How the PPC aims to extract $60m stuck in Zimbabwe

Source: How the PPC aims to extract $60m stuck in Zimbabwe – Business Live

PPC CEO Johan Claassen. Picture: SUPPLIED

PPC CEO Johan Claassen. Picture: SUPPLIED

Cement producer PPC is struggling to extract about $60m from Zimbabwe, which is in the midst of a liquidity crunch.

The conclusion of Zimbabwe’s elections, following the ousting of former president Robert Mugabe, did little to shore up liquidity in the embattled nation.

“We will do everything in our power to get some of the money out in a legitimate way,” said CEO Johan Claassen. “We’ve been a very good citizen in Zimbabwe for about 18 years, through the ups and the downs, so I think we’ve got a strong case.”

Bar the liquidity crisis, PPC’s business in Zimbabwe grew strongly in the six months to end-September. Revenues in that market grew 31% to R1.1bn thanks to higher volumes as consumers converted cash into fixed assets and the government spent more on infrastructure.

The strong performance in Zimbabwe helped offset a difficult trading environment in SA, with group revenues growing 8% to R5.6bn. Southern African cement revenue, which includes Botswana, declined 4%.

To boost revenues, PPC would raise prices by “double digits” in SA, most likely in January 2019, according to PPC’s Southern Africa MD, Njombo Lekula.

Claassen said price hikes were necessary despite PPC’s estimates that capacity would outstrip demand in SA by as much as 36% in 2018.

“Our synopsis is that the industry really needs it, and somebody needs to be bold about it,” Claassen said. “To make costs of capital, the cement industry in SA probably requires margins north of 28%. We are at about 20%.”

But Mergence Investment Managers portfolio manager Peter Takaendesa said past price hikes had not “stuck” as competitors had seen this as an opportunity to lift their volumes and market shares.

Takaendesa said the overcapacity problem — a function of new competitors and a surge in imports — would be compounded when Heidelberg Cement and Osho Ventures completed the construction of a new plant in the Eastern Cape.

The industry was also contending with the emergence of independent cement blenders.

Takaendesa said he had steered clear of investments in the cement industry because of overcapacity and cost increases, which were partly due to steep fuel price hikes.

“It’s going to be very difficult for them to stabilise margins because cost pressure is not easing. I think the medium-term outlook remains very difficult for them.”

Electus equity analyst Mish-al Emeran said GDP growth was needed “before the South African cement industry can grow in real terms”.

Claassen said trading conditions in SA and the Democratic Republic of the Congo (DRC) were expected to remain difficult.

“However, we should benefit from a steady performance in Zimbabwe, improved output from Cimerwa [in Rwanda] and stable political environments in Ethiopia, while the DRC elections are a key milestone to unlock latent infrastructure demand,” he said.

Claassen also said on Friday he would be taking early retirement but would remain in his position until the board found a replacement.

The group has gone through a number of leadership changes since Ketso Gordhan resigned in September 2014.  Since then, the group’s share price has fallen from above R30 to R5.95 at Friday’s close, a 6.2% decline on the day.


  • comment-avatar

    Ha ha 60 million in ZW – they think its USD but its mabondi money or zollars or zimbollars. The inferior or junior currency to the USD. Comrade Robert G Mugabe the former strongman ( who can’t walk we hear) called the bondi money our surrogate currency.
    Really it is fiat money or dodgy stuff and if I were the accountant or bean counter at PPC i would write it down to about 5 million USD.
    Lets see how they get it out of ZW – you have to sell a lot of bags of cement to your Panama company to get that much out of ZW.
    Good luck clever S Africans ( few can pull wool over our eyes in ZW )