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PPC makes life difficult for importers: Darryll Castle – CEO, PPC

Annual results. Tactics the company employs to counter competition.

HANNA BARRY: Cement producer PPC says that increased competitor activity in South Africa hurt full-year cement revenue. For the 12 months to September the group reported a 17% drop in net profit to R698m.

Darryll Castle is PPC’s CEO and joins us now. Darryll, thanks for your time today. Now, PPC’s share price did rally today on these results – up more than 5%. But it has fallen in the region of about 40% in the last year, primarily over the highly publicised battle for leadership of the company between your predecessor, Ketso Gordhan, and the PPC board.

Having been at the helm now for nearly a full year, can you confidently say that things have stabilised?

DARRYLL CASTLE: Absolutely. I think the fall in the share price is more in line with the general outlook in South Africa, and the outlook for our economy. For better or worse, PPC remains with a large part of its business in South Africa, although we are growing our businesses very strongly in the rest of Africa. And so really what happens in the South African economy has an impact on our share price. And we’ve seen that in these results. We’ve seen that the revenue line has come under pressure. And I think what we’ve seen as well is that the company has responded extremely well through the profit-improvement programme.

And really it’s been a tale of two halves for us. So the second-half results, if you look through them, have actually been very robust, to the extent that our earnings per share actually went up in the second half against the comparative period.

What happened over a year ago before I got to the company is now well behind us. It’s no longer an issue. Everyone in the company is looking forward and focusing on how to make PPC competitive, to succeed in this tough environment.

HANNA BARRY: Let’s talk a bit about that tough environment. PPC blames declining cement sales on increased competition in its home market, as I mentioned earlier. Who are the competitors that it is seeing coming into the market? Are they local competitors or are cheap imports still a huge problem?

DARRYLL CASTLE: It’s both. There has been one new local competitor who has come in, who has the capacity to do more or less two million tons – or just under – in a 13- or 14-million ton market. That’s been a significant entrant into our market. And the nature of the cement business is you can’t stop someone once a plant is built, other than impairing the pricing in the market. So we’ve made sure that we maintain our premium pricing and haven’t been the reason why there has been downward pressure on the market. But certainly that’s had a big influence on the market.

And then the imports. Although there have been provisional import duties imposed, they haven’t really stemmed the tide. Imports continue, particularly in the areas where we are active in the Western and Eastern Cape. The imports continue to grow. So both of those are eating into the demand available to the local producers in South Africa.

HANNA BARRY: And is PPC taking these issues forward, particularly import duties? You say that provisional import duties have not stemmed the tide. What is PPC doing about that? Is it approaching government for more help?

DARRYLL CASTLE: Absolutely. There is an ongoing competent dialogue in terms of this. But on the other hand we also have to take responsibility ourselves. We have to make life difficult for the importers in various ways, which we do to try and stem the tide and make sure that they look for other markets, other than South Africa, to come and dump their cement.

But we are doing a bit of everything and hopefully in the longer run we will succeed.

HANNA BARRY: And how do you make life difficult for importers?

DARRYLL CASTLE: We track when the ships are coming, we make sure that we are offering promotions at the time when importers are trying to offload certain loads of cement, and various other tactics like that, which just really increase the cost of doing business for importers because ultimately there is a middle man involved and there are holding costs and there are other risks that they take. And if we increase their risk of doing business we’ve a greater chance of succeeding against them in the longer run.

HANNA BARRY: Thanks to Darryll Castle.

Darryll also told me about PPC’s revised business strategy, how it is kind of broadening the scope of what it does, and then also just his outlook for the year ahead. A tough environment for cement producers, but he is doing all kinds of things to keep that business viable.

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