FIFI PETERS: South Africa’s biggest cement maker, PPC, says the government’s decision to classify locally made cement as a designated product will have a positive impact on the cement industry. The decision means that only locally made cement can be used for government projects, and not imported cement. In the past large volumes of cheaper imports coming from other countries like Pakistan have made it quite difficult for local players to grow and make a profit.
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We do have PPC CEO Roland van Wijnen joining the Market Update. Roland, thanks so much for your time. Just give us a sense of how much of a game-changer this decision by government will be for your industry.
ROLAND VAN WIJNEN: Fifi, for us the first and foremost importance for the industry is that it is a clear signal from the government of South Africa that they take local manufacturing seriously. That for us is a major step forward because we have made a point that dumping cement on the shores of South Africa is destroying not only employment, but also tax revenues, as well as the contributions that the cement industry makes to the communities in which we operate.
How much it will mean in terms of sales – that is yet to be seen. It depends on the enforcement of the legislation as well as on the amount of infrastructure projects. Of course we will have to see how the imports might find a way now more into the retail segment. For us the most important element is that it demonstrates the goodwill and the better relationships between government and industry to rebuild South Africa’s economy.
FIFI PETERS: What’s the situation around imports looking like presently, Roland? How much of the market do they occupy?
ROLAND VAN WIJNEN: They still occupy, if you look at it on an annualised basis, about 1.3 million tonnes, which is the equivalent of one full integrated cement factory. If you think about debt, and the employment that it creates, and the contributions that are not being made to the communities in South Africa but are now being made to the communities in Vietnam, as a global citizen I must say wherever there is positive development, it’s great. As a temporary resident in this beautiful country it pains me to see that we’re not properly educating and developing South Africa.
FIFI PETERS: You said something about it ‘remains to be seen’ exactly what the full impact will be, whether other countries will find other avenues to allow or get the cement in South Africa. With Covid-19 and the disruptions to the supply chain, and the difficulty of getting product out as well as in, has this had a positive impact on the level of imports in the country?
ROLAND VAN WIJNEN: No, we still see that the imports are coming into the country, so the disruptions of the supply chain haven’t had a major impact. Costs have gone slightly up, so we have seen that importers have increased their prices. But since this is dumping, there is still a lot of head room for importers to make money.
We have successfully managed our cost base, but we are sitting on almost two million tonnes of spare capacity – just PPC – that we would love to bring into the market to further the economy.
FIFI PETERS: Talking about cost increases, I see that you also increased your costs, Roland, in the past year by 9.2%. A question that will now arise is that the industry has a lot more protection from government. Will there not be a temptation to increase prices because of reduced competition?
ROLAND VAN WIJNEN: The competition is intense. We don’t need imports to have more intense competition. Actually if we can add more capacity to the local industry, you can do more volumes with similar fixed costs. So you can actually mitigate part of that cost impact and, in my view, limit the amount of price increases that are needed in the market. So I look at it from another angle.
FIFI PETERS: You say you are sitting on around two million tonnes or so of cement that is looking for a home in South Africa. At the same time South Africa is announcing massive plans to spend on infrastructure, to rebuild the economy, particularly [after] Covid. Have you seen any traction on government’s plans for infrastructure that you participating in?
ROLAND VAN WIJNEN: Yes, we definitely see traction. We’re not yet seeing it in our volumes, but if we talk to our customers and if you follow companies like Sanral [and others] you see that their order books are starting now to properly reflect this, and that will in time trickle down to our industry. So we actually are relatively positive about the future.
FIFI PETERS: How about what happened in July with the riots that caused a whole lot of damage to quite a number of properties and buildings? Have you found that unfortunately was beneficial to your business by way of increased demand for the products that you supply to help rebuild the damaged infrastructure?
ROLAND VAN WIJNEN: Not necessarily, Fifi. Most of the unrest happened in KwaZulu-Natal; it’s not an area where we are largely exposed, and therefore for us it had a limited impact, both during the riots as well as post the riots.
