Reviewed condensed provisional consolidated results for the six months ended 31 March 2016

Transcription

1 condensed provisional consolidated results for the six Strength in diversity

2 Commentary Darryll Castle, CEO, said: PPC s group revenue and cement sales both decreased marginally by 1% on weaker performances in most operating regions. Our newly commissioned plant in Rwanda contributed to group revenue after achieving cement sales volumes of tons at the expected margin. The Profit Improvement Programme, which generated R212 million by September, contributed an additional R178 million in sustainable profit improvement in this period; thereby contributing R390 million in less than 12. This programme, as well as the sale of some non-core assets, contributed to earnings per share rising a pleasing 35% to 70 cents. Our projects in the DRC, Zimbabwe and Ethiopia are all at advanced stages and will be commissioned in the next 12 ; ensuring we offer shareholders a diversified portfolio of businesses in different geographies. The company is also advancing its plans to raise between R3 billion to R4 billion to overcome its near-term liquidity constraints. Darryll Castle CEO Page 2

3 Group revenue of R4,5 billion down 1% EBITDA up by 2% to R1,1 billion Profit Improvement Programme realises an additional R178 million Earnