Massive earnings hit for Vumatel parent company

Vumatel and Dark Fibre Africa (DFA) parent company Community Investments Ventures Holdings (CIVH) contributed far less to the headline earnings per share of its majority shareholder — Remgro — in the second half of 2023.

According to Remgro’s latest interim results, CIVH contributed R6 million to Remgro’s headline earnings per share between July to December 2023, down 96.7% from the R184 million reported over the same period in 2022.

Remgro said the decrease in earnings was mainly due to higher finance costs resulting from increased interest rates.

“The main contributing factor to the decrease in headline earnings is due to the 400 bps increase in interest rates from 7.75% at 1 April 2022 to 11.75% at the end of the reporting period,” Remgro said.

While CIVH’s contribution to Remgro’s earnings decreased, both Vumatel and DFA reported increases in revenue during CIVH’s most recent interim reporting period.

Vumatel group’s revenue for the six months ended September 2023 increased by 11% to R1.818 billion compared to R1.642 billion in the previous interim period.

Remgro attributed this to Vumatel’s fibre-to-the-home (FTTH) infrastructure expansion programme and subscriber uptake growth, particularly in the lower-income market, where the company sells its Reach products.

“The Reach network expanded by 11% with Reach homes passed exceeding one million and Reach subscribers increasing by 20%,” Remgro said.

DFA, which provides backhaul and business fibre connectivity, saw its group revenue in the same period increasing 3% from R1.297 billion to R1.341 billion.

In addition, DFA’s annuity revenue base climbed from R210 million per month on 30 September 2022 to R215 million per month by 30 September 2023.

Increased valuations

Vumatel’s book value increased only slightly in Remgro’s interim report — from R7.025 billion by the end of December 2022 to R7.029 billion at the same time in December 2023.

However, Remgro has estimated that CIVH’s intrinsic value has declined 8.6% from R14.3 billion to R13.064 billion.

Remgro owns 57% of CIVH, so its interest in the company is worth around R7.45 billion.

The company still regards Vumatel as a growth asset due to its infrastructure expansion into lower Living Standards Measure (LSM) areas, as well as connecting customers in both its
traditional core network and lower LSM areas.

It has estimated that Vumatel’s share of the FTTH market stood at approximately 36% — both in terms of homes passed and connected.

CIVH and Vodacom plan to form a joint venture that will see the latter acquire up to 40% of the ordinary shares of a newly created wholly-owned CIVH subsidiary called Maziv, which will hold all of CIVH’s fibre assets.

This will be done through a combination of assets and cash of R4.2 billion and R6 billion, respectively.

However, the Competition Commission has recommended that the Competition Tribunal prohibit the deal.

The Tribunal’s final hearing on the matter — which will include consideration of arguments against and in favour of the transaction — is set to be heard on 24 May 2024.

Remgro and CIVH have remained committed to the proposed transaction and said they believed should it be permitted by the Tribunal, it will deliver “significant” benefits to South African consumers and the broader economy.

“These include the very real and tangible positive social impacts relating to critical issues such as the democratisation of the internet in lower-income areas, greater access to cheaper fibre to the greater South Africa, as well as the potential for job creation, and broader growth of the economy,” Remgro stated.