CAPE TOWN – Sephaku Holdings cement-making associate SepCem will pay R35million to R40m in tax each year following the introduction of the carbon tax on June 1.
“The associate will apply the tax on its products based on the proportion of clinker per ton, which translates to between 1.5percent and 2.5percent price increases on lower-strength and high-strength cement, respectively,” Sephaku said at the release of its annual results for the year to end March 31 yesterday.
SepCem would increase prices this month by 4 percent to 6 percent, due to the carbon tax and standard biannual increases. Cement manufacturers produce carbon emissions during the clinker production process through the use of coal to burn limestone and other raw materials at extremely high temperatures.
The carbon tax bill is almost equal to Sephaku’s profit after tax, which came to R44m in the year to March 31, compared with R44.1m in 2018.
SepCem is 36percent-owned by Sephaku, and is a subsidiary of Dangote Cement.
SepCem’s net profit fell to R46.9m compared with R57.8m in 2018.
But a R81.7m tax credit from an energy efficiency allowance saw SepCem’s net profit rise to R128.7m
The 12L tax incentive provides for an allowance to be claimed at 98c/kWh for energy savings.
SepCem achieved a total energy saving of 307GWh against a benchmark based on the energy efficiency of a modern plant.
Sephaku chief executive Dr Lelau Mohuba said the building and construction material sectors continued to experience tough operating conditions and building materials demand was likely to remain subdued due to challenges in stimulating the economy, against the backdrop of high sovereign debt and loss-making state-owned entities.
“Our outlook for the next 12 to 24 months remains negative, anticipating anaemic growth, unless the newly elected government urgently provides impetus through pro-infrastructure investment policies,” said Dr Mohuba.
The group focused on lowering debt, defending market share and improving cost efficiencies in the past year. It had repaid R1billion of debt since the 2015 financial year, in spite of the tough environment.
Growth opportunities were being evaluated in preparation for the period following the repayment of debt.
Head-office expenses were cut by 9percent to R22.9m in the past year, in line with the constrained operating environment – three directors were not replaced following their resignation from the board.
Subsidiary Metier’s gross profit was lower at R320.5m compared to R341.9m in 2018, mainly due to a 6.7percent increase in cost of sales as a result of the product mix against flat pricing.
To support margins, management optimised production and logistics assets.
The outsourced fleet was reduced by 16percent to maximise use of the owned fleet.
Metier’s low pricing environment, against inflationary input costs and expenses, resulted in a 55percent decline in net profit to R21.5m from R48m in 2018.
Metier’s market was characterised by many construction projects being suspended or terminated, management said.