PPC laments lack of cement sales growth from SA infrastructure programme

And highlights impact of cement imports on itself and the economy.
The exterior of a conveyor belt structure at PPC’s Hercules cement plant in Pretoria. Image: Waldo Swiegers/Bloomberg

JSE-listed cement and building materials producer PPC has lamented the lack of any meaningful uplift in cement sales volumes from the government’s infrastructure programme, other than limited road construction and rehabilitation activity.

The group has again highlighted the impact of cement imports on the company and the South African economy.

PPC Cement South Africa and Botswana MD Njombo Lekula confirmed the group would have expected the benefits of the government’s infrastructure programme to have already come through but things have been “very slow”.

Lekula referred to the impact of the SA National Roads Agency (Sanral) cancelling adjudicated tenders to the value of R17.473 billion in May this year, adding that a lot of projects are in progress in KwaZulu-Natal and the Eastern Cape but nothing has been coming through in Gauteng and Mpumalanga.

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Imports up

Lekula said cement and clinker imports increased by 19% year-on-year last year and currently exceed pre-Covid-19 levels.

PPC estimates that imports account for about 10% of South African cement sales volumes and alongside the industry is actively engaging the relevant authorities for relief against unfair competition from imports.

Lekula said to put these imports into context, this totals 1.2 million tons of clinker, which is the equivalent of a full cement factory that directly employs almost 400 people and indirectly a couple of thousand.

“That is the impact of imports into our space and the country. Imports threaten the financial sustainability of a vital component of the manufacturing and construction sector and erode the industry’s ability to maintain employment,” he said.

Lekula said global logistic problems had resulted in cement imports declining by 14% in the first four months of this year.

He said this reduction shows the unreliability of imports into a country.

Government’s ‘safeguard action’ meeting

PPC Group CEO Roland van Wijnen declined to comment on the statement by Sephaku Holdings last week that Minister of Trade, Industry and Competition Ebrahim Patel had requested South Africa’s cement producers to commit to “no price increases” in return for government approval of “safeguard action” against cheap cement imports, particularly from China and Vietnam.

Van Wijnen said PPC considers the contents of that meeting confidential but stressed the “real point” is not about price control but the ability of South Africa to protect employment.

He stressed that cement importers are not creating employment, not investing in the community, do not have social labour plans, and do not pay as much tax as South African producers.

Van Wijnen said Vietnam, for example, has very different costs for labour, electricity and other elements and, as far as he knows, does not have a carbon dioxide tax.

“But more importantly, Vietnam and some of the other countries are selling surplus product at variable cost plus.

“They are not selling at the same price that they are selling in their home market. This is classic dumping,” he said.

PPC results

PPC on Monday reported an 11% increase in group revenue from continuing operations to R9.9 billion in the year to end-March from R8.9 billion in the previous year.

Profit before tax from continuing operations decreased from R1 765 million to R186 million.

But PPC chief financial officer Brenda Berlin said the group’s earnings were “very murky” because of certain non-cash items and fair value adjustments and foreign exchange movements in the Zimbabwe operations.

“Once Zimbabwe and certain non-cash items are excluded from the group’s earnings before tax, the decrease in earnings is 1%, which is not out of line with the decrease in Ebitda of 2%,” she said.

Group Ebitda (earnings before interest, tax, depreciation and amortisation) declined to R1.5 billion from R1.6 billion.

PPC reported a headline loss per share of three cents compared to headline earnings per share of three cents in the previous year.

Cash generated from operations was marginally higher at R1.5 billion from R1.4 billion.

Listen: Roland van Wijnen discusses PPC’s results with Moneyweb editor Ryk van Niekerk (read transcript)

Debt and dividends

The group did not declare a dividend in the current or previous period. However, Van Wijnen said PPC would like to resume dividend payments.

He said PPC reduced group net debt by R1.2 billion to R1 billion in the year to end-March and that he could state “with certainty” that PPC does not need a rights issue to restore the group’s financial position.

“Cash generation was strong in the last year on the back of operational performance and disposal of non-core assets. With that cash generation, we have restored a solid financial position for PPC,” he said.

Van Wijnen added that PPC has reached agreement with its bankers that it can once again consider dividend payments to shareholders, with the group’s gross debt to Ebitda ratio improving to 1.3 times from 2.2 times.

“All things being equal, if we will have a normal year this year, and again generate roughly R500 million to R600 million of free cash flow – this year we did R700 million – we come into the territory where we can start to consider dividends,” he said.

Berlin said she was not going to make any dividend forecasts but confirmed “we are very close”.

Analyst’s view

Peregrine Capital executive chair David Fraser said PPC’s financial numbers are “a bit noisy” but the group produced a solid result.

He said PPC was the only cement producer that could respond to the almost surprising demand for volume when the country came out of the Covid-19 hard lockdown, but that the market share of the other producers is normalising.

He said there is now a lack of catalysts for cement volume growth and the government needs to start its infrastructure programme properly and organisations, such as Sanral, must start awarding contracts.

Shares in PPC dropped 1% on Monday to close at R2.98.

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