Telkom’s share price hit an all-time record high this week as the company reported massive profits for its last financial year.
Shareholders — who will be getting a R9 dividend for shares some bought for less than R30 — were delighted. Politically, the results were more ambiguous, with Telkom customers grumbling about being overcharged and the Democratic Alliance calling the results “embarrassingly good”.
Telkom management were not about to be drawn into that kind of debate. “We are not apologetic about our profits,” says Telkom CEO Sizwe Nxasana. “I’m in the business of making money; after all, we live in a capitalist society.”
But privately some Telkom managers admit that the situation is a difficult one. If the company makes too much money, it is accused of doing so at the expense of the broader economy and exploiting lax government regulations. If it makes too little money, it will be crucified by shareholders and the government alike.
That it made a lot of money in its last financial year would be hard to dispute. Its operations, including the 50% of Vodacom it earns, generated a massive R18-billion in cash. Its after-tax profit came in at R6,8-billion, a net profit margin of close to 16%.
Many businesses can only yearn for such numbers. To find similar cash generation figures one must turn to the likes of Anglo Platinum, which mines one of the most valuable substances in the world, or to Sasol, which literally manufactures what can these days rightfully be called black gold, among other things. Anglo Platinum’s net profit margin in its last financial year was only 13%, however, while Sasol came in at just less than 12%.
The R9 per share dividend Telkom declared this week will make for one of the largest dividend payments ever seen on the JSE Securities Exchange. Considering the R1,6-billion the company spent on buying back its own shares during the year, it will pay a total of just less than R6,5-billion to its shareholders. But similar dividend figures from other companies are nearly always because capital is being returned to investors, either because large chunks of the company has been sold or because the company hoarded money over a number of years. In Telkom’s case, all the money to shareholders comes from the money it made during the year, despite the fact it is splitting its dividend into ordinary and special chunks.
Nxasana has a ready answer for accusations that Telkom bleeds the economy to achieve such numbers. He points out that profit growth easily outstripped revenue growth, pointing to a more efficient company. He says the company will be investing almost as much in new infrastructure this year as it is paying shareholders for last year, and that infrastructure will benefit the entire country. And he takes exception to the suggestion that current shareholders are benefiting from taxpayer money invested in Telkom over past decades.
“Look at the time we listed. It was just before the Iraq war. There were problems all over the equity markets with the likes of Enron and investors were being very careful. We listed at what was a fair price and our investors took that risk; it could just as easily have gone the other way. Now they are receiving the rewards [for their risk].”
He is also amused that black owned and run companies often come in for criticism when they make money.
“It used to be acceptable that the white population made money … Are we now suggesting that black companies should be socialist while the rest of the world is capitalist?”
Nxasana’s successor — his contract ends at the end of December — may not have to face quite the same questions next year. The company has warned that competitive pressure and the need to invest will put pressure on its margins, possibly making this set of results the pinnacle for some time to come. On the other hand, he reassures investors that “they have nothing to be worried about” and the company is standing by its policy of increasing its dividend payments every year.