PPC suffers 93% decline in earnings
Leading cement producer hit by downgrade of its credit rating
CEMENT producer PPC said the downgrade of its credit rating to “junk” was behind its headline earnings declining 93%, from 107 cents to seven cents per share for the 12 months to March 31. Chief executive Darryll Castle said yesterday that PPC’s results were affected by a liquidity crisis precipitated by an unexpected downgrade by Standard & Poor’s (S&P) Global last year.
In May 2016, S&P cut PPC’s long- and short-term corporate credit ratings seven levels, to below investment grade and placed its long-term rating on negative watch.
Castle said the downgrade resulted in abnormal financing costs in relation to a liquidity and guarantee facility put in place, to ensure that PPC could meet its bond repayment obligations.
“This also resulted in a higher interest charge for the year and a higher effective tax rate,” he said. “Subsequently, the company successfully completed a rights offer, which ensured that PPC was able to reduce its gearing levels to a more sustainable level. Operationally, volumes were impacted by excessive rainfall in the last quarter of the financial year.”
Castle said PPC, the leading supplier of cement in southern Africa, had experienced a challenging financial year, although it had managed to deliver on a number of key initiatives and projects.
Group revenue rose 5% to R9.6 billion, up from R9.2bn the previous year.
Group earnings before interest, tax, depreciation and amortisation (Ebitda) was down 13% to R2.1bn.
Revenue in southern Africa was flat, with cement volumes increasing by 2%, offset by lower selling prices.
The company’s operation in Botswana recorded flat volumes, while selling prices were down 9% because of increased competition from imports from South Africa.
The rest-of-Africa cement segment contributed R645 million to Ebitda. However, it did not contribute to profit after tax because of operational ramp-up, depreciation and tax charges.
Volumes in Rwanda were up significantly, while gradual ramp-up ensured minimal disruption to the market. In Zimbabwe, overall volumes ended 3% down, which was better than expected, reflective of the economic headwinds and liquidity challenges in the market.
The cement producer commissioned a mill in Harare, and projects in Ethiopia and the Democratic Republic of Congo were started after the year-end.