Is the new Public Protector trying to kill the rand?

The rand tanked on Monday after the Public Protector recommended changes to the Constitution that would see the removal of a clause to protect the currency.

Public Protector Busisiwe Mkhwebane announced her findings after her investigation into the South African Reserve Bank’s assistance to Bankorp between 1985 and 1995, which Absa bought in 1992. She wants Absa to repay R1.125bn, a move the bank refutes as it believes it has paid all money owed.

However, her big remedial action was a recommendation that the Portfolio Committee on Justice and Correctional Services change the Constitution.

It “must initiate a process that will result in the amendment of section 224 of the Constitution, in pursuit of improving socio-economic conditions of the citizens of the republic, by introducing a motion in terms of section 73(2) of the Constitution in the National Assembly and thereafter deal with matter in terms of section 74(5) and (6) of the Constitution”.

She wants section 224 of the Constitution to read:

“The primary object of the South African Reserve Bank is to promote balanced and sustainable economic growth in the Republic, while ensuring that the socio-economic well-being of the citizens are protected.

“The South African Reserve Bank, in pursuit of its primary object, must perform its functions independently and without fear, favour or prejudice, while ensuring that there must be regular consultation between the Bank and Parliament to achieve meaningful socio-economic transformation.”

Mkhwebane’s suggestion removes reference to “protect the value of the currency”, Bloomberg told traders on Monday.

The Constitution currently states: “The primary object of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.”

Opening Pandora’s box

Nomura economist Peter Montalto said the rand is taking a knock because it’s “not a good headline … it’s a live wire issue”.

“Even if a change here is not likely to actually occur, the risk of it is important to markets and ratings agencies,” he said in an emailed comment to investors.

“This is quite unusual that a Public Protector has been so specific on changing the Constitution or indeed be so radical on transformation.”

“This is touching the real last Pandora’s box,” he said. “Note, whilst the PP is meant to be independent she is widely viewed as a Zuma loyalist.

“I don’t think this is going to happen in the short to medium run. The ANC cannot really muster the support to change the Constitution in Parliament and would require a two-thirds majority.

“What the worry is here is that actually it’s much, much easier than that. You just need a new MPC (monetary policy committee) mandate, which is done by a letter from the FinMin to MPC and can be done technically at any time.

“I do not think (Finance Minister Malusi) Gigaba is going to do that, but this raises the risk and promotes the idea in public debate about how secure this last bastion of an institution is.

“The SARB is also one of few ratings positives for the ratings agencies,” he said. “The very fact this issue is being raised and the SARB dragged into the debate is negative.

“However, I see the SARB leadership strongly and resolutely defending their independence and existing mandate including via court action if necessary.”

By Matthew le Cordeur for News24

Thursday is D-day for no confidence ballot

The Constitutional Court will make its ruling on Thursday on the UDM’s application to force National Assembly Speaker Baleka Mbete to conduct the vote of no confidence in President Jacob Zuma by secret ballot.

After Zuma’s controversial Cabinet reshuffle at the end of March, that saw Finance Minister Pravin Gordhan axed, among others, the opposition asked Mbete to schedule a vote of no confidence in Zuma.

It was initially set down for April 18. The opposition however asked for it to be postponed pending the application to the court for the vote to take place in secret.

Opposition parties hope this would encourage enough ANC MPs to vote against Zuma for it to succeed.

UDM leader Bantu Holomisa had argued that Zuma’s reshuffle led to two ratings agencies downgrading the country’s debt to junk status. In addition, he said MPs had been threatened with losing their seats and with violence if they voted against him.

Mbete previously said the UDM’s application had no merit and it did not fall within the court’s exclusive jurisdiction.

She said if the court found she had the power to order a motion of no confidence via secret ballot, she would act in accordance with its ruling.

Source: News24.com

Taxi strike causes commuter chaos

A major taxi strike is underway in Johannesburg this morning, causing chaos as commuters try to get to work.

Major transport routes – including the N1 between Johannesburg and Pretoria at Allandale, the M1, N12 and the N3 – have been blocked. Traffic has ground to a halt, causing road users to be stranded in traffic jams backing up for kilometres.

According to EWN, drivers affiliated to South Africa National Taxi Council (Santaco) have gone on strike on Thursday morning after talks with SA Taxi Finance Holdings deadlocked. The association argues that the monthly instalments on the Toyota Quantums it uses are simply unaffordable at prime plus 10%.

