN, for example, has networks all over the place and the South African market is not so significant within the [MTN] portfolio. I don’t know if it was a risk for Vodacom or an opportunity to have one massive market in the context of the group. Going forward, will African expansion be on top of the agenda?
SHAMEEL JOOSUB: You know, we’re not going on a big acquisitive drive. I think it’s more – strengthening our positions. Egypt and Ethiopia are two big markets. That gives you north of 200 million more people. A hundred million each gets added to the addressable market; that will mean there’s more than 520 million people in the countries where we have operations, so I think there’s no need to go on an acquisitive drive for more than that.
What is needed is for us to then strengthen our positions in each of those countries by moving from all forms of connectivity, so mobile plus fibre. So a big fibre play, hence the CIVH [Community Investment Ventures Holdings] deal in South Africa. But fibre also plays across our markets. And then of course the leveraging of our financial services play and our super apps [Ayoba and VodaPay].
I think we’ve got something really incredible in financial services, where today we process $326 billion [around R5.26 billion] a year. A good part for us is to grow these platforms and further strengthen our positions in each market.
RYK VAN NIEKERK: I was in Egypt a few years ago, just before Covid-19 hit the world. We roamed on the Vodafone Egypt network and I can remember that my wife and I spoke about how poor that network was at the time, especially when you moved out of urban areas. Can you tell us about the network and the opportunities you see there?
SHAMEEL JOOSUB: Over the years from when you were there, I’m sure it’s improved dramatically. Today it’s [the] market leader with a 44% market share – very, very strong.
The latest results: income 17.3% in revenue, 22% in Ebitda [earnings before interest, tax, depreciation and amortisation], so you can see the transformational nature of that.
Then bringing that on to our books I think is going to be quite transformational for us. Of course that is going to also continue. We do plough a lot of money into investment, and I think that we’ll continue to do that, especially on the network. But I think the financial services opportunity with 80% of the country unbanked is a huge, huge opportunity for growth for us.
RYK VAN NIEKERK: You say “unbanked”. Why hasn’t Vodacom and maybe some of the other mobile operators not launched a more commercial banking service, because in South Africa we’ve seen the likes of Capitec partner with grocery retailers, offering a solid banking product through them – or services through them. Is that on the cards for Vodacom?
SHAMEEL JOOSUB: I think we’re doing it more through our platforms, Ryk. So if you look, we now have 61 million financial service customers, we are generating R22 billion of revenue across the markets on financial services, processing 52 million transactions per day.
What we are doing is using the super app approach so that you have one app where you can pay, [borrow], shop, save, invest, get entertained – all from a single app.
So we’ve got a very successful base in M‑Pesa, but we are now modernising it by really bringing into it the e-commerce in the marketplace.
You would’ve seen that we launched in South Africa first, with the VodaPay platform, and then we’ve taken some of those elements and already introduced what we are calling the M-Pesa Super App in Kenya, and now we are rolling it out across the different markets. I think it basically opens up the platform from dealing with a few to dealing with many, with lots of people being able to sell their products on the platform itself, but also capturing things like investments and so on.
So, to be frank with you, we haven’t needed to be the bank. We’ve a platform that empowers the bank.
RYK VAN NIEKERK: What is your biggest single e-commerce application?
SHAMEEL JOOSUB: It would be payments. It’s payments. It is paying for bills, all of those type of things. What’s growing very quickly as well is transport and so on. In South Africa at the moment it’s the Massmart offerings that are there, it’s KFC on the VodaPay platform – those are the ones that are actually the top three at the moment.
RYK VAN NIEKERK: And the payment is through M-Pesa?
SHAMEEL JOOSUB: In South Africa it’s through VodaPay and then in international markets M‑Pesa.
RYK VAN NIEKERK: It’s almost unbelievable – the growth mobile operators have seen in financial services – because as your traditional voice business stagnates, there’s a whole new market that has opened up. Do you foresee the financial services side of the business growing a lot faster than the traditional services going forward?
