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Restatement of Prior Year Results, Trading Statement, Delayed FY20 Financial Results and Operational Update
PPC Ltd
(Incorporated in the Republic of South Africa)
(Company registration number 1892/000667/06)
JSE ISIN: ZAE000170049
JSE code: PPC ZSE code: PPC
("PPC" or "Company")
RESTATEMENT OF PRIOR YEAR RESULTS, TRADING STATEMENT, DELAY IN REPORTING OF 31
MARCH 2020 FINANCIAL RESULTS AND OPERATIONAL UPDATE
RESTATEMENTS TO PRIOR PERIOD FINANCIAL RESULTS
Shareholders of the Company (“Shareholders”) are referred to the audited financial
statements for the year ended 31 March 2019 (“Prior year”), announced on Stock
Exchange News Service (“SENS”) on 26 July 2019. The Company wishes to advise
shareholders that during the audit process for the year ended 31 March 2020, prior
year errors were identified and corrected. The corrections and financial impact
are detailed below.
1) Equity-accounted investment in Habesha
Habesha Cement Share Company (“Habesha”) is an Ethiopian equity accounted
investment held by PPC (refer note 20 of the prior year annual financial
statements). In the prior year PPC concluded that no impairment of the investment
was required. The Board is however of the opinion that the investment of
R146 million should have been fully impaired in the prior year. It follows that
the impairment of R93 million and the equity accounted losses of R54 million in
the interim results dated 30 September 2019 will also be reversed following full
impairment of the investment as at 31 March 2019.
2) Zimbabwe financial asset fair value
The PPC Zimbabwe financial asset arose when its US$ denominated Zimbabwe loan was
registered with the Reserve Bank of Zimbabwe (“RBZ”) (refer note 8 of prior year
annual financial statements). The loan qualifies as legacy debt and a Zimbabwe
dollar (“ZWL”) amount equivalent to the US$ loan balance was transferred to the
RBZ, which amount qualifies for the 1:1 conversion of US$ to ZWL. The financial
asset represents the difference between the prevailing ZWL:US$ exchange rate as at
31 March 2020 and the 1:1 rate approved by the Zimbabwe authorities for the
settlement of the US$ Zimbabwe loan.
No adjustment was applied for credit risk as at 31 March 2019. Considering the
fact that PPC did raise an expected credit loss adjustment on the Zimbabwe
government bonds as at that date, the Board believes it would also have been
appropriate to apply the same percentage fair value credit risk adjustment against
the Zimbabwe financial asset as at that date. As a result, the prior year results
will be restated to take into account a pre-tax fair value adjustment of R36.7
million. It follows that the pre-tax income statement impact of the fair value
adjustment in the interim results dated 30 September 2019 will be reduced from R76
million to R39.3 million.
3) Foreign currency translation reserve and exchange differences
At 31 March 2019, PPC Ltd recognised exchange gains of R116 million that arose
from translation of the Democratic Republic of the Congo (“DRC”) deficiency loan
in the statement of profit or loss in its separate financial statements. In the
Group consolidated annual financial statements, the exchange differences were
accounted for in other comprehensive income and accumulated in the foreign currency
translation reserve, as the Group considered the exchange differences to have
arisen from the net investment in the foreign operation. The Board believes it was
not appropriate to consider the loan as part of the net investment in the foreign
operation and accordingly the pre-tax exchange gain of R116 million should have
been recorded in the statement of profit or loss in the PPC consolidated financial
statements in the prior year. As a result the prior year results will be restated
to reflect the exchange gain. This adjustment has no impact on the 30 September
2019 interim results.
4) Other individually immaterial errors
Several smaller individually immaterial errors have been noted relating to
reallocation of intangible assets, reallocation between reserves and
reclassification of investments as treasury shares. Cumulatively these errors have
no impact on earnings.
The cumulative after-tax impact of all the above-mentioned prior year restatements
is a decrease in basic earnings per share from the previously stated 16 cents per
share to 9 cents per share, and an increase headline earnings per share from the
previously stated 20 cents per share to 23 cents per share. Net asset value is
decreased by R174 million from R9.3 billion in the prior year. Management has
initiated, and will continue to implement, improvements to the internal control
environment and related governance processes to ensure integrity of the information
published.
