Community Investment Ventures Holdings (CIVH), the parent company of fibre network operators Vumatel and Dark Fibre Africa (DFA), has reported a loss of R141 million.
Yesterday, JSE-listed investment holding company Remgro, which owns CIVH, published its financial results for the six months ended 31 December. CIVH’s contribution to Remgro’s headline earnings for the period amounted to a R141 million loss, compared to a profit of R6 million in the comparative period.
This comes as CIVH, through its newly-formed fibre entity Maziv, is looking to enter a R14 billion merger deal with mobile operator Vodacom.
Maziv is the entity that directly controls Vumatel and DFA.
DFA is an open-access fibre infrastructure and connectivity provider in South Africa. It builds, installs, manages and maintains a fibre network to transmit metro and long-haul telecommunications traffic, which is leased to its customers (telecoms companies and internet service providers) using an open-access wholesale commercial model.
According to Remgro, DFA has in excess of 14 351km of fibre assets and owns fibre networks in Johannesburg, Cape Town, Durban, Midrand, Centurion and Pretoria, as well as in smaller metros, such as East London, Polokwane, Tlokwe, Emalahleni and George.
The DFA group’s revenue for the six months ended 30 September increased by 3.5%, to R1.38 billion (30 September 2023: R1.34 billion) driven through demand in its fibre-to-the-business (FTTB) vertical.
The annuity revenue base at 30 September was R228 million per month, up by 6% from R215 million at 30 September 2023.
Mounting security costs
Vumatel is an open-access fibre-to-the-home (FTTH) provider and leases its infrastructure to internet service providers, which in turn provide broadband retail internet services to its end customers.
Remgro notes Vumatel is one of the FTTH leaders in the homes passed and connected homes market in South Africa, achieving a market share of approximately 33% measured on both these metrics.
“Vumatel remains a growth asset for the group, as it continues infrastructure expansion into identified lower living standards measure (LSM) areas, and accelerating connections in both its traditional core network and lower LSM reach areas,” it states.
Vumatel’s revenue for the six months ended 30 September 2024 increased by 11.1% to R2 billion, compared to R1.8 billion in the comparative period, driven through its fibre infrastructure expansion programme and subscriber uptake growth for the period.
Remgro says CIVH has increased its spending on security-related and maintenance costs, in order to ensure the safety of its workforce and maintenance service provider staff in the field, while maintaining a high standard of network uptime and service levels.
This, after Vumatel and DFA workers and contractors have reportedly been targeted by construction and extortion mafia.
News24 recently reported that Vumatel withdrew its services in Khayelitsha due to threats of extortion and violence against its contractors.
However, Remgro says these additional security and maintenance costs resulted in a slight erosion in CIVH’s earnings before interest, taxes, depreciation and amortisation (EBITDA) margins against the comparative period, but this is expected to normalise over the near-term.
Remgro explains that CIVH’s results for the comparative period included profit for the reversal of a guarantee provision of R39 million from discontinued operations, while the current period’s results were negatively impacted by a fair value loss on an interest rate hedge of R98 million. Investments were made in the network to support long-term growth, it adds.
Higher maintenance costs (up by R26 million), increased depreciation and amortisation charges (up by R47 million) and increased borrowing costs (up by R134 million), due to higher average debt balances, have also contributed to the decrease in profitability, says the company.
It points out that CIVH is, however, operationally cash-generative and continues to reinvest any excess operating cash flow and capital into expanding its operations and network footprint, while continuing to limit overbuild in key markets.
CIVH’s revenue for the six months ended 30 September 2024 increased by 7.9% to R3.38 billion (30 September 2023: R3.1 billion) supported by subscriber uptake growth at Vumatel and increased demand for DFA’s FTTB products.
EBITDA from continuing operations increased by 6.5% from R2 billion to R2.2 billion, driven by revenue growth as demand from enterprise and retail customers contributed to increased uptake.
Merger progress
Providing an update on the Vodacom-Maziv merger deal, Remgro says: “As previously reported, Vodacom and CIVH entered into transaction agreements whereby Vodacom would, through a combination of assets of approximately R4.2 billion and cash of at least R6 billion, acquire a minimum of 30%, with the option to acquire from CIVH a further 10%, of the ordinary shares of a newly-created wholly-owned subsidiary of CIVH (namely Maziv).”
As a result of the proposed transaction, Remgro’s indirect interest in DFA and Vumatel will dilute with the entrance of Vodacom as a shareholder; however, Remgro will also obtain an indirect interest in the assets contributed by Vodacom.
The terms of the deal are subject to ongoing negotiation between the parties in order to extend the longstop date and allow more time for the regulatory approval to be obtained.
During October 2024, the Competition Tribunal prohibited the proposed transaction and Remgro still awaits the tribunal’s detailed reasons for prohibiting the transaction, Remgro says.
The transaction parties have lodged a notice of appeal with the Competition Appeal Court that will be supplemented upon receipt of the Competition Tribunal’s reasons for the prohibition, it adds.
The Competition Appeal Court dates have been set down for 22 to 24 July. “Remgro and CIVH remain committed to the proposed transaction and firmly believe that, should the implementation of the proposed transaction ultimately be permitted by the Competition Appeal Court, 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 broader South Africa, as well as the potential for job creation, and ultimately growth of the economy.”
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