Challenging trading conditions pinch Sephaku earnings

10 November 2017

Testament to the difficult market conditions South Africa is currently facing, JSE-listed Sephaku Holdings (SepHold) on Thursday reported a R10.45-million decrease in group net profit to R14.8-million for the six months ended September 30.

This was accompanied by a 5.2c decrease in basic earnings a share, to 7.29c. However, SepHold’s net asset value increased by 25.45c a share to 488.49c.

SepHold CEO Dr Lelau Mohuba said the company’s Cement division, which falls under Dangote Cement and has a December year-end, had a weak performance in the first six months of the calendar year, recording a loss of R16-million owing to a 5% decrease in sales volumes, partially as a result of the heavy rainfall in February.

“However, I am pleased to report that there was recovery in the cement sales volumes during the third quarter, as well as increased prices. This, coupled with improved cost control, saw Cement achieving a profit of R32-million for the third quarter, of which SepHold’s equity earnings were around R12-million,” he said.

Sephaku Cement CEO Pieter Fourie highlighted that the company’s price increase strategy would be “quite dynamic”, with at least two planned a year. [This is] to cover inflationary pressure and to catch up the erosion we have seen in the last two years. We have lost some of the recovery of cost increases and we have to catch that back up,” he stated.

Sephaku Cement’s average price per tonne was 1.4% higher; however, volumes decreased by 4.9% year-on-year, resulting in the revenue decreasing by 3.6% to R1.104-billion for the six months ended June 30.

The associate was successful in increasing prices for both bagged and bulk cement in all markets in February; however, the reduction in sales volumes led to a 17.8% decrease in Ebitda margin.

Fourie added that Sephaku was comfortable with its market share in the current market. He noted that bagging issues at two of its main competitors had also contributed to the results. “That was an opportunistic windfall for us.”

On the Metier side, group earnings before interest and taxes (Ebit) were R33.9-million, with SepHold’s operational expenses at R10.83-million, owing to lower volumes. Gross profit for the period stood at R184.87-million compared with R190.04-million in the first half of the prior financial year.

Metier’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin decreased to 13.01% and Ebit from R60.85-million to R50.53-million owing to the lower volumes and marginal increase in overhead expenses from the twelfth plant that commenced production in March. Therefore, Metier’s net profit decreased from R37.55-million to R31.69-million.

Although facing constraints, SepHold FD Neil Crafford-Lazarus said that SepHold still managed an overall 9.6% increase in turnover for the quarter, against an estimated 2.9% decrease by analyst company Econometrix.

Trading conditions are expected to remain challenging in the short to medium term, said Crafford-Lazarus. “Therefore, focus on our side will remain on efficiencies, on maintaining prices, on ensuring that debt covenant are adhered to at all times.”

However, Fourie forecast that the upcoming national election in 2019 could boost sales volumes, as government would be looking to providing housing, particularly in rural areas. 

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