PPC reports decline in profit despite revenue uptick

A ‘resilient performance’ despite challenging trading conditions. South Africa is and will remain the engine for PPC: Roland van Wijnen, CEO, PPC.

FIFI PETERS: We had results coming out of PPC earlier today, and they are an important company. They are one of South Africa’s largest – if not the largest – cement players. They’ve been making good strides in terms of turning their fortunes around. One of the biggest headaches they had for some time was debt. It was over R6 billion at one stage, and they’ve brought it down considerably.

Profits this time around were not the best. Inflation issues, hyperinflation issues in Zimbabwe, were a big problem for the company. In fact Zimbabwe was quite responsible for increasing their revenues, so Zimbabwe had a positive role to play in that regard. But also hyperinflation in that country at 85% led to a significant erosion of its profits, as well as the significant depreciation in the Zimbabwe dollar.

My colleague, managing editor Ryk van Niekerk, spoke with CEO Roland van Wijnen for more on the results.

RYK VAN NIEKERK: PPC is the largest cement producer in South Africa and the company reported full-year results today. These were for the 12 months to the end of March, and during this period the group’s revenues rose by 11% to R9.9 billion. The group’s headline earnings per share came in at minus 3 cents. That follows a 3%-plus performance last year. But the group had very, very strong cash flows and the group’s net debt reduced from R2.2 billion to R1 billion. The board did not declare a dividend.

Roland van Wijnen is on the line. He’s the chief executive. Roland, thank you so much for joining me. It seems like it was a difficult year for PPC, and you may have battled a lot with rising input costs. How would you summarise the year?

ROLAND VAN WIJNEN: Thank you, Ryk. It’s a different story a little bit in a different market. In Zimbabwe and Rwanda strong volume growth, as we expected. In South Africa muted growth, also as we expected. Of course the growth normally is what’s in line with what is happening in the economy. Inflation across all our input costs in all our countries, you’re absolutely right. Despite that, thanks to the cost-mitigation measures and to some extent also price increases, the cash generation, as you indicated, was actually strong. So we speak about the resilient performance despite challenging trading conditions.

RYK VAN NIEKERK: How significant is the South African contribution to the group’s earnings?

ROLAND VAN WIJNEN: It’s an important portion of it. More than half of our revenue is coming out of South Africa. The same for our Ebitda [earnings before interest, taxes, depreciation and amortisation]. So more than half of our Ebitda is coming out of South Africa. So South Africa is and will remain the engine for PPC.

RYK VAN NIEKERK: The government has announced on several occasions that it will focus on infrastructure investment to try and boost the economy. Of course I think in every single infrastructure project you use a huge amount of cement. Have you seen any increase in demand flowing from government’s infrastructure plans?

ROLAND VAN WIJNEN: I wouldn’t say that we have seen in South Africa any meaningful increase in demand from government projects, the large government projects. What is positive for us, though, is that what we see at the local municipality level; there actually smaller projects are happening. But the large infrastructure projects that we’re all hoping for and waiting for, and which are sitting in the tenders that the construction companies speak about, still have to filter down to the cement industry.

RYK VAN NIEKERK: Government also announced that local infrastructure projects should use only locally produced cement. Of course, PPC is the largest producer of cement in the country. What do you think of that announcement? And do you think it’ll make a meaningful impact on local producers like yourselves?

ROLAND VAN WIJNEN: As you mentioned, when this was announced I think it’s fantastic that the government has recognised that the use of local cement is important. The real question is of course: how are you actually going to implement that? You also know that you’re not supposed to drive through a red robot – [but] people still do it. So if there are no consequences and no maintaining of that law, then it has no meaningful impact.

So far we see that the impact is limited because there are limited large infrastructure projects, and maintaining that same law is going to be difficult. What we are pleading for is still a general protection from the dumping that we see happening from various countries in the world – [which] bring cement into the country and destroy employment.

RYK VAN NIEKERK: How much of the cement we use in South Africa is imported?

ROLAND VAN WIJNEN: If we look at it, it’s about 1.4 million metric tonnes. That is the equivalent of a full cement plant that employs hundreds of people directly and thousands indirectly.

RYK VAN NIEKERK: Twenty percent, 30%?

ROLAND VAN WIJNEN: It’s 10% of the total market, approximately.

RYK VAN NIEKERK: And that 10% can have an influence on the pricing in South Africa. Is it significant enough to have such a big impact?

ROLAND VAN WIJNEN: Well, it sets the prices, of course. It’s not the only driver of prices in the market, but it will set the market there when it lands. As I said before, in our opinion it’s a clear case of dumping, which we would like the government to investigate.

RYK VAN NIEKERK: Would that have an impact on pricing?

ROLAND VAN WIJNEN: It will not have an impact on pricing directly. Pricing is largely determined by input factors – electricity going up, coal going up, fuel going up or going down. It works in both directions. There is so much capacity in the South African market that the price is set actually by low competition, so in that sense I’m not so concerned.

The key thing for me is actually the availability of the product. The moment the country becomes too dependent on imports – those inputs come and go, depending on availability in offshore locations – I think that is the key thing, plus the employment that I mentioned before.

RYK VAN NIEKERK: Your revenues rose by 11%. How much of that comes from price inflation?

ROLAND VAN WIJNEN: If we look at South Africa – let’s make it as the main engine – we were confronted with a 9% cost increase of our input cost. We managed to reduce that by 6%, thanks to efficiency measures, and we increased prices by 5%. So for our South African cement the revenue increase is 5% driven by price and 1% by volume.

RYK VAN NIEKERK: And the new financial year? It seems as if PPC is sorting out the balance sheet, and obviously that allows you to take you head out from under the hood and look at new strategic opportunities. What do you expect for the new year?

ROLAND VAN WIJNEN: It does, and I’m happy to say that we have now restored – this is past tense – our balance sheet. So that is in order. It allows us, if we continue to generate the cash amounts that we have generated in the last financial year, to rethink about dividends as one of our priorities, and secondly to invest in decarbonisation of our of our cement-issue products.

RYK VAN NIEKERK: Roland, thank you so much for your time today. That was Roland van Wijnen, the chief executive of PPC.

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