Retail Sales Rusty in March

In March, retail sales rose by just 2.8% year-on-year. And economists are reluctant to draw much from these numbers because of the high number of public holidays in the month. However, this latest indicator is yet another sign that the economy is far from flying.

Expert views

1. Azar Jammine from Econometrix:

It is extremely difficult to draw conclusions from this data, because of the role of public holidays, including Easter. This March had two or three fewer working days than March last year. There has been a tendency in recent years for lots of shops to be open on public holiday, and some people have been shopping more. So I am unsure whether this is a strong or a weak number. Therefore we could see a huge rebound in retail sales in April, as we saw with the April rebound in vehicle sales.

2. Dennis Dykes from Nedbank:

This number was slightly better than I had expected – I had expected an increase of 1.8%. Public holidays may have helped or hindered retail. Overall, the trend is not all that encouraging – with sales rising at a very moderate rate. Real disposable incomes are not rising as they were. Generally, employment has slowed. Interest rates are still low, but access to credit is still really tough.

3. John Loos from FNB:

Monthly data can be volatile, and for this reason we prefer to focus on the 3-month moving average to analyse the trend. For the 3 months up to and including March, the real year-on-year growth rate in retail sales was 3%. This implies a slight 1st quarter improvement on the final quarter of 2012 which recorded only 2.4%. To get a longer term perspective, the March level of real retail sales brings the cumulative growth since the pre-recession high of April 2008 to 14.4%, coming after a 2008/9 dip in sales. While representing a fairly good recovery, this period is still a far cry from the 60.6% growth rate from January 2002 to April 2008. The mild early-2013 improvement in real retail sales growth could possibly be explained by an estimated rise in real economic growth, after widespread strike action in the 2nd half of 2012 slowed economy-wide production to abnormal lows. In addition, a slight slowing in retail price inflation must also have contributed slightly to improved 1st quarter real retail sales growth. However, we remain of the belief that the slightly better 1st quarter growth figure doesn’t mean any looming major upturn in real retail sales growth. Rather, after often far-exceeding even the healthy real household disposable income growth rate for much of the last 3 years, we believe that real retail sales growth has come down more into line with real disposable income growth.

Conclusion

The retail sector remains fragile. This latest data is not clear-cut and therefore we will have to largely focus on other indicators to see the true path of the economy. Maybe there will be some useful clues later in the month when the Reserve Bank brings its views to the fore?

Tweet of the Day

Frankie Boyle (@frankieboyle) Of course the real reason that the United States is such a horror story is that they built it on top of an Indian graveyard

Telkom Appoints New Strategy Head

My initial reaction on hearing that Telkom has appointed a new strategy head was to ask what had happened to the ostrich. This semi-public, semi private, company has lost the way, and I suspect much of the blame lies with its main stakeholder, the State. The new Head of Strategy, Dr Miriam Altman, is an impressive individual, serving on the NPC. But what of the Board of Directors and the CEO? Are they not supposed to provide the lead, to decide on strategy? Or are they mainly political appointees who know far too little about the challenges of steering a telecoms company through the rapidly changing challenges in this highly-competitive industry?

Expert views

1. Mario Pretorius, CEO Telemasters:

In appointing a part-time Strategy Director, one wonders how seriously Telkom is taking its future. Dr Altman will retain her position on the NPC and effectively liaises with the President’s inner circle. It is entirely possible that Telkom’s future may be directed not by Public Enterprises Minister Malusi Gigaba, but from the inner circle itself – and that could be severely problematic. In this enormous and varied behemoth there are a wide range of products and services and enormous, expensive bets on the most appropriate technologies are laid. Given the more than 400 new competitors and a changing regulatory landscape, a keen observer would have expected an experienced and serious industry insider to fill this important position. It is debatable what a PhD in Economics with no industry and no business experience will add to Brian Armstrong’s idea of the future. The move makes no -pardon the pun – strategic business sense, which is good news to the Barbarians pounding at the Gates. This looks like a move to imbed an insider – appointed by the CEO. I wonder how Telkom might be used to fulfil Dr Altman’s other mandate – creating jobs, as a goal for the Centre for Poverty, Employment & Growth – where she still serves with 7 staff?

2. Chris Hart from Investment Solutions:

Telkom has been in an unfortunate position where its strategy has been mangled over the past few year, having to deal with a number of stakeholder interests, notably the State. A huge amount of value has been taken away. It needs a huge overhaul in its strategy, as it is in a rapidly changing sector, with powerful competitors.

