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Restructuring and refinancing project update, operation update and renewal of cautionary
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” or “Group”)
RESTRUCTURING AND REFINANCING PROJECT UPDATE, OPERATIONAL UPDATE AND
RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders of the Company (“Shareholders”) are referred to the
previous announcements released on the Stock Exchange News Service,
including the Restructuring and Refinancing Project Update and Renewal
of Cautionary Announcement released on 25 February 2021, wherein they
were advised on the status of the restructuring and refinancing
project (“Project”) underway.
RESTRUCTURING AND REFINANCING PROJECT UPDATE
PPC is pleased to report that it has made significant progress in
implementing a sustainable capital structure and improving the
investment prospects of the Group, including de-risking the Group’s
balance sheet through the removal of its contingent obligations in
relation to PPC Barnet, its operations in the Democratic Republic of
Congo (“DRC”).
Resolution of DRC Exposures
PPC has entered into a binding agreement with PPC Barnet’s lenders
terminating their right to recourse to PPC, which, in the event of
acceleration, would have been an amount of c.US$175 million
(“Settlement Agreement”). The Settlement Agreement is effective on
the payment of a final deficiency settlement amount of
US$16.5 million, which PPC expects to make in early April 2021.
Simultaneously, PPC has entered into a binding term sheet to
restructure the c.US$175 million senior debt in PPC Barnet as part of
implementing a sustainable capital structure for that business. The
key terms of the restructuring include:
• Reinstatement of a portion of the PPC Barnet lenders’ senior debt
and conversion of a portion to a pay-as-you-can preference share
in PPC Barnet, front ranking other PPC Barnet creditors and
shareholders;
• Granting a right to PPC Barnet lenders to require PPC to capitalise
PPC’s shareholder loans made to PPC Barnet (including the US$16.5m
final settlement payment) to ordinary and preferred equity in PPC
Barnet, so as to restore the solvency of the business, if required;
• PPC will manage the business on behalf of the PPC Barnet lenders
under a management agreement for an initial five year term. The
management agreement provides for a fee, enabling PPC to recover
its costs over the term of the contract; and
• The restructuring is to be completed by 30 September 2021.
PPC has also reached agreement with the DRC minority shareholder in
PPC Barnet’s holding company, PPC Barnet DRC Holdings Mauritius,
ensuring alignment of interests and support for the implementation of
the restructuring of the business going forward.
The Settlement Agreement and related agreements de-risk PPC from
future economic downside risk to the DRC operations and effectively
directs the economics of the business to the PPC Barnet lenders.
Whilst PPC will retain both an ordinary equity and preferred equity
interest in PPC Barnet, given its deep subordination to the PPC Barnet
lenders, limited economic benefits are expected to flow to PPC in the
short to medium term from this business. PPC expects to no longer
consolidate the results of PPC Barnet on the implementation of the
restructure.
The conclusion of the Settlement Agreement represents a significant
milestone in the restructuring and refinancing project, providing
clarity on what has been a significant overhang on the Group by
removing a potential c.US$175 million liability from the Group’s
balance sheet. It is also expected to restore investor confidence in
the Group and free up management time to focus on core operations and
other long-term strategic initiatives.
Habesha Cement Share Company (“Habesha”)
Habesha, the Ethiopian associate of the Group, started to deliver
positive month to month EBITDA in its ramp-up phase. Habesha has
appointed advisors to develop a financial restructuring plan to
optimise its capital structure, the results of which are expected to
be presented to the Habesha board towards mid-2021.
Whilst PPC sees long-term value in the business, PPC has no obligation
to support the business nor invest further capital. PPC will assess
the restructuring proposal, when presented later this year, on its
merits and act accordingly.
PPC International capital raise
The process to raise capital in PPC International is still underway,
albeit subject to potential deferral pending the outcome of the
Habesha restructuring and the implementation of the DRC restructuring.
With the resolution of the DRC exposures the capital raise for PPC
International is no longer required for the implementation of a
sustainable capital structure of the Group.
Sale of PPC Lime
The structured sales process for PPC Lime continues to make good
progress, with shortlisted parties having completed due diligence and
binding offers are expected to be received by early April 2021. PPC
will assess these offers in the context of shareholder value creation
and targets entering into definitive sale agreements by the end of
May 2021, should any of the offers be acceptable.
