Monday, 04 May 2009 02:00

PPC expects lower interim earnings

PPC says its earnings per share and headline earnings per share for the six months ended March are expected to be between 75% and 90% less.

Thursday, 02 April 2009 02:00

PPC beats its competitors in empowerment

CEMENT maker Pretoria Portland Cement (PPC) said yesterday it had achieved a level 4 rating according to the Department of Trade and Industry’s scorecard following the results of its interim broad-based black economic empowerment audit last month.

Construction IndustryThis is the highest black economic empowerment rating in the cement manufacturing industry to date, which should help the company land large public sector contracts.

CE John Gomersall said the JSE-listed company would not rest on its laurels now that it had achieved such a high rating, and the company still needed to do more equity deals to meet the 26% empowerment equity ownership target of the mining charter.

The company has a 15% black empowerment equity ownership after it sold the stake to black investors last year. However, he said given that empowerment ventures were struggling under the turbulent economic climate, PPC would approach the issue carefully.

“Obviously, between now and 2014 we will need to get to 26% empowered equity ownership, even though this only counts for a small part in the overall rating. We are committed to doing more deals, especially given that we are sitting on cash and are under-geared,” he said.

“We will keep moving forward with empowerment at all levels so that we stay ahead of our competitors.”

Gomersall said last year 80% of the company’s discretionary spend was on previously disadvantaged communities, and three-quarters of the board was now black. When PPC announced its 15% empowerment deal worth R7,2bn last year, it set itself the target to achieve a level 4 status by next year.

It followed this with the appointment of Bheki Sibiya as its first black chairman at the end of last year, and two black non executive directors in February. This brought the number of black non executive directors to six out of a total of eight, of which two are black women.

The latest audit, by verification agency Empowerlogic, uses the black ownership flow-through principle and indicates a level of black ownership rising to more than 25% at the equity level. Other significant contributors to this rating were the company’s investment in skills development within the sector, preferential procurement and meeting employment equity objectives at all levels.

“PPC has always maintained that transformation goes beyond a scorecard and into the domain of making a real difference to the lives of all our stakeholders,” Gomersall said. “We are proud of this industry leading achievement because of our broad-based view to sustainable empowerment. This is why we have made transformation part of the DNA of our business for almost two decades.

“Many people held the view that transformation was all about the 100m dash to win the broad-based black economic empowerment equity race. But we at PPC always believed that real transformation is designed to work bottom-up by empowering our PPC people, uplifting communities, overcoming the skills barrier and investing in the development of black businesses.

“This approach has created meaningful transformation that starts at grassroots level, as opposed to those which have focused initially on black equity transactions.”

 

Thursday, 08 May 2008 02:00

PPC to raise cement prices again in July

PPC, which has already increased the price of its cement 8,5% this year, said the hike of about 5% in July was meant to bring cement prices in line with March’s producer price inflation of 11,8%.

Construction IndustryThe increase will drive up construction costs generally, and the costs of the government’s infrastructure spending programme.

PPC CE John Gomersall said the increases were needed due to higher input costs, such as electricity, fuel and transport, which he said had risen well above producer inflation. He said the rise in the price of cement was a global phenomenon, and prices were being pushed by rising energy costs.

“Our electricity costs have increased 14% already; coal has gone up 30% on average; diesel is up 28% and our delivery costs have gone up 19% for the year to date.

“W e expect another increase in July to bring our overall increase for the year above 11% ,” he said. An increase in the price of cement is set to result in a further escalation in construction costs and, in particular, drive up the cost of the government’s infrastructure spending programme now worth more than R500bn, as well as projects such as the Gautrain.

Increased costs in the government’s infrastructure project will put a heavier burden on the national purse. Higher prices could also have further inflationary effects.

Higher costs are also likely to contribute to a slowdown in the residential property development sector, which is already feeling the pinch of higher interest rates and the National Credit Act.

The price of cement and other building materials have soared considerably in the past couple of years due to a boom in the construction sector, driven largely by government investment in infrastructure in preparation for the 2010 Soccer World Cup.

The increase in prices prompted the Competition Commission in October last year to look at the building materials and construction sectors with a view to investigate anticompetitive practices that might have driven up the costs of the government’s spending.

The commission has been concerned by some trends, including price increases in construction running substantially above inflation.

At the time, the commission noted building material prices were up about 80% since 2000 and across a range of items, from bricks to cement to steel.

Yesterday PPC announced healthy results for its half-year to March, despite a slight decline in regional demand for cement. Revenue grew 13% to R2,9bn, and operating profit rose 9% to R1,077bn compared with the same period last year. Headline earnings per share improved 16%, boosted partly by a reduction in the effective normal taxation and secondary tax on companies. The company declared a dividend of 45c a share.

PPC said demand for cement in southern Africa fell 1,3% for the period due to the combination of high rainfall, the Easter holidays falling in March this year and a softening of demand from the residential sector.

The residential sector had largely been hit by the combined effects of the National Credit Act and higher interest rates, while high rainfall had slowed expansion projects.

