Displaying items by tag: South Africa
PPC launches US$10.8m share buyback
27 June 2023South Africa: PPC has commenced a buyback of US$10.8m-worth of its registered shares, the Cape Times newspaper has reported.
Chief executive officer Roland Van Wijnen said "We have been very conscious of our capital allocation to ensure our debt levels come to acceptable levels and we have finally achieved that." He added "We believe our share price is well below the true value and therefore we believe it is better for our shareholders to initiate a share purchase rather than a distribution through cash."
Update on South Africa, June 2023
21 June 2023Mining and materials company Afrimat said it was buying Lafarge South Africa this week. The assets it is acquiring include aggregate quarries, ready mix concrete (RMX) batching plants, one integrated cement plant, two cement grinding plants, cement terminals and fly-ash sources. The means of purchase is somewhat unusual, as Afrimat is paying around US$6m but it also appears to be taking responsibility for around US$50m of outstanding debt that Lafarge South Africa owes its parent company, Holcim. In a statement Afrimat’s chief executive officer (CEO) Andries van Heerden talked up the benefits for his company in terms of the boost to its aggregates and concrete businesses.
This is quite the change from 2012 when India-based Aditya Birla Group was reportedly looking into buying Lafarge South Africa. At this time the value for the business for a similar mix of assets, including 55 RMX plants and 20 quarries, was said to be to US$900m. Prior to this, Lafarge South Africa spent around US$170m in the late 2000s on increasing the production capacity at its integrated Lichtenburg plant and building its Randfontein grinding plant. Then in 2014, when the merger between Lafarge and Holcim was announced, Lafarge consolidated its Nigeria-based and South Africa-based operations as Lafarge Africa. It later decided to move the South African business to another Holcim subsidiary, Caricement, in 2019 to keep the business in Nigeria more profitable by reducing its debts. This transaction was valued at US$317m. At the time chair Mobolaji Balogun said that Lafarge South Africa’s operations had faced a challenging market in South Africa, with shrinking demand in an aggressively competitive sector. Afrimat is now buying Lafarge South Africa and its subsidiaries from Caricement.
Holcim isn’t alone in making an effort to sell up in South Africa. In April 2023 the Valor Econômico newspaper reported that Brazil-based InterCement was receiving offers for its remaining African-based assets in Mozambique and South Africa with a potential deal valued at around US$300m. InterCement runs Natal Portland Cement in South Africa, which operates one integrated plant and two grinding units. This follows the sale of its Egypt-based assets in January 2023 to an unnamed buyer.
PPC, the country’s largest cement producer, is staying put. However, it issued a mixed trading update this week ahead of the formal release of its annual results to 31 March 2023. Trading conditions in the interior of South Africa and Botswana were described as being ‘difficult,’ with cement sales volumes down by nearly 6% year-on-year and earnings before interest, taxation, depreciation and amortisation (EBITDA) down by 26%. Yet the group says it was able to grow its revenue. PPC’s CEO Roland van Wijnen added, “We therefore remain hopeful that the South African government will roll out its infrastructure development plans and protect the local cement market through the introduction of import tariffs to create a level playing field for domestic producers.” Dangote Cement subsidiary Sephaku Cement was more circumspect in its recent trading update but it too warned that, “deteriorating economic conditions and persistent challenges in the cement industry impacted Sephaku Cement’s financial performance to break-even levels.”
Much of the above makes for gloomy reading. As the local trade association Cement and Concrete South Africa (CCSA) has laid out to local media, the market faces the problem of having 20Mt/yr of production capacity, 12Mt/yr of demand and over 1Mt/yr of imports compounding the problem. Lobbying by local producers against imports has been a feature of the market since the early 2010s and this work continues through the efforts of the CCSA and others. However, the plea by PPC for government infrastructure spending suggests that the market faces more systemic problems. As a consequence some cement producers are trying to leave the market, while others are attempting to tough it out.
PPC publishes 2023 financial year trading update
16 June 2023South Africa: PPC has advised investors that its full-year 2023 results will show a more-than-doubling of its headline loss per share from continuing operations. The group said that its cement sales volumes in South Africa and Botswana fell by 5.8% year-on-year, while volumes in Zimbabwe dropped by 16%. Its subsidiary Cimerwa increased its cement sales volumes during the year by 1%. Despite the local decline in volumes, PPC increased its revenues in South Africa and Botswana by 1.7%. South Africa and Botswana cement sales constituted 46% of group revenues, Zimbabwe cement sales 17% and Rwanda cement sales 15%.
