Looking crumbly

PPC has been given a ratings downgrade by Standard & Poor’s, but says that its business risk profile remains “fair”.

The cement group, headed by Darryll Castle, says this has accelerated its need to raise capital. It has increased the quantum of the R4bn upper target for a rights isssue announced last week, to make provision for the potential redemption of existing notes.

Last Monday, the market took fright over the group’s debt levels, with the share closing 18% down at R11.25.

Now, the market is further spooked, dropping the stock to less than R10 this week.

PPC advises that basic earnings per share for the six months to March are expected to be between 30% and 40% higher than in that period last year.

However, the main contributors to the expected profit increase are exceptional items relating to the disposal of certain noncore assets that realised profit before tax of R100m.

This means that the expected earnings before interest, taxation, depreciation and amortisation will show only a marginal improvement, due mainly to improved efficiencies and cost savings as part of the group’s profit improvement programme.

Basic headline earnings per share for the period are expected to be between 10% and 20% lower than previously.

They were hurt by a weaker trading environment, as well as higher finance costs and depreciation due to the commissioning of its greenfield Rwanda operations, and an increase in gross borrowings.

What PPC needs to do — and quickly — is bring its new African revenues on line.

It says it has commissioned the Rwanda project within budget, and will, in the next 12 months, commission expansion projects in Zimbabwe, the Democratic Republic of Congo and Ethiopia.

This will result in an increase in gross group production capacity of about 3 Mt/year.

It cannot happen soon enough.