Vodacom gets on its bike
When Vodacom CEO Pieter Uys competes in his sixth Argus Cycle Tour today, he’ll be relaxed in the knowledge that he has taken the company through the last phase of a difficult transition and set it up for future growth.
Although it has taken almost a year to conclude Telkom’s sale of 15% of Vodacom to Vodafone and the unbundling of its remaining 35% stake to shareholders, Vodacom is now set to shake off the debilitating effect of having two equal shareholders in Telkom and Vodafone.
Luckily, it has landed under the control of global telecoms group Vodafone, which offers it much, rather than the lumbering Telkom.
Vodacom will list on the JSE on May 5 in what could turn out to be the only noteworthy listing of the year, offering investors an alternative to MTN.
In terms of the deal leading up to the listing, Vodafone will increase its stake to 65% from 50%, for R22.5-billion, minus debt. Telkom will unbundle its stake, giving shareholders a direct stake in Vodacom.
Uys, who has been CEO since October, but a Vodacom executive since its inception, said the conclusion of the deal and the proposed listing was something of a relief. “We have been discussing and wondering about it for so long,” he said.
Diplomatic about losing Telkom as a shareholder, he would only say that with markets and the regulatory environment changing, and with more converged licences being issued, Vodacom and Telkom were becoming increasingly competitive.
Having two joint shareholders also made decision making very difficult. A case in point was MTN and Neotel announcing in January that they would pool together to build a R2-billion, 5000km national fibre optic network. Uys said Vodacom had been part of the discussion since the beginning, but it only recently indicated it would be able to go in with the others and bring down the cost of transmission — a reflection of its new-found flexibility, without having to constantly defer to its two shareholders.
He was a lot more forthcoming on the benefits of getting closer to Vodafone, saying they had a lot in common and shared a common strategy — to be a total communications provider.
Vodacom made big inroads with this strategy late last year, with a 675-million investment in Gateway, sub-Saharan Africa’s largest provider of satellite services and a supplier of broadband and other services, giving it a springboard to deliver telecoms services into the continent.
Vodacom’s pre-listing statement, issued this week, shows Vodafone has 280million subscribers in 27 countries. Vodacom has 37.8million customers and operates in SA, Tanzania, the Democratic Republic of Congo (DRC), Lesotho and Mozambique.
In the year to March 2008, Vodacom reported revenue of R48.2-billion and profit from operations of R12.5-billion. It expects to pay a dividend of 40% of headline earnings.
Vodacom has already benefited from the relationship with Vodafone, particularly Vodafone’s expertise, product innovation, marketing, resources and global footprint, its pre-listing statement said.
It has been able to market Vodafone products such as Blackberry, iPhone and Vodafone Live.
It has also predicted that for the year to March 2009, revenue growth will be slightly lower than the 13.7% in the nine months to December. Its profit margin will be lower, reflecting its BEE deal, and lower profitability at Vodacom DRC.
Its net debt has increased substantially due to increased capital expenditure and the acquisition of Gateway. Finance charges include R408-million relating to foreign exchange contract losses with respect to the Gateway acquisition.
Vodacom also warned of a possible impairment on its investment in Vodacom DRC. Uys said while results would be relatively buoyant, “there is definitely pressure”. In the DRC, which depends on resources, Vodacom will have to look at cost cutting.
A trend during the downturn is that prepaid average revenue per user is going up “as people are reliant on mobile technology to make a living”, but those on contract are being more cautious.
Uys said Vodacom was listing at a difficult time, not knowing if it was listing at or near the bottom of the cycle, but “it is not just our sector; we are not raising capital and we are giving Telkom shareholders direct access to Vodacom”.
The Vodacom name will remain, although the company will continue, as it has in the past, to use the Vodafone name too.
“We are not going to rush in and paint everything red,” Uys said. Use of the Vodafone brand has enabled Vodacom to launch products that on its own would have been difficult.
Vodacom’s dominant market position locally has long screamed to explore Africa more vigorously, and, while it has investments in Africa and is the market leader in four of the five countries in which it has a presence, the big push has been limited by shareholder agreements.
Uys, meanwhile, said he would not be riding to win the Argus today, but he will surely go for gold in Africa.
“In the long term, voice is going to be saturated,” he said. “We launched Vodacom Business last year to provide additional ICT services and introduce additional revenue streams.
“South Africa and the rest of the continent are still very far behind in terms of broadband. In 2004 we launched 3G and have since upgraded that to HSDPA, which is faster and will compete with fixed broadband. We remain Vodafone’s investment vehicle in sub-Saharan Africa, and we’ll see a lot of new innovations coming into the country.”
He said, however, that price expectations in Africa were still high, so Vodacom would treat acquisitions carefully.
Vodacom’s pre-listing statement shows that:
- Vodacom paid Vodafone R303.9-million in fees for services last year;
- It spends R563-million a year on sport and marketing contracts — and its commitments on these contracts total R1.2-billion into the future; and
- Vodacom listed its competitors as MTN and CellC, but did not mention Virgin Mobile.
Loading ...