Perhaps the most tangible evidence that JSE-listed Eqstra Holdings was tentatively starting to emerge from a bruising trough was that it had increased its employment numbers by 600 people over the last year, to reach a staff total of 6 600.
“We are investing in technical support, in ramping up production,” said CEO Walter Hill in Johannesburg on Wednesday.
“Of the 600, 320 are apprentices and field service agents in training.”
While the full 2010 financial year had dented the company’s earnings severely, with revenue down 12% to R6,9-billion, and operating profit down 23,9% to R718-million, the second half of the year saw a return to profitability, with profit before tax of R100-million, compared with a loss of R20-million in the first half of the financial year.
“This is a tale of two halves,” said Hill. “This will be the year of the trough for us . . . hopefully we are entering a recovery period now.”
He pointed out that the group’s operating margin had again inched up to 12% in the second half of the 2010 financial year, up from the 6% achieved in the second half of the previous financial year. Inventories had also been cut by 30% for the 2010 financial year compared with 2009.
Hill said Eqstra is “showing signs that we have taken control of the business . . . we have managed to stabilise the business, turning it around.”
None of the divisions within the Eqstra group achieved growth in revenue for the 2010 financial year compared with the previous financial year, with contract mining and plant rental (including MCC) dropping 1,2%; distributorships (including Terex and New Holland Construction) shedding a massive 45,1%; and industrial equipment (including Toyota Forklift) seeing revenue decline by 10,5%. The passenger and commercial vehicle division (including FlexiFleet) managed to curtail its revenue drop to 1,4%.
“We took the most pain in distributorships,” acknowledged Hill. “We are giving a lot of attention to the recovery of this business.”
He added, however, that a shrinking market was largely to blame for the division’s R116-million operating loss in the 2010 financial year, jumping from a R16-million loss in the previous year.
Terex supplies equipment into the mining industry, while New Holland Construction supplies capital equipment into the construction sector, with both sectors hard hit by the recession.
Hill said there was currently a lot of activity in the mining sector, which offered hope for the distributorship division, but added that the construction market in South Africa “was still very flat”.
He was also optimistic about the contract mining market, noting that it had now expanded by such a margin that it again offered alternatives should a particular project stall.
Tuesday, August 24, 2010
Gauteng To Unveil Industry Sector Plan Within Weeks
The Gauteng provincial government expects to unveil the identities of the business sectors that it plans to support under a refined provincial industrial policy action plan within weeks.
Economic Development MEC Firoz Cachalia reports that a team from the University of the Witwatersrand has completed a study of the potential industries and that his department is in the process of finalising the adoption plan.
The programme forms part of a broader national industrialisation thrust, which is also integral to the emerging ‘New Growth Path', being developed jointly by Finance Minister Pravin Gordhan, Economic Development Minister Ebrahim Patel and Trade and Industry Minister Dr Rob Davies.
Gordhan has indicated that this new plan should aim to achieve yearly trend growth of 7% for a sustained period of 20 years, but he has also stressed that its success will depend on the development of a social compact between government, business, labour and civil society.
A national industrial policy actions plan, or Ipap2, has already been unveiled and has a focus on rebuilding South Africa's manufacturing base, particularly around the R800-billion-plus public infrastructure roll-out.
However, it also has a sector focus with automotive, nuclear, metals fabrication, capital equipment, chemicals and so-called green industries receiving priority attention.
Cachalia reports that the provincial plan will focus primarily on labour-absorbing and growth-generating sectors, with automotive, information technology and green industries likely to feature strongly.
The plan will also seek to align local industrial capacity with provincial and municipal procurement programmes that have been designed to deal with social and economic infrastructure backlogs.
The province is also in the process rationalising various economic agencies - including Blue IQ, the Gauteng Economic Development Agency and the Gauteng Enterprise Propeller - Gauteng Development Agency, into a single development agency, which will help drive the new sector vision.
"The main challenge now is to identify the sectors and to build the capacity to deliver support to them," he says.
The industrial plan would also feed into a larger growth and development vision for the province, which Cachalia expects to unveil during September.
The current suite of Blue IQ projects, including several automotive supplier programmes, would also be synchronised with the new industrial strategy.
Also high on the agenda, is the overhaul of freight logistics in the province, with Blue IQ CEO Amanda Nair indicating that new freight hubs would be created in a bid to improve the competitiveness of landlocked Gauteng as a producer of exportable goods.
A task team has been set up involving Blue IQ, the Industrial Development Corporation and the Development Bank of Southern Africa, as lead arranger, to set in motion a plan to move more freight on rail and to limit freight transit through urban centres.
