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Roland van Wijnen, CEO of cement company PPC, joined host Alec Hogg and market commentator David Shapiro on the BizNews Power Hour. The trio discussed PPC’s results – released June 21st – and what happened to the share price in the past. In 2018, the share price was R9 and dropped all the way down to just 50 cents. CEO van Wijnen unpacks what happened and how the company got into that situation. In a statement released by the company, the CEO said “My gratitude goes to all my colleagues at PPC. They have worked tirelessly under very stringent health and safety protocols to keep PPC going and sustain our purpose of empowering people to experience a better quality of life.” – Jarryd Neves
Roland van Wijnen on what happened at PPC in the past:
[The share price in 2018 was R9.00 a share. It dropped to R0.50 last year. What went wrong?] When PPC started to use the money generated in South Africa to expand into other countries in Africa, it did so quite rapidly and it did not all work out the way it was planned – like it often goes. We had one particular project in the DRC where commitments were made, that any shortfall in cash generation of that business would be compensated by South Africa.
As a result, South Africa ended up paying millions and millions of dollars into the DRC. That was one of the first things I realised I joined in October 2019, that we had to separate the balance sheet of South Africa from the balance sheet of the international operations. Effectively, that is what we have agreed to do with the lenders. We struck an agreement with them [in] March this year and we’re implementing that. As a consequence, we will no longer have any economic benefits out of that business in the DRC. But more importantly, there will no longer be cash outflows independencies. I think that fixed big issue that we had in the balance sheet.
Roland van Wijnen on how much the DRC move cost the company:
We have put in over $70m, what we call deficiency funding – money that was not generated in the DRC that was supplemented from South Africa. To get out of the arrangement, we paid an additional $16.5m in early April. And with that, we have drawn a big line underneath that.
Roland van Wijnen on PPC’s positive EBITDA:
Positive EBITDA has always been generated in South Africa. We’ve gone through a very tough spot, where competition increased and demand came down at the same time. But it’s hard to stabilise. You refer to the old days where business was a lot easier. I personally believe that the current environment drives us towards innovation and making sure that we are cost competitive.
That is something that PPC, for the last three years, has been busy with. Making sure that we right size our footprint to demand that we have. If demand were to increase, we still have spare capacity that we can bring into the market. We need to make sure that we run properly what we currently have and what we need for this market.
Roland van Wijnen on any pick-up in the market:
We see things as we anticipated, retail demand was very strong coming out of Covid. We see that coming back to normal. But if I give you an indication, comparing to last year is difficult because of the lockdown. Obviously, we had a very strong first quarter (still not finished) but we’re building up to quite a strong first quarter. However, the volumes of cement are the same, more or less as in 2019. So it is not yet that the cement market has grown by 10% or 20%.
David Shapiro on PPC shares:
I still think they’re cheap. To put this into the manufacturing context, I think there are so many businesses that are still being chucked away and all you have to do is compare their asset values. The amount to which it costs you to buy these businesses, relative to where they are and what they represent in the economy. I’m not a great value investor, but these are areas that I don’t think you can ignore. I think if you hold PPC now, you’re still going to be on an upward journey – especially looking at the results, which are starting to point in the right direction.
- PPC turns free cash flow positive as turnaround continues
- Value destruction at cement producer PPC: Figures that’ll make your eyes water – Ted Black
- Investors shiver as PPC delays financial results for the third time
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