Power outages hit PPC cement sales

REGIONAL cement maker PPC expects sales volumes at its Zimbabwean unit will drop by 14% in the full year compared to the same period last year due to recurrent power outages and grey imports.

PPC operates a clinker plant at Colleen Bawn in Gwanda in the southern part of the country, as well as cement-milling plants outside Bulawayo and Harare.

Apart from South Africa and Zimbabwe, PPC also has units in Botswana, Ethiopia, the Democratic Republic of Congo (DRC) and Rwanda.

According to the pan-African cement producer's operational update for the 12 months ending March 31, 2023, Zimbabwe's ongoing power crisis is having a devastating impact on cement sales.

"At 30 September 2022, PPC Zimbabwe reported a decline in sales volumes of 13% for the first six months of full year 2023 (FY23) due to the impact of a longer than usual kiln stoppage to implement operational and environmental performance improvements with the expectation that sales volumes would recover in H2 (second half) of FY23," the update read in part.

"Notwithstanding market conditions in Zimbabwe remaining positive due to continued infrastructural investments, sales volumes in H2 FY23 have been muted due to significant power interruptions and a more gradual than anticipated recovery of market share lost to imports.

"For the full year, PPC Zimbabwe therefore expects sales volumes to decline by 14% to 18% compared to FY22. PPC Zimbabwe has engaged the authorities to reduce the impact of the lack of electricity in critical industrial sectors such as cement manufacturing and to ensure a level playing field with importers."

The group, however, said the outlook for PPC Zimbabwe remained positive and it was expected that earnings before interest, taxes, depreciation and amortisation (EBITDA) and EBITDA margins will continue to recover to the levels of FY22 over the coming months.

For FY23, PPC received US$8,8 million in dividends from its Zimbabwean operation. The bi-annual dividend declarations are expected to continue and grow over time, it said.

In the outlook, PPC plans to implement further cost reduction measures across its portfolio to protect and restore EBITDA margins.

"This is in particular important for South Africa, where the business environment is expected to remain difficult as load shedding and other challenges persist. Further cement price increases will be necessary to ensure the long-term sustainability of the domestic industry and PPC will continue to implement the required price increases while protecting its leading market position," the group said.

"However, PPC remains prepared and able to activate additional capacity when the impact of infrastructure programmes materialises. This can be done in a matter of weeks without significant fixed costs or capital expenditure."

The group said its subsidiaries outside South Africa and Botswana were well positioned to continue to deliver a strong performance with regular and increasing dividend declarations to South Africa.

With the South African gross debt to EBITDA ratio expected to be at the stated optimal level, PPC intends to prioritise returning cash to shareholders through dividends or a share repurchase programme in the absence of any value-enhancing corporate activity.

PPC expects net debt in South Africa and Botswana to be between R725 million and R775 million at year-end.