Sephaku Cement sees 6% FY18 cement volumes fall

Sephaku Cement (Dangote Group) reported FY18 cement volumes fell by 6.4 per cent YoY in South Africa. Revenue also fell 3.1 per cent to ZAR2.2bn (US$153.9m) compared with ZAR2.37bn in 2017 while EBITDA slipped to ZAR461.5m from ZAR504.2m in FY17.

Sephaku Cement reported that profit margins were affected by above-inflation cost increases on energy costs such as electricity and low availability of coal. Maintenance costs also impacted on performance. The company's net profit for 2018 was ZAR128.7m, mainly owing to a ZAR81.7m tax credit that was granted in 2018 for the 2017 tax period.

Sephaku Cement expects building materials demand to remain constrained because of the challenges faced by the government in stimulating the economy in the context of high sovereign debt and loss-making state-owned entities.

"The public sector has reduced infrastructure spending in an attempt to rein in debt and to enforce fiscal discipline. Factors including a lack of clarity on key policies, and decreasing consumer discretionary income and demand for houses seem to have postponed private investment in infrastructure," the company stated. 

Additionally, the May national elections will potentially limit any momentum on current and planned infrastructure spend. Therefore, the outlook for the construction industry is negative, with stagnant growth in the private sector and limited public building contracts.

Meanwhile, Sephaku Cement's Métier Mixed Concrete subsidiary continued to experience intense competition in both the Gauteng and KwaZulu-Natal markets and pricing has come under pressure since the start of the year.

"The two plants added in Gauteng over the past 24 months have supported revenue through increased sales volumes. The rationalisation of the fleet has improved cost savings, but profit margins remain under pressure owing to above-inflation increases in production costs, which is primarily as a result of additional plants in an environment with declining pricing," Sephaku Cement said.