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RYK VAN NIEKERK: Vodacom is Africa’s second-largest mobile group, serving nearly 200 million users in eight countries. Forty-seven million of these users are in South Africa. Vodacom also operates networks in Tanzania, the DRC, Mozambique, Lesotho, Kenya, Ethiopia and Egypt.
The group today announced financial results for the six months to the end of September, and it is clear that [Vodafone] Egypt will make a significant positive contribution to Vodacom in the future.
It was the first period where this network’s contribution was included in the results. The group’s revenue rose by 36% to R73 billion.
The headline earnings were up 9% to R8.5 billion and the board declared a dividend of R3.05/share.
Shameel Joosub is the chief executive. He’s on the line. Shameel, thank you so much for your time. The acquisition of Vodafone Egypt has been the largest acquisition Vodacom has ever made. You bought 55% of the network. It has around 47 million subscribers, like the South African market. How similar are the operations because I would believe those are now your two premier operations?
SHAMEEL JOOSUB: It’s a very, very important asset for us. Of course, South Africa’s still bigger, so about 55% of our operating profit now comes from South Africa.
I suppose the good news is that 45% now comes from beyond our borders. I think it’s very important because of diversification in your revenue.
Egypt’s not yet the size of South Africa, but certainly a high-growth market, growing at about 28% a year, where South Africa’s growth of course, although good off a large base, is much lower than that.
So I think it’s very positive in that respect to have exposure to what’s a good growth market.
RYK VAN NIEKERK: You currently own 55% of Vodafone Egypt. Is there any possibility of you increasing that stake?
SHAMEEL JOOSUB: At this stage, to be honest, I think what we want to do is really focus on trying to bring the level of debt down, because of course we issued more shares, but we also took on more debt to make the acquisitions, and of course to invest into Ethiopia. So we’d like to use the opportunity in the upcoming periods to reduce the debt, as opposed to increasing our stakes at this stage.
RYK VAN NIEKERK: One of the growth areas you have identified in your financial results statement is financial services, and you offer a range of insurance, transactional and legal services for both the business and personal markets. What is the biggest segment? What is the biggest financial services, revenue-wise, that you offer?
SHAMEEL JOOSUB: Ryk, it very much depends on which type of market we’re talking about, but firstly the biggest service is person-to-person money transfers – basically being able to transfer money home if you like, and so on, and international money transfers. And then of course payables is also a very big area.
And then now we’ve been introducing over the last while a lot of lending services, so loans, now investments, so that you can do everything from a single app – that’s helping us to grow.
But we’ve also diversified into the merchant side, so we are not just dealing with the consumer side. We also have the merchant side, close to a million across the footprint. Basically merchants are now using our point-of-sale in South Africa, but also what we call M-Pesa Till in the other markets.
RYK VAN NIEKERK: And how do you foresee this segment growing and contributing towards your revenues?
SHAMEEL JOOSUB: Our desire is to make sure that 25% to 30% of our revenues come from beyond mobile.
In that context, we are investing quite heavily into fibre, fibre through the form of joint ventures, JVs, because we don’t have money, simply put, to do everything.
So we are doing JVs there, but also IoT [Internet of Things] financial services and so on. And we’re investing heavily into the platforms [themselves], but also diversification into e-commerce like we’ve done with the VodaPay app in South Africa and taking that into our various markets – and also insurance.
So we want to leverage off the South African insurance platform that we’ve built and leverage that into launching products in the rest of our markets as well.
So I think in that context we are making sure that we build the products once and then utilise them across the market, [taking] some products born in South Africa into the rest of the markets.
The other products we are building are what we call M-Pesa Africa, and then [we] launch into Egypt, South Africa and so on.
RYK VAN NIEKERK: And load shedding? You’ve stated you spent R4.5 billion over the past five years to mitigate the impact of load shedding on customers in South Africa – and I think that’s going to be with us for many years to come. But do you have the same type of scenario in other markets where you operate, where you also need to supply the electricity for your network to function properly?