People urged to stay at home
The Gauteng Education Department says it will be safer for parents to keep their children at home today. A number of large corporates in Johannesburg’s CBD have advised their employees to stay at home too.

Shots have been fired
There have been reports of gunshots fired as taxis congregated near the Mall of Africa at the Allandale Road off-ramp.

Costs for commuters
Commuters have taken to Twitter to voice their frustrations at being unable to get around the city. Aside from an inability to get to work and the financial implications of losing a day’s wage, people are also citing lost opportunities (such as job interviews) as well as the dangers of taking lifts from strangers to meet commitments (which could result in kidnap, rape or human trafficking).

Image credit: Traffic SA

Moody’s deals SA another blow

Moody’s has downgraded the credit ratings of South Africa’s top five banks, three development finance institutions, certain City Power and Sanral credit ratings, and 10 regional and local governments.

In addition, the company downgraded Eskom, Sasol, MTN, ACSA and eight other South African corporates.

The downgrades follow “the weakening of the South African government’s credit profile”, it said in a statement on Monday after the markets closed.

On Friday, rating agency Moody’s downgraded both South Africa’s local and foreign currency rating to Baa3 from Baa2 and maintained a negative outlook.

The five banks – Standard Bank, FirstRand, Absa, Nedbank and Investec – have now all been downgraded to the same level as the country with the same negative outlook.

Reacting to the latest downgrades, Democratic Alliance finance spokesperson David Maynier told Fin24 that “the negative effects of President Jacob Zuma’s ‘midnight cabinet reshuffle’ are spreading like a disease throughout the economy and have now resulted in the downgrade of the five largest banks in SA”.

The rand was not affected by the downgrades and was trading 0.92% stronger against the dollar at 20:40 on Monday. The banks had mixed runs by the close of business and before the Moody’s announcement. Barclays Africa (Absa) was up 1.71%, Nedbank was down 1.95%, Standard Bank was up 0.77%, FirstRand (FNB) was up 0.7% and Investec was down 0.68%.

Regarding the development finance institutions, Moody’s downgraded the long-term foreign-currency issuer ratings of the Development Bank of Southern Africa (DBSA), the Industrial Development Corporation of South Africa (IDC) and the long term local- and foreign-currency issuer ratings of the Land and Agricultural Development Bank of South Africa (Land Bank) to Baa3 from Baa2.

Land Bank’s local- and foreign-currency and DBSA’s foreign-currency short-term issuer ratings were also downgraded to Prime-3 from Prime-2. The outlook on all long-term global scale ratings is negative. At the same time, the rating agency affirmed the Aa1.za/P-1.za national-scale issuer ratings (NSRs) assigned to DBSA and Land Bank.

Regarding the downgrading of the banks, Moody’s said the primary driver is the challenging operating environment in South Africa, characterised by a pronounced economic slowdown, and weakening institutional strength that has led Moody’s to lower South Africa’s macro profile score to “moderate-” from “moderate”.

“The lower macro profile exerts pressure on the individual factors on banks’ scorecards, and implies that the country’s banks need stronger loss-absorption and liquidity buffers to withstand the headwinds and in order to remain at the same rating levels,” it said.

“The rating agency expects GDP growth of only 0.8% in 2017 and 1.5% in 2018, from 0.3% in 2016, levels significantly below the government’s target growth.

“These challenging economic conditions, combined with potentially weaker investor confidence, volatility in asset prices, and higher funding costs will likely pressure banks’ earnings and asset quality metrics going forward, and challenge their resilient financial performance so far.

“In addition, the banks’ high sovereign exposure, mainly in the form of government debt securities held as part of their liquid assets requirement, links their credit profile to that of the government. The top five banks’ overall sovereign exposure, including loans to state-related entities, averages more than 150% of their capital bases, according to South African Reserve Bank’s regulatory returns as of March 2017.”

