PPC chief Darryll Castle says 2017 will determine the company’s future
PPC, SA’s biggest cement maker, is gearing up for a milestone year that CEO Darryll Castle says 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 is crucial they run smoothly and efficiently, Castle said on Wednesday in an interview at Bloomberg’s office in Johannesburg, where the cement maker is based. The company needs to rebuild credibility with investors after it was forced to raise R4bn 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 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 R2bn 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.
The shares have plunged about 48% this year, making PPC the fourth-worst performer on the 162-member JSE’s all share index. The stock closed unchanged on Wednesday at R5.37, giving the company a market value of R8.72bn.
Castle was appointed CEO in January 2015 to replace Ketso Gordhan, who resigned after a fall-out 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 SA, 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 in November.
PPC reduced debt to earnings before interest, taxes, depreciation and amortisation to 2.6 times from 3.8 times after the fundraising, the company said last month. It’s busy considering options to restructure about R2bn 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 was 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."
For now, the African cement industry is also grappling with an excess of capacity as economies falter and after producers including Dangote Cement, 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."