Home PPC Elevating capital by way of PPC appears more and more unlikely

Elevating capital by way of PPC appears more and more unlikely

A planned capital increase by the cement and building materials company PPC, which is listed on the JSE, now appears increasingly unlikely.

“Today we are in the position that we were able to convince the South African banks that we do not need the rights issue now,” said PPC CEO Roland van Wijnen on Monday.

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Van Wijnen said the measures PPC has agreed with the banks will result in the deconsolidation of PPC’s DRC activities and cash-in from divestments of the non-core businesses PPC Lime and Botswana Aggregates, while “an ongoing focus on our core business and its cash generation should be enough to restore our balance sheet ”.

Van Wijnen emphasized that he sees no need for the planned capital increase if PPC implements the restructuring of DRC, completes the divestments of PPC Lime and Botswana Aggregates and continues as in the past few months.

However, he admitted that the planned capital increase does not only depend on him.

“We’ll need another talk with the South African banks,” he said.

Analysts weigh in

Analysts believe that a capital increase through PPC is not necessary.

Peregrine Capital’s chairman of the board, David Fraser, said PPC had solid financial results with good cash flows for the year ended March 2021.

“Combine that with the debt level at the end of March [and] From the transactions they made after that date, I think there is no need to raise equity in this business, which is of course a positive, ”he said.

Rowan Goeller, an analyst at Chronux Research, said a rights offering is not required as long as cement demand, which has been very strong, is maintained at current levels.

“The most important thing about PPC now is that the free cash flow from South Africa is good and covers everything that needs to be covered. It doesn’t rely on cash from Zimbabwe or Rwanda or from the aggregates business.

“PPC is in a financially strong position and can likely avoid a rights offering solely outside of South Africa’s balance sheet and what it generates,” he said.

Debt problem in the Democratic Republic of the Congo

The proposed equity increase was among the commitments PPC made to its South African lenders in August 2020, but was subject to the liquidation of PPC’s $ 175 million (R.2.49 billion) senior debt exposure in the Democratic Republic of the Congo.

PPC reported in March that the group’s exposure to PPC Barnet’s senior debt in the Democratic Republic of the Congo had been resolved through a settlement agreement.

The debt restructuring of the Democratic Republic of the Congo is expected to be completed by September 30th.

Brenda Berlin, PPC’s chief financial officer, said Monday that PPC intends to work with its major lenders next month to agree to restructure its facilities and complete “the size of a capital increase, if any.”

Berlin said their goal is to complete these engagements by September 30th at the latest.

She added that with the signing of agreements on March 31, PPC had reached a milestone in the Democratic Republic of the Congo and that now only the implementation of this restructuring had to be done before September 30, “which we are on track to do”.

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Berlin said that only the standard conditions precedent need to be met before the sale of PPC Lime and Botswana Aggregates can be completed.

She said they do not expect any problems in this regard and that the conditions for PPC Lime will be met by September 30th and for Botswana Aggregates by July 31st.

PPC agreed in May to sell its wholly owned lime business to the Kgatelopele Lime consortium of investors for R515 million and announced earlier this month that it would sell Botswana Aggregates to a Botswana-based construction and mining company for approximately R60 million.

Results

PPC on Monday reported sales growth of 3% to 8.9 billion ren in the year to the end of March 2021.

Consolidated Ebitda (earnings before interest, taxes, depreciation and amortization) rose 16% to R 1.6 billion and operating profit rose 75% to R 1 billion.

However, overall profitability was negatively impacted by certain non-cash items, including fair value adjustments, currency fluctuations and hyperinflationary balance sheets, resulting in total earnings of three cents per share.

Cash and cash equivalents from operating activities improved from R 273 million to R 1 billion.

A decrease in debt in South Africa and Zimbabwe led to a 19% decrease in financing costs to R283 million.

Van Wijnen said PPC had gross debt in South Africa of R 1.9 billion at the end of March, a slight improvement over the previous year and a substantial payment totaling $ 16.5 million to settle the debts of the Democratic Republic of the Congo (which was in included in R1). 9 billion South African debt).

Lower depreciation expenses and efficiency gains that offset the inflation of input costs resulted in a 1% decrease in the cost of sales to R 6.9 billion, while administrative and other operating expenses decreased by 14% to R 1 billion, reflecting successful efforts to improve cost competitiveness.

Listen to the interview by Nompu Siziba with PPC CEO Roland van Wijnen:

Van Wijnen said PPC had seen a strong recovery in South Africa, largely driven by retail cement sales, and continued slow but steady growth in infrastructure projects by the government.

“We have also seen in our financial results the impact of the many actions we have taken over the past few years. The reorganization, especially in South Africa, but also in our international activities, has borne fruit, ”he said.

Van Wijnen said that taking into account cash generation and debt levels, PPC “should be generating dividends in the near future”.

Two years of clearing out

Fraser said PPC’s management had been “effectively breaking down the junk of the past” over the past two years.

“At least they are seeing the wood off the trees now and are well positioned for the next few years to really get this company back to where it was,” said Fraser.

Goeller said the management team at PPC is very strong right now, “compared to what PPC has had in a long time”.

“The results have been very chaotic over the past few years, but if you just look at the performance all the way down to the Ebitda level, South African cement was very encouraging because it is still the engine of the whole business.

“It looks good because she [PPC] talked about getting back over 20% Ebitda margin and are probably there right now, ”he said.

PPC’s shares rose 9.83% on Monday to close at R3.24.

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