RICK VAN NIKERK: Telecommunications giant Vodacom is one of the largest 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.
Today, by the end of March, the group announced financial results for the year. Revenue rose 4.5% to 103 billion rupees, while main income rose 3.3% to 17.1 billion rupees – 10.13 rupees per share. A final dividend of R4.30 was declared, meaning that the total dividend for the year is R8.30. This is 3% higher. And Vodacom has added six million new customers to various operations. The total customer base now stands at 130 million.
Shamil Jusub on the line. He is the CEO of Vodacom. Shameel, thank you so much for joining me. You have described the year as a turning point for Vodacom, and you say this in the context of Vodacom’s expansion into other African markets. But your largest market definitely remains South African, and it accounts for about 80% of the group’s results. Do you anticipate that this contribution will decrease in the foreseeable future?
SHAMIL JUSUB: Yes, very much. I think if we bring Egypt into the group, it will basically lead South Africa to about 55% of South Africa. This will give us more income diversification in the future.
RICK VAN NIKERK: Yes, this is important because, for example, MTN has networks everywhere and the South African market is not as significant within [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. Looking ahead, will African expansion be at the top of the agenda?
SHAMIL JUSUB: You know, we’re not going for a big buyout. I think it strengthens our position more. Egypt and Ethiopia are two big markets. That gives you another 200 million people north. One hundred million each are added to the target market; this will mean that in the countries where we work, there are more than 520 million people, so I think there is no need to go for purchases more than that.
We need to strengthen our position in each of these countries by moving from all forms of communication, so mobile communication plus fiber. So a great fiber game, hence the CIVH [Community Investment Ventures Holdings] deal in South Africa. But fiber is also playing in our markets. And, of course, the use of our financial services and our super applications [Ayoba and VodaPay].
I think we’ve got something really incredible in financial services where we’re processing $ 326 billion today [around R5.26 billion] year A good part for us is the development of these platforms and further strengthening of positions in each market.
RICK VAN NIKERK: I was in Egypt a few years ago, just before Covid-19 crashed. We played on the Vodafone Egypt network, and I remember my wife and I talking about how bad that network was at the time, especially if you moved from urban areas. Can you tell us about the network and the opportunities you see in it?
SHAMIL JUSUB: Over the years that you’ve been there, I’m sure it’s improved a lot. Today it is [the] market leader with a market share of 44% – very, very strong.
Recent results: revenue 17.3% in revenue, 22% in Ebitda [earnings before interest, tax, depreciation and amortisation]so you can see the transformational nature of this.
Then bringing this into our books, I think, will be quite transformative for us. Of course, this will also continue. We do invest a lot of money and I think we will continue to do so, especially online. But I think the opportunities for financial services, if 80% of the country is not closed, are a huge, huge opportunity for growth for us.
RICK VAN NIKERK: You say “non-bank”. Why Vodacom and perhaps some other mobile operators have not launched a more commercial banking service, because in South Africa we have seen Capitec collaborate with grocery retailers by offering through them a reliable banking product – or services through them. Is it on the cards for Vodacom?
SHAMIL JUSUB: I think we do it more through our platforms, Rick. So if you look, we now have 61 million financial services customers, we get Rs 22 billion in revenue in the financial services markets by processing 52 million transactions a day.
What we do is it uses a super app approach so you have one app where you can pay, [borrow]shop, save, invest, have fun – all from one app.
So we have a very successful base in M ‑ Pesa, but now we are upgrading it by really incorporating it into the e-commerce market.
You would see that we first launched the VodaPay platform in South Africa and then took some of these elements and have already introduced what we call the M-Pesa Super app in Kenya and now we are deploying it in different markets. I think it basically opens up the platform from working with few to working with many, with many people being able to sell their products on the platform itself, but also capturing things like investing and so on.
So, frankly, we didn’t need to bank. We have a platform that enables the bank.
RICK VAN NIKERK: What is your biggest e-commerce app?
SHAMIL JUSUB: These would be payments. These are payouts. He pays the bills, all that stuff. Transport is growing very fast and so on. In South Africa, there are currently Massmart offers, this is KFC on the VodaPay platform – these are the ones that are currently the top three.
RICK VAN NIKERK: And payment via M-Pesa?
SHAMIL JUSUB: In South Africa it is through VodaPay and then in the international markets M ‑ Pesa.
