Photographer: Kevin Sutherland/Bloomberg

Biggest South African Cement Maker Faces Make-Or-Break Year

  • Democratic Republic of Congo, Ethiopia plants to start up
  • Cement maker seeks to build investor trust after rights issue

PPC Ltd., South Africa’s biggest cement maker, is gearing up for a watershed year that Chief Executive Officer 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 4 billion rand ($295 million) in a rights offer earlier this year to service debt, he said.

Darryll Castle on December 7.

Photographer: Waldo Swiegers/Bloomberg

“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.

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 5.48 rand a share at 12:45 p.m. in Johannesburg, giving the company a market value of 8.9 billion rand.

Legacy Plants

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 urbanization and economic growth will support rising demand for cement, Castle said it’s too early to talk about a next phase of growth.

Excess Capacity

“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 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 by Antony Sguazzin, Gordon Bell, and John Bowker

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