PERSISTENT macro-economic risks and intense competition across regional cement producer Pretoria Portland Cement (PPC)’s business units have affected the firm’s return on capital and free cash flows, dampening debt-reduction prospects, a ratings agency S&P Global has said.
BY FIDELITY MHLANGA
PPC operates a clinker plant in Gwanda (Colleen Bawn) in the southern part of the country, as well as a cement milling plant outside Bulawayo and another one in Harare.
The S&P Global ratings on PPC at the time of withdrawal reflected the weak trading environment across the company’s portfolio and risks on reprofiling its debt maturities.
“On January 13, 2020, S&P Global Ratings withdrew its South Africa national scale issuer credit ratings on PPC Ltd at the company’s request. Our ratings on PPC reflected our view of the company’s established brand presence and market position in South Africa and its other African operations. However, persistent macroeconomic risks and intense competition across PPC’s portfolio has affected its return on capital and free cash flows, dampening debt-reduction prospects,” PPC said in a statement.
“Furthermore, the company is yet to refinance its largely amortising debt maturity profile, which could pressure liquidity further. The ratings on PPC at the time of withdrawal reflected the weak trading environment across the company’s portfolio and risks on re-profiling its debt maturities.”
The cement producer also added: “PPC wishes to inform shareholders that it successfully completed the repayment of the bond programme on October 31, 2019 and subsequently terminated the rating service agreement with the ratings agency S&P Global Ratings.
“In accordance with internal procedures, S&P has issued a research update dated January 13, 2020 informing the market about the withdrawal and their view on the ratings of PPC following the interim results released by PPC on the Stock Exchange News Service on November 20, 2019. The credit rating of South African national scale corporate credit ratings has remained unchanged since last issued in March 2019.”
According to the group’s condensed consolidated financial statements for the six-month period ended September 30, 2019, group revenue declined 12% to R4 948 million attributable to a 17% decline in overall cement volumes to 2,6 million tonnes.
Cost of sales declined 10% to R4 023 million compared to the previous year, while overheads reduced by 4% to R555 million.
After the presentation of the monetary policy statement last February, PPC Zimbabwe Ltd, in an update, said it was saddled with a US$21 million legacy debt to PPC South Africa which awaited repatriation.
“PPC has reviewed the monetary policy statement issued on the 20 February 2019. The impact on the group is as follows: (i) The functional reporting currency will be the RTGS$ [Zimdollar]. A full impact assessment, including systems alignment is underway.
“The initial rate of $2,5:US$1 applies only to a portion of the US$60 million cash balance, amounting to US$30 million to US$35 million. The remaining balance, including US$16 million in dividends and US$5 million rights offer proceeds, qualifies as legacy debt due to PPC RSA, which is awaiting repatriation,” PPC said then.