adminSA’s dismal construction and mining markets saw the country’s premier cement maker PPC post a 38% plunge in headline earnings per share in the six months to March.The company, its reputation hard hit by the sudden departure of former CEO Ketso Gordhan late last year after a battle with the board, has seen its share price halve in the past year.
But the market rewarded new management with a more than 7% jump in the share price on Tuesday, despite profit for the period plummeting 43%.
Ron Klipin, portfolio manager at Cratos Capital, said on Tuesday “fresh eyes” and a change from the “politicking of the past” meant the company was slowly getting on the right track. “But the jury is still out.”
New heavyweight entrants into the regional market — Nigerian-and Chinese-backed empowerment groups Sephaku Cement and Mamba Cement — are set to add millions of tonnes of cement output in SA. Along with big volumes of cheap cement imports from Pakistan, competition has become much fiercer for the country’s established producers, forcing PPC to look for 40% of revenue from the rest of Africa by 2017.
There has been some relief from competitive pressures in the past week after the International Trade Administration Commission of SA imposed provisional antidumping duties of between 14.29% and 77.15% on Pakistani cement imports, up to and including November 13.
After four months in the job, new PPC CEO Darryll Castle said on Tuesday he would maintain and accelerate the core group strategy of keeping the “home fires burning”, while expanding into Rwanda, Ethiopia and the Democratic Republic of the Congo at the same time PPC was growing output in Zimbabwe.
Gross debt of R6.8bn is set to rise to R10bn-R12bn in years to come. But the group has ring-fenced construction costs for rest-of-Africa plants by timing ramp-up of production in each case with paying down debt.
“Ketso’s (Gordhan’s) departure has little to do with recent performance. Rather, competitive factors are responsible for the decline,” Victor Seanie, investment analyst at Kagiso Asset Management, said.
“These include competition from cheap cement imported from Pakistan and Sephaku cement aggressively taking market share from PPC by undercutting it on price.
“In addition, the slow growth in SA forces cement players to shave prices to keep plant capacity utilisation high enough to cover costs and meet their volume growth targets,” he said.
Mr Seanie said another contributing factor was that PPC’s net interest expense had risen 27% year on year, because the company’s debt had increased to fund the cement plant construction elsewhere in Africa. Imara SP Reid analyst Sibonginkosi Nyanga said the result “fairly reflected” the difficulties faced by SA’s construction sector.
Operationally, it reflected that competition had toughened, both from new cement plants and from cheap — and sometimes illegal — imports, and that the economy was not performing, he said. — Business Day.
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