Shares in PPC took a pounding on the JSE on Thursday after the listed cement and lime producer reported that headline earnings per share for the six months to September were expected to drop 65-85% to between 7c and 3c a share from 21c in the prior corresponding period.
Basic earnings per share in the same period are expected to decrease by 90-110% to between 2c and a basic loss per share of 2c from the profit of 21c in the prior year.
Shares in PPC slumped by more than 21% during the day – to R3.07 from the overnight close of R3.90 before recovering to close at R3.42.
PPC attributes the deterioration in its interim financial results to the impact of its Zimbabwe operations due to the hyper-inflationary environment in that country, the difficult trading environment in South Africa, and once-off restructuring costs amounting to R85 million incurred during the six-month period.
The company also disclosed a R93 million impairment of its equity-accounted investment in Ethiopia, which does not impact on headline earnings per share.
PPC said it has been closely monitoring the economic situation in Zimbabwe. While the business is self-sufficient, the Zimbabwe Public Accountants and Auditors Board announced that Zimbabwe is a hyper-inflationary economy.
It said this conclusion is supported by a rapid increase in the inflation rate, which at the end of September was in excess of 150%, the significant deterioration in the traded interbank Zimbabwean dollar exchange rate over the period, and the lack of access to foreign currency to discharge foreign liabilities.
The company said PPC Zimbabwe applied hyper-inflationary accounting from April 1 until the end of September in accordance with accepted accounting standards. The results, net assets and cash flows were then translated from Zimbabwean dollar into South African rand at a closing rate of Z$1 to R0.99.
PPC said the impact of this on its group results is that PPC Zimbabwe’s earnings before interest, tax, depreciation and amortisation (Ebitda) is expected to decline by between 40% and 45% compared with the R352 million achieved in the prior comparable period.
It said the loss for the period is impacted by a net after-tax monetary gain amounting to R445 million.
PPC Group results are also impacted by the application of International Financial Reporting Standards in regard to the funds held in Zimbabwe and the Zimbabwe financial asset that arose as a result of the US dollar-denominated Zimbabwe loan that qualified as legacy debt.
“The impact on the group results is an increase in expected credit losses of between R300 million and R350 million,” it said.
David Fraser, executive chair of Peregrine Capital, said it was obviously a poor trading update and that the Zimbabwe number “is coming home to roost”.
But he added that he wants to wait for the results because PPC has not said anything about its debt.
“If the debt was down, it will be in the trading statement,” he said. “That to me is the concern, and whether they can trade themselves out.”