PPC Ltd. a leading provider of quality building materials and solutions in sub-Saharan Africa today announced a resilient set of financial results for the year ended 31 March 2021, underpinned by a recovery in cement demand and successful enhancement of cash generation in a challenging trading environment.
Roland van Wijnen, PPC CEO commented: “My gratitude goes to all my colleagues at PPC. They have worked tirelessly under very stringent COVID-19 health and safety protocols to keep PPC going and to sustain our purpose of empowering people to experience a better quality of life. Despite the difficult trading conditions in most of our markets, our businesses have benefited from a recovery in cement demand, resulting in improved financial performance. The strategic repositioning of PPC as a leading cementitious player is progressing well, and we are redoubling our efforts in the current financial year.”
PPC significantly progressed its ongoing capital restructuring and refinancing project during the year with a number of key milestones met. An agreement was signed with PPC Barnet’s lenders which removes a R2.5 billion debt liability by terminating their right to recourse to PPC. Sale agreements were concluded for non-core businesses, PPC Lime and Botswana Aggregates, which will generate over half a billion rand once finalised. Following these achievements, PPC reached agreement with its South African lenders to defer the assessment of the need for a Group-level equity raise to September 2021. “We have honoured our commitments to the market and delivered good outcomes from this project so far. The implementation of the restructuring and sale agreements is one of our top priorities in the current period. Once finalised this will support the achievement of a sustainable capital structure that further improves the attractiveness of PPC as an investment proposition,” added van Wijnen.
Due to the above, PPC Barnet, PPC Lime and Botswana Aggregates have been reported as discontinuing operations with the financial review below and in the salient points above, focused on the continuing operations.
PPC’s ability to serve its customers when demand recovered following the stringent COVID-19 restrictions implemented in the first quarter, enabled a 3% growth in revenue to R8.9 billion. Cost of sales reduced by 1% to R6.9 billion, benefiting from lower depreciation expenses and efficiency gains which offset input cost inflation. Administration and other operating expenditure declined 14% to R1 billion, reflecting successful efforts to improve cost competitiveness.
Group EBITDA increased by 16% to R1.6 billion and operating profit rose 75% to R1 billion. Finance costs dropped by 19% to R283 million due to a reduction in South African and Zimbabwean debt levels. Overall profitability was negatively impacted by certain non-cash items including fair value adjustments, foreign exchange movements and hyperinflationary accounting, resulting in headline earnings of R77 million or 3 cents per share. The pre-tax negative effect of these material non-cash items is R337 million.
Cash available from operations improved from R273 million to R1 billion. Cash generation benefited from higher EBITDA, a reduction of working capital absorption and lower finance costs paid. Gross debt ended at R2.6 billion, reflecting a R3.2 billion decline from the comparative period, mainly relating to the removal of the debt liability of R2.5 billion attributable to the DRC which is now treated as a discontinued operation.
Brenda Berlin, PPC CFO commented: “Enhancing cash generation and preservation as well as improving cost competitiveness were priority strategic objectives that were successfully achieved during the period. This certainly supported the overall performance, repositioning PPC on a sound financial footing.”
Cement South Africa and Botswana experienced a 6% increase in cement volumes driven by sales in the retail sector with robust demand experienced from the rural and informal markets. Inland sales growth offset declines in Botswana as well as the coastal regions, which were impacted by muted recovery in commercial construction activity and unavailability of slag following the closure of Saldanha Steel. Fourth quarter sales trends suggest that coastal demand has since stabilised. Revenue increased by 7% to R5.2 billion and EBITDA, which benefited from increased sales, higher realised selling prices and stringent cost control, rose 41% to R866 million. EBITDA margin improved from 12.7% to 16.7%.
PPC estimates that cement imports, which rebounded after the easing of lockdown restrictions, increased by 8% and accounted for approximately 8% of demand over the financial year. PPC, together with The Concrete Institute (TCI) and other industry players, continues to engage the relevant authorities for assistance against unfair competition from imports which threaten the local industry. All the necessary documentation and processes have been completed and submitted to the regulator with the launch of an investigation eagerly awaited.
The industry has also engaged the relevant authorities to have locally produced cement classified as a designated product which would make it compulsory for locally produced cement to be used in government-funded construction projects. “Our sector is key to drive economic growth and employment but requires accelerated infrastructure spend, a level playing field, stable electricity and reliable transport infrastructure to stimulate a sustained recovery. We are committed to work alongside government and other business stakeholders to solve key market challenges and create opportunities that protect and support the sustainability of South Africa’s industrial base.” says Njombo Lekula, MD Cement South Africa and Botswana.
Despite challenging economic conditions, foreign currency shortages and the impact of COVID-19 related lockdown restrictions on sales, PPC Zimbabwe cement volumes increased by 10%, supported by ongoing infrastructure projects. Price increases in local currency were implemented to offset input cost inflation and currency devaluation. Revenue decreased by 13% to R1.6 billion with the impact of hyperinflation and currency translation reducing the overall contribution to the Group’s performance. Foreign currency sales (rand, pula and US dollars) totalling more than 55% lessened the impact of foreign currency shortages on PPC’s operations. EBITDA declined by 32% to R481 million. PPC Zimbabwe continues to meet its debt obligations in country, is financially self-sufficient, and paid a dividend to PPC of US$4.4 million in December 2020. Subsequent to the year-end a further dividend of US$2.6 million was paid to PPC. The business continues to focus on cash preservation and maximising US$ EBITDA to counter currency instability.
Rwanda also experienced COVID-19 related restrictions, with lockdowns in the first and last quarters of the financial year impacting cement demand and resulting in a slowdown in economic activity. Despite these challenges, CIMERWA grew cement sales on the back of supply to infrastructure projects, growing retail demand, and exports to the eastern DRC. A government-funded school building programme specifically bolstered the performance for the year. Revenue grew 21% to R1.1 billion supported by an 8% uplift in volumes and price growth. Higher revenues and stringent cost control delivered a 51% jump in EBITDA to R342 million.
Looking ahead, PPC is optimistic about the recovery in cement demand in most of its markets but remains mindful of the prevailing uncertainties around the pandemic and its impact on economic activity. “While we have provided the market with more certainty through diligent strategic execution, we will continue to implement initiatives that ensure financial sustainability through all demand cycles, with key focuses being on further improving cost competitiveness and cash generation,” concluded van Wijnen.
