Sanral says projects awarded to Chinese companies ‘will use local materials’

The cement industry has been assured by the South African National Roads Agency (Sanral) that the Chinese companies that were recently awarded significant contracts by the roads agency will be using local materials on these projects.

Njombo Lekula, MD of PPC South Africa and Botswana, said on Monday that Cement & Concrete SA (CCSA) wrote to Sanral to verify that the Chinese companies would be using local product “and they gave us that assurance”.

However, he said the enforcement of the use of local product for these projects relies on the SA Bureau of Standards (SABS).

“They [SABS] will obviously, through the NRCS [National Regulator for Compulsory Specifications], be the one imposing or making sure that it is local product that is being used,” said Lekula.

He added that although the procurement law – the Preferential Procurement Policy Framework Act – has been challenged, he believes “we can rely on the assurance that we got from Sanral that they will be using local products”.

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Lekula’s comments were made in response to questions from analysts during a presentation on Monday on PPC’s financial results for the six months to end-September 2022.

This follows Sanral earlier this month announcing the award of four of the five tenders it cancelled in May this year.

The projects awarded are:

• Mtentu Bridge: R3.428 billion to CCCC MECSA Joint Venture (JV);

• R56 Matatiele rehabilitation: R1.057 billion to Down Touch Investments;

•  Ashburton Interchange: R1.814 billion to Base Major/CSCEC JV; and

• EB Cloete Interchange Improvements: R4.302 billion to Base Major/CSCEC JV.

PPC ready to supply

PPC CEO Roland van Wijnen said on Monday PPC is encouraged by the recent announcements by Sanral to award large construction projects in South Africa and the comments on increased infrastructure spending made in the recent mid-term budget speech by Minister of Finance Enoch Godongwana.

“With additional capacity available to capture an upswing in demand without additional capital expenditure required, PPC is well positioned to support the much-needed construction work across South Africa,” he said.

However, Van Wijnen said cement prices in South Africa are too cheap and the price needs to increase by a further 15% for the industry in South Africa to be viable.

PPC increased the price of its cement in South Africa and Botswana by an average of 5% in the six months to end-September.

It reported that South Africa and Botswana cement revenue increased by 4% to R2.9 billion and, despite cost control efforts, margins were squeezed by inflationary pressures, resulting in earnings before interest, tax, depreciation and amortisation (Ebitda) decreasing from R515 million to R368 million.

Van Wijnen said cement margins in SA decreased due to the fact that PPC’s energy costs have increased so much that it could not recover all these costs through price increases.

He said PPC is focusing on initiatives to offset input cost inflation to prevent cost increases from following inflation.

Cement import progress

Lekula said global supply chain constraints and a weaker rand resulted in a decrease in cement imports into the Western Cape, which positively impacted cement sales volumes to the retail segment.

PPC estimates that imports of cement and clinker decreased by 32% period-on-period.

Lekula said imports continue to threaten the long-term sustainability of the local cement industry, which is problematic for infrastructure roll out and socioeconomic development.

He said the cement industry is still waiting for a response from the International Trade Administration Commission (Itac) to its application for tariff protection on imported cement.

Van Wijnen said strategic actions enabled PPC to continue to reduce debt and maintain its leading market position despite challenging and competitive trading conditions in its core market in the reporting period.

“We are well placed to supply any increase in demand as the roll out of the South African government’s infrastructure development plans gain momentum,” he said.

“At the same time, PPC has a strong financial position and the right focus to weather the current economic cycle.”

Industry rationalisation?

Van Wijnen rebuffed suggestions that PPC’s South Africa cement operations would be unable to deliver acceptable returns without the rationalisation of the number of producers in the market.

He said consolidation, in his experience, has never increased demand in the market.

“Ultimately a successful industry in any country is dependent on fixed capital formation and infrastructure projects,” he said.

PPC said its results for the six months to end-September were distorted by hyperinflation accounting for PPC Zimbabwe’s performance.

With discontinued operations and PPC Zimbabwe stripped out, revenue rose 9% to R4.2 billion from R3.9 billion.

Ebitda decreased by 12% to R580 million, with margins deteriorating to 13.7% from 16.9% because of significant increases in fuel and other energy costs.

However, cost-saving initiatives and price increases improved Ebitda margins in Rwanda.

Profit before tax increased by 4% to R259 million from R250 million. Headline earnings per share declined by 60% to 4 cents from 10 cents.

A dividend was not declared.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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