PPC expects cement sales in SA and Botswana to drop by 4% to 7%
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.
