building the nation s s future

Transcription

1 Pretoria Portland Cement Company Limited building the nation s s future Deutsche Bank South Africa Conference London June

2 Index Prospects First half to 31 March 2008 Financial highlights Operational review 2

3 Prospects 3

4 Prospects Regional Cement Demand Regional cement demand from Oct to end May 08 down 1.2% on 2007 Industry imports continue at similar rate to 2007 PPC possible manufactured import replacement into SA this fin. year 2007 Imports 2008 Likely Imports Manufactured Replacement tons tons tons Building plans passed (excludes major civil projects) - still running at +/- R20 bn per quarter At March 08 only 3.8% negative growth (constant prices)12 month year on year moving average Major civil contracts awarded still running at +/- R11 12bn per quarter Should start to rise as major road contracts are awarded 4

5 May-08 Apr-08 5 Industry Sales per Day last 24 months Regional Cement Sales per Day Easter in March 70,000 65,000 60,000 55,000 Tons 24 month average 50,000 45,000 40,000 Mar-08 Feb-08 Jan-08 Dec-07 Nov-07 Oct-07 Sep-07 Aug-07 Jul-07 Jun-07 May-07 Apr-07 Mar-07 Feb-07 Jan-07 Dec-06 Nov-06 Oct-06 Sep-06 Aug-06 Jul-06 Jun-06

6 Prospects - Key Demand Drivers Infrastructure Development is Key Low cost housing projects 70% of budget spent to date - project 250k RDP units 2007/8 fiscal year Plan to increase to >600k units by 2010 Banks allocated R45 bn. for bonds for low-cost Govt. subsidized 1 st time buyers Several new JSE ALT-X low-cost housing constructors listed in last year Infrastructure projects All major construction companies reporting highest order-book levels ever AND still growing 2010 Soccer World Cup Stadia construction in full swing +/- R1bn hotel projects approved May 08 6

7 Prospects - Key Demand Drivers Infrastructure Development is Key contd. Infrastructure projects SANRAL total national roads before 2010 R34 bn Gauteng road projects to R55bn Gauteng road tenders awarded/closed value R10-12 bn (phase1) Completion by May kt of cement Ngula pumped storage, Medupi & Bravo power stations De Hoop dam started/ Gautrain on track/ Steelpoort pumped storage out to tender ACSA (Airport Coy. of SA) R20bn by 2013 New King Shaka International airport KZN, OR Tambo International Johannesburg and Cape Town International extensions in progress 7

8 Prospects Market Low-cost housing projects Main dependency is run rate achieved vs target (1m low-cost houses p.a. 2010) Suburban migration from townships creating pent-up demand Trendline outlook still remains strong to 2014 and beyond Unknown entity electricity supply impact on new projects ESKOM says dwellings under 100KVA demand will be allowed to proceed Depends on Municipalities capacities and distribution capability 8

9 PPC s Long Term Industry Regional Demand Forecast to Unchanged 26.0 Mt TREND LINE FORECAST Current Current Industry Industry Capacity Capacity (extenders (extenders included) included) Growth % Demand Increased 60% in 5 years 9

10 Prospects - New Competitor New entrant announced (Sephaku/Dangote venture) PPC never underestimates challenges R3bn cost estimate far too low - completion timeframe optimistic PPC has history of successfully competing against #1 & #2 in the world PPC has an established Geographical presence and distribution Logistics and customer service reputation PPC now 116 years old will be around for a whole lot longer More competition is good for any industry 10

11 Prospects - Regional Supply & Demand 26 Mt Industry Demand Industry Capacity Approved Investigation Stage Speculation/ Media Reports PPC 2.5Mt/yr (net 1.9Mt/yr)*: (2013/14) Continental 0.6Mt/yr: (2011/12) Sephaku 2.2Mt/yr (2010/11) PPC 1.25Mt/yr (net 0.7Mt/yr)* (2011/12) PPC Mill 0.3Mt/yr (2009/10) Lafarge 1Mt/yr (2009/10) PPC SK7 Upgrade 0.1Mt/yr (2009/10) PPC 1.25Mt/yr, Afrisam 0.4Mt/yr, Cimpor 0.6Mt/Yr: (2008/9) Growth 7.4% 2-4% 3-6% 6% 5% 6% 6% 5% Note: * After kiln retirements 11

