Greener pastures up north for PPC

South African cement maker PPC looks north to opportunities in Africa, even as more competition prepares to pile into the local market.

With a slow economic recovery — and many local government infrastructure plans stalled pending investigations — the South African market has been tough for cement-maker PPC.

In an interview on Summit TV, chief executive Paul Stuiver said higher costs and lower sales resulted in PPC headline earnings moving down 24%.

Having joined other South African companies looking north for greener pastures, PPC is now awaiting the outcome of its bid for a stake in a state-owned cement company in the Democratic Republic of Congo.

"We are one of two bidders; the other is an Angolan company. Chances are at least 50/50, but unfortunately the DRC has elections coming up in the last week of November, so the ministers are out politicking in the countryside. We expect to know in January 2012," said Mr Stuiver.

PPC has seen surprise demand from Zimbabwe, he added. "Zimbabwe was a special case — their economy was suppressed by the currency issues they had, but with dollarisation in early 2009, cement demand took off."

Mr Stuiver said the Botswana economy was dominated by government spending that saw less activity.

In South Africa, the company’s main market, PPC had seen 10 to 15 good years, followed by the tough conditions of the past few years.

"We are now getting out of the bad cycle into positive territory," said Mr Stuiver.

He said inland regions of South Africa such as Gauteng, Limpopo and Mpumalanga had improved by a few percentage points, but coastal areas remained depressed as these markets were traditionally speculative and prone to sharp falls.

The announcement of new competitors entering into the South African market did not seem to be of great concern to PPC. "Sephaku (Cement) has to build a cement plant from scratch, which realistically takes at least two to three years. They should enter the market in 2014 or maybe 2015," the chief executive said.

Mr Stuiver believes the market can grow between now and 2015, and there might be room for another cement manufacturer. However, he also said the market entry of Sephaku Cement — a subsidiary of Sephaku Holdings, the minerals exploration and development company — might be too soon and that it should consider delaying its plans.

Increases in the prices of diesel and electricity, among others, have hit the company in South Africa. Its costs have increased by 11% in a market that only tolerates concrete price increases of about 4%.

"Typically we look at recovering cost increases in the years to come, but next year is still going to be difficult," said Mr Stuiver.

With cost increases typically only recovered in the second or third year of a recovery, the company has been forced to cut costs for the past four years.

"We took out 6% of our employee head count last year — but that was with voluntary separation packages," said Mr Stuiver.

He added that the shortcomings of Transnet meant trucking cement around, which proved expensive for the company. "We are told by Transnet that we are one of their top 10 customers — but the service we’ve been experiencing is very disappointing."

Mr Stuiver said he "shuddered" to think about the service that customers further down the ladder might be experiencing. PPC has tried to engage Transnet at a high level, only to see meetings cancelled.

The lack of capacity at Transnet has been aggravated by continuing problems with cable theft.

"People are stealing cables from the Gautrain, which is very public — stealing cables on the line to Brits is a lot easier as there isn’t much security," said Mr Stuiver.

Competitor AfriSam recently paid a R123m fine for its part in a cement cartel, but PPC had "come clean" and struck a leniency agreement by helping the Competition Commission with its investigations.