SEPHAKU EXPECTS WEAK CONSTRUCTION MATERIALS DEMAND TO CONTINUE

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
non-residential 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 JV 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.

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.

Based on SepCem’s estimated carbon emissions, it 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. https://www.engineeringnews.co.za/article/sephaku-expects-weak-construction-materials-demand-to-continue-2019-06-26/rep_id:4136