PPC’s rest of Africa business offsets weak SA performance
COMMENTARY OVERVIEW
Johan Claassen, CEO, said: “PPC has produced resilient results against a challenging South African environment. Our diversified portfolio has enabled the group to offset the weaker South African performance with robust growth in our rest of Africa (RoA) segment. In South Africa, a subdued consumer environment, a depressed construction market and higher fuel costs negatively impacted our cement and materials results for the period. We will implement price increases to achieve sustainable returns in excess of the group’s cost of capital. In RoA, Zimbabwe delivered improved profitability against the backdrop of liquidity constraints. The DRC business contributed to both revenue and EBITDA in a market with muted growth and overcapacity. In Rwanda, we saw the benefits of the planned plant upgrade in the second quarter of the period, with record volumes being achieved in September 2018. Pleasingly, we continue to generate positive free cash flow, with debt and liquidity positions within targeted levels, albeit higher due to rand dollar exchange rate weakness. We continue to execute on our strategic priorities, in order to drive operational efficiencies and maintain our sustainable competitive advantage in the markets that we operate in. In addition, PPC has been successful in executing on its FOH – FOUR strategic priorities, with key focus areas being financial, operational and human capital. In particular, the company achieved R22/tonne in cost savings towards our initial R50/tonne profitability improvement target in SA cement. Furthermore, RSA debt was restructured together with renegotiating of funding agreements in Rwanda. The company also completed the first phase of head office restructuring”.
GROUP PERFORMANCE
Group revenue rose by 8% to R5 597 million (September 2017: R5 188 million), supported by total cement volumes increasing by 4% to approximately 3,1 million tonnes. Cost of sales increased by 16% to R4 494 million (September 2017: R3 859 million) compared with the previous year. The higher cost of sales was due to the DRC being fully accounted for in the period, which contributed R226 million and additional clinker imports and maintenance costs during the Cimerwa plant upgrade period of R33 million. Cost of sales was further impacted by additional expenditure related to phasing of kiln shutdowns and unplanned downtime in South Africa of R26 million and previously capitalised expenditure related to SK9 commissioning of R19 million. On a like-for-like basis, cost of sales was up 9%. Group overheads increased by 6%, mainly due to the DRC which contributed R47 million (September 2017: R13 million). On a like-for-like basis overheads were flat. Furthermore, overheads in cement southern Africa were down 1% due to head office restructuring. Group EBITDA reduced by 13% to R1 039 million (September 2017: R1 193 million) at an EBITDA margin of 19% (September 2017: 23%) largely due to a decreased contribution from the South African operations. Accounting for non-recurring items totalling R150 million (SK9 commissioning and downtime at South African plants of R78 million and Cimerwa R72 million), EBITDA would have been R1 189 million. Finance costs increased by 18% to R336 million (September 2017: R285 million). The DRC contributed R143 million to finance costs in the period – on a like-for-like basis finance costs reduced by 31%. The restructuring of RSA debt, at a lower effective interest rate of 9,5% (September 2017: 11,8%), contributed to the decrease in the like-for-like interest charge. Taxation contributed positively to the bottom line, with a credit of R9 million in the period (September 2017: R193 million expense). Cash and cash equivalents increased by R272 million (September 2017: outflow of R2 million), excluding positive movement in exchange rate of R149 million. An absorption in working capital of R110 million was offset by cash taxation paid reducing by 49% to R88 million (September 2017: R172 million) and capital investments in property, plant and equipment decreasing by 27% to R377 million (September 2017: R518 million). This resulted in positive free cash flow of R202 million achieved for the period. Group net debt has increased from R3 846 million in March 2018 to R3 979 million at the end of September 2018. This was due to the impact of rand dollar closing rates moving from R11,82 at the end of March 2018 to R14,15 at the end of September 2018. On a constant currency basis net debt reduced for the period. Net debt to EBITDA was 2,3x (March 2018: 2,0x) and is within targeted levels.
OUTLOOK
The difficult trading conditions in South Africa are expected to persist in the second half of the financial year. The industry requires real cement price increases to recover operational cost increases. PPC will remain focused on implementing price increases to achieve sustainable returns in excess of the group’s cost of capital, executing cost savings initiatives and ramping-up SK9 to drive efficiencies. In the DRC, the elections scheduled for December 2018 are a key milestone to unlock latent infrastructure demand and PPC Barnet remains well positioned to take advantage of growth in that market. In Rwanda, Cimerwa is expected to produce an improved performance in the second half of the financial year, on the back of increased production output. Zimbabwe is expected to deliver a steady performance, supported by robust demand and an improved political environment. The political situation in Ethiopia, has also stabilised, with continued growth in cement demand.
SHORT FORM ANNOUNCEMENT
This short form announcement is the responsibility of the directors and is a summarised version of the full announcement for the period ended 30 September 2018, and as such does not contain full or complete details pertaining to the full announcement. Any investment decisions should be based on the full announcement which has been published on the Stock Exchange News Service (SENS) and can be found on the group’s website www.ppc.co.za or can be inspected, at no charge, at the registered office of the company or the offices of the sponsor from 09:00 to 16:00 weekdays. Copies of the full announcement may also be requested from the group company secretary on 011 386 9000.
ON BEHALF OF THE BOARD
PJ Moleketi JT Claassen MMT Ramano Chairman Chief executive officer Chief financial officer 22 November 2018