PPC fails to cement CEO post

Third boss to quit in four years as uphill climb gets steeper

● PPC is searching for its fourth CEO in as many years after Johan Claassen, who has only been in the hot seat since July last year, said on Friday he would take early retirement. His exit has raised concern among analysts that yet another leadership change could stall the company’s recovery.

Mergence Investment Managers portfolio manager Peter Takaendesa said leadership changes “are a bit of a concern”.

“In a tough environment you need stability and accountability — someone who will give targets they can be held accountable to.” At the same time, an argument could be made that PPC needed a leader with fresh ideas and “a lot of energy. They have invested a lot of capital and they need to get a return on it now,” said Takaendesa.

The company’s share price has yet to recover from a sell-off sparked by the resignation of Ketso Gordhan after a dispute with the board four years ago.

In September 2014, the month that Gordhan abruptly left the company but then launched a campaign to get his job back and revamp the board, PPC’s shares were worth more than R30. After announcing Claassen’s retirement, and a 49% decline in pretax profits for the six months to end-September, PPC’s shares lost 6.2% on Friday to close at R5.95.

Gordhan’s successor, Darryll Castle, lasted two-and-a-half years until Claassen replaced him in an interim capacity in July 2017. Claassen became CEO in February this year.

Claassen, who will remain in his post until a successor is found, said it was a “tough decision” to leave but that the business was in “good nick”.

Electus equity analyst Mish-al Emeran said Claassen’s decision was a surprise and “disappointing from a continuity perspective — there probably was not enough time for his ideas and strategy to be implemented fully. But we do think PPC has quality cement assets in SA and the new CEO will have an exciting challenge ahead.”

Lester Davids, a trading desk analyst at Vunani-owned stockbrokerage Unum Capital, said Claassen’s retirement “is a loss for the business owing to the fact that he had been at the company for 30 years”.

Stability at the top “could remain a concern for investors” given the multiple changes in recent years, Davids said.

Claassen’s retirement comes at a time when the South African business is taking strain. In Southern Africa, cement volumes were down 3% in the interim period. In addition to muted demand and rising costs — largely from higher fuel prices — the industry is also having to contend with large import volumes and new entrants in the form of independent cement blenders.

PPC itself estimates that production capacity will outstrip demand by as much as 36% in SA this year. To make matters worse, competitors Heidelberg Cement and Osho Ventures are jointly constructing a new plant in the Eastern Cape.

“A significant turnaround in economic conditions, as well as a significant increase in public sector infrastructure spend, is needed to boost the group’s outlook,” Davids said.

However, PPC’s operations in the rest of Africa are looking “much brighter — the group continues to grow volumes and take market share”.

According to Takaendesa, PPC and its competitors are likely to struggle in the next few years. “It’s going to be difficult for PPC to get an appropriate return on investment . . . They need margins in SA to be close to 30% to beat their cost of capital, and now they’re running at below 20%.”

Going by its previous attempts, the group’s plans to lift prices in SA are unlikely to help as competitors tend to take those opportunities to gain market share, Takaendesa said.