3. Malcolm MacDonald from Tersos Business Solutions:

Miriam Altman’s recent appointment as Head of Strategy for Telkom is interesting, noting that her background gives no indication of special interest in technology or telecommunications. Economics and Philosophy are relevant in any strategic role, though, so the degree to which she allows the technology leaders in her team to support her will be crucial. The rapidly decreasing cost of bandwidth, the trend to Voice over Internet services, and the eventual abandonment of voice-only connections are pressuring all of the telecoms companies. The role of Strategic Head for Telkom is a difficult one, taken on at a difficult time for the telecoms industry. So for the nation, and for the improvement in overall business communications, we hope she can find the right balance between great communications products for the nation and profitability for the shareholders – but given a choice, I’d much prefer the first one.

Conclusion

Telkom clearly needs a strategy, the sooner, the better. Once can only hope that this can be devised and implemented efficiently, without political interference.

Tweet of the Day

Joan Rivers (@Joan_Rivers) Just saw The Rolling Stones on the cover of Rolling Stone. Not saying you have to look like me but I’m BEGGING you to retouch a little

Astral Foods Interim Results to 31st March

A dire set of numbers, with headline earnings a share falling by 82%, revenue rising just 5% and continuing complaints about Brazil and the EU dumping chicken on the SA market. CEO Chris Schutte also blames sluggish consumer spending and the high cost of feed for his ruffled feathers.

Expert views

1. Mohammed Nalla from Nedbank Capital:

Quite a disappointing set of results, specifically the decision to forego an interim dividend in light of the poor results. Astral has been a healthy dividend payer in the past and this move may well diminish appetite from investors that look for a healthy dividend yield. Astral has been impacted by higher imports from Brazil and the EU, and increasing stock levels in the industry. Another headwind has been the escalation in feed costs which have risen by 21.9% over the reporting period. The expectation is for a continuation of this trend which will weigh on the earnings outlook. This is exacerbated by labour unrest and industrial action which also represents a further impediment to earnings going forward.

2. Francois du Plessis from Vega Capital:

“Today Astral joins the ranks of an infamous list of well-regarded companies (Anglos, Implats and Old Mutual to name a few) which had to cut or even skip dividends as pressure on cash flow mounted. After cutting its Sept ’12 annual dividend by 17% in Nov last year, Astral surprised friend and foe by skipping its interim dividend today. A cash outflow of R93 million was reported for the period. The net debt to equity ratio increased to 16,9% from 6,6% at 30 September 2012. This was mainly as a result of the new feed mill under construction. Although the Poultry Division was bleeding, the Feed Division (44% of turnover) stood its ground. Operating profit marginally increased by 1.5% to R156 million (March 2012: R154 million).This set of results is indicative that even the best managed companies are vulnerable to external shocks. Astral, has a strong track record of creating value for shareholders. However it might take a while for Astral to return to its former glory.

3. Francois Dubbelman from FC Dubbelman and Associates:

Astral’s results mirror the challenges the South African poultry industry is facing with regard to cheap imports from abroad, high input costs and the resultant inability to retain reasonable profit margins. This scenario is not unique to Astral’s poultry division and it’s clear the South African poultry industry is an industry in distress, as declared by the Department of Trade and Industry (dti). It is common knowledge that South Africa has applied for an increase in the customs duty on poultry – but this would not necessarily mean a rise in prices for the consumer, who does not directly benefit from low-priced imports.

Conclusion

Financial results do not always provide such a clear insight into the health of an industry, and it is easy to see why Astral is down in the dumps. Government is clearly sympathetic, but is trading warily when confronting BRICS partner Brazil. Meanwhile, the current free trade accord with the EU makes it difficult to tackle that source of cheap chicken. Astral may remain in the dumps for some time to come.

Tweet of the Day

The QI Elves (@qikipedia): My doctor told me to stop having intimate dinners for four. Unless there are three other people – ORSON WELLES

Should Public Enterprises take over SABC and PetroSA?

If today’s Business Report is to be believed, Public Enterprises Minister Malusi Gigaba will add public broadcaster SABC and state oil company PetroSA to his portfolio, which already includes troubled SAA and Eskom. Is this much more than a shuffling of deckchairs on the Titanic, or can one minister succeed in delivering better results from two national embarrassments, which have been repeatedly the subject of scandal and mismanagement?

