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PPC aims to beat junk status

Nov 20 2016 06:01
Justin Brown

Johannesburg - PPC was hoping to get back its investment grade credit rating from S&P Global Ratings before the end of this year, now that it had reduced its debt following a R4 billion issue of shares for cash, PPC CEO Darryll Castle said this week.

In May, S&P cut PPC’s credit rating to “junk” status after the ratings agency warned of a possible cash crunch within weeks. After the rights offer was complete, S&P at the end of September moved PPC off its “credit watch negative” status.

However, S&P analysts Mashiyane Mabunda and Terence O Smiyan said they believed PPC’s performance and leverage metrics would remain volatile owing to the company’s exposure to South Africa’s sluggish economy.

Bloomberg this week reported that it had heard from anonymous sources that PPC was in talks with rival AfriSam.

Castle declined to comment on the speculation, but said that PPC was open to consolidation in the local cement sector.

“A consolidation in the local cement sector needed to make sense from a value perspective. As the market leader, PPC should drive the consolidation,” he said.

The price war in the local cement market had dissipated and last month PPC hiked its cement prices and some of its rivals followed suit.

However, some of the local cement makers weren’t able to hold their price hikes, but PPC has stuck to its price increase, Castle said.

PPC needed to cover inflation-based increases in costs, he explained.

“As the domestic cement market remains highly competitive, the immediate focus is on managing cost performance, paying particular attention to costs within management’s control and maximising efficiencies.

“PPC introduced price increases in October and has seen volume losses on the back of the revised pricing,” the company said this week.

As a result of the price increase, PPC’s sales volumes in Gauteng and the company’s inland regions fell by 7% for October.

Turning to the outlook, Castle said that it was likely to maintain its operating profit levels in the months ahead, while its bottom line profit was set to show decent improvement as the group’s financing costs declined.

This week PPC reported an 83% drop in half-year profit to R58 million.

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