PPC pins hopes on Zimbabwe, 'overdue' SA recovery

Pretoria Portland Cement (PPC) hopes for a "long overdue" recovery in the cement industry, and is also pinning its hopes on further growth in Zimbabwe.

The cement manufacturer on Tuesday reported diluted headline earnings of 163.8 cents for the year ended September 2011, from 215.6 cents previously. Its diluted earnings per share declined to 163.3 cents, from 209.8 cents in 2010. 

Revenue was relatively flat at R6.83 billion, from R6.81 billion earlier. 

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) declined by 14% to R2.15 billion, while operating profit decreased by 19% to R1.67 billion. 

A final dividend of 95 cents per share was declared, from 130 cents in 2010, bringing the year's total dividend to 130 cents, from 175 cents previously. 

CEO Paul Stuiver said: "The results reflect the difficult conditions experienced by local building and construction industries. Demand in South Africa and Botswana has only recently begun to improve and the only region where we enjoyed growth during the year was Zimbabwe." 

PPC Zimbabwe's domestic sales improved by more than 50% during the year due to a combination of increased demand and operational problems suffered by competitors. 

"Operating performance at the Colleen Bawn factory improved during the second half of the year and equipment at our Bulawayo grinding depot that had been mothballed for 15 years was re-commissioned to meet increased demand," Stuiver said. 

He said that while the sales levels recorded in Zimbabwe were unlikely to be sustained due to improved competition, increased activity in the mining sector and heavy industries in Zimbabwe would likely continue to fuel growth rate by approximately 25%. 

"We are still very bullish about Zimbabwe," the CEO said. 

However, significant input price inflation on key items such as electricity continues to be a concern for the group's Zimbabwean operations, the group said. 

To combat difficult economic conditions, Stuiver said that PPC had effected a rightsizing of its business during the year, trimming its staff content by approximately 200, or 6% to 3,100. The CEO stressed that retrenchments had not been forced and would lead to overall savings of R110 million in the coming period.

PPC said total cement sales reduced by 3% following lower sales in coastal areas and Botswana and lower exports, partly offset by growing demand in Zimbabwe. 

Cash generated from operations remained strong at R2.1 billion, from R2.44 billion in 2010, and capital investment was reduced to R483 million, from R613 million. 

Although South African industry statistics had improved in recent months, PPC said that overall cement volumes for the 12 month period was similar to last year. 

PPC's SA cement volumes were 4% lower due to exposure to lower demand in the Western and Eastern Cape provinces. 

Over-capacity in the SA cement industry continued to drive competitive market dynamics and pressure on cement selling prices. A weighted average increase of 4% in selling prices during the year was insufficient to recover rising input costs, it said. 

Looking ahead, PPC said that recent improvements in local cement industry sales were encouraging but clouded by continued uncertainty over the future of the global economy. 

"We expect cement demand in Zimbabwe to continue growing unless conditions deteriorate. Based on historical trends and previous industry cycles, a long-term recovery in South African cement demand is long overdue and latest industry trends indicate that further decline is unlikely," it said. 

The company said it was fully prepared and well-placed for either a continuation of challenging business conditions or for any upturn in cement demand. 

In early trade on the JSE on Tuesday, shares in PPC advanced 54 cents or 2.17% to R25.42.