Key message: Despite a weak SA cement market, dividends from Zimbabwe and Rwanda allow PPC to look at resuming distributions to shareholders.

  • PPC hosted a Capital Markets Day and provided an operational update for the 12 months to March 2023.
  • Cement South Africa and Botswana: Sales volumes down 4-7% and prices up 5-7%. While the coastal region (W Cape) has performed well with market share growth (lower imports), the inland region remains very competitive with demand under pressure. Production cost inflation was 11% and fixed and other costs +3-5%.
  • Retail sales have declined substantially, balanced to an extent by improved industrial (bulk) demand. PPC lost share in the retail sector but gained in bulk, and the current pricing policy is aimed at maintaining market share. Weak consumer spending and ongoing low levels of infrastructure development have made it difficult to pass on cost increases and margins have continued to decline (EBITDA margin expected to be 9-11%, down from 14.5% in FY22).
  • The outlook is for little recovery in the short-term and cost reduction is a focus to increase margins (there is limited pricing power given weak demand).
  • Zimbabwe: Sales volumes down 14-18% due to the kiln shutdown and slow market share recovery. Double digit price increases (in US$) have helped but the EBITDA margin remains lower than normal. Margins are expected to normalise into FY24. Cash extraction was US$8.8m for FY23 and should increase to US$10m in FY24.
  • Rwanda: Sales volumes flat due to planned kiln shutdown and price increase of 14-17%. EBITDA margin expected to be 28-32%. Cimerwa approved a maiden dividend (PPC’s portion R80m).
  • Net debt has declined to approx. R750m and PPC is aiming to maintain gross debt levels going forward. Cash generated (Zimbabwe and Rwanda dividends, SA free cash flow) can now be distributed to shareholders subject to a 1.3-1.5x gross debt/EBITDA (SA obligor group). We do expect an approx. 7c distribution in FY23.
  • Based on the update we expect PPC to report HEPS of approx. 2-4c before Zimbabwe hyperinflation adjustments (-25c including Zim).
  • We maintain our Target Price at a similar level of R3.80.

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