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Manufacturing Circle Bulletin Quarterly Review
First Quarter 2012
Presentation for
Manufacturing Circle
18 May 2012
by
Dr Iraj Abedian
PAN-AFRICAN INVESTMENT & RESEARCH SERVICES (PTY) LTD.
Outline
1. Introduction
2. Overall Manufacturing Business Confidence
3. SA Manufacturing Environment in Q1 2012
4. Survey Results
5. Concluding Remarks
Slide # 2
Introduction
Profile of Respondents
A Total of 49 (previously 48) Participating Firms in Q1 2012
COMPANY TURNOVER
> R10bn
R6bn to
R10bn
R3bn to
R6bn
R1bn to
R3bn
R301m to
R999m
< R300m
0
5
10
15
20
25
Share of Respondents (%)
Slide # 4
30
35
40
Manufacturing Business Confidence
First Quarter 2012
Mostly Stable Business Conditions in Q1 2012 Relative to Q4 2011
CURRENT OUTLOOK
50
45
Share of Respondents (%)
40
35
30
25
20
15
10
5
0
Poor
Fragile/weak
Stable
Q4 2011
Slide # 6
Q1 2012
Modest to good
Strong
Short to Long-Term
Risks to Outlook on Business Confidence (Short to Long Term)
• Upside risk:
1. Planned infrastructure investment spending programme by the government
• Downside risks:
1. Shortage of water and electricity supply
2. Scarcity of raw materials (e.g. good grade coal and steel)
3. Higher transport and energy costs
4. Uncompetitive labour rates
5. A strong rand
6. Uncertainty and slowdown in global economic activity
7. Poor service delivery from the municipalities
8. Original equipment manufacturers (OEMs) relocating outside South Africa due to uncertainties
over the automotive production and development programme (APDP)
Slide # 7
South African Manufacturing Environment in
Q1 2012
Kagiso Purchasing Managers Index
Quarterly Average
• Most component indices of the PMI in expansion terrain in Q1 2012…
• But developments in the global economy to dampen the local manufacturing sector
• Proof: disappointing manufacturing outcome in March 2012
New
sales
Backlog
of order
sales
Inventories
Purchasing
commitments
Date
PMI*
Q1 2011
55.5
54.1
60.2
40.6
57.5
48.8
56.1
80.3
48.8
62.2
Q2 2011
55.1
56.8
60.0
41.1
58.3
54.4
49.7
79.6
48.5
63.0
Q3 2011
48.3
44.6
47.9
42.3
51.4
48.4
53.1
74.7
42.0
58.0
Q4 2011
50.5
51.0
50.4
45.2
52.1
51.4
55.4
82.8
45.7
59.6
Q1 2012
55.4
58.9
60.6
41.5
53.1
50.3
52.0
76.7
47.0
64.6
Source: Bureau for Economic Research
Slide # 9
Suppliers'
Prices Employment
performance
Expected
business
conditions
Business
activity
Manufacturing Production Q1 2012
Weights
2005
Q/Q Seasonally
Adjusted
% Growth
Food & beverages
15.4
-0.5
Textiles, clothing, leather & footwear
4.9
2.5
Wood, paper, publishing & printing products
10.2
-1.5
Petroleum, chemical & rubber products
22.1
3.8
Glass & non-metallic mineral products
4.8
0.6
Basic iron & steel, non-ferrous metal products & machinery
22.9
1.6
Electrical machinery
2.5
-3.7
Radio, tv communication apparatus & professional equipment
1.1
1.9
Motor vehicle parts & accessories and other transport equipment
10.9
6.2
Furniture & other manufacturing division
5.2
6.1
100.0
1.9
Manufacturing Division
Total
Source: Statistics South Africa
Slide # 10
Quarterly Manufacturing Employment
67,000 Manufacturing Jobs Lost in Q1 2012
2,050
Manufacturing employment
2,000
Four period Moving Average
1,950
Thousands
1,900
1,850
1,800
1,750
1,700
1,650
2008
Mar
Jun
Sept
Dec 2009
Mar
Jun
Sept
Dec 2010
Mar
Source: Statistics South Africa
Slide # 11
Jun
Sept
Dec 2011
Mar
Jun
Sept Dec 2012
Mar
Summary of Q1 2012 Survey Results
Demand Conditions
• Disappointing domestic demand sales
• Some improvement s in export sales ... But not enough to offset the slowdown in domestic sales (ratio of
domestic sales to total sales still outweighs that of exports)
Could lead to high inventories
EXPORT SALES (VALUE)
DOMESTIC SALES (VALUE)
> 15%
> 15%
11% to 15%
11% to 15%
6% to 10%
6% to 10%
0 to 5%
0 to 5%
-5% to -1%
-5% to -1%
-10% to -6%
