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Capital Markets Day and Operational Update for the Twelve Months ending 31 March 2023
PPC Ltd
(Incorporated in the Republic of South Africa)
(Company registration number 1892/000667/06)
JSE ISIN: ZAE000170049
JSE code: PPC ZSE code: PPC
(“PPC” or “the group”)
CAPITAL MARKETS DAY AND OPERATIONAL UPDATE FOR THE TWELVE MONTHS ENDING 31 MARCH
2023
PPC CAPITAL MARKETS DAY
PPC is hosting a Capital Markets Day today at 09h00 (SAST) at the Vineyard Hotel in Cape Town. The
event, which will provide deeper insight into PPC’s strategy, operations and financial information will
also be broadcast live via a webcast with live question and answer sessions. Further details can be
accessed at the following links:
Investor presentation:
https://www.ppc.africa/investors-relations/reports/?t=presentations-allocate
Webcast:
https://www.corpcam.com/PPC16032023
A recording of the event will be available on the PPC website from late afternoon on the Capital
Markets Day.
OPERATIONAL UPDATE FOR THE TWELVE MONTHS ENDING 31 MARCH 2023
GROUP PERFORMANCE
The twelve months ending 31 March 2023 has been characterized by different market conditions in
each of the markets in which PPC operates, being South Africa & Botswana, Zimbabwe and Rwanda.
In South Africa & Botswana, the market has been affected by a decline in disposable income and the
absence of any material increase in demand from infrastructure spending. Zimbabwe and Rwanda
continue to experience growth in cement demand supported by infrastructure spending and retail
demand in both countries. The one common factor across the markets has been a significant increase
in input costs due to the rise of energy costs globally.
Deleveraging continued to be a priority in South Africa & Botswana. PPC expects net debt in South
Africa & Botswana to be between R725 million and R775 million at year-end down from R1,075 million
at 31 March 2022 and R935 million at 30 September 2022. Gross debt is anticipated to reach our
targeted levels by year-end, which would allow for distributions while maintaining gross leverage at
1.3 – 1.5x of the full South African and Botswana operations EBITDA, which includes dividends from
Zimbabwe and Rwanda. In Rwanda, CIMERWA’s debt continues to decrease and matures in August
2024. Both PPC Zimbabwe and CIMERWA expect to be in a net cash position at 31 March 2023 with
sustained dividend payments being a key priority. CIMERWA declared its first dividend in the current
financial year, which is anticipated to be paid out before end March 2023.
SOUTH AFRICA & BOTSWANA CEMENT
PPC expects cement sales volumes in South Africa & Botswana to decrease by 4% to 7% year-on-year
for the twelve months ending 31 March 2023 (“FY23”). A decrease of 2.6% was reported for the first
six months of FY23 (“H1”) and the negative trend in market demand has continued in the second six-
month period of FY23 (“H2”).
These numbers mask a relatively sound performance in the coastal region while trading in the inland
region continues to be very challenging. In the Western Cape, PPC has been able to increase its market
share as imports reduced over the reporting period. Conversely the cement market share of PPC in
the highly competitive inland areas has come under pressure following price increases implemented
in June 2022 to offset rising costs. Rising input costs and the objective of maintaining our market share
continues to cause margin pressure. Average selling prices (“ASP”) for the full year are expected to
increase between 5% and 7%. At 30 September 2022, the ASP was reported to have increased by 5%
in the first six months of FY23 compared to the same period in the previous financial year (“FY22”).
PPC will continue with its bi-annual price increases in the 2024 financial year to restore EBITDA
margins.
PPC contained its production cost inflation to approximately 11% during FY23. Cost mitigation
measures and improved operational performance reduced the impact of the external input cost
inflation. Efforts to contain fixed costs and administration/other expenses resulted in these costs only
increasing between 3% to 5%.
Earnings before interest, tax, depreciation and amortisation (“EBITDA”) margin was 17.6% for H1 FY22
and 14.5% for FY22. This declined due to cost pressures in H1 FY23 to a reported 12.2%. Price increases
in H2 FY23 have not kept pace with cost inflation and PPC expects the margin for the South Africa and
Botswana Cement business to decline to a between 9% and 11% for the full year from 14.5% reported
for FY22.
Recovery of cement demand in South Africa remains dependent on the implementation of the much
awaited and needed infrastructure programmes as well as an improved macro environment.
Consumer spending on building materials is not expected to increase in the short-term. Despite lower
international freight costs, PPC does not anticipate a significant increase in imports in the short-term
due to rand weakness and continued port challenges across South Africa, which should provide some
reprieve. However, in the medium-term, imports and the associated impacts on direct and indirect
employment remain an issue for the South African cement industry. In addition, PPC has noticed with
concern that sub-standard cement continues to be sold in the South African market, especially in areas
with intense competition. PPC therefore continues its engagements with regulators to create a level
playing field among local, regional and international competitors.
MATERIALS
PPC operates three distinctly different business lines reported as Materials, namely readymix
concrete, aggregates and fly ash. All these business lines are subject to similar construction market
trends as described above for the South African cement demand, but are slightly less impacted by
changes in the retail sector. The readymix concrete business is a significant consumer of PPC cement
and is expected to have similar sales volumes in FY23 compared to FY22 on the back of a growth in
market share. The aggregates business serves its customers from two quarries. The lack of demand
across its customer portfolio has caused an expected decline in sales volumes in FY23 of 20% to 25%
compared to FY22. The fly ash business expects a decline of sales volumes similar to that of aggregates.
