PPC regains its strength
This week, PPC Ltd has announced that possible price rises could be a feature of its strategy in South Africa heading into 2019. The news follows the company's reports of a solid set of half-year results for the period ended 30 September 2018 that saw revenues up eight per cent.
While
PPC has assessed the current domestic market as 'under pressure' due to weak consumer demand and a construction industry that is in 'distress', Johan Claassen, PPC's CEO, believes that now is the time to pass on some of the higher overhead costs.
The African cement producer has also seen the variable cost of sales rise by four per cent in this period and fixed costs have risen due to the Slurry Kiln 9 (SK9) project depreciation, Safika Cement integration costs and timing of maintenance activities. Fuel increases have also raised costs for outbound logistics.
However, a brighter trend for PPC has been to see inland demand improving, although drought and imports affected the Western Cape market. PPC estimates that total South African cement deliveries fell by 5-6 per cent in 1H18.
Challenges
South African cement producers, such as PPC, are currently facing the challenge of increasing import volumes. Imports have increased by approximately 191,000t YoY with the Western Cape seeing a rise of around 26,000t YoY. The majority of imports have been shipped from China, Pakistan and Vietnam. Durban and Port Elizabeth were the main points of entry while there were also some significant shipments into Cape Town.
Prices and value have also been eroded by an additional 1.6Mt of blended cement into the market, according to PPC. To address this, the cement producer has enhanced its product portfolio with the launch of its SURE reange in August 2018.
In the next 12-18 months, PPC plans to raise profitability to ZAR70/t by driving plant efficiencies, fully integrating the Safika Cement business and forming strategic partnerships. In addition, it anticipates the K9 project to realise its planned benefits, implement a three mega-plant strategy and mothball Kiln No 4 at its Port Elizabeth plant. Futhermore, all mega-plants and particularly Western Cape, are expected to improve alternative fuel use.
Mr Claassen said, "We have produced resilient results by navigating through extremely challenging trading conditions. Our diversified portfolio has enabled us to offset the weaker South African performance with robust growth in our rest of Africa segment.
"Looking forward, we have raised our profitability initiatives to ZAR70/t and will implement price increases to achieve sustainable return in excess of the group’s cost of capital."
Rest of Africa
PPC’s rest of Africa markets have performed much better than the domestic scene. "We are very pleased with our rest of Africa operations which grew volumes by over 34 per cent, increased revenues by 36 per cent to ZAR1.7bn and improved EBITDA by 18 per cent to ZAR499m. This performance was supported by robust volume growth in Zimbabwe and a positive contribution from the DR Congo.
“The first phase of our CIMERWA plant upgrade in Rwanda, which entailed debottlenecking our plant to increase production capacity was successfully completed during the period. Pleasingly, we began to realise the benefits towards the end of the period when record volumes were achieved," added Mr Claassen.
Outlook
"We expect trading conditions in South Africa and the DR Congo to remain difficult. However, we should benefit from a steady performance in Zimbabwe, improved output from CIMWERA and stable political environments in Ethiopia, while the DR Congo elections are a key milestone to unlock latent infrastructure demand," said Mr Claassen.
Mr Claassen has also stated that he is looking to retire when the company finds a new CEO.
