A generic pic of a PPC cement truck being loaded. A generic pic of a PPC cement truck being loaded.
Johannesburg - PPC, South Africa’s
biggest cement maker, is gearing up for a watershed year that CEO Darryll
Castle said will determine the company’s future after the share price almost
halved in 2016.
The
impending start of production at plants in the Democratic Republic of Congo and
Ethiopia will help transform
PPC into a sub-Saharan African producer and it’s crucial they run smoothly and
efficiently, Castle said on Wednesday in an interview at Bloomberg’s office in Johannesburg. The
company, which is based in the city, needs to rebuild credibility with
investors after it was forced to raise R4 billion ($295 million) in a rights
offer earlier this year to service debt, he said.
“Everything
that PPC’s done over the last five, seven years is culminating
now,” Castle, 48, said. “Everything about the future of the company is
about what we do in the next year to year-and-a-half.”
PPC
is seeking to move on from a tumultuous year in which it negotiated a costly 2
billion rand bank guarantee and held a rights offer after S&P Global
Ratings cut its credit rating to junk, triggering early redemptions by
bondholders and raising liquidity concerns. The company’s debt had more than
doubled over three years as it poured money into the new African projects while
battling competition, slowing economic growth and falling prices in its home
market.
Read also: PPC increases volumes while prices fall lower
The
shares have plunged about 47 percent this year, making PPC the fourth-worst
performer on the 162-member FTSE/JSE Africa All-Share Index. The stock rose 2.1
percent to R5.48 a share at 12:45 p.m. in Johannesburg,
giving the company a market value of R8.9 billion.
Castle
was appointed CEO in January 2015 to replace Ketso Gordhan, who resigned after
a fallout with other executives that led to an eventual shake-up of the board.
The new plants, which also include operations in Zimbabwe
and Rwanda,
are a legacy from the previous management.
The
company is also investing in a project in South Africa, a market that Castle
said would benefit from consolidation because there are too many producers for
its size. PPC is “constantly monitoring everything, all our competitors,” the
CEO said. PPC and local rival AfriSam revived merger discussions after walking
away from a tie-up in early 2015, people familiar with the matter said last
month.
PPC
reduced debt to earnings before interest, taxes, depreciation and amortization
to 2.6 times from 3.8 times after the fundraising, the company said last month.
It’s busy considering options to restructure about 2 billion rand in borrowings
that mature in about a year’s time, Castle said.
While
PPC retains its view that African demographic trends such as growing
populations and urbanisation and economic growth will support rising demand for
cement, Castle said it’s too early to talk about a next phase of growth.
“The
next year or two is about delivering these projects that we have, and proving
to the world, to ourselves, to our board, to shareholders, that we can deliver
these businesses in tough environments,’’ he said. “It’s only once we’ve proved
that to ourselves and to other people that we start thinking more expansively
again.’’
Read also: More hammering for PPC as earnings drop
For
now, the African cement industry is also grappling with an excess of capacity as
economies falter and after producers including Dangote Cement Plc, the
continent’s largest, expanded rapidly to take advantage of government
infrastructure spending.
“There
was too much capacity put in predicated on the growth continuing forever,”
Castle said. “We are going to have to wait for the growth to catch up.”
-With assistance from
John Bowker, Antony
Sguazzin and Gordon Bell.