|
Margins, politics keep finance officers awake
|
|
|
Sanchia Temkim
Business Day
Thursday, June 10, 2010
|
|
|
|
Margin pressures are the most significant risk factor that chief financial officers will encounter over the next year. Together with political uncertainty, this is keeping executives awake at night. These are some of the findings of the second chief financial officer survey recently issued by Deloitte.
The Deloitte 2010 chief financial officer study covered the full industry, turnover and experience spectrum of 200 of SA’s top companies, including listed and unlisted entities in the private sector and major state-owned enterprises. “The 2010 chief financial officer survey highlighted the following significant risks:
margin issues, including the impact of electricity supply and pricing; market share, competitiveness and competition; financial health of suppliers and customers; and political factors,” said Hugh Harrison, chief financial officer leader at Deloitte.
Last year, chief financial officers were predominantly focused on internal issues and preoccupied with those risks that could not be controlled by the company during the downturn. In 2008, key risks that tended to keep executives awake included political concerns and electricity supply.
In this year’s study, key inflationary cost concerns related to administered prices, particularly electricity and transport; the lagged effects of wage settlements and recent union demands of several multiples of inflation; commodity price inputs; and currency fluctuations and hedging costs.
“Although the electricity increases approved by Nersa fell below initial expectations, the cost and reliability of electricity supply remain the second-largest risk factor to South African performance,” Mr Harrison said.
Chief financial officers agreed that national electricity pricing policy presented a significant constraint to future economic growth and onerously increased the costs of doing business while detracting from the country’s ability to attract essential investment.
Last year, weak demand was one of the top three risks facing chief financial officers, coupled with the effect of restocking inventories, which amounted to R37bn. Although this had decreased in the current year, demand tended to remain a concern. The restocking of inventories had seen a swing of R40bn, which had contributed meaningfully to certain companies’ performance.
“Together with increasing competition, the ability to protect market share has become more of a priority to chief financial officers, but it is constrained by margin flexibility and capacity,” said Mr Harrison.
Competitiveness was rated as the single largest industry concern facing South African firms that had ventured beyond the country’s borders. For those with mainly domestic operations, however, this moved down to third place, highlighting the fact that they were relatively more shielded from the effects of competition and had other more pressing concerns to worry about.
A further effect on margins and competitiveness arose from concern over the decay of infrastructure and the need to find alternative solutions in the face of erratic and costly delivery from the government, said Mr Harrison.
|
|
|
 Print this article |
 Send to a friend
|
|