SA cement producer says he will not be able to keep $ 60 million in Zimbabwe


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South African cement producer PPC is struggling to extract about $ 60 million from Zimbabwe, which is in the midst of a liquidity crisis.

The conclusion of the Zimbabwean elections, following the deposition of former President Robert Mugabe, has done little to bolster liquidity in the troubled nation.

"We will do everything in our power to get some of the money legitimately," said CEO Johan Claassen. "We have been a very good citizen in Zimbabwe for about 18 years, through the ups and downs, so I think we have a strong case."

To stem the liquidity crisis, the PPC business in Zimbabwe grew strongly in the six months to the end of September. Revenues in this market grew 31% to R1.1bn ($ 7.9m), thanks to higher volumes as consumers converted money into fixed assets and the government spent more on infrastructure.

Strong performance in Zimbabwe helped offset a difficult trade environment in South Africa, with the group's revenues growing 8% to $ 5.6 billion ($ 40 million). Southern Africa's cement revenue, which includes Botswana, declined 4 percent.

To boost revenues, the PPC would increase "double-digit" prices in Canada, probably in January 2019, according to Dr. Njombo Lekula, South Africa's PPC.

Claassen said the price increases were needed despite PPP's estimates that capacity would exceed demand for HS by up to 36% by 2018.

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

But Mergence Investment Managers portfolio manager Peter Takaendesa said previous price increases did not "stop," as competitors saw this as an opportunity to raise their volumes and market share.

Takaendesa said that the problem of overcapacity – a function of new competitors and an increase in imports – would be aggravated when Heidelberg Cement and Osho Ventures completed the construction of a new factory in the Eastern Cape.

The industry was also struggling with the emergence of independent cement mixers.

Takaendesa said he avoided investments in the cement industry due to overcapacity and cost increases, in part due to rising fuel prices.

"It will be very difficult to stabilize the margins because the cost pressure is not decreasing. I think the medium-term perspective remains very difficult for them. "

Electus stock analyst Mish-al Emeran said GDP growth was needed "before the cement industry in South Africa can grow in real terms."

Claassen said trade conditions in South Africa and the Democratic Republic of Congo (DRC) should remain difficult.

"However, we should benefit from a stable performance in Zimbabwe, improve Cimerwa's production [in Rwanda] and stable political environments in Ethiopia while the Democratic Republic of Congo elections are an important milestone to unlock the demand for latent infrastructure, "he said.

Claassen also said on Friday that he would retire early, but will remain in his post until the council finds a replacement.


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