Implats annual headline earnings fall as much as 90% on low prices, B-BBEE transaction

Implats’ past financial year has been an annus horribilis marred by the disaster on 27 November 2023 in which 13 of its employees were killed when the conveyance shaft they were in suddenly reversed from an ascent into a lethal descent. 

Like its peers, the company has also had to grapple with depressed platinum group metals (PGM) prices which have been waylaid by a range of factors including sluggish demand for petrol and diesel automobiles in the face of high global interest rates. 

On top of that, Implats had to absorb costs from a broad-based black economic empowerment (B-BBEE) transaction linked to its acquisition of Royal Bafokeng Platinum, a salient reminder that such deals can still hit a company’s bottom line while diluting value for existing shareholders. 

And the company incurred R488-million in restructuring costs as it trimmed its headcount to contend with lower prices. But it managed to avoid forcible retrenchments, which would have made unions see red. 

“Natural attrition, together with redeployment, reskilling efforts, and the uptake of voluntary separation packages, ensured that no employees were forcibly retrenched,” the company said. 

The upshot is that it sees its full-year earnings, which it will be unveiled in mid-September, falling off a cliff. 

“Implats’ headline earnings for the period are expected to decrease by between 85% and 90% to be between R1.9-billion and R2.8-billion, while HEPS are expected to decrease by between 86% and 90% to be between 212 cents and 312 cents per share,” the company said in a trading statement.

Headline earnings, which strip out one-off items such as impairments, are the main gauge of profitability on JSE-listed companies. 

Implats’ basic earnings, meanwhile, are expected to fall into a loss of as much as R17.8-billion because of several impairments triggered by low prices. 

Implats and its peers such as Anglo American Platinum are all in a position to return to decent profits if and when PGM prices rebound. Rising prospects for a sizeable US rate cut next month should be supportive, but concerns that the US economy may be headed for a downturn because the Fed waited too long to start trimming are a bearish signal for PGMs. 

Implats’ share price rose more than 2% by afternoon trade on Wednesday, a sign that the market was braced for an even grimmer trading update. And PGM prices have put in some mild gains this week. 

But for now, there is no big short-term turnaround seen for South Africa’s PGM producers, which has consequences for the wider economy including job creation, hard currency export earnings, and taxes paid. DM