Empowerment scorecards are gaining in importance as a measurement of corporate transformation, so Top Companies uses the same criteria in choosing "black chips". The companies here are the most empowered according to the FM's Top Empowerment Companies rankings (April 30 2004).
Commitment to empowerment practices does not appear to affect the relative profitability and performance of the companies. Though only one of the top five black chips has an empowerment shareholder, they all invest quite heavily in other empowerment factors, such as affirmative procurement, skills development and employment equity, all factors that many SA companies consider burdensome additional costs.
The top three performers among the black chips, Telkom, Iscor and MTN, all spend considerable amounts on various factors of the scorecard. Telecom companies MTN and Telkom are heavy on affirmative procurement and steel group Iscor, relatively poor on procurement, emphasises skills development.
The best-performing black chip also happens to be the most empowered company in our rankings, Telkom.
Telkom has no black shareholder, but more than carries its empowerment burden. Last year it spent more than R5bn on affirmative procurement, and there has been a strong drive in employment.
The group invests considerable resources in preventing "fronting" in procurement. And it tries to support developing businesses - for example, its black suppliers, most of which are start-ups or early-stage companies, are on a 15-day payment cycle. This is critical because they tend to have serious cash-flow issues.
Telkom was expected to more than double net profit to R3,7bn for the year ended March 2004 against last year's R1,8bn. Headline earnings were expected to show robust growth from 314c/share to more than 600c/share. Little wonder the share is trading at around R79, well up from the listing low of R31/share.
It is easily argued that Telkom can afford these empowerment practices because it is a monopoly.
Though Telkom has no significant individual black shareholders, the historically disadvantaged people who qualified to buy shares as part of the Khulisa scheme have done well. They paid about R25/share at the listing. Unfortunately they are locked in for a three-year period and must hope that Telkom continues to perform.
Much of Telkom's growth is dependent on cellular operator Vodacom. Questions have been asked about Vodacom's growth in the light of its disastrous efforts in Nigeria. Vodacom accounts for about a third of Telkom's earnings.
MTN, third-best performer among the black chips, can now dominate the lucrative Nigerian market. Already boasting higher revenues and more subscribers than Vodacom, MTN is virtually without competition in a market that is growing faster than SA's and could soon be as large. Of the top three black chips, MTN is the only one with a significant black shareholding, of about 27%. But despite MTN's sizzling share price over the past 18 months since a black-led management buy-in (MBI), Newshelf, the vehicle for the MBI, has not been able to realise any value. The terms of the funding are biting.
No other black-controlled and black-managed company has consistently performed so well . But unless other large markets are found, it is unlikely that MTN will show the kind of EPS growth it has produced in the past two years. It should remain above 25% growth, however. Return on equity, 41,7% last year, should remain well above 30%.