RICK VAN NIKERK: This is almost unbelievable – the growth of financial services is observed by mobile operators – because when your traditional voice business stagnates, a whole new market has opened up. Do you expect the financial side of the business to grow much faster than traditional services?
SHAMIL JUSUB: Very so. I think it certainly contributes to telecommunications, customer base and lead marketing [all the] mArctic positions we have in all our markets. But what you do is you create new services, and that brings in a lot more revenue. Yes, yes, he has very good growth forecasts for the future.
Another thing, Rick, is that it doesn’t require as much investment as a mobile network, so your margin on financial services is much better than your margin on a TV channel.
RICK VAN NIKERK: I see that this year you have invested about 11 billion rupees in the South African network; it is in capital expenditures. This is about 10% higher than the previous year, while your turnover here has grown by only 4.5%, and profits on the home page – by 3.3%. Thus, your growth in capital costs exceeds the growth in profitability. Is this ok?
SHAMIL JUSUB: Look, we are also investing ahead to make sure we can take advantage of the lack of supply chains and so on, and make sure we have the necessary equipment and so on in the network. This is one part.
Second, of course, we have invested in the VodaPay platform and in South Africa. But yes, the network requires large investments to meet growth in terms of insatiable data needs.
RICK VAN NIKERK: When you say “capital costs”, are these new cellular towers and the equipment in those towers, and perhaps new technologies in your network, your infrastructure? What else is it? Is that all?
SHAMIL JUSUB: About Rs 2 billion goes to IT, and this includes the VodaPay platform as an example. And then the remaining 9 billion rupees will go into the grid, about a billion in things like batteries and generators, and things like that because of problems with Eskom and the availability of electricity.
RICK VAN NIKERK: A billion rands in generators and batteries?
SHAMIL JUSUB: Yeah. Every year the last couple of years. It definitely takes its toll.
Then, of course, it’s investing in things like upgrading radios, the ability to host more bandwidth on sites, rural coverage, upgrading data centers, now making sure you have the right technology and radio to reap the benefits of 5G.
Remember that behind every mobile network there is a fixed network that must carry traffic. So investing in a fixed network too.
RICK VAN NIKERK: You spent 11 billion rupees on capital expenditures; 1 billion rupees goes to batteries and generators. That’s 10% of your total bill for the cap costs go to mitigate the effects of Eskom.
SHAMIL JUSUB: That’s all.
RICK VAN NIKERK: It’s actually unbelievable. And do you need to protect this equipment?
SHAMIL JUSUB: Yes, we are forced to. Of course, theft is very bad. As for thefts on websites and so on, we lose about 200 million rubles a year. So now we had to go for an armed response on the sites.
RICK VAN NIKERK: Finally, you changed the dividend policy from paying 90% of the profit in the title to 75%. I’m sure many shareholders will frown. Why did you do that?
SHAMIL JUSUB: Twice. First, it gives us more room for growth in terms of providing us with more leverage to be able to fund acquisitions. So remember that there is Egypt, there is spectrum for which we have paid 5.4 billion rupees, there is investment in Ethiopia. Then we needed, of course, to fund a fiber deal in South Africa. It’s a transformation for the band in the future, but you have to give it away. So you have to take out the debt first and then you have to pay off the debt. This is one.
But second, we also simplify the dividend policy in that it will now be 75% of the applications, as opposed to, you know, another policy to increase Kenyan dividends, so a different policy for Egypt. So it also just simplifies it. They receive 75% of applications for the entire operation.
RICK VAN NIKERK: Speaking of spectrum, now you’ve got the extra spectrum, the spectrum you’ve been asking for for many, many years. When can consumers expect lower data costs?
SHAMIL JUSUB: First, remember that over the last two years we have reduced prices by 43%. In addition, of course, we will continue to optimize and reduce prices. Now you need to bring the equipment to the network and so on. We need to use this as a contribution to reduce core costs, and there are definitely benefits to the spectrum; but you need to deploy the network.
And then of course you will have an increase in costs such as fuel, generators, security, all these things. So this is balancing the bank. But it will definitely help and help reduce prices. Now we need to bring out the network to make sure we can maximize the benefits.
RICK VAN NIKERK: Shameel, thank you so much for your time. It was Shamil Yusub. He is the CEO of Vodacom.