DAVID SHAPIRO: Businesses battle to boost top-line revenue in flagging economy

A week ago, Momentum Group announced its interim earnings for the period ending December 31 2024, in which CEO Jeanette Marais expressed confidence in the company’s strong performance across all sectors. Normalised headline earnings surged by an impressive 44%, a result that pleased investors and triggered a 10% increase in the share price. 

Traditionally overshadowed by its more celebrated competitors — Sanlam, Old Mutual and Discovery — Momentum has seen its market value soar 60% over the past year, significantly outpacing these established peers. 

Much of Momentum’s current success can be credited to the dynamic leadership of Marais, who assumed the helm in August 2023. Her forward-thinking vision has revitalised and modernised the company’s systems and products, greatly enhancing the overall customer experience. The impressive earnings were bolstered by an improved underwriting performance, controlled cost management and substantial share buybacks. 

While there were advancements in several profit areas, a particular line in the commentary caught my attention: the group’s new business sales remained flat. This unassuming disclosure suggested that achieving top-line growth was becoming increasingly challenging. Notably, this sentiment wasn’t exclusive to Momentum; it reaffirmed a trend observed across several companies that recently announced their financial results. 

SA corporations are battling hard to boost their top-line revenues in an economy lacking growth drivers. For years unchecked corruption, high crime rates and administrative mismanagement — coupled with government’s ideologically motivated business policies — have led our economy downwards. The nation’s infrastructure is deteriorating while the unemployment rate remains one of the highest globally.

To remain operational, businesses are compelled to invest in preserving their existing facilities by diverting costly capital towards alternative power solutions, enhanced security measures and backup water supply, rather than pursuing new projects, constructing additional factories and expanding their workforce. 

So, it is not surprising to see consumer confidence sliding to concerning levels. The finance minister’s recent budget speech offered little to uplift the nation’s mood. Interest rates are still high, job prospects remain low, and the outlook for meaningful economic expansion is dim. 

No industry has been spared the consequences of our country’s sluggish growth. Heavy industrial and mining companies have experienced reduced demand and profitability because of unreliable power supply and inconsistent rail transport. Over the past decade capital formation in the country has diminished dramatically, leading to decreased demand for cement and steel.

Further, consumers have taken measures to cut spending and increase cash reserves, negatively affecting retailers and making it more challenging for financial institutions to sell life policies and other savings products. 

While introducing efficiencies, modernising processes and procedures and cutting costs can initially enhance profits, and even continue for a few years, this strategy has its limits. Over time businesses must focus on increasing their top line — expanding sales and volumes — to sustain growth. Without this vital push a company risks stagnation, ultimately diminishing its returns and investment appeal. And this can only be achieved in a healthy and energetic business environment. 

Yet the JSE is trading at record levels, mainly because of a spike in gold prices, concerns about potential shortages of platinum group metals and a surge in the stock price of Tencent, in which Prosus and Naspers have significant exposure. Outside of these major players local retailers and financial companies have performed poorly, reflecting investor unease about SA’s economic trajectory. 

To begin the process of rehabilitating our economy we first have to acknowledge our failures and recognise that we have squandered the international goodwill we earned three decades ago. We must undertake to govern responsibly and shift away from policies that prioritise political ideology over the urgent need to grow the economy and generate prosperity for all our citizens.

Unfortunately, it’s not going to happen overnight. 

• Shapiro is chief global equity strategist at Sasfin Wealth.