Founder: Turnaround Talk
External threats have become one of the most significant root causes of financial distress in the Post Covid environment.
This began shortly after the recovery from the health pandemic when the need for the Covid fogging of houses and cars that were serviced, repaired by mechanics or rented from car rental agencies started to decrease. While many may argue that this is due to poor planning/risk management rather than a shift in the external operating environment, changing market dynamics have an increased influence on a company’s ability to avoid financial distress.
I read two interesting articles over the weekend that show how volatile external changes to an operating environment can be.
Stern warning
A Mybroadband article points out that the Department of Communications and Digital Technologies published a Draft White Paper that takes aim at SuperSport’s exclusive rights for major sports events.
The Draft White Paper, published on 31 July, focuses on audio and audio-visual media services and online content safety, saying it provides a “new vision for South Africa”.
The article adds that part of the paper focuses on “Sports of National Interest”, which means national sporting events identified as being in the public interest. The paper states that the regulator must ensure sports of national interest are broadcast free-to-air and not exclusively by subscription audio-visual content services.
However, this means that the broadcast rights holder, typically MultiChoice’s SuperSport, has to reach an agreement with a free-to-air broadcaster.
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The article points out that SuperSport pays a lot of money to gain exclusive rights to sporting events, which positively impacts the development of major and minority sports. DStv’s Premium’s biggest selling point is exclusive rights to major sporting events. Should it lose this exclusivity, SuperSport has no incentive to pay high prices for these events.
This White Paper is a stern warning to Multichoice that change is coming. How are they going to make up for this loss of revenue?
Will this have a major impact? In the past two months, Multichoice had exclusivity to the Women’s Netball World Cup and the FIFA Women’s World Cup. In February this year, Multichoice had exclusivity to the ICC Women’s T20 Cricket World Cup. In September, Multichoice has exclusivity to the 2023 IRB Rugby World Cup. In October, the company has exclusivity to the 2023 ICC Men’s Cricket World Cup.
In future, all of this will have to be shared with free-to-air broadcasters.
The bad credit demon
Meanwhile, a News24 article points out that Absa has reported muted profit growth for its half-year to end-June, hit by a 60% surge in credit impairments as South Africans struggled with higher interest rates and elevated inflation.
Headline earnings increased 2% to R10.7 billion to end-June, the group said, although this was off a high base in the prior comparative period, when this profit measure jumped more than a quarter. In its first of 2023, however, it was lifted entirely by its Corporate and Investment Banking (CIB) division as well as its regional operations.
The article adds that the CIB, which is focused on servicing businesses, saw its headline earnings jump almost a third and accounted for more than half of the group total, while earnings in its Everyday Banking division slumped more than a fifth.
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Group credit impairment charges grew 60% to almost R8.3 billion, largely due to higher credit charges in the South African retail lending portfolio, with the group saying its credit-loss ratio increased from 91 basis points to 127, above the upper end of its through-the-cycle range of 100 points. The second half is likely to improve substantially to slightly above this range, it said.
The article points out that in Absa’s Everyday Banking division, which is focused on day-to-day transactions, its credit loss ratio jumped by 54% with credit card impairments surging 70%.
Absa is not alone in reporting pressure on SA’s consumer, with Nedbank also saying recently its credit-loss ratio was more than twice the bottom end of its long-term range in its first half.
Risk management is becoming more important
The situations faced by Multichoice and Absa are clear indicators that risk management planning within companies will become more important and cannot be done at month end for the following month.
On the other hand, risk management is a specialised business function and requires a particular set of skills that are not easily sourced.
The continuous nature of risk management is where artificial intelligence can benefit a company. Digitally focused companies that are good at interpreting Big Data will be better at risk planning and stand out when it comes to avoiding financial distress.