SHAMEEL JOOSUB: Very much so. I think it does leverage off the telco, of course, and the customer base and the leading marketing in [all the] market positions we have in all our markets. But what you’re doing is you’re creating new services, and that’s generating a lot more revenue. So, yeah, it’s got very good growth projections going forward.
The other thing, Ryk, is that it doesn’t require as much capex as a mobile network, so your margin on financial services is much better than your margin on telco.
RYK VAN NIEKERK: I can see you invested around R11 billion in the South African network this year; that is in capex. That was around 10% higher than the previous year, while your turnover here only grew by 4.5%, and headline earnings by 3.3%. So your growth in capex exceeds your growth in profitability. Is that normal?
SHAMEEL JOOSUB: Look, we are also investing ahead of the curve to make sure that we could take advantage of supply-chain shortages and so on, and make sure that we have the requisite equipment and so on in the network. That’s one part of it.
Secondly, of course, we’ve invested into the VodaPay platform in South Africa as well. But yes, the network does require a lot of capex to cater for the growth in terms of the insatiable need for data.
RYK VAN NIEKERK: When you say ‘capex’, is that new cellphone towers, and equipment within those towers, and maybe new technology within your network, your infrastructure? What else is it? Is that pretty much it?
SHAMEEL JOOSUB: About R2 billion goes to IT, and that would include the VodaPay platform as an example. And then the rest of the R9 billion would go into network, about a billion in things like batteries and generators and those types of thing because of the issues of Eskom and the availability of power.
RYK VAN NIEKERK: A billion rand in generators and batteries?
SHAMEEL JOOSUB: Yep. Every year for the last couple of years. That’s definitely taking its toll.
Then of course, it’s investment into things like upgrading the radios, being able to put more capacity on sites, rural coverage, upgrading the data centres, now making sure you’ve got the right tech in place and radios in place to take advantage of 5G.
Remember, behind every mobile network there’s a fixed network which has to carry the traffic. So investment into the fixed network as well.
RYK VAN NIEKERK: You spent R11 billion on capex; R1 billion is on batteries and generators. That’s 10% of your total capex bill goes to mitigating Eskom.
SHAMEEL JOOSUB: That’s it.
RYK VAN NIEKERK: That is actually unbelievable. And do you need to protect that equipment?
SHAMEEL JOOSUB: Yeah, we are having to. Of course theft is quite bad. In terms of theft on sites and so on we lose about R200 million a year. So now we’ve had to go to armed response on the sites.
RYK VAN NIEKERK: Just lastly, you’ve changed your dividend policy from paying out 90% of your headline earnings down to 75%. I’m sure many shareholders will frown. Why did you do this?
SHAMEEL JOOSUB: Twofold. One is it gives us more room to grow in terms of giving us more operating leverage to be able to fund the acquisitions. So remember there’s Egypt, there’s spectrum that we paid R5.4 billion on, there’s the investment into Ethiopia. Then we needed to fund, of course, the fibre deal in South Africa. These are transformational for the group going forward, but you have to pay it back. So you’ve got to take debt initially, and then you have to pay down the debt. That’s one.
But two is we are also simplifying the dividend policy in that it’ll now be 75% of apps, as opposed to, you know, a different policy for the upstreaming of the Kenyan dividend, so a different policy for Egypt. So it just simplifies it as well. They get 75% of the apps of the entire operation.
RYK VAN NIEKERK: Talking about the spectrum, you’ve now received additional spectrum, the spectrum you’ve been pleading for over many, many years. When can consumers expect lower data costs?
SHAMEEL JOOSUB: Firstly, remember we have reduced prices by 43% in the last two years. On top of that, of course, we’ll continue to optimise and bring down pricing. Now we need to get the equipment into the network and so on. We have to use this as an input into reducing the underlying cost, and there’s definitely a benefit of spectrum; but you’ve got to roll out the network.
And then of course you are going to have rising costs like fuel, generators, security, all of these type of things. So it’s balancing the pot. But certainly this will help and contribute to prices coming down. We’ve now got to get the network out there to make sure that we can maximise the benefit.
RYK VAN NIEKERK: Shameel, thank you so much for your time. That was Shameel Joosub. He is Vodacom’s chief executive.