After hacking down a fifth of its debt in the year to the end of March, the board of cement giant PPC has given the green light to start repurchasing up to R200m worth of its own shares, in a bid to boost shareholder value.
Amid limited state-backed infrastructure projects, the construction and materials group said it is now on the hunt for new and diversified revenue streams that will ensure sustainable growth into the future.
The R4bn JSE-listed group has been battling due to fallout from an ambitious African expansion strategy in which it racked up debt totalling about R5.2bn by end-September 2020.
For the year to end-March PPC reported it had reduced gross debt to R931m from R1.2bn in its SA obligor group, which operationally comprises the SA and Botswana cement and materials businesses that account for almost two-thirds of all sales.
It said the reduction in gross debt results in a gross debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio of 1.2 times, placing it within targeted levels. Subsequently, PPC will start repurchasing up to R200m worth of its own shares as a distribution to shareholders.
“We have worked on paying our debt down for years and it’s been in all our conversations since I arrived four years ago … we have been very conscious of our capital allocation to ensure our debt levels come to acceptable levels and we have finally achieved that,” PPC CEO Roland van Wijnen said.
“That means that the positive cash we have generated even in the difficult circumstances that we faced last year, can now be used to give back to shareholders or invest in growth,” he said.
The market initially welcomed the news with the company’s share price rising as much as 8.1% in intraday trade, but by the close it was just 0.78% higher at R2.60.
The company, which last paid dividends in 2015, believes the share buyback is the best way to offer value to investors.
“We believe our share price is well below the true value and therefore we believe it is better for our shareholders to initiate a share purchase rather than a distribution through cash,” said van Wijnen.
PPC, which is in the final stages of appointing a successor to Van Wijnen when he steps down at the end of 2023 after four years at the helm, did not indicate when the share buyback would begin.
In the 2023 year PPC’s loss widened as the 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.
This was partly because of more noncash tax items in the current year relating primarily to hyperinflation accounting and deferred tax not recognised on losses.
A weakening economic cycle, slow rollout of state infrastructure projects and constrained retail demand were also major headwinds due to which overall group revenue improved only marginally to R9.9bn, while its group core earnings (ebitda) margin was down 1.4 percentage points to 13.7%.
Cement volumes remained under pressure in SA, falling 5.8% yearly, although they were helped by average price increases of 8%.
PPC realised a net profit of R23m from the disposal of its investment in Habesha while also reporting robust performances at its Zimbabwe and Rwanda operations.
However, the group warned that “without a significant increase” in infrastructure spending and GDP growth in SA, “cement demand is expected to remain subdued”.
To mitigate the dearth of investment, Van Wijnen said PPC is closely looking at growth opportunities available and identifying new applications and markets to further boost ash volumes as part of its strategy for the decarbonisation of its revenue.
This includes finding new income streams that have a lower carbon footprint, for example through initiatives in waste management or providing chemicals that the company may produce itself. “There are opportunities in that space ... that over time [may] become more relevant for PPC, complementing our cement business,” the CEO said.
In addition to the repeated calls for speedy state-led infrastructure rollout, PPC said it would also like to see the government ensure a level playing field against dumped imports, which although briefly hampered by high shipping rates and the weakened rand, still threaten to flood and potentially destroy the local market.
Local producers have criticised imported cement from low-cost countries such as China, Vietnam and Pakistan, for being of inconsistent quality, with some also claiming imported bags are often underweight.
Update: June 26 2023
This story has been updated with new information.
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