Vodacom expects its purchase of an additional 20% stake in Safaricom and its subsequent consolidation to “represent a step change in Vodacom’s scale, diversification and growth profile”.
Vodacom announced the purchase of the additional fifth of Safaricom for R36 billion in December, saying this reinforced its commitment to the high-growth East African markets of Kenya and Ethiopia. This will give it majority control of the operator at 55%, although Safaricom will remain listed on the Nairobi Stock Exchange.
Shameel Joosub, Vodacom CEO, says: “We are excited by this opportunity and, when the transaction completes, we intend to update our Vision 2030 ambitions to reflect the enhanced portfolio.”
The Safaricom deal is, however, being challenged in Kenya’s High Court by activists Tony Gachoka and Fredrick Ogola, who argue the transaction undervalues Safaricom and could hand excessive control of a strategic national asset to a foreign-owned company.
Peter Takaendesa, chief investment officer at Mergence Investment Managers, says the ruling should be out later this month.
2030 focus
Under its Vision 2030 plan, Vodacom aims to increase earnings before interest, tax, depreciation and amortisation (EBITDA) on a normalised basis for the next four years. It says this will transform it from a traditional telco into a leading African technology company targeting 260 million customers – now upgraded to 275 million – and R200 billion in revenue by 2030.
Vision 2030 is set to be driven by an expansion of financial services, stronger 4G/5G connectivity and artificial intelligence-driven operations, with Egypt expected to contribute about 23% of group service revenue by 2030.
EBITDA grew 12.8% to R62.6 billion, and 14.2% without normalising for foreign exchange swings, hyperinflation and disposals. Vodacom delivered ahead of its EBITDA medium-term target and confirmed a double-digit outlook.
“We have delivered a strong start to our Vision 2030 strategy;” says Joosub. “Pleasingly, our strong commercial momentum has positioned us to upgrade our Vision 2030 customer aspirations and confirm our medium-term targets.”
SA’s largest mobile operator reported revenue of R167.7 billion, a 12.2% gain. Headline earnings per share jumped 23.1% year-on-year to 1 053 cents, while earnings per share moved 24.4% to 1 069 cents. Free cash flow gained 20.1% to R16.8 billion.
“This result was supported by strong performances in Egypt, Tanzania, the Democratic Republic of Congo and Lesotho, alongside resilience in SA and Mozambique,” notes Joosub.
Vodacom, which is worth R303.7 billion on the JSE, saw its shares up 0.17% in early trade this morning. Over the past five years, the stock has gained 16.3% in comparison to the JSE ALSI’s gain of 75.2%.
“With headline earnings and free cash each growing by more than 20%, the benefits of our revenue and geographic diversification are apparent, even amid a complex and dynamic macro-economic environment.”
Raising the bar
Vodacom added 26 million customers across the group in the financial year, taking its total customer base to 237.3 million, representing customer growth of 12.3% year-on-year. Vodacom’s original Vision 2030 target was 260 million customers, growing at 10 million a year – its subscriber growth this year was more than double that pace.
“This scale is driving greater connectivity, productivity and financial inclusion, and underpins our decision to increase our Vision 2030 customer ambition to 275 million, reflecting confidence that the growth opportunity remains far from fully realised,” says Joosub.
“We were encouraged by Ethiopia’s performance, with customer growth of 54.2% to 13.6 million and losses narrowing as the business continues to scale.”
Higher growth, higher risk
Takaendesa says Vodacom is continuing to shift itself into a high-growth and higher-risk investment profile as it increases exposure to countries outside SA.
Joosub adds: “Our focus remains on disciplined execution to strengthen returns, while continuing to work constructively with governments and partners to support healthy operating environments and expand access to connectivity and digital services.”
The current macro-economic uncertainty is expected to persist, says Vodacom, although it believes its fundamentals and risk management processes are strong.
“This was a year that reflected both continuity and acceleration: staying true to the strengths that have served us well, while confidently stepping into the next phase of our growth journey,” comments Joosub.
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