PPC RESTRUCTURING TO POSITION GROUP TO TAKE ADVANTAGE OF FUTURE GROWTH

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) having submitted an application to the International Trade
Administration Commission (Itac) highlighting 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.

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.

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. 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. https://www.engineeringnews.co.za/article/ppc-restructuring-to-position-group-to-take-advantage-of-future-growth-2019-08-29/rep_id:4136