Cement, aggregates and building materials company PPC has reduced its South African debt to R1.64-billion from R1.92-billion for the eleven months to the end of February.

It has also achieved 90% higher free cash flow compared with a year ago and says its restructuring will be completed by September 30.

PPC's revenue increased by 7% year-on-year for the 11 months to February 28. This was driven primarily by strong cement demand in South Africa which mainly originated from the retail sector and was particularly robust in the rural and informal markets.

Group earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 25% to 30% year-on-year, having benefited from increased cement sales and stringent cost control, the company says.

However, the company renewed a cautionary announcement and advised shareholders 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.

The structured sales process for PPC Lime continues to progress, with shortlisted parties having completed due diligence. Binding offers are expected to be submitted by early April.

PPC will assess these offers in the context of shareholder value creation. It plans to enter into definitive sale agreements by the end of May, should any of the offers be acceptable, the company said in a March 31 statement.

PPC has made significant progress in implementing a sustainable capital structure and improving its investment prospects, including de-risking its balance sheet through the removal of its contingent obligations in relation to PPC Barnet, which operates in the Democratic Republic of Congo (DRC).

“This provides clarity on what has been a significant overhang on the group and is expected to restore investor confidence in the group and free up management time to focus on core operations and other long-term strategic initiatives,” said PPC CEO Roland van Wijnen.

“Given the improved financial performance and reduction in gearing levels, the group is in good standing with its lenders, with sufficient headroom in existing facilities to meet its operational requirements,” he added.

PPC has entered into a settlement agreement with PPC Barnet’s lenders, terminating their right to recourse to PPC Group and removing a potential liability of $175-million from PPC’s balance sheet, greatly enhancing its financial position. The settlement agreement will become effective once PPC pays a final deficiency settlement amount of $16.5-million which it expects to do in early April.

The company has also agreed terms to restructure the $175-million debt in PPC Barnet whereby it will be converted into a combination of re-instatement of senior debt and a pay-as-you-can preference share. This forms part of implementing a sustainable capital structure for that business with the restructuring planned for completion by September 30.

Further, in terms of the undertakings provided to its South African lenders, and subject to the resolution of its DRC exposures, PPC committed in August to an equity capital raise of not less than R750-million by March 31 to de-gear its South African balance sheet.

The company advises that its South African lenders have agreed to defer the timing of the capital raise by six months and to review the need for the capital raise should the South African businesses continue to de-gear towards a sustainable debt metric of about two-fold Ebitda.

These agreements de-risk PPC from future economic downside risk to the DRC operations and effectively direct the economics of the business to the PPC Barnet lenders. PPC will retain an ordinary equity and preferred equity interest in PPC Barnet.

“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. Double-digit period-on-period growth was experienced in cement sales from July 2020 to February, despite new Covid-19 restrictions in certain markets.

“Our 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,” explains Van Wijnen.

“The team’s successful efforts to date demonstrate our commitment to deliver against our communicated strategy and timelines. We are well on our way to improving the group’s competitiveness and repositioning PPC on a sound financial footing.

“We remain focused on improving cost competitiveness further through cost management initiatives and cash management. We are committed to take the necessary measures to ensure that we can continue to serve our customers, protect our employees, and implement strategic initiatives to ensure financial sustainability through all demand cycles for the benefit of all stakeholders.”

The company is experiencing positive momentum across most of its markets and while 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, it hopes to continue in this stead, he states.

DESIGNATED CEMENT
“To support further growth of the sector and the economy, we look to the authorities in South Africa to take the necessary action to level the playing field and put in place mechanisms that will prioritise the use of local cement for government-funded infrastructure projects,” says Van Wijnen.

South African cement imports rebounded strongly after easing of the lockdown restrictions and PPC estimates that they were in line with the prior year at 1.2-million tonnes, accounting for 8% of demand for the 12 months ended December 31, 2020.

Cement imports remain a threat to the sustainability of the local industry and together with The Concrete Institute and other industry players, PPC has applied to the relevant authorities for relief against this unfair competition. The authorities have confirmed receipt of all the required information for the application process and are yet to announce a decision on whether to launch an investigation.

The presence of nonconforming cement in South Africa also remains a major threat to consumers too and PPC continues to educate retailers and customers about the risks of using such products.

South African cement producers have also 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.