PPC rallies on sales growth
• Cement maker says it reduced debt more than R200m
Shares in PPC surged 16% on Wednesday as investors looked past the prospect of a dilutive rights offer to focus on the cement maker ’ s double-digit cement volume growth in the four months to September and its efforts to boost cash with cost cuts.
PPC s share price leapt 16% on Wednesday as investors looked past the prospect of a dilutive rights offer to focus on its double-digit cement volume growth in the four months to September and its efforts to boost cash with cost cuts.
The R900m cement maker, groaning under a R5.8bn debt load, said cement volume sales were probably more than 25% higher than in the matching period a year ago as a resumption in construction activity spurred demand.
PPC also said its measures to cut costs and increase cash helped it reduce its debt pile by more than R200m, raising hope of the company scaling back the size of the rights issue.
In reaction, PPC’s share price leapt 15.6% to 59c. But this still reflects the astonishing fall from grace for the stock which fetched a record R35 in 2007 in the construction boom before the 2010 World Cup. PPC, which pushed back its 2019 results announcement for the third time to correct accounting errors, is in the middle of fixing its increasingly lopsided capital structure after loading up on debt to fund cross-border expansion in Ethiopia, Rwanda and the Democratic Republic of Congo (DRC) offset weak growth at home.
Among measures to clean up its balance sheet, PPC is considering tapping shareholders for money. Quoting unnamed sources, Bloomberg reported previously that this would be to the tune of R1.25bn.
But it will pull the trigger on the share sale only if and when it reaches an agreement with lenders on a range of issues including resetting its debt covenants, extending debt maturities and undertaking a debt restructuring for its DRC subsidiary, PPC Barnet, to reduce the division’s reliance on the group.
The group said it was making positive progress on the overhaul of its capital structure, which could see it diluting its 100% interest in its international business, which houses the company ’ s businesses in the DRC, Mozambique and Congo.
“PPC maintains an important position in SA’s cement industry. When construction and infrastructure spending gains momentum again in SA, we can’t rely on imports. PPC needs to be restructured so that its future is secured,” said Small Talk Daily analyst Anthony Clark. “It ’ s likely that the company will raise a huge sum of money at a hefty discount to the share price.
“Given that it will be at a bargain price, institutions will have no choice but to follow their rights or be diluted into oblivion,” said Clark.
In August, PPC delayed its results and said it should have fully written down its R146m investment in Ethiopia’s Habesha Cement in its 2019 year.
The group said on Wednesday it had not applied the effect of accounting changes correctly in making this adjustment, which had now shifted the bulk of the writedown into its 2018 year. PPC also said that it had applied the formula for determining the carrying value of a put option incorrectly for its DRC operation.
A put option refers to a contract to sell an asset at a specified price at a future date, and correcting this error resulted in a reduction in the carrying value of the put option from a previously stated R274m at the end of its 2019 financial year, to R251m.
PPC also said further prior year errors relating to noncontrolling interests had come to light, requiring additional investigation and conclusion. Its 2019 earnings report is now due to be published next week.
The results are expected to show a 5% drop in revenue and 16% fall in core profit, or earnings before interest, tax, depreciation, and amortisation (ebitda).