Three hubs are envisaged, including:
A development in Southern Gauteng along the N3, north of Heidelberg and south of Vosloorus.
A hub at Chamdor on the West Rand.
And, a freight centre around ‘Auto City', in Rosslyn, near Pretoria.
By January, Cachalia believes that the province will be in a position to outline its growth targets and to elaborate on the instruments and incentives available to support private sector growth in the province.
Basil Read Says H1 Earnings To Fall, Shares Drop
The share price of JSE-listed Basil Read dropped by 6% on Tuesday, after the construction company said that it expected to report significantly lower interim earnings.
The group said headline earnings a share would be between 25% and 35% lower in the interim period ended June 30, compared with the previously reported corresponding period.
Earnings a share could fall by 20% to 30%, the company stated.
Basil Read's share price fell by 6,2% on the news, to a low of R11,63 a share following the release of the trading statement.
By 15:45, shares were trading at R11,80 a share.
Basil Read would publish its results on August 31.
The group said headline earnings a share would be between 25% and 35% lower in the interim period ended June 30, compared with the previously reported corresponding period.
Earnings a share could fall by 20% to 30%, the company stated.
Basil Read's share price fell by 6,2% on the news, to a low of R11,63 a share following the release of the trading statement.
By 15:45, shares were trading at R11,80 a share.
Basil Read would publish its results on August 31.
Lazarus Zim’s Afripalm Forms Infrastructure Alliance With Chinese Group
China Railway Construction Corporation (CRCC) has agreed to form a joint venture (JV) with South African empowerment investment company Afripalm Horizon, led by Lazarus Zim, to pursue construction and infrastructure opportunities in South Africa and sub-Saharan Africa.
The companies announced in a joint statement on Tuesday that the JV would look at opportunities to build, develop, maintain and operate infrastructure, such as railway, roads, ports, electricity, real estate and water infrastructure.
CRCC is dual-listed on both the Hong Kong and Shanghai stock exchanges and is listed among the top 500 enterprises worldwide.
“This strategic alliance will foster greater economic cooperation between Chinese and South African businesses as part of a broader cooperation between Asia and Africa in the construction sector. Our aim is to help build Africa’s infrastructure in a manner that enhances investor returns while realising real economic empowerment of the African continent,” said Zim.
CRCC China-Africa Construction chairperson Chen Xiaoxing added that skills and knowledge transfer initiatives would be integral to the JV.
Skilled engineers, artisans, financial experts and construction specialists from China would be seconded to work on projects in South Africa to ensure skills transfers to, and the training of, South Africans, especially from historically disadvantaged communities, he stated.
The companies announced in a joint statement on Tuesday that the JV would look at opportunities to build, develop, maintain and operate infrastructure, such as railway, roads, ports, electricity, real estate and water infrastructure.
CRCC is dual-listed on both the Hong Kong and Shanghai stock exchanges and is listed among the top 500 enterprises worldwide.
“This strategic alliance will foster greater economic cooperation between Chinese and South African businesses as part of a broader cooperation between Asia and Africa in the construction sector. Our aim is to help build Africa’s infrastructure in a manner that enhances investor returns while realising real economic empowerment of the African continent,” said Zim.
CRCC China-Africa Construction chairperson Chen Xiaoxing added that skills and knowledge transfer initiatives would be integral to the JV.
Skilled engineers, artisans, financial experts and construction specialists from China would be seconded to work on projects in South Africa to ensure skills transfers to, and the training of, South Africans, especially from historically disadvantaged communities, he stated.
CO2 Tax Possible On All Cars, Old And New – Gordhan
Government is considering implementing a carbon dioxide (CO2) vehicle emission tax on all cars, both new and old, Finance Minister Pravin Gordhan said on Tuesday.
Speaking in the National Assembly on the Taxation Laws Amendment Bill and related legislation, he said this would be implemented by reviewing the approach to vehicle licence fees implemented by the provinces.
As public transport was improved, higher fuel levies could also be imposed and "we can also demand better quality of fuel" than was available in South Africa at present.
"All in all there is a place for all these mechanisms if we want to reduce the emission of greenhouse gases and ensure we leave our children with a better legacy when it comes to air quality and reducing the risks of climate change."
Gordhan said he had recently met with the CEOs of South Africa's largest vehicle manufacturers.
He had confirmed to them that the CO2 emission tax on new passenger vehicles would come into effect on September 1.
However, he had also taken into account some of their concerns, and therefore, the CO2 tax on double-cab bakkies would be delayed slightly and come into effect on an agreed date "in a few months time".
