Cement major PPC, which is pushing ahead with turnaround plans to improve its key SA and Botswana businesses, has lamented the lack of significant retail or infrastructure projects, saying the construction downturn persists despite positive sentiment and declining interest rates.
PPC’s aggressive recovery plan has focused on rebuilding and exiting noncore markets in Eastern and Central Africa to concentrate on growing the margins, operational efficiencies and cost reductions of the core Southern African operations.
It also counts on the government to level the playing field concerning cement imports that jeopardise the viability of the local industry and set up procedures that will give preference to local cement for government-funded infrastructure projects. This is as President Cyril Ramaphosa has highlighted investment in infrastructure as central to achieving the country’s development goals.
The government has earmarked more than R940bn to be invested in public infrastructure over the medium term to drive a range of projects in six sectors in a bid to boost the economy and reduce unemployment.
However, the JSE-listed firm said there were few large-scale infrastructure developments, reporting on Monday that group cement sales volumes in the four months to end-July, including Zimbabwe, were 5.3% lower than the previous comparable period. Cement sales volumes in SA and Botswana continued its downward trajectory, decreasing 4.6% during the period.
“Though interest rates in SA have begun to decline and local sentiment is improving, there is still no clear evidence of large-scale infrastructure or retail developments,” PPC said in a trading update. “Consequently, the overall outlook for the SA and Botswana group remains subdued.”
The SA Reserve Bank lowered its main lending rate to 8% from 8.25% in September after the US Federal Reserve’s larger-than-expected 50 basis point cut on September 18.
SmallTalkDaily analyst Anthony Clark was unsurprised by the weak volumes, saying Cashbuild, Italtile and the other companies involved in the building materials and construction sector had experienced subdued demand.
He said the underlying weak market conditions for the domestic cement industry had once again become front and centre of the market’s mind, reflected in the declining share price. He did not forecast an uptick until mid-2025.
“So until we see a turn in government spend on general infrastructure, the level of house building plans passed, which continues to decline, and the consumer start spending ... the underlying cement market ... will remain subdued for at least the next six to nine months.”
SA’s construction sector has remained relatively weak since the swirl of the 2010 World Cup. Expenditure growth has been declining with an average real growth of 2% according to the Treasury. The sector did, however, record a rise in activity in the second quarter of 2024, the Afrimat construction index shows.
PPC reported Zimbabwe’s cement sales volumes fell 10.9% in the period. The firm said cement imports into Zimbabwe were still rising, affecting its sales.
Group revenue fell 2.1%, with SA and Botswana decreasing 1% but was buffered by a 5.5% rise in selling prices, while that of Zimbabwe decreased 4.5%.
Cement remains PPC’s core business, contributing 90% of revenue for the reporting period, while materials contributed the rest.
Ebitda margin for the group declined from 15.9% a year ago to 13.7% in the current period. Despite the absolute reduction in ebitda, PPC reported net cash generation by the SA and Botswana group, before financing activities, improved from R129m to R192m. It said an improvement in working capital, mainly in inventory levels, were the biggest single contributor.
PPC’s strategic repositioning plan has included shaking up its management and structure and removing noncore operations, with the company saying it expects the positive effects of these efforts to become evident in the next financial year.
CEO Matias Cardarelli told investors on Monday that as the turnaround had begun to reshape the group’s organisational culture and processes — which included industrial and supply chain optimisation, enhancing the competitive position of the group in its various markets — PPC would continue to focus on increasing profitability and cash generation.
The positive effects of these efforts are expected to become evident in the next financial year.
Total group debt remained unchanged at R775m.
The company expects to release its interim results on or about November 18.
PPC shares slipped 2.25% to R3.91 on Monday.
Update: September 30 2024
This story has been updated with new information.
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