PPC bolstered by buoyancy in Rwanda amid muted SA market
• Local demand is expected to remain subdued
SA’s largest cement maker, PPC, says that without a significant rise in infrastructure spending and tangible action against imports, SA’s cement demand is expected to remain subdued.
The Johannesburg-based construction and materials group reported cement sales volumes in SA and Botswana were down 2.6% in the half-year to September. Conversely, cement sales volumes increased by 11% for Cimerwa in Rwanda.
“The SA market is muted, especially inland where there is the heaviest competition,” CEO Roland van Wijnen said.
The dip in SA is because of waning demand in the competitive region, while aboveaverage seasonal rainfall reduced construction activity against a subdued macroeconomic backdrop, with the slow rollout of government infrastructure projects impeding the environment further.
“On the contrary, we look at Rwanda and there we were able to protect margins and actually increase them slightly. So you see a very different market dynamic,” the CEO said.
According to PPC, increased demand from governmentsponsored infrastructure projects in Rwanda and a resurgence in general building activity assisted Cimerwa.
PPC, which has historically called for protection against cement imports, called for the faster rollout of government infrastructure projects, saying it is well positioned to cover an increase in demand, with additional capacity available to capture an upswing without the need for additional capital expenditure.
For the six months to endSeptember, PPC SA and Botswana saw earnings before interest, tax, depreciation and amortisation (ebitda) fall 29% to R368m, with a margin of 12.2%. Despite this lull, the group managed to service some of its debt for those two territories, from R1.075bn in March to R935m by the end of September.
During the six months PPC increased selling prices by 5% on average. However, this was insufficient to fully recoup the higher fuel and energy costs, keeping ebitda margins under pressure.
Van Wijnen said that because the company could not adequately increase prices to compensate for market changes, cementers like PPC were feeling the pressure of high input costs.
“So basically, cement prices now in SA are probably about 50% below where they should be to have a sustainable market,” he said.
IMPORTS
This was notwithstanding a fall in cement imports reported by PPC, particularly in the coastal regions, where global supply chain constraints disrupted imports thereby benefiting PPC. This, coupled with a weaker rand, positively affected PPC’s retail sales volumes.
In the face of increasing supply chain disruption, Van Wijnen said the group moved to optimise its high distribution costs by moving more volume on the same route and using alternative energy sources to achieve the heat intensity required for operations at its kilns.
‘CEMENT PRICES NOW IN SA ARE PROBABLY ABOUT 50% BELOW WHERE THEY SHOULD BE TO HAVE A SUSTAINABLE MARKET’
Outlining that coal was among the biggest costs, the CEO said PPC had looked to reduce dependence on the highcost fossil fuel. “We have successfully introduced another type of fuel in our plants that is a waste product from the coal industry ,” he said.
The company had increased the use of tyre burning as an alternative energy source..
Despite the hyperinflationary environment that prevails in SA’s neighbouring state, the group is staying put in cashflush Zimbabwe. PPC Zimbabwe continued to generate good cash returns, paying out $4.4m in dividends to the group during the half year. PPC Zimbabwe expects a further recovery in the rest of the financial year.
The company’s share price fell 3.07% to R2.21 at close of trade on Monday.