PPC’s Game of Thrones: Disturbing goings-on at SA’s cement giant

SA cement giant PPC was once a blue-chip darling of the JSE — a "must-have" stock in every local investment portfolio. Not too long ago PPC produced roughly one in three bags of cement in the country, while its status as one of the biggest cement-makers in Africa lent it a prestige that superseded its humble origins, as De Eerste Cement Fabrieken Beperkt, back in 1892.

In recent years, however, things have started to go badly awry.

First, cheaper imports began to eat into PPC’s profits. Then its African expansion strategy bombed, and the company became ensnared in a Competition Commission probe into the so-called cement cartel, which alleged anti-competitive behaviour in the industry going back to 2008. (PPC confessed, and was granted immunity.)

The chaos extended to the boardroom too. Former CEO Ketso Gordhan resigned in 2014, amid an ill-tempered spat with his finance director Tryphosa Ramano, whom he wanted ousted.

A stock rout ensued: since Gordhan quit, PPC’s stock has plunged 95% to R1.60. Its survival is anything but assured.

"PPC used to be an absolute stalwart stock, but that was when it was a relatively simple SA business with a very predictable margin and cash flows," says Anchor Capital CEO Peter Armitage.

"Three things changed: more competitors entered the market; cement sales volumes in SA dropped more than expected; and the company went on an aggressive African expansion drive that was funded by debt and didn’t quite work out as planned."

It is, says Armitage, "a rather sad fall from glory".

Finally, two and a half years ago, private equity outfit Value Capital Partners (VCP), founded by two hard-nosed former Brait executives, Antony Ball and Sam Sithole, bought 15.6% of PPC. VCP rolled up its sleeves, picked up a shovel and cleared out many executives.

Among those to leave, shareholders were told, were Ramano and former CEO Johan Claassen, who both agreed to "no-fault terminations".

Ball tells the FM that VCP’s business model is to invest in companies with inherent strength, but which often require governance, leadership or strategic reform.

"Two of us, including myself, went onto the board, because we believe [that] is the best forum to steer the company. So the board implemented a number of changes, including on the executive bench and PPC’s strategy," he says.

Nonetheless, says Ball, three things happened that VCP hadn’t expected.

"First, after we invested, the consumption of cement fell by 25%, which put more pressure on our balance sheet," he says.

"We also hadn’t expected the extent to which the lenders in the DRC [Democratic Republic of Congo] relied on the SA balance sheet, and then Zimbabwe, which has been a material part of the business for years, deteriorated quite sharply."

It has created a situation, he says, where PPC’s future is "still precarious". In particular, it needs to cut its R5.2bn debt, so a rights issue isn’t off the table.

"It’s been harder than we expected, but we’re big boys and this is what happens in the investment world," says Ball. "We’ve put aside the niceties, because what’s needed now is all hands on deck to make sure PPC survives."

In recent months there have been encouraging signs of progress. During the six months to September, at the peak of Covid-19, PPC actually improved sales by 1%, and nearly doubled its operating profit to R610m.

The problem is, it has to use much of this profit — it paid R330m in finance charges during those six months — to repay its R5.2bn in debt. As a result, PPC is finalising a "revised banking facility package", which it hopes will provide "sufficient liquidity for the foreseeable future".

Investors seem to believe it is through the worst, which is why PPC’s share price has soared 167% in the past three months, from its record low.

Now, however, an FM investigation has revealed that despite the progress, there have been some surprising goings-on at SA’s venerable cement company which may go beyond a vulnerable balance sheet.

It is high-octane stuff: boardroom intrigue, alleged leaks of sensitive information, a secret forensic probe and less-than-candid disclosure paint a picture of a company which may have deeply ingrained problems in its corporate culture.

The ‘resigned’ CFO who never really left…

Ramano, who was CFO from 2011 to 2019 and the main protagonist in the fallout with Gordhan, appears to be a central player in this tale of corporate intrigue.

In its 2020 annual report, PPC told shareholders it had "bid farewell" to Ramano from November 1 2019, after her eight years at the company.