The company said the decline in residential construction was likely to limit industry regional cement demand growth this year to between 2% and 4%.

However, Gomersall said the effects of the slowdown in the residential sector had been offset by the continued increase in government and private sector infrastructure spending.

PPC’s share price gained 69c, or 1,8%, to R39,64, yesterday, valuing it at about R21bn.



Tuesday, 29 January 2008 02:00

PPC chairman grilled over multiple posts

PRETORIA Portland Cement (PPC) yesterday came under fierce criticism over its corporate governance and the fact that it has not disclosed its total level of carbon dioxide emissions.

john gomersallIn July, PPC was spun out of Barloworld, which owned 71% of the cement company.

At its annual general meeting yesterday, shareholder activist Theo Botha grilled PPC chairman Martin Shaw over the company’s governance and environmental practices.

Botha asked Shaw how he could state that “corporate governance continued to be a top priority” when he chaired the company, as well as PPC’s audit and remuneration committees.

“I think this must be a first for good corporate governance; you must be the only director of a listed company who is a member of every committee and the chairman of the group,” Botha said.

The second King code of corporate governance says that the chairman of the group should not be a member of the audit committee at all , as one of the checks and balances to ensure proper governance throughout the chain.

Shaw conceded the position was “far from ideal, but the best (arrangement) for the time being”. He blamed it on PPC’s empowerment deal having been delayed for so long.

The empowerment deal has been long in coming, but Shaw said there was “nothing sinister” in the delays, it was just that the deal was “so complicated”.

PPC revealed details of the deal, saying it would involve the sale of 15% of the company to new black partners.

“The reason for me continuing (on all these committees) was simply to provide continuity,” Shaw said. Once the empowerment deal was put to bed, he would step down.

CEO John Gomersal said the situation was “exacerbated by the somewhat unexpected timing of the unbundling”, as four of the nonexecutive directors, all directors of Barloworld, resigned.

Botha also asked what PPC’s level of carbon dioxide emissions actually were.

PPC did not reveal what its total emissions were, though the company agreed that “maybe we’ll do that” in future.

PPC released a trading update at the meeting, showing that first quarter sales had slowed as heavy rains had halted some building projects.

Shaw said revenue last month alone declined 1,5% compared with a year earlier, although PPC expected “improved earnings and continued strong cash flows”.

Full-year demand would continue to grow, but at a slower pace than in previous years.

Shaw said “the implications of the recent power-generation problems were cause for concern”. This was especially so as PPC was building new plants to create extra capacity.

Gomersall’s pay rose 18% to R7,2m in the year to September, from R6,1m a year earlier, according to the annual report. That excludes R3,3m in share options granted by Barloworld, compared with R10,24m the previous year.

PPC fell nearly 7%, or R2,78, on the JSE yesterday, to close at R37,10.

 

Pretoria Portland Cement Limited (PPC), on Tuesday, gave its shareholders something to smile about when it declared an increased final dividend of 166c per share from 110c previously, on good trading as a result of the construction industry’s continued demand for cement.

 

Friday, 13 July 2007 02:00

Enough to go round

The new National Credit Act may be having a dampening effect on the rampant demand for cement in the country, according to PPC CEO John Gomersall.

john gomersall"Demand from residential developers is slowing, the banks' conditions are tighter they're not giving 100% bonds anymore," he says, adding that PPC anticipated last year that this could precipitate a slowdown in cement demand.

This, he says, has reduced to some extent the necessity for PPC to import cement to keep its customers supplied.

Gomersall is visibly annoyed by suggestions that the country is experiencing cement shortages and claims that those who voice opinions on looming cement shortages are speaking from ignorance.

He says large projects such as the Gautrain and Eskom power stations will not use as much cement as everyone believes, and that the quantity needed will be spread over a number of years, while cement production will be growing incrementally.

"I still think cement demand will grow at a compound 6%/year until at least 2014, but I am not sure there will be an equivalent 6% growth in skills over that same period," says Gomersall.

"I'm talking about the managerial and engineering skills needed to design, tender, contract and manage projects."

Asked about an investigation into building material prices alluded to by President Thabo Mbeki in a TV interview last week, Gomersall says he has not heard of any such investigation.

He says cement is a cyclical commodity, and it's important in the up-cycle that those who take the risk and invest large sums of money in new capital equipment should be rewarded.

He says the reason PPC's accounts look so good is that the group's assets are depreciated to a value of about R2 billion on the balance sheet but the insurance value of these assets is closer to R16 billion.

In the six months to March the group reflected an operating margin of 38% on revenue of R2,6 billion, one percentage point lower than the previous year.

"The retailers say they would love margins that look like that, but they can't have them because they haven't made the capital investments," he says.

Cement demand grew 12% last year, outstripping the 8% projection and exceeding forecasts for a third year in a row.

But the feeling at PPC is that it is unlikely to be as high this year. Chief operating officer Orrie Fenn says demand in Cape Town has dropped steeply.