List of 13 South African sub-sovereigns that were affected (including Sanral and City Power):

Downgrades

Issuer: City Power Johannesburg

LT Issuer Rating, Downgraded to Baa3 from Baa2

Issuer: East Rand Water Care Company

LT Issuer Rating, Downgraded to Ba1 from Baa3

Issuer: The South African National Roads Ag Ltd

ST Issuer Rating, Downgraded to NP from P-3

LT Issuer Rating, Downgraded to Ba1 from Baa3

Issuer: District Municipality of Amathole

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: Municipality of Breede Valley

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: City of Cape Town

LT Issuer Rating, Downgraded to Baa3 from Baa2

ST Issuer Rating, Downgraded to P-3 from P-2

Senior unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2

Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Issuer: Metropolitan Municipality of Ekurhuleni

LT Issuer Rating, Downgraded to Baa3 from Baa2

ST Issuer Rating, Downgraded to P-3 from P-2

Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2

Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Issuer: City of Johannesburg

LT Issuer Rating, Downgraded to Baa3 from Baa2

ST Issuer Rating, Downgraded to P-3 from P-2

Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2

Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Issuer: Metropolitan Municipality Mangaung

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: Municipality of Mbombela

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: Metropolitan Municipality Nelson Mandela

LT Issuer Rating, Downgraded to Baa3 from Baa2

Issuer: Municipality of Rustenburg

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: City of Tshwane

LT Issuer Rating, Downgraded to Ba2 from Ba1
Affirmations

Issuer: City Power Johannesburg

LT Issuer Rating, Affirmed Aa1za

Issuer: East Rand Water Care Company

LT Issuer Rating, Affirmed Aa3za

Issuer: The South African National Roads Ag Ltd

LT Issuer Rating, Affirmed Aa3za

ST Issuer Rating, Affirmed P-1za

Issuer: District Municipality of Amathole

LT Issuer Rating, Affirmed A2za

Issuer: Municipality of Bergrivier

LT Issuer Rating, Affirmed Ba3

Issuer: Municipality of Breede Valley

LT Issuer Rating, Affirmed A2za

ST Issuer Rating, Affirmed P-1za

Issuer: City of Cape Town

ST Issuer Rating, Affirmed P-1za

LT Issuer Rating, Affirmed Aaaza

Senior unsecured MTN, Affirmed Aaaza

Senior Unsecured Regular Bond/Debenture, Affirmed Aaaza

Issuer: Metropolitan Municipality of Ekurhuleni

ST Issuer Rating, Affirmed P-1za

LT Issuer Rating, Affirmed Aaaza

Senior Unsecured MTN, Affirmed Aaaza

Senior Unsecured Regular Bond/Debenture, Affirmed Aaaza

Issuer: City of Johannesburg

ST Issuer Rating Affirmed P-1za

LT Issuer Rating, Affirmed Aa1za

Senior Unsecured MTN, Affirmed Aa1za

Senior Unsecured Regular Bond/Debenture, Affirmed Aa1za

Issuer: Metropolitan Municipality Mangaung

LT Issuer Rating, Affirmed A1za

ST Issuer Rating, Affirmed P-1za

Issuer: Municipality of Mbombela

LT Issuer Rating, Affirmed A2za

Issuer: Metropolitan Municipality Nelson Mandela

LT Issuer Rating, Affirmed Aa1za

Issuer: Municipality of Rustenburg

LT Issuer Rating, Affirmed A1za

Issuer: City of Tshwane

LT Issuer Rating, Affirmed A1za

ST Issuer Rating, Affirmed P-1za
Upgrades

Issuer: Municipality of Bergrivier

LT Issuer Rating, Upgraded to Baa1za from Baa2za

ST Issuer Rating, Upgraded to P-2za from P-3za

Outlook Actions:

Issuer: City Power Johannesburg

Outlook, Changed To Negative From Rating Under Review

Issuer: East Rand Water Care Company

Outlook, Changed To Negative From Rating Under Review

Issuer: The South African National Roads Ag Ltd

Outlook, Changed To Negative From Rating Under Review

Issuer: District Municipality of Amathole

Outlook, Changed To Negative From Rating Under Review

Issuer: Municipality of Bergrivier

Outlook, Changed To Negative From Stable

Issuer: Municipality of Breede Valley

Outlook, Changed To Negative From Rating Under Review

Issuer: City of Cape Town

Outlook, Changed To Negative From Rating Under Review

Issuer: Metropolitan Municipality of Ekurhuleni

Outlook, Changed To Negative From Rating Under Review

Issuer: City of Johannesburg

Outlook, Changed To Negative From Rating Under Review

Issuer: Metropolitan Municipality Mangaung

Outlook, Changed To Negative From Rating Under Review

Issuer: Municipality of Mbombela

Outlook, Changed To Negative From Rating Under Review

Issuer: Metropolitan Municipality Nelson Mandela

Outlook, Changed To Negative From Rating Under Review

Issuer: Municipality of Rustenburg

Outlook, Changed To Negative From Rating Under Review

Issuer: City of Tshwane

Outlook, Changed To Negative From Rating Under Review

Ratings not affected:

