Shoppers show a twinkle in the eye at last
Consumer goods companies upbeat for the year ahead as the economy improves
The outlook for consumer goods companies appears upbeat as a changing political landscape provides some impetus to a stuttering economy.
A report released by EY has found that consumer goods companies remain under pressure because of slow volume growth but that a recovery was on the horizon for these sectors in the next half year.
The EY analysis studied 13 listed consumer goods companies in South Africa with collective annual revenue of R170-billion.
The EY study found that while revenue, earnings before interest, tax, depriations and armotisation (ebitda) and headline earnings had fallen in the past reporting cycle, it expected the next cycle to be “stronger”.Consumer products and retail sector analyst at EY, Derek Engelbrecht, said anecdotal evidence suggested that retailers saw strong sales in November and December and the momentum would be carried into the coming period thanks to positive sentiment which has slowly returned since the ANC’s elective conference in December.
South African bonds have strengthened along with the rand. Volume and revenue growth remained under pressure because of the effect of the drought coupled with weak local and international economic growth. This saw year-on-year overall volumes rise a mere 1%. Engelbrecht pointed out however that the flat growth was directly correlated to the weak GDP growth.
The IMF continues to lower its growth forecast for South Africa at 0.9% while others have postulated growth at an estimated 2.3%, closer to the 3.8% growth forecast for the sub-Saharan African region.
Engelbrecht said while revenue growth was still not in positive territory, the variances between companies had narrowed.
“But you want to see revenue change boosted by volume,” he said, adding that some retailers had sacrificed margins to maintain volume.
Affordability was a key factor for shoppers, and some retailers were left with no option but to drop prices to attract and retain existing customers.
“Price increases were a no-no in this period” Engelbrecht said.