The consumer goods sector continues to experience growth pressures as a result of a weak economy.
This is according to analysis by Ernest & Young which studied 13 listed consumer goods companies in South Africa.
The report says consumer goods companies remain squeezed by slow growth but the outlook for this year appears more upbeat.
Consumer goods companies struggled to raise income in the last half of 2017.
The analysis shows that while volumes nudged up a percent, revenue declined by 3.4% in the last half of the previous year.
Derek Engelbrecht, who leads the retail and consumer division at Ernest and Young, attributes pressure on the consumer goods sector to the drought and weak international economic environment.
“Looking at results in their latest reporting period, we continued to see volumes and revenue growth pressure during this period, largely on the back of drought and weak international conditions. This has had a negative impact on free cash flows and profitability of the group of companies in the study.”
Consumers were conservative with their spending in the last quarter of 2017 and this reflected in the latest Consumer confidence index number which has had an equally subdued impact on the Consumer goods sector’s profit margins.
However, Englebrecht says there’s hope for improvement in 2018.
“Whilst the metrics felt the impact of a weak economy; we think that uptick in sentiment, largely on the back of some anecdotal evidence which was provided by the retailers during their Chrismas trading updates will provide some upside for the consumer goods companies in our study.”
Engelbrecht says the positive outlook for this year is partly attributed to political developments in the last quarter of 2017.