SHAMEEL JOOSUB: We do. But to be frank with you, you are better prepared for it because you know that’s the case.
So you build the sites with the generators, with the batteries and so on, from day one, and you have all of that set up.
I think the problem in South Africa was you built it from being able to buy large catch-up power from the grid, and then of course you have to pivot from that to being able to get power both from the grid but also for load shedding. So you need a lot more batteries. You then need to do self-generation, all of these types of things. It’s that evolution of change that becomes costly. Of course it drives up your costs.
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And then I think the one thing that you have in South Africa that is different is that you have a lot more theft on sites here than you’d have in any other country.
RYK VAN NIEKERK: That is very, very interesting, and obviously that will drive costs up as well.
But there must be a big opportunity cost because you could have spent that R4.5 billion on other projects in South Africa. How big is the opportunity cost?
SHAMEEL JOOSUB: The R4.5 billion will go a long way in terms of building out 5G in rural coverage and so on. So yes.
And then of course it does put pressure on your income statement because your batteries generally last three years versus network equipment which generally lasts eight years, so you’ve got an increased depreciation cycle.
So there are a number of consequences to load shedding, but we are not unique in feeling the effects of this. I think the entire economy is feeling it.
RYK VAN NIEKERK: There is a migration from the traditional voice services mobile network office to data services. How significant is that migration at Vodacom, because I would assume that your traditional voice revenue would carry a much higher margin than the data side.
SHAMEEL JOOSUB: We are seeing a transition, and I think some of it is exacerbated by load shedding.
So what we find is that when there’s load shedding people tend to use more data, because other stuff doesn’t work. So they do tend to use more data. But you of course have to have the battery capacity and all of that to make sure that you can cater for that utilisation.
But you also do see a bit of a change in utilisation, people using more data than voice during those times. So that’s the one part.
The second part is you are seeing some transition over the top – but mainly voice services. But mainly the big change is of course people using more data. And then of course sending voice notes has also become a new trend.
So the good news is we pick up the revenue on the data side.
What we’re trying to manage is of course better performance on voice, so we are integrating offers more, personalising offers more, making sure that we have always have network capacity for customers and so on. So a number of things that we are trying to do is to minimise any voice declines.
RYK VAN NIEKERK: But you need your customers to use smartphones because that’s probably the key to higher or accelerated data usage. How many of your clients in South Africa own smartphones?
SHAMEEL JOOSUB: Sixty-six percent of the base have a smartphone today, so we’ve seen a rapid increase in the number of smartphones over the period.
So a good growth in terms of the number of smart devices on the network. That grew 7% during the period.
So two-thirds of our customers do have smartphones.
RYK VAN NIEKERK: Do you subsidise the entry-level smartphones?
SHAMEEL JOOSUB: Oh yes, a lot. We subsidise everything from high-end to low-end devices and we’re now coming up with innovative ways to try and make sure that we can make them more affordable, both in the sourcing part of devices and local assembly, but also trying to drive down the cost of what we call handset financing, so that you can pay daily a small fee to own a smartphone.
RYK VAN NIEKERK: Local assembly? What is that all about?
SHAMEEL JOOSUB: We’re doing this across market[s], especially where duties are higher. You bring the phone in – in parts, and then you assemble it locally.
RYK VAN NIEKERK: And is that a big job? Do you have a factory here doing it or is it in store?
SHAMEEL JOOSUB: No, no, we’re not doing it in South Africa yet. Some of our suppliers are doing it, so we are of course sourcing from them and helping them to be able to do it. But in some markets duties can be as much as 30 to 40%. In South Africa it’s about 10.5%. The bigger the gap the more of course it pays to be able to do that. We’ve just launched our first facility now in Kenya.
RYK VAN NIEKERK: Shameel, thank you so much for your time. That was Shameel Joosub, the chief executive of Vodacom.
