As JSE-listed cement producer PPC prepares to start construction on a new R3-billion plant in the Western Cape in the second half of the year, CEO Matias Cardarelli has emphasised how the new plant will support PPC’s competitiveness and growth for many years to come.

The company’s board has approved the capital expenditure for the new plant, which will produce 1.5-million tons of cement a year and replace some of the existing capacity from PPC’s Riebeeck site in the Western Cape, as well as increase overall group capacity.  

PPC entered into an engineering, procurement and construction contract with Sinoma Overseas Development Company to building the plant, citing its leading cement equipment and engineering experience globally.

The plant is planned for commissioning by the end of the 2026 calendar year.

During a capital markets day hosted by PPC on March 27, Cardarelli emphasised the importance of remaining competitive from a cost and efficiency perspective, given the capital-intensive nature of the cement business and the uneven playing field in South Africa.

While there is currently an oversupply in the local market of 40-million tonnes a year, Cardarelli said the new plant would operate more efficiently, and would have a lower environmental impact and be more cost-effective.

He added that the company’s Riebeeck plant was already becoming less competitive owing to its equipment being 40 to 60 years old.

Cardarelli explained that the uneven playing field in the local market was exacerbated by lacking regulation and an import tax regime that should be addressed by government urgently.

For context, Cardarelli said that, while many cement companies globally used blending to add extender chemicals to cement, a unique feature of the South African market was that the blending was often outsourced.

“The problem is the last stage of production of cement needs to be done with the same quality controls and standards and, in some cases, the cement produced by blenders in the market has inconsistent quality and is often way below standard in terms of strength and resistance.”

This is an important matter in the cement industry, not only to address unfair competition, since overly blended cement is much cheaper to produce, but because it also threatens public safety.

South Africa imports about one-million tonnes of cement a year, and blender companies supply about 1.8-million tonnes a year in the local market.

“We believe government has the responsibility to control this value chain better and likewise our competitors who supply cement to the blenders have the responsibility to ensure continued quality through the process,” Cardarelli stated.

INVESTING FOR RESILIENCE

Cardarelli said cost and production levels were very sensitive to investment in the cement industry, and lacking investment could impact the competitive landscape and profitability.

“It is not possible to keep equipment running efficiently and operating sustainably without investment. Capital allocation should, of course, be tested in terms of shareholder returns and should be applied with strict discipline,” Cardarelli added.

It was common knowledge that the construction sector had been dormant to a large extent in South Africa, while economic growth had also been lagging, hence PPC decided not to “wait for the market to turn” and rather control what it could from a cost, profitability and performance perspective.

Cardarelli wis confident that the negative cycle will turn and both the economy and the construction sector will see increased growth; however, until then, PPC is expanding and adapting its aspirations to the low-growth scenario.

He said that, because the cement industry was not one to face quick changes in the market constantly, cost wass the main driver of competitiveness. Cardarelli explained the fundamentals for a successful cement business were business knowledge, cost focus and routes to market.

PPC has been implementing its “awaken the giant” turnaround strategy on the back of challenges identified within the organisation.

The company has already started benefitting from its leaner structure and self-managed logistics, including through a 20% improvement in earnings and wider earnings margins, as well as a 90% improvement in free cash flow in South Africa and Botswana.

“The R3-billion investment will create a step change for PPC and the markets it can serve. Location is key and PPC continues to review the markets it serves to ensure footprint and product mix optimisation,” Cardarelli stated.

Chief strategy officer Paulo Marques agreed, saying that while there had been limited changes to cement as a product over centuries, the business demanded frequent reinvestment, and operational and cost efficiency.

What contributes to its capital-intensive nature, in addition to running large plants and high-tech technology, is the limited distances that can be travelled owing to high weight and high transport cost – hence PPC’s transition to managing its own logistics after many years instead of outsourcing the function, which allows the company to better account for costs and planning.

“No matter the market context, without scale and efficiency there will be deteriorations in margins and profitability. Therefore, competitive advantages need to be leveraged: new investments in technology, energy efficiency, location, scale, logistics management and cost reduction,” Marques summarised.

PPC currently has four integrated plants, two grinding stations and three blending plants in South Africa. In Zimbabwe, PPC has one integrated plant and two blending plants, while it has one blending plant in Botswana. The group produces about two-million tonnes of cement a year.

The group produces ready-mix cement, which accounts for 25% of inland bulk sales, classified fly ash for high specification concrete and aggregates. Notably PPC is the largest exporter of fly ash to neighbouring countries.

In terms of aggregates, PPC has quarries in Laezonia, Mooiplaas and Centurion.

OUTLOOK

Chief revenue officer Bheki Mthembu listed the group’s challenges as having been consistent loss of market share, no commercial department, the wrong sales focus, a lack of credible and reliable internal data, customer concentration and no sales operating and planning coordination.

He highlighted the opportunities that the group was now focused on were profitable market share recovery, diversifying and expanding its customer base, sourcing, sales and distribution integration (particularly through increased communication across the organisation), a focused product portfolio, data-driven decision-making, more targeted sales, appropriate modes of transport and stronger customer relations.

Mthembu is optimistic that South Africa’s construction project spend will increase, with more than R1.6-trillion of expected projects between 2024 and 2030.

Likewise massive amounts of infrastructure project investments are expected in Zimbabwe and Botswana, including electricity, roads and mining projects.

PPC’s balance sheet remains strong in supporting margin-accretive growth and off-cycle resilience, while there is a continued focus on higher dividends and more free cash flow generation as the turnaround strategy progresses.