Key message: A major strategic overhaul should boost efficiencies and margins and lower costs.
- PPC released 1H FY25 results. HEPS increased 10% to 22c on a 4.2% and 1% decline in revenue and EBITDA respectively. A special dividend of 33.5c (65% of the proceeds of the Rwandan sale) was paid in the period.
- The new management team is making significant changes to the organisational and operational structures. This is focussed on a simplified organisational structure, reduction in costs, internalised supply chain management, operational efficiencies, improved data collection to manage key variables and ensuring the right people are in place. The improved group EBITDA margin (15.7% vs 15.1%) is starting to show the benefits of the cost discipline.
- Cement South Africa and Botswana: Sales volumes down 5% and prices up approx. 5%. Revenue increased 0.5% and the EBITDA margin increased to 10.6% (from 9.9%). Retail (bagged) sales declined but bulk sales increased. Some market share in retail was lost due to aggressive competitor pricing. The SA cement market was flat, with some early signs of an increase in demand. Cash costs were controlled with a 15% decline in G&A cost and 16% lower overtime spend, although electricity tariffs increased by 13%.
- Zimbabwe: Revenue declined 9% in USD as the ban on imports that ended in September 2023 resulted increased competition. Volumes declined 9% in a market where prices were stable. The EBITDA margin increased to 26.1% (from 24.6%) on lower clinker imports and logistics costs and G&A savings, offsetting higher maintenance costs and a 76% increase in the power tariff. A dividend of USD4m was paid in October 2024. Zimbabwe remains debt free with 97% of cash held in hard currency.
- Materials: A decline in volumes in readymix and ash resulted in revenue declining 11%. Strong cost control and turnaround measures resulted in a positive EBITDA of R28m.
- PPC has signed a strategic cooperation agreement with Sinoma to improve efficiencies and review capital expenditure. Together with a target to win back customers we expect PPC to gain market share and further increase margins. We increase our Target Price to R4.70 (from R4.17) with early signs of a construction market recovery evident and the benefits of the strategic initiatives.