"It is the intention that this tax will be extended to all other light commercial vehicles at a later date," he said.
On the economy, Gordhan said the recession over the past two years had resulted in a massive drop of revenue last year of almost R68,9-billion – less than what had been budgeted for.
This resulted in the tax-GDP ratio dropping from almost 27% to about 24,4%.
"It is still going to take us another three to five years... to recover to a tax-GDP ratio of 28% that we had enjoyed and achieved in 2007/08," he said.
The GDP figures released earlier on Tuesday indicated growth of 3,2% and the leading indicators released by the South African Reserve Bank also indicated an uncertain economic climate ahead.
"However, let's be positive and hope that the prediction that our economy will still grow by three percent for the remainder of this year and for the year as a whole, happens to be true," Gordhan said.
The legislation gave effect to the tax proposals announced in the February budget, as amended.
They also closed certain tax loopholes to ensure an equitable system.
Closing tax loopholes had become an international concern and something that South Africa would focus on much more seriously in future.
Practices continued to exist that sought to provide certain employees with salary packages containing undue tax advantages.
These left a select group of employees with a lower tax burden than members of the general public who received their salaries in cash, he said.
Speaking in the National Assembly on the Taxation Laws Amendment Bill and related legislation, he said this would be implemented by reviewing the approach to vehicle licence fees implemented by the provinces.
As public transport was improved, higher fuel levies could also be imposed and "we can also demand better quality of fuel" than was available in South Africa at present.
"All in all there is a place for all these mechanisms if we want to reduce the emission of greenhouse gases and ensure we leave our children with a better legacy when it comes to air quality and reducing the risks of climate change."
Gordhan said he had recently met with the CEOs of South Africa's largest vehicle manufacturers.
He had confirmed to them that the CO2 emission tax on new passenger vehicles would come into effect on September 1.
However, he had also taken into account some of their concerns, and therefore, the CO2 tax on double-cab bakkies would be delayed slightly and come into effect on an agreed date "in a few months time".
"It is the intention that this tax will be extended to all other light commercial vehicles at a later date," he said.
On the economy, Gordhan said the recession over the past two years had resulted in a massive drop of revenue last year of almost R68,9-billion – less than what had been budgeted for.
This resulted in the tax-GDP ratio dropping from almost 27% to about 24,4%.
"It is still going to take us another three to five years... to recover to a tax-GDP ratio of 28% that we had enjoyed and achieved in 2007/08," he said.
The GDP figures released earlier on Tuesday indicated growth of 3,2% and the leading indicators released by the South African Reserve Bank also indicated an uncertain economic climate ahead.
"However, let's be positive and hope that the prediction that our economy will still grow by three percent for the remainder of this year and for the year as a whole, happens to be true," Gordhan said.
The legislation gave effect to the tax proposals announced in the February budget, as amended.
They also closed certain tax loopholes to ensure an equitable system.
Closing tax loopholes had become an international concern and something that South Africa would focus on much more seriously in future.
Practices continued to exist that sought to provide certain employees with salary packages containing undue tax advantages.
These left a select group of employees with a lower tax burden than members of the general public who received their salaries in cash, he said.
Telkom Aims To Renew At & T Talks, Says CEO
Telkom is looking to restart talks with AT&T Inc about its Africa partnership, which has so far brought little new business, the acting chief executive of South Africa's largest fixed-line operator said on Tuesday.
Jeffrey Hedberg also told Reuters on the sidelines of the company's annual shareholder meeting that Telkom was not looking for new acquisitions now.
Telkom agreed in April 2009 to work with AT&T to provide IT and telecom services in Africa in a bid to win business from foreign firms expanding on the continent, but so far the partnership has failed to win many contracts.
"The partnership (with AT&T) has not progressed to an extent we would like to date," Hedberg said, adding the problems stemmed from issues related to pricing and after-sales support.
"I am going to re-ignite discussions with AT&T," he said.
Telkom in April 2009 signed a memorandum of understaning with AT&T that would allow the US firm's clients in Africa to use Telkom's Internet-based network on the continent.
Telkom's network - built by acquiring companies such as Kenya's Africa Online and MWeb Africa - was to be linked to AT&T's global network, helping it win business from AT&T's customers.
The company is now focusing on existing customers, not acquisitions or chasing new licences, he said.
"We now know what we want to do with our South African customers...they need to be serviced in Nigeria, Nairobi. That's where much stronger focus is going to be now, rather than buying a third mobile licence in Cameroon or a fourth licence in Zimbabwe," he said.
Telkom has announced an ambitious R6-billion plan to enter South Africa's competitive mobile phone market, a move analysts have said would be very difficult.
