24 June 2009
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Johannesburg — TELKOM 's annual results contain some fascinating figures. Chief among them are those documenting the decline of its voice telephony business, with traffic trailing off significantly.
People just don't use fixed-line phones like they used to.
If investments are not made to diversify its services and geographic spread, Telkom faces pretty pedestrian top-line growth, says chief of finance, Peter Nelson.
So it plans capital expenditure of R34,1bn over the next five years -- cut back from an initial R50bn as Telkom tightens its belt. About R1,1bn will be pumped into a new undersea cable promising cheaper bandwidth. Another R26,9bn will improve its voice, data and broadband coverage and R4,7bn will be pumped into whichever strategy it chooses to add mobile services.
These are all essential moves that pave the way for future growth. Without them, Telkom will slowly decline. What it must avoid are ill-considered moves such as its aborted Telkom Media unit that burnt through cash each month. Its investment in Nigeria is already questionable, because even though Nigeria is a vast market that can produce high profits for telecoms players Telkom has thrown cash into the business without getting the fundamentals right.
Its investments in regional internet service providers show surprisingly small subscriber numbers, so hard work is needed to bulk up those operations and extract good value.
Hopefully, its managers have learned how crucial it is to keep tight control on its foreign entities.
THE trading updates from FirstRand and Absa Group yesterday reveal a banking industry feeling the bite of recession and the lesser effect on this country of the global financial crisis.
Absa expects first-half headline earnings a share to be 15%-25% lower, and FirstRand has pencilled a 30%-35% decline for its year to June.
The market has been aware for some time that earnings at SA's banks are declining.
Still, as FirstRand's outgoing CEO, Paul Harris, said at the investor update yesterday, local banks are nonetheless profitable and in a healthy position compared with their counterparts in most developed countries. At least none of the local banks needed bail-outs from the government.
That's not to say that it's business as usual in this part of the world. Stats SA figures show the financial services sector shed about 43000 jobs in the first quarter.
FirstRand's "refining" of its strategy by adopting a more "back- to-basics" approach to banking and taking on less risk, points to lower earnings volatility, and also a lower return on equity.
Which may be a pity for some because the bank had gained a reputation among some investors for generating relatively higher returns compared with other banks. The good news is analysts expect bank earnings to improve a little towards the end of the year.
THE World Bank's Global Development Report released this week shows just how much the developing world is catching the developed world's economic flu. The bank estimated growth of 1,2% this year in developing countries. This doesn't sound good, but it doesn't sound dire either, at least compared with 2,9% shrinkage expected in the developed world.
However, it also includes a whole new batch of bits of bad news. First, that 1,2% growth drops to a shrinkage of 1,6% if China and India are excluded. Second, that 1,2% is actually down from an estimated 2,1% growth which was the World Bank's forecast just a few months ago in March.
And third, it's not just the macro issue of GDP growth that is the problem. There is a big cash component issue.
The report estimates that private capital flows to developing countries will fall almost 75% this year to 363m from their peak in 2007 of 1,2bn. And fourth, there is little chance that overseas aid payments by rich countries will take up the slack for obvious reasons.
The developing world might not have got the full-blown disease, but the infection is clearly spreading.
The Bottom Line is edited by Colin Anthony.
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