Issuer: City of Tshwane

ST Issuer Rating, NP

Issuer: Metropolitan Municipality Mangaung

ST Issuer Rating, NP

Issuer: Municipality of Breede Valley

ST Issuer Rating, NP

Issuer: Municipality of Bergrivier

ST Issuer Rating, NP

By Matthew le Cordeur for Fin24

 

Schools involved in price-fixing scandal

The Competition Commission says they have extended their probe into school uniform price fixing to the rest of the country.

The commission says this decision comes after they have received nine complaints since the initial reports in January.

The commission says the investigation will focus on all schools in the country including private schools such under Curro, Advetech and Kayalami, who were among those complained about.

The complaints have come from businesses who have foreclosed because of exclusive contracts schools have with some suppliers and parents who are forced to buy from certain suppliers.

Spokesperson Sipho Ngwema says they have found merit in some of these complaints.

“We are continuing to probe others and once we are finished we’ll take a decision on whether to refer certain schools and contracted business the competition tribunal. If there are other means to address this before the tribunal, we are open to that.”

By Tebogo Tshwane for Eyewitness News

POPI and the cloud

When legendary Canadian singer-songwriter Joni Mitchell released her hugely successful album “Clouds” in May 1969 little could she have guessed that nearly 50 years later the subject of clouds would be part of the global conversation around the protection of personal information (PI).

Her words “I’ve looked at clouds from both sides now” with the conclusion “I really don’t know clouds at all” might well apply to information officers (IOs) here in South Africa and data protection officers (DPOs) across the globe and who are trying to understand how to go about selecting their cloud service providers from a security perspecitve.

In fact, Mitchell was prophetic in looking at multiple clouds, not just one, because that’s a reality for today’s IOs/DPOs who need to satisfy the demands of multiple stakeholders who are unlikely to be satisfied with a single cloud services supplier. Of course Mitchell has not been alone in looking at clouds closely. The European Network and Information Security Agency in 2015 launched its Cloud Certification Schemes Metaframework. “CCSM is a metaframework, which maps detailed security requirements used in the public sector to describe security objectives in existing cloud certification schemes. The goal of CCSM is to provide more transparency about certification schemes and to help customers with procurement of cloud computing services. This first version of CCSM is restricted to network and information security [NIS] requirements. It is based on 29 documents with NIS requirements from 11 countries (United Kingdom, Italy, Netherlands, Spain, Sweden, Germany, Finland, Austria, Slovakia, Greece, Denmark). It covers 27 security objectives, and maps these to 5 cloud certification schemes.” (source https://www.enisa.europa.eu/news/enisa-news/enisa-cloud-certification-schemes-metaframework). The rest of this article will take a look at just some of those 27 security objectives as an aid to helping you select your cloud services providers.

Cloud security objectives when selecting a cloud services provider

This list is the full 27 (title and brief description) in the ENISA CCSM and should give you a flavor of the potential complexity involved in evaluating your suppliers from a security perspective. Of course a full evaluation will cover a number of other areas, such as functionality, value for money and relevant experience. This list has not been prioritized to reflect the issues which you evaluate as more or less important in the specific circumstances, such as the risk appetite, applicable to you organisation.

The text that follows is all sourced from the CCSM document.

