Amid weak demand, JSE-listed Sephaku Holdings focused on lowering its debt, defending its share of the market and improving cost efficiencies during the financial year ended March 31.

Sephaku CEO Dr Lelau Mohuba on Wednesday said local building and construction materials manufacturers continued to experience tough operating conditions.

“Macroeconomic expenditure in construction works, and residential and nonresidential sectors decreased, contributing to a 1.4% contraction in gross fixed capital formation.

“We recognise the inherent cyclicality of building materials demand and are cognisant that during the downturn, as we have been experiencing, it is imperative that we strategically steer the business along the trajectory of our long-term vision,” he added.

To that end, the group continued to focus on reducing group debt with the goal of achieving a net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio of 2.5 for its 36%-owned subsidiary Sephaku Cement (SepCem) and 2 for its wholly-owned subsidiary Métier Mixed Concrete.

Since the 2015 financial year, the group has repaid about R1-billion of its debt, despite a highly constrained trading environment.

SepCem, which is a joint venture with Dangote Cement, repaid R181.9-million of its project loan capital, resulting in a balance of R1.65-billion at the end of December 2018, which is SepCem’s financial year-end.

SepCem’s cash balance at the beginning of the year was R413-million and the associate generated R483-million from its operations during the year, ending with a cash balance of R508-million.

This confirms that SepCem can comply with its debt repayment requirements with the potential to enhance its cash generative capacity through higher cement prices, Sephaku said on Wednesday.

Sephaku, with the guidance of the board, also focussed on strengthening the corporate governance processes and systems in line with King IV, which included enhancing its risk management and stakeholder engagement efforts.

Mohuba emphasised that the latter was particularly essential in its interactions with the communities located around SepCem’s operations in the North West province.

“The engagement processes have been laden by a lack of recognised community leadership and unsustainable demands for employment and supply opportunities. Be that as it may, we made significant progress by successfully appointing six directors, including their alternates from three neighbouring communities to the Aganang integrated cement plant’s empowerment structure, Torosesha.

“We are pleased that the various provincial and national government departments have continued providing support to facilitate effective engagement for the mutual benefit of all our stakeholders,” he noted.

Sephaku expects building materials demand to remain constrained owing to the short-term challenges in stimulating the economy against the backdrop of high sovereign debt and loss-making State-owned entities.

Therefore, its outlook for the next 12 to 24 months remains negative, with the group anticipating anaemic growth unless the newly elected government urgently provides the requisite impetus through pro-infrastructure investment policies.

FINANCIAL PERFORMANCE
Sephaku achieved consolidated revenue of R835.82-million, compared with the R830.69-million reported for the prior financial year.

Net profit of R44.04-million was marginally lower than the profit of R44.17-million reported the year before.

Métier, meanwhile, recorded a net profit of R22-million and an Ebitda margin of 6% at R52-million.

SepCem achieved sales revenue of R2.3-billion, an Ebitda margin of 20% at R462-million and profit after tax of R129-million in its 2018 financial year.

CARBON TAX
Meanwhile, SepCem expects to increase its product prices by 4% to 6% from July 1, based on its standard biannual increases and the implementation, by government, of the Carbon Tax, which took effect on June 1.

Inherently, cement manufacturers produce carbon emissions during the clinker production process, where it uses coal to burn limestone and other raw materials at extremely high temperatures.

Based on SepCem’s estimated carbon emissions, its expects to pay about R35-million to R40-million a year in carbon taxes.

This will result in price increases of 1.5% to 2.5%, depending on the strength of the products.