South African Lenders and equity capital raise
In terms of the undertakings provided to its South African lenders
(“SA Lenders”), and subject to the resolution of its DRC exposures,
PPC committed in August 2020 to an equity capital raise of not less
than R750m by 31 March 2021 in order to de-gear its South African
balance sheet (“Capital Raise”).
PPC is pleased to advise that its SA Lenders have agreed to defer the
timing of the Capital Raise by six months to the end of September
2021. The SA Lenders have also agreed to review the need for the
Capital Raise should the South African businesses continue to de-gear
towards a sustainable debt metric of c.2x EBITDA. Shareholders will
be kept up to date as progress is made towards the achievement of this
key milestone.
OPERATIONAL UPDATE
The Group experienced a double-digit period-on-period growth in cement
sales from July 2020 to February 2021 despite new COVID-19
restrictions in certain markets. PPC’s ability to respond to the
strong increase in demand following the easing of lockdown
restrictions at the beginning of the 2021 financial year, has resulted
in a significant improvement in the Group’s financial performance.
Group Revenue Performance
PPC Group revenue increased by 7% period-on-period for the eleven
months ended February 2021 and 14% for the five months ended February
2021, driven primarily by strong cement demand in South Africa.
South Africa & Botswana Cement
Cement sales increased by 3% to 5% period-on-period for the eleven
months ended February 2021 and 15% to 20% period-on-period for the
five months ended February 2021. Sales to the retail sector were the
primary drivers of demand, with particularly robust demand experienced
in the rural and informal markets. Demand growth in the inland areas
offset declines in the coastal regions and Botswana. A lagged recovery
in commercial construction demand accounted for the decrease in sales
in the coastal areas. PPC implemented price increases to recover input
cost inflation.
South African cement producers have engaged the relevant authorities
to have locally produced cement classified as a designated product.
The designation will make it compulsory for locally produced cement
to be used in government-funded construction projects and will
prohibit the use of imported cement in such projects. Upon
implementation, the local cement industry is expected to benefit from
increased demand once the Government’s infrastructure build programme
gathers momentum.
Cement imports, which continue to pose a threat to the industry,
rebounded strongly after easing of the lockdown restrictions. PPC
estimates that cement imports were in line with the prior year at
1.2 million tonnes and accounted for 8% of demand for the twelve
months ended December 2020. Together with The Concrete Institute and
other industry players, PPC has applied to the relevant authorities
for relief against this unfair competition. A verification report
confirming receipt of all the required information for the application
process has been received, and a decision by the relevant authorities
to initiate an investigation is pending.
The presence of non-conforming cement in South Africa remains a major
threat to consumers. PPC continues to educate retailers and customers
about the risks of using such products.
Materials
For the eleven months ended February 2021, ash sales benefited from
increased cement demand and the shortage of alternative extenders like
slag, while demand for aggregates increased due to construction
demand. Readymix sales reduced as a result of a lagged recovery in
commercial construction activity. Overall, the materials division
revenues were flat period-on-period for the 11 months ended February
2021.
Lime
Lime sales declined by 39% period-on-period for the 11 months ended
February 2021 and 25% period-on-period for the five months ended
February 2021 due to a decline in steel-related activity. The closure
of operations by a significant customer further reduced the demand
for lime products. Initiatives are underway to optimise costs and
diversify the customer base to mitigate these challenges and a strong
recovery is expected. Strict cost management and focus on net working
capital reduction has resulted in a stronger cash generation compared
to the same period in the prior year.
Zimbabwe
PPC Zimbabwe continues to trade well. For the eleven months ended
February 2021, PPC Zimbabwe cement sales increased by 10% period-on-
period and 11% period-on-period for the five months ended February
2021. Retail demand, concrete product manufacturers and Government-
funded projects are the main drivers of cement sales. PPC adjusted
cement prices upwards in the second half of the 2021 financial year
to recover input cost inflation.
Rwanda
CIMERWA experienced a period-on-period increase of 7% in sales for
the eleven months ended February 2021 and 3% for the five months ended
February 2021. The Rwandan authorities imposed a second lockdown early
in 2021 which resulted in a slow-down in economic activity.
