PPC is restructuring senior management after selling its Rwanda business for R804 million

PPC is restructuring senior management after selling its Rwanda business for R804 million

The imminent completion of the sale of PPC’s 51% stake in Cimerwa in Rwanda, an asset remaining from its unsuccessful expansion strategy in Africa, has led to a restructuring of the senior management of the JSE-listed cement and building materials producer.

PPC South Africa and Botswana MD Njombo Lekola has resigned effective from the end of December after more than 30 years with the group, and his position will not be filled, the company said on Monday.

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Outgoing PPC CEO Roland van Wienen said the executive committee had an internal discussion in April during which it became clear that with the group’s refocus on South Africa and when Cimerwa was sold, the position of group CEO was no longer a full-time position. It must start making the organization simpler by merging the positions of Group CEO and Managing Director in South Africa and Botswana.

Van Wenen – who the company previously confirmed has decided not to renew his contract – will leave PPC at the end of December and will be replaced by Matthias Cardarelli.

Cardarelli is still waiting for a work permit.

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Expansion into Africa

In 2012, PPC embarked on a strategy to expand into the rest of Africa, with the aim of generating 40% of its revenues from outside South Africa by 2017.

This strategy led to PPC investing in plants in the Democratic Republic of the Congo, Ethiopia and Rwanda, but significant liquidity problems put severe pressure on its balance sheet in South Africa and led to a restructuring of these investments and a refocus on South Africa. Operations.

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PPC announced on Friday that an agreement had been reached to sell its 51% stake 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 settling the group’s senior debt exposure in PPC Barnet in the Democratic Republic of the Congo through a settlement agreement.

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In an assessment of the failed African expansion strategy, Van Wegenen said that this strategy is not necessarily responsible.

He said it made sense at the time – when PPC was well-positioned in South Africa and generating money – to decide to invest that money in other high-growth countries on the continent.

However, Van Wegenen criticizes the implementation of the strategy, which he believes was implemented “too quickly” and “probably not thought out well enough” in relation to the countries it chose to invest in.

This led to a number of situations in which PPC, particularly in the DRC, fully disclosed the group’s safeguards “and almost killed the group,” Van Wenen said.

Comparing PPC’s balance sheet strength now compared to the past is “night and day,” he said.

No debt

He said the group will be virtually debt-free when the Cimerwa deal closes and the funds are 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 now need to look for growth opportunities, both in our core cement market and in other ideas that Matthias (Cardarelli) and the team will develop over time,” he said.

PPC Chairman, Philip Mulketi, said PPC had a stable base, but there was a need to address some of the challenges facing the group.

These challenges include PPC’s achievements in some of its markets being “quite advanced” in terms of revenues, profits and EBITDA, and the goal is to take them to a higher level, Mulketi said.

“There is a restructuring process underway. There is an opportunity for us to realign, restructure and refocus the organization.

“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

Although cement imports are at a manageable level, they “remain a thorn in the side of South Africa’s local cement industry,” Van Wenen said.

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Cement imports rose by 9% in the six months to the end of September compared to the previous corresponding period.

Van Weenen said severe port congestion in South Africa had so far had no mitigating effect on the amount of cement and clinker “being dumped on South Africa’s shores”.

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He said Botswana’s PPC prices were negatively impacted during the six months due to increased imports from Namibia, which the Namibian government supported through export incentives it offers to its local producers.

He added that PPC is constantly working with the South African government to provide a level playing field for the local cement industry.

Van Wenen said demand for cement in South Africa and Botswana was weak in the six months due to the macroeconomic environment, limited government spending on infrastructure, and oversupply in the market.

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However, he said PPC has implemented semi-annual increases in average selling prices of 8.8%.

Van Wenen said the decline in demand was driven by SA, not just government spending, and he believed interest rates would have to be lowered and hiring increased for demand to improve.

“Our teams delivered a strong performance in a challenging business environment by keeping our strategic objectives in mind.

“With a strong balance sheet, PPC is well positioned to continue to successfully navigate the challenging economic cycle, and good strides have been made in improving operations while creating a more sustainable business.”

Numbers

PPC reported a 20.9% growth in revenue in the six months to September to R6.17 billion from R5.1 billion. EBITDA rose 46.8% to R1,069 billion from R728 million.

Headline earnings per share improved to 26 cents from a loss of five cents in the prior period.

Rowan Goeler, an analyst at Chronux Research, said PPC achieved good financial results in a difficult market where volumes in South Africa were not large.

Goeler said Afrimat’s takeover of Lafarge’s South African operations will be interesting to watch.

Afrimat bought Lafarge SA for its quarries and aggregates, not for cement, and is looking at different options for its cement operations, he said.

LISTEN/READ: Afrimat/Lfarge SA acquisition ‘a first-class deal’

“Lafarge was a somewhat unpredictable player and was a bit of a wild card. In the hands of Afrimat, if they were running a cement business, it would probably be managed more responsibly in terms of pricing and volumes and trying to get a return,” Goeler said. reasonable”.

PPC shares closed 7.46% lower at R3.60 per share on Tuesday.

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