Con­sol­i­da­tion a must, main­tains PPC

The Star Early Edition - - BUSINESS REPORT - Roy Cokayne

LISTED ce­ment and lime pro­ducer PPC wants to be the ar­chi­tect of the con­sol­i­da­tion of the ce­ment in­dus­try in South Africa and sees its prospec­tive merger with Afrisam as the first step in this process.

PPC chief ex­ec­u­tive Dar­ryll Cas­tle yes­ter­day said that the in­dus­try would con­sol­i­date, be­cause the cost base was too high as a re­sult of six play­ers fight­ing over a 15 mil­lion-tonsa-year mar­ket.

“By any bench­mark, that is too many play­ers for too small a mar­ket,” Cas­tle said. “There is too much ca­pac­ity in the South African mar­ket and that has led to lower prof­itabil­ity be­cause prices are un­der pressure.”

Cas­tle said each ce­ment pro­ducer had a sales force, brand costs, lo­gis­tics costs, mar­ket­ing costs and just tak­ing some of those costs out of the sys­tem would make com­pa­nies a lot more com­pet­i­tive. “That is why over time the in­dus­try will in any case con­sol­i­date,” he said.

He stressed the out­comes of the con­sol­i­da­tion of the ce­ment in­dus­try in South Africa could be neg­a­tive for PPC if it was not the ar­chi­tect of this process.

Cas­tle said the R4 bil­lion rights is­sue last year had re­lieved the pressure on PPC’s bal­ance sheet, which was now a lit­tle bit more ro­bust, to en­able it to con­sider the merger.

In re­gard to Afrisam’s re­ported high gear­ing, Cas­tle said one of the con­di­tions of the pro­posed trans­ac­tion was that Afrisam needed to re­solve its bal­ance sheet is­sues be­fore PPC would pro­ceed with any kind of cor­po­rate trans­ac­tion.

“We don’t want to in­crease the risk to PPC share­hold­ers from a liq­uid­ity per­spec­tive. You should have two com­pa­nies merg­ing with sim­i­lar struc­tured bal­ance sheets, which means the whole (merged en­tity) should not be any more risky than PPC is now as a stand alone en­tity,” he said.

Cas­tle added that quite a lot of work still needed to be done on the pro­posed merger, but he ex­pected to be in a po­si­tion in the com­ing months to take a merger pro­posal to PPC’s board for as­sess­ment.

PPC yes­ter­day re­ported a 93 per­cent slump in head­line earn­ings a share to 7 cents for the year to March from 107c in the pre­vi­ous year. Group rev­enue rose by 5 per­cent to R9.64bn from R9.19bn.

Earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (Ebitda) de­clined by 13 per­cent to R2.06bn from R2.38bn. A div­i­dend was not de­clared.

Cas­tle said the lower Ebitda re­flected a tougher op­er­at­ing en­vi­ron­ment, par­tic­u­larly in South Africa, and there were a whole raft of is­sues be­low Ebitda in PPC’s in­come state­ment that re­sulted in the dra­matic drop in earn­ings.

They in­cluded the cost of PPC’s cap­i­tal raise, the cost of un­wind­ing its broad based black eco­nomic em­pow­er­ment 1 scheme, an in­ter­na­tional fi­nan­cial re­port­ing stan­dards charge of more than R200m and a reval­u­a­tion charge of R124m re­lated to cash bal­ances and VAT re­ceiv­ables in dif­fer­ent cur­ren­cies off­shore.

But Cas­tle stressed the real pos­i­tive story was that PPC had got to the end of its African build pro­gramme with the de­liv­ery of new plants in the Demo­cratic Re­pub­lic of Congo, Ethiopia, Rwanda and Zim­babwe.

Cas­tle said this was a huge pos­i­tive be­cause PPC’s cap­i­tal ex­pen­di­ture would slow down and debt would be re­duced fur­ther as these new projects started pro­duc­ing cash flow, which would first come through at the op­er­at­ing profit line and “then in a year or two” in earn­ings a share.

PPC shares fell 6.98 per­cent on the JSE yes­ter­day to close at R5.20.


Chief ex­ec­u­tive Dar­ryl Cas­tle at the PPC an­nual re­sults at the JSE, Ex­change Square in Sand­ton yes­ter­day.

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