Although JSE-listed cement manufacturer PPC's financial performance weakened in the financial year ended March 31, actions taken during the period to reposition the company to deliver sustainable value for stakeholders “are beginning to yield results”.

After the resumption of trading in the 2021 financial year, the performance across all of PPC’s core businesses has been “encouraging”, the company says.

PPC CEO Roland van Wijnen laments that the 2020 financial year was “characterised by difficult trading conditions, especially in South Africa”, adding that the “global Covid-19 pandemic further exacerbated an already difficult trading cycle”.

Group revenue was slightly lower for the period at R10.2-billion mainly owing to a reduced contribution from South Africa.

Group earnings before interest, taxes, depreciation and amortisation (Ebitda) of R1.6-billion was largely impacted by currency movements, hyperinflation accounting, the difficult trading environment which was exacerbated by the Covid-19 pandemic and one-off costs.

Finance costs, meanwhile, decreased by 4% to R652-million and overall profitability was impacted by impairments to property, plant and equipment, as well as intangible assets and fair value adjustments.

Cash available from operations decreased from R1.3-billion to R463-million, with cash generation impacted by the decline in Ebitda, stockpiling of strategic inventories, hyperinflation in Zimbabwe and a reduction in payables, besides others.

Capital expenditure (capex) was well managed and came in at the lower end of guidance at R650-million, a reduction of 16% year-on-year, while gross debt rose to R5.8-billion at the end of March, primarily owing to currency movements, which added R638-million.

PPC CFO Ronel van Dijk reiterates the company’s commitment to improving cost competitiveness and cash preservation, which is a priority for the 2021 financial year.

On the back of the recovery in sales and the various cost and cash preservation measures already implemented, cash flows for the last few months have shown a positive trajectory and total borrowings in South Africa have been reduced by over R200-million.

Cement South Africa and Botswana experienced a decline in revenue of 11% to R4.8-billion and, given its reduced ability to cover fixed costs, delivered 36% lower Ebitda of R613-million.

PPC also realised during the period that the average selling prices for South Africa increased by 8% to 10% as the business continued with its drive to recover operational costs and improve returns.

Cement volumes were 15% to 20% lower, with the coastal regions experiencing a lower decline. PPC now estimates that the overall market contracted by about 7% to 10% for the period as demand was muted.

Imports and blender activity further impacted on the already competitive environment, with cement imports increasing by 36% to 1.3-million tonnes for the period.

“Our sector is key to drive economic growth and employment and needs government intervention in the form of infrastructure spend and action against imports. PPC continues to engage the International Trade Administration Commission (Itac) as part of a sector-wide submission on cement imports that are hampering domestic cement production,” Van Wijnen adds.

He notes that these measures “are necessary” to ensure the cement industry is protected from unfair competition and remains sustainable, especially given the impact of the Covid-19 lockdown on the broader construction sector.

In the Democratic Republic of Congo (DRC), PPC Barnet achieved revenue growth of 5% to R607-million on the back of higher pricing and translation gains, and generated Ebitda of R94-million.

While PPC estimates that market demand increased by between 4% and 8%, it says this was offset by a rise in imports from neighbouring countries. Cement producers in the DRC continue to lobby the authorities to increase the enforcement of existing laws banning imports.

Cimerwa, in Rwanda, achieved revenue growth of 6% to R936-million owing to higher pricing and volumes, and robust cement demand was driven by large infrastructure projects, growth in the retail market and export demand in eastern DRC.

Ebitda, which declined by 8% to R226-million, was however negatively impacted by higher operational costs incurred to improve the plant’s output and as a result of the lockdown imposed by authorities.

In Zimbabwe, cement volumes declined by 15% to 20% in a market that contracted by a similar percentage. Revenue increased 29% to R1.9-billion, and was supported by higher realised prices, while Ebitda grew by 53% to R707-million.

Trading conditions in Zimbabwe continue to be impacted by the hyperinflationary environment, weak demand, unstable power supply and a shortage of foreign currency; however, the business continues to secure large infrastructure projects in hard currency, has a suitable cost base aligned to the demand profile and remains financially self-sufficient.

Further, despite the emergence of Covid-19, Cement South Africa and Botswana experienced double-digit year-on-year sales volume growth post-period end, since June, with the volumes for the three months from July to September recording year-on-year growth of 20% to 25%.

The international operations, which were less affected by the pandemic, in aggregate, experienced strong growth in cement sales volumes since June.

From July through to September, post-period end, sales volumes in PPC Zimbabwe and PPC Barnet grew by 35% to 40%, and 20% to 25% year-on-year, respectively.

Cimerwa, meanwhile, experienced sales volume growth of 15% to 20% over the same period.

“Over the next nine months we will take the necessary strategic and operational actions to improve the group’s financial position and performance. The capital restructuring remains a priority and the progress made substantially completes the initial steps required for a more sustainable capital structure to be implemented to position the group for long-term growth,” says Van Wijnen.