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PPC suffers earnings setback from struggling SA cement market

PPC suffers earnings setback from struggling SA cement market

PPC, Southern Africa’s biggest cement group that recently restructured to get back into the black, expects to slump back into a headline loss per share in the six months to September 30, a performance indicating deteriorating conditions in the construction industry.

Cement & Concrete South Africa, an industry organisation, said the entire local cement and concrete industry is threatened by multiple challenges including economic decline, the crisis in construction including the prevalence of construction mafias, low investment confidence, little traction in infrastructure spending, cheap imports and environment-related issues.

“Some 35 000 local jobs are on the line, together with billions of rand investments in the sector’s long value chain,” the organisation’s CEO, Bryan Perrie, said yesterday.

In the ongoing negative impact of imported cement, Perrie said local cement production capacity was around 20 million tons, but the industry was only producing 12 million tons.

“In excess of one million tons of cement imports – equivalent to an entire cement plant – enters our market annually,” he said.

“With so much at stake, the sector is in discussions with the South African International Trade Administration Commission and the Department of Trade Industry and Competition to take positive action to prioritise its local cement industry,” he said.

PPC’s CEO, Roland van Wijnen, said in a trading statement PPC expected to report a headline loss per share of between 4 cents and 8c per share for the six months to September 30, compared to the 42c per share profit for the prior period.

Earning before interest, tax, depreciation and amortisation (Ebitda) fell 23% to R728 million after a 5% price increase implemented in South Africa and Botswana was not enough to offset rising input costs, especially fuel and energy which had increased at double-digit percentage terms, and margins shrank.

Cost mitigation initiatives were under way, but would take time to implement, Van Wijnen said.

He said, however, cash generation remained sound, and the deleveraging of the balance sheet had continued.

Trading conditions in its Zimbabwe and Rwanda (Cimerwa) operations were positive due to operational improvements and a solid market. PPC Zimbabwe was negatively impacted by a planned kiln shut down in the first quarter, but had since recovered and was experiencing robust demand.

“We are encouraged by recent announcements by Sanral to award large construction projects in South Africa, as well as the comments on increased infrastructure spending made in the recent Mid-Term Budget Speech by Finance Minister Enoch Godongwana,” Van Wijnen said.

In South Africa and Botswana, PPC’s sales volumes had increased in the coastal region due to stronger demand, but this was offset by difficult trading inland, leaving cement sales volumes slightly down overall by 2.6%.

Revenues from this region increased by 4%, assisted by price increases and product mix.

Cimerwa’s volumes increased by 11% and Ebitda increased 63% to R249m. Cimerwa also de-geared and ended the period with cash of R345m.

At PPC Zimbabwe – despite good demand from residential construction and government-funded infrastructure projects – volumes fell 13% due to the kiln shutdown and margins were hurt by the use of imported clinker, primarily from PPC South Africa, and higher maintenance costs.

Excluding PPC Zimbabwe, with its hyperinflation accounting adjustments, PPC’s Ebitda decreased by 12%. Group debt fell to R677m on September 30, from R1.01 billion in March.

The lower headline earnings were also impacted by hyperinflation in Zimbabwe, which saw a significant negative swing in the group income statement from a positive R440m in the prior period to a negative R206m.

Discontinued operations also had a negative R17m impact compared with a R153 million positive contribution in the prior period.

BUSINESS REPORT

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