However, the FM has obtained a signed "consultancy agreement" that appears to show that Ramano is still being paid a monthly fee of R321,499.95, running from November 2019 to June this year. This works out to R6.42m for the 20 months — even though the agreement requires her to work just 40 hours a month.

(Needless to say, hardly any of PPC’s 3,200 staff, who are typically required to work four times as many hours, are presumably being paid anything close to that amount.)

Not only does the "consultancy agreement" allow Ramano to do other work, provided it doesn’t conflict with PPC, it says she can also bill the cement company R6,000 an hour for any work she conducts over and above those 40 hours a month.

Most astonishing is a clause which states that even if PPC does not require Ramano’s services in a given month, she’s still entitled to the R321,499.95 monthly remuneration.

The FM canvassed many current and former PPC executives to gain insight into the inner workings at the company. Six agreed to speak to us on condition of strict anonymity, for fear of potential legal consequences.

Several of the PPC insiders the FM engaged with claim there is no sign of Ramano submitting any work that would justify a monthly fee of the magnitude outlined in her "consultancy agreement".

However, what makes the agreement all the more suspicious is PPC’s response, when the FM asked what Ramano has been doing to justify such a lucrative fee.

PPC refuses to say directly what she has done for this money, saying only that the agreement "ensured that the company retained access to Ms Ramano’s institutional knowledge to assist executives on strategic matters given her long tenure at the company". It says the specifics of what she is doing for PPC are "confidential".

The FM has been told by those close to PPC’s management that Ramano is being used to assist the new team unravel many of the previous financial deals struck when she was there — specifically in the DRC and in countries outside SA.

PPC also saw fit to issue a veiled legal threat to the FM, saying: "The numbers you indicate in your question cannot be confirmed and the company reserves its rights if incorrect and/or confidential information is disclosed by third parties."

It indicates a disturbing defensiveness.

When the FM asks CEO Roland van about this heavy-handed legalistic response, he admits PPC’s lawyers had "reviewed" the answers, but says the intention was "not to intimidate" the journalists.

"What is important to me is that we consider confidentiality of contracts and other legally privileged information.

"Also, I find leakage of confidential information with the purpose to damage companies or individuals, rather than truly serving the public interest, unethical, especially if the facts are not complete or, worse, incorrect."

However, no fewer than 157 pension funds hold shares in PPC — including Old Mutual, the Eskom Pension & Provident Fund and the Government Employees Pension Fund.

These shares have been bought using the pension savings of ordinary citizens. Clearly, there’s a public interest in revealing a deal that shareholders appear to be none the wiser about from reading the latest annual report.

PPC’s annual report reveals only that for the year to March 2020, Ramano got R8.9m — which it describes as part of the "mutual separation" — including a R2.3m salary, notice pay of R1.2m and a restraint of trade of R3.85m. There is no mention of her "consultancy agreement" or of her still being on the payroll.

Nor does Ramano’s LinkedIn profile make any mention of further work for PPC, but instead lists her as the founder of Magommake Consultancy.

Ball tells the FM that perspective is needed. "There is no obligation on a company to make any disclosure of a consultancy deal. You may say it’s a material item, but it’s a company with sales of more than R10bn a year," he says.

PPC has always maintained that Ramano resigned and tells the FM that "due processes were followed by the board to manage her exit". And yet, it turns out that shareholders still seem to be paying her.

Investors would be entitled to know whether there are any other secret agreements with former PPC executives they thought had left the building.

The agreement is disturbing for a number of reasons — not least of which is that PPC is mired in a lengthy restructuring process affecting 313 SA employees, of which 178 "left the organisation with an agreement", 106 were redeployed and 29 were retrenched.

But what may irk shareholders most is that, for years, Ramano was the most senior executive responsible for PPC’s finances — and yet it has recently come to light that the accounts were an absolute mess.

Last year, PPC delayed its financial results for the year to March 2020 no less than three times.

