The new carbon tax will increase PPC’s annual costs for cement and lime by R100m to R120m, SA’s largest cement producer said on Friday.
The tax, which came into effect on June 1, will result in cement price increases as companies pass on the costs to customers.
“The whole industry is doing that,” PPC SA MD Njombo Lekula said.
Another cement producer, Sephaku Holdings, last week also said that it will increase prices following the introduction of the tax.
Cement makers emit carbon when they use coal to burn limestone and other raw materials.
Lekula told analysts at Friday’s presentation of the group’s results for the year to end -March that PPC will treat the carbon tax as an excise tax “which is an indirect tax”.
PPC will introduce the carbon tax-induced price hikes amid declining volumes and a renewed surge in imported cement.
Meyrick Barker, an investment analyst at Kagiso Asset Management, said in its current guise the carbon tax allows cement importers to externalise the cost of carbon emissions.
“Unless some form of levy is introduced to take into account that certain other cement-producing countries do not tax carbon emissions, SA cement producers will become increasingly uncompetitive in our coastal regions,” Barker said.
Market declined
In the year PPC increased prices 1%-2%. But in mid-January PPC increased prices by double digits.
In the year ended March, the cement market is estimated to have declined 5%-10%, Lekula said.
PPC’s volumes in the SA market were down 2%-3%, he said.
Tinashe Kambadza, an equity analyst at Afrifocus, said on Friday PPC’s concerns about cement imports are valid. He said there is a threat of a further increase in imports if the company increased prices.
“However … they are also pushing for tariffs on cement with the [department of trade & industry], so if that happens and price increases stick in the market through retailers, this may actually work in their favour in terms of improving profitability,” Kambadza said.
The recent currency changes in Zimbabwe, in which the use of foreign currency was outlawed, loomed large over PPC’s annual results as it pushed down earnings before interest, tax, depreciation and amortisation (ebitda) from that country 20%.
PPC CEO Johan Claassen said the company’s priority is to ensure that PPC Zimbabwe, in which the group owns a 70% stake, is self-sufficient. “We are now procuring more than 90% of what we need in Zimbabwe in-country,” Claassen said.
Kambadza said PPC Zimbabwe is a market leader in that country “and their brand is quite strong there, so the performance is satisfactory. The concern is when volumes drop because the retail consumer has limited” resources.
PPC’s full-year headline earnings per share increased 33% to 20c, while revenue was up 1% to R10.4bn.
CFO Tryphosa Ramano said on Friday the group is in promising discussions with lenders for the restructuring of debt in the Democratic Republic of Congo (DRC). “The discussions are very positive and that will help us from a liquidity point of view,” Ramano said.
PPC reported that its gross debt increased 6% to R5bn. About 69% of the company’s debt is outside SA.
PPC shares were down 4.74% to R4.62 on Friday.
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