PPC cement sales hold up amid Covid-19 but 2021 fallout is a worry
PPC says it needs to sort out its balance sheet and get protection from dumping by Asian countries
Cement maker PPC, which is struggling under the weight of an unsustainable R5.2bn debt load, says it managed to grow its half-year operating profits as SA sales rebounded strongly from Covid-19 lockdown restrictions.
After a hit from the pandemic in April and May, the group has reported double-digit sales growth since June, with a decline in imports due to global trade disruptions adding additional support.
Strong retail sales and signs of increased demand from infrastructure projects has given PPC some optimism, but it said on Tuesday that it remains cautious as the full economic and health effects of the pandemic are still unfolding.
The group's share price jumped 15.89% to close at R1.24 giving the company a market capitilisation of R1.9bn.
CEO Roland van Wijnen said PPC’s fortunes have improved markedly since SA moved to level 1 restrictions in September.
“The last quarter has placed us in a very good position going into 2021. We had to cut numerous costs, including some staff and let go of salary increases. These were hard things to do but have placed us in a better financial position and now we can focus on creating sustainable growth,” Van Wijnen said.
The group is in the middle of a restructuring and refinancing programme that may include tapping shareholders for as much as R1.25bn, which compares unfavourably with its R1.7bn market capitalisation on Tuesday morning.
Like its rivals, PPC has been struggling to grow sales at a faster pace for much of the past decade as public and private sector clients cut back on infrastructure spending due to SA’s weak economy, prompting the company to load up on debt to build plants in Ethiopia, Rwanda and the Democratic Republic of the Congo (DRC).
Group revenue rose slightly to R5bn to end-September, with profits falling 34% to R274m, amid negative currency effects. Fair value adjustments and foreign exchange movements resulted in a loss of R366m for the period, mostly as a result of the revaluation of foreign-denominated intercompany loan accounts.
Group earnings before interest, taxation, depreciation and amortisation (ebitda), a measure of operational profitability, increased by 15% to R996m, however, with PPC saying its cost-cutting efforts were bearing fruit.
Administration and other operating expenditure declined by 10% to R492m, with the group reducing its HR department, while it also merged its legal and compliance department with its secretarial department.
At the end of September, the group had debt of R5.2bn, from R5.8bn at the end of March, with the PPC pursuing cost cutting and asset sales ahead of a possible rights issue, the size of which is yet to be determined.
The availability of non-conforming cement in the market remains a concern for the industry over the medium term, while cement imports continue to pose an urgent and immediate threat to the sustainability of the SA cement industry, the group said.
Although imports of cement and clinker decreased by approximately 6% during the reporting period due to lockdown restrictions, this has significantly changed in recent months.
PPC, in conjunction with The Concrete Institute (TCI) and other industry players, has applied to the relevant authorities for relief against unfair competition. All the necessary documentation and processes have been completed and submitted to the regulator with the launch of an investigation eagerly awaited.
Van Wijnen said there are three prongs to PPC’s recovery strategy. “We need to sort our balance sheet out. The end game is that our international businesses operate in a fashion disconnected from SA, that we properly finance SA, and that we get protection against dumping from Asian countries,” he said.
PPC said it has received several unsolicited offers for PPC Lime, which generated about 5.6% of its half-year revenue, and is looking to accelerate this sale.
“PPC Lime is an attractive business for a number of parties. We feel a sale is justified as we want to focus the group on cement production. We have appointed advisors to help us with the sale of PPC Lime,” Van Wijnen said.
He said many individuals are buying cement for house renovations. Construction groups are also buying cement to be used in housing projects and to catch up uncompleted government road projects.
Van Wijnen said that PPC’s biggest concern is around effects of a second wave of Covid-19 in 2021. “I think people are taking Covid-19 too lightly. I’m very worried with the festive season is coming up. People need to be very vigilant, wear masks and practise social-distancing. We can’t afford further economic harm.”
Update: December 8 2020
This article has been updated with new information and comment throughout.
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