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PPC expects difficult trading conditions in SA to persist

Nov 23 2018 11:25

Cement supplier PPC [JSE:PPC] said in a note to shareholders on Friday that it expects difficult trading conditions in South Africa to persist in the second half of the financial year, requiring 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.

Following the restructuring of its board, the company said it became apparent that it faced a set of near-term challenges and opportunities.

To this end, the board has conducted a detailed evaluation of the executive bench. In the course of this exercise, Johan Claassen expressed an interest to take early retirement. Claassen is fully committed to the role of CEO until such time as a new CEO is found.

PPC released its unaudited condensed consolidated financial statements for the six months ended 30 September on Friday.

Group revenue increased 8% to R5.6bn. The group reported that earnings before interest, tax, depreciation and amortisation reduced by 13%. Headline earnings per share increased 11% to 21 cents, while basic earnings per share was up 5% to 21 cents.

According to CEO Johan Claassen, PPC has produced resilient results against a challenging South African environment.

"Our diversified portfolio has enabled the group to offset the weaker SA performance with robust growth in our rest of Africa (RoA) segment," Claassen said in a note to shareholders.

"In SA, a subdued consumer environment, a depressed construction market and higher fuel costs negatively impacted our cement and materials results for the period."

PPC will, therefore, implement price increases to achieve sustainable returns in excess of the group's cost of capital.

"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," said Claassen.

"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."

Furthermore, South African debt was restructured together with renegotiating of funding agreements in Rwanda. The company also completed the first phase of head office restructuring.

In southern Africa (including Botswana), cement volumes were down 3%. Volume declines were experienced in South Africa, against the backdrop of a challenging market - where both the consumer segment and construction industry came under severe pressure.

Cost of sales in Cement Southern Africa rose by 5%, which was due to phasing of kiln shutdowns and unplanned downtime at one of its major plants in the inland region which amounted to R26m.

The combination of a reduction in revenue and an increase in costs resulted in EBITDA margins contracting from 26% to 17%. After taking into account non-recurring items the like-for-like EBITDA margins are 19%.

By late afternoon the PPC share price was trading down 0.79% at R6.29 per share.

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