PPC is in good shape to take advantage of an economic upswing
The continent's biggest cement maker last week reported a 33percent rise in headline earnings per share to 20cents for the year to end-March, but the weak economic conditions in many of the markets in which the group operate - South Africa, in particular - was reflected in an increase of only 1percent in sales volumes to 5.9million tons.
About 70percent of the group sales volumes are from South Africa.
Claassen said their target was to push the earnings before interest, tax, depreciation and amortisation margin to 30percent, where it covered the cost of capital, from the current level of about 20percent. Measures to improve efficiencies would continue. He expected the local cement market to remain stable for 12 months, and hopefully there would be a turnaround in the year thereafter. Demand was likely to increase in Botswana.
Claassen said they would also continue to lobby the government to impose additional import tariffs on cement, not because PPC wanted to be in a position where it was competing unfairly compared with importers, but because, for instance, it had to pay carbon tax of R100million to R120m a year (a cost that is passed on to consumers), while cement importers did not have to pay this cost.
In Zimbabwe, PPC’s plant was operating in a high inflationary environment - estimates of inflation were at 70percent on Friday - due to monetary policy changes, and input costs were rising fast, while the group also needed to maintain margins, said Claassen.
PPC had experience of operating in a high inflation environment in Zimbabwe in 2010. Claassen said the strategy was to maintain a high level of self-sufficiency - more than 90percent of inputs into the Zimbabwean operation were sourced in that country - and to preserve as much cash as possible to ensure the business remained sustainable.
The group was performing well in the Democratic Republic of Congo. In the past year, operations there had turned around from an R100m loss to more than a R100m profit.
Operations in Rwanda reported a stable performance last year and work was under way to de-bottleneck the plant. Rwanda was the third-fastest growing economy in Africa, he said.
In Ethiopia, the political situation was expected to improve this year, and its gross domestic product was projected to grow by 7 to 8percent, with the wholesale and retail sectors expected to grow by more than 10percent.
* The reporter holds shares in PPC.