  1. Information security policy. Cloud provider establishes and maintains an information security policy.
  2. Risk management. Cloud provider establishes and maintains an appropriate governance and risk management framework, to identify and address risks for the security of the cloud services.
  3. Security roles. Cloud provider assigns appropriate security roles and security responsibilities.
  4. Security in Supplier relationships. Cloud provider establishes and maintains a policy with security requirements for contracts with suppliers to ensure that dependencies on suppliers do not negatively affect security of the cloud services.
  5. Background checks. Cloud provider performs appropriate background checks on personnel (employees, contractors and third party users) if required for their duties and responsibilities.
  6. Security knowledge and training. Cloud provider verifies and ensures that personnel have sufficient security knowledge and that they are provided with regular security training.
  7. Personnel changes. Cloud provider establishes and maintains an appropriate process for managing changes in personnel or changes in their roles and responsibilities.
  8. Physical and environmental security. Cloud provider establishes and maintains policies and measures for physical and environmental security of cloud data centres.
  9. Security of supporting utilities. Cloud provider establishes and maintains appropriate security of supporting utilities (electricity, fuel, etc.).
  10. Access control to network and information systems. Cloud provider establishes and maintains appropriate policies and measures for access to cloud resources.
  11. Integrity of network and information systems. Cloud provider establishes and maintains the integrity of its own network, platforms and services and protect from viruses, code injections and other malware that can alter the functionality of the systems.
  12. Operating procedures. Cloud provider establishes and maintains procedures for the operation of key network and information systems by personnel.
  13. Change management. Cloud provider establishes and maintains change management procedures for key network and information systems.
  14. Asset management Cloud provider establishes and maintains asset management procedures and configuration controls for key network and information systems.
  15. Security incident detection and response. Cloud provider establishes and maintains procedures for detecting and responding to incidents appropriately.
  16. Security incident reporting. Cloud providers establishes and maintain appropriate procedures for reporting and communicating about security incidents.
  17. Business continuity. Cloud provider establishes and maintains contingency plans and a continuity strategy for ensuring continuity of cloud services.
  18. Disaster recovery capabilities. Cloud provider establishes and maintains an appropriate disaster recovery capability for restoring cloud services provided in case of natural and/or major disasters.
  19. Monitoring and logging policies. Cloud provider establishes and maintains systems for monitoring and logging of cloud services.
  20. System tests. Cloud provider establishes and maintains appropriate procedures for testing key network and information systems underpinning the cloud services.
  21. Security assessments. Cloud provider establishes and maintains appropriate procedures for performing security assessments of critical assets.
  22. Checking compliance. Cloud provider establishes and maintains a policy for checking compliance to policies and legal requirements.
  23. Cloud data security. Cloud provider establishes and maintains appropriate mechanisms for the protection of the customer data in the cloud service.
  24. Cloud interface security. Cloud provider establishes and maintains an appropriate policy for keeping he cloud services interfaces secure.
  25. Cloud software security. Cloud provider establishes and maintains a policy for keeping software secure.
  26. Cloud interoperability and portability. Cloud provider uses standards which allow customers to interface with other cloud services and/or if needed migrate to other providers offering similar services.
  27. Cloud monitoring and log access. Cloud provider provides customers with access to relevant transaction and performance logs so customers can investigate issues or incidents when needed.

Summary and next steps

It is recommended that you evaluate how to deploy this list of security objectives to best meet the needs of your own organisation. If you have not already, open the conversation about cloud security with your suppliers or potential suppliers. Challenge them to satisfy you in terms of their ability to meet these objectives, in particular whether they can offer one or more of the 11 certifications to which the CCSM is mapped. If they are not willing to do that it may be time to start looking for another supplier. While you are doing all that you may even enjoy listening to Joni Mitchell.

By Dr Peter Tobin

Rand yo-yos as Zuma survives chopping block

Markets have reacted to events at the African National Congress National Executive Committee meeting in Johannesburg over the weekend.

The rand gained considerable strength when news emerged that a vote of no confidence had been tabled.

But it quickly retreated when the motion failed.

Economist Dawie Roodt says the rand is inextricably linked with President Jacob Zuma’s fate.

“It is interesting to watch financial markets because quite often, one can actually see how Jacob Zuma is doing by simply watching the exchange rate of the country.

“What has happened though over the weekend, as soon as it became clear that there would be a debate on the future of Zuma, the rand actually appreciates very strongly against most other currencies.”

Meanwhile, Zuma has come out swinging following the failure of a motion of no confidence in him.

The motion was tabled at the ANC NEC meeting over the weekend.

It failed to garner the necessary support to carry.

Zuma attacked his critics in the NEC in his closing address, saying he knows those who want him to step down are pushing an agenda of foreign forces and he’s warned them to stop.

Three sources in the ANC NEC have told Eyewitness News that Zuma was hard-hitting and furious when he gave his closing remarks at the NEC meeting, responding to those who called on him to step down.

It is understood that the president told the NEC meeting that those who wanted him to resign are pushing an agenda of foreign forces.

The sources say the furious president told the meeting that he was poisoned with the intention of being killed and warned that he knows who is plotting against him and where they get the money from.

