Tag: losses

Job cuts loom at DStv

By Chris Forrester for Advanced Television

According to a report in South Africa’s Sunday Times newspaper, pay-TV operator DStv is laying off up to 200 staffers in a move to save cash amidst increased competition.

A DStv spokesperson said the move was in order to create a leaner and more agile business. Existing staff are being asked to reapply for their jobs, says the newspaper.

DStv’s parent, MultiChoice has lost some 41,000 Premium top-tier subscribers in the year to March 31st.

MultiChoice has made no secret of its annoyance that rivals such as Netflix and Amazon Prime are eating away at its core subscribers and yet operate without having to fulfil the licensing obligations faced by MultiChoice.

MultiChoice CEO Calvo Mawela has called for a change in regulations to cover the new OTT entrants.

Property-related and business interruption losses as a result of fire and weather catastrophes have increased dramatically in South Africa, with 2017 having the highest underwriting losses on record.

Insurers incurred material underwriting losses driven by major natural catastrophes including the Knysna bush fires, the Transnet Rossburgh warehouse fire (the single largest fire loss) in Durban, a large hexane plant fire, a tornado in Gauteng and multiple heavy rainfall, hail and flooding events in Gauteng and KZN.

Reinsurers no longer regard South Africa as a low catastrophe risk region due to the high frequency of large loss events, resulting in adjustments and price increases.

“Given that the principle of insurance is that the losses of the few are paid for by the many, and the losses of the few have been greater than the total premium collected, insurers have had to respond by increasing premiums for all clients – even those with no claims at all,” says Clive Boyd of Aon South Africa, insurance brokers and risk consultants.

Insurers are also reviewing the types of risks they are prepared to take on, paying particular attention to high-hazard industries such as paint, plastics, wood, packaging, refrigeration, recycling and warehousing.

“Insurers are far more stringent when taking on risks, and clients will need to demonstrate their commitment to risk mitigation and prevention. In terms of fire risks, insurers may make the installation of Automatic Sprinkler Inspection Bureau (ASIB) approved sprinkler systems mandatory, and require that, in the event of a fire, the insured must prove that valid electrical and occupancy certificates had been obtained and that the premises was SANS 10400 compliant. In the absence of any of these, a fire-related claim can be rejected in its entirety, so the importance of managing compliance with fire-risk management requirements cannot be emphasised enough,” explains Boyd.

Risk management is another focal point for insurers. In the absence of a demonstrable risk management process, a business could find that an insurer may opt not to renew cover if it believes the risks are uninsurable. In order for a risk to be underwritten, there must be a survey report on file, indicating that the risk meets minimum underwriting guidelines and that the insured has adopted and implemented the risk control recommendations made in the report.

“After a decade of declining rates and profitability for insurers, battered by consecutive years of major losses due to natural catastrophes, it took a particularly bad year in 2017 to trigger the inevitable hardening of rates that 2018 is continuing to experience,” says Boyd.

“In order to remain insurable, risk managers need to review their formal risk management and audit programmes, ensuring that they comply with all national building regulations, installing ASIB approved sprinkler installations where recommended and adhering to risk control requirements as set out in underwriting survey reports. Mitigating fire risks requires close collaboration between insurers, risk managers and brokers to ensure that the current risk management programmes are still compliant with a significantly more stringent underwriting process. Failure to comply with the statutory requirements and codes of practice for fire protection can leave businesses in severe financial crisis and with potential legal ramifications.

Ultimately, reviewing such programmes is a task best undertaken with a professional broker who will work with the client to ensure that the fire prevention strategy is linked to an insurance program that fully addresses the needs of the business. With the assistance of professional partners, Aon assists clients with practical knowledge of building codes, fire codes as promoted by various specialist bodies, as well as knowledge of construction materials, manufacturing processes and storage practices and the relevant hazards involved therein. By linking this to an aligned insurance program that covers virtually all the ‘what if’ scenarios of not only the physical damage but the knock-on implications for business continuity, clients get to experience the real value of a comprehensive fire risk analysis and the support of a professional and experienced broker at their side to guide them through the process.

Is Woolworths ‘in need of a shake-up’?

Analysts are divided on whether Woolworths CEO Ian Moir should fall on his sword after the retailer was forced to impair the value of its Australian department store chain, David Jones, by nearly R7bn.

Moir, an expert in fashion retail, has been at the helm since 2010. But David Jones has been weak and outperformed by the food division in SA and Australia. One thing all analysts agree on is that top management is in dire need of a shake-up.

Although Woolworths attributed the impairment to “the cyclical downturn and structural changes” affecting Australia’s retail sector, some analysts are adamant that overpaying for a struggling asset in a foreign territory was a bad move and top management should be held accountable.

They argue that at the core of the impairment, which equates to about a third of the R23.3bn paid in 2014, was poor foresight by management.

