PPC: Cements Its Losses, But Soldiers On

19 June 2017 | Jeremy Woods: Out of the Woods
 


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A weaker trading environment and a strong rand-dollar exchange rate have been the key contributing factors to PPC’s dismal financial performance for 2017. 

Despite raising R4 billion last September, the company has come through the last six months with virtually all its profits wiped out. PPC headline earnings per share were down 93% to 7 cents and net debt declined from R8.7 billion to R4.7 billion. 

It is concerning that PPC is still left with R4.7 billion worth of debt, whose cost appears to be moving higher. 

“The success of the Rights Offer enabled us to settle a large portion of our existing debt, placing us in a much stronger financial position. With liquidity concerns dealt with, we can focus all our efforts on the delivery of our expansion projects and business plans,” explained Darryll Castle, CEO of PPC

"PPC endured a challenging financial year, while still delivering on a number of key initiatives and projects during the year. Our results were impacted by a liquidity crisis precipitated by an unexpected S&P debt downgrade, which resulted in abnormal finance costs being incurred in relation to a liquidity and guarantee facility put in place to ensure that PPC could meet its financial bond repayment obligations," says Castle. 

Group revenue increased 5% to R9.6 billion and group EBITDA was down 13% to R2.1 billion. The 5% growth was supported by the rest of the African cement business which grew revenue by 9%, and the aggregates and ready-mix segment which grew revenue by 23%. 

The Zimbabwe cement mill commissioned in the year, with Ethiopia and DRC cement plants, delivered shortly after year-end. This resulted in cement capacity increasing by 33% from 8.6mtpa to 11.4mtpa. 

Operationally, volumes were impacted by excessive rainfall in the last quarter of the financial year. In addition, the domestic cement market remained highly competitive, resulting in a constrained pricing. 

Other contributing factors towards PPC’s poor financial performance were higher financing costs as a result of rising fees and related interest charges for the R2 billion liquidity and guarantee facility raised in June 2016 to facilitate repayment of PPC’s bonds.

The once-off nature of the exceptional profit made last year on the sale of non-core assets has also contributed to the period-on-period decline in net profits and basic earnings per share. 

"In addition, this also resulted in a higher interest charge for the year and a higher effective tax rate. Subsequently, the company successfully completed a rights offer, which ensured that PPC was able to reduce its gearing to a more sustainable level," explained Darryll Castle. 

Since the R4 billion rights issue in September 2016, the share price appears to be stagnant.

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"The delivery of key rest of Africa cement projects has increased PPC’s cement capacity and geographic footprint. PPC remains well positioned for the medium to long term, notwithstanding the current challenging operating climate," says the CEO. 

"The business will continue to focus on mitigating economic and market risks in the regions we operate in, while continuing to optimise the group’s capital and cost structures. This should enable the group to compete efficiently and effectively in all our geographies."

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Jeremy Woods

Jeremy Woods trained for three years as a journalist on the Herts Advertiser, St Albans, in the U.K. Once qualified, he left England to work as a crime reporter on the Vancouver Sun in Canada. After three years, he worked for the Los Angeles Times as a trainee financial journalist, spending most of his time reading company accounts and finding publishable stories in them. He moved to South Africa and for the last five years in journalism worked for the Sunday Times, Business Times, as Investment Editor. He has also published a financial thriller called "Special Payments", which was a best-seller on publication, and optioned three times for a film.


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