Vodacom caught between surging demand and shrinking wallets
CEO Shameel Joosub warns that pressure on consumers will be felt for at least 18 months
Vodacom, SA’s biggest mobile phone operator, gave a cautious 2020 outlook on Monday, warning of pressure on consumers’ disposable income even as demand for its services surges during lockdowns.
Vodacom, which rewarded shareholders with a R7.5bn dividend payout on R16.6bn net profit, is the latest SA company to temper its expectations as consumers and businesses hunker down for a prolonged economic downturn and job losses due to lockdowns and curfew measures to contain the spread of Covid-19.
“As the effects of the Covid-19 pandemic continue to unfold, the outlook for the economies in which we operate is uncertain,” Vodacom said in a statement. “We will be postponing the issuance of medium-term targets, until such time that we have more clarity on the economic outlook and the effect.”
The company’s comments highlight difficult dynamics facing the industry, which may have to grapple with weak demand for telecom services and bad debts as industries bleed jobs and companies go out of business even when the sector’s services are more essential than ever.
CEO Shameel Joosub said the effects of a weaker economy at home — which is forecast to contract by anything between 4% and double digits and shed as many as 7-million jobs due to Covid-19 — will be felt for at least the next year and a half.
The crisis has increased demand for telecom services, but without easing pressures felt by consumers over time, this puts the company’s ability to generate revenues at risk, Joosub said.
“The job losses, if you look at the predictions, it doesn’t look good. It looks really bad and effectively those impacts will be with us for at least the next 18 months, I would say,” Joosub told Business Day.
Vodacom has reported a near 9% rise in annual headline earnings per share. The mobile operator grew its customer base by close to 6-million during the period with data traffic surging by 66%. Business Day TV caught up with Vodacom CEO Shameel Joosub to discuss the numbers.
However, Vodacom, which is majority owned by Britain’s Vodafone, said it has enough cash buffers to withstand the economic shock as it lifted dividends by 1.3% to 405c per share, or R7.5bn, sending its share price 3.43% higher at R127.69 and outpacing rival MTN, which closed 0.9% higher at R49.97.
Shares in Vodacom have gained nearly 10% in the past 12 months, compared with a 50% drop in MTN, whose second-biggest lucrative market, Nigeria, is grappling with the public health crisis and a collapse in the price of oil, its export mainstay. Shares in Telkom, which is in the middle of heavy investments to build its mobile phone network, is down roughly 80% over the same period.
Vodacom has a higher level of earnings predictability than either MTN or Telkom, said David Lerche, a senior investment analyst from Sanlam Private Wealth.
“MTN’s business operates across a wide range of frontier markets, where the impact of Covid-19 on oil prices creates concern around currency moves,” Lerche said. Telkom on the other hand has lower margins and thus changes in revenue caused by the crisis will have “a more pronounced impact on its profit”.
Net profit rose 7.2% to R16.6bn, bolstered by a strong showing from Safaricom, the owner of M-Pesa money transfer, whose success in East Africa convinced investors and executives that the next revenue stream for mobile phone companies lay in financial services.
Joosub also said there was an opportunity to increase the company’s data and digital services revenues given an expected change in consumer behaviour, such as increased online shopping, as fewer people visit physical stores and use video streaming in place of going to cinemas.
For the year to end-March 2020, Vodacom’s digital services unit contributed R1.5bn in revenues, driven by increased purchases of its video-on-demand, music, sports, gaming and other video services.