PPC Ltd has announced strong financial results for the six months ended 30 September 2018. Highlights include an 8% rise in group revenue to R5,6-billion, largely due to a 4% increase in total cement volumes to 3,1 million tons.
“We have produced resilient results by navigating through extremely challenging trading conditions. Our diversified portfolio has enabled us to offset the weaker South African performance with robust growth in our rest of Africa segment,” says Johan Claassen, CEO of PPC.
“We focused on certain strategic and operational initiatives to ensure greater competitiveness and improved efficiencies. These included reducing interest rate charges, increasing free cash flow, implementing the R50/tonne profitability initiatives and optimising operations.”
The South African operations were able to hold their cost of sales increase to four percent, despite the inclusion of R19-million in capital expenditure related to the upgrade of our Slurry operation in the North West.
During this period, the upgrade of the Rwanda plant and the new DRC plant were fully accounted for, increasing the cost of sales by 16% to R4,5-billion. However, the South African operations were able to hold their cost of sales increase to four percent, despite the inclusion of R19-million in capital expenditure related to the upgrade of our Slurry operation in the North West (SK9).
Across the group, administration and other operating expenditure increased by 6% to R580-million, although the South African businesses were able to reduce overheads through actions taken as part of the R50/tonne savings initiatives.
Summarising the results, Tryphosa Ramano, PPC CFO comments: “The restructuring of our SA debt at lower associated effective interest rates of 9,5% reduced our interest charges which on a like for like basis declined by 31%. We also delivered improved free cash flow of R202-million while cash on hand totalled R1,3-billion, a 50% increase.”
Local operations under pressure, but responding well
PPC’s southern African operations, which include Botswana, remained under pressure. Revenue declined by 4,2% despite a small increase in average selling prices owing to a decline in volumes of three percent. An increase in imports of 71% had a further negative impact on performance, especially the consumer and construction segments.
Local variable costs also rose by four percent, mostly due to a 13% increase in distribution costs owing to the rise in fuel prices. Claassen notes that the R50/tonne savings initiatives will continue to bear fruit and further reduce operating costs. These initiatives include the commissioning of the SK9 plant, the successful integration of Safika Cement and the launch of the SURE RANGE to broaden PPC’s product offering to include fit-for-purpose cement.
The materials business, which remains a key part of PPC’s route-to-market strategy for SA cement, delivered revenue growth of 7% and contributed R100-million to EBITDA.
Rest of Africa turns in a strong performance
PPC’s operations in the rest of Africa showed a growth in volume of 34% while revenue increased by 36% to R1-7-billion. EBITDA grew by 18% to R499-million. “Robust volume growth in Zimbabwe and a positive contribution from the DRC underpinned the pleasing performance,” says Claassen.
PPC Zimbabwe grew revenue by 30% to R1,1-billion on the back of a 29% increase in volumes. The performance was supported by an upsurge in construction activity as well as successful implementation of the route-to-market strategy and other sales initiatives. PPC Zimbabwe has increased local input costs to 90% and grown its exports to mitigate liquidity constraints in the country.
In the DRC, PPC Barnet’s route-to-market initiatives supported the achievement of a market share ranging between 25% and 30% and R240-million in revenue, while the benefits of right-sizing the business and stringent cost controls delivered EBITDA of R60-million.
Habesha Cement in Ethiopia, which is still in the ramp-up phase, delivered over 300-000 tonnes of cement during the period. It however contributed a net loss of R19-million as performance was constrained by the political environment and heavy rainfall in the second quarter.
Claassen adds that the first phase of the upgrade of the CIMERWA plant in Rwanda, aimed at increasing capacity, was completed and record volumes towards the end of the period contributed to strong growth. Revenue of R402-million and EBITDA of R92-million were achieved.
“We expect trading conditions in South Africa and the DRC to remain difficult. However, we should benefit from a steady performance in Zimbabwe, improved output from CIMERWA and stable political environments in Ethiopia, while the DRC elections are a key milestone to unlock latent infrastructure demand,” says Claassen.
“We are committed to executing on our key priorities which aim to improve efficiencies and margins in order to cement our solid foundation and deliver sustainable shareholder value,” concludes Claassen.