When those accounts finally emerged in October, it was clear why it had taken so long: a damning audit report from Deloitte concluded there had been "a material breakdown in internal controls over financial reporting".

Deloitte flagged "severe gaps in controls over financial reporting, such as the consolidation process, the preparation and review of the annual financial statements, and the completeness and accuracy of information".

And Deloitte "restated" PPC’s results for the year to March 2019 — prepared under Ramano’s watch as CFO — due to "material errors", including when it came to the company’s overall net profit and assets.

In a presentation to analysts reported by Moneyweb, Ramano’s replacement as CFO, Ronel van Dijk, said that while much of this was technical, PPC has to "look inward and admit [that] … our financial reporting processes are not up to scratch".

Van Dijk said a number of improvements had since been made, and its finance team in SA had been restructured to improve the process.

While it’s unclear who was responsible for this failure, it’s probably unfair to pin the blame entirely on one individual, particularly given PPC’s presence in six other African countries, including tricky markets such as Zimbabwe and the DRC.

But the fact remains: Ramano’s responsibility was PPC’s finance portfolio — and there were "material errors".

If indeed Ramano has been hired as a consultant to help PPC’s new management unravel this mess, is it appropriate to hire someone who was at the helm during the disaster to help fix it?

Would it not be like re-hiring an executive who had broken the rules to fix the company they helped mess up?

"Not at all," says Ball. "Tryphosa Ramano has not been found to have done anything illegal."

More legalese …

When the FM called Ramano to ask about this agreement, it also provoked a legal threat.

After we sent her questions, Ramano first replied that: "Any PPC-related matter with myself is governed by [a] confidentiality agreement."

In a later phone call, she said that certain people, who she is suing for defamation, are trying to smear her. She said she’d respond to the claims in court, where everyone is under oath.

However, shortly before the FM went to print, we received a letter from Ramano’s lawyers, Tshisevhe Gwina Ratshimbilani, saying the "insinuations and allegations" against her are false and defamatory.

The lawyers said that since these allegations would be ventilated in the defamation case, commenting now would cause "demonstrable and substantial prejudice to the administration of justice".

"Our failure to deal with this matter more fully at this stage should not be construed as a waiver of our client’s rights to do so before an appropriate forum and should the need arise, which rights are strictly reserved," the letter added.

Either way, it has now created a remarkable situation where, for a short time this year, shareholders will be paying three CFOs, if you include Ramano’s consultancy agreement.

This is because, after Ramano left, PPC hired Van Dijk to replace her. But the company said recently that Van Dijk would be stepping down from April to "rebalance her other commitments", and Brenda Berlin will start as CFO-designate on February 15.

While the deal with Ramano may be above board — she may, for example, be helping PPC unravel deals done during her tenure — the deeper issue is whether PPC has been entirely candid with the shareholders who actually own the company.

A C-suite ‘Game of Thrones’

Ramano’s eight-year tenure as CFO resembled an eight-year corporate equivalent of the Game of Thrones TV series, say a number of insiders.

They claim she had her eyes on the CEO role ever since the departure of Paul Stuiver, who occupied the position from 2009 to the end of 2012.

Gordhan then took over, before quitting when the PPC board refused to support his decision to fire Ramano. He was replaced by Darryll Castle.

Says one insider: "When Darryll Castle was appointed CEO, she tried hard to build a positive working relationship with him, knowing that people were watching her after all the negative media and shareholder activism that preceded his arrival."

But, soon enough, the cracks began to show. Company sources claim that Ramano complained to the board that he treated her badly, and that he excluded her from decisions relating to finance.

"Tryphosa realised that many people were not happy that the board had appointed a man from outside the cement industry, and she used this to drive division between the [executive committee] members," claims one insider.

At the end of 2016, the board is said to have conducted an internal inquiry into Castle’s leadership. By July 2017, PPC said the company and Castle had "agreed to part ways".

At the same time Tito Mboweni, who was an independent nonexecutive director, resigned from PPC with immediate effect. Rumours at the time suggested Mboweni had quit after disagreeing with board members who backed a merger with AfriSam.

