The Adults are Back in the Room

Key message: Competent management is back in the saddle, after years of weak strategic and financial oversight. While the balance sheet is still strained and the cement market only in the early stages of a recovery, PPC at least has a firm hand on the tiller.

  • PPC released much delayed FY20 results, with revenue and EBITDA declining 2% and 18% respectively. The results were not significantly impacted by Covid-19 due to the March YE, with a weak South African economy the main drag on earnings. HEPS increased to 27c (from 20c).
  • Significant restatements on previous financials: poor financial control from previous management resulted in a number of restatements of prior year numbers.
  • Financial restructuring key issue: the key issue facing PPC is short-term liquidity as debt covenant levels have been breached in March and June 2020. Agreement has been reached with SA Primary Lenders to maintain short-term banking facilities and waive covenant breaches.
  • Capital raise in International business: the high debt and primary sponsor position of PPC in the DRC is the primary source of balance sheet risk. PPC is in discussions with the PPC Barnet Lenders to provide a standstill until a sustainable funding structure can be agreed. This may include a capital raise in PPC International (this could be in the form of a debt:equity swap with existing lenders).
  • A R750-1250m rights offer in SA a key term in new working capital facility: only after the resolution of the DRC debt will PPC honour its’ undertaking to a conditional rights offer to reduce South African debt. Major shareholder Value Capital Partners has committed to supporting the rights offer and underwrite up to R333m.
  • External factors still significant: the level of cement imports and blender activity could have a significant impact on South African cement sales. Current cement sales are up 20-25% YoY – although the sustainability of the demand strength is unclear.
  • Short-term risks abated: there will be no emergency rights offer, with lender agreements in place to cover FY21. While not yet out of the woods, PPC could de-risk significantly through the capital restructuring.

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