JSE-listed firms pummelled by mounting costs of load shedding

COMPANIES in South Africa are being pummelled by the costs they are incurring amid unprecedented power outages. Some have been forced to lower their growth outlooks.

A slowing economy means consumers have less money to spend and businesses will therefore have fewer sales.

JSE-listed company financial statements and trading updates reflect the millions and billions spent on diesel, hiking their costs, as firms lose thousands of hours, and counting.

Nedbank noted the economy enjoyed only two days without load shedding in the fourth quarter, and the hours per day without electricity increased dramatically, with 51% of the quarter at load shedding stages 3 to 6.

“Based on our calculations, real GDP (gross domestic product )is likely to shrink by a further 0.4% in the first quarter, which means that the economy probably entered a recession in the final quarter of last year,” Nedbank said.

But worse is to come for the economy, JSE-listed financial services group Absa warned this this week, while projecting the economy would grow by less than 1% this year.

The bank expects load shedding to worsen and impairments to intensify in the year ahead. “Electricity supply is expected to remain a significant risk for the economy for the foreseeable future,” Absa said.

The extent of load shedding grew in the second half of 2022 and continued into the first half of 2023 as Eskom has been implementing load shedding at escalating stages, up to Stage 6, in a bid to protect the national grid from a national blackout.

According to Bloomberg, the South African Reserve Bank said it estimated that South Africa’s electricity crisis was costing the economy as much as R899 million a day.

Bloomberg said rolling blackouts of about six to 12 hours a day, or so-called Stage 3 and Stage 6 outages, detract between R204m and R899m from the economy daily.

The financial fallout from load shedding has become apparent.

MTN chief executive Ralph Mupita, presenting the firm’s annual results this week, warned that if South Africa did not act to solve its problems, it would become a failed nation.

Mobile operator MTN revised its targeted core profit margin guidance for South Africa, down to 37% from 39%, from 39% to 42% previously, due to higher-than-expected power costs, increased hubs and switches costs as a result of load shedding, higher network security and resilience costs, as well as a reassessment management fee agreement with the group.

Power outage costs were R695m, or 3.4%, of MTN South Africa's earnings before interest, taxes, depreciation and amortisation.

Mupita said: “In South Africa, operating conditions were significantly impacted by the national grid power availability that worsened in the second half of the year.”

And retailer The Foschini Group (TFG) this week estimated that rampant load shedding reduced TFG Africa’s retail turnover by about R1 billion, following abnormal costs, lost trading hours, and decreased footfall in its stores over the 2023 financial period, and by more than R250m in the past two months alone.

It spent around R220m in capital expenditure on back-up solutions while incurring a further R65m in unbudgeted direct costs for diesel, security and maintenance.

In its trading update for the year ended March 31, 2023, the group said TFG Africa had lost about 120,000 trading hours during the past two months due to continued load shedding across all provinces in South Africa, which represented 9.4 times the lost trading hours over the same period in the previous financial year.

This equated to 345,000 lost trading hours for the 11 months ended February 28, 2023.

“The true impact, however, has been estimated at close to double this figure (685,000 lost trading hours) as customer demand is dampened by the associated disruption and inconvenience, with reduced footfall observed before, during and immediately after load shedding periods,” it said.

Last month, Pick n Pay said it had spent nearly R350m year-on-year on diesel to run generators in the first 10 months of its year in a bid to counter load shedding.

Its rival, Shoprite, in its operational update for the six months that ended January 1, 2023, last month also raised the spectre of load shedding. It said that to operate generators across its South African supermarkets’ store-base in order to trade uninterrupted during load shedding Stages 5 and 6, had amounted to R560m for the period.

This month, retailer Woolworths reported that the financial impact of load shedding on the group’s operating profit was R15m a month, amounting to R90m for the reported period.

Woolworths said most of the cost was incurred in its predominantly fresh food business, as a result of increased waste and diesel costs in its supply chain and stores.

Also this month, private hospital group Netcare said it had implemented uninterrupted power supply systems and had 200 back-up diesel generators. However, diesel costs increased by R41m in the period.

And in January, JSE-listed Astral Foods warned not only that it might have to resize and cuts jobs, but South Africa’s food safety was compromised, as poultry companies in South Africa were being slaughtered by high feed input costs, devastating levels of load shedding and the general decay of municipal infrastructure.

It expected its headline earnings per share to drop by 90% year on year to 142 cents.

– BUSINESS REPORT