June 7, 2017 / 7:33 AM / 2 years ago

UPDATE 1-South Africa's PPC profit slumps after S&P downgrade

(Adds details, CEO quote)

JOHANNESBURG, June 7 (Reuters) - South African cement maker PPC reported a 93 percent plunge in full-year earnings on Wednesday due to a liquidity crisis following a cut in its credit rating to junk status by S&P Global Ratings.

Shares in PPC have fallen more than 26 percent since May 2016, when S&P cut the company’s long- and short-term South African national scale corporate credit ratings to zaBB- and zaB respectively and placed all credit ratings on CreditWatch with negative implications.

“PPC endured a challenging financial year, while still delivering on a number of key initiatives and projects during the year. Our results were impacted by a liquidity crisis precipitated by an unexpected S&P debt downgrade,” said chief executive Darryll Castle.

The downgrade resulted in a higher interest charge and tax rate as well as “abnormal” finance costs related to a liquidity guarantee facility.

PPC, which is negotiating a possible merger with rival Afrisam, said headline earnings per share fell to 7 cents from 107 cents in the comparable period the year before.

Shares in PPC were down 2.9 percent to 5.43 rand at 0719 GMT.

Group revenue rose 5 percent to 9.6 billion rand ($748 million), supported by the “rest of Africa” cement business, while the group’s core profit or earnings before interest, tax, depreciation and amortization decreased 13 percent.

PPC, which makes 70 percent of its revenue from South Africa, said sales volumes rose by 2 percent in its local market.

In a challenging financial year, PPC completed a number of its projects as it looks to diversify its portfolio.

The company, which has pushed deeper into the rest of Africa as profit has slumped in its domestic market, said the commissioning of a Zimbabwe mill and projects in Ethiopia and Democratic Republic of Congo (DRC) increased its cement capacity by 33 percent to 11.4 million tonnes per annum.

“I believe we have reached the bottom of the pricing cycle in South Africa and am looking forward to the ramp up of our new operations in the DRC, Ethiopia and Zimbabwe which will grow our operating base and further diversify our earnings,” Castle said.

PPC said the group and Afrisam were currently “conducting due diligence work related to a possible merger of the two entities” and no definitive conclusions had been reached.

$1 = 12.8423 rand Reporting by Nqobile Dludla; Editing by Sunil Nair and Mark Potter

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