19 June 2023
Business Day
by Michelle Gumede & Nico Gous
Cement giant PPC is charging ahead with slashing debt and edging closer to resuming dividend payouts, last paid in November 2015. The R3.8bn JSE-listed industrial group has been battling due to fallout from an ambitious African expansion strategy in which it racked up debt totaling about R5.2bn by end-September 2020.
For the year to end-March PPC reported reduced gross debt to R93lm from Rl.2bn in its SA obligor group, which operationally comprises the SA and Botswana cement and materials businesses. It said the reduction in gross debt results in a gross debt to earnings before interest, taxes, depreciation and amortization (ebitda) ratioof1.2times, placing it within targeted levels.
"With the SA gross debt to ebitda ratio now at the targeted level, PPC intends to prioritize returning cash to shareholders through dividends or a share repurchase programme in the absence of any value-enhancing corporate activity," said PPC CEO Roland van Wijnen. "PPC's focus will continue to be on cash generation and capital allocation efficiency." he said. The Johannesburg-based group scrapped its dividend in June 2016 for the first time in a bid to conserve capital to repay debt.
This was as it battled to grow sales at a healthy pace while private and public sector clients reduced infrastructure spending due to SA's sluggish economy, prompting the company to load up on debt so it could construct plants in the Democratic Republic of the Congo, Ethiopia and Rwanda. IMPOSE TARIFFS PPC dodged a rights issue in 2021 through asset disposals and improved cash generation and has since been on a course of restructuring and refinancing.
It joined industry calls for the government's International Trade Administration Commission to impose steep tariffs on imported cement from low price countries such as China, Vietnam and Pakistan, warning that if the practice is left unchecked it will threaten the survival of the local industry. It is now looking to initiate returns to loyal investors as net debt is reduced to R800m from R1.06bn in its core market. The market welcomed the news with the PPC share price lifting as much as 7.88% before retreating to close 2.07% higher at R2.46 on Thursday.
Its Rwandan Cameras unit, stated gross debt dropped to R265m from R383m. PPC Zimbabwe is debt-free and had unrestricted cash holdings of R118m by end-March, it said. Despite robust cement demand from concrete product - manufacturers and government-funded infrastructure e projects in Zimbabwe, volumes year on year were down 16% because of the planned kiln shut down for maintenance in the first half of 2023.
PPC Zimbabwe gradually recovered market share lost over this period, it said, with a positive outlook as it is well positioned to deliver strong volume growth. IMMENSE STRAIN In SA where government infrastructure projects have been limited and competition remains high, PPC experienced a drop in cement and materials volumes of its SA obligor business.
Industry body Cement & Concrete SA previously said the sector faces low levels of public infrastructure investment, while business activity in construction has suffered several years of decline and remains under immense strain. The construction and materials group lamented a significant increase in input costs due to the rise of energy costs globally. To counter the reported 4% overall total cost increases, PPC said it managed to raise selling prices an average 8%.
The cement specialist said it will continue to implement biannual price increases to improve its margins, with further operational efficiencies and cost containment measures identified to mitigate rising input costs. Demand for cement will remain subdued without a "significant" increase in infrastructure spending and economic growth in SA, it warned.
Even though the government earmarked at least Rll7.5bn for infrastructure in the 2022/23 financial year with an estimated R903bn to be spent over the next three years, the rollout of spending has been dawdling. "We, therefore, remain hopeful that the SA government will roll out its infrastructure development plans and protect the local cement market through the introduction of import tariffs to create a level playing field for domestic producers," he said