The group hopes to have its R4bn empowerment transaction completed by September, "broad-based with staff participation", says Gomersall.

A 15% equity stake will be transferred.

Earlier this month, Barloworld said that for every one share held in Barloworld, shareholders would get the equivalent of 1,8555 PPC shares in the unbundling of PPC.

On Monday the PPC shares also started trading after a 10-for-one split, part of the restructuring exercise and meant to encourage liquidity.

Gomersall says he does not expect the split to create much change in the two share registers - though there there may be some shorting of the shares.

PPC closed up 90c at R52 after its first day after the unbundling.

 

Wednesday, 04 July 2007 02:00

Bags of opportunity?

Women's empowerment group Wiphold and a Cape Town-based construction company, Coessa, say they will start to import cement from China at "competitive prices" in coming months.

Construction IndustryWiphold finance director Tryphosa Ramano says it is not possible to calculate a stable price for the cement because it is exposed to the rand-dollar exchange rate. It is currently possible to land cement in Durban for US$40/t. "But this doubles with handling and bringing the cement up to Gauteng," Ramano says.

Wiphold has formed a joint venture with Tangshan Jidong Cement (Jidong) to import a cement called Dunshi.

Coessa director Adam Essa says since news broke of his company's supply deal with Singapore-based Evermont International, he has taken at least a dozen orders totalling tens of thousands of tons.

He will not divulge the landed cost of the product but says he expects to sell it for about $93/t. At the present rate of R7,13, a 50 kg bag of this cement will sell for R33,50. Local building suppliers are charging R50-R60. A year ago the price was R36.

Evermont MD Lim Hong Siang has "conservatively calculated" SA's annual cement shortage to be over 5 Mt. "The four big companies in SA are currently producing 13 Mt-14 Mt annually. According to statistics, total usage is set to be around 20 Mt this year."

Independent industry analyst Mark Kingham disputes these numbers. "I don't know where they get them," he says. "The SA cement market is broadly in balance. The supply situation is tight, I agree, but we are nowhere near a 5 Mt shortage."

Kingham says new capacity which will start to come on stream in the next nine months will gradually reduce the need for imports. Already it appears that Pretoria Portland Cement (PPC) will need to import only half the cement it previously predicted. Kingham adds: "If you're importing cement, you're transporting a dead weight. These container ships also leak like colanders, so even if the bags don't break there is a good chance there is going to be spoilage."

Lafarge SA CEO Albert Corcos says a previous attempt by his company to import Chinese cement "translated into a loss". Lafarge's experience shows that if it had managed to get all its logistics right, even cement supplied to coastal regions would have been cost-neutral. "As soon as you start hauling it, you start losing money. Transport is not cost-effective."

JP Morgan analyst Marc ter Mors says it is possible to make money on Chinese cement imports but doubts it can be achieved consistently. A rise in shipping rates from China or a dip in the rand's strength would wipe out profits. "It's a low-margin business and it is likely that they will make margin only in the coastal areas," Ter Mors says.

He agrees with Corcos that once cement is moved to Gauteng, where demand is strongest, transport and handling costs are too high.

"It is possible that at a certain point in time you will be able to make money on the imports but it is questionable whether that can be done sustainably."

He adds that companies have gone bust in Namibia after underestimating the complexity and cost of importing cement. "I think it would be quite difficult to build a sustainable business out of this." However, he adds that if local companies continue to push up prices - some have risen by as much as 20% this year - importers will have a better chance of profit.

Wiphold appears to be aware of some of the challenges. "SA is not geared for the importing of cement," admits Ramano, but she says that because Wiphold has no overhead costs associated with importing the product, there is less pressure on margins.

She admits Wiphold has not yet found any customers. "You don't get commitments until you can guarantee continuity of supply," she says.

Wiphold expects to take delivery of a first shipment in October. It hopes customers will make their own collection and transport arrangements. If not, it hopes to get Grindrod or Spoornet to offer bulk services.

Lack of customers is not the only problem facing Wiphold. Ramano says the Durban port's warehouse facilities are limited and can handle only 25 000 t/ month of cement.

Importing cement from China is Wiphold's first step to cash in on the rapid acceleration in infrastructure investment. Ramano says it is investigating the possibility of building a cement-making plant with Jidong.

Until then, the partners will have their work cut out bringing in the cement. Kingham says: "If it was easy to make money by importing cement, the big guys would have done it ages ago. "

 

Wednesday, 28 February 2007 02:00

PPC in R604 million project to beef up Hercules

Pretoria Portland Cement has announced upgrade and expansion of its Hercules plant in Pretoria

Thursday, 17 November 2005 02:00

Turning cement into cash

It should be almost inevitable, considering the broad trends in the economy and government's aspirations to lift growth further, but the trend is becoming more apparent

Tuesday, 03 May 2005 02:00

Demand triggers record cement sales

Domestic cement producers have benefited handsomely from the strong rise

Page 3 of 4

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