PPC moving into Phase 2 of its recovery plan

JSE-listed cement and construction materials company PPC has started working on the second phase of its turnaround strategy, with the benefits of its first phase evident in its results for the six months to September 30.

Despite revenue declining by 4.2% to R5.06-billion, from R5.28-billion in the comparable half-year period in its prior financial year, the company increased its earnings before interest, taxes, depreciation and amortisation (Ebitda) margin to 15.7%.

Ebitda was flat at R796-million compared with Ebitda of R800-million in the comparable interim period in its prior financial year.

“Phase one of our turnaround strategy focuses on fixing PPC. With this internal foundation, we are now ready to move forward, and our turnaround plan will lead the company back to profit and growth in years to come,” said PPC CEO Matias Cardarelli.

Efforts from the first part of its turnaround plan and those for early phase two had reflected in the company's results more quickly than anticipated, he noted in a presentation of the group's interim results on November 18.

PPC delivered higher cash flow generation for the six months, despite an overall decline in cement volumes in both South Africa and Zimbabwe, as well as in the readymix and ash businesses.

The group’s net cash inflow before financing activities increased by 36.2% to R500-million, mainly owing to the unwind of inventory that built up at its financial year-end and continued strict control of inventory levels.

The positive working capital movement was partially offset by increased cash taxes of R167-million, R20-million of which related to the prior financial year.

Cash generation and working capital management remained a key focus area, he added.

Profit before tax increased to R474-million, up from R357-million in the first-half period in the prior financial year. Profit after tax was R318-million, up from R269-million in the prior financial year's first-half period.

Earnings a share increased to 22c up from 18c a share in the first half of the 2024 financial year, and headline earnings a share increased to 22c, up from 20c in the interim reporting period of the prior financial year.

Further, discipline in capital allocation continued in the current period, and capital expenditure was R186-million, up from R172-million in the first half of its 2024 financial year.

The main drivers of the increase included an increase in maintenance expenditure in Zimbabwe of R39-million owing to two major kiln stoppages in the current period to replace liners, compared to one short stop in the prior period given the extended kiln shutdown in the 2023 financial year.

However, this increase was partially offset by a reduction in maintenance expenditure in the South African cement business of R21-million.

Group net debt declined to R203-million, down from R488-million in the comparable interim period in the prior financial year but increased compared to the net cash position of R78-million at the end of the financial year on March 31, 2024.

The main drivers of the movement in net cash and debt from year-end are a net dividend paid of R703-million, cash generated from operations before financing activities of R500-million, and a negative R52-million impact exchange differences on closing cash balances.

“There are positive signs in the economy reflecting increasing confidence from the private sector and a more dynamic tender process in the public sector,” said Cardarelli.

PPC's long-term sustainability did not solely rely on an improved overall economic environment, and its turnaround strategy, which focused on unlocking internal value, would place the company in a strong position as infrastructure projects began to materialise, he emphasised.

The turnaround impact will continue to unfold in the second half of the financial year that is cyclically weaker owing to the slowdown of the construction sector in December and January.

Further turnaround impacts were expected to become evident in the next financial year, he added.

PPC also launched an industrial performance programme with clear targets for all equipment from the quarry to dispatch, instilled cost centre ownership, and eliminated unnecessary expenses, Cardarelli noted.

“Safety is the core central value of our turnaround strategy, with it forming part of key performance indicators for all employees. However, the key financial metrics that will reflect success are Ebitda, Ebitda margin, cash flow generation, and return on invested capital.

“Simplification and back-to-basics in our plants coupled with the performance programme will drive productivity and the output needed to support the commercial growth strategy,” he said.

As part of the operational efficiency pillar, PPC signed a strategic cooperation agreement with cement equipment manufacturer Sinoma Overseas Development Company to improve efficiencies at its cement operations and review key capital expenditure improvement or expansion plans.

“Sinoma has been conducting a deep-dive analysis of all our sites in South Africa and Botswana over the past three weeks and should be finished within the next two weeks. Within the next four weeks, we expect to have a report from Sinoma that will advise us on efficiency opportunities in energy, operations and performance,” Cardarelli told Engineering News.

“The 'turnaround mindset' is becoming entrenched in PPC, resulting in an organisation that is focused on execution and pace, rather than perfection.

“The turnaround process involves a deep recalibration and upskilling of people, organisational culture and processes. This will ensure the organisation is ready to focus on operational efficiency, asset optimisation and contribution margin growth,” he said.

Cost discipline and price growth - the results of the turnaround work - were the main drivers of the recovery in the results and margin of the South Africa and Botswana group, despite the lower sales volumes in the period, he highlighted.

“As we gain access to reliable management information, a new market approach will follow, as well as optimising sourcing, products offering and a footprint that will benefit our customers,” he added.

“In the current highly competitive environment, we must operate our industrial operations in the most efficient way to produce high-quality products sustainably at the right cost.

“Our relationship with Sinoma will be one of the pillars of rebuilding a profitable and sustainable PPC.”