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ANC's ray of hope may boost retailers' prospects

| Economic factors

The outlook for consumer goods companies appears upbeat as a changing political landscape provides some impetus to a stuttering economy.

A study by EY has found that consumer goods companies remain under pressure because of slow volume growth but that a recovery was on the horizon in the next half year.

The EY analysis studied 13 listed consumer goods companies in SA with collective annual revenue of R170bn.

The study found that while revenue, earnings before interest, tax, depreciation and amortisation and headline earnings had fallen in the past reporting cycle, it expected the next cycle to be "stronger".

The consumer products and retail sector analyst at EY, Derek Engelbrecht, said anecdotal evidence suggested that retailers saw strong sales in November and December.

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.

Volume and revenue growth remained under pressure because of the drought, coupled with weak local and international economic growth.

This saw year-on-year overall volumes rise a mere 1%.

Engelbrecht said the flat growth was directly correlated to the weak GDP growth.

The IMF’s growth forecast for SA has been lowered to 0.9% while others have postulated growth at 2.3% — closer to the 3.8% growth forecast for sub-Saharan Africa.

Engelbrecht said that 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 dropping prices to attract customers. "Price increases were a no-no in this period."

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