Expert views

1. Lavan Gopaul from 28E Capital:

The government has missed an opportunity to privatise these public enterprises. Successive managements and boards have resulted in an ungovernable set of institutions. Most of them have been just breaking even or making losses. We saw instances in the Thatcher regime in the UK when the privatisation of public enterprises led to job creation and profits for shareholders. When one considers the fate of the SABC, of Telkom and SAA, it’s clear the national government is not in a position to actively compete in an entrepreneurial space. The missed opportunities to privatise mean that South Africa loses out as a global operator.

2. Mike Schussler from economists.co.za:

Malusi Gigaba has been a powerful minister. One can expect him to bring a bit more stability to the SABC. PetroSA is also in a bit of a mess. You could argue that the SABC should be run by a trust, as a public broadcaster, independent of politics. Petro SA should be in private hands, although there is an argument that South Africa’s strategic oil reserves should remain under government control. PetroSA is active in Africa, in the same way as a private player, and should be regarded as such.

3. SACCI CEO Neren Rau:

We recently did a study of state-run enterprises, and there are enormous challenges in terms of their governance. That is a key thing that Minister Gigaba can contribute. We have seen Board members being replaced without being informed, and CEOs sometimes not being informed about changes in their Boards. He can improve relations between the shareholder and the entities, and improve the governance of these entities.

Conclusion

Clearly there is a problem with dysfunctional and poorly-run state enterprises, and the appointment of a well respected minister to oversee PetroSA and the SABC would be a step in the right direction. But it doesn’t address the more fundamental question of whether the State should be in charge at all. Of course, we need the right regulatory environment, but politicians and civil servants in South Africa do not have a proud record in overseeing businesses.

Tweet of the Day

Grumpy Grandma (@lnternetGrandma) I want to have 3 kids and name them Ctrl, Alt, and Delete. Then if they f**k up I will hit them all at once…

The power of twitter

Today I offer some thoughts on the use of twitter by the irate consumer, based on two personal examples.

I have found the tweet an effective and speedy way of drawing attention to a problem, and in the case of a large organisation it enables the consumer to complain about a local outlet directly to the head office.

The first example was when I tweeted while leaving a branch of Massmart subsidiary Makro, where I had wanted to buy a cheap digital camera, but had been ignored by the one salesman on duty, who regarded his lengthy phone chat as far more important than the consumer in front of him.

A tweet mentioning the CEO of Massmart Grant Pattison received an almost immediate response, and Grant himself contacted me and tried to retain me as a customer, even though he was travelling elsewhere in Africa at the time.

And excellent and impressive response.

More recently, the service, or lack thereof, at my local Pick n Pay liquor store left me empty handed and fuming, so again I went on twitter, mentioning the supermarket chain.

Speedily I was contacted by the consumer relations people, and within 24 hours I had received a call from the store manager who explained the problems he was encountering, but promised to put things right.

I am not suggesting that we should bombard people with tweets mentioning trivial issues, but if like me you have left a store annoyed and frustrated, this may be one of the best ways of dealing with a problem, and getting in touch with those in a position to put things rights.

Companies do not want their brand soiled by poor service and peeved customers, and should listen when problems are raised in a public forum like twitter.

And on occasion it might also be worth sharing a truly impressive experience in a store – the next time you are able to leave the place in jubilation and delight.

Unemployment rises in South Africa.

The biggest crisis facing this country is unemployment, and today’s data suggest we are heading backwards in tacking it. The politicians come up with grand plans and strategies for boosting the economy and growth. And yet…..I despair. Statistics South Africa announced this morning that our army of unemployed swelled by 100 000 in the first quarter of this year, rising to a scary 4.6 million jobless. Loading…The official unemployment level is up to 25.2% from 24.9% in the fourth quarter of 2012. But, of course, that headline number seriously understates the true numbers of unemployed……

Expert views

Nedbank’s Economic Unit: The unemployment rate is likely to remain high in the short term as firms will remain cautious of expanding capacity and employing more people in the current challenging economic and labour environment. Employment is likely to be driven mainly by the public sector as it rolls out its infrastructure programme. The increase in the unemployment rate adds to other evidence that the local economy is struggling to pick up. The Reserve Bank is likely to continue striking a balance between the weak economy and upside risk to the inflation outlook by keeping rates steady this year and well into 2014.

Ian Cruickshanks, Independent Economist and Analyst: Today’s data confirms the present losing battle against the current jobless growth phase. This negative development is likely to lead to increased demands for government social grants, raising pressure on already overstretched government expenditure and pushing up the Budget deficit, while increasing the risk that global ratings agencies might consider further SA sovereign credit downgrades. Until the South African labour force agrees to limit wage demands to rising productivity in addition to cost of living increases, employers will be reluctant to hire potential employees, maintaining the social burden on already stretched government resources while slowing infrastructure development. In the current scenario, South Africa remains trapped in an ongoing low growth phase.

