PPC planning for the long term

PPC planning for the long term
17 June 2016


South Africa's cement market expanded 7.7 per cent in 2015, but a more competitive environment including new entrants and imports has placed pressure on incumbents, not least the market leader PPC. The company is now facing short-term funding issues as it seeks to execute new projects in Ethiopia, DR Congo and Zimbabwe, but in the long term a more diversified portfolio will strengthen the company.

Updating shareholders this week, PPC reported that operating profits fell by three per cent and volumes slipped by one per cent to 2.61Mt in the six months to end of March 2016. Cost savings minimised the effects on group EBITDA, which was up two per cent to ZAR1.1bn (USD71.5m), while its aggregates and ready-mix divisions saw volume rises of seven per cent (1.4Mt) and 10 per cent (239,000t), respectively.

“We are pleased with the cost savings achieved across the business during this period. We have a deliberate approach to navigating the current economic landscape by driving cost efficiencies and leveraging our capabilities to achieve operational excellence,” said PPC CEO, Darryll Castle.

The real issue though is the liquidity of the company as it claims it needs to raise ZAR3-4bn with a proposed rights issue to repay some of its debts which have quickly accumulated, pulling its credit rating down.

Nevertheless, Darryll Castle is optimistic that things will soon improve: “PPC is fundamentally strong and profitable with a solid operating base."

“Our strategy to expand into a diverse pan-African player is starting to bear fruit as evidenced by CIMERWA’s positive contribution to group revenue.

“With a view to the long term, we are equally deliberate about getting the company future-ready to partner with and enable economies across Africa achieve their growth imperatives,” added Mr Castle.

Pan-African expansion

In terms of PPC’s pan-African expansion strategy, the company’s lack of liquidity is a hinderance. PPC may well look to increase its equity stake in Habesha Cement in Ethiopia, which is undergoing a 1.4Mta expansion programme due for completion in 2Q17, while it is expected to need start-up capital for its 1Mta cement plant in Kinshasa, DR Congo, which is expected to be commissioned by Sinoma International Engineering in January-February 2017. Before that, PPC will bring online its Harare grinding unit in Zimbabwe at the end of 2016.

However, the company’s planned expansion project in Algeria was “no longer being pursued” at this stage, a company spokesperson recently claimed. PPC has also recently sold its Afripack bagging subsidiary as well as its 6.75 per cent share holding in Ciments du Bourbon SA in Reunion.

Domestic cement market

In its home market, PPC saw lower cement sales in Gauteng and other inland provinces with competition in the market increasing, but North West province and the Gauteng construction and industrial segments were said to be more resilient. Coastal regions have also seen some volume growth in PPC sales due to a fall-off in imports. The Limpopo area was hard hit with double-digit volume declines. Selling prices for cement in South Africa declined by four per cent.

PPC has also been heavily investing in its South African facilities with ZAR350m on upgrading its 1Mta Slurry Line 9 in Johannesburg with the help of CBMI (Sinoma Group) as well as capex projects at Dwaalboom (raw mill and kiln baghouse and tyre feeding system) and De Hoek (gearbox, filter and separated installations).

Published under Cement News