PPC’s 1H24 performance was strong, driven purely by the international operations where both Rwanda and Zimbabwe achieved strong volume and revenue growth. The SA operations expectedly weighed on the overall result, but through good cost-cutting measures and restructuring, it was able to improve margins. This was at the expense of cement volumes, with the tough economic environment, increased imports and predatory pricing cited as reasons for the underperformance.
In this report, we show that although dumping cement is a systemic issue for the SA materials market, it can no longer be blamed for PPC’s strained results. We note the historical inverse relationship with imported cement volumes has ended, and in the high-interest-rate and high-inflation environment, PPC has priced itself out of the market. It cannot cut costs any further and will need to look to coal costs falling and the eventual incorporation of calcined clay (LC3) to improve margins.
Although the International segment outperformed, Zimbabwe’s growth came off a low base and, due to the sale of CIMERWA, the segment’s earnings could be more volatile. We note that the strong first half performance in Zimbabwe was aided by import licences being revoked and 1.2Mt competitor capacity offline, but with imports and competitors returning along with regular power cuts, the 2H24 performance could be muted.
Our outlook for PPC remains positive despite its many challenges. It stands to benefit most from a large increase in construction activity, where competitors reach full capacity and are unable to service the market. The effect would be similar to the Covid-19 home improvement boom. Until then, we expect volumes to remain constrained, with revenue and EBITDA growth being driven by Zimbabwe.
Diluted headline loss per share from continuing operations of -17.4 cps (FY22: 14.1 cps), which includes a R155.3m write-off of biological assets due to the HPAI outbreaks.
Revenue growth of +15.5% y-y (FY22: +11.5% y-y).
GPM down to 17.0% (FY22: 18.4%).
Operating margin down to -0.5% (FY22: 0.5%).
Expense-to-sales down to 16.8% (FY22: 18.1%).
No dividend (FY22: 8.0 cps).
The egg business entered an upward pricing cycle but volumes were down -14.4% y-y due to the outbreak of HPAI.
Total volumes in the Animal Feeds segment are up 0.9%, while external volumes increased 6.7%.
The Other Africa business performed well with revenue up +12.3% y-y. Margins were impacted by higher costs as the Kwacha/Dollar exchange rate impacted salaries which are pegged to the Dollar.
Diluted HEPS of 1 709.8 cps (FY22: 1 678.7 cps).
Revenue growth of +9.9% y-y (FY22: +9.9% y-y), driven by price inflation of 11% and a foreign exchange gains of 1% while overall volumes declined 2%.
GPM down -260 bps to 27.7% (FY22: 30.3%) as the group could not fully recover higher input costs.
Operating margin before non-operation items down to 8.2% (FY22: 10.0%).
Expense-to-sales down to 19.9% (FY22: 20.9%) due to the continued benefits of cost containment initiatives and supply chain efficiencies.
Dividend of 991 cps (FY22: 973 cps).
Volume growth in Exports offset by volume declines in the Domestic business due to the timing of shipments.
Lewis (LEW) - Key points from 1H24 results presentation
Diluted HEPS 606cps (-47.7% y-y).
Turnover growth +10.1% y-y, with SA +5.1%, Ireland +8.1% (EUR), Switzerland -3.3% (CHF) and Poland +5.0% (PLN).
GPM stable at 12.0% with lower margins in SA and Switzerland, and improved margins in Ireland and Poland.
Expense-to-sales ratio increased from 11.7% to 13.0% with expense growth of +22.1% y-y.
Operating margin dropped from 2.5% to 1.2%.
No dividend (FY22: 400cps), on temporarily adjusted dividend policy (for 2 years) to fund strategic investment in SAP.
Capex of R1.9bn and capex to sales ratio at 1.3% (FY22: 1.2%).
Gross debt increased from R7.6bn to R8.3bn but net overdraft decreased from R2.2bn to R1.7bn.
Financiers agreed to amend banking covenants. SPP not in breach of any covenants, no plans to raise capital from shareholders.