Says the insider: "Mboweni was the only one who saw what was happening and resigned."

At the time, the Sunday Times cited Stuiver as saying that merger talks with AfriSam had begun as early as 2010, and that the driving force behind the plan was the Public Investment Corp (PIC), which had invested billions in AfriSam since 2007.

Another company insider claims that once Castle was out of the way, Ramano seemed convinced she’d be named CEO. The board, chaired at the time by Peter Nelson, instead appointed PPC stalwart Claassen as interim CEO in July 2017.

When Claassen was made permanent CEO in February 2018, Ramano is said to have been incensed.

The FM has been told by several sources that the PIC demanded an explanation from PPC’s board as to why a white male had been appointed ahead of a more highly qualified black female. (Ramano is a chartered accountant — the preferred qualification of SA’s corporate elite.)

PPC did not respond directly to the FM’s questions about whether the PIC had complained, saying only that Claassen had been "supported by 98.56% of shareholders at the 2018 AGM".

But the insider claims there was discord about the decision. "When Ramano heard she was not successful she accused the board of not following process correctly and being racist, and threatened to take legal action. The next day the company secretary received a complaint from [the] PIC about [the] appointment of Claassen."

Shortly thereafter, PPC received a letter from Prudential Investment Managers (which was leaked to the media) saying shareholders wanted Nelson and some other directors removed due to the failed merger with AfriSam.

It was about that time, August 2017, when VCP bought into PPC, and its representatives, Ball and Noluvuyo Mkhondo, joined as directors. Nelson was replaced as chair by Jabu Moleketi.

Within months, VCP had taken a much stronger leadership role, implementing the sort of changes Ball speaks about.

Claassen’s tenure as CEO was short-lived. A mechanical engineer, he evidently tired of the palace intrigue and retired in November 2018.

"After Claassen was appointed CEO, Ramano continued to undermine him … blaming him for financial problems in the business, then telling the board and other executives he was bad at the job," one source claims.

After he left, Ramano apparently applied for the job again. But by now VCP "was asking management a lot of questions [about the value of PPC]", says the source.

Another insider says this is when the relationship between VCP and Ramano soured. By June 2019, Dutch national Van Wijnen had been recruited — ostensibly by VCP — as CEO on a four-year contract.

He took over eight days before Ramano signed her "consultancy agreement".

Media leaks?

If all this suggests PPC’s corporate culture was tough, it wouldn’t be an exaggeration.

Court papers filed in 2019 by Siobhan McCarthy, PPC’s former corporate affairs head who lodged an unfair dismissal case against the cement giant, suggest the intrigue went deeper.

In her court papers, McCarthy claims Ramano was behind a series of media leaks about the proposed merger with AfriSam, and later Nigerian multinational Dangote, which led to articles being published in August 2017 containing price-sensitive information.

(Ramano denies this, and her lawyers tell the FM that McCarthy’s "extremely defamatory" claims are "false and rejected with the contempt they deserve".)

The story, as McCarthy’s legal papers suggest, begins soon after Castle left PPC. At the time, articles began to circulate suggesting that Ramano had been responsible for Castle’s departure.

Ramano apparently insisted that PPC hire reputation management expert Rich Mkhondo, former head of communications for the organising committee of the 2010 Soccer World Cup, to help her defuse the media drama.

Within weeks, articles began appearing in various outlets, containing details of the AfriSam and, later, Dangote, discussions.

"Ramano was the source of the leaks to the media," McCarthy says in court papers — an action that, she says, would have contravened JSE rules. When Ramano was confronted, McCarthy claims in her court papers, she "did not deny [it]", but claimed her lawyer had told her she’d broken no rules.

McCarthy’s legal papers also suggest that by questioning Mkhondo’s appointment, she’d put a target on her own back. She recounts how Ramano told someone at PPC to ignore her, as she’d soon "be a nobody" — something Ramano denies.

It paints a disturbing picture. As one insider tells the FM: "The culture at PPC is one where if you ask questions of management you find yourself out the door."

