Vodacom Group expects its newly consolidated stake in Safaricom to push earnings growth higher, even as the acquisition leaves the company carrying more debt in the near term, executives told analysts on the Q1 2027 earnings call this week.
Chief Executive Shameel Joosub said the upgraded medium term targets for EBITDA and free cash flow trace directly back to Safaricom joining the group’s books. Vodacom completed its purchase of a controlling 55% stake in the Kenyan telecom operator on 30 June 2026, up from 35% previously, and began consolidating its results from 1 July.
“The higher earnings growth will come through specifically as we start to consolidate Safaricom, and it will contribute positively, and that’s why the upgrading of guidance, both at EBITDA and at cash,” Joosub said.
He added that Vodacom’s priority now is to pay down the debt taken on for the deal before deciding whether to reinvest further or return more cash to shareholders. “We could have held onto it, but then we’d be sitting with a huge level of debt,” he said, pointing to how rate spikes in past years hurt the group’s earnings.
Debt Now, Deleveraging Later
CFO Raisibe Morathi laid out the mechanics behind the group’s revised approach to debt and dividends. Vodacom funded the transaction largely through debt sitting at group level, and Morathi said management wants to pay that down as quickly as possible rather than let it linger.
“The leverage ratio will peak at 1.5x, and we expect it to normalize back to the levels of anywhere between 1x and 1.2x,” Morathi said, adding that the group expects that process to take three to four years. She noted the debt is well priced but not tax deductible, and that only a third of it is being converted into preference shares, leaving the remainder to be worked down through cash generation.
Morathi also flagged Safaricom’s own dividend payout ratio of 80% as a factor shaping Vodacom’s thinking. Because Safaricom already distributes most of its earnings, Vodacom judged it made more sense to manage new debt centrally at group level rather than rely on dividend flows alone to service it.
What the Numbers Show
| Metric | Detail |
|---|---|
| Vodacom stake in Safaricom | Raised from 35% to 55%, effective 30 June 2026 |
| Peak leverage (net debt to EBITDA) | 1.5x |
| Expected normalised leverage | 1.0x to 1.2x |
| Time to normalise | Three to four years |
| Safaricom dividend payout ratio | 80% |
| Debt converted to preference shares | About one third |
| Revised group dividend policy | At least 65% of headline earnings, down from 75% |
| Upgraded EBITDA and free cash flow target | Early teens growth, up from double digit |
The Deal
Beyond the equity stake, Vodacom disclosed it paid KES 40.2 billion for rights to a portion of Safaricom’s future dividend distributions, with a nominal value of about KES 55.7 billion, according to reporting by People Daily. That means Vodacom stands to collect substantially more in future payouts than it spent securing the rights, a structure that shifts more of Safaricom’s profit toward Vodacom shareholders rather than minority investors. The funding for that arrangement counts toward Vodacom’s reported net debt, even though it is booked as an equity transaction with a minority shareholder rather than a straightforward acquisition.
The consolidation also triggers a purchase price allocation exercise under accounting rules, which analysts pressed management on during the call. Vodacom expects the resulting depreciation and amortisation charge to rise to roughly R2 billion a year, after tax and minority interests, from about R500 million when Safaricom was still treated as an associate.
Why It Matters
Vodacom’s message to investors is straightforward: near term leverage is the price of a deal management expects to pay off through scale, diversification and faster growth in Egypt, Safaricom and its wider international business.
The revised dividend policy, down to at least 65% of headline earnings from 75%, gives the group room to service that debt while still growing payouts per share in the coming financial year, according to guidance issued alongside the results. Whether that balance holds will depend on how quickly Safaricom’s contribution feeds through and how the interest rate cycle moves over the next few years.
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