Cement maker, PPC Zimbabwe volumes for the 11 months to February 2020, weakened by 15 percent to 20 percent compared to same period last year, reflective of the general economic environment in the country.
However, PPC Zimbabwe remained self-sufficient and recorded improvements in earnings before interests, tax, depreciation and amortisation (EBITDA) margins of 35 percent and 38 percent despite several challenges that weighed on business.
The operating environment has been challenging for businesses as inflationary pressures resulted in increased cost of inputs, while causing a decline in consumer spending. Limited access to foreign currency has also been one of the major challenges affecting the economy.
Recently, Treasury suspended the fungibility of PPC Zimbabwe, Seed Co international and Old Mutual that are also listed on other exchanges in Johannesburg, Botswana and London as their shares could be bought on the ZSE and sold on foreign markets, which would be tantamount to illicit flows of local foreign currency.
“Despite the challenging trading conditions in Zimbabwe, including liquidity constraints and inflationary pressures, PPC Zimbabwe remains self-sufficient,” said the group in a statement accompanying its operational update for the 11 months under review.
“PPC Zimbabwe achieved EBITDA margins of 35 percent to 38 percent. PPC Zimbabwe has continued to meet its debt obligations in the country,” said the group. According to the group, all the business units across the region are meeting their debt obligations except for DRC operations, which has continued to pay only its interest obligations. The group has successfully negotiated an extension to the capital moratorium which expired in January 2020 in the Democratic Republic of Congo.
Overall, the group’s Southern Africa businesses has started to show signs of stabilisation in terms of cement volumes whilst the business continues to realise year-on-year cement price increases.
“The International cement business has delivered a resilient performance for the period with continued year-on-year revenue growth in DRC and Rwanda whilst PPC Zimbabwe has seen an improvement in EBITDA margins and is fully self-funding,” said PPC.
The group is also engaging in stringent cost containment measures and reduced capex significantly and is expected to be at the lower end of the guided range of R600 million to R800 million, which is anticipated to counter the negative impact of reduced EBITDA.
In terms of sales volumes, the Southern African business recorded 16 percent to 18 percent declines for the period under review.
Increased importer and blender activity has impacted PPC’s domestic volumes and pricing.
Total cement imports increased by 17 percent for January 2019 to December 2019 compared to the same period in 2018, amounting to approximately 1,2 million tonnes. According to the update, coastal business is experiencing a downturn in volumes impacted by imports, whilst inland volumes are showing signs of improvement. In Rwanda, business is benefitting from increased construction activities in that country and economic growth, which resulted in the business achieving higher volumes, with EBITDA tracking in line with the prior period supported by stable pricing.
The group’s focus will be the conclusion of the refinancing and restructuring in the international cement business.
Said PPC: “The group will continue to focus on improving the performance of its core operations and positioning the group for future growth as the leading organisation in the South African cement industry.”
Recently, Finance and Economic Development Minister suspended fungibility for dual listed stocks like PPC which is also on the JSE, Seed Co international which is also on the Botswana Stock Exchange as well as Old Mutual which is present on JSE and London Stock Exchange as well.
In an inflationary environment, fungible shares can be bought on the ZSE and sold on foreign markets, which would be tantamount to illicit flows of local foreign currency.