the g spot
PPC: SA’s recovery punt?
PPC’s shares have had a cracker of a month, gaining 158% — with a jump of 16% alone on the day of its results announcement this week. That’s not to say the former blue-chip cement producer is anywhere close to its former highs — PPC shares last traded north of R10 five years ago, and are down 87% since then. The company’s market capitalisation of R1.9bn is also dwarfed by its debt of R5.2bn. An unpopular rights issue may still be on the cards, and PPC desperately needs government support against cheap imports. The FM spoke to CEO Roland van Wijnen.
You mentioned that dumping continues in SA. Why are imports so damaging?
RvW: In our business you have quite a high portion of fixed costs, so if you’re not running your operations full, you have spare capacity. If you sit, for example, somewhere in Asia — and I’ve been in this trading business — you will sell your product at a variable cost plus $1 or $2. Now, you don’t want that product to end up on your local market, so you ship it. SA has good port facilities, and the freight rates are very attractive, so what happens is that the product gets to this market [where it is] available at prices well below the full cost of the product. If you allow that, and you force the local industry to adjust their price levels, sooner or later you will not have a local industry. That is the bottom line.
You’re in talks with the International Trade Administration Commission of SA (Itac). Are you confident that you have the government’s ear?
RvW: That’s the million-dollar question. There is fairly positive feedback; we had a conversation with Itac, they speak about local designation for the government projects that are being launched; the president himself speaks about the importance of local manufacturing. On the other hand, they also have to comply with the fact that it is an open market. But what we do expect from them is that now that they have all the data, it will allow for a proper investigation and during that investigation they could at least put in temporary measures while they verify the claims we are making.
What would you consider a win?
RvW: I think it’s important that products coming into this market are treated the same. As an example, we have a CO² tax on our locally manufactured products — the imported materials come in without such a levy. We have a number of very strict expectations and laws around social labour plans around our mines, which are good things, but they cost money. But we compete with products from countries where these laws are not applicable.
How about Transnet? You seem to have been badly let down?
RvW: I wouldn’t put it all on Transnet — they are suffering a lot from cable theft. Covid hit them quite hard but I was shocked when I heard that only 50% of their trains arrived at our destination in Port Elizabeth. We trade a lot and we’re really dependent on rail.
With regard to money trapped in African countries, how much is PPC owed?
RvW: It’s R380m. The only money trapped is in Zimbabwe, which had to do [with] when they moved into their local currency.
Back home, are you seeing much evidence of an infrastructure rollout?
RvW: Until I would say November, construction was picking up, but largely because of catch-up work. What we see now is that some of the infrastructure work, like housing projects, is starting to kick in. We are mildly optimistic.
Is it a given that PPC will boom, as a recovery play?
RvW: Well, if you believe that the construction cycle is picking up, you pick the company that has stand-by spare capacity, which we have. So that’s where we are best positioned in the cement industry in SA. I’ve no doubt about that.
What about plans to cut your mammoth debt, because it seems as if a rights issue isn’t actually a given?
RvW: This possible rights issue is dependent on us resolving the recourse that the Democratic Republic of Congo debt [R2.5bn worth] has to the group, first and foremost. Then we can turn our attention to SA and we will by then have a much better indication of what we will receive out of a potential sale of our lime business; we will also have a better view on the sustainability of an uptick in cement demand and our ability to turn it into cash. I’ve always said that a rights issue is the last resort.
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