12 Prospects 2008 PPC Incremental cement output and potential sales Due to the delay on the Batsweledi commissioning, this year s output increase will be lower than previously indicated: Manufactured cement 000 s tpa Incremental volume over max PPC is likely to import ~ less tons into SA this year which can be supplied from own manufacture Lack of spare/ additional capacity from other producers means PPC could supply much of any growth from its tons additional Even 3% industry regional growth would be ~ tons in a full year Currently PPC imports 120kt p.a. into Mozambique. Potential for PPC to again supply this market at reasonable margins Botswana still growing ~ 30% year on year and set to continue 12

13 Prospects 2008 Year-on-Year Cement Input Inflation Electricity - ESKOM 14% (before additional 57%?) Electricity - Municipalities ~ 16% Coal (3 year contracts) average y-on-y ~ 30% Logistics - delivery/ ton 19% Diesel - for mining 28% Imported spares and consumables 25 30% Cost push due to managerial & technical skills shortage 13

14 Prospects Cement Pricing Global cement prices are rising due to rising energy costs Chinese FOB price has moved up from ~US$ 50/ 55 to $65 per ton The global inflation and energy price pressures will impact on cement prices in the region Increasing SA interest rates will not reduce these imported inflation pressures PPC will continue to pass these increases on to the market Don t look for any increase in the EBITDA margin 14

15 Cement Projects Update Batsweledi (Dwaalboom) new kiln line 1,25 mt/yr additional capacity Within budget, slightly delayed Plant commissioning end June 2008 Ntšhafatso (Hercules Pretoria) mill upgrade 330 kt/yr additional capacity Construction progressing well Expected commissioning July 2009 Se Kïka (Riebeeck W. Cape) new 1.25mt/yr factory Nett additional capacity 700 kt/yr EIA process extended 15

16 Capital Expenditure Cash Outflows R million 1H 2008 Dwaalboom (Batsweledi) expansion project 228 Hercules (Ntšhafatso) expansion project 48 Other expansion projects 31 Sub-total expansion projects 307 Other replacement projects 105 TOTAL 412 Projected (R million) (remainder of the year) Dwaalboom (Batsweledi) expansion project Hercules (Ntšhafatso) expansion project Expected average annual replacement capital expenditure (R million)

17 BEE / Transformation update BBBEE Transaction at advanced stage Shareholder approval to be sought shortly Transaction Structure includes: 15% of equity as the first step Four strategic black business partners Employees, communities, education and industry association trusts Appointment of further black non-executive directors and black chairman to be announced most likely before year end 17

18 PPC Strong Investment Case Leading market position Best geographical spread Strong long-term infrastructural demand outlook Capacity growth on track Cash generative Dividend yield underpin Strong balance sheet Experienced management team 18

19 1 st Half to 31 March 2008 Financial highlights 19

20 1 st - Half Financial Highlights HEPS 16% 126 cps Group revenue 13% R2,9 bn Group operating profit 9% R1,077 m Group operating margin 37% (2007: 38%) Cash generated from operations 25% R1,106 m Interim dividend declared 17% 45.0 cps (2007: 38.5cps) 20

21 1 st Half Dividends & Share Buy-back Strong cash generation Share-buy back of 2,8% - value R589 million 14.9 m average R39.51/ share Increased dividend declared 45.0 cps (+17%) Note: - Dividend cover amended October 2007 Range of 1.2 to 1.5 times earnings cover Will continue to consider distributing cash excess to requirements 21

22 1 st Half Operating Highlights Cement operations ran at full production to meet regional demand Cement production up 3.4% Imported cement volumes tons vs tons 1H 07 No impact on PPC output from ESKOM load shedding Capacity expansion and upgrade projects progressing well Continued improvement in safety record o Lost Time Injuries down to 1.6 man-hrs/ 1m man-hrs worked (March man-hrs/ 1m) 22

23 1 st Half Operating Margins Cement operating margins virtually unchanged vs 1 st half 2007 Managing pricing pressures (aim full cost recovery) New equipment will improve efficiencies especially energy Cost and efficiencies have been and remain a key focus Lime margin impacted by reduced volumes, higher coal costs 23

