FIFI PETERS: South Africa’s largest cement maker PPC says the government’s decision to classify locally made cement as a designated product will have a positive impact on the cement industry. The decision means that only locally made cement can be used for government projects and not imported cement. In the past, large volumes of cheaper imports from other countries such as Pakistan have made growth and profitability quite difficult for local players.
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We have PPC CEO Roland van Wijnen joining Market Update. Roland, thank you very much for your time. Just give us an idea of how much this government decision will change the game for your industry.
ROLE OF WINES: Fifi, for us the first and foremost importance to the industry is that it is a clear signal from the South African government that they are serious about local manufacturing. That for us is a big step forward because we have made it clear that dumping cement off the coast of South Africa is destroying not only jobs, but also tax revenue, as well as the contributions that the cement industry makes to the communities in which we work. . function.
How much it will mean in terms of sales remains to be seen. It depends on the application of the legislation, as well as the number of infrastructure projects. Of course, we will have to see how imports could find a way now more to the retail segment. The most important element for us is that it demonstrates goodwill and the best relationships between government and industry to rebuild the South African economy.
FIFI PETERS: What’s the current situation around imports, Roland? What part of the market do they occupy?
ROLE OF WINES: They still occupy, if you look at it on an annualized basis, around 1.3 million tons, which is the equivalent of a fully integrated cement factory. If you think about the debt, and the jobs it creates, and the contributions that are not being made to communities in South Africa but are now being made to communities in Vietnam, as a global citizen I must say where there is positive development. , it’s great. As a temporary resident of this beautiful country, it pains me to see that we are not adequately educating and developing South Africa.
FIFI PETERS: You said something about it that “remains to be seen” exactly what the total impact will be, if other countries will find other ways to allow or obtain the cement in South Africa. With Covid-19 and supply chain disruptions, and the difficulty of getting the product out as much as inside, has this had a positive impact on the level of imports in the country?
ROLE OF WINES: No, we still see that imports are coming into the country, so supply chain disruptions have not had a major impact. Costs have risen slightly, so we have seen importers increase their prices. But since it is about dumping, there is still a lot of leeway for importers to make money.
We have successfully managed our cost base, but we have almost two million tonnes of spare capacity, just PPC, that we would love to bring to market to boost the economy.
FIFI PETERS: Speaking of cost increases, I see you also increased your costs, Roland, last year by 9.2%. One question that will arise now is that the industry has much more protection from the government. Will there not be a temptation to increase prices due to reduced competition?
ROLE OF WINES: The competition is intense. We do not need imports to have more intense competition. In fact, if we can add more capacity to the local industry, you can do more volumes with similar fixed costs. So you can actually mitigate some of that cost impact and, in my opinion, limit the amount of price increases that are needed in the market. So I look at it from another angle.
FIFI PETERS: He says he is sitting on some two million tons of cement looking for a home in South Africa. At the same time, South Africa is announcing massive plans to spend on infrastructure, to rebuild the economy, particularly [after] COVID-19. Have you seen any pull in the government’s plans for the infrastructure you participate in?
ROLE OF WINES: Yes, we definitely see traction. We are not seeing it in our volumes yet, but if we talk to our clients and follow companies like Sanral, Calvex ……. 4:39, you will see that your order books are beginning to reflect this appropriately, and that it will eventually make its way to our industry. So we’re actually relatively positive about the future.
FIFI PETERS: How about what happened in July with the riots that caused a lot of damage to quite a few properties and buildings? Have you discovered that it was unfortunately beneficial to your business because of the increased demand for the products you supply to help rebuild damaged infrastructure?
ROLE OF WINES: Not necessarily, Fifi. Most of the riots occurred in KwaZulu-Natal; It is not an area where we are heavily exposed and therefore had limited impact for us, both during the riots and after the riots.
