NOMPU SIZIBA: Vodacom came out with their annual financial results today [May 11, 2020]. For the 12 months ended March 2020, the group reported revenue up 4.8%. It added 5.9 million customers, taking its customer base to 116 million. Its financial services customers rose by 12.8% to 53.2 million. Headline earnings per share rose by 8.9% to 945 cents, with shareholders set to get a final dividend of 405 cents a share. That takes the total dividend to 845 cents a share.
Earlier my colleague, Ryk van Niekerk, dug deeper with Vodacom CEO Shameel Joosub.
RYK VAN NIEKERK: Shameel, thank you so much for joining me. That is quite a dividend policy. Is it common for capital-intensive telecommunication companies to have a 90% pay-out ratio?
SHAMEEL JOOSUB: It really depends on the maturity of the business and so on, and I think we’ve been paying dividend policy for the better part of, I would say, 10 years or so. Yes, it works very well for us. Also our debt-to-ebitda is very low, so we’ve got a strong balance sheet, and we are currently are at 0.6 or 0.7 times of debt to ebitda.
RYK VAN NIEKERK: I looked at your results, and one thing that stood out for me was that your data traffic on your South African network surged by nearly 70% during the period. What drove this growth?
SHAMEEL JOOSUB: I think what’s happening is that more and more people are adopting it. As we go more and more into digital lifestyles, the amount of data youth have been utilising has become a lot more. Things like social media obviously play a big part – specifically WhatsApp, Facebook and so on. YouTube plays a big part of that as well.
RYK VAN NIEKERK: You also reduced tariffs during the period; and shortly after the financial year-end you also cut tariffs more after your altercation with the Competition Commission. Has that had a big impact on traffic growth?
SHAMEEL JOOSUB: What’s happened is effectively we passed R2.7 billion of benefits back to consumers, a cut of up to 40% on the monthly data packages. One of the hopes was that we would get increased utilisation to offset that.
I think during the Covid-19 period of the lockdown we did see a massive jump in utilisation, so that has benefited us. And hopefully some of that becomes permanent in terms of changing user behaviour, because we do need an increase in usage to offset some of the impacts of the price drop.
RYK VAN NIEKERK: Absolutely. But you also need new spectrum, or additional spectrum, to accommodate the growth in data. In your previous financial year, what were the capacity or usage levels like on your network – did they approach, say, the 80 to 100% range?
SHAMEEL JOOSUB: What we do is we keep adding capacity. So we never really allow it to get there. It’s just the way you add it. The capacity becomes more expensive if we have a shortage of spectrum. So, essentially, what spectrum does is it allows you to use more often a week. If you add spectrum you don’t have to build as many more new … , which is much more costly. So spectrum allows you bring more, economically, if I can put it that way, which then drives down your underlying cost of a gig of data.
RYK VAN NIEKERK: Let’s talk about Covid-19. How has it affected Vodacom?
SHAMEEL JOOSUB: It has affected us in a number of different ways. The big part is the traffic interaction has gone up quite substantially, so we need a 110% increase year over year in terms of traffic, whereas, to put it in perspective, the second half of the year we saw a 75% increase in traffic. So you can see it’s quite a dramatic uptick in the amount of traffic. So the resiliency on the network in making sure that we have enough capacity is really, really important. We invested something like R500 million just in the first two months, just to make sure that we can cope with the increased demand on the network.
But it’s also a various impact that, like everybody else, we had to continue working through the crisis. What is remarkable is we managed to do all of this with 95% of people working from home. So that’s been a big change.
And then obviously there’s been the part of helping government and having to step up as a corporate – and we’ve done that in terms of trying to provide assistance, whether it was the 20 000 phones that we gave to the health workers, or in how we are helping with the supplying of data analytics and so on. Or just a zero-rating … sites and these type of things. Or the virtual dockets that we are providing. So a number of different initiatives to try and assist wherever and however we can.
RYK VAN NIEKERK: Of course, telecoms is an essential service. But you say 95% of your workforce worked from home. How many employees do you have?
SHAMEEL JOOSUB: We have 5 000 employees, but we then have probably another 10 000 who are outsourced and working for contractors, who work at our campuses and so on. Only 5% of people, including the contractors, were working at our offices.
RYK VAN NIEKERK: I think the way corporate South Africa works will change fundamentally after the lockdown, and many case studies will emanate from it. But I have kids at home, and it is really a struggle to continue with schooling. And of course connectivity is critical there. You offer a few free educational services. What has the take-up been of those services?
SHAMEEL JOOSUB: It’s a very good story. We have the Vodacom e-School. We’ve seen registrations go over a million in terms of using the free platform. All the curriculum is on the platform, from Grade R through to 12. So that’s one thing.
We’ve also created the ability for all schools, universities, TVET colleges, to zero-rate their portals though our connection platform.
And then the third part is that where schools or universities or TVET colleges want to, let’s say, have proper virtual classrooms and these type of things, we have a solution for both the virtual classroom as well a heavily discounted rate for employed teachers.
RYK VAN NIEKERK: Of course there are a lot of calls for government to open up the economy, because the economy is currently being damaged significantly. Can you see any trends in the usage of your network of how the economy is actually being harmed?
SHAMEEL JOOSUB: Not yet, but are seeing a little. So what we do is we see an increase in debt, and we have seen bad debts go up. You are seeing a bit of an increase in the number of bad debts, but a lot of that has come from big companies that have gone into business rescue. You know who those are, and those are obviously impacting – that means we have to provide for that.
RYK VAN NIEKERK: So you don’t really see a drop in calls being made between parties, as you would expect to have seen between businesses and clients prior to the lockdown?
SHAMEEL JOOSUB: We’ve seen a drop in the minutes more or less being flat in terms of trends, and obviously that’s been offset by the big spike on the data side. But overall, recharges, if we look at our recharge volume, it’s kind of been flattish for March into April, and that’s despite a 40% decrease in prices.
RYK VAN NIEKERK: Just lastly, you grew your headline earnings by 9%, which is I think a good result in the current economic climate. What do you expect for this new financial year?
SHAMEEL JOOSUB: I think the new financial year is going to be a difficult one, because so far the trends have been positive for us, but I think there’s a lot of uncertainty. I think the economy is undoubtedly going to being affected across all our markets.
And so we are not issuing guidances yet; we’ve basically adopted a policy of saying let’s wait a few months until the trend has kind of developed more before we issue guidance. What we have done, though, is confirm we will continue on our dividend policy and pay-out.
NOMPU SIZIBA: Many thanks to Shameel Joosub.