Source: PPC’s success in Zimbabwe is contrasted by surrounding regions
South Africa-based cement manufacturer PPC Cement SA (PTY) Ltd has announced that its operations in Zimbabwe are now debt free, with EBITDA improving 13.6 per cent, for the 10-month period ending January 2024).
However, in contrast, sales volumes for its South Africa and Botswana operations fell by four per cent when compared to the equivalent period in the previous year. A spokesperson for PPC said, “Sales volumes in the coastal region experienced a sharper decline than in the inland region, mainly due to a weaker retail market and a lack of infrastructure projects in the area.”
This comes after the company unloaded its 51 per cent equity holding in Rwandan cement manufacturer Cimerwa Plc. The majority stake was sold for ZAR804.5m (US$42.5m). The company is currently waiting on approval of the purchase from the Common Market for Eastern and Southern Africa Competition Commission, following its payment of US$474,000 in capital gains tax to the Rwandan government.
PPC imposed price increases in these markets, which helped to offset the low sales volume. This led to a six per cent growth in revenue in the South Africa and Botswana, over the 10-month period. However, since the end of this period, “performance in the South Africa and Botswana cement market has deteriorated,” according to PPC. This came after EBITDA margins initially rose slightly from 10.7 to 11.4 per cent, compared to the 12.6 per cent level reported at the half-year period.
Zimbabwe growth
The strong growth experienced by PPC’s Zimbabwean operations increased the company’s overall revenues by 27.6 per cent, for the period ending 31 January 2024. Shares in PPC rose by 4.3 per cent to ZAR3.42 (US$0.17) on the Johannesburg Stock Exchange (JSE), as of 27 March. Despite this improved revenue performance, the company has delayed the expansion of its Zimbabwe operation (which declared dividends of US$4m in July 2023 and US$7m in November 2023) by a full year.
Zimbabwe operations saw a 41 per cent growth in cement sales volumes over the 10M period. This was slightly lower than the 44 per cent expansion seen over the 1H period. This growth has been attributed to an uptick in residential construction and government funded infrastructure projects as well as a reduction in cement imports to the region.
PPC stated that, “Zimbabwe continues to remain debt free and held ZAR95m in unencumbered cash at 31 January 2024. The group’s targeted gross leverage of 1.3-1.5 times the South African and Botswana operations EBITDA including dividends from Zimbabwe remains unchanged.” It was announced in January that the company’s executive committee would review PPC’s operations to better address the difficulties in the South African and Botswana markets.
South African adjustment
South African companies have been affected by rising inflation and interest rates, which have impacted consumers’ purchasing power. This has been accompanied by a slowing in construction projects in the region, according to market analysts. In response to these market conditions, PPC is prioritising structural optimisation and enhancing contribution margins by evaluating its South African business’s commercial footprint. Furthermore, the executive committee aims to decrease fixed operational and overhead costs, necessitating improvements to internal management and reporting systems. “The board has targeted achieving a sustainable return on capital for its South African and Botswana business in the medium-term,” the company said in its trading update.
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