| Fri 16 May 2003, 11:40 | | Impressive PPC is not resting on its laurels |
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Group's share earnings rise 58% to 441c
Industrial Correspondent
BARLOWORLD subsidiary PPC Cement impressed the market again yesterday, almost doubling net profit after tax and reporting a 58% rise in headline earnings a share to 441c for the six months to March.
"PPC keeps surprising its shareholders with continuous improvements," said one of SA's top-rated construction analysts. "The company is a bit of a cash cow. Their costs are under control, they have a strong cash position and little capital expenditure."
However, the cement company was looking to achieve further improvements in returns.
The aim was to reach a level of sustained strong returns that would enable the company to make a R1,5bn-R2bn investment to expand production capacity. This would become necessary in about five years if the current rate of cement sales growth was maintained.
"We're just about there. We're just a little short," said chief operating officer John Blackbeard, referring to the rate of returns.
He attributed a large part of the improvements to the group's valuebased management programme, through which the group has cut about R100m out of its costs over the past few years.
Meanwhile, the continued rise in infrastructure spending in SA, strong export growth and cement price hikes boosted the latest set of results substantially.
Domestic sales rose 8%, and exports, helped by the weaker rand during the reporting period, were 53% higher compared with the corresponding period.
Revenue rose 19% to R1,4bn from R1,17bn. Operating profits increased 52% to R376,8m, with all businesses reporting increased operating margins and profitability.
"There has again been a lot of internal improvement, even in the small operations," said the analyst. The packaging division performed particularly well with a 122% rise in operating profit to R14,4m.
PPC 's Zimbabwean operation, Porthold, reported an operating loss of R9,6m, as expected. Conditions at the troubled plant improved in recent weeks, however. Production was resumed after supplies such as fuel and coal were secured. In addition, a freeze (since April 2002) on the regulated Zimbabwean cement price was lifted this month. The move opened the way for cement companies to raise cement prices following negotiations with the Zimbabwean government.
"There are too many variables at the moment to say when Porthold will break even, but in time it will contribute nicely to group earnings," said Blackbeard.
The SA cement group would look to raise sales volumes to achieve higher returns, but Blackbeard said the group relied mainly on fairly solid growth in the domestic market to achieve this.
Domestic demand was expected to drop, but Blackbeard still expects growth of 3%-6% for the full year to September. Export revenues are expected to be "much lower" in the second half of the financial year, with the stronger rand reducing export competitiveness.
PPC still expects to report increased operating profits and cash flows for the full year. "The year-onyear rate of increase in the second half is, however, likely to be lower than that achieved in the first half," said the group. PPC declared an interim dividend of 175c. The share rose 299c to R92 on the JSE Securities Exchange SA yesterday .
May 16 2003 07:10:59:000AM Carli Lourens Business Day 1st Edition
Friday
16 May 2003
