for the year ended 30 september 2009...global cement demand (1h2009) • severe contraction in...
TRANSCRIPT
Audited Annual Resultsfor the year ended 30 September 2009Paul Stuiver - CEO
2
Agenda
• Key Events• 2009 Highlights
• Financial review
• Operational review• Cement, Lime, Aggregates
• Zimbabwe
• Leadership changes
• Competition commission investigation
• Outlook• Operations, markets & pricing
• Capex, gearing & dividends
• Response to investor comments
3
Key events
• Lower economic activity Lower sale volumes for all products• Cement -10%, Lime -29%, Aggregates -6%
• Accounting for BBBEE transaction• Effective 15 Dec 2008• Recent BBBEE level 3 accreditation
• Changes in leadership • Retirement/change of CEO, resignation of COO
• Consolidation of Porthold in Zimbabwe• From 30 Sept 2009
• Competition commission investigation• Conditional leniency granted
• Resilience – Good performance – Solid platform
4
2009 Financial highlights
• Revenue R6.78bn 9% [R6.25bn]
• EBITDA R2.73bn 8% [R2.54bn]
• EBITDA margin 40.3% [40.7%]
• Cash generated from Ops. R2.60bn 2% [R2.55bn]
• Operating profit* R2.42bn 4% [R2.32bn]
• Headline earnings per share* 257 cps -9% [283 cps]
• Total dividend 200 cps -11% [225 cps]* Excluding impact of the BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold
5
2009R million
2008R million
Cash flow from operating activities
Operating cash flows before movement in working capital 2 735 2 563
Net investment in working capital (133) (17)
Net (finance costs) / investment income (229) (102)
Taxation paid (645) (800)
Equity-settled share incentive scheme receipt - 2
Cash available from operations 1 728 1 646
Capital investment and other movements (1 018) (809)
Net funding raised 1 651 240
Consolidated treasury shares: BBBEE transaction (1 190) -Acquisition of treasury shares by consolidated subsidiary
company- (753)
Issue of shares 5 -
Net cash flow before dividends paid 1 176 324
Dividends paid (1 195) (1 401)
Net cash outflow for the year (19) (1 077)
Summary cash flow statement
Strong operating cash flow maintained
Increased cement & clinker inventoryIncreased maint. spares for new plant
Capital invested R921m
Porthold consolidation had no impact on cash flow for the year
Impact of BBBEE transaction
1
2
3
4
6
Summary income statement
2009R million
2008R million
% Change
Revenue 6 783 6 248 9
EBITDA 2 733 2 541 8
Depreciation and amortisation (315) (218) 44
BBBEE IFRS 2 charges (490) -
Take-on gain arising from consolidation of Porthold 213 -
Operating profit 2 141 2 323 (8)
Finance costs (363) (153) (137)Investment income 65 84 (23)
Profit before exceptional items 1 843 2 254 (18)
Exceptional items - 2
Share of associate’s retained profit 7 10
Taxation (722) (767) 6
Profit for the year 1 128 1 499 (25)
HEPS (cents) (excluding BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold)
256.8 282.6 (9)
CASH EARNINGS PER SHARE (cents) 328.6 310.9 6
DPS (cents) 200 225 (11)
Sales volumesCement -10%Lime -29%Aggregates -6%
Finance costDue to increased borrowings R84mDue to BBBEE debt consolidated R91m Due to lower interest capitalised R27m
DividendCover 1.29
Comparable net profit : - 9%
5
6
7
8
9
DepreciationR60m additional due to Dwaalboom kiln2
7
Summary balance sheet
ASSETS2009
R million2008
R million
Non-current assetsProperty, plant and equipment 3 941 2 813Other 254 383
Current assets Inventories 557 363Trade and other receivables 819 751Cash and cash equivalents 248 224
TOTAL ASSETS 5 819 4 534EQUITY AND LIABILITIES Capital and reserves 915 1 713
