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PPC restructuring to position group to take advantage of future growth

29th August 2019

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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As efforts to stabilise the performance of its core operations continue, JSE-listed cement company PPC on Thursday said the restructuring of the group would position the business to take advantage of future growth.

The restructuring of the head office would enable the alignment of the business to its operational requirements and enable PPC to focus on maximising its earnings before interest, taxes, depreciation and amortisation (Ebitda) in all the markets it operates in, while reducing financial leverage, it explained in a statement.

The Southern Africa cement business, meanwhile, continues to optimise its route to market strategy by focusing on its most profitable market segments, while in the rest of Africa, the focus is on cash preservation and maximising the dollar-valued Ebitda per tonne.

However, while the group’s balance sheet remains strong, group gross debt is at similar levels to that reported for March 2019.

Group Ebitda increased by between 5% and 10% in the four months ended July 30, on the back of continued selling price momentum in South Africa and ongoing cost optimisation in terms of PPC’s R70/t savings initiative.

The group incurred one-off restructuring costs as part of its operational and head office optimisation, which detracted from the Ebitda performance, it noted.

OPERATIONS

Average cement prices in Southern Africa, including Botswana, increased by between 7% and 8% for the period.

Aligned with the objective of focusing on Ebitda-enhancing volume growth, cement sales, however, declined by between 10% and 15% compared with the corresponding period in the prior financial year.

This, PPC averred, was in line with the estimated decline in domestic demand, which remained constrained owing to a subdued demand environment.

Importer and blender activity also contributed to a competitive operating environment.

Total cement imports increased by 22% to 640 000 t from January to June, compared with the same period in 2018.

In this respect, PPC referred to The Concrete Institute (TCI), on behalf of the domestic cement industry, having submitted an application to the International Trade Administration Commission (Itac) wherein it highlighted the impact of imports on domestic cement production.

A successful submission to Itac would provide the sector the space it needed to grow, TCI MD Bryan Perrie said at the launch earlier this month, adding that, currently, the industry was “scrambling to survive” against underpriced imports.

He said imported cement was undercutting the industry by up to 45% and, when combined with low levels of demand, the South African cement industry was “facing an existential crisis that threatens to undermine the industrial capacity of the country”.

The South African cement industry had the capacity to provide up to 20-million tonnes of cement but was currently only producing 13-million tonnes, the TCI said.

Should Itac decide to initiate a formal investigation, it will publish a notice to that effect in the Government Gazette.

Additionally, PPC noted that the industry was also engaging with the relevant authorities to ensure that blended cement meets the requisite standards.

For PPC’s Material Business division, the Lime division’s revenue increased by between 5% and 10%, supported by higher selling prices and volumes.

Ebitda for this division was marginally lower than the comparable period, owing to higher input and maintenance costs.

For Aggregates and Readymix, revenue decreased by between 5% and 10%, owing to constrained demand and the challenging pricing environment. This has also resulted in a decline in Ebitda compared with the prior comparable period.

In the Rest of Africa division, trading conditions in Zimbabwe remained challenging, owing to liquidity constraints and inflationary pressures.

In this respect, PPC said that it remained “focused on optimising its local operations and implementing its cash preservation strategy”.

The devaluation of the Real Time Gross Settlement dollar versus the dollar contributed to a 30% to 35% decline in revenue in rand terms.

Overall cement sales volumes contracted by between 25% and 30% owing to a weaker economic climate.

Cement pricing, which was aligned with input cost inflation, was higher than in the previous comparable period. Here, Ebitda declined by between 10% and 15%, while Ebitda margins remained within the guided range of between 30% and 35%.

In Rwanda, Cimerwa continues to benefit from increased construction activity and high economic growth.

The successful completion of the first phase debottlenecking of the plant had resulted in higher cement sales, with overall volumes for the period having increased by between 35% and 40%, coupled with stable pricing.

Ebitda for this region increased by more than 200%, compared with the prior period.

In the Democratic Republic of Congo (DRC), demand remained subdued, with the region’s Ebitda performance tracking below that of last year, mainly owing to a competitive pricing environment during the first two months of the financial year.

Pricing has subsequently recovered, with the business executing strategic plans to maximise Ebitda and free cash flow generation in order to minimise capital requirements from the centre.

PPC is engaging with its lenders to restructure its debt in the DRC and put in place “a more sustainable capital structure”.

In Ethiopia, PPC’s Habesha had not achieved targeted profitability levels for the period owing to “suboptimal” plant performance and pricing challenges. As a result, PPC was prioritising plant optimisation and route to market strategies.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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