PPC struck by Zimbabwe hyperinflation

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PPC struck by Zimbabwe hyperinflation

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Published Date: 2019-11-08 | Source: Stephen Gunnion | Author: Stephen Gunnion

PPC struck by Zimbabwe hyperinflation

The cement producer may report a first-half loss after it was forced to apply hyperinflationary accounting to its operations in Zimbabwe.

PPC's shares fell as much as 21% yesterday after it said it may report a first-half loss due to a difficult trading environment in South Africa and hyperinflation in Zimbabwe. The group has also been hit with once-off restructuring costs amounting to R85 million.

In a trading statement, the cement producer said earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to end-September were likely to be between 15% and 20% lower than the R1.04 billion it reported last year. EBITDA is a key measure of a company's operating performance. Basic earnings per share (EPS) for the period would be between 90% and 110% lower than last year's 21c, while headline EPS were expected to decrease by 65% to 85% from 21c previously.

In addition to the other negative factors, it said EPS were impacted by the impairment of its equity-accounted investment in its Ethiopian business amounting to R93 million, which doesn't affect headline EPS.

While its business in Zimbabwe remained self-sufficient, PPC said the Zimbabwe Public Accountants and Auditors Board had declared the country a hyperinflationary economy. This was supported by a rapid increase in the inflation rate, which was above 150% at the end of September, while the traded interbank Zimbabwean dollar exchange rate showed a significant deterioration and there was a lack of access to foreign currency to discharge foreign liabilities.

As a result, PPC Zimbabwe has applied hyperinflationary accounting for the six-month period in line with accounting standards, which will result in a 40-45% decline in EBITDA at the business. Funds in Zimbabwe were also affected, resulting in an increase in expected credit losses of between R300 million and R350 million.

PPC's shares retraced some of their losses to close 12% down at R3.42.





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