Sephaku Cements plant in Delmas is expected to reach full capacity by mid-year. Photo: Supplied.
Sephaku Cements plant in Delmas is expected to reach full capacity by mid-year. Photo: Supplied.

Low demand and stiff rivalry cited for big slump in Sephaku’s net profit

By Edward West Time of article published Mar 4, 2020

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CAPE TOWN - Cement company Sephaku Holdings yesterday reported a sharp slump in net profit to R1.3million in the year to end December from R128.7m in 2018, which came on the back of a once-off R81.7m credit granted as a Section 12L tax incentive for energy savings during the 2017 tax period.

The group blamed increased competition from blenders and importers in a low-demand environment for the decline, charging that it hurt the building materials industry during the period in review. It said imported cement volumes rose 12percent year-on-year. Sephaku Cement's (SepCem’s) sales volumes were 9.4percent lower year-on-year.

Sephaku’s directors said the industry’s application for a safeguard tariff from the International Trade Administration Commission of South Africa had progressed well which, if successful, would result in a non-country-specific flat tariff on all imported cement.

The industry wants protection because of the high cost of doing business due to stringent legislative requirements, and high regulatory standards compared to the importing countries.

SepCem increased prices by 8percent and 10percent per ton in January 2019 for bulk, and February 2019 for bagged cement, respectively.

An additional price increase was implemented in July 2019 for carbon tax recovery.

These increases, and the introduction of Falcon, caused a 5.2percent rise in annual revenue per ton.

SepCem’s revenue decreased to R2.18billion from R2.29bn in 2018, due to a volume decline.

The annual earnings before the interest, taxation, depreciation and amortisation margin was 16percent, compared with 20percent in 2018.

Profit margins were also impacted by above-inflation cost increases in inputs such as coal, electricity and fuel.

Sephaku said it was working on reducing escalating costs, while an alternative source for competitively priced coal had been found.

The group said it had repaid more than R1bn of project loan capital by December 31.

The Métier subsidiary continued to experience intense competition in Gauteng and Kwa-Zulu Natal, with its profitability under pressure.

Stagnancy in the construction industry had resulted in high competition in supply nodes, with relatively high-volume demand.

Its sales volumes as at the end of December 2019 were 13.7percent lower, and prices 1.5percent higher per cubic metre year-on-year. Cost-cutting measures were under way..

A R37.5m rights offer was successful on February 14.

“The strategy to establish Sephaku Holdings as a renowned building-materials investment entity entails developing the investment portfolio to encompass a variety of manufacturers along the construction value chain,” Sephaku said.

To that end, Métier provides an important lever for both downstream and upstream expansion opportunities for the group.

The demand for building materials was expected to remain subdued, as reflected in data of a 12.7percent decline in building plans passed.

Sephaku selectively implemented price increases of 5percent to 9percent in January and February for bulk and bagged cement, respectively. Most competitors opted to either delay or not increase pricing in the quest to maintain or improve sales volumes.

Sephaku shares gained 6.67percent on the JSE yesterday to close at R0.80.

BUSINESS REPORT 

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