FIFI PETERS: It’s okay. So let’s talk about your other markets. Rwanda, Zimbabwe, and the Democratic Republic of the Congo, which I understand are also planning to spend massively on infrastructure to fill the existing gaps that preceded Covid-19. To what extent is your company benefiting from some of the plans that the governments of these regions have on the table?
ROLE OF WINES: We see very positive movements. Zimbabwe’s cement sales, for example, are 30% higher in these six months compared to pre-Covid two years ago. Rwanda is 10% higher. The Democratic Republic of the Congo: we no longer include [it] in our reports now that we’ve restructured that business. However, the business is also growing. Therefore, on the continent there is a positive movement in terms of cement volumes.
FIFI PETERS: And yet, in terms of profitability and money from these countries, it has had a stronger rand that has worked against it this time. Any plans in the future to mitigate currency risk?
ROLE OF WINES: For us, the most important currency on the continent is the US dollar, so we are actually working on the basis of the US dollar. Beyond that, yes, we have exposure when we bring it back in rand. Our main concern is, of course, the situation in Zimbabwe and seeing that economy make its way through hyperinflation.
FIFI PETERS: And also to see at what point it can, like many other South African companies, recover money that is currently trapped in that country. How much are we looking at at this stage?
ROLE OF WINES: I think that for the last year, year and a half, we have been able to consistently declare dividends from Zimbabwe; the last dividend payment was made in June. Another approaches. So our normal recurring business, given that we are also selling hard currency around 50%, is actually generating positive cash flow, and we can bring it back to South Africa.
FIFI PETERS: I see that you guide that by a kind of support from the central bank in that country, that all the outstanding money in that country may come out next year at some point. I just wanted to understand exactly how much was in Zimbabwe today.
ROLE OF WINES: At the time the currency was converted, we, PPC Zimbabwe, had an outstanding debt with an external bank outside the country. Then that money was transferred to the central bank of Zimbabwe, and they are making the payments on our behalf or on behalf of PPC Zimbabwe. The last and last payment is pending for December.
FIFI PETERS: Speaking of debt, PPC has come a long way during the year in reducing its debt. I think it’s sitting at R2.3 billion or so today. Any plans to reduce it even more next year?
ROLE OF WINES: I am pleased to tell you that you are right. We were sitting on R2.3 billion at the end of September. In October we received the proceeds from the divestment transactions of PPC Lime and Botswana Aggregate, so we have further reduced debt levels by R500 million, thereby reaching territories with which we feel very comfortable.
FIFI PETERS: With the sale of the Botswana business alone, can we expect further reductions in the rest of the continent over the next year? Or are you happy with your current exposure?
ROLE OF WINES: We are currently very happy with what we have in Rwanda, with what we have in Zimbabwe. The Democratic Republic of the Congo is no longer a business that we consolidate. Our interest in Ethiopia is not consolidated either. So for the moment, while actively looking for opportunities in our portfolio, we are happy with what we have.
FIFI PETERS: And where do you see those opportunities in your portfolio?
ROLE OF WINES: What we’ve done over the last year is we’ve looked at the impact of climate change on our business, but we’ve also looked at opportunities to see future growth in low-carbon building materials adjacent to cement, and we have some interesting projects. that we are looking to implement in the next 12 to 18 months. That is a source of income that you will see that we accumulate over time.
FIFI PETERS: What will it take to make that happen? How much are you setting aside for those projects?
ROLE OF WINES: At the moment, when we have established our carbon intensity reduction program, we have identified approximately R650 million [worth] investments that are an integral part of our core business. So think energy efficiency programs, think waste instead of coal. We have yet to identify the next step in that revenue stream.
FIFI PETERS: I imagine that, following the statement they issued to shareholders, a part of the next step at this stage will not include any form of raising capital or issuing rights from their shareholders for the foreseeable future.
ROLE OF WINES: That’s right.
FIFI PETERS: Roland, thank you very much for your time, sir. It’s always a pleasure to speak with you. That was PPC CEO Roland van Wijnen.
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