By Enacy Mapakame
Regional cement producer, PPC Limited, says volumes at its Zimbabwe unit went down by 30 percent to 35 percent for the six months to September 30, 2019, compared to same period last year as inflationary pressures persisted weighing down overall group performance.
The decline was in line with the overall market whilst cement pricing was adjusted on a weekly basis to contend with the rapid increase in inflation and the devaluation in currency.
The inflationary pressures exacerbated by high exchange rate and foreign currency shortages resulted in erosion of consumer spend.
Revenue for the period also went down 54 percent against the backdrop of a hyperinflationary environment, severe weakening of the local currency, erratic power supplies as well as a weaker cement market.
Earnings before interest, tax, depreciation and amortization (EBITDA) eased 43 percent to R201 million with EBITDA margins showing a marked improvement to 40 percent versus 32 percent in the prior year comparative period.
Despite the economic headwinds, the Zimbabwe unit has remained self-sufficient and is preserving cash by investing in inventory and accelerating capital expenditure.
“Our focus in Zimbabwe remains to deliver our customers premium products and solutions at stable or improved EBITDA margins, as well as to ensure financial self-sufficiency of the business against the backdrop of a challenging macroeconomic environment.
“The PPC Zimbabwe team has delivered on both these strategic imperatives,” said PPC group chief executive Roland Van Wijnen.
The currency reforms implemented in Zimbabwe this year had a material effect on the group’s figures. The devaluation between the Zimbabwean Dollar introduced this year and the South African Rand as well as the application of the provisions of IAS 29 — Financial Reporting in Hyperinflationary Economies had an adverse effect on group’s results.
At group level, revenue fell 12 percent to R4,948 billion on the back of a 17 percent decline in overall cement volumes to 2,6 million tonnes.
According to the group, Southern Africa cement and PPC Zimbabwe were the main contributors to the decline.
Excluding PPC Zimbabwe, group revenue declined by 1 percent and cost of sales were maintained at R3,783 billion. EBITDA declined by 3 percent to R668 million with margins maintained at 15 percent.
Cost of sales reduced by 10 percent compared with the previous year while overheads also reduced by 4 percent to R555 million.
Indications are that included in the fair value adjustment loss of R270 million was an estimated credit loss of R307 million relating to Zimbabwe financial assets, R76 million of which was raised against PPC Zimbabwe financial asset arising as a result of the PPC Zimbabwe debt being settled by the Reserve Bank of Zimbabwe on a 1:1 basis as legacy debt.
PPC Southern Africa (with the exception of Botswana) realised average selling prices increased by 8 percent to 10 percent, as the business continued with its drive of increasing cement prices to recover operational costs and improve returns.
But volumes declined by 15 percent to 20 percent where declines were less significant in the coastal regions as the cement industry declined by between 10 percent to 15 percent for the period, with consumer and construction sector demand still under severe pressure.
Revenue for the Cement Southern Africa went down 8 percent due to a 30 percent increase in fuel prices. But all other production costs were well controlled within the 5 percent to 7 percent range.
However, Rwanda and DRC recorded revenue growth of 28 percent and 26 percent respectively driven by volumes growth as well as stable pricing and production output.
Management has indicated it will focus on optimising operational cash generation through price and cost management in order to reduce financial leverage and strengthen the balance sheet. Although there are economic headwinds in Zimbabwe, the business remains well capitalised and is well positioned to benefit from local infrastructure projects and growth in the region. The Herald