Johannesburg - South Africa’s cement industry would benefit from consolidation because there are too many players for the size of the market, according to Darryll Castle, the chief executive officer of the country’s largest producer, PPC.
The company is “keeping an an eye on the whole industry”, Castle said in a phone interview on Wednesday, after declining to comment on whether PPC is in talks with rival AfriSam Group. The two Johannesburg-based companies have revived discussions about a merger almost two years after talks were abandoned, people familiar with the matter said this week.
“There’s fairly clear rules and regulations around when you need to announce things, and there’s nothing to announce,” Castle said. “In the longer term there’s no doubt that there needs to be some kind of consolidation in the industry and you can be sure that as PPC it would benefit us because we are the big player.”
South Africa’s construction industry and infrastructure spending is under pressure as Africa’s most industrialised economy heads for its weakest annual growth since 2009. There are five producers operating in the country, and consolidation would help cut costs and improve efficiencies for the remaining competitors, the CEO said.
A combination of PPC and AfriSam is likely to have the support of the continent’s largest fund manager and AfriSam’s controlling shareholder, the Public Investment Corporation, according to the people familiar with the matter, who asked not to be identified because the deliberations are private.
Supporting margin
PPC is focusing on reducing costs to support its profit margin while it completes projects in South Africa, Ethiopia and the Democratic Republic of Congo, Castle said. The company expects cement prices to bottom in its home market and gradually increase in 2017.
First-half headline earnings per share plunged 66 percent to 14c as finance costs increased, the company said in an earlier statement. Sales gained 15 percent to R5.2 billion, while the debt-to-earnings before interest, taxes, depreciation and amortisation ratio was cut to 2.6 times from 3.8 times after a rights issue.
The shares fell 2.4 percent to R5.74 as of 10.10am in Johannesburg, extending the year’s decline to 44 percent. PPC is the third-worst performer of the FTSE/JSE Africa Index in 2016.
The earnings decline caps a tumultuous six months in which the company secured a R2 billion liquidity and guarantee facility and raised R4 billion in a rights issue 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 new African projects while battling competition, slowing economic growth and falling prices in its home market.
“The successful completion of the rights issue allowed us to significantly reduce debt levels and strengthen our balance sheet against the cyclical nature of our business,” Castle said in the statement.
BLOOMBERG