Cement company PPC has reported a 20.6% year-on-year increase in revenue, amounting to approximately $550 million for the financial year ended March 31, compared with the $457 million reported for the prior financial year.
At the release of its financial results on 24 June, the company attributed this growth primarily to its performance in Zimbabwe. However, PPC CEO Matias Cardarelli cautioned that a unique set of once-off circumstances led to this strong performance, which is unlikely to be repeated in the future. These circumstances included the restart of the Zimbabwe kiln, a temporary cement shortage in the country due to a competitor’s operational issues, and a government-imposed limitation on cement imports.
“All three at the same time, we don’t see happening again. The results in Zimbabwe were positively impacted by situations that we don’t see repeating again in the short term. Rather, we need to look internally,” Cardarelli told The Southern African Times.
Despite a decline in group sales volumes, with muted demand for cement in the South Africa and Botswana businesses, PPC said it remained resilient in the evolving cement industry and poised for change. The company declared an ordinary dividend of 13.7 cents per share, based on a pass-through of the Zimbabwe dividend received during the year.
“These results were positively impacted by the Zimbabwe performance, while our South African and Botswana businesses did not perform to their full potential. This is a critical moment for PPC as our prolonged underperformance calls for us to make strategic decisions, shift our focus and strengthen our core operations,” Cardarelli said.
Group cost of sales increased by 16.3% to approximately $462 million, up from around $396 million the previous year. All of the increase in cost of sales is attributable to Zimbabwe, with the South Africa and Botswana group’s cost of sales having declined marginally by 1.3%, or $4 million, driven by lower sales volumes.
Group administration and other operating expenditure increased by 5.5%. Consequently, group earnings before interest, taxes, depreciation and amortisation (EBITDA) margin improved to 12.3% from 10.7% in 2023.
Cardarelli stressed the urgent need to improve management account information. “Currently, the company is lacking accurate information about many of the most important indicators of our business. That prevents management from taking appropriate decisions. So we are working a lot on rebuilding the management account system in the company to be able to take better decisions in the future,” he said.
Trading profit increased by $28 million to $34 million from $6.4 million. Of the $28 million increase, $21.7 million was attributable to Zimbabwe.
Depreciation for the group decreased by $8.5 million to $34.3 million from $42.8 million last year. This decrease was mainly due to PPC Zimbabwe and South Africa and Botswana cement. With the change in functional currency for PPC Zimbabwe from the Zimbabwean dollar to the US dollar, hyperinflation accounting is no longer applicable, resulting in a decrease in property, plant and equipment and an associated decrease in depreciation by $4.7 million.
South Africa and Botswana cement also had a decrease in depreciation of $3.1 million, mainly owing to the extension of the useful lives of certain assets.
“Most of our kilns are operating below capacity. So we think we have a challenge there in terms of performance and reliability, and we need to look carefully at that. I think that we have a good opportunity to increase our coprocessing. We are the lowest cement producer in the country in terms of coprocessing rates. That would be very good, not only for reducing costs, but also for our CO2 emissions,” Cardarelli said.
To further improve the balance sheet, the company is considering taking more control over its logistics operations, which are currently fully outsourced.
Given the movements in trading profit and depreciation, group EBITDA increased by 38.6% to about $66 million from $49.3 million in 2023.
Fair value and foreign exchange gains movements changed from a gain of $3 million in the 2023 financial year to a charge of $1.6 million in the current year. The prior year’s net monetary loss arising from hyperinflation accounting for PPC Zimbabwe of $7.2 million is no longer applicable in the current year. Additionally, the company reported a significant increase in impairments to $14.7 million from $3.3 million a year prior, primarily related to property, plant, and equipment as muted market volumes are expected to persist and there is a need for capacity and cost optimisation going forward.
Finance costs increased marginally to $7.2 million from $6.8 million in 2023, while investment income increased to $2.3 million from $1.4 million last year, owing to higher cash balances earning a higher interest rate in South Africa.
PPC CFO Brenda Berlin noted the company achieved modestly improved results despite the decline in performance across operations in the second half of the year. “The internal focus areas are expected to unlock value and improve margins,” she added.
Cement revenues in South Africa and Botswana increased by 5.2%, mainly due to a 9.7% increase in average prices over the prior year and higher sales of clinker to Zimbabwe, offsetting the lower cement sales volumes. However, revenue from the materials businesses declined by 6.9% compared with the prior year.
Total group capital expenditure rose marginally to $22 million, slightly below the planned spend. Headline earnings per share (HEPS) and earnings per share (EPS) increased notably, with HEPS of 1.05 cents, compared with a loss per share of 1.1 cents in the prior year. EPS improved to 0.33 cents per share, from a loss of 1.2 cents per share last year.
The company completed a successful share repurchase programme and reduced bank debt in the South Africa and Botswana operations.
“Our strategic plan focuses on working capital management, a contribution margin approach, improving industrial performance, enhancing the go-to-market and the logistics operating model. Our short-term strategic focus on internal reorganisation will pave the way for growth in the next phase,” Cardarelli concluded.