It’s understood he also told the meeting that he can’t be blamed for the party’s loss of key metros, saying it was the ANC’s failure to manage regional dynamics that resulted in the poor showing at last year’s polls.

By Clement Manyathela for www.ewn.co.za

New Edcon hire to revitalise ‘lost’ CNA

South Africa’s troubled retailer, Edcon Group, has said that it would appoint Grant Pattison, the former Massmart boss, as its new chief executive next February in a vote of confidence for home grown talent.

South African-born Pattison has been tasked with implementing the group’s strategy, revitalising CNA, growing Edcon’s cellular business and growing the company in South Africa and the rest of the African continent.

Speaking to journalists at the company’s headquarters in Johannesburg yesterday, Pattison said he planned to step up to the challenge of restoring the Edcon’s image.

“The challenge of restoring Edcon to its former glory is both a privilege and a massive challenge,” he said.

Edcon has lost significant market share from local and international competitors, and was trying to claw back its diminishing customer base.
Pattison said he was not fazed by challenges in the retail sector.

“I am a professional chief executive and someone has to step and help the company through these times,” Pattison said.
Pattison, who is currently a non-executive director, will replace Bernie Brookes. Brookes will step down following a two-year tenure at Edcon.

Brookes, the former managing director of the Myer Group, is set to extend his contract, which was due to run until January next year.

To ensure a smooth transition, Pattison will be appointed as Edcon’s chief executive and chief operations officer designate on June 5, joining the executive management of the group and reporting to Brookes.

Brookes said that CNA had lost its path and the company would need to spend R100 million to revitalise the stores’ brand image.

“CNA fiddled in far too many categories. When you fiddle, you fail. We will take CNA back to its roots of being a stationery store. For example we were selling DVDs,” he said.

Brookes said that the company would eliminate the sale of items like toys at CNA.
“We will limit the sale of toys to peak periods like Christmas and Valentine’s Day,” he said.

Edcon is the largest clothing, footwear and general merchandise retailer in South Africa, completed by the sale of its Legit business for R637 million.
It operates more than 1400 stores with nine store formats and annual revenues of R25.2 billion.
The company said it had put the brakes on opening new stores and that there were 120 less stores this year compared with last year as part of the company’s plan to consolidate struggling operations.
“We have more space than any other retailer in South Africa. In some cases we have stores in the central business districts and we have stores in rural areas which are struggling because of the drought.
“We are planning to close struggling stores, and we will change labels in favour of more profitable ones,” he said.
Edcon, whose division includes Edgars, Boardmans, Red Square and mono-branded stores, has decided to exit international brands in favour of local brands.

By Dineo Faku for www.iol.co.za

South Africa’s tough retail environment ate into Mr Price earnings over the past year, as consumers kept a firm hold on their wallets due to the current economic climate.

The group on Tuesday reported a decrease of 10.4% in its diluted headline earnings for the year to 1 April 2017 compared to the previous year.

Mr Price’s poor year corresponded with competitors Truworths, Woolworths and Foschini’s weak sales numbers, highlighting the struggles of the sector.

“This was the group’s first earnings decrease in 16 years during a very difficult trading period,” said CEO Stuart Bird.

Total revenue rose 0.7% to R19.8bn, with retail sales decreasing 0.5% to R18.6bn.

The results were not unexpected, as the Durban-based retailer’s pre-Christmas performance had been dismal. Mr Price attributed the losses at the time due to last year’s unseasonably warm winter as well as promotional markdowns by competitors to clear stock. Foreign retailers such as H&M and Cotton On also ate into the retailer’s market share.

Despite its retail woes Mr Price remained cash generative, providing a good return on average equity to shareholders. Free cash flow increased 131% to R1.8bn and cash resources at period end were R1.8bn. The annual dividend per share stayed at 667c, with the final dividend of 438.8c per share up 4.7%.

Annual dividends of the group have not declined in the last 31 years.

The group said its cash-based business model has enabled it to maintain its dividend track record. It also used the model to fund capital expenditure of R2bn in the last two years to build the necessary infrastructure to support growth plans.

The no-frills retailer said the year proved to be exceptionally challenging for the retail sector.

“Consumer confidence remained low as a result of the poor state of the local economy and a lack of faith in the current political leadership’s ability to set high standards of governance and deliver inclusive growth.”