Non-current liabilities
Long-term borrowings 2 628 55
Deferred taxation 469 299
Provisions and other non-current liabilities 269 157
Current liabilities Short-term borrowings 764 1 619
Trade and other payables 774 691
TOTAL EQUITY AND LIABILITIES 5 819 4 534
Porthold additional PPE R508m
Porthold additional stock R87m
BBBEE transaction treasury shares
Short-term converted to long-term borrowings
Porthold additional cash R43m
10
11
13
14
15
12No significant change in debtors days or bad
debt
8
Segmental analysis*
Revenue
88%
4%8%
EBITDA
93%
3%4%
Operating profit3%
4%
93%
* Excluding impact of BBBEE IFRS 2 charges and Porthold take-on gain
Total assets3%
7%
90%
Cement contribution to EBITDA increased to 93% during 2009 [2008 : 89%]
Higher than most other cement companies who tend to be more invested in aggregates and ready-mix
Cement
Lime
Aggregates
9
Segmental analysis* cont* Excluding impact of BBBEE IFRS 2 charges and Porthold take-on gain
Cement• EBITDA increased 11% to R2.53 billion [2008: R2.28 bn]
• EBITDA margin 42.5% in line with 2008
• Operating profit increased 6% to R2.26 billion [2008: R2.10 bn]
• Higher efficiencies & lower input cost inflation during H2
Lime• EBITDA decreased 28% to R121 million [2008: R167 million]
• EBITDA margin reduced to 22.2% [2008: 27.9%]
• Lower demand from steel & alloy markets
• Energy consumption at the lowest levels ever & contractual price recovery during H2
Aggregates• EBITDA decreased 10% to R84 million [2008: R93 million]
• EBITDA margin reduces to 28.4% [2008: 33.1%]
• Increased competition in construction markets and reduced demand from steel & alloy sectors
Cement EBIT DA
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 H1 - '09 H2 - '09
Rm
-
5
10
15
20
25
30
35
40
45%
Lime EBIT DA
0
50
100
150
200
2007 2008 2009 H1 - '09 H2 - '09
Rm
-
5
10
15
20
25
30
35
40
45
50
%
Aggregates EBIT DA
0
25
50
75
100
2007 2008 2009 H1 - '09 H2 - '09
Rm
-
5
10
15
20
25
30
35
40
45
50%
Operational Summary
11
Cement industry overview
• Global cement demand (1H2009)• Severe contraction in “developed” economies, typically -20% or worse • Mixed results in “emerging” economies, typically from -15% to +15%
• SA regional cement demand -11.4% for the financial year• Metropolitan-residential sector declined, Gauteng (-20%) & Western Cape (-27%)• Resilience in “rural”-residential sector Limpopo, Mpumalanga & KwaZulu Natal• Construction sector growth 11%, benefiting from infrastructure projects • Botswana market +7% also benefiting from infrastructure projects
• Industry clinker and cement imports down to 125,000t (2008: 1.25mt)• Some imports in Q4 2008, nil in Q3 2009• New clinker capacity commissioned by PPC & Lafarge (estimated 2.25mtpa)• New cement milling capacity commissioned by Afrisam (reported 0.4mtpa)
12
Cement industry overview (continued)
Industry Cement Sales2009*
(000 tons)2008*
(000 tons)%
Change
Gauteng 4 053 5 083 -20KwaZulu Natal 2 132 2 135 0Western Cape 1 201 1 634 -26Limpopo 1 136 1 127 1Mpumalanga 1 119 1 119 0Eastern Cape 859 979 -12North West 862 909 -5Free State 473 536 -12Northern Cape 225 254 -11
Botswana 647 604 7
Namibia 359 382 -6
Swaziland 130 145 -10
Lesotho 122 123 -1
Regional total 13 318 15 030 -11Export 234 148 58
* Financial Year – October to September
Resellers50%
Readymix Producers
18%
Other2%
Mining2%
Concrete Product Manufacturers
13%
Blenders5%
Building Construction
4%Civil Construction
6%
-30% -25% -20% -15% -10% -5% 0% 5% 10% 15%
Blenders
Building Const.
CPM
Readymix
Mining
Resellers
Other
Civil Construction
2009* Industry Sales per Distribution Channel
2009* Growth per Distribution Channel
13
• PPC regional sales declined 10%• Includes the full impact of Western Cape 27% decline• Growth in Limpopo, Mpumalanga, KZN and Botswana markets
• No cement imported into South Africa by PPC• PPC imports, to maintain Mozambique market were phased out during the year• Replaced by sales from PPC plants in South Africa
• Exports 210,000 ton, mostly to West-Africa & Mozambique • Opportunity to grow if Rand:$ exchange rate weakens• New opportunities constantly being explored
Cement - Market
14
Cement – Cost inputs
Cement, delivered 2009% Increase
2009% of total
cost
Distribution costs including fuel 10 ~27Coal including delivery to plant 50 ~12
Maintenance 35 ~10
Electricity 30 ~5
• Costs in 2008 up approx. 15%• Costs in 2009 up approx. 20%
• Coal contracts negotiated at peak in August 2008. Some relief in H2• Opportunity for maintenance with kilns stopped• Some relief from lower diesel costs in H2
• Fixed cost component ± 35%
15
Cement - Efficiency
850
900
950
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
• Coal consumption reduced by commissioning Dwaalboom Kiln 2 and stopping older, less efficient units
• Fuel consumption reduced by optimising outbound and inbound logistics
• Electricity consumption reduced by new equipment & new technology e.g. variable speed drives
• Electricity cost reduced utilising off-peak tariffs
• Ntšhafatso project will reduce PPC’s overall electric energy consumption by 1% in 2010
• Progress being made on reducing CO2 emissions
kg CO2 per ton of Cement
PPC
World average
80%
85%
90%
95%
100%
105%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
PPC’s energy consumption per ton
16
Cement - Projects
• Se Kïka (new Riebeeck plant)• Awaiting approval of EIA• Limited capex in 2010 – 2012• Revised demand allows more
flexibility with timing
• Ntšhafatso (Hercules mill upgrade)• Zero lost time injuries in 1.5 million hours• Commissioning Q2 FY2010• Within R700m budget• Vertical roller mill – energy efficient
View of the clinker (left) and cement (right) silos – Ntšhafatso Project
17
Lime & Aggregates
• Demand for Lime/Burnt Products reduced by 29% compared to 2008• Primarily affected by downturn in local steel and alloy industries• Uncertainty remains regarding timing and quantum of recovery in steel industry• Recovery of input cost inflation (contractual) improved margins in H2• Optimisation of plant and efficiencies a priority, record low energy consumption
achieved during 2009
• Aggregate volume reduced by 6%, revenue up 5%• Aggregate market very competitive in Gauteng• Metallurgical stone demand reduced due to downturn in steel industry• Botswana aggregate demand positive due to government investment in roads• Mooiplaas, Laezonia and Kgale plants operated well during the year
18
Porthold Zimbabwe
• Clinker production at Colleen Bawn• Approx. half-way between Bulawayo and
Beit Bridge • Limestone mine plus kiln with 5-stage
preheater and pre-calciner
• Milling & packing plant near Bulawayo• Cement extension with slag from Gweru
• Modern technology• Extensively updated in 1990’s• 760,000 ton per annum cement capacity• Equipment in good condition• Excellent safety record• Coal and electricity supplies still erratic
Colleen Bawn Plant
19
• Utilisation and sales less than 10% earlier this financial year
• Steady increase in demand since adopting US$/Rand• Demand assumed mainly for residential & light-industrial purposes• Also exports to Zambia & Botswana
• Selling prices in line with regional prices
• Recent utilisation ~45% or 380 000 tpa
Porthold Zimbabwe (continued)
Porthold Domestic Cement Sales
0
5
10
15
20
25
30
35
Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09
000
tons
Bulawayo Plant
20
Leadership changes
• John Gomersall retired 30 June 2009• Orrie Fenn announced resignation early August 2009
• First 100 days• Investor meetings, conferences & investor day• Plant & site visits to all major sites except Botswana• Non-executive directors and service providers• 5-year strategic plan & budget• Worked closely with Executives in cement division
• Geology, mining, operations, projects, technical, sales & marketing and finance • Organisational performance (HR) – Reviewed remuneration, retention,
competencies, succession and transformation of top 3 management layers.
• Outlined organisational changes/structure • 3 year plan • Nothing spectacular, a step-by-step approach, not “big bang”• Currently with board nominations committee
• First announcement before end 2009
21
Competition Commission
• Internal/External legal team reporting to Board sub-committee• Discovered market-sharing arrangement in 1990’s• A few former employees made and knew about the arrangements
• Immediately notified Competition Commission (June)• Submitted detailed leniency application (Aug)• Extensive co-operation with Commission (Aug-Oct)• Conditional leniency agreement concluded (Nov)
• Findings• Market-share arrangements disguised as “independent” action in late 1990’s• Inappropriate disclosure of detailed sales information since 1990’s
• Conditional leniency for market-sharing & disclosure of sales information• Conditional on ongoing co-operation with Commission’s investigation• Therefore premature to discuss details of events, timing or people involved• None of the individuals involved still employed at PPC
Outlook
23
Cement - Markets
• South Africa• Mixed signals about global recovery• Government remains committed to job creation and infrastructure development• Forecast GDP growth as soon as 2010• Interest rates down 500pts - should filter through to the residential market• New projects unlikely to start before January 2010• Effect of extended holidays during world cup uncertain
• Zimbabwe• Political and economic situation still precarious with no certainty for the future• October sales continued to show positive growth
24
10
12
14
16
18
2 0
2 2
2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 10 2 0 11
Cement – Supply & demandMt
Growth 7.4% -3.9% -13%? 0%? 6%?
PPC 1.25Mt/yr, Cimpor 0.6Mt/Yr: (2009)
Latest Revision : November 2009
Lafarge 1Mt/yr PPC Mill 0.3Mt/yr, Afrisam Mill 0.4Mt/yr
Contracted / Building
Completed
Industry demand*Industry maximum capacity*Capacity excluding old PPC kilns*
90% utilisation
80% utilisation
* Excludes demand and capacity in Zimbabwe
25
Cement – Cost
Cement, delivered
2009% of
total costDistribution costs including fuel ~27Coal including delivery to plant ~12
Maintenance ~10
Electricity ~5
Electricity costs• A 45% electricity cost increase
would result in a 2.3% direct impact on total costs.
• Indirect impact from input costs yet to be determined
• e.g. Transnet Freight Rail
• July 2010 price increase will be dependant on cost trends in H1 2010
26
Cement - Prices
• Rumours of recent price erosion in the cement market• Not for PPC, our prices have held during the financial year
• Cost outlook • Energy costs (in addition to electricity) a concern• Expect further efficiency improvements from Ntšhafatso • And from kilns currently shut down for maintenance• Recent, single-figure salary increases
• Pricing outlook • In response to customer requests we have given 60 days notice on next price
increase: • 5.5% average increase, effective 1 January 2010• However, as detailed in previous slides, if the proposed electricity price increases are
implemented, we will have to process a further price increase during 2010
27
Cement - Prices
Retail Price of 50kg Bag of Cement(SA prices include 14% VAT)
-
20
40
60
80
100
120
140
160
180
US
DRC
Fran
ce UK
Bra
zil
Ango
la
Irela
nd
Zam
bia
Nig
eria
Ken
ya
Moz
ambi
que
Tanz
ania
Ecua
dor
Chi
le
Sou
th A
frica
- JH
B
Sou
th A
frica
- C
/T
Sou
th A
frica
- PT
A
Yem
en
Spa
in
Per
u
Syr
ia
Gre
ece
Sri
Lank
a
Jord
an
Indi
a
Egy
pt
Pak
ista
n
Mau
ritiu
s
R/b
ag
PPC Research – Snap internet & telephonic survey R7.70/$
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Capital expenditure
2009 2010 2011
Dwaalboom Kiln 2 (Batsweledi) expansion
126 - -
Hercules Mill (Ntšhafatso) expansion
370 120 -
Riebeeck (Se Kïka) expansion - 50 20
Other expansion projects 34 30 30
Expansion capexExpansion capex 530 200 50
Replacement capex 380 500 – 600 600 - 700
Environmental capex 11 90 100
Porthold - 80 40
Total capexTotal capex 921 850 – 950 800 - 900
29
Gearing & Dividends
• Current gross debt to EBITDA cover of 1.2 times is well within our conservative target of 2 to 3 times cover
• Dividend cover will remain in the target range of 1.2 - 1.5 times normalised earnings
Slurry Plant
30
Response to investor comments
Key topics:
1. PPC share valued for predictability, cash flow and dividend policy• Concern if this will be maintained given capex requirements for
capacity replacement/expansion.
2. PPC acknowledged as well-managed and efficient with good margins • Concern if margins/prices can be maintained with industry over-
capacity
3. PPC enjoyed strong organic growth in buoyant SA market• Where will future growth come from?
31
Response to investor comments (continued)
1. Need for capacity expansion/replacement delayed by ~3 years due new economic environment• We now foresee 2 significant capacity expansions during the next 12 years• Smaller replacement mainly to improve efficiencies, especially energy• These can be funded by internal cash flows and/or modest borrowings
2. Pricing/Margins• Our view is that current prices are at the appropriate level to ensure a long-
term sustainable local cement industry i.e. • Acceptable returns (current) and affordability of future capacity expansion that will be
required for a growing economy/population• Pricing philosophy will be aimed at maintaining current margins
3. Future growth• Re-look at opportunities in sub-Saharan Africa
• consider establishment of a permanent business-development team• Projects must be value enhancing and make strategic sense• Initial steps likely to be careful and modest
32
Thank You
Questions ?
Annexures
34
Gearing
30 Sept ’09
R million
8-year bullet loan (used to substitute short-term borrowings) 1 517
BBBEE SPV / Trusts redeemable preference shares and loans consolidated 1 103
Total funding raised with the BBBEE transaction 2 620
Other borrowings 772
Total borrowings 3 392
Gross debt to EBITDA (excluding IFRS 2 charges) of 1.2 times areGross debt to EBITDA (excluding IFRS 2 charges) of 1.2 times are well within the targeted level of 2 to 3 well within the targeted level of 2 to 3 times EBITDAtimes EBITDA
35
Variable
Finance costs (before interest capitalised)
2009 (% of total funding)
25%
75%
2009 R11mR8m
R89m
R266m
Bank and other borrowings
Finance lease interest
BBBEE funding transaction
Unwinding of discount on rehabilitation provision
• 89% of BBBEE transaction debt swapped for fixed interest rates
• EBITDA interest cover of 7.7 times [2008: 16.6 times]
• Interest rates varying from 8.91% to 11.20%
• Finance lease interest rate 13.10%
2008R10m
R9m
R182m
Fixed
36
Full year 2009 - Segmental analysis*
2009R million
2008R million
% change
Cement
EBITDA 2 528 2 281 11%
EBITDA margin 42.5% 42.4% 0.1% pts
Operating profit 2 255 2 100 +6%
Lime
EBITDA 121 167 -28%
EBITDA margin 22.2% 27.9% -5.7% pts
Operating profit 91 141 -35%
Aggregates
EBITDA 84 93 -10%
EBITDA margin 28.4% 33.1% -4.5% pts
Operating profit 72 82 -12%
GROUP
EBITDA 2 733 2 541 8%
EBITDA margin 40.3% 40.7% -0.4% pts
Operating profit 2 418 2 323 +4%
* Excluding impact of BBBEE IFRS 2 charges and Porthold take-on gain
37
Contacts
Paul Stuiver Chief Executive Officer
Peter Esterhuysen Chief Financial Officer
Kevin Odendaal Executive Investor Relations
www.ppc.co.zaTel. 011 386 9000
38
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 views. By their nature, 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 have been 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 and other government action and business and operational risk management.
While PPC takes reasonable care to ensure the accuracy of the information presented, PPC accepts no responsibility for any consequential, indirect, special or incidental damages, 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.