PPC's first-half revenue lifted by higher Zimbabwe, Botswana and Rwanda volumes

PPC’s group cement sales volumes rose by five per cent above last year's figure, with strong demand growth in its African businesses offsetting lower demand in the core South African business.

PPC’s revenue increased by nine per cent to ZAR4541m (2014: ZAR4157m) for the half year ended March 2015, on the back of increased volumes in Zimbabwe, Botswana and Rwanda, as well as the consolidation of sales from Safika Cement and Pronto Readymix.

Cement selling prices declined in South Africa and Botswana, while limited growth was recorded in other territories. However, the favourable impact of the devaluation of the rand contributed positively to group revenue.

Group revenue was further supported by a 10 per cent growth in revenue for the lime division. On a like-for-like basis, excluding the consolidation of Safika Cement and Pronto Readymix, group revenue would be one per cent above last year at ZAR4126m (2014: ZAR4080m), PPC said it a statement.

A total of 28 per cent of revenue was generated from outside South Africa in the period under review. The company said it was on track to meet its target of generating 40 per cent of revenues from outside South Africa by 2017. It also continues to “to explore further expansion opportunities in the rest of the African continent.”

PPC’s group cement revenue rose four per cent to ZAR3752m (2014: ZARR3 610m) while EBITDA fell 10 per cent to ZAR988m (2014: ZAR1093m). Consequently the EBITDA margin fell to 26 per cent from 30 per cent the previous year.

EBITDA decreased by four per cent to ZAR1123m and operating profit, excluding the impact of empowerment transaction IFRS 2 charges and restructuring costs, was down 11 per cent when compared to the previous reporting period at ZAR789m largely due to the weakness in the core South African cement business. On a like-for-like basis, excluding the impact of newly-acquired businesses, EBITDA would have declined by nine per cent to ZAR1050m. During the review period both group EBITDA and operating margins contracted; recording 25 and 17 per cent, respectively.

Following an impairment assessment review, an impairment charge of ZAR44m was recorded. This is related to accelerated depreciation of the existing 100,000tpa cement factory in CIMERWA that will be
decommissioned as the new factory comes online (ZAR7m). Furthermore, goodwill of ZAR22m was impaired on the Pronto Readymix transaction as well as ZAR15m of costs that were capitalised on the Algeria transaction, due to the expiry of the memorandum of understanding.

Capital investment during the half year amounted to ZAR1008m with over ZAR600m being spent on the new plants in Rwanda and the Democratic Republic of the Congo (DRC). The group’s net debt position ended the half year at ZAR6308m, with the debt-to-EBITDA ratio ending below three times.

Performance by country

South Africa
South African cement sales volumes rose four per cent, however if we exclude the contribution of Safika Cement, volumes in the core business declined by three per cent while selling prices reduced by two per cent. The volume decline was mainly due to poor economic growth as well as increased cement imports and local competition. Volume growth was, however, experienced in the Limpopo and Rustenburg regions.

Zimbabwe
Zimbabwean operations recorded volume growth of nine per cent, benefitting from a new marketing strategy that was recently implemented. Despite the strong volume growth, price increases in the local market remain muted. However, good cost control led to EBITDA rising by four per cent in US dollar terms. Exports to neighbouring countries have, however, reduced from a robust performance in the previous period as a result of exchange rate pressures and projects which were supplied in the previous period, are now completed.

Botswana
Sales volumes in Botswana have risen by over 20 per cent on the back of technical issues experienced by competitors as well as increased supply to key retail clients and construction projects. Selling prices and cost of sales both reduced from the  prior period. Cost reductions as well as improved volumes resulted in margins improving by 20 per cent.

Following the relocation of the Maputo office to Tete, PPC continues to supply cement into the southern Mozambique market directly from South Africa while our Zimbabwe factory supplies the Tete region.

Rwanda
Local and export sales volumes improved while selling prices also rose by three per cent per tonne. Good cost control has led to improved margins. Cold commissioning on the new 600,000tpa plant in Rwanda began during the first week of March 2015, with electrical tie-ins to be completed before cement production commences early in the second half of 2015.

Further projects
Construction work is underway in the DRC and Zimbabwe. Both projects remain on budget and on time, with production anticipated in the latter part of next year. Detailed work to establish the capital costs and timelines for the Ethiopia project is underway and announcements in this regard will be made in due course, the company added. It is anticipated that the previously communicated costs and timeline will be exceeded.

Prospects and strategy

PPC has begun a Performance Improvement Programme (PIP) to boost profit by ZAR400m, it said. The PIP will focus on optimising revenue, cutting costs and improving operational efficiencies.

The company said it remains “optimistic” that cement sales volumes will improve in its operating geographies. “Growth in the South African economy, which remains subdued, is an important foundation for our expansion strategy. We remain confident about prospects for strong growth in the other African markets in which we operate.”