The PPC board has approved a R380m loan for the group’s newly formed employee share ownership trust to buy up a 10% stake in the company, signalling a return of dividend payouts from the construction materials group.
The 10% share capital is set to be linked to the performance of the company’s operations rather than that of the share price, the company said, with 1,500 of the group’s 1,800 workers qualifying for the incentive, when dividends are finally declared.
MD at PPC Cement SA Njombo Lekula said on Monday the formation and financial backing of the employees’ share scheme follow its recent June announcement of a R200m share buyback programme. The Johannesburg-based company, which last paid dividends in 2015, believes a buyback is the best way to offer value to investors, as this usually benefits the price of the stock.
Lekula said after a rough chapter for PPC in recent years it managed to pay down large amounts of its debt, bringing its leverage ratio within the target of 1.3 to 1.5 times earnings before interest, tax, depreciation and amortisation (ebitda), “and we think it is sustainable”, he said.
In June, PPC reported its net debt for the SA obligor group in the year to end-March improved by R263m, leaving net debt at R800m.
Lekula said despite getting its debt down to comfortable levels, “PPC didn’t want to start paying out dividends directly this year because [once we start] we would like to [continue]” such payments.
“For every dividend that is paid, there is a cash trickle that goes to the employees and based on the future value we are effectively empowering them. It’s a continuous trickle, so it’s more of a profit-sharing scheme, for as long as the business is able to develop value, there will be” something going to the staff.
In the initial distribution, he said there will be an added benefit for being black or previously disadvantaged, while those with longer tenure will also receive more in terms of participation.
“It’s an indication that we’ve turned the corner from not being able to pay dividends, and it has always been the ambition of the business that when we start paying dividends, we would like them to be sustainable and continuous,” he said.
PPC’s share price gained 4.91% to close at R2.78 on Monday, its highest level since May 5.
The loan, which will accrue interest at the local prime rate, has no final repayment date, the company said. Of the dividends paid to the scheme, 75% will go towards the loan and the balance to the beneficiaries.
“PPC has been built upon the shoulders of its employees and this transaction provides a meaningful way of rewarding those in SA who do not participate in PPC’s long-term incentive plan to share in the creation of shareholder value,” said group CEO Roland van Wijnen.
“We are pleased that the terms of the transaction are such that it stands to benefit employees for many years to come.”
With the link to company performance it remains to be seen how much value will be created in a muted cement and construction market in SA.
In the 2023 financial year, PPC’s headline loss per share, a standard measure in SA that excludes certain items, went from 3c to 8c, while its fiscal loss widened more than sevenfold to R574m.
A weakening economic cycle, slow rollout of state infrastructure projects and constrained retail demand were major headwinds, with revenue rising marginally to R9.9bn.
Cement volumes remained under pressure in SA, falling 5.8%, though they were helped by average price increases of 8%.
Lekula said the state of the construction industry remains a concern for PPC and the industry. Highlighting SA’s infrastructure backlog, he said: “At some stage we will have to start doing something about this.”
“PPC has assets that are just on standby, waiting for the economy to turn. So, if there is an upswing in demand for our products we believe we are very well placed to take advantage,” Lekula said.
As Africa’s biggest cement maker PPC supplies aggregates, ash and ready-mix concrete, as well as metallurgical-grade lime, burnt dolomite, limestone and related products in Southern Africa.
At the end of March, the company had assets worth R3.7bn, about 10% lower than its market cap.
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