DA Shadow Minister of Finance Tim Harris: When discouraged work-seekers are taken into account the broad unemployment rate has increased to a staggering 38%. This means that there are 1.2 million more South Africans unemployed today than there were on the day Jacob Zuma became president.The situation is simply unacceptable and a clear indication that the ANC is failing the poor and unemployed. President Zuma pays lip service to reducing unemployment in South Africa, but fails to follow through with his commitments.

Conclusion

We are facing a major crisis. Sustained unemployment will stoke social unrest, and threaten the stability of the country. And every one of those unemployed people faces poverty, a dent to their self-confidence and represents a resource which is lost to the nation. Job creation must be moved to the top of the political agenda, and with it a recognition that bureaucratic red tape, which stifles enterprise, is not the way forward.

Tweet of the Day

The QI Elves (@qikipedia)What does the Pink Panther say when he steps on an ant? Dead ant, dead ant, dead ant, dead ant, dead ant, dead ant, dead ant…

Special report: Electric Cars

It may sound far-fetched, but your car may soon help to keep the lights burning at home in the evenings. This is one of the technological possibilities which would be feasible if Trade and Industry Minister Rob Davies gets his way and South Africa becomes a significant manufacturer of electric cars.

The Minister was joined by his Environmental Affairs colleague Edna Molewa and the local CEOs of three major automotive manufacturers at the Sandton launch of his strategy this week.

He also had experts from a number of stakeholders, including Eskom’s Amal Khatri, who had some fascinating things to say about the way in which car batteries could work when plugged in to home chargers.

He suggested that while they would need to load-up on electricity for the next day, this could happen after the evening peak demand period, which is in the early evening.

“Electric vehicles charging at home could potentially supply power back to the grid,” he suggested.

This would mean that when you get home, the remaining power in the battery could help Eskom to meet peak demand. One vehicle would make little difference but if we move to an era of millions of electric cars, the impact could be significant.

Once power demand subsides, the car battery would become a consumer of electricity, and could charge up in the garage while the family is sleeping.

Rob Davies was insistent that government wants South Africa to be a manufacturer of electric vehicles, which it is not at present, and he said that a series of incentives will be put in place to encourage manufacturers, under the new ‘Electronical Vehicle Industry Road Map.’

The automotive sector currently receives incentives to produce cars in SA under a scheme which was updated this year and re-named the Automotive Production and Development Programme (APDP), and this will be amended to boost help for electric cars.

Currently, investors can earn up to 30% back on their investment over three years. Davies announced that when they invest in electric car manufacture, this will rise to 35%.

Meanwhile, the minimum annual production to qualify for state support will fall from 55 000 vehicles to 5 000.

Government will also look at incentives for consumers to purchase the vehicles, and intends to add more of these vehicles to its own fleets.

There is currently a trial of electric vehicles in Gauteng, with three solar-powered recharge points, and Minister Molewa said this number will rise to 50 in the next few years.

Davies spoke of his vision of one day every garage having not just liquid fuel pumps, but plug-in charging points for electric vehicles.

And Eskom will look at preferential tariffs for electric vehicles.

The big question is whether all of government’s efforts will be enough to make a difference and to persuade manufacturers to set up assembly lines for electric cars within South Africa.

The economic case may not yet be compelling, even with all the new support.

However, the automotive sector has received massive backing from government over the years, and may decide to put economics to one side in a bid to win a few ministerial smiles.

There are certainly other issues on which it could do with help from the state.

Toyota’s Johan van Zyl reminded the ministers at the Sandton launch that there is still a problem with the quality of fuel in South Africa.

It is of such poor quality that some models of vehicle cannot be sold here, as they cannot run on what currently comes out of the pumps.

Rob Davies insisted: “We want to ensure South Africa is not left behind” as the automotive industry moves away from liquid fuels.

In time, we may see the price government will have to pay to achieve this.

May 2nd 2013

Today’s Topic: Pay of Mining CEOs

The spokesman for the National Union of Mineworkers, Lesiba Seshoka, came up with a real shocker in the run up to this week’s May 1st Workers’ Day Holiday. He said it is wrong for mining companies to say they can’t pay big rises to workers, while executive pay is often rising at many times the rate of the increases which workers are granted. So should bosses’ wage hikes be held down to the levels of the ordinary miners? Are they too well paid?

