PPC pays a dividend for first time since 2015 but faces a restructure

PPC Cement bags on conveyor at PPC De Hoek Western Cape. Picture : Supplied

PPC Cement bags on conveyor at PPC De Hoek Western Cape. Picture : Supplied

Published Jun 25, 2024


PPC declared its first dividend since 2015, but “meaningful organisational reset and tough decisions” were necessary for its sustainable future, the CEO for seven months, Matias Cardarelli said at the release of annual results yesterday.

The group did well for the past year to March 31 considering it reported a headline earnings a share of 19 cents versus a 20 cents loss per share at the end of the 2023 year, and a final dividend of 13.7 cents per share was declared.

Cardarelli said in a telephone interview, that the performance since year-end was in line with subdued trading conditions of the last quarter of the last financial year, and the group’s management did not believe there would be a respite from this in the short term.

This and the fact that PPC had underperformed for a number of years, pointed to the need to optimise the internal performance, he said. A review by the new management over the past six months had indicated “gaps” in operational performance where opportunities could be exploited, he added.

Revenue increased 20.6% to R10.06 billion and earnings before interest tax depreciation and amortisation increased a sturdy 38.6% to R1.24bn.

“The new Exco and I have had to challenge past assumptions and leadership decision-making practices. Our problems are pressing,” said Cardarelli. He said they had merged the group and the South African management teams.

And through a “back to basics approach and an appropriate focus on operational efficiency,” they were looking into the commercial footprint, internal business intelligence data and reliability, logistics model, organisational structure and cost and capital expenditure discipline.

The strong revenue growth of the past year was driven primarily by a strong performance in PPC’s Zimbabwean operation. The SA and Botswana group cement revenues increased only marginally by 5,2%, driven by price increases and increased sales of clinker to Zimbabwe, which positively offset the declining cement sales volumes. Revenue from the materials businesses fell 6%.

Group cost of sales increased 16,3% to R8.41bn, with all of the increase attributed to Zimbabwe, with the SA and Botswana group’s cost of sales declining marginally by 1,3% due to lower sales volumes.

Trading profit increased by R502 million to R619m. Of the R502m increase, R395m was attributable to Zimbabwe. Given the movements in trading profit and less depreciation, group EBITDA increased 38.6% to R1.24bn.

A significant increase in impairments to R267m from R61m related mainly to property, plant and equipment as muted market volumes were expected to persist, and there was a need for capacity and cost optimisation going forward.

The Jupiter mill was mothballed (R56m impairment) as were the Slurry and Dwaalboom swing kilns (R125m impairment), but these assets remained readily available for re-commissioning should demand return. There remained over-capacity in the group, said Cardarelli.

Given the muted demand in the aggregates business was not expected to change materially in the future, a R70m impairment was taken on the aggregates assets.

The Zimbabwe operations’ headline earnings per share and earnings per share of continuing operations increased to 19 cents compared with a 20 cents headline loss a share the year before, and to 6 cents versus a 21 cents loss per share the previous year, respectively.

Net cash flow before financing activities from continuing operations, excluding CIMERWA sale proceeds, increased to R260m from R124m. Capex came to R400m (R368m).

The R200m share repurchase programme, approved by the board in June 2023 was completed on March 13, 2024. Some 64,6 million were repurchased at an average R3.08 per share.

Cement sales volumes in SA and Botswana were down 5,8% when compared to the prior year (2023: negative 4,6%), reflecting lower volumes across key markets in South Africa while Botswana’s volumes were flat. Competition remained stronger in the inland region where sales volumes had reduced especially since January 2024.

While the construction sector in the coastal region continued to be depressed, the main driver of the volume decreases in this region was in the retail sector, impacted by low demand and aggressive price competition, especially in the last quarter of the financial year.

Readymix volumes decreased by 18,2%, and aggregates volumes decreased by 8,8% compared to the prior year. Fly ash sales volumes increased by 7.2%.

The strategic plan looking ahead would focus on working capital management, a contribution margin approach, improving industrial performance, and enhancing the go-to-market and logistics operating model. Externally, while demand was anticipated to remain subdued, there were signs of growth in some regions, including some “encouraging” signs of an improvement in the construction and engineering sector.