Results impacted by SAP implementation at KZN DC causing R1.6bn lost sales and R720m lost profit, and impairments.
Diluted HEPS 363.9cps (-6.5% y-y).
Revenue up +8.3%% y-y to R3.8bn.
Merchandise GPM up 140bps to 40.7%.
Expense growth +12.2% y-y, with expense to sales increasing to 58.3% (1H23: 56.3%).
OPM stable at 8.1%.
LEW gross debt increased to R862m, (1H23: R432m) with Net Cash increasing to R247m (1H23: R241m).
Repurchased 3.1m shares at a cost of R124.3m during the period, at an average price of R40.63 per share.
Dividend of 200cps.
Credit sales grew by 19.5% y-y while cash sales declined by 14.4% y-y due to pressure on consumer disposable income.
Opened a net of 29 stores in the traditional retail segment, including five new stores outside South Africa. Total footprint at 868 stores.
Impairments and capital items amounted to R12.5m, recognised against ROU assets related to lease agreements.
MRP’s 1H24 results were impacted by a poor first quarter, with loadshedding and a highly promotional market weighing on earnings. We think the low inflation at MRP could be due to the price-sensitivity of its value customers, compelling the retailer to absorb some of the cost inflation, which may have contributed to the GPM contraction.
In Apparel, Power Fashion had the highest sales growth at 22.4% y-y, but this was mostly driven by space, which grew at a similar clip. The core Mr Price Apparel chain’s turnover increased by only 3.9% y-y, which is matched by its space growth. Considering the difficult economic conditions and Mr Price Apparel’s value proposition, we think the chain failed to capitalise on consumers trading down to value.
The Home division’s sales growth continues to falter and we are concerned that the “structural changes” in the market referred to by management may result in structurally lower margins.
The recently acquired Studio 88 diluted GPMs and we observe a worrying build-up of inventory in the chain. Management, however, responded that the stock increase was due to seasonality and a proactive strategy to acquire additional stock to maintain certain competitive pricing.
Diluted HEPS 147.4cps (-8.0% y-y), but impairment of R6.6bn resulting in earnings per share of -34.6cps.
Revenue from continuing operations increased by +7.7% y-y to R87.4bn in FY23.
GPM up 20bps to 35.5% in FY23.
Expense growth +47.5% y-y, with expense-to-sales ratio up from 24.7% in FY22 to 33.8% in FY23.
OPM decreased to 3.1% (FY22: 13.0%).
Dividend of 48.1cps (FY22: 55.2cps).
Gross debt stable at R11.5bn, with Net Cash falling to R3.9bn (FY22: R4.3bn).
PPH’s trading hours lost due to loadshedding more than doubled to 845 000 hours, with diesel costs up 69% y-y to R141m.
Due to increased difficulty of trading in Nigeria due to adverse macroeconomic conditions, PPH sold its operations in Nigeria and is now classified as discontinued operations.
Debtors’ cost increased by 57% y-y to R1.7bn, due to increased credit granting and recognition of expected credit loss provisions. Bad debts increased to R1 232m (FY22: R990m).
PPH repurchased and cancelled 27.8m ordinary shares at a cost of R551m.
Diluted HEPS 85.8cps (+47.9% y-y).
Net turnover increased by 5.1% y-y to R5 739m. Net gaming win revenue increased by 6.1% y-y to R4 954m. Food and beverage revenue increased by 21.8% y-y to R330m. Rooms revenue increased by 4.0% y-y to R257m.
OPM increased by 540bps to 28.1%.
Expenses decreased by 2.3% y-y while expenses-to-sales decreased from 77.3% to 71.9%
Dividend of 30.0cps.
Cash generated from operating activities up 22.4% y-y to R1 253m.
The cost of diesel of R55m for the period and the adverse effect on income due to high levels of load shedding, negatively impacted the group’s interim period position and margins.
Higher interest cost of R54m also had an adverse effect on headline earnings.