South African cement producer PPC's share price has gained more than 26percent on the JSE since it managed to shrug off a takeover attempt by AfriSam in November.
The AfriSam takeover was backed by Canadian company Fairfax Africa Investments.
PPC shareholders believed then that the deal would undermine PPC’s potential for future growth in South Africa and the rest of Africa.
And the shareholders had more reason to feel vindicated for opposing the merger after the group on Friday reported a favourable trading update for the year to end March. It said profit attributable to shareholders is expected to increase by between 55percent and 65percent as compared to R93million reported last year.
The stock rallied by 6.1 percent in the morning to R8.52 a share, up from Thursday’s closing price of R8.03 a share. However, at the end of the day it closed 8.59percent down at R7.34 on the JSE.
In the results the group said earnings before interest, tax, depreciation and amortisation (Ebitda) from operations is expected to show a decline of between 5percent and 12percent during the period.
“Group Ebitda has been negatively impacted by costs related to corporate action, restructuring and separation costs, which were communicated previously. Excluding this impact and the fluctuation in exchange rates, group Ebitda would have increased by 0percent to 3percent. In addition, the plant in the Democratic Republic of Congo (DRC) was commissioned in the last quarter of calendar year 2017, as well as the plant in Ethiopia in the first quarter of the 2018 calendar year. Their results for financial year 2018 have reduced net profit as they are in a ramp-up phase.”
The group said following the impairment assessment review, the recoverable amount of the DRC operation was considered lower than the current carrying value and an impairment of R166million was charged against property, plant and equipment during the year.
The DRC market continued to face uncertainty driven by political instability, lower cement demand and subdued selling prices during the year.
“Furthermore, the competitive landscape remains challenging due to production capacity that is higher than market demand.
“The delayed elections have created uncertainty in the economy and most of the infrastructural projects have been put on hold or they are slow to come to market.
“As a result of these factors, management undertook an impairment assessment,” the group said.
Despite facing challenges in the DRC, PPC expects to report improved basic earnings per share (Eps) and headline earnings per share (Heps).
It said it expected an increase of between 20percent and 30percent in Eps, that was between 9.6cents and 10.4c, while Heps is expected to increase by between 110percent and 120percent, that is between 14.7c and 15.4c as compared to last year.
The group net debt levels have been reduced significantly from that reported at the group’s interim results released in November last year, without giving the exact amount.
PPC said it had also generated positive free cash flows after investing activities, compared with a significant outflow in the prior comparable period.
The group is to release its year results today.