Interim Results for 31 March 2014
20 May 2014
Ketso Gordhan – CEO Tryphosa Ramano – CFO Richard Tomes – Joint MD SA Cement
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Context
Financial Overview
Divisional Overview
Strategy & Outlook
Questions
Context
•
For the six months ended March 2014
• PPC’s total cement sales up 2%
• Supported by increased export sales and consolidation of new businesses
• Offset by declines in South Africa, Botswana and Mozambique
•
Key events
• Significant headway on rest of Africa projects
• Construction underway in four African countries: Rwanda, the Democratic Republic of the Congo, Zimbabwe and Ethiopia
• Commissioning of new 600 000 tpa plant in Rwanda expected by end CY 2014
• Successful completion of the Safika Cement acquisition
• Approval received from shareholders to restructure part of BEE I transaction
• Plans to modernise Slurry kiln 8 at an advanced stage
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Financial Overview
F2014 – H1 Financial overview
•
Revenue
R4.16bn
9%
[R3.81bn]
•
EBITDA
#R1.17bn
5%
[R1.12bn]
•
EBITDA margin
28.2%
[29.5%]
•
Cash generated from operations R0.78bn
(27%)
[R1.07bn]
•
Normalised operating profit
#R0.88bn 3%
[R0.86bn]
•
Normalised earnings per share
#86 cps 4%
[83 cps]
•
Interim dividend
38 cps
[38 cps]
•
Gross debt to EBITDA 2.3 times
[1.7 times]
# Excluding BBBEE IFRS 2 charges, Zimbabwe indigenisation costs, restructuring costs and prior year tax adjustments.6
Of the 26%, 3% relates to currency movements while
12% is as a result of new businesses
Tax assessment overpayment
F2014 – H1 Summary income statement
2014 R million 2013 R million % Change Revenue 4 157 3 812 9 Cost of sales 2 793 2 569 (9) Gross profit 1 364 1 243 10
Administration and other operating expenditure 480 381 (26)
Operating profit before items listed below 884 862 3
BBBEE IFRS 2 charges 19 29 (34)
Zimbabwe indigenisation costs - 82
Operating profit 865 751 15
Net finance costs 210 174 (21)
Exceptional items (10) (12) (17)
Earnings from equity accounted investments 6 5 20
Profit before taxation 651 570 14
Taxation 155 245 37
Profit for the period 496 325 53
EPS (cents) HEPS (cents) 94 96 62 64 52 50
Normalised EPS (cents)# 86 83 4
DPS (cents) 38 38
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# Excluding BBBEE IFRS 2 charges, Zimbabwe indigenisation costs, restructuring costs and prior year tax adjustments.
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Additional borrowings for local and international
initiatives
8% of revenue and 10% of cost of sales relate to new
businesses
F2014 – H1 Segmental analysis
Revenue (R million) Mar
2014 Mar 2013 Cement 3 592 3 309 Lime 397 365 Aggregates 168 138 Group 4 157 3 812
EBITDA Margin Mar 2014 Mar 2013 Cement 30% 32% Lime 17% 17% Aggregates 7% 7% Group 28% 29% 86% 10% 4%
Revenue split per division
Cement Lime Aggregates
74% 26%
Revenue split per region
South Africa International
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Includes bond issue of R750m in December
2013
F2014 – H1 Summary balance sheet
2014 R million 2013 R million ASSETS Non-current assetsProperty, plant and equipment 6 229 5 035
Intangibles 652 341
Other non-current assets 565 401
Current assets
Inventories 1 028 918
Trade and other receivables 1 152 1 063
Cash and cash equivalents 660 264
TOTAL ASSETS 10 286 8 022
EQUITY AND LIABILITIES
Capital and reserves 1 626 1 053
Non-controlling interests 448 512
Non-current liabilities
Long-term borrowings 4 432 2 451
Provisions and other non-current liabilities 511 388
Deferred taxation 921 988
Current liabilities
Short-term borrowings 1 426 1 729
Trade and other payables 922 901
TOTAL EQUITY AND LIABILITIES 10 286 8 022
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8 5
Capex amounting to R844m with CIMERWA accounting for half of this
Impacted by new acquisitions
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Impact of new acquisitions
F2014 – H1 Summary cash flow statement
2014R million
2013 R million
Cash flow from operating activities