InterCement selling up in Africa
26 April 2023Mozambique/South Africa: InterCement, a Brazil-based cement producer controlled by Mover (formerly Camargo Corrêa), has started to receive offers for its assets in South Africa and Mozambique. The US-based bank JP Morgan is advising the company on structuring the group’s business in Africa. The value of the deal has been estimated at around US$300m.
The company previously announced the sale of its Egyptian unit in January 2023, undertaken to reduce its debt, which has come under pressure from rising global interest rates. The company must refinance US$548m in senior notes by May 2024, which were previously raised when InterCement acquired Portugal’s Cimpor through Camargo Corrêa in 2010.
InterCement sold 17.8Mt of cement in 2022 excluding the Egyptian unit.
South Africa: PPC has forecast a drop in its cement sales volumes during the 2023 financial year, which will end on 31 March 2023. It says that its South African sales will drop by 4%, and its Botswanan sales by 7%. In the first half of the financial year, sales dropped by 2.6% year-on-year. PPC now says that disruptions at South African ports will likely limit the decline in its sales volumes in its home country by reducing competition from imports. South Africa imported 30% of cement consumed during the 2022 financial year, however congestion at ports and currency effects have kept this figure from rising throughout the present financial year.
PPC's CEO Roland van Wijnen said "Rising input costs and the objective of maintaining our market share continue to cause margin pressure." The group now expects to reduce its debt by 28 - 33% to US$39.5 - 42.2m in the 2023 financial year.
ARM Cement writes off assets in South Africa
13 February 2023Kenya/South Africa: The liquidators of Kenya-based ARM Cement have written off the company’s investment in South Africa-based Mafeking Cement due to a legal dispute with the minority shareholder. Representatives of PricewaterhoueCoopers said in an update to creditors that there was unlikely to be any residual value in Mafeking Cement as the underwriter of the mining business, Lombard insurance Company, had withdrawn its guarantee, according to the East African newspaper. The move has increased the loss by creditors in ARM Cement to around US$99m or around 66% of the total claims.
ARM Cement was put in liquidation in October 2021. It owns a 70% stake in Mafeking Cement, a company that owns limestone mining rights in north-west South Africa. The remaining 30% share is owned by local communities and trusts.
PPC contemplating sale of Zimbabwe business
08 February 2023Zimbabwe: South Africa-based PPC is reportedly considering selling PPC Zimbabwe for US$200m. The Zimbabwe Independent newspaper has reported that the group received an unsolicited offer from a local company.
PPC said “PPC’s board has a duty to assess any such approaches on their respective merits.”
Abderrahim Touile appointed as plant manager of Heidelberg Materials’ Lukala cement plant
25 January 2023Democratic Republic of Congo: Heidelberg Materials has appointed Abderrahim Touile as the plant manager of its Lukala cement plant, operated by local subsidiary Cimenterie de Lukala.
Touile previously worked as the Industry Director for Vicat in Mauritania. He also worked as production manager for Ciments de l'Afrique (CIMAF) in Burkina Faso. Before these roles he held production roles with Lafarge in Morocco and South Africa between 2002 and 2015. Amongst other business and management qualification, Touile holds as master’s degree in business administration (MBA) from the Sorbonne Business School in France.
Update on Zimbabwe, January 2023
04 January 2023Lafarge Cement Zimbabwe (LCZ) received an unwelcome present before Christmas when the US Office of Foreign Asset Control (OFAC) placed the company buying it on its economic sanctions list. OFAC made its announcement on 12 December 2022. However, the cement producer said that its parent company, Associated International Cement, had concluded its sale of a 76% stake in LCZ to Fossil Mines on 6 December 2022. Local press reports that the Zimbabwe Stock Exchange halted trading in the cement company on 23 December 2022. Then, LCZ said on 29 December 2022 that the OFAC sanctions had “impacted some processes” within it. It added that it was considering various courses of action to protect the business and the interests of all stakeholders.
