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The impending finalisation of the sale of PPC’s 51% interest in Cimerwa in Rwanda, one of the remaining assets from its unsuccessful strategy to expand into Africa, has led to a restructuring of the senior management of the JSE-listed cement and building materials producer.
The company reported on Monday that PPC South Africa and Botswana MD Njombo Lekula has resigned effective from the end of December after more than 30 years with the group, and his position will not be filled.
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Outgoing PPC CEO Roland van Wijnen said the executive committee had an internal discussion in April during which it became obvious that, with the refocus of the group on southern Africa and when Cimerwa was sold, the group CEO position was no longer a full-time job and it must start making the organisation simpler by merging the positions of the group CEO and MD of South Africa and Botswana.
Van Wijnen – who the company previously confirmed had decided not to renew his contract – will be leaving PPC at the end of December and has been replaced by Matias Cardarelli.
Cardarelli is still awaiting a work permit.
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Africa expansion
In 2012, PPC embarked on a strategy to expand into the rest of Africa, aiming to generate 40% of its revenue from outside South Africa by 2017.
This strategy resulted in PPC investing in plants in the Democratic Republic of Congo (DRC), Ethiopia and Rwanda, but significant liquidity problems put severe pressure on its South African balance sheet and led to a restructuring of these investments and a refocus on its southern African operations.
Read:
PPC to double size in 10 years on African cement growth [Nov 2015]
PPC to tackle $150m DRC debt, then embark on planned rights issue [Oct 2020]
PPC announced on Friday that an agreement had been reached to sell its 51% shareholding in Cimerwa in Rwanda for a cash consideration of $42.5 million (R804.1 million) to National Cement Holding Limited, part of the Devki Group.
This follows PPC in 2021 resolving the group’s exposure to the senior debt in PPC Barnet in the DRC through a settlement agreement.
Listen: PPC resolves DRC mess
In an assessment of the unsuccessful African expansion strategy, Van Wijnen said the strategy was not necessarily to blame.
He said it made sense at the time – when PPC was in a good position in South Africa and generating cash – to decide to invest that cash in other high-growth countries on the continent.
However, Van Wijnen is critical about the implementation of the strategy, which he believes was implemented “too fast” and was “probably not sufficiently well thought through” in terms of the countries it chose to invest in.
Van Wijnen said it led to a number of situations where PPC, especially in the DRC, completely exposed the group guarantees “and it nearly killed the group”.
He said comparing PPC’s balance sheet strength now compared to then is “day and night”.
Debt-free
He said the group will be virtually debt-free when the Cimerwa transaction closes and the money is in PPC’s bank account.
“A debt-free company is not a great company either because then you get a lazy balance sheet.
“So we do now need to look for opportunities for growth, both in our core market in cement as well as other ideas that Matias [Cardarelli] and the team will develop over time,” he said.
PPC chair Phillip Moleketi said PPC has a firm base, but there is a need to deal with some of the challenges facing the group.
These challenges include PPC’s achievements in some of its markets being “quite pedestrian” in terms of revenue, profits and Ebitda (earnings before interest, tax, depreciation and amortisation), and the objective is to take them to a higher level, said Moleketi.
“There is a restructure that is taking place. There is an opportunity for us to reposition, restructure and refocus the organisation.
“I’m confident that in the next six months from now when the team presents the results, it will be quite clear that there have been … changes that will unlock a lot of value within the company … [and] deal with the challenges.”
Imports
Van Wijnen said although cement imports are at a manageable level, they “continue to be a thorn in the thigh of the local South African cement industry”.
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Cement imports increased by 9% in the six months to end-September compared to the corresponding prior period.
Van Wijnen said the high congestion of the ports in South Africa has not yet had any dampening impact on the amount of cement and clinker “that is being dumped on South African shores”.
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He said PPC in Botswana was negatively impacted in the six months by increased imports out of Namibia, which were supported by the Namibian government through export incentives it provides to its local producers.
PPC continuously engages with the South African government to set a level playing field for the local cement industry, he added.
Van Wijnen said cement demand in South Africa and Botswana was weak in the six months due to the macroeconomic environment, limited government infrastructure spending, and oversupply across the market.
Read:
Cement imports accelerate [Jan 2020]
Imported cement continues to flow into the country [Jan 2022]
New concerns about agreements for protection against anti-dumping [Jun 2022]
SA’s cement industry faces multiple threats [Jan 2023]
However, he said PPC has implemented biannual average selling price increases of 8.8%.
Van Wijnen said the low demand was driven by South Africa Inc, not only government spending, and believes interest rates will have to reduce and employment increase for demand to improve.
“Our teams have delivered a solid performance in a difficult trading environment by keeping our strategic objectives front of mind.
“With a strong balance sheet, PPC is well-positioned to continue to successfully navigate the tough economic cycle, and good strides have been made in optimising operations while creating a more sustainable business.”
The numbers
PPC reported a 20.9% growth in revenue in the six months to end-September to R6.17 billion from R5.1 billion. Ebitda increased by 46.8% to R1.069 billion from R728 million.
Headline earnings per share improved to 26 cents from the loss of five cents in the prior period.
Rowan Goeller, an analyst at Chronux Research, said PPC had produced decent financial results in a tough market where volumes in South Africa were not great.
Goeller said Afrimat’s acquisition of Lafarge South Africa’s operations will be interesting to watch.
He said Afrimat bought Lafarge SA for its quarries and aggregates, not for its cement, and is looking at various options for the cement operations.
Listen/read: Afrimat/Lafarge SA acquisition a ‘top-notch deal’
“Lafarge was a fairly unpredictable player and a bit of a wild card. In Afrimat’s hands, if it runs the cement business, it will probably be run a bit more responsibly in terms of pricing and volumes and trying to get a reasonable return,” said Goeller.
Shares in PPC closed 7.46% lower at R3.60 per share on Tuesday.
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