Operating cash flows before movement in working capital 1 214 1 074 Net investment in working capital (434) (4)
Net finance costs paid (193) (104)
Taxation paid (325) (230)
Cash available from operations 262 736 Capital investments in PPE and intangible assets (872) (294) Acquisitions in terms of business combinations (377) (140) Other investing activities (37) (26)
Net funding raised 1 736 293
Net cash flow before dividends paid 712 569
Dividends paid (636) (569)
Net cash inflow for the year 76 -
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Higher levels of borrowings, in particular
corporate bonds Payment of interest rate swaps and restructuring
costs
11 10
Prior year taxation paid in Zimbabwe
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F2014 – H1 Effective tax rate
• The effective taxation rate was 23.8%, mainly due to the prior year taxation adjustments and BBBEE IFRS 2 charges
• Withholding taxes approximate 3% of taxation charge
F2014 H1
Rm
Profit before taxation 651
Total taxation 155
Effective taxation rate 23.8%
Add back BBBEE IFRS 2 charges 19
Adjusted profit before taxation 670
Effects of prior year taxation adjustments 74
Total taxation (excluding prior year tax
adjustments) 229
F2014 – H1 Capital expenditure
2014 R million 2013 R million Total for F2014e R millionOperational and modernisation capex 384 261 600 - 700
CIMERWA 403 33 800
Zimbabwe mill expansion - - 130
DRC 85 - 800
Total capital expenditure 872 294 2 300 – 2 400
Modernisation of Slurry kiln 8 • SK8 commissioned in 1973
• Modernisation to meet emissions legislation, improve thermal efficiency, output and operating costs
• Planetary coolers to be replaced by latest generation grate cooler
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• BBBEE I: Shareholders approved the restructuring
• Finalisation of the transaction funding arrangements underway
• A further R750 million corporate bond raised in December 2013
• Five year senior unsecured floating rate bond
• Issued at JIBAR plus 1.5%
• Two times oversubscribed
• Dividend policy cover range of 1.2 to 1.5 times under review
Divisional Overview
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F2014 – H1 Segmental analysis
Revenue (R million) Mar
2014 Mar 2013 Cement 3 592 3 309 Lime 397 365 Aggregates 168 138 Group 4 157 3 812
EBITDA Margin Mar 2014 Mar 2013 Cement 30% 32% Lime 17% 17% Aggregates 7% 7% Group 28% 29% 86% 10% 4%
Revenue split per division
Cement Lime Aggregates
74% 26%
Revenue split per region
South Africa International
PPC SA cement demand
• PPC’s F2014 H1 SA sales volumes down 2%
• Industrial action on the platinum belt with above-average rainfall in the Inland regions had a severely negative impact on cement sales volumes
• Volume growth was, however, experienced in some Inland and Coastal regions
• PPC increased selling prices by 4% on average for the period
• Pricing environment remains highly competitive
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SA cement demand - Imports
• 2013: 1.1 million tons of imported cement entered SA, up 44% from previous year • Figure not captured in the official industry sales of 12.1 million tons of cementitious
products sold in 2013 (up 5% from 2012)
• Implies imports account for ~8% of SA volumes
• Majority (>70%) landing in Durban and the balance split between PE and CT
• Virtually all coming from Pakistan, with FOB price in that country at ~R30 per bag
#All data sourced from the South African Revenue Service
50 000 100 000 150 000 200 000 250 000 300 000 350 000 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14
PPC SA cement input costs
Key cost components for F2014 H1 Proportion of cost of sales (R/t) Movement (R/t) Distribution 26% +6% Salaries (R) 11% +8% Depreciation (R) 10% - Electricity 8% +9% Coal 8% -2% Maintenance 7% +3% Packaging 4% +3% Other 26% +3%Input costs up 4% on a rand per ton basis
Energy related costs:
Diesel + coal + electricity = 27% of all input costs
~35% of the distribution cost comprises of diesel costs
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Zimbabwe, Botswana, Mozambique and Rwanda
Zimbabwe
