South Africa is falling apart
South Africa’s largest companies have lamented the impact of increased and erratic load-shedding, rail constraints, and port delays on their operations.
Chantal Marx of FNB Investments said there is a clear trend in the trading updates from JSE-listed companies this year.
Companies repeatedly mention the negative impacts of load-shedding, rail and logistical constraints, and port delays.
In these updates, companies mentioned load-shedding nearly 50 times and see it as central to their challenging operating environment.
Retailers, in particular, lamented the impact of load-shedding, with Pick n Pay and Woolworths dedicating entire sections of their announcements to its impact.
Increased costs on diesel and maintenance for generators, and large renewable projects all put pressure on companies’ profit margins, reducing their return to shareholders.
These constraints are particularly noticeable in the announcements from South Africa’s largest retailers and mining companies.
Retail takes a hit from load-shedding
In its trading update for the last six months of 2022, Shoprite stated that it spent R560 million on diesel for its generators to ensure uninterrupted trading.
If load-shedding remains elevated, Shoprite will spend over R1 billion a year to mitigate its effects.
Shoprite has also begun taking out additional insurance cover “above that offered by Sasria”, which costs it R90 million over six months.
Pick n Pay lamented the “significantly more difficult trading environment with unprecedented load-shedding”.
Elevated levels of load-shedding result in “substantial unplanned costs”, totalling R60 million a month.
Worryingly, the group “takes the view that the current crisis is a permanent new reality”.
Woolworths references the “devastating energy crisis” in its trading update for the second half of 2022, which costs it R15 million a month in wasted food and increased diesel costs.
Miners lament Transnet inefficiencies
South Africa’s mining companies, while impacted by load-shedding, are more concerned about Transnet’s inefficient rail and port services as this directly limits their sales volumes.
The inability to export mineral resources also negatively affects South Africa’s balance of trade and sometimes forces companies to reduce output and productivity.
In its preliminary results, Glencore pointed to logistics and port constraints as the reasons for its limited chrome ore supply from South Africa.
Its coal profits were also limited by “continued rail constraints”, exacerbated by a two-week Transnet strike.
Exxaro’s coal production decreased by 11% in 2022 “due to the poor rail performance from Transnet” and the “structural constraint of inadequate electricity supply”.
It has begun trucking coal to alternative ports to ensure it can meet export demand.
Sasol’s chemicals business saw a decrease of 5% in sales volumes, and its profit margin declined by 12% over the last six months of 2022.
This, according to Sasol, can be attributed to South Africa’s deteriorating infrastructure and the “structural constraint” of load-shedding.
“Persistent load-shedding, infrastructure constraints, in particular, the poor performance of the national provider of rail and port logistics services…continue to have a significant impact on our business”, it said.
Kumba Iron Ore had “lower throughput than expected” in 2022, with its production and sales being disrupted by Transnet’s inefficient services and the prolonged strike.
Kumba has had to conduct a “significant build-up of iron ore stockpiles at our mines”, as it cannot be transported for export due to Transnet’s rail constraints.
Production at Kumba’s mines has decreased as the company has run out of space to store its iron ore prior to export.