PPC’s Zimbabwe business flourishes while South African, Botswana businesses flounder

Revenue growth in cement producer PPC’s South Africa and Botswana cement businesses was driven by price increases during the ten months ended January 31, positively offsetting the declining sales volumes experienced in the six months to September 30, 2023.

In an operational update issued on March 27, PPC said its overall group revenue increased by 27.6% for the ten- month period, although this was driven mainly by continued strong growth in its Zimbabwe operations relative to the low base in the comparable period in 2022.

The Zimbabwe operations achieved 22.1% yearon- year growth in revenue for the ten months under review. PPC reported that its earnings before interest, taxes, depreciation and amortisation ( Ebitda) margins had improved from 9.9% to 13.6% year- on- year. However, this was lower than the half- year Ebitda margin of 15.3%. The company attributed this decrease to lower South Africa cement margins, a weak performance in the materials business, one- off costs at a group level, as well as slightly lower Ebitda margins in the Zimbabwean operations.

Capital expenditure ( capex) for the group remains behind the guidance of R600- million for the full financial year, mainly owing to the delay of PPC’s fly ash project in Zimbabwe.

The company blamed this on a timing issue owing to a delay in accessing the power plant to complete the plant design and commercial contract. This is now expected to begin early in the 2025 financial year as opposed to the 2024 financial year, thereby delaying the benefits of this expansion project for about one year.

The South African and Botswana free cash flow, being net cash inflow before financing activities and excluding dividends from Zimbabwe, increased to R364- million in the current period from R242- million in the comparable period. The share repurchase programme reached the R200- million approved level during the first half of March.

Following the receipt of the proceeds from the disposal of Rwandan cement business Cimerwa, PPC’s South Africa and Botswana businesses turned cash positive, resulting in a net cash position of R280- million as at January 31.

PPC sold its 51% shareholding in Cimerwa on January 25 for a total selling price of $ 42.5- million. PPC received the full selling price and paid capital gains tax in Rwanda of $ 474 000 in February. It is expected that no further capital gains taxes will be payable in South Africa.

The approval by the Common Market for Eastern and Southern Africa Competition Commission, which was not required before the implementation of the transaction, is still expected to be received within 120 days of the effective date.

The Zimbabwe business continues to remain debt free, holding R95- million in unencumbered cash at the end of January. The group’s targeted gross leverage of 1.3 to 1.5 times the South Africa and Botswana operations’ Ebitda ( including dividends from Zimbabwe) remains unchanged.

In the period under review, PPC reports that its cement sales volumes in South Africa and Botswana decreased by 4% year- on- year. The year- on- year decline for the first half of the year up to September 30 was 5%.

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

Price increases implemented in July last year and in January offset the decline in volumes with the South Africa and Botswana cement business, increasing revenue by 6% in the current period compared to the 5% increase recorded at the half- year point.

Ebitda margins increased slightly from 10.7% to 11.4% over last year’s ten- month mark but are below the 12.6% reported at the half- year. However, PPC noted that the performance in the South Africa and Botswana cement market has deteriorated since the end of January.

PPC’s materials business comprises three distinctly different businesses, focusing on readymix concrete, aggregates and fly ash, respectively. The readymix concrete business was impacted by a lack of construction projects in the regions in which it operates, which negatively impacted volumes.

The aggregates business realised lower volumes in the depressed localised market it serves from its two quarries. However, the fly ash business continued to benefit from increased volumes owing to its diverse customer base.

The materials business saw a notable improvement in negative Ebitda, shifting from a negative R60- million a year ago to R7- million in the current period. PPC said this change was significant considering the positive R14- million Ebitda contribution at the half- year mark.

Despite price increases, the negative Ebitda was attributed to the substantial decrease in volumes across the readymix concrete and aggregates businesses, which declined even further compared to the half- year. However, the fly ash business Ebitda continued to show strong growth in the current period.

Meanwhile, cement volumes showed strong growth, increasing by 41% in the ten months to January 31, albeit slightly lower than the half- year growth of 44%, owing to the impact of the stronger base in the comparable prior period.

Growth continues to be as strong as a result of both residential construction and governmentfunded infrastructure projects, constrained imports and a low base a year ago owing to the extended shutdown.

Ebitda margins were 22% in the current period, reflecting a year- on- year improvement of 18% but lower than the 25% improvement recorded at the half- year point. This was mainly owing to the high cost of clinker imports as local production could not meet demand levels.

PPC Zimbabwe declared dividends of $ 4- million in July last year and then $ 7- million in the following November. The next dividend declaration is expected in July.

PPC says the short- term outlook for the South Africa and Botswana markets remains subdued, although the short- term outlook for PPC Zimbabwe remains positive.