South Africa’s Pretoria Portland Cement (PPC) reported domestic cement demand continued to grow at double digit levels and is evidence of the  strong growth in the South African economy. Increased investment in public-sector infrastructure is materialising rapidly and is likely to offset any slowdown in the rate of growth in the residential building sector following the  continued rise in interest rates. 
                                         
Group revenue increased by 19% to R2,6 billion whilst operating profit rose 15% to R987million. In spite of some margin leverage on increased sales, operating margins decreased slightly due to four reasons:                                                
- the importation and sale of almost 200 000 tons of bagged Surebuild cement at little or no margin                                                         
- significant increases in diesel and coal energy costs                      
- the higher cost of operating older less efficient plant as full capacity is reached                                                                     
- the inability to fully optimise distribution logistics and factory sourcing at
periods of very high demand.
                                                
A reduction in the effective normal taxation rate was partly offset by an increased secondary tax on companies (STC) charge on the higher dividends paid in January 2007.
                                                            
Headline earnings per share improved 17% on the prior year. Capital expenditure amounted to R372 million (2006: R188 million) and related mainly to the Dwaalboom Batsweledi project and completion of the Jupiter recommissioning project. Expansion project cash outflows should approximate R500million for the second half of the financial year.                           

Barloworld anticipates releasing shortly the salient dates relating to the finalisation of the unbundling of its shareholding in PPC.                   
The broad-based black economic empowerment (BBBEE) sub-committee has commenced detailed negotiations with the strategic partners who are likely to participate in the company’s broad-based black equity transaction. The empowerment transaction once complete, will incorporate these strategic partners as well as construction sector associations, employees, and members of the communities in which the company operates, and will effectively place 15% of the company’s  equity in the hands of black people. 

Funding for the transaction will incorporate a combination of owner equity, third party institutional loans and vendor facilitation by PPC. The company plans completing the transaction by about the end of the current financial year.                                 
                                                
The South African domestic cement market grew by over 12% compared with the same period last year. The Botswana market has shown signs of recovery from the  depressed conditions of the past few years, registering growth of close to 9% for the same period.                                                         
During this period all kilns were fully operational. Local and export demand was supplemented with imported Surebuild cement sourced from Zimbabwe and overseas. In addition, clinker was railed from Porthold in Zimbabwe to assist with local  production requirements. The 1,25 million ton Batsweledi (Dwaalboom new kiln) project is progressing according to plan and within budget. Orders for the Hercules Pretoria cement mill upgrade and expansion project have been placed and the project is expected
to be commissioned in the middle of calendar 2009.     
                                                                
Lime volumes and margins improved for the period under review following the recovery in the world steel markets. Aggregate volumes reflected strong growth in the Gauteng market in contrast to Botswana where flat market conditions constrained both aggregate and ready mix volumes. Overall profitability compared to the prior year was substantially improved.                                                                    

                                                           
The significant investment in infrastructure planned by Government and Public  Enterprises, together with the recent award of a number of projects related to the 2010 Soccer World Cup, bodes well for industry cement demand which is expected to grow at current levels for the remainder of the financial year.  

Due to the expected growth in the inland market demand, the Jupiter kiln is likely to continue operation after commissioning of the new Batsweledi kiln line early next year and will continue to provide further cement capacity to the market. The increased cost of sourcing product and clinker, both internally and  externally, will continue to impact on the rate of earnings growth achievable  until the additional capacity from the current expansion projects in progress becomes available. Progress is being made on the planning and design of the 1.25Mta Riebeeck expansion and modernisation project which will be subject to authorisation in terms of the Environmental Impact Assessment  requirements.                                                                

The company should continue to report a good performance and strong operating cash flows for the full year.           
Published under Cement News