- PPC Zimbabwe remained profitable and debt-free.
- Cement demand driven by housing and infrastructure projects.
- Industry cost competitiveness positions it for strong growth.
PPC Limited, the parent company of PPC Zimbabwe, has released its latest trading statement for the fiscal year ending March 31, 2023. Despite facing a challenging operating landscape marked by power cuts, kiln maintenance shutdowns, and a decline in sales volumes, the operation managed to maintain profitability and a debt-free status.
According to the update, PPC Zimbabwe's sales volumes declined by 16% compared to the same period last year due to planned kiln maintenance shutdowns in the first half of the financial year and frequent power interruptions. However, the unit managed to gradually recover some of the lost market share with cement demand remaining strong, driven by concrete product manufacturers and government infrastructure projects.
Although revenue declined by 19% due to lower sales volumes, PPC Zimbabwe implemented multiple price increases to mitigate rising costs and boost profit margins. As a result, earnings before interest, taxes, depreciation and amortization (EBITDA) only declined by 7% R365 million (March 2022: R393 million).
The unit’s balance sheet remains without debt, perhaps an indication of prudency in the face of economic volatility particularly in the currency sector. The balance sheet position shows R118 million in unrestricted cash reserves.
Against a profitable full year, the Zimbabwe unit declared a dividend US$8.8 million of which was distributed to parent PPC Limited.This compares to a prior year dividend payout to the parent company of US$6.2 million.
The results reflect on resilience in a difficult operating environment characterized by power shortages and economic volatility. With cement demand in Zimbabwe projected to remain robust driven by a huge national housing backlog of over 2 million units and several government infrastructure projects in progress or planned, PPC Zimbabwe is poised to increase sales volumes and continue its profitable growth trajectory.
The outlook for Zimbabwe's cement industry looks positive in the coming years for several reasons:
• Massive housing shortage: Zimbabwe has a huge housing backlog of over 2 million units. The government aims to build over 200,000 affordable homes in the next few years to address this shortage. This will drive strong demand for cement.
• Infrastructure development: The government has several major infrastructure projects underway and planned including dam construction, road rehabilitation, and expansion of airports and power stations. These projects will boost cement consumption in the coming years, although risks of projects continuity remains in light of currency instability and pending national elections.
• Economic recovery: Zimbabwe's economy is projected to gradually recover after years of hyperinflation and recession. GDP growth is forecast to average 3-5% over the next few years which will spur activity in the construction sector and increase cement demand. The envisaged recovery also depend on the country’s ability to navigate the currency and inflation challenges it currently faces.
• Additional production capacity: Recent investments by PPC Zimbabwe and other cement companies have expanded Zimbabwe's cement production capacity to over 2.6 million tonnes per annum. This additional capacity will enable cement manufacturers to meet increasing demand and support the broader economy.
• Export potential: Zimbabwe's cement industry aims to grow its exports to neighbouring countries like Zambia, Mozambique, and Botswana where cement demand is also robust. Exports will provide another avenue for growth beyond domestic consumption.
•Cost competitiveness: The use of coal as a fuel source, abundant limestone reserves and cheap labour make Zimbabwe's cement costs competitive relative to the region. This cost competitiveness positions the industry for a strong future growth.
The trading update showcases the operation’s resilience in navigating a challenging market environment while maintaining profitability and a strong balance sheet. The cement industry in Zimbabwe is poised for growth in the coming years due to strong demand from the housing and infrastructure sectors, as well as the industry's cost competitiveness and potential for exports. With its solid financial position and strategic investments in production capacity, PPC Zimbabwe is well-positioned to ride on the envisaged growth and continue to generate value for its shareholders.
Looking to the future, PPC Zimbabwe's positive outlook aligns with the Group's focus on Southern Africa. While South Africa's cement demand remains subdued, Zimbabwe's cement industry is expected to benefit from continued growth in housing and infrastructure projects. PPC Zimbabwe is well-positioned to capture this growth with additional production capacity and industry cost competitiveness. As PPC prioritizes cash generation and capital allocation efficiency, shareholders can look forward to potential returns through dividends or share repurchases.
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