SA’s largest cement maker has seen a dip in annual earnings as a result of higher energy costs.
“A look at our structure shows that 31% of our costs in SA are for distribution, which relates directly to fuel and electricity,” CEO Roland van Wijnen told Business Day on Monday.
“More than half our cost base is energy-related,” he said, adding that the group had managed to keep increases to single digits only because of “operational efficiency”.
Like other SA companies, PPC is dealing with the fallout of inflated global oil prices due to Russia’s invasion of Ukraine, as well as above-inflation electricity price increases by Eskom. Earlier this year the power utility hiked rates 9.61% and will do so again in 2023 and 2024. Inflation is forecast to average 5.9% this year.
Van Wijnen said PPC is in the process of rolling out solar energy at its larger facilities in an attempt to make a dent in some of these costs.
Core profit fell 6.6% to R1.49bn for the year to end-March, when demand showed signs of normalising from the prior year’s high base, which came as a result of the DIY boom that accompanied people having to work from home in the earlier stages of the pandemic.
Group revenue for the year increased 11% to R9.88bn, or 5% when excluding hyperinflation-hit Zimbabwe. Revenue from Zimbabwe jumped more than a third to R2.17bn, but costs in this business surged 85%, partly due to a weaker local currency and accounting changes, driving up group costs 19% to R9.36bn.
Costs, excluding depreciation and PPC Zimbabwe, increased 7%, with efficiency gains offsetting input cost inflation. Van Wijnen said in the results statement that the group’s cash generation remained resilient and PPC cut its net debt by R1.2bn to R1bn.
In SA and Botswana, PPC said it implemented average price increases of 4%-7% year on year, which partially offset input cost inflation.
Relative to its pre-Covid 2020 year, cement volumes increased 5%-9%. SA and Botswana cement sales continue to benefit from demand growth in the informal and rural markets, with revenue increasing 4% to R5.4bn, up 12% from 2020.
PPC said on Monday that its focus will be on redoubling efforts to improve cost competitiveness through improved industrial performance and operational excellence.
To this end, Mokate Ramafoko, former head of PPC International Holdings, has been appointed as the group MD for industrial and innovation, reporting directly to Van Wijnen.
Commenting on the results, Anthony Clark, an analyst of small and medium caps at Small Talk Daily Research, said: “All in all, the results were a fair reflection on what is a fairly challenging condition for the entire cement market. In the current environment, it is very difficult to try recoup high input and production costs by pushing up prices to already constrained consumers.
“I think what they are banking on is the agreement with government for it to buy local cement for local projects.”
This will eventually kick in but “hasn’t yet, which has really been a bugbear for the market”.
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