PPC: Massive Cement Oversupply Swamps PPC and AfriSam Growth

14 August 2017 | Jeremy Woods: Out of the Woods
 


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The key question for PPC shareholders about the country’s largest cement producer, PPC, is would they have subscribed R4 billion to PPC if they knew the cement market was 40% oversupplied?

Interestingly, the major banks were not a part of this massive new funding, which still left PPC with debt of R4.7 billion.

Presumably, the banks’ economists knew about the state of oversupply in the cement production market.

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The latest results from PPC must have come as a shock to those subscribing investors. PPC reported a 93% fall in full-year earnings in June 2017.

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Darryll Castle, CEO at the time, said: "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. In addition, this also resulted in a higher interest charge for the year and a higher effective tax rate.

The former CEO continued: "The successful completion of the rights issue allowed us to significantly reduce debt levels and strengthen our balance sheet against the cyclical nature of our business."

Surprisingly enough, Darryll Castle as well as Tito Mboweni, former head of the SA reserve bank, have both left PPC for unknown reasons.

One reason could be that the Public Investment Corporation, the largest shareholder in PPC and AfriSam, could be encouraging a merger between the two parties.

It is well known that AfriSam is a highly geared company and could compound the already high debt levels at PPC.

An executive at AfriSam said South Africa was looking at an oversupply of 40% for a number of years to come with some economic projections estimating this could last "until 2030".

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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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