FIFI PETERS: All right. So let’s talk about your other markets. Rwanda, Zimbabwe and the DRC – which I understand are also planning to spend massively on infrastructure to plug existing gaps that predated Covid-19. To what degree is your business benefiting from some of the plans that governments in these regions have on the table?
ROLAND VAN WIJNEN: We see very positive movements. Zimbabwe cement sales, as an example, is 30% higher in this six months compared to pre-Covid, two years ago. Rwanda is 10% higher. The DRC – we no longer include [it] in our reports now that we have restructured that business. Nevertheless, the business is also growing. So on the continent you do see positive movement when it comes to cement volumes.
FIFI PETERS: And yet, in terms of the bottom line and money from these countries, you have had a stronger rand that’s worked against you this time around. Any plans going forward to mitigate currency risk?
ROLAND VAN WIJNEN: For us the most important currency on the continent is the US dollar, so we’re actually working on a US dollar basis. Further than that, yes, we do have exposure when we bring it back in rand. Our main concern is of course the situation in Zimbabwe, and to see how that economy works its way through the hyperinflation.
FIFI PETERS: And also to see at what point you’re able to, like many other South African companies, bring back money that is presently trapped in that country. How much are we looking at, at this stage?
ROLAND VAN WIJNEN: We have steadily over the last I think year – year-and-a-half – been able to declare dividends out of Zimbabwe; the last dividend payment was made in June. There’s another one coming up. So our normal recurring business – since we are also selling in hard currency about 50% – is actually generating a positive cashflow, and we are able to bring that back into South Africa.
FIFI PETERS: I see that you guide that by a sort of support from the central bank in that country, that all the outstanding monies in that country you’ll be able to get out by next year sometime. I just wanted to understand exactly how much was sitting in Zimbabwe presently.
ROLAND VAN WIJNEN: At the time when the currency converted we – PPC Zimbabwe – had an outstanding debt to an external bank outside of the country. That money was then transferred over to the central bank in Zimbabwe, and they are making the payments on our behalf or on behalf of PPC Zimbabwe. The last and final payment is outstanding for December.
FIFI PETERS: Talking about debt, PPC has made quite a bit of progress over the year in reducing its debt. I believe you sitting on R2.3 billion or so presently. Any plans to reduce it further in the coming year?
ROLAND VAN WIJNEN: I’m pleased to tell you that you’re right. We were sitting on R2.3 billion at the end of September. In October we received the proceeds from the transactions of the divestment of PPC Lime and Botswana Aggregate, so we have further reduced the debt levels by R500 million, and therewith we’re coming in territories that we are very comfortable with.
FIFI PETERS: Just on the sale of the Botswana business, can we expect any further reductions in the rest of the continent in the coming year? Or are you happy with your present exposure?
ROLAND VAN WIJNEN: We’re currently very happy with what we have in Rwanda, what we have in Zimbabwe. The DRC is no longer a business that we consolidate. Our interest in Ethiopia is also not consolidated. So, for the time being, while we actively look at opportunities in our portfolio, we are happy with what we have.
FIFI PETERS: And where are you seeing those opportunities in your portfolio?
ROLAND VAN WIJNEN: What we have done over the last year is we have looked at the impact of climate change on our business, but also looked at opportunities to see future growth in low-carbon building materials that are adjacent to cement, and we have a few exciting projects that we are looking to implement in the next 12 to 18 months. That is a revenue stream that you will see us building up over time.
FIFI PETERS: What will be needed to make that happen? How much are you setting aside towards those projects?
ROLAND VAN WIJNEN: For the time being, when we have set out our carbon-intensity reduction programme, we have identified approximately R650 million [worth] of investments that are part and parcel still of our core business. So think about energy-efficiency programmes, think about implementation of waste instead of coal. We are yet to identify the next step in that revenue stream.
FIFI PETERS: I imagine, following from the statement you issued to shareholders, a part of that next step at this stage will not include any form of equity-raising or rights issues from your shareholders in the foreseeable future.
ROLAND VAN WIJNEN: That is correct.
FIFI PETERS: Roland, thanks so much for your time, sir. It is always a pleasure to speak with you. That was the CEO of PPC Roland van Wijnen.