PPC ready to respond rapidly to any infrastructure-led uptick in cement demand

Engineering News

Cement producer PPC says it is well positioned to benefit from any uptick in South African cement demand given that it has immediate capacity on standby that will require no additional capital expenditure to reintroduce.

However, CEO Roland van Wijnen stresses that without a significant increase in infrastructure investments, South African demand is anticipated to remain subdued.

“We have two kiln lines – one at Dwaalboom and the other at Slurry – that are literally on standby,” says Van Wijnen. Should these be reintroduced, at least two-million tons could be brought on within weeks, as the group demonstrated was feasible when there was a rebound in demand following South Africa’s Covid lockdowns.

Given that cement demand is highly sensitive to fixed capital formation, any recovery is likely to hinge, however, on the implementation of large infrastructure projects. Such large projects had already proved key to supporting a growth in sales for Cimerwa, in Rwanda, in which PPC has a 51% interest.

Despite sustained general demand from both Rwanda and from the eastern Democratic Republic of Congo, Van Wijnen says demand had been buoyed further by two large projects, in the form of an airport and a stadium.

During the six months to the end of September, Cimerwa delivered its best-ever result, contributing revenue of R771-million, a rise of 43%, and earnings before interest, taxes, depreciation, and amortisation (Ebitda) of R249-million, a 63% increase.

Therefore, Van Wijnen describes the recent award of large contracts by the South African National Roads Agency Limited as “encouraging”. He also saw the infrastructure-related announcements made by Finance Minister Enoch Godongwana in his Medium-term Budget Policy Statement as a signal of a possible recovery.

The group was continuing to pursue protection from cement imports, which it said would continue to ‘disrupt’ the market even should their be a recovery in demand. “We are well placed to supply any increase in demand as the roll-out of the South African government’s infrastructure development plans gain momentum. At the same time, PPC has a strong financial position to weather the current economic cycle.”

During the six months to the end of September, PPC reduced net debt in South Africa and Botswana by R140-million to R935-million. Overall, including PPC Zimbabwe, group net debt reduced to R677-million from R1-billion at the end of March.

Stripping out discontinued operations and hyperinflation-afflicted PPC Zimbabwe, revenue rose 9% to R4.2-billion during the period, but Ebitda decreased by 12% to R580-million with margins impacted by significant increases in fuel and other energy costs.

Loadshedding in South Africa had a marginal effect on PPC’s cement business, owing to close cooperation with Eskom in managing the cuts, but placed pressure on its aggregates business.

Nevertheless, the group continued to pursue its renewable-energy options and Van Wijnen reports that it was likely to conclude a power purchase agreement for wheeled electricity supplied by an independent power producer in the coming four to six months.