The source says that when Van Wijnen joined, it looked as if things would improve. "But that only lasted for about two months. If anything, the situation got worse."

McCarthy’s court papers say that it wasn’t long after Mkhondo arrived to help Ramano that PPC decided to "restructure" its communications function, and her role as head of corporate affairs was done away with. She responded by taking a demotion case to the Commission for Conciliation, Mediation & Arbitration (CCMA).

(Mkhondo declined to comment, referring all questions to PPC.)

Again, it was PPC’s response that is the most notable aspect of this incident.

In May 2019, PPC and Ramano lodged a defamation claim against McCarthy, alleging that her version of events was false, and demanding R2.5m in damages unless she withdrew the claim.

It said McCarthy’s claims injured PPC’s "business reputation and status", as well as Ramano’s "dignity and reputation". To date, McCarthy has refused to withdraw the claim.

The elusive forensic report

There is another twist in the tale.

As part of McCarthy’s labour court matter, she tried to get hold of a forensic report, compiled by digital forensics firm Exactech, which she believes proves that Ramano was indeed responsible for the media leaks.

That report, one source says, was commissioned by PPC’s audit committee, in conjunction with Deloitte, following a complaint to the auditor’s whistleblowing hotline.

However, PPC has stonewalled efforts by McCarthy’s lawyers to subpoena that report. Though the labour court ruled she had no right to it, her lawyers have since applied to the high court to force PPC to reveal it.

PPC tells the FM that the Exactech report does not prove there were leaks. "The board reviewed the investigation report provided by the external experts, as well as subsequent external legal advice which concluded that the allegations could not be substantiated," it says.

If so, it seems odd that PPC has refused to release that report.

Asked why, the company says it won’t make it available as the report "contains personal and privileged information".

As it stands, the labour court matter between PPC and McCarthy has been postponed, while her high court bid to get the report has yet to be heard.

Still, the outcome could have serious implications for Ramano. Already, a complaint had been laid against her with the SA Institute of Chartered Accountants (Saica) in relation to the alleged media leaks.

Though Ramano did not respond to the FM’s questions about the Saica complaint, PPC confirms that it is aware of it.

Saica tells the FM it can’t comment on "the subject of an investigation" in the interests of "procedural fairness".

The FM’s sources, however, say the accounting oversight body appears to be waiting for the high court’s decision on the forensic report, which is likely to have a bearing on whether the allegations against Ramano are deemed to have substance.

Debt crunch

Asked about the toxic culture that VCP found at PPC when it arrived, Ball is diplomatic.

"It’s fair to say that one of the things that a board has to pay attention to is the harmony of the executive team — and when we arrived, it wasn’t a harmonious team. The board needed to give this attention," he says.

However, Ball reckons there is now far less toxicity in the C-suite. "Roland’s team work really well together. There are new processes and new leadership, so PPC has made lots of progress on this front," he says.

Financially though, PPC’s future is still up in the air — the consequence of the ambitious but failed African expansion strategy that left it drowning in debt of R5.2bn by the end of September.

About two-thirds of that debt was racked up in PPC’s DRC, Zimbabwe and Rwanda businesses.

Says Ball: "We’ve committed to the banks that this debt will be sorted out, and we are doing that. But it’s clear that with the share price at R1.60, PPC is still priced as a company in distress. It is way below fair value."

Though the recent share-price surge suggests investors are confident this debt riddle will one day be solved, it illustrates why, in the eyes of many analysts, PPC’s African expansion remains the big strategic error which led to its current frailty.

Investors will be hoping Ball’s team is able to sort out the debt. VCP’s involvement did wonders to turn around technology company Altron after it bought in, even if the jury is still out on its investments in Sun International and human resources company Adcorp.

But given the alarming Machiavellian corporate skulduggery that seems to have emanated from PPC’s Sandton head office over the years, eradicating an apparently toxic internal culture may be a far harder job for VCP and other shareholders to solve.

 Legal claims and counter-claims could possibly still have serious consequences for a company that was once a JSE favourite

—  What it means: