Embattled PPC shakes off its cement shoes in double dollop of good news
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CAPE TOWN – The country’s largest cement maker, PPC, which is struggling for financial survival, on Monday received a double dollop of good news after it was granted immunity from a long-standing competition case and announced strong cement sales.
The group reported a R2.39 billion loss versus a R162 million profit for the year to the end March compared with the prior year, due in part to tough competition from lower-priced imported cement, and it subsequently announced a number of material accounting restatements.
In its recent annual report, its auditor, Deloitte, also issued a critical report that highlighted “material weaknesses in internal controls over financial reporting” as one of several key audit matters that needed to be addressed by the cement and lime producer.
PPC’s shares, however, gained 3.45 percent yesterday afternoon to 60 cents, after falling steadily over the past 12 months from R3.30 a share.
PPC said the strong recovery in sales in South Africa and Botswana after the lockdown had continued, with cement sales volumes up by 20 to 25 percent year on year from July to September. This is in line with the relatively strong sales reported by other building materials producers, such as Raubex and Afrimat.
PPC’s strong sales continued last month, with sales up 15 to 20 percent over the same month last year, with the increase primarily driven by retail sales. Higher cement sales are being driven by consumers spending less on other discretionary products due to reduced movement, while also benefiting from low interest rates and various social relief grants.
The announcement came as the country graft authorities granted PPC immunity from prosecution in the long-standing cement cartel case that started in 2008 and had implicated the country’s major cement producers.
The Competition Tribunal confirmed a settlement agreement between PPC and the Competition Commission that granted the cement company immunity from prosecution. This after PPC was the first company to admit that it had been involved in collusive conduct that involved price-fixing and market-sharing.
Two other cement makers, AfriSam and Lafarge, also admitted to price fixing and market sharing between 1995 and 2009 following the commission’s probe. AfriSam paid a settlement fine of R124.88m in 2012, and Lafarge also paid a R148.72m fine. A case was dismissed against Natal Portland Cement (NPC).
In terms of the agreement with the commission, PPC has undertaken to not engage in price-fixing or any form of prohibited conduct in the future.
“In addition, it will have to develop a competition law compliance programme,” the commission said.
The commission launched an investigation into the cement industry in June 2008, and it probed alleged anti-competitive conduct between 1995 and 2009 by NPC, PPC, Lafarge Industries South Africa and AfriSam Consortium.
According to the investigation allegations, the cement cartel had agreed in 1995 to allocate each cement producer the market share it had held before 1996, when a lawful cement cartel existed under apartheid, and the cartel also agreed to collude and divide up cement markets in Lesotho, Botswana, Swaziland and Namibia.
The commission also alleged that, following a price war, cement companies held a series of meetings and concluded further collusive agreements to stabilise the industry.
PPC said yesterday it had started to experience the positive impact of increased infrastructure spending, which it hoped would continue to carry the strong demand once retail sales volumes returned to more normalised levels.
The government has made massive infrastructure investment a cornerstone of its post-pandemic economic recovery programme, and the Development Bank of Southern Africa, which is spearheading the planning of the projects, has indicated that the first projects were likely to be announced early next year.
The cement maker said its international operations were less affected by the Covid-19.
From July to September this year, sales volumes in PPC Zimbabwe and PPC Barnet increased by 35 to 40 percent and 20 to 25 percent respectively, compared with the same period in 2019.
Last month, however, saw moderate growth in cement volumes for PPC Zimbabwe of about 5 percent compared with October last year, while PPC Barnet continued to experience strong growth, with cement volumes up 25 to 30 percent compared with October last year.
Despite the continued positive sales momentum, however, the group remained cautious on the outlook for the rest of the 2021 financial year given the ongoing health crisis and its impact on economic activity.
PPC planned to also recapitalise its international operations before the end of this calendar year.
PPC shares rose 3.45 percent on the JSE on Wednesday to close at R0.60.