PPC faces contrasting outlook in SA and Zimbabwe

PPC Cement bags on conveyor at PPC De Hoek Western Cape. Picture: Supplied

PPC Cement bags on conveyor at PPC De Hoek Western Cape. Picture: Supplied

Published Mar 28, 2024


CEMENT manufacturer PPC faces contrasting fortunes in its home and regional markets, with its South African outlook remaining subdued against positive prospects from its debt free Zimbabwe operations, with earnings before interest, tax, depreciation and amortisation (Ebitda) improving to 13.6% in the 10 month period to the end of January.

In January, PPC disposed of its 51% shareholding in the Rwandan Cimerwa business. The controlling stake was sold for $42.5 million (R807m) and the company is now awaiting approvals for the deal from the Common Market for Eastern and Southern Africa Competition Commission after paying $474 000 in capital gains tax to the Rwandan government.

In South Africa as well as in Botswana, PPC said in a trading update yesterday, the outlook for the next few months remained less rosy, sharply contrasting the expected fortunes from its Zimbabwe unit.

“The short-term outlook for the South African and Botswana markets remains subdued. The short-term outlook for PPC Zimbabwe remains positive,” said PPC.

In the 10-month period under review, PPC’s South African and Botswana operations’ sales volumes decreased by 4% compared to the previous period.

“Sales volumes in the coastal region experienced a sharper decline than in the inland region, mainly due to a weaker retail market and a lack of infrastructure projects in the area,” the company said.

PPC had effected price increases in these markets, helping to offset the decline, with revenues for the South Africa and Botswana cement businesses raising revenues by 6% during the period under review.

Despite this, “the performance in the South Africa and Botswana cement market has deteriorated since the end” of the review period. This was after Ebitda margins marginally increased from 10.7% to 11.4% against the 12.6% level reported at the half year period.

Strong growth in PPC’s Zimbabwe operation drove up overall revenues by 27.6% for the 10-month period under review “relative to the low base” in the comparable period. Shares in PPC rose 4.27% to R3.42 in the afternoon session of the JSE yesterday.

Despite its higher revenue performance, PPC has delayed expansion capital expenditure for the Zimbabwe unit - which declared dividends of $4m in July 2023 and $7m in November 2023 - by one year. This held back capital expenditure for the group behind the guidance of R600m for the full financial year.

Cement volumes for PPC Zimbabwe grew by 41% in the 10-month period to January 31, 2024, although being slightly lower than the half-year growth of 44%. This was due to the impact of a stronger base in the comparable period. Nonetheless, growth was set to continue on a strong trajectory because of an uptick in residential construction and government funded infrastructure projects and constrained cement product imports.

“Zimbabwe continues to remain debt free and held R95 million in unencumbered cash at 31 January 2024. The Group’s targeted gross leverage of 1.3 to 1.5 times the South African and Botswana operations Ebitda including dividends from Zimbabwe remains unchanged,” PPC said.

PPC’s new executive committee announced in January is now comprehensively reviewing PPC’s operations to deepen its agility and resilience to the challenging South African macroeconomic context. South African companies have been hobbled by rising inflation and elevated interest rates that are impacting on consumer purchasing power. There has also been a general slowdown in construction projects in South Africa, say analysts.

New key focus areas for PPC include optimisation of its structure, processes and controls and refocusing of the business on contribution margin through an assessment of the South African businesses commercial footprint.

The company’s executive committee is also geared to reduce PPC’s fixed operational and overhead costs. This will, however, require improvements to PPC’s internal management reporting systems to better support its commercial and operational decision-making.

“The board has targeted achieving a sustainable return on capital for its South African and Botswana business in the medium-term,” the company said in its trading update.

“PPC intends to increase engagement with regulators and other key market stakeholders as a commitment to developing a sustainable cement industry in South Africa through creating a level playing field among local, regional and international competitors on key issues such as imported cement and low quality standard products,” the company said.