"We are working very hard and remain committed to launch our mobile before year-end," he said.
Jeffrey Hedberg also told Reuters on the sidelines of the company's annual shareholder meeting that Telkom was not looking for new acquisitions now.
Telkom agreed in April 2009 to work with AT&T to provide IT and telecom services in Africa in a bid to win business from foreign firms expanding on the continent, but so far the partnership has failed to win many contracts.
"The partnership (with AT&T) has not progressed to an extent we would like to date," Hedberg said, adding the problems stemmed from issues related to pricing and after-sales support.
"I am going to re-ignite discussions with AT&T," he said.
Telkom in April 2009 signed a memorandum of understaning with AT&T that would allow the US firm's clients in Africa to use Telkom's Internet-based network on the continent.
Telkom's network - built by acquiring companies such as Kenya's Africa Online and MWeb Africa - was to be linked to AT&T's global network, helping it win business from AT&T's customers.
The company is now focusing on existing customers, not acquisitions or chasing new licences, he said.
"We now know what we want to do with our South African customers...they need to be serviced in Nigeria, Nairobi. That's where much stronger focus is going to be now, rather than buying a third mobile licence in Cameroon or a fourth licence in Zimbabwe," he said.
Telkom has announced an ambitious R6-billion plan to enter South Africa's competitive mobile phone market, a move analysts have said would be very difficult.
"We are working very hard and remain committed to launch our mobile before year-end," he said.
South Africas Economic Growth Slows To 3,2% In Q2
The 3,2% gross domestic product (GDP) growth figure for the quarter ended June, released by Statistics South Africa (Stats SA) on Tuesday, was lower than expected, particularly given that a significant part of the FIFA World Cup took place on South African soil during the period.
Investment solutions chief economist Chris Hart told Engineering News Online that 3,2% was "disappointing" as economic growth of around 3,6% was anticipated for the second quarter.
"A sturdy boost in the economy was expected over the World Cup period, but one should also account for the ‘holiday effect' that was created by the event, which would imply stronger growth in the services sectors and weaker growth in the country's production sectors."
He pointed out that the disheartening figure placed South Africa slightly above growth seen from developed countries, but below the strong growth experienced in emerging economies.
"One would have expected a stronger recovery by this stage, which may suggest that the authorities might be tempted to put in place additional measures for growth," Hart said.
Investec economist Kgotso Radira agreed, pointing out that the GDP outcome was weak despite the R93-billion that the National Treasury estimated was injected into the economy as a result of the World Cup. "Excluding this, GDP growth would have been much weaker than the 3,2%, showing that conditions remain challenging."
Radira said that given the weak growth in spite of favourable inflation outlook and the rand strength, Investec believed that an interest rate cut of 50 basis points was likely in September.
Nevertheless, speaking at the release of the GDP statistics in Pretoria, Stats SA director-general Dr Rashad Cassim said that sectors related to the World Cup event did show stronger growth rates. "This is evidence of some growth generated by the event, and we will see more of it in the next quarter, because the World Cup was spread over two quarters."
Even though quarter-on-quarter growth dropped from 4,6% in the first three months of the year, year-on-year growth climbed from a negative growth of -2,7% last year, to the 3,2% growth experienced this year.
Cassim told Engineering News Online that the main drivers behind the increase in economic activity during the quarter was the wholesale, retail, motor trade and accommodation industry that all climbed by 0,7 percentage points from the previous quarter.
Further, activity within the manufacturing industry rose by 1,1 percentage points, while government services were up with 0,5 percentage points.
In contrast, the mining and quarrying industry fell by -1,1 percentage points, owing to safety-related stoppages, stockpiling, labour issues and regulatory uncertainties.
Cassim said that if the third and the fourth quarter growth for the year was exactly equal to the first and second quarter of the year, South Africa was looking at a GDP growth of 2,3% for 2010.
Investec expected growth to remain below trend until 2012 as consumers remained overburdened by debt and rising job losses, and even then economists predicted growth rates of around 4%.
South Africa's Finance Minister Pravin Gordhan has recently called for a new sustainable growth path of 7% GDP growth for a period of 20 years, to alleviate unemployment rates, income inequality and serious health, education and infrastructural deficits in the country.
Hart emphasised that if the country was to even come close to such growth rates, it needed to "radically overhaul" its tax structures, industrial and regulatory structures, and seriously relook its labour legislation.
"Investors do not want to be faced with hostile unions and regulations.