Unlike cement factories, the operations in Materials are fully exposed to loadshedding unless back-up
generators are installed. This has caused numerous disruptions and cost increases. The EBITDA
contribution of the Materials division reported a loss of R14 million at 30 September 2022 for the first
six months of FY23. For the full year, PPC expects this negative EBITDA contribution to increase
disproportionately. In the second half of FY23, a turn-around plan was formulated that will
significantly decrease the fixed costs associated with the Materials business. The plan will be
implemented in March and April 2023.
ZIMBABWE
At 30 September 2022, PPC Zimbabwe reported a decline in sales volumes of 13% for the first six
months of FY23 due to the impact of a longer than usual kiln stoppage to implement operational and
environmental performance improvements with the expectation that sales volumes would recover in
H2 of FY23. Notwithstanding market conditions in Zimbabwe remaining positive due to continued
infrastructure investments, sales volumes in H2 FY23 have been muted due to significant power
interruptions and a more gradual than anticipated recovery of market share lost to imports. For the
full year, PPC Zimbabwe therefore expects sales volumes to decline by 14% to 18% compared to FY22.
PPC Zimbabwe has engaged the authorities to reduce the impact of the lack of electricity on critical
industrial sectors such as cement manufacturing and to ensure a level playing field with importers.
The outlook for PPC Zimbabwe remains positive and it is expected that EBITDA and EBITDA margins
will continue to recover to the levels of FY22 over the coming months. For FY23, PPC received USD8.8
million in dividends from PPC Zimbabwe (USD6.2 million in FY22). The bi-annual dividend declarations
are expected to continue and grow over time.
RWANDA
At 30 September 2022, CIMERWA reported an increase of cement sales volumes of 11% for the first
six months of FY23 compared to the same period in FY22 when COVID restrictions were still affecting
the Rwandan market. Whilst market conditions continue to be positive, the sales volumes of
CIMERWA are expected to be 8% to 11% lower in H2 FY23 due to the impact of a planned kiln
shutdown for annual maintenance and the comparatively high H2 FY22 sales volumes following the
removal of COVID restrictions in Rwanda. CIMERWA therefore expects sales volumes to be more or
less flat for the full year and an increase of ASP in the range of 14% to 17%. Material future growth of
sales volumes depends on the speed of implementation of planned investments to increase
CIMERWA’s capacity. EBITDA margins were reported to be 32% for the first six months driven by the
implementation of cost reduction measures and an increase in the ASP. Despite maintenance costs
associated with the kiln stoppage in H2 FY23, CIMERWA expects to report EBITDA margins in the range
of 28% to 32% for FY23. The outlook for cement demand in Rwanda and eastern Democratic Republic
of Congo remains optimistic although PPC does note increased competitor pressure both in Rwanda
and from neighbouring countries. The shareholders of CIMERWA approved the payment of a Rwf10.5
billion dividend at the annual general meeting in February 2023. PPC expects CIMERWA to pay 51% of
this dividend (approx. R80 million after withholding taxes) in late March 2023.
LIQUIDITY & CASH FLOW
The group manages the cash flow and financial position in its three geographic areas (South Africa &
Botswana, Zimbabwe and Rwanda) separately. Each of these areas is ringfenced so that South Africa
& Botswana receives dividends and management fees from the subsidiaries outside this area. South
Africa & Botswana reported a net debt of R1,075 million at 31 March 2022 and R935 million at 30
September 2022. It expects that the net debt position will further improve to between R725 million
and R775 million by the end of March 2023. The ratio of gross debt to EBITDA (that includes the
dividends received) is expected to be approximately at the targeted level of 1.3 – 1.5x.
Prudent allocation of capital remains a priority and the capital expenditure for the whole of South
Africa & Botswana is expected to be in the range of R280 million to R310 million for FY23 compared
to R324 million in FY22. Capital expenditure in South Africa & Botswana mainly relates to the
categories of maintenance and compliance although FY23 does include expenditure for a new cement
blending facility that PPC expects to commission in the first quarter of the 2024 financial year to
further reduce costs in delivering product to the customer. Net working capital (“NWC”) in South
Africa & Botswana is expected to increase by R60 million to R80 million driven by the need for
additional inventory to optimize kiln shutdown periods.
The financial position of both PPC Zimbabwe and CIMERWA remains solid with both companies
reporting positive free cash flow after capital expenditure and NWC movements. Both companies will
end the financial year in a net positive cash position. Future capital expenditure requirements for both
these companies will not require financial assistance from PPC South Africa & Botswana.
OUTLOOK
PPC plans to implement further cost reduction measures across its portfolio to protect and restore
EBITDA margins. This is in particular important for South Africa, where the business environment is
expected to remain difficult as loadshedding and other challenges persist. Further cement price
increases will be necessary to ensure the long-term sustainability of the domestic industry and PPC
will continue to implement the required price increases whilst protecting its leading market position.
However, PPC remains prepared and able to activate additional capacity when the impact of
infrastructure programs materialises. This can be done in a matter of weeks without significant fixed
costs or capital expenditure.
The subsidiaries outside South Africa & Botswana are well positioned to continue to deliver a strong
performance with regular and increasing dividend declarations to South Africa.
With the South African gross debt to EBITDA ratio expected to be at the stated optimal level, PPC
intends to prioritize returning cash to shareholders through dividends or a share repurchase program
in the absence of any value enhancing corporate activity.
Sandton
16 March 2023
Sponsor
Questco Corporate Advisory Proprietary Limited
Financial Communications Advisor:
Instinctif Partners
Louise Fortuin
Mobile: +27 71 605 4294
Date: 16-03-2023 07:30:00
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