It also blamed the Cabinet reshuffle and credit ratings downgrades for causing exchange rate volatility, which led to higher prices the consumer ultimately had to absorb.

“As a result, the retail environment has become more competitive, with any growth in a stagnant market coming from increased market share,” Mr Price said.

“This has led to retailers in our sector increasing their promotional activity to drive sales and manage stock levels.”

The merchandise gross profit margin decreased by 1.3% to 40.6%, mainly due to higher markdowns in MRP Apparel, the group’s largest chain. The apparel division, which accounts for around 70% of group sales, has struggled to attract sales.

However Mr Price’s sales growth in the fourth quarter improved, buoyed by sales in the Easter school holidays. Local online sales also continued to perform well and were 13.0% higher than last year.

MRP Sport increased its sales by 7.7% to R1.4bn, performing strongly in the first half with sales gaining 13.3%.

Mr Price singled out MRP Apparel and Miladys as its underperforming units, but added that the new financial year presented new hope, with the best sales performances coming from these two units.

MRP Apparel’s performance, with a decline in operating profits, was an especial cause for concern with sales of R10.9bn 1.7% lower. In the first quarter its product offerings did not resonate with customers, Mr Price said.

Miladys sales of R1.3bn were 5.3% lower. Operating profit increased in the second half, but fell on an annual basis despite a higher gross profit percentage and good cost control.

Although there was limited overhead growth below the inflation rate, it was not sufficient to counter the decline in sales and gross profit.

The retailer said any improvement in the consumer environment is likely to be gradual. Its recovery plans centres on regaining its lost market share, which it believes is the most significant near-term opportunity.

Mr Price’s share price jumped 5.28% to R153.91 at 11:20 on the JSE.

By Yolandi Groenewald for Fin24

Sappi’s shift in strategy is paying off

JSE-listed Sappi said its strategic shift to place more emphasis on dissolving pulp and speciality packaging was starting to pay off, placing it in a good position to reach its 2020 target.

Sappi said it had put emphasis on strong cash- generation and cost-management initiatives to reduce variable costs to reach its target.

The group said it had set aside nearly $350-million (R4.6-billion) for capital expenditure in 2017.

Sappi said it managed to improve its European and US businesses, with speciality-packaging paper units achieving strong sales growth and profit margins. In South Africa, the group said, the paper business experienced a strong recovery in sales volumes in the six months to end March.

Chief executive Steve Binnie said the business was on track to deliver projects it set to achieve locally and abroad.

“Our projects to increase capacity of speciality packaging in Europe and North America are progressing as planned,” Binnie said. “Capital expenditure in 2017 is expected to be about $350m.”

This includes the next phase of the dissolving pulp debottlenecking projects at Ngodwana and Saiccor mills, the Somerset Mill wood yard and the initial phases of the speciality-packaging conversions.”

Sappi has manufacturing operations in Europe, America and South Africa and customers in over 150 countries.

The graphic-paper markets in Europe and the US remained sluggish during the sixth-month period.

But the group said orders improved in late March and April while rising paper pulp and latex prices, along with a weaker euro, had started to place pressure on European margins. It said paper price increases, scheduled for April, offered only partial relief.

“The reason for this is that paper is a business in decline and it continues to be under pressure because of an increased shift to the digital space in conducting business and an increase in the price of raw materials, especially in the past six months,” said Binnie.

In a move to reposition the business, Binnie said Sappi would undertake some measures to keep the business going in a rapidly changing global market. He said the traditional glossy-paper business represented only one-third of the company while two-thirds consisted of dissolving wood pulp and speciality packaging.

In South Africa, Sappi has set itself growth ambitions in an economy set to grow no more than 0.8percent in 2017.

“The short-term goal is to produce 60000 tons in dissolving wood pulp over the next year in South Africa. We expect to grow that to 300000 tons in the next three years and we are hoping to increase it to a million tons by 2025,” said Binnie.

Sappi reported a marginal rise in sales to $2.6bn, up from $2.5bn, while headline earnings per share was higher at 33 US cents a share, up from 31 US cents reported in 2016. The profit came in a $178m, up from $175m a year earlier.

The group reported a net debt of $1.33bn, down by $323m year-on-year. Sappi shares rose 0.74percent on the JSE yesterday to close at R101.34.

By Sandile Mchunu for www.iol.co.za

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My Office News Ⓒ 2017 - Designed by A Collective


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