Vodacom - South Africa's largest operator with 30 million subscribers - still aims to grow its international footprint by wrapping up merger and acquisition activity currently in "progress".
The company, which expects to soon finalise a commercial agreement to buy out Neotel, says it can leverage its balance sheet to take advantage of acquisition opportunities. Vodacom's gearing is currently 0.5 times, and it has the capacity to raise as much as R50 billion in debt, although this does not indicate a shopping budget, says CEO Shameel Joosub.
CFO Ivan Dittrich says it has "adequate" capacity to fund any transactions, as well as its proposed purchase of Neotel, through debt, without affecting its free cash flow and expansion plans.
The group, which declared a dividend amounting to R5.8 billion, is set to bump up capital spending from the top end of 11% to 13% of revenue to between 14% and 17% over the next three years. The spending will go into growing capacity, adding subscribers and dropping prices.
Joosub says there are a "few opportunities" on the cards, but the issue is that it takes time to complete these deals. He says there are instances in which the sellers are remorseful over their decision, for example. "It's a lot of effort."
New markets
Vodacom has operations in the Democratic Republic of Congo, Tanzania, Lesotho, and Mozambique, which has just turned positive at the operating profit level. Its international operations grew revenue 9.2% to R6.7 billion in the first half of the year, compared with an overall increase of R6.6% to R36.7 billion.
Joosub would not be drawn on which countries Vodacom is looking to enter, nor timeframes for completion of an acquisition. In May, it said it was actively on the hunt for a deal, with plans to make two or three acquisitions in the next two to three years.
The group's goal remains to get 25% of total revenue from outside Africa within the next two years, up from the current 22%, adds Joosub.
Vodacom is looking for new markets that would aid it - and parent company Vodafone - instead of amalgamating the entities of both operators under one umbrella, says Joosub. "Otherwise you're just moving the deckchairs around."
Vodafone has operations in Ghana, Kenya and Egypt.
Vodacom has said it was looking for operations in countries where there is a low penetration rate, a population of more than 10 million, good economic growth, and a stable political environment. It was not keen on an operation that is aligned with a large group.
Before buying, Vodacom would make sure it could capitalise its investment, as the cash injection is one of the most important ingredients for success, says Joosub.
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