A new cement producer in Rwanda has commenced operations but, to date,
the impact on CIMERWA’s cement sales is negligible as demand in Rwanda
exceeds domestic production.
DRC
Sales in the DRC were less affected by COVID-19. PPC Barnet sales
increased by 16% period-on-period for the 11 months ended February
2021 and 26% period-on-period for the five months ended February 2021,
driven by the expansion of cement distribution into new territories.
Pricing was stable in US$.
Group EBITDA
Group EBITDA increased by 25% to 30% period-on-period for the eleven
months ended February 2021 and 45% to 50% period-on-period for the
five months ended February 2021 benefiting from increased cement sales
and stringent cost control.
Liquidity and cash flow
The Group has experienced the positive impact of improved cement
sales, cost reduction measures, enhanced working capital management
and cash preservation measures implemented over the 11 months to
February 2021.
The South African debt has reduced from R1.92 billion at 31 March 2020
to R1.64 billion at the end of February 2021.
Given the improved financial performance and reduction in gearing
levels, in particular in South Africa, key debt metrics are returning
to traditional banking covenant levels.
The Group is in good standing with its lenders, with sufficient
headroom in existing facilities to meet its operational requirements.
As discussed under “Resolution of DRC Exposures” above, the
cUS$175 million owed by PPC Barnet to its lenders has been resolved
and will be converted into a combination of re-instatement of senior
debt and a pay-as-you-can preference share. The Settlement Agreement
with the PPC Barnet lenders materially de-risks the Group balance
sheet.
Group free cash flow for the 11 months ended February 2021 is between
90% to 95% higher than the previous comparable 11 month period.
Earnings guidance
Currently, the Board of Directors of PPC Ltd (“Board”) does not have
the required certainty to provide guidance on the potential change in
earnings per share nor the likely range for earnings per share for
the year ending 31 March 2021. The Board will communicate this to the
market once it has the required certainty.
Outlook
Although the Group is experiencing positive momentum across most of
its markets, it remains cautious on the outlook for cement demand
given the prevailing uncertainties around the COVID-19 pandemic and
its resultant impact on economic activity. PPC will remain focused on
continuing to improve cost competitiveness through cost management
initiatives and cash management. It will take the necessary measures
to ensure that it can continue to serve its customers, protect its
employees, and implement strategic initiatives to ensure financial
sustainability through all demand cycles.
The financial information contained in this announcement has neither
been reviewed nor reported on by the Company’s external auditors.
Change in Group CFO
As communicated to shareholders at the Group’s interim results in
December 2020, Ms. Ronel van Dijk will step down as Group CFO with
effect from 31 March 2021 and Ms. Brenda Berlin will take over as
Group CFO on 1 April 2021. The Board appreciates the dedication of
Ms. van Dijk, who played a pivotal role in guiding the Company through
one of its most difficult periods, including negotiations with lenders
to address the impact of COVID-19 lockdowns and the delivery of the
2020 audited financial statements and half year results for 2021 under
very difficult circumstances. The Board welcomes Ms. Berlin to Team
PPC and looks forward to her contribution in further strengthening
the financial reporting and controls of the Company.
RENEWAL OF CAUTIONARY ANNOUNCEMENT
With reference to the information included in this announcement
relating to the progress on the Project, the conclusion of the
Settlement Agreement and the Capital Raise, Shareholders of PPC are
advised to continue to exercise caution when dealing in the securities
of PPC until a further announcement regarding the outcome of the
possible sale of PPC Lime is made.
INVESTOR AND ANALYST CONFERENCE CALL
A conference call addressing the above updates will take place at
11.00 CAT, Thursday, 1 April, 2021. Participants are required to
register for the call using the following link:
www.diamondpass.net/5696790
Note that registered participants will receive their dial in number
upon registration. A recorded playback will be available with access
provided on request.
Sandton
31 March 2021
Sponsor:
Sasfin Capital
Financial Communications Advisor:
Instinctif Partners
Louise Fortuin
Mobile: +27 71 605 4294
Date: 31-03-2021 01:01:00
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