"Growth is something you have to buy, which means that a country would need savings and a favourable investment climate to build additional economic capacity. A country could also resort to debt or cash float to acquire the capacity, but these methods are not sustainable over a longer period of time. This means that the burden side of our taxes need to be on the consumption side of the economy and relief is needed on the savings and investment side of the country's economy."
Further, Hart said that South Africa's industrial and sectoral policies also needed to be fundamentally amended. "The country's regulatory environment has increasingly become hostile to business and it is designed in such a way that it seems to protect the vested interests. We have too much regulation that supports the status quo of big businesses and not that of our smaller, entrepreneurial-type businesses.
"Without boosting small business, South Africa will never see the job creation that is needed. This has nothing to do with lowering interest rates or weakening the rand, but the cost of compliance that needs to be dropped. Regulatory authorities should act more like a police service, rather than being a process-orientated service."
Hart also said that the country needed a regime where labour negotiations were related to productivity rather than inflation, which would result in unions becoming allies of growth and company management, rather than enemies.
Investment solutions chief economist Chris Hart told Engineering News Online that 3,2% was "disappointing" as economic growth of around 3,6% was anticipated for the second quarter.
"A sturdy boost in the economy was expected over the World Cup period, but one should also account for the ‘holiday effect' that was created by the event, which would imply stronger growth in the services sectors and weaker growth in the country's production sectors."
He pointed out that the disheartening figure placed South Africa slightly above growth seen from developed countries, but below the strong growth experienced in emerging economies.
"One would have expected a stronger recovery by this stage, which may suggest that the authorities might be tempted to put in place additional measures for growth," Hart said.
Investec economist Kgotso Radira agreed, pointing out that the GDP outcome was weak despite the R93-billion that the National Treasury estimated was injected into the economy as a result of the World Cup. "Excluding this, GDP growth would have been much weaker than the 3,2%, showing that conditions remain challenging."
Radira said that given the weak growth in spite of favourable inflation outlook and the rand strength, Investec believed that an interest rate cut of 50 basis points was likely in September.
Nevertheless, speaking at the release of the GDP statistics in Pretoria, Stats SA director-general Dr Rashad Cassim said that sectors related to the World Cup event did show stronger growth rates. "This is evidence of some growth generated by the event, and we will see more of it in the next quarter, because the World Cup was spread over two quarters."
Even though quarter-on-quarter growth dropped from 4,6% in the first three months of the year, year-on-year growth climbed from a negative growth of -2,7% last year, to the 3,2% growth experienced this year.
Cassim told Engineering News Online that the main drivers behind the increase in economic activity during the quarter was the wholesale, retail, motor trade and accommodation industry that all climbed by 0,7 percentage points from the previous quarter.
Further, activity within the manufacturing industry rose by 1,1 percentage points, while government services were up with 0,5 percentage points.
In contrast, the mining and quarrying industry fell by -1,1 percentage points, owing to safety-related stoppages, stockpiling, labour issues and regulatory uncertainties.
Cassim said that if the third and the fourth quarter growth for the year was exactly equal to the first and second quarter of the year, South Africa was looking at a GDP growth of 2,3% for 2010.
Investec expected growth to remain below trend until 2012 as consumers remained overburdened by debt and rising job losses, and even then economists predicted growth rates of around 4%.
South Africa's Finance Minister Pravin Gordhan has recently called for a new sustainable growth path of 7% GDP growth for a period of 20 years, to alleviate unemployment rates, income inequality and serious health, education and infrastructural deficits in the country.
Hart emphasised that if the country was to even come close to such growth rates, it needed to "radically overhaul" its tax structures, industrial and regulatory structures, and seriously relook its labour legislation.
"Investors do not want to be faced with hostile unions and regulations.
"Growth is something you have to buy, which means that a country would need savings and a favourable investment climate to build additional economic capacity. A country could also resort to debt or cash float to acquire the capacity, but these methods are not sustainable over a longer period of time. This means that the burden side of our taxes need to be on the consumption side of the economy and relief is needed on the savings and investment side of the country's economy."
Further, Hart said that South Africa's industrial and sectoral policies also needed to be fundamentally amended. "The country's regulatory environment has increasingly become hostile to business and it is designed in such a way that it seems to protect the vested interests. We have too much regulation that supports the status quo of big businesses and not that of our smaller, entrepreneurial-type businesses.
"Without boosting small business, South Africa will never see the job creation that is needed. This has nothing to do with lowering interest rates or weakening the rand, but the cost of compliance that needs to be dropped. Regulatory authorities should act more like a police service, rather than being a process-orientated service."
Hart also said that the country needed a regime where labour negotiations were related to productivity rather than inflation, which would result in unions becoming allies of growth and company management, rather than enemies.
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