PPC benefits from recovery

JSE-listed cement and lime producer PPC will only proceed “as a last resort” with its proposed rights issue to raise between R750 million and R1.25 billion to strengthen the group’s financial position.

This follows the group reporting a strong rebound in its financial performance in the six months to end-September.

The group stressed in October that it will only embark on a rights issue once it has resolved and restructured the unsustainable $150 million (R2.2 billion) debt of its DRC subsidiary.

PPC CEO Roland van Wijnen said the group’s focus now is purely on the DRC and resolving that part of the equation. He expressed confidence in resolving this issue.

PPC has signed revised facility agreements with two of its primary lenders in South Africa and agreed terms with the third
lender.

It has also signed a formal standstill agreement with the DRC lenders and is actively engaging them with the aim of agreeing on the basis for a detailed restructuring plan.

“Any potential rights issue in South Africa is dependent on the outcome in the DRC,” said Van Wijnen.

“We will solve that first and then we will have an eye back on the degearing commitments that we have made to the South African banks … step by step.”

Degearing

“We have made certain degearing commitments. We need to see where we stand in cash generation going forward. There is a lot of uncertainty, including a Covid-19 second wave.

“I don’t want to rush ahead too much but clearly our focus is on cash generation, cost competitiveness and then we will see what it means for the financial situation of the South African business,” he said.

However, Van Wijnen agreed that a rights issue may not now be necessary because of PPC’s improved earnings before interest, tax, depreciation and amortisation (Ebitda) and good cash generation in the six months to end-September, plus the lower capital investment requirements going forward and disposal of PPC Lime and minority stakes in its African operations.

PPC on Tuesday reported a 15% improvement in Ebitda to R996 million in the six months to September, compared with the prior period while operating profit grew by 77% to R610 million and cash flow generated by operations by 95% to R981 million.

In addition, capital expenditure reduced by 26% to R166 million in the six-month reporting period and group net debt declined by 16.6% to R4.5 billion at end-September from R5.4 billion at end-March 2020.

International gross debt with recourse to South Africa dropped by 7.4% to R2.5 billion from R2.7 billion at end-March.

Group revenue improved marginally to R5 billion from R4.9 billion. Headline earnings per share declined by 40.6% to 19 cents
from the restated 32 cents in September 2019.

Van Wijnen said PPC has benefited from a strong recovery in cement sales in all its markets post the easing of the lockdown restrictions and this has resulted in an improved financial performance for the group.

PPC South Africa & Botswana managing director Njombo Lekula said that following a more than 35% decline in first quarter
cement sales, they experienced a strong rebound of 20% to 25% in the second quarter.

This article first appeared on Moneyweb and was republished with permission.

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