South Africa’s Pretoria Portland Cement reported a 38 per cent drop in first-half earnings on Tuesday, hit by continued weakness in the country’s construction industry.
PPC said revenues were down five per cent to ZAR3.3bn (US$473m) and selling price increases that were less than the rate of cost inflation. Headline earnings per share fell to 71.3 cents in the six months to end-March, compared with 114.3 cents a year earlier.
Paul Stuiver, CEO, said: “These results are a reflection of the difficult business environment in the local building and construction industry. The first half of our financial year has been impacted by lower cement demand, pressure on selling prices and considerable input cost inflation. Apart from our usual focus on operational costs and efficiencies, we have taken steps to curb overhead expenditure. The company remains in a good cash generative position and is well placed to benefit from a recovery in cement demand.”
PPC’s total cement volumes declined by 7% for the period, higher than the national average of four per cent. Cement demand in the Western and Eastern Cape regions remained the worst affected. Inland regions were less affected with some rural areas recording slight increases in sales volume over the previous year. Sales volumes in Botswana were at similar levels to last year. As a result of its high exposure to the Western and Eastern Cape regions, PPC’s overall cement sales in South Africa declined by slightly more than the national average.
High input cost inflation, especially in energy prices and the cost of transport remained a concern and was given priority focus at both an operational and strategic level. Capital expenditure plans were reviewed and reduced in line with lower capacity requirements.
Over-capacity in the South African cement industry occasioned by the lower demand has resulted in an even more competitive market with increased pressure on cement selling prices which prevented full recovery of increasing input costs..
In terms of moderisation of its Western Cape factories, civil construction has commenced at the De Hoek factory and detailed proposals for the upgrade of the Riebeeck factory were invited from potential suppliers. The environmental impact assessment for the Riebeeck factory is progressing according to schedule.
PPC Zimbabwe’s domestic sales increased by almost 20%. Operating performance was hampered by production problems at the Colleen Bawn factory and significant price inflation of key items during the early part of the reporting period. Improvements in operational performance and selling prices were achieved by PPC Zimbabwe during the latter part of the reporting period.
Exports to neighbouring countries remain challenging and volumes decreased by 35%.
Looking ahead, management expects that challenging trading conditions will continue
for the remainder of the year. Although year to date cement demand is currently negative, the rate of decline has been slowing and recent month to month cement volume comparisons suggest that overall South African industry volumes for 2011 could be similar to 2010.