Vox cuts out low-margin deals
April 28, 2009
By Thabiso Mochiko
VOX Telecom is ready to cancel low-margin contracts, as the alternative telecoms group feels the effects of the economic downturn and the number of its customers that are not servicing debt will increase.
Despite robust growth of more than 20 percent in revenues, earnings have been hit by higher amortisation and finance charges.
Vox provides a wide range of telecoms products and services, such as voice, data and fax, to more than 18 000 corporate customers and 157 000 individual consumers in South Africa and Namibia.
Executive chairman Tony van Marken said the firm had decided to cancel low-margin contracts and had walked away from deals with low-margin returns. He added that some contracts were not in the long-term interest of the group.
"We have experienced tougher trading conditions and lower-than-normal usage over December and January," he said. "In some cases, large corporates are cutting budgets and delaying upgrades."
In the six months to February, Vox wrote off R18 million in bad debts. Combined with higher amortisation charges and finance costs, this led to the group reporting a 28 percent decrease in profit to R31 million for the six months to February.
But revenue rose 22 percent to just more than R1 billion.
Earnings before interest, tax, depreciation and amortisation grew 11 percent to R94 million and cash generation was strong at R80 million.
Lindsey McDonald, a telecoms analyst from Frost & Sullivan, said Vox had "borrowed quite a lot of money to fund its acquisitions, and the cost of borrowing increased more than it anticipated. Its reassessment of amortisation on its customer base also had a significant impact on the earnings per share."
Vox has bought more than a dozen companies since 2004, and all have been bedded down.
McDonald warned that there was increased competition in this market, which is placing downward pressure on prices and could affect future cash flows. But Vox's innovative direct selling model remained a competitive advantage. The company's size also meant it could be quite flexible.
"SMEs (small and medium enterprises) still offer opportunities for growth," she said. "Neotel has not been able to live up to all of its promises on its SME offering, so Vox has an important role to play there."
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