OFAC took action against Fossil Agro, Fossil Contracting and the group’s chief executive officer, Obey Chimuka, due to alleged links to a previously sanctioned individual, Kudakwashe Tagwirei, and his company, Sakunda Holdings. OFAC said that Tagwirei had “materially assisted, sponsored, or provided financial, material, logistical, or technical support for, or goods or services in support of, the Government of Zimbabwe.” It accused him of using his relationships with government officials to gain state contracts, to receive access to currencies, including the US Dollar, and of supplying luxury items such as cars to ministers. It added that Chimuka was a “longtime business partner” of Tagwirei. Fossil Agro was also linked to a mismanaged agricultural subsidy scheme.
When a company says it has concluded a divestment or acquisition the expectation is that everything has finished. However, LCZ has admitted that the OFAC action has caused it some problems. We’ll have to wait for more information to be released to appreciate the full extent of these ‘problems.’ However, it is worth noting that government capital controls caused delays for the handover of a new vertical cement mill ordered from China-based CBMI to LCZ in mid-2022. At the time it was reported that the cement producer still owed the supplier around US$5m but was unable to make the payment due to economic measures the government had taken to avoid depreciation of the local currency. Other potential issues could also lie in any continuing services or materials that Associated International Cement and its parent company Holcim might have agreed to supply to Fossil Mines in the future as part of the divestment deal.
Looking at LCZ’s business more generally, in its third quarter trading update it said that revenue was down by 43% year-on-year due to suppressed cement and mortar sales volumes. Yet, this was due, in part, to a roof collapse at the company’s plant in late 2021 and the commissioning and ramp-up of that new mill in the fourth quarter of 2022. So the company expects ‘significant’ recovery in its sales volumes in 2023. In a sobering aside illustrating the realities of doing business in Zimbabwe, it also mentioned that the local interest rate jumped to above 200% in July 2022! Despite all of this though, it noted that both residential and government-based infrastructure markets were driving market demand.
South Africa’s PPC reported a fall in its cement sales volumes from its subsidiary PPC Zimbabwe in the six months to September 2022 with knock-on declines to revenue and earnings. It blamed this on a planned kiln shutdown, noted the negative role of hyperinflation and forecast that volumes would improve subsequently due to ‘robust’ cement demand. It pointed out that its earnings were hit during the maintenance period because it had to import clinker from South Africa and Zambia and that this was more expensive than locally manufactured clinker. The other thing that both LCZ and PPC raised were power cuts, although LCZ reported that unscheduled outages had decreased in the third quarter of 2022.
The growing demand for cement in Zimbabwe as reported by both LCZ and PPC helps to explain how Holcim was able to finalise a deal to sell its local subsidiary in 2022. Operational and financial hurdles such as coping with hyperinflation and power cuts show the problems these companies have also faced running a business in the country. Merger and acquisition deals in the cement sector often face travails as they are proposed, negotiated, made public and then put to the scrutiny of regulators. It seems unusual though for a divestment deal to run into problems after it has seemingly been closed.
PPC’s earnings fall by 12% to US$42m in first half
16 November 2022South Africa: PPC’s earnings fell by 12% year-on-year to US$42m in the six months to September 2022, excluding its subsidiary in Zimbabwe due to hyperinflation. In South Africa and Botswana the group reported higher sales in coastal regions due to less imports but tougher conditions inland that led to a 2.6% fall in cement sales volumes. Despite this, it raised its revenue through price rises. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 29% to US$29.9m. Performance was better in Rwanda where its Cimerwa subsidiary increased its sales volumes by 11% and its EBITDA by 63% to US$14.5m. PPC Zimbabwe’s sales volumes declined by 13% due to a planned kiln shutdown in the first quarter and margins were negatively affected by the use of imported clinker primarily from PPC South Africa and increased maintenance costs. However, sales volumes improved in the second quarter. EBITDA fell by 48% to US$8.59m.
Roland van Wijnen, the chief executive officer PPC, said, “The PPC group continues to deliver sound cash generation and deleverage the balance sheet despite difficult trading conditions in its core South African and Botswana cement market, offset by positive trading conditions in its Zimbabwe and Rwanda operations. To maintain volumes in the South African and Botswana cement markets, sales price increases were limited to 5% in the period under review. Key input costs, especially those related to fuel and energy, increased at double-digits in percentage terms.”