THERE is a growing fear deep down the passages of stockbrokers’ research departments that, soon, companies they have advised clients to buy will again face crippling strikes.
A host of companies — across numerous sectors — have recently released appalling preliminary results, which showed some pre-tax profits falling by nearly 80 percent.
Heading the list is Boymans with a 76 percent drop, followed by electronics company Supalek Holdings (68 percent), Sappi (61 percent), Amrel (39 percent) and M-Net (24 percent).
Poor results do not, in themselves, represent anything new or astonishing. The years of disinvestment and trade embargoes, coupled to violence, political instability and social unrest encountered prior to elections, have made most South Africans almost immune to bad news.
However, analysts are concerned that, despite an economic recovery, these figures identify an underlying problem which could see a return to labour unrest through strikes, stayaways and go-slows. They point at the present labour unrest at Pick ‘n Pay as an example.
The crux of the problem is centered on share incentive schemes. In the late 1980s a number of companies offered labour unions the option of such a scheme in place of exorbitant wage increases. While wary of white bosses, the successful privatisation and listing of Iscor showed that many unions nevertheless took up the offers. The unions were, in turn, expected to explain to the employees how these share schemes operated.
Says Keith Bright, analyst at Cape-based fund managers Foord & Meintjes: “The mechanism of dividend payments was explained as simply as possible to employees. While most have a functional level of reading and writing skills, their financial acumen is nil.”
The poor results, however, mean minimal dividends will be paid and the unions now have a highly dissatisfied labour force. To save face, the unions are expected to point fingers at the companies and threaten industrial action.
A Cape-based financial institution director says: “In some instances, companies were trying to bribe staff with shares. It would have been better to introduce bonuses based on personal and group productivity performance, rather than trying to explain the in-and-outs of buying shares.”
Says another: “It is sad that share incentive schemes were mooted when company profits were solid.” She adds: “Now that it has turned sour, companies have to face the music.”
Another analyst agrees that it all “boils down to education”. Companies which took the time to explain schemes to their employees should not experience labour unrest, but those that left it to the unions may face a barrage.
It is important for investors to identify which sectors could be hardest hit by increased industrial action. Once these sectors have been noted, it would be wise for investors to lighten share holdings — for at least the short term.
In analysing companies which have recently produced poor results the following was noted: The industrial index has more than doubled to 6 200 points since 1990’s 3 000 points and shows not all companies have been negatively affected. It is necessary to first identify the type of company which could see high labour unrest.
Analysts generally believe that, since the start of the economic upswing, companies to first benefit will be those that are consumer based.
In tandem with increased turnover levels, improved profit margins and generally better results, employees will receive higher dividends and labour relations should remain calm. However, the heavier industrial companies are not in the same position.
“Engineering, building and construction companies have seen debt levels rising to the extent that there is no light at the end of the tunnel for at least another 12 months,” says an analyst and director of a Johannesburg-based stockbrokers.
He points out that it will take time for government to implement its Reconstruction and Development Programme and that, until then, there will be minimal infrastructural development.
To make matters worse, analysts say many of these companies have already foreseen labour problems and are trying to mechanise their way out of trouble.