South African cement producer, PPC Limited, recorded solid performance for the financial year 2024 (FY24) supported by strong performance by its Zimbabwean operations.
In an earnings update for the review period, the group revealed revenue rose 20,6 percent to R10 058 million driven primarily by a strong performance in PPC's Zimbabwean operation.
The South African and Botswana operations revenues increased only marginally by 5,2 percent, driven by price increases and increased sales of clinker to Zimbabwe, which positively offset the declining cement sales volumes.
Revenue from the materials businesses declined by 6 percent relative to the prior year.
According to the performance review update, PPC's operation in Zimbabwe delivered a strong recovery in the current year albeit off a low base following the extended maintenance shutdown of the kiln in the first half of the prior year.
"Zimbabwe won back the market share it had lost with demand across both residential construction and Government-funded infrastructure projects," said PPC.
Cement sales volumes in Zimbabwe surged by 36,6 percent when compared to the prior year although growth has softened as the effect of the stronger base in the H2 FY23 starts coming through.
During the year under review, PPC Zimbabwe's revenue almost doubled, increasing by 90,9 percent in rand terms to R3 346 million on strong cement volumes and price increases. The full-year impact of the 5 percent selling price increase that was effected in August 2022 (prior year) and the 4 percent sales price increase effected in January 2024 also contributed to the revenue increase.
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) margins reduced marginally to 20,2 percent compared to 20,8 percent in FY23 but significantly off the half-year margins of 24,6 percent due to high electricity costs resulting from a gradual tariff increase.
Clinker purchases also continued in H2 FY24 and the full cost of purchased clinker was 169 percent higher than the prior year.
The Zimbabwe unit paid US$11 million dividend during the year compared to a US$10 million in the prior year.
The unit remains suspended from the Zimbabwe Stock Exchange (ZSE) following its suspension in June 2020 together with Old Mutual and Seed Co International on allegations they were fueling inflation.
The three counters also had their fungibility suspended. Only Seed Co International relisted on the Victoria Falls Stock Exchange (VFEX). Meanwhile, PPC Limited's cost of sales increased 16,3 percent to R8 409 million from R7 231 million.
"All of the increase in the cost of sales is attributable to Zimbabwe, with the SA and Botswana group's cost of sales declining marginally by 1,3 percent driven by lower sales volumes.
Group administration and other operating expenditures increased by 5,5 percent. EBITDA margin therefore improved to 12,3 percent. Accordingly, trading profit surged to R619 million from R117 million. Of the R502 million increase, R395 million was attributable to Zimbabwe.
PPC Limited also indicated that depreciation for the group decreased by R155 million to R623 million and the most material contributors to the decrease were PPC Zimbabwe and SA and Botswana cement.
Due to the change in the functional currency for PPC Zimbabwe from the ZWL to the US dollars, hyperinflation accounting is no longer applicable, which resulted in a decrease in property, plant and equipment and an associated decrease in depreciation by R86 million.
The prior year's net monetary loss arising from hyperinflation accounting for PPC Zimbabwe of R131 million is no longer applicable in the current year.
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Despite the challenges experienced in the past years that weighed on profitability, PPC Limited remains upbeat about its prospects. To unlock internal value and drive profitability, the immediate need for strategic personnel changes was identified and implemented.
Externally, demand is anticipated to remain subdued, although there are signs of growth in some regions.
In FY25, the focus will be on cost awareness throughout the organisation, robust capital expenditure analyses and the creation of reliable internal business intelligence to support better quality decisions.
According to the group, the strategic plan will focus on working capital management, a contribution margin approach, improving industrial performance, enhancing the go-to-market and logistics operating model.
To navigate high input costs, cement companies must focus on optimizing their operations for enhanced efficiency and profitability. Industry enforcement of quality standards will be crucial for sustainability of the cement sector.
