PPC share price takes a tumble on muted outlook amid rising production costs
CEMENT producer PPC’s shares tumbled 4.2 percent after it said that without a significant increase in infrastructure investments, cement demand in South Africa was expected to remain subdued.
PPC clarified in a presentation to RMB Morgan Stanley, released on Wednesday, that it estimated domestic cement demand growth of 2.5 percent a year.
This as the average selling price of cement increased by 5 percent during the five months to August 31, 2022.
This was insufficient to fully offset the impact of input cost inflation as the cash cost of sales increased by low double digits in percentage terms, the firm said.
“PPC will continue its efforts to counter input price inflation through price adjustments, operational efficiencies and improved industrial performance,” the group said.
It also planned to focus on optimising its core southern African assets while managing its geographical footprint.
In its RMB Morgan Stanley presentation, PPC also said that assuming the government imposed tariffs on imports, then it forecast a potential demand upside of an additional 2.5 percent a year.
However, it noted that if 10 percent of the R595 billion strategic infrastructure projects were implemented, it could translate to additional demand growth of 4 percent a year.
The share has generally been on the back foot amid a weak economy. By 11am the share was at R2.51, yearto-date, having tumbled 48.53 percent and down 58.01 percent in five years.
Coming off a relatively high earnings before interest, taxes, depreciation, and amortisation (Ebitda) base in the first half of full year 2022, PPC said it continued to prioritise cash generation by optimising net working capital and adhering to stringent capital allocation.
This contributed to South Africa and Botswana’s gross debt decreasing from R1.2bn on March 31, 2022, to R1bn on August 31, 2022.
Revenues, excluding Zimbabwe, increased by 9 percent, driven by robust demand in Rwanda.
Cement sales volumes, including Zimbabwe, were in line with the previous comparable period as subdued demand in South Africa and the impact of a maintenance-related kiln shutdown in Zimbabwe were offset by robust demand growth in Rwanda.
Cement sales volumes in South Africa and Botswana decreased by 1 percent period-on-period.
Cement sales volumes in the inland region decreased after experiencing a slow start to full year 2023, offsetting the high single-digit demand growth in the coastal areas.
In Zimbabwe, the cement market continued to show robust high single-digit growth as a result of both residential construction and government-funded infrastructure projects. It recorded a 7 percent decline in cement sales volumes period-on-period.
However, the resumption of clinker manufacturing by PPC Zimbabwe at the end of May enabled improved sales volumes in the second quarter of full year 2023.
PPC Zimbabwe implemented US dollar price increases of 5 percent in March, 2 percent in April and a further 5 percent increase in August.
PPC noted increased availability of foreign currency in the Zimbabwean economy, with more than 70 percent of cement sales during the period under review occurring in foreign currency.
PPC received a $4.4 million (R76m) dividend in June and anticipated an additional dividend to be declared upon the publication of PPC Zimbabwe’s interim results in November.
In Rwanda, Cimerwa continued to see strong demand for cement in all its markets, with cement sales volumes increasing by 16 percent period-on-period for the five months ended August.
Looking ahead, PPC said given the current economic climate, the group would continue to enhance operational efficiencies to mitigate the impact of rising input cost inflation.
“PPC South Africa is well positioned to benefit from an increase in cement demand with additional capacity available to capture an upswing in demand without additional capex (capital expenditure) investment required. PPC Zimbabwe anticipates a recovery for the balance of the financial year and the outlook for Cimerwa remains positive,” it said.