PPC – In need of a construction boom

PPC’s FY23 results were underwhelming as we expected. High input costs and a tough economic environment put pressure on the SA & Botswana operations. The segment was able to produce top-line growth but after it implemented double-digit price increases cement volumes declined to levels last seen in FY20. The revenue composition shifted in the favour of bulk over retail sales as retailers are preferring cheaper brands.

The International segment produced an unexpectedly weak result. The Rwandan and Zimbabwean divisions experienced a tough 2H23, with cement volumes continuing to fall after the decline in 1H23. Both regions experienced setbacks during kiln maintenance, but Zimbabwe faced increased competition inland and from the many import sources while Rwanda was able to bolster its revenues by exporting to the DRC. The two regions are contending with a shortage of limestone and clinker supplies, and may continue to face headwinds.

The SA Materials business had another tough year, despite the temporary exit by some readymix suppliers. All divisions experienced increased competition and construction activity remained frustratingly low for this volume-dependent business. SANRAL activity has improved and more projects are being awarded, but PPC’s operational area remains geographically too far from most of these projects to participate.

Until there is a greater increase in construction activity within PPC’s economic areas of operation, the SA businesses could continue to struggle, in our view. We are of the opinion that an import ban would not result in PPC SA’s recovery but rather this requires a construction boom. We expect the current state of the construction market to be challenging for PPC, and it could be made more difficult if Afrimat turns Lafarge around within the next 18 months.