PPC hopeful for recovery of cement industry in South Africa
PPC has reported a group revenue decline of two percent following a challenging financial year.
After delaying its results three times, cement supplier PPC has reported a group revenue decline of two percent to R10,241 billion.
PPC CFO Ronel van Dijk says the company’s 2020 financial year was already a challenging year and that Covid-19, which emerged in the last month of the company’s FY20, compounded an already difficult situation. “As a business, we were quick to implement measures to protect our employees and the business. However, considering that the lockdowns imposed by the authorities only happened in the last month of FY20, most of the impact will be in FY21.”
PPC is the leading supplier of cement in South Africa. Realised average selling prices for South Africa increased by eight percent to 10 percent as the business continued with its drive to increase cement prices to recover operational costs and improved returns. Cement volumes declined by 15 percent to 20 percent with the coastal regions experiencing a smaller decline.
The company said in a statement that it estimates that the South African cement industry declined by seven to 10 percent for the reported period, driven by muted demand. “The construction sector, which accounts for a substantial proportion of PPC Cement sales, was weaker than the overall market,” the statement read. “Retail demand, however, was supported by activity in the DIY market.”
Imports and bender activity further exacerbated the competitive environment, with cement imports increasing by 36 percent to 1.3 million tonnes from April 2019 to March 2020. PPC, together with other industry players, submitted an application to the International Trade Administration Commission highlighting the impact of imports on domestic cement production.
As a result, revenue in South Africa (including Botswana) declined by 11 percent to R4,843 billion. The reduction in revenue, coupled with a reduced ability to absorb fixed costs from the decline in volumes, resulted in Ebitda contracting by 36 percent to R613 million.
Despite the obvious challenges faced, Ronel says PPC has done a lot to reposition the business and improve its competitiveness. “We are also strengthening our internal controls and all of these actions are beginning to yield results,” she adds.
PPC’s cement operations ramped up in May 2020 after the Covid-19 lockdown restrictions were eased in most of the company’s operating areas. Over the first six months of the 2021 financial year, South Africa and Botswana cement sales volumes declined by five percent due to the impact of lockdown. However, in the last three months (July to September), the sales volumes increased by 20 percent.
The group said that, despite the positive sales momentum, it remains cautious on the outlook for the rest of the 2021 financial year given the ongoing health crisis and its resultant impact on economic activity. Ronel explains that the company will be focusing on addressing its capital structure and repositioning the business for growth. “We will remain focused on cash generation and preservation, as well as try to minimise the company’s environmental impact.”
The company also stated that it remains hopeful that the commitment of the South African government to an infrastructure investment-led economic recovery will lead to increased cement consumption. “If this is the case, PPC, with its national production and logistics footprint, is very well placed to benefit from such an increase.”