Continued growth in domestic cement volumes and improved operational efficiencies helped Pretoria Portland Cement Company Ltd (PPC) post a 25% growth in operating profit to R646.9-million in the six months to March 2005 (Mar 2004: R517.2-million). The growth in the domestic cement demand has been driven by the upswing in residential construction on the back of lower interest rates. These volumes together with price increases, excellent cost reductions and improved operational efficiencies in all the divisions were the driving factors of PPC"s operating profit growth.
South African cement volumes increased by 10% and all provinces have shown steady growth, other than the Eastern Cape which reflected the anticipated tapering off of volumes supplied to the Ngqura Harbour project. Group revenue improved by 11% to R1,8-billion (Mar 2004: R1,63-billion) primarily as a result of the increased cement volumes. Export volumes were lower, curtailed by the strength of the Rand as well as capacity constraints at Spoornet.
"The strong growth in the local market, which was higher than we anticipated, has more than compensated for the decline experienced in the export markets," said John Gomersall, chief executive officer of PPC.
While PPC has announced its planning and scoping of a 1Mta expansion programme for the inland market, the Board has approved capital expenditure of R50-million to recommission the 550 000tpa Jupiter plant in Germiston. "For this limited amount of capital expenditure, we will provide the market with additional security of supply over the two and a half year construction and commissioning period of our new expansion project," said Gomersall.
Increased cement demand has created the necessity for some of the older kiln production units at PPC Cement to be recommissioned. "These kilns are less efficient, and whilst they cannot be run cost effectively over a sustainable period, they are fully depreciated and therefore reflect further improvement in the cement operating margin," continued Gomersall.
The Packaging division experienced strong demand for cement sacks and reported a 30% improvement in operating profit at R18.1-million. "We are very pleased with this great performance in the first interim reporting period of our BEE joint venture in Afripack with the women executives and shareholders of Nozala Investments," continued Gomersall.
Commenting on PPC"s prospects going forward Gomersall said: "There is renewed optimism in the construction industry, which is driven mainly by Government"s commitment to increase infrastructural investment. This combined with buoyant economic forecasts and business confidence will impact positively on cement demand. We would caution though that demand may be tempered by shortages of other building materials and skills in the industry, nevertheless we believe that cement demand could grow by between 8% and 10% for our financial year."