SA's largest mobile company, Vodacom, has turned its African operations cash positive and is looking to expand on the continent, although there are no big deals currently available.
The operator's international operations and its data drive accounted for 87% of its revenue gains in the year to March. Vodacom bolstered revenue 7.8%, to R58 billion, ahead of its expected low single-digit gains.
Vodacom's international operations now account for about 40% of the company's 48 million subscribers. However, the company's entities outside of SA only account for R10 billion of its total revenue - some 17.24%.
CEO Pieter Uys says, in the long-term, it would be nice to have a more balanced portfolio. However, there are currently no operations in Africa that will “move the needle,” he says.
Vodacom has not discounted the option of becoming a consolidator of several operators, but Uys says none of these opportunities are available at the moment. He says there may be smaller operators that could enhance the company's earnings, but Vodacom would not have done anything distracting.
For the first time since it expanded outside of SA, in 2000, its international operations have contributed to cash flow. The cellular company has operations in Tanzania, the Democratic Republic of Congo, Lesotho and Mozambique.
Vodacom made R10.97 billion in free cash flow, a 24.3% gain on the year. It paid out a total of R10.6 billion in dividends during the year, after declaring a 260c payout at half year and a 450c dividend at full year.
Uys says, despite paying out so much of its free cash flow, the company can easily raise debt should it need to. He says solid dividend payouts have always been the company's strategy as it is more effective use than leaving the money in the bank.
Vodacom's current debt to Ebitda ratio is 0.3%. Uys says there is room on the balance sheet to increase this to 1.5% comfortably, to raise about R20 billion without harming the dividend payout, should the company need to invest.
Internationally, telecoms companies have Ebitda ratios of about 1.5, says Uys. He has said that increasing the debt to equity ratio will allow the operator to do several smaller deals, or take it “a long way” towards a large transaction.
Vodacom has been on the lookout for opportunities in Africa that would allow it to be one of the top three players, and would be adjacent to current operations. However, after Bharti bought out Zain, operators set the asking price too high.
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