Expert views from three top Economists

1. Chris Hart from Investment Solutions:

I would suggest that the workers bring this on themselves because of the way they negotiate. Workers seek increases of inflation plus a certain amount, but bosses remunerate themselves on performance. And performance gets a bigger pay-out than inflation. That’s why you will find many managers’ salaries have been rising over the years related to the workers. If workers were paid on productivity and boosted their performance, they should get more.

2. Christo Luus from Ecoquant:

One should probably define "too well paid". Is it too well paid in relation to other sectors’ CEOs, in relation to their workers, in relation to international peers, in relation to a previous period, in relation to productivity improvements, company performance, shareholder value added …? The list can go on. My view is that the CEO’s contribution to the company’s profitability should be a key determinant of his/her remuneration, and that the biggest part of their pay should be performance related – perhaps paid in the form of stock options.

3. Loane Sharp from Adcorp :

There is a pervasive myth, propagated by trade unions for ulterior purposes, that mining bosses are overpaid in South Africa. In actual fact, there is a high correlation (73%) between CEO remuneration and company performance of JSE-listed companies: the better a mining company performs, the more highly its CEO is paid, and vice versa. In present circumstances, where mining companies’ return on capital has fallen sharply due to stagnant or falling commodity prices and rising labour costs, performance-related pay for mining CEOs will quite naturally fall. Basic remuneration, as opposed to performance-related pay, will not fall to any material extent, because mining CEOs’ basic remuneration is determined by other, non-performance related factors, such as the size of the company, the nature and complexity of the company’s operations, the experience of its CEO, and so on. The strong link between company performance and CEOs’ performance bonuses is a great strength of South Africa’s mining industry, since it promotes very high levels of accountability to shareholders.

Conclusion

It really is going to be a winter of discontent in South Africa, and it is not hard to make workers believe that they are being badly paid, as they do appear to be when compared to their bosses. The subtleties of remunerating scarce skills are real. But this can be lost on people who are aware of the lifestyles of those at the top of the management ladder, and only feel resentment and jealousy. Those at the centre of the wage negotiations would be well advised to do their homework on this issue, to ensure the message gets out there that this is not a South African problem alone. And if the CEO enjoys travelling to work in a car that clearly cost many multiples of the annual salary of one his lowly employees, do we shed too many gasps of surprise at the odd smashed window or slashed tyre? Save the Ferrari for the weekends, my boss.

Tweet of the Day

@MaxduPreez I think kulula.com should fly to Waterkloof for those of us often going to Pretoria #nationalkeypointmyfoot

ZA CONFIDENTIAL April 23rd 2013

Today’s Topic: Pick n Pay Annual results to 3rd March 2013

The Company itself says the performance over the year was disappointing, blaming much of this on the restructuring of the business. Turnover rose by 7.1%, but headline earnings per share (HEPS) from continuing operations fell by 30.8%. New CEO Richard Brasher gave a confident presentation to analysts in Johannesburg, and his track record at the UK supermarket giant Tesco suggests that he should have the skills to help turn around Pick n Pay. However this is a highly competitive environment, and questions remain about how much Brasher will be his own man, and how much he will be held back by the supermarket chain’s founding dynasty, the Ackerman family.

Expert views

1. Lavan Gopaul from 28E Capital:

Pick n Pay have opened 107(11% increase) new stores and still delivered a 30% dip in HEPS. Higher electricity and petrol prices may have resulted in a small spend by consumers. Their model of stalling payment to suppliers translates into higher interest income during periods of high interest. Pick n Pray for higher earnings in the next report.

2. Chris Gilmour from ABSA Investments:

Pick n Pay, under the new leadership of Richard Brasher, is on the long, slow and painful path to recovery and, in the process, reclaiming its iconic status among South African shoppers. It will probably take at least two to three years before the turnaround process – which incorporates better category management, enhanced centralised distribution and greatly improved profit margins – is complete. But while we are confident that this process will work, we are not convinced that the stock offers value.

3. Ron Klipin from SA Stockbrokers:

Richard Brasher has an awesome challenge ahead of him, but I am sure he will have a major amount of autonomy. I imagine a man of that ilk would have reached an agreement with the Ackerman family so that he can run with the ball. They are trying to play a catch-up game, but hopefully they have the skills in-house to turn the company around.

Conclusion

The jury is out. Pick n Pay’s management team faces a monumental task in turning around the business with some very strong competitors barking at its heels. Do the Ackermans have the stomach for a fight, and the right new CEO, or are they just waiting for the right offer to sell up and leave?

Tweet of the Day

@wjflowers: Les Misérables is probably the only movie named after its audience.

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