Financial restructuring positions PCC for long-term recovery

Financial restructuring positions PCC for long-term recovery
25 June 2021

Competent management is transforming PPC's prospects for the better. Under CEO Roland van Wijnen, the company has deconsolidated the company's Democratic Republic of Congo (DRC) operations, significantly de-risking the business, and improved its gearing with the sale of its lime business. Together with the tail wind provided by volume recovery in the core South African market, which has enabled the company to meet its interest payments, the JSE-listed cement producer may now be in a position to avoid the planned equity raise slated for September.

This week PPC, which operates in six countries across sub-Saharan Africa, announced its group results for the year ended 31 March 2021. The results show that company restructuring is starting to pay off. Although the company found trading conditions challenging due to the COVID-19 pandemic PPC posted revenues of ZAR8938m (US$626.07m), up three per cent from ZAR8671m, boosting confidence as it enters a new financial year. Excluding Zimbabwe, group revenue increased by seven per cent YoY, according to the group.

Regional performances
Over the fiscal year ending March 2021 (FY21), cement volumes in the markets where PPC operates, including South Africa, Botswana, Zimbabwe and Rwanda, all finished the year in robust growth mode.

The South African and Botswana cement markets are building again, with the rural and informal markets driving cement demand. Coastal areas have experienced a lagged recovery and imports still threaten the industry. Operations in these regions saw a seven per cent increase in revenues from ZAR4843m in the FY20 to ZAR5196m in the FY21 with volumes up six per cent for the full year. EBITDA in the FY21 jumped by 41 per cent from ZAR613m in FY20 to ZAR866m.

The group's Zimbabwean cement operations were impacted by a dramatic devaluation of the local currency and input cost inflation, although there has been a recovery in cement demand with volumes up by 10 per cent in spite of COVID-19 related lockdown. PPC's Zimbabwe operations reported revenues of ZAR1623m, a fall of 13 per cent from ZAR1861m in the FY20. Cement-related EBITDA was down by 32 per cent to ZAR481m from ZAR707m in the FY20. Imports accounted for nine per cent of Zimbabwe's cement sales despite the import ban that came into force in April 2021.

Meanwhile, Rwanda saw cement demand hold up on the back of government projects. In spite of a new market entrant, Prime Cement Ltd, PPC subsidiary CIMERWA reported no impact on its sales, since domestic demand continues to outpace supply. In addition, the company reported a record dispatch of 55,000t of cement in July 2020. As a result, the biggest gains in the FY21 were made by PPC's Rwandan operations, where revenues totalled ZAR1128m, rising 21 per cent from ZAR936m in FY20 on the back of an eight per cent rise in volumes. The company's local operations saw a 51 per cent rise in EBITDA in the FY21, reaching ZAR342m up from ZAR226m in the FY20.

Capital restructuring
PPC made good progress with its capital restructuring in FY21, with the company on track to reduce debt and achieve a stronger financial operating base.

In recent years, oversupply in the DRC market meant that PPC Barnet could not generate enough cash to service its debts, turning the operation into an ‘endless black hole’, according to van Wijnen. By restructuring PPC Barnet, the group has removed the potential liability of US$175m to the parent company as part of a debt-for-equity swap.

There is also a binding agreement for the sale of the PPC Lime & Botswana aggregates businesses, which the company says should generate ZAR0.5bn to reduce debt further. The sale of PPC Lime is scheduled for completion by 30 September 2021and the Botswana aggregates sale by 31 July 2021.

Furthermore, a decision to postpone the equity capital raise of ZAR750m to September 2021, as mandated by the company's South African lenders, has also been agreed – and may not be required if positive volume trends continue over the next quarter.

PPC's gross debt has been reduced from ZAR5800m in the FY20 to ZAR2628m in the FY21. The group's South African gross debt stands at ZAR1.9bn in the FY21, Rwanda's gross debt is ZAR0.6bn and Zimbabwe's gross debt has been reduced to ZAR0.1bn.

PPC states that its efforts to reposition the business are starting to yield results and significant milestones have been reached in its restructuring project. The group is optimistic of improving cement demand in most if its markets but reminds investors that it is mindful of the ongoing impact of the pandemic. Progress has been made on the divestment of non-core businesses and PPC claims it is well-positioned to capture a sustained upswing in cement demand in South Africa.

Published under Cement News