PPC turnaround strategy leads to 10 top management retrenchments

PPC has embarked on a turnaround strategy to improve its profit margins and profitability, which has already led to the retrenchment of 10 top management-level employees, with a further reduction in the group’s headcount expected.

However, there was good news for shareholders in the JSE-listed cement and building materials producer.

PPC on Monday declared its first dividend since 2015, and the group’s board will consider declaring a special dividend from the proceeds of the sale of its 51 percent interest Cimerwa in Rwanda once the sale has been approved by the Common Market for Eastern and Southern Africa (Comesa).

Cimerwa was one of the remaining assets from PPC’s unsuccessful expansion strategy into Africa.

Retrenchments

Matias Cardarelli, the new CEO of PPC, said the group’s turnaround strategy has already led to a reduction in the group’s top managerial layers, resulting in about 10 retrenchments.

“We are starting the process at [the] operational level, and so I think we can expect some headcount reduction, but it’s too soon to say,” he said.

Cardarelli said PPC’s performance had called on the new executive team to make strategic decisions and focus on strengthening the group’s core operations.

He said the earnings before interest, depreciation, tax, and amortisation (Ebitda) and margins of PPC’s core South African business have consistently declined over the past five years.

Cardarelli said they acknowledge the challenging market conditions, with few infrastructure projects and negative macroeconomic indicators, but questioned whether external factors are “the sole reason for our struggles”.

“It’s crucial to question the assumptions and decisions that have led us to this point, focusing not only on external factors but also on aspects within our control.

“This is a critical moment for PPC,” he said.

Bold plan for recovery

Cardarelli said the new executive team has a clear and bold plan for recovery, focused on fixing and rebuilding while also pursuing quick wins.

He said the strategic plan focuses on working-capital management, a contribution margin approach, improving industrial performance, and enhancing the go-to-market and the logistics operating model.

“Our short-term strategic focus on internal reorganisation will pave the way for growth in the next phase,” he said.

“This will entrench our position as the premier cement company in southern Africa, well positioned to take advantage of value-accretive growth opportunities.”

Cardarelli said PPC’s 2025 financial year will be the foundation phase for the turnaround strategy, and it is “expecting to look at results in the next fiscal year”.

Industry discipline required

He added that in a challenging market impacted by imports and some blended low-quality local cement, industry discipline is required to prioritise margins and profitability.

“Industry dynamics should evolve from a focus on maximising volumes to now needing to prioritise margins for long-term sustainability and investor returns.

“It is evident there are areas where we are falling short, impacting our performance and our ability to achieve growth,” he said.

“Our organisation structure does not allow effective execution, with multiple layers and duplicated roles leading to a lack of accountability.

“A new structure should facilitate a culture of ownership, agility and reduced complexity.”

Mothballing assets

Cardarelli said PPC is not prepared to give up its market share to achieve improved margins and profitability and will protect it while also looking to improve it.

Low volume demand has resulted in PPC mothballing certain assets.

It has mothballed the Jupiter milling plant, which resulted in an impairment of R56 million, and the Slurry and Dwaalboom swing kilns, which led to impairments of R125 million.

Cardarelli said 40 percent of PPC’s total production capacity is currently mothballed, but the clinker kilns in Slurry and Dwaalboom could be recommissioned without incurring high costs.

He said the Jupiter cement mill will not be recommissioned in the short term.

Industry consolidation

Cardarelli said he is “very happy” about JSE-listed Afrimat acquiring Lafarge.

“It’s very important to bring responsible and efficient competitors to the market. As the industry evolves, the mature industry will be better for all the competitors, and we are super ready to compete with Afrimat.”

Cardarelli said consolidation in the SA cement market might happen sometime in the future when there is a more mature industry in the country.

He believes the outcome of the recent general elections and the establishment of a government of national unity will improve the outlook for increased government infrastructure expenditure and cement demand.

Financial results

PPC on Monday reported a 20,6 percent growth in revenue to R10,058 billion in the year to end-March from R8,339 billion in the previous year.

This growth was primarily driven by the company’s performance in Zimbabwe.

Ebitda increased by 38,6 percent to R1,24 billion from R896 million, with the Ebitda margin improving to 12,3 percent from 10,7 percent.

Headline earnings per share improved to 19c from the 20c headline loss per share in the previous year.
An ordinary dividend of 13,7 cents per share has been declared based on a passthrough of the Zimbabwe dividend received during the year.

PPC chief financial officer Brenda Berlin said the group’s board “will clearly declare a (special) dividend” when it knows Comesa’s approval is in the bag.

“It’s entirely dependent on Comesa. They have asked for an extension until July.

“Absent a further extension, which is very unlikely, then we should get it by July, and the PPC board will manage that expeditiously but potentially in August,” she said.

Market reaction

Shares in PPC declined by 0,27 percent on Monday to close at R3,69 per share after trading 3,78 percent lower several times during the day than Friday’s R3,70 per share closing price.

Rowan Goeller, an analyst at Chronux Research, attributed the decline in PPC’s share price to its second-half performance in South Africa and Zimbabwe not being great.

Goeller said this performance indicates a deterioration in the market from PPC’s first-half result.

He said the group’s outlook is very cautious, indicating that while there are pockets of increasing demand in various areas, the market is at a very low level.

However, Goeller said the fact that PPC has declared a dividend for the first time since 2015 indicates that financially, the group has the strength to survive through a tough market and declining sales for seven-plus years now. — Moneyweb