Security, Manpower and Technological requirements are, generally speaking, factors which contribute significantly towards any Company’s annual overhead. Furthermore, a major driving factor in generating our corporate sales is the Capex budget that has been approved for the financial year in question by our end users. However, the very real influence of capital depreciation inevitably and directly associated with capital expenditure, is a significant item on any company’s Income Statement. Postponing capital expenditure pending a general turnaround in the economy makes for prudent financial management, and there is little doubt that this is a tactic being employed more regularly by companies on a national scale. An inevitable result of the aforegoing is that we are unlikely to see as many projects approved this year as was the case last year, and the situation is unlikely to improve until such time as a significant turnaround in the economy takes place.

 

Following on the above, it stands to reason that Companies with a significant need for electronic security products will focus primarily on the maintenance and minimal upgrading of existing equipment (as opposed to investment in new product) in order to meet their immediate security requirements. It may be argued further that since the Rand has been over-robust in recent times, there has been the inevitable recent weakening of the currency to a more realistic level against the major currencies, and this trend is likely to continue for the balance of the year. The result of this weakening is the higher cost of imports, which is already resulting in higher costs being passed onto the consumer, and the subsequent weakening of demand. I am of the firm opinion that this is a time where only the fittest will survive. Survival will entail prudent financial management across the board, with the emphasis on managing overheads, being conservative on Capex expenditure, being ever cautious on extending credit, and cherry-picking customers and projects as and when the opportunities may present themselves.

 

That having been said, the security industry in South Africa is not all going to be one-way traffic. As a resourced-based economy, it is not only our mining industry that faces an uncertain future - all satellite businesses associated with this industry, as well as the people employed by such businesses, are being directly affected. As a result of significantly higher unemployment levels, crime will not decrease in the near future, it will increase, and there are no significant factors on the immediate horizon to suggest otherwise, or to provide hope for any immediate improvement. The increase in illegal immigration from our Northern neighbours serves only to exacerbate this situation. However, and quite ironically, these circumstances all suggest a renewed demand for increased security. This demand, coupled to the fact that Government is firmly committed to infra-structure spend on numerous projects such as the Gautrain Project, the 2010 Soccer World Cup, Airport, Hospital, Highway and other infrastructure upgrades, all point to increased opportunities in the industry.

 

To put it into a nutshell: It would appear that there may be a significant shift in the sales mix (towards buying down), but there is not necessarily an overall drop in demand.