• In-country liquidity constraints have led to a slowdown in local demand
• Limited growth in domestic selling prices
• Offset by an increase in exports to neighbouring countries at favourable selling prices
• Favourable impact of rand devaluation
• Cement cost of sales well-managed:
• Benefits of investment in palletiser and right-sizing of operations being realised
Botswana
• Demand, pricing environment remains under pressure
• Cautiously optimistic on the outlook for government infrastructure spending
• Favourable impact of rand devaluation
Mozambique
• Volumes remain under pressure in southern regions due to intense price competition as a result of imported cement products
Rwanda
• Turnaround in production efficiency has led to significant improvement in volume output
Lime, Aggregates and Readymix
Lime
• Revenue ended 9% higher on the back of higher burnt product and limestone sales of 5% and 25% respectively
• EBITDA consequently rose to R69 million (2013: R61 million)
Aggregates
• Revenues ended 22% higher than last year at R168 million (2013: R138 million)
• Boosted by increased sales volumes of 15% in South Africa and 14% in Botswana
• EBITDA was 33% higher at R12 million (2013: R9 million)
• Following a strategic review of the aggregates operations in Botswana and the difficulties being experienced in that market, an impairment charge of R10 million has been included in exceptional items
•
Readymix / Ash
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Strategy & Outlook
Democratic Republic of the Congo
• Construction of 1 mtpa plant in western DRC for ~$280m underway
• Shareholding: PPC 69%, Local partner Barnet group 21% and IFC 10%
• Debt: equity ratio of 60:40 with IFC and PTA Banks as joint lead arrangers
• Project complies with stringent IFC/World Bank environmental, social and governance standards
• Use of ring-fenced project financing to shield PPC balance sheet
• Applications for investment incentives underway
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DRC – PPC’s ability to deliver
• Sinoma appointed as EPC contractor; responsible for:
• design, procurement, construction and commissioning of EPC project scope on a turn key basis
• turn key basis - Sinoma is responsible for the complete construction schedule and fixed cost as per contract with PPC
• Sinoma to offer post-commissioning operational support
• Ercom appointed as project management consulting engineers; responsible for:
• technical specifications of project deliverables, quality assurance and project management of contractors work as well as project cost and schedule management
• Hatch Goba Engineering to provide specialist project services including:
• scheduling, cost engineering, contract administration, estimation and certification
• Above support structures allow PPC management to effectively and successfully manage the implementation of the project
DRC – Establishing the PPC Brand
• PPC has commenced sales of PPC branded cement in the Kinshasa region and will follow up with sales in the Bas Congo region
• Cement is imported from our Riebeeck operations in the Western Cape to the Matadi river port and transported by road to our warehouse in Kinshasa
• Allows us to establish the PPC brand, and to better understand country and market dynamics prior to launching full production and operations in 2016
• Local hire of over 250 operational staff members in 2016 to further enhance corporate image
• Limited PPC expat team already identified and involved
• Substantial community engagement work being undertaken to ensure that we build our brand as a responsible corporate citizen
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CIMERWA Ltd, Rwanda
• Significant progress with the 600 000 tpa plant with 5 stage pre-calciner kiln • Plant to be commissioned end 2014
with sales revenues to be generated from calendar Q1 2015
• Recently appointed Busi Legodi as CEO – 18 years PPC experience
• Operational readiness for production is progressing according to target
• Main supply contracts have been secured; charcoal, peat, gypsum, packaging etc.