Portfolio manager at Gryphon Asset managers Casparus Treurnicht said that it was about time that top-level management was reorganised so individuals could be held more accountable. He reminisced about how in 2014 Woolworths assured shareholders that “initiatives are expected to deliver incremental ebit [earnings before interest and tax] of at least R1.4bn per annum within five years”.

However, the acquisition remained a noose around Woolworths’s neck, pointing to a poor performance by management.

“Wow! Management really did well for themselves!

“Not only did they overpay for DJ [David Jones], they simply got the cycle wrong and never delivered on promises.

“They must be held accountable,” said Treurnicht,

Peter Takaendesa, portfolio manager at Mergence Investment Managers, said that Moir had come out to take some responsibility for the poor execution at David Jones.

“Ian is an experienced retail executive and has executed very well in the past.”

He said other retail companies such as Mr Price had also experienced patches of weaker execution recently but had
managed to resolve those issues. “We therefore believe investors are likely to give him a chance to resolve those execution issues but failure to demonstrate progress over the next 12 months could cost him his job,” Takaendesa said.

Vele Asset Managers equity analyst Matthew Zunckel welcomed the impairment, saying it was overdue as it had been clear for a while that the assumptions used in calculating the goodwill attributable to David Jones were overly optimistic.

He said that while the write-off would distort a number of metrics, it would allow David Jones to strategically start on a “clean” slate with a more reasonable valuation of David Jones on Woolworths’s books and better prospects of earning an adequate return on capital.

But he maintained that management should take accountability for the “disastrous move”, as the acquisition resulted in a huge amount of value destruction for shareholders.

Woolworths warned that its headline earnings per share for the 26 weeks to December 24 were expected to drop between 12.5% and 17.5%.

On Thursday morning, the share price dropped 11.7% but recovered to close 2.33% lower on the day at R64.14. Those who invested in Woolies at the start of the year have lost 1.79%.

The underlying issue in Australia is that turnaround plans are not bearing fruit in the department store industry.

Zunckel said that department store managements were having to fight an established structural story of consumer preference for shopping online or at speciality retail stores, and so far that structural story had remained entrenched. Meanwhile, there is some wariness about close competitor TFG’s interest in expanding even further into the impregnable Australian market, after it bought RAG for R3bn in 2017.

“When will people realise that 70%-90% of acquisitions fail?” Treurnicht said, adding
that value could only be created organically. “That’s how Shoprite and Clicks’s share prices outperformed,” he said.

But Takaendesa argued that TFG’s international expansion appeared to be going well so far, which might mean that it was selecting better assets to acquire or executing better or both.

“They are currently an outlier in that regard as most South African retailers are struggling when it comes to expanding into highly competitive developed markets,” he said.

“We will be closely monitoring cash generation and the sustainability of their better performance to avoid Steinhoff kind of problems.”

Source: Supermarket & Retailer 

SABC posts massive R977-million loss

The South African Broadcasting Corporation posted a R977m loss after tax for the 2016/17 financial year, its annual report tabled in Parliament on Tuesday revealed.

The public broadcaster’s net loss for the year ending March 2017 more than doubled from R412m in 2016, following a year of upheaval that included the dissolution of the permanent board in late 2016.

Revenue declined from R8.1bn in 2016 to R7.6bn, representing a 6% year-on-year decrease.

Advertising also dropped 5% to R5.6bn, in a year that saw former chief operating officer Hlaudi Motosoeneng implement the 90:10 local content policy in May.

Sponsorship revenue declined by 18% to R384m, while TV license revenue decreased 7% to R915m.

Operational expenses remained the same at R8.6bn.

The report also said that the SABC had a cash balance of R82m, representing a net outflow of R800m since the previous year.

“The fact that operational cash was used to fund capital expenditure projects, the cost of delivering on broadcaster’s public service mandate and the rising cost of Sports Rights contribute to the pressure being placed on the organisation’s cash reserves,” the report reads.


An interim board was appointed by President Jacob Zuma on March 26, 2017, following a lengthy inquiry process into the broadcaster and Parliament’s approval of 5 names to serve in the interim.

The new board, led by interim chairperson Khanyisile Kweyama, made inroads into turning the beleaguered broadcaster around, and has been praised by both the portfolio committee on communications and standing committee on public accounts.

The interim board’s mandate expires this week. The National Assembly approved a list of 12 names for non-executive board positions on September 5, which only await President Zuma’s approval.

They include all five interim board members.

The 12 are: Michael Markovitz, Khanyisile Kweyama, Mathatha Tsedu, Nomvuyiso Batyi, Rachel Kalidass, Victor Rambau, John Matisonn, Jack Phalane, Krish Naidoo, Febe Potgieter-Gqubule, Dinkanyane Mohuba and Bonbumusa Makhathini.

Source: MyBroadband

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