Who really won World Cup?
David Shapiro: We are bang in the middle of the June reporting season. As I have often stated, one learns more from corporate performances about the health of an economy than from a chain of official statistics.
Academically, I was interested to determine whether the World Cup had contributed meaningfully to the bottom line of a number of local companies - building and construction apart - that were identified by the investment community as frontrunners to benefit from the expected rise in spending.
In summary, the results have disappointed, but it's hardly a surprise. Famous Brands, the franchisors of popular food outlets like Wimpy, Steers and Debonair Pizzas, easily topped the bunch.
Their six monthly earnings to the end of June were 24% up on last year's number, enhanced by significant increases in sales in tourist hubs including Sandton City, Melrose Arch and the various airports around the country. Still, revenue in June fell shy of December's peak and even that was after extending trading hours to cater for the demands of ravenous football fans.
Famous Brands also reported a valuable rise in business at Montecasino, which steered analysts to assume that if more burgers and beers were being devoured at casinos more punters were playing the slots. Not so! Gold Reef's trading update disclosed that profits were forecast to decline by between 20% and 25% for the half year, a lot lower than market consensus.
The hospitality industry had issued prior warning that bookings at their hotels and inns for June would fall short of projections and, despite a perceived last minute rush for lodgings and tickets, City Lodge's 2010 annual profits were down on last year. Gooderson Leisure, a smaller listed hotel group, also revealed that their earnings for the period to the end of August would disappoint.
Another reason that income in the travel industry was off-beam was the doubt over the availability of accommodation and concerns about congestion at airports in the lead up to the World Cup.
This prompted firms to place a freeze on workshops, conferences and regular business trips until late July, a view affirmed by 1Time Airline, who advised investors that although traffic increased in June, reduced volumes of corporate travel in May offset any benefits.
Conditions in commerce and industry are sure to return to normal in the months ahead, but more of a concern is how the leisure sector will handle the increase in room capacity created to satisfy the invading masses that failed to show.
While we've been analysing the outcome of the Cup on our economy, the rand has improved and is trading at the same levels it was before the collapse of US investment banker Lehman Brothers sent financial markets into freefall two years ago. A firm rand is hardly what we expected or desired.
Foreigners searching for yield in a low interest rate environment continue to flood money into our equity and bond markets. According to numbers provided by Bloomberg, the net combined flows into the country in 2010 have exceeded R70-billion, a 10-year high.
And with developed markets like the US and Europe offering little attraction to reverse the stream, the investment funds are bound to stay put. If you think lowering interest rates would provide a distraction, think again. Cutting rates would only improve the chances of further capital gains on long-term government bonds, offering an additional incentive for money managers to purchase more rand.
It's hurting hard. Virtually every company that has released results over the past fortnight has groaned about the negative impact of the strong rand.
Aluminium manufacturer Hulamin went as far as requesting the government to introduce tariffs on cheaper imports.
Hudaco, a distributor of products to the mining and manufacturing industries and a beneficiary of lower-priced imports, complained that its customers were being squeezed by the soaring currency.
But the grievances weren't confined to heavy engineering. Retailer Shoprite's receipts from stores outside South Africa marred its growth, sugar producers Illovo and Tongaat fretted about the effect of a strong rand on their exports while paper producer Mondi lamented how a surging currency had shrunk its margins.
A strong currency makes imported goods cheaper, putting a lid on inflation and indirectly placing more money in the hands of consumers. But it is stifling our competitiveness and suppressing growth.
But be careful what we wish for, it may come true, and we don't want to be around if all the foreign money decides to leave.
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Who really won World Cup?
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