10 November 2009
column
Johannesburg — YOU have to admire the chutzpah of a CEO who reports a 98% slump in net profit and still argues the results are pretty good. That's what Pieter Uys is doing with Vodacom 's latest figures.
Subscriber numbers are up a healthy 16,5% to 41,6-million and revenue almost 10% to R28,6bn. Cash generation is strong, and it gained market share in SA.
But there's no point raking in vast revenue and serving millions of customers if it can't make enough profit from them. Thankfully, Vodacom still posted a net profit of R59m, and Uys insists its overall numbers are good if you ignore exceptional items.
Investors may ignore a R551m tax reversal in the Democratic Republic of Congo, a tough territory. Vodacom might pull out if things do not pick up.
Yet it's a bit of a stretch, hoping investors will ignore a R3,2bn impairment for an overexpensive acquisition. Vodacom can only redeem itself for overpaying for data carrier Gateway if the unit posts profits in coming years.
Frost & Sullivan analyst Spiwe Chireka rates Gateway as central to Vodacom's African expansion, but warns profitability may stay under pressure despite its restructure to deliver quality broadband business services.
Politically stoked uncertainty surrounds interconnection fees in SA for switching calls between networks. Politicians are determined to champion consumers and force fees down, which would hit Vodacom profits. But it should recover easily as consumers would make more and longer cross- networks calls. Cellular bluster against lower interconnection fees is loud, but less important than ensuring they do not overspend on acquisitions or take their eye off the ball abroad.
THE rand's big bounce yesterday constitutes another demonstration of the small impact exchange controls have on the currency.
After Finance Minister Pravin Gordhan announced a host of measures to ease exchange controls a few weeks ago there was some concern -- or, to put it another way, some anticipation - that the rand might decline because of these moves.
Yet, the rand's strength yesterday was obviously closely aligned to the fall in the dollar and the corresponding strength of gold. These forces are so powerful they easily trump exchange controls as a driver of rand moves.
If fact, it's possible to go even further. The close relationship between gold and the rand demonstrates what a lame excuse "rand volatility" has always been in the arguments to maintain exchange controls.
Exchange controls, like their more determined cousins, currency pegs, are ultimately more distorting than floating currencies.
The truth is that governments like to feel they are in control, even when they are not. Exchange controls allow SA's government to pretend it has some residual power over the rand, an illusion Gordhan has, to his immense credit, apparently not fallen for.
THE share prices of SA's two largest insurers rose nicely yesterday, with London-based Old Mutual rising 1,8% to R13,50 and Sanlam gaining 2,7% to R21,37.
Sanlam is also trading at a pretty swanky price-earnings ratio of over 27.
We've spoken to key people in both groups recently, from Sanlam CEO Johan van Zyl to Old Mutual CEO Julian Roberts, and indications are that, operationally, both are in reasonable shape in SA and appear to be weathering the recession quite well.
This is in spite of the South African consumer still being mired in debt and facing bleak prospects of above-inflation pay increases. Both groups' traditional markets in SA are the middle market (R10000-R40000 a month income group).
Unfortunately, with hints of higher taxes looming, higher medical costs and state-funded forced savings schemes pending, as well as higher electricity costs, taxpayers' savings with these two institutions are likely to come under increasing threat.
The Bottom Line is edited by Edward West.
Be the first to Write a Comment!
Copyright © 2009 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