• Implementation of IT and maintenance systems progressing well
CIMERWA Ltd, Rwanda
• Sales and marketing strategy for target market progressing well
• Presence in Kigali to be expanded with establishment of a distribution centre • Recruitment of ~90% of total planned
workforce has been completed
• Rwandese, East African and (where not available), expatriate skills
• Training of 8 Rwandese engineering graduates for process operator positions at Technical Skills Academy (Slurry) in progress
• Further training interventions for functional operational competence scheduled
• Continued emphasis on relevant social
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Zimbabwe/Mozambique
• PPC expansion plans to be achieved by backward integration in a phased approach
• First, construction of 100 tph cement mill (700 000 tpa) in Harare for ~$80m
• Corporate loan funded against PPC Zim’s balance sheet
• Harare mill to be commissioned in 2016
• Plans to construct $200m clinker plant on Zimbabwean border and cement mill in Tete to follow
• Two less efficient cement mills to be retired in Bulawayo, totalling 50 tph
• Modern efficient mill in Harare gives a competitive advantage and phased capital expenditure approach reduces risk
• Sinoma as EPC partner and Ercom as engineering and project management partner
Habesha Cement, Ethiopia
• PPC has increased shareholding to 31%
• Construction of the 1.4 mtpa facility has just begun
• Commissioning to occur in 2016
• Project cost of ~$135 million
• To be funded on a 70/30 debt equity ratio split
• Factory site well located, 35km north-west from Addis Ababa
• Significant construction activity underway within Addis Ababa which will benefit project operations
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Algeria
• PPC to acquire a 49% stake in Hodna Cement Company
• Hodna to construct a 2 mtpa plant for ~$400 - $450 million
• Feasibility study underway and to be concluded in 2014
• Construction likely to commence early 2015
• Intend to fund via locally raised project finance – 80% debt funding
• Algerian cement demand estimated at 22 mtpa with production capacity of ~18 mtpa
• Government committed to roll out major infrastructure investments
• Cement selling prices range between $80 - $120 per ton
• Favourable costs of production due to affordable gas prices and availability of electricity at project location
• Well located raw material components all on site – limestone, gypsum and shale further reduce operational costs
Outlook
• Intense efforts to accelerate expansion plans across the African continent have gained significant momentum
• Trading conditions in our operating geographies are generally challenging, but we remain optimistic that cement demand will improve
• PPC team focused and well positioned to boost rest of Africa revenues to at least 40% by 2017
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Investor contacts
Ketso Gordhan Chief Executive Officer
Tryphosa Ramano Chief Financial Officer
Azola Lowan Investor Relations
Tel. +27 11 386 9000
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Strategy Overview
PPC’s strategies are:
1. Enhance our industry leader position in southern Africa
(“Keeping the home fires burning” strategy)
Excel in sales, marketing, customer focus, overall value offering
Efficient operations and optimised logistics
Renew/upgrade equipment, especially relating to customers or efficiency
Acquire businesses with good strategic fit
2. Expand our operational footprint into other parts of Africa
(“Rest of Africa” strategy)
Grow revenue outside South Africa to >40% of group revenue by 2017
Stringent criteria:
• Identify suitable markets
• Locate limestone (quality and quantity)
• Identify local partner/government support
• Contract with equipment supplier and project managers
• Secure appropriate funding
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Disclaimer
This document including, without limitation, those statements concerning the demand outlook, PPC’s expansion projects and its capital resources and expenditure, contain certain forward-looking statements and views. By their nature, forward-forward-looking statements involve risk and uncertainty and although PPC believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment, other government action and business and operational risk management.
Whilst PPC takes reasonable care to ensure the accuracy of the information presented, PPC accepts no responsibility for any damages be it consequential, indirect, special or incidental, whether foreseeable or unforeseeable, based on claims arising out of misrepresentation or negligence arising in connection with a forward-looking statement. This document is not intended to contain any profit forecasts or profit estimates, and the information published in this document is unaudited.
