SA’s cement industry has scope for consolidation – PPC

JSE-listed cement and building materials producer PPC says there is scope for further consolidation in South Africa’s cement industry.

PPC CEO Roland van Wijnen on Monday disagreed with suggestions that PPC will not be permitted to acquire South African cement assets because of the company’s high domestic market share.

He said the company had undertaken studies of potential consolidation plays and combined market shares and “we do not think that is a major issue”.

Van Wijnen confirmed there are other players in cement in the South African market that are also looking to sell their assets.

Read: SA’s cement industry faces multiple threats

“We know for a fact that NPC out of KwaZulu-Natal is actively looking for buyers and we were aware of Lafarge. It is often rumoured that AfriSam might not have long term owners after the debt restructuring,” he said.

Financiers secure stakes

Van Wijnen’s comments follow JSE-listed Afrimat last week announcing the purchase of cement producer and construction materials provider Lafarge South Africa, part of the Holcim Group, for about $6 million.

A debt restructuring by AfriSam in 2020 resulted in its major financiers securing significant stakes in the company by converting the majority of its debt into equity to reduce its total debt to R2.1 billion from R8.6 billion.

Van Wijnen said consolidation is “something that can create value and we believe in that”.

However, Van Wijnen said PPC has always maintained that consolidation does not fix demand.

“The demand is driven by macroeconomics, so even if you consolidate you will not suddenly see an uptick in demand. However, there are certain benefits, such as … optimising distribution networks that you can benefit more from if you combine existing players,” he said.

Read: Engineering body issues dire warning over collapsing public infrastructure

Van Wijnen stressed PPC would not look at consolidation to immediately close down cement factories.

“This is also something that is probably going to be difficult given the high unemployment and the view of the Competition Commission on these kinds of activities. Ultimately, consolidation depends on whether the buyer and seller can find each other on attractive valuations, as was the case for Afrimat and Lafarge, and the future will tell if there will be other opportunities that will come to life,” he said.

Strong stable players

Van Wijnen added that he had no doubt that Afrimat would be able to fix Lafarge’s cement assets and the aggregates and ready-mix assets will be a welcome addition for them.

He said it is always good for a cement industry to have strong stable players in the market and like-minded companies to PPC, such as Afrimat, will help PPC with its engagements with the government to ensure there is a strong local manufacturing future for the industry in South Africa.

Read: Government asks cement producers for ‘no price increases’

PPC’s results

Van Wijnen’s comments were made during a presentation of PPC’s financial results for the year to end-March 2023 on Monday.

PPC reported a widening in the group’s loss for the year from continuing operations to R574 million from R77 million.

The weak macro environment in South Africa resulted in group revenue increasing marginally to R9.9 billion from R9.88 billion.

Group earnings before interest, tax, depreciation and amortisation (Ebitda) declined to R1.35 billion from R1.49 billion, with the Ebitda margin deteriorating to 13.7% from 15.7%.

The headline loss per share increased to 8 cents from 3 cents.

Share repurchase programme

PPC announced a distribution to shareholders through a R200 million share repurchase programme, made possible by the company achieving its desired level of gearing.

Van Wijnen said PPC decided on a distribution to shareholders through a share repurchase programme rather than a cash dividend because the company believes its shares are undervalued.

“We believe there is more value in distributing through a share repurchase rather than a cash dividend,” he said.

It is anticipated the share repurchase programme will benefit shareholders through an improvement in PPC’s share price because of fewer shares in issue, thereby increasing the overall value of each shareholders’ shareholding.

Weak cement market

Van Wijnen said the share repurchases could take time because liquidity in PPC’s stock is relatively low and it also does not want to create enormous share movements because of the programme and believes PPC will be able to sustain distributions to shareholders in the future.

He said current cement demand is lower compared to the prior year, which can be seen in PPC’s financial figures.

Van Wijnen attributed this to less retail demand and higher inflation and although the rollout of the government’s infrastructure programme has commenced, it is at a low level and the market is still weak.

He said PPC is only running two of its four inland region kilns, an indication that it has spare capacity to supply the market if demand rises.

Imports decline

PPC estimates that imports of cement and clinker decreased by 34% overall year-on-year due to global supply chain constraints and the weaker rand.

PPC MD for South Africa and Botswana Njombo Lekula said this provided much-needed relief for domestic producers but stressed the erratic nature of imports creates instability in the market, leading to uncertainty that hampers efficient business across the value chain.

“A level playing field is necessary to remove the threat that imports pose to the industry and broader economy, and we continue to engage with key government and other stakeholders in this regard,” said Lekula.

He added that government’s response to the industry’s efforts to get import tariff protection has been disappointing and very slow but it continues to engage with government on this issue.

Economic recovery ahead

Van Wijnen said PPC expects the economic climate in South Africa to stay muted in 2024 but there should be a recovery in the financial performance of PPC Zimbabwe as it regains market share following the extended planned kiln shutdown in the first half of the past financial year. Cimerwa in Rwanda is also expected to deliver a continued good performance.

Van Wijnen said he indicated to PPC’s board late last year that he was not going to extend his employment contract.

“I have family commitments and going back and forward is quite testing,” he said.

Van Wijnen’s employment contract was scheduled to end at the end of August but an agreement has been reached to extend it to the end of December to ensure an orderly handover.

PPC said following an extensive search process, the board is in the final stages of appointing a suitable successor.

Shares in PPC rose 0.78% on Monday to close at R2.60 per share.

Listen to Fifi Peters’s interview with PPC CEO Roland van Wijnen:

You can also listen to this podcast on iono.fm here.