TRADING STATEMENT FOR THE YEAR ENDED 31 MARCH 2020
Further to the announcement on the 23 June 2020, indicating that financial results
for the period ended 31 March 2020 will differ by more than 20% from those of the
previous corresponding period 31 March 2019, the Company would like to update its
Shareholders as outlined below.
Group revenue for the year ended 31 March 2020 is expected to decrease by less
than 5% compared to the prior year (March 2019: R10.409 billion). Earnings before
interest, tax, depreciation and amortisation (“EBITDA”), is expected to decrease
by a range of 15% to 20% compared to prior year (March 2019: R1.946 billion). Basic
earnings per share is expected to reflect a loss per share of between 110 and 130
cents per share (reflecting a difference of more than 100%), compared with the
restated 9 cents per share achieved for the prior comparable period ended 31 March
2019. Headline earnings per share is expected to be between 25 cents and 30 cents
per share (reflecting a difference of between 8.7% and 30.4%) compared with the
restated 23 cents per share achieved for the prior comparable period ended 31 March
2019.
The difference between the basic earnings per share and headline earnings per share
relates to the impairment of property, plant and equipment in South Africa Cement,
PPC Barnet DRC and Readymix, as well as impairment of certain intangible assets
and goodwill. These impairment considerations were affected by the economic impact
of the Covid-19 pandemic. The financial consequences of the closure of the Group's
plants during lockdown periods of varying lengths depending on the jurisdiction,
and the uncertain economic outlook and recovery periods resulting from the economic
impact of Covid-19 have been factored into the cash flow forecasts utilised in
impairment assessment of the cash generating units of the Group.
Included in headline earnings per share is a net monetary gain of between R625
million and R675 million relating to the hyperinflation accounting in Zimbabwe.
DELAY IN REPORTING OF 31 MARCH 2020 FINANCIAL RESULTS
PPC announced on 23 July 2020 that the Company’s financial results for the year
ended 31 March 2020 would be published on or about 31 August 2020. The Company
took advantage of the dispensation granted by the JSE to delay the publication of
its results by two months and at the time expected to be able to meet that
publication date.
The impact of the Covid-19 pandemic on the year-end and audit process has however
been more severe than initially anticipated. This was due to various levels and
extensions of lockdowns in the countries in which the Group trades, challenges and
delays caused by working remotely during this period and additional analyses
required due to the financial impact of Covid-19 on accounting judgements and
estimates.
In addition, and as communicated to the shareholders of PPC in the announcement on
13 August 2020 on SENS, the Company is undertaking a restructuring and refinance
project with the objective of implementing a sustainable capital structure. PPC
expects to reach certain key milestones on this project in the coming weeks, which
will have an impact on the finalisation of the Company’s financial results.
Given these matters outlined above, PPC is unable to publish audited results by 31
August 2020. PPC, therefore, expects to announce the year ended 31 March 2020
financial results by no later than 30 September 2020. PPC is conscious of its
reporting obligations to regulators and shareholders and is doing everything within
its control to fulfil its obligations.
OPERATIONAL UPDATE APRIL 2020 – JULY 2020
As reported to investors in the company’s 30 April 2020 and 23 July 2020 operational
updates, PPC’s cement operations ramped up in May 2020 post the Covid-19
restrictions imposed at the end of March 2020 across most of the jurisdictions in
which the Group operates. The double digit year-on-year growth of cement volumes
in South Africa during June continued in July as cement sales volumes in South
Africa once again showed double digit growth compared to July 2019. This was
achieved on the back of the strong reduction of imports. Also, the resumption of
construction activities and the temporary effect of high activity in construction
projects to catch up on the delivery of these projects have had a positive impact.
As some of these positives might be temporary and given the economic outlook, PPC
continues with the implementation of measures to reduce costs and increase cash
generation from its operations. The total cement volumes sold by the international
subsidiaries also showed double digit growth comparing July 2020 with July 2019.
The demand is especially strong in Zimbabwe and Rwanda and the growth of sales
volumes during July has been positive in the DRC as well. The increased sales
volumes and the effect of the cost reduction and cash preservation measures have
resulted in cash flows for the last months showing a positive trajectory.
The financial information contained in this announcement has neither been reviewed
nor reported on by the Company’s external auditors.
Sandton
18 August 2020
Sponsor
Merrill Lynch South Africa (Pty) Limited
PPC:
Financial Communications Advisor:
Instinctif Partners
Louise Fortuin
Mobile: +27 71 605 4294
Date: 18-08-2020 08:55:00
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