-10% to -6%
-15% to -11%
-15% to -11%
Q1 2012
< -15%
0
10
Q4 2011
20
30
Q1 2012
< -15%
40
0
5
10
15
20
Q4 2011
25
Share of Respondents (%)
Share of Respondents (%)
Slide # 13
30
35
Supply Conditions
Lower input costs in Q1 2012 relative to Q4 2011, in line with a slowdown in producer price increases
and a moderation in the price index of the PMI
TOTAL INPUT COSTS
> 15%
11% to 15%
6% to 10%
0% to 5%
-5% to -1%
-10% to -6%
-15% to -11%
Q1 2012
Q4 2011
< -15%
0
5
10
15
20
Share of Respondents (%)
Slide # 14
25
30
35
40
Manufacturing Employment Conditions
Only 31% of Respondents reported a growth of at least 1 % in Manufacturing Employment compared
with 43% during the previous quarter
CHANGE IN THE NUMBER OF EMPLOYEES
Q1 2012
> 5%
Q4 2011
1% to 5%
0%
-5% to -1%
< -5%
0
5
10
15
20
Share of Respondents (%)
Slide # 15
25
30
35
40
Manufacturing Employment Conditions
Factors Explaining the Fall in Manufacturing Employment during Q1 2012
1. Increased tendency by municipalities to procure lower-cost imported goods
2. Seasonal effects, i.e. certain jobs are not required out of a particular season during a year
3. High fixed costs
4. Unfair trade practices. For example, exports to Brazil facing between 8 to 14 per cent taxes
5. Sluggish vehicle sales in Europe
6. Increased investment in less labour intensive assets as a result of uncompetitive costs of labour
and lower production
Slide # 16
Labour Productivity & Regulatory Environment
Mostly, unfavourable regulatory environment in
Q1 2012 relative to Q4 2011
Same levels of labour productivity in
Q4 2011 & Q1 2012, generally
REGULATORY ENVIRONMENT
LABOUR PRODUCTIVITY
80
Q4 2011
Q1 2012
70
Q4 2011
70
60
Q1 2012
60
Share of Respondents (%)
Share of Respondents (%)
80
50
40
30
20
10
0
50
40
30
20
10
0
Deteriorated
Same
Improved
Deteriorated
Slide # 17
Same
Improved
Financial Conditions
1. Rise in the share of respondents reporting operating losses before cost of funding (from about 30
per cent in Q4 2011 to about 60 per cent in Q1 2012 )
2. Increase in the share of respondents (from about 12 per cent in Q4 2011 to 16 per cent in Q1
2012) registering a debt to equity ratio of at least 65 per cent.
3. In line with the increase in credit lending during Q1 2012, higher number of respondents accessing
credit at JIBAR +3 - +6 per cent in Q1 2012, relative to Q4 2011.
Slide # 18
Outlook
Manufacturing Outlook
1. Economic activity in South Africa to moderate to 2.5 per cent in 2012, due to
(a)
A mild recession in the eurozone on the back of the protracted sovereign debt crisis and
(b)
a slowdown in China.
2. Trade linkages between South Africa and (1) the eurozone and (2) China, will represent the major
channel through which the effects of the eurozone recession and the hard landing in China will be
felt in the South African economy.
3. Inflation-adjusted manufacturing value added is expected to shrink by 0.7 per cent during 2012.
4. Recovery in the global economy from 2013 going forward coupled with the implementation of the
government’s infrastructure investment drive to boost the manufacturing sector from 2013, going
forward.
5. The rand exchange rate (as determined by capital flows) to present downside risks to the
manufacturing sector’s outlook.
Slide # 20
Concluding Remarks
Concluding Remarks
1.
Despite a better overall performance in Q1 2012 relative to Q4 2011, manufacturing
production is prone to both a weaker global and domestic demand, going forward
2.
Manufacturing jobs and profitability will remain under pressure during 2012.
3.
The government infrastructure investment drive needs to be fast-tracked in order to
cushion the effect of a slowdown in global economic activity on the domestic economy
Slide # 22
Thank you for your attention
Q&A
[email protected]
Tel: 011 883 8036/7
Fax: 011 883 8038
Slide # 23