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Trading Statement, PPC’s Expansion Strategy, Update On Ratings Action, Further Detail Regarding Funding Strategy
PPC Ltd
(Incorporated in the Republic of South Africa)
(Company registration number: 1892/000667/06)
JSE / ZSE Equity Code: PPC ISIN: ZAE000170049
JSE Bond Code: PPC002 ISIN: ZAG000111212
JSE Bond Code: PPC003 ISIN: ZAG000117524
JSE Bond Code: PPC004 ISIN: ZAG000117532
("PPC" or the "Company")
TRADING STATEMENT, PPC’s EXPANSION STRATEGY, UPDATE ON RATINGS
ACTION, FURTHER DETAIL REGARDING FUNDING STRATEGY INCLUDING A
PROPOSED RIGHTS ISSUE AND FURTHER CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Shareholders are referred to the announcement published by the
Company on the Stock Exchange News Service of the JSE Limited
(“JSE”) on Monday, 23 May 2016 referring to a proposed capital
raise, a possible ratings downgrade and a cautionary announcement.
The Company is now in a position to provide further detail on these
and related matters, as well as the trading statement, all as set
out below.
TRADING STATEMENT
In terms of the Listings Requirements of the JSE, companies are
required to publish a trading statement as soon as they become
reasonably certain that the financial results for the period to be
reported on next will differ by at least 20% from those of the
previous corresponding period.
PPC is finalising its financial results for its new financial year
ended 31 March 2016. PPC’s Board of Directors (“Board”) advises that
basic earnings per share for the six month period to 31 March 2016
are expected to be between 30% and 40% higher (between 68 cents and
73 cents) than basic earnings per share of 52 cents, reported for
the previous corresponding period to 31 March 2015.
The main contributors to the expected increase are exceptional items
relating to the disposal of certain non-core assets that realised
profit before tax of R100 million.
In addition, the expected earnings before interest, taxation,
depreciation and amortization for the six month period to 31 March
2016 will show a marginal improvement on the previous corresponding
period to 31 March 2015 due mainly to improved efficiencies and cost
savings as part of the PPC group’s Profit Improvement Programme.
Basic headline earnings per share for the six month period to 31
March 2016 are expected to be between 10% and 20% lower (between 54
cents and 48 cents) than basic headline earnings per share of 60
cents, reported for the previous corresponding period to 31 March
2015.
The expected decline in basic headline earnings is attributable to a
weaker trading environment as well as higher finance costs and
depreciation due to the commissioning of the Rwanda operations and
an increase in gross borrowings, all of which has been partially
offset by the improved cost performance.
The information in this trading statement has not been reviewed or
reported on by the Company’s external auditors.
PPC’S EXPANSION STRATEGY
In 2010, PPC embarked upon an expansion strategy to extract value
from high-growth economies by expanding its footprint into the rest
of Africa.
In 2015, PPC successfully commissioned the first of these projects
in Rwanda within budget. In addition, PPC will, in the next 12
months, commission its expansion projects in Zimbabwe, the DRC and
Ethiopia, the result of which will be an increase in gross
production capacity of approximately 3 million tons per annum.
However, given the long lead time required to develop greenfield
sites, the Company has drawn down on pre-arranged project finance
debt without an immediate concomitant increase in earnings and
resultant cashflow.
Before taking into account the proposed capital raise, PPC’s debt
levels, including non-recourse debt, are anticipated to peak at
between R10 billion and R12 billion in financial year 2017,but will
reduce as cashflow from the expansion projects is achieved.
Currently, PPC’s South African debt is R5,8 billion while the ring-
fenced project finance debt relating to the rest of Africa expansion
projects is R3,8 billion. The increase in project finance debt is a
result of a depreciation in the ZAR:USD exchange rate and further
drawdowns on the existing facilities as the rest of Africa projects
near completion. The South African debt has not increased since the
last reported results.
Concurrently, the ramp-up in debt has occurred at a time when there
has been a deterioration in the macroeconomic environment which has
impacted negatively on the profitability of PPC’s existing
operations and its debt covenants.
RATINGS ACTION AND ITS IMPACT
The Company wishes to notify all holders of its securities that S&P
Global Ratings (“S&P”) downgraded the Company’s long- and short-term
South African national scale corporate credit ratings to zaBB-/zaB
from zaA/zaA-2 respectively and placed all credit ratings on
CreditWatch with negative implications (“Ratings Action”). The full
report can be found at www.standardandpoors.com.
As a result of the Ratings Action, upon and subject to issuance of a
redemption notice, noteholders of outstanding notes (“Notes”) issued
under PPC’s domestic medium term note programme (“Note Programme”)
may elect that the Company redeem their Notes at par plus accrued
interest. If all noteholders were to elect that the Company redeem
their Notes, R1,75 billion of Notes, plus accrued interest, would
have to be redeemed by the Company.
The Company will in due course engage with its noteholders and will
make further announcements in accordance with the terms contained in
the Note Programme.
S&P has indicated that PPC’s business risk profile remains fair.
However, the Ratings Action refers to liquidity and leverage
concerns. The severity and timing of this Ratings Action was
unexpected and has therefore compelled the Company to accelerate its
capital raising plans and increase the quantum of the previously
planned capital raise, in order to make provision for the potential
redemption of the Notes.
PPC’s FUNDING STRATEGY
The Board and the Executive Management of the Company have reviewed
the Company’s business plan and capital structure and are in the
process of implementing a funding strategy which incorporates a
capital raise to deal effectively with the impact of a continued
low-growth environment as well as the potential redemption of the
Notes and the strengthening of the balance sheet.
The Company intends to raise between R3 billion and R4 billion in
gross proceeds through a rights issue. PPC is in discussions with
various parties with respect to the potential underwriting of the
proposed rights issue. The Company will also consider such other
forms of equity capital raising as may be appropriate in light of
its position, market conditions and other factors.
The Board intends to announce further details regarding the proposed
rights issue on 14 June 2016, when it releases its results for the
financial year ended 31 March 2016, and to publish a shareholder
circular convening an extraordinary general meeting to approve the
required shareholder resolutions in order to implement the proposed
rights issue on or about 28 June 2016.
In the interim, and in order to address its commitments to the
noteholders, the Company has executed a credit approved term sheet
with its debt providers which summarises the terms and conditions on
which such debt providers will step in as guarantors to the
noteholders.
FURTHER CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcement released on 23 May 2016 and
the information set out in this announcement, security holders are
advised to continue exercising caution when dealing in PPC
securities until a further announcement is published.
Any securities which will be offered will not be and have not been
registered under the US Securities Act of 1933 (“US Securities Act”)
and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration
requirements under the US Securities Act.
31 May 2016
Equity Sponsor
Merrill Lynch South Africa (Pty) Limited
Debt Sponsor
Absa Bank Limited (acting through its Corporate and Investment
Banking division)
Bonnie Brink
Tel: +27 (0) 11 895 6843
Bonnie.brink@barclays.com
PPC:
Azola Lowan
Tel: +27 (0) 11 386 9000
Azola.Lowan@ppc.co.za
Financial Communications Advisor:
Instinctif Partners
Morne Reinders
Mobile : +27 (0) 82 325 1810
Morne.Reinders@instinctif.com
Louise Fortuin
Mobile: +27 (0) 71 605 4294
Louise.Fortuin@instinctif.com
Date: 31/05/2016 09:03:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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