Sephaku Cement (SepCem) returned to profitability in the first half of 2018, but the Nigerian-backed cement producer is continuing to struggle with intense competition, particularly in Gauteng.
The cyclical nature of building and infrastructure development in SA also helped boost the company’s performance during the period, although this was off a low base due to heavy rainfall in the previous period that affected production.
Sales revenue edged up 5% to R1.16bn, while net profit increased to R45m, compared with a R16m net loss in the prior period. This was primarily due to cost-cutting efforts.
SepCem, which entered SA’s competitive cement sector in 2015, has faced lagging prices relative to cost inflation, and two new entrants in the sector.
The group, however, increased cement prices by an average of 3% per tonne in August 2017 and 5% in February. This resulted in slightly higher volumes of lower-priced bulk cement and the company missing its revenue target, the company said.
The operating environment remained difficult, with SepCem’s improved profitability coming largely from cost cutting, said Sephaku Holdings financial director Neil Crafford-Lazarus.
When entering the market, the group was more concerned with ramping up output and getting products to customers, but SepCem had since fine-tuned its distribution, he said.
The price increases implemented by SepCem were in line with expectations, said Avior Capital Markets African cement analyst Gari Chigwedere.
Although moving into new markets with associated undercutting of competitors was part of the broader Dangote business model, these lower prices were unsustainable due to the entrance of other low-price competitors, he said.
SepCem has a December year-end as a subsidiary of Dangote Cement, which controls 64% of the company.
A fall-off in construction and infrastructure development has hit activity levels, particularly since the 2010 World Cup, with the majority of major construction groups under pressure.
Sephaku Holdings, which controls 34% of SepCem, was unchanged on Wednesday at R2.50.
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