The dampened macroeconomic environment and its effect on construction projects has again hampered the profitability of cement manufacturer PPC in the financial year ended March 31.

Although the group posted a widened loss a share of 16c, against a loss a share of 5c in the prior financial year, it managed to reduce some debt and is, nonetheless, in a strong financial position to weather the local economic cycle. 

Instead of declaring a dividend, PPC has opted to repurchase up to R200-million of shares as a distribution to shareholders in the reporting year.

PPC’s net debt for the SA obligor group improved by R263-million in the year under review.

The group’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin reduced to 8.7% in the reporting year, compared with a margin of 11.8% in the prior year. This excludes the PPC Zimbabwe and the Rwanda operations, and includes the South African and Botswana operations.

At PPC Zimbabwe, a slower-than-expected recovery following planned kiln maintenance has impacted on the financial results of the operation, as has the hyperinflationary environment in the country. Dividends of R147-million were received by the PPC group in the year under review, compared with dividends of R91-million in the prior year.

At CIMERWA Rwanda, PPC reports Ebitda growth of 31% year-on-year and a margin increase to 29%, with PPC receiving an inaugural dividend of R79-million from the operation.

DIVIDENDS & DEBTS
Outgoing CEO Roland Van Wijnen says the company continues to focus on sound capital allocation principles, maximising cash generation from the South African and Botswana businesses – which form the South African (SA) obligor group – and extracting dividends from its investments in Zimbabwe and Rwanda (which form the international businesses.

Historically, dividends from Zimbabwe have contributed to the deleveraging of the group balance sheet; however, in the reporting year, the SA obligor group reached an optimal level of gearing that allows for the implementation of a new distribution policy.

This policy is based on distributing an amount of cash so that the 12-month backward and expected 12-month forward SA obligor group gross debt to Ebitda is at a ratio of between 1.3 times and 1.5 times.

A new distribution in the form of a share repurchase of up to R200-million was then approved by the board.

The SA obligor group revenue for the reporting year, excluding dividends from the international businesses, increased by 1.31% to R6.5-billion, driven primarily by a 1.7% increase in revenue from cement sales in South Africa and Botswana. Cement volumes nonetheless remained under pressure, declining by 5.8% on the prior year.

Van Wijnen explains that average price increases of 8% over the period ensured revenue remained positive, albeit slightly negatively affected by adverse product mix.

Including the impact of the international businesses, which contributed 33% of total group revenue, revenue was flat at R9.9-billion.

A 29% increase in revenue from CIMERWA Rwanda was more than offset by the reduced contribution of PPC Zimbabwe as reported sales declined by 19% in rand terms.

The SA obligor group Ebitda, excluding dividends from the international businesses, decreased by 26% to R570-million in the year under review, with cost increases remaining higher than price increases implemented, resulting in compressed margins.  

Including the dividends received from the international businesses, the SA obligor group's Ebitda amounted to R804-million, compared with R863-million in the prior year, resulting in a gross debt to Ebitda ratio of 1.2 times, thereby facilitating the R200-million distribution to shareholders.

Including the Ebitda of the international businesses, group Ebitda declined by 9% to R1.3-billion.

PPC reports that fair value and foreign exchange movements resulted in a gain of R69-million, mainly owing to the significant depreciation of the Zimbabwean dollar against the US dollar of 553%, which resulted in foreign exchange gains on net monetary items.

Impairments of R145-million, compared with R38-million in the prior year, were taken during the year under review, the largest item being R84-million. This related to an impairment at the group of a portion of the premium paid on the acquisition of CIMERWA.

Of the R84-million, R42-million related to the impairment of goodwill.

Finance costs decreased by 28% to R172-million, owing to the successful de-gearing of the group with gross debt declining from R1.5-billion in March last year to R1.1-billion in March this year.

During the reporting year, the group realised a net profit of R23-million, which improves on nil profit in the prior year, mainly owing to the disposal of an equity-accounted investment in Habesha.

Notwithstanding group profit before tax declining to R93-million, compared with R186-million in the prior year, taxation increased by 17% to R242-million. The current year tax charge was significantly negatively impacted by noncash items of R195-million, which was primarily owing to the SA obligor group not recognising deferred tax assets, as well as PPC Zimbabwe’s hyperinflation impacts.

While the Zimbabwean operations are debt-free, the debt to the SA obligor group sits at R931-million as of March.

Meanwhile, PPC is in the process of appointing a new CEO, as Van Wijnen’s employment contract was due to end on August 31; however, the board has agreed with Van Wijnen to extend his contract to December 31 to ensure an orderly handover.

Commenting on what attributes a leader of PPC must have to lead it into a new future, Van Wijnen says he or she will need to be able to connect with a variety of shareholders and have a good view of the group’s numbers – knowing where to reduce costs mindfully and where necessary, given the challenging macroeconomic climate.

Van Wijnen expects conditions to remain challenging in the next 12 months and says eased inflation this year will only help the group’s performance to a certain extent.

He adds that increased demand through enhanced infrastructure spend and a stronger economic climate overall are required to drive up profitability and earnings.