PPC Ltd today announced strong financial results for the six months ended 30 September 2018. Highlights include an eight percent rise in group revenue to R5,6-billion, largely due to a four percent increase in total cement volumes to 3,1 million tons.
Johan Claassen, PPC CEO commented: “We have produced resilient results by navigating through extremely challenging trading conditions. Our diversified portfolio has enabled us to offset the weaker South African performance with robust growth in our rest of Africa segment.
“We focused on certain strategic and operational initiatives to ensure greater competitiveness and improved efficiencies. These included reducing interest rate charges, increasing free cash flow, implementing the R50/tonne profitability initiatives and optimising operations.”
During this period, the upgrade of the Rwanda plant and the new DRC plant were fully accounted for, increasing the cost of sales by 16 percent to R4,5-billion. However, the South African operations were able to hold their cost of sales increase to four percent, despite the inclusion of R19-million in capital expenditure related to the upgrade of our Slurry operation in the North West (SK9).
Across the group, administration and other operating expenditure increased by six percent to R580-million, although the South African businesses were able to reduce overheads through actions taken as part of the R50/ tonne savings initiatives.
Summarising the results, Tryphosa Ramano, PPC CFO commented: “The restructuring of our SA debt at lower associated effective interest rates of 9.5 percent reduced our interest charges which on a like for like basis declined by 31 percent. We also delivered improved free cash flow of R202-million while cash on hand totalled R1,3-billion, a 50 percent increase.”
Local operations under pressure, but responding well
PPC’s Southern African operations, which include Botswana, remained under pressure. Revenue declined by 4,2 percent despite a small increase in average selling prices owing to a decline in volumes of three percent. An increase in imports of 71 percent had a further negative impact on performance, especially the consumer and construction segments.
Local variable costs also rose by four percent, mostly due to a 13 percent increase in distribution costs owing to the rise in fuel prices.
Claassen noted that the R50/tonne savings initiatives will continue to bear fruit and further reduce operating costs. These initiatives include the commissioning of the SK9 plant, the successful integration of Safika Cement and the launch of the SURE RANGE to broaden PPC’s product offering to include fit-for-purpose cement.
The materials business which remains a key part of PPC’s route-to-market strategy for SA cement delivered revenue growth of seven percent and contributed R100-million to EBITDA.
Rest of Africa turns in a strong performance
PPC’s operations in the rest of Africa showed a growth in volume of 34 percent while revenue increased by 36 percent to R1,7-billion. EBITDA grew by 18 percent to R499-million.
“Robust volume growth in Zimbabwe and a positive contribution from the DRC underpinned this pleasing performance,” said Mr Claassen.
PPC Zimbabwe grew revenue by 30 percent to R1,1-billion on the back of a 29 percent increase in volumes. The performance was supported by an upsurge in construction activity as well as successful implementation of the route-to-market strategy and other sales initiatives. PPC Zimbabwe has increased local input costs to 90 percent and grown its exports to mitigate liquidity constraints in country.
In the DRC, PPC Barnet’s route-to-market initiatives supported the achievement of a market share ranging between 25 percent and 30 percent and R240-million in revenue, while the benefits of right-sizing the business and stringent cost controls delivered EBITDA of R60-million.
Habesha Cement in Ethiopia, which is still in the ramp-up phase, delivered over 300 000 tonnes of cement during the period. It however contributed a net loss of R19-million as performance was constrained by the political environment and heavy rainfall in the second quarter.
Claassen added that the first phase of the upgrade of the CIMERWA plant in Rwanda, aimed at increasing capacity, was completed and record volumes towards the end of the period contributed to strong growth. Revenue of R402-million and EBITDA of R92-million were achieved.
“We expect trading conditions in South Africa and the DRC to remain difficult. However, we should benefit from a steady performance in Zimbabwe, improved output from CIMERWA and stable political environments in Ethiopia, while the DRC elections are a key milestone to unlock latent infrastructure demand.
“We are committed to executing on our key priorities which aim to improve efficiencies and margins in order to cement our solid foundation and deliver sustainable shareholder value,” concluded Claassen.
Following an evaluation of the leadership of the company, PPC made several changes to the composition of the board to balance the need for change, while ensuring board and company stability going forward. Following this process, it became apparent that the company faced a set of near-term challenges and opportunities which led to a detailed evaluation of the executive bench, individual and collective skills of the leadership body and the development of succession plans to align the leadership with the strategic needs of the firm going forward.
During the period under review, the executive committee was restructured to achieve accountability geographically, and enhance the effectiveness of group services into these geographies. In the course of this exercise, Johan Claassen, expressed an interest to take early retirement. The company’s policy makes provision for such circumstances, and accordingly the company has agreed to accommodate this request. The board has therefore initiated a process to find a new CEO. Claasen is fully committed to the role of CEO until such time as a new CEO is found.