24 PPC Electricity Efficiency Improvement PPC - electricity Kwhrs reduction/ ton cement Indexed from 100% -16% OVER 5 YEARS

25 1 st Half to 31 March Operational Review 25

26 1 st Half Cement Industry Overview Regional industry cement volumes reduced by 1.3% Abnormally high rainfall, Easter in March, power disruptions Softening demand from residential construction sector Higher interest rates, National Credit Act Residential softness being off-set by Infrastructure development which continues apace Skills constraints New entrant to market announced (Sephaku) Long-term cement demand still strong to

27 1 st Half - PPC Cement Overview PPC sales growth better than the industry slight positive PPC manufactured product sales increased by 3.4% = reduced imports Eastern Cape market being supplied from Western Cape factories (vs. from imports last year) Traditionally cement margins lower in 1 st half due to higher costs: Most kiln shut-downs completed for the year (12 out of 13) 27

28 1 st Half - Lime Division Revenue up 8% Operating margin declined from 34% to 27% lower volumes to steel industry due to scheduled and longer than expected shutdowns high coal cost increases Recent demand returned to more normal levels Higher coal costs will be recovered in terms of pricing escalation formula 28

29 1 st Half - Aggregates Division Revenues down 2% Operating margin shows marginal decline of 3% Gauteng volumes down mainly due to reduced steel producers dolomite off-take Botswana volumes increased Market conditions now more back to normal R38m expansion project on track 29

30 1 st Half - Porthold Zimbabwe Continue not to consolidate Porthold results Further deterioration in conditions Harsh pricing environment Extremely challenging operating environment Export of product to SA and Botswana limited by production and logistics constraints 30

31 THANK YOU 31

32 ANNEXURES 32

33 Cement Operations Zimbabwe Bulawayo Cement Capacity SA (Mt/yr) Colleen Bawn PPC 6.0 Holcim 3.8 Lafarge 2.7 NPC (Cimpor) rd party extenders 1.3 Total: 14.8* Botswana Slurry Dudfield Dwaalboom Lichtenburg Hercules Mozambique * PPC estimate Namibia Jupiter Ulco Simuma Note: Other PPC Operations: - Lime (Northern Cape) - Aggregate quarries (Gauteng) De Hoek Riebeeck Port Elizabeth 33

34 Key Demand Drivers: Infrastructure Neglected for 15 years GFCF (Gross Fixed Capital Formation) % of GDP 25% - 30% GFCF %ge of GDP required for developing countries Infrastructure erosion <20% Now at 22% Source: SA Reserve Bank (based on current prices) 34

35 Wits Study - % Cement of Total Cost Cement Cost as a Percentage of Project Cost for Various Structures 9% 8.1% 8% 7% 6% 5% 5.9% 5.3% 5.0% 4% 3% 2% 1% 2.7% 2.6% 2.6% 2.0% 1.6% 1.1% 0% Cement a very small proportion of finished structures total costs Full Wits Report on PPC Website 35 LOW COST HOUSE (RDP) BONDED HOUSE (60m²) BONDED HOUSE (70m²) BONDED HOUSE (80m²) MED. COST HOUSING COMPLEX HIGH COST HOUSE SHOPPING CENTRE LOW RISE OFFICE BLOCK MULTISTOREY OFFICE BUILDING INDUSTRIAL WAREHOUSE

36 Contacts John Gomersall Orrie Fenn Tel Chief Executive Officer Chief Operating Officer 36

37 Disclaimer This document contains certain forward-looking statements with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. Examples of forwardlooking statements include, among others, statements regarding the Group s future financial position, income growth, impairment charges, business strategy, projected levels of growth in the construction industry, projected costs, estimates of capital expenditures, and plans and objectives for future operations. By their nature, forwardlooking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, domestic and global economic and business conditions, the effects of continued volatility in credit markets, market related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards (IFRS) applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS and other strategic transactions and the impact of competition a number of which factors are beyond the Group s control. Whereas the Group s actual future results may differ materially from the plans, goals, and expectations set forth in the Group s forward-looking statements, 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. Forwardlooking statements apply only as of the date on which they are made, and we do not undertake other than in terms of the Listing Requirements of the JSE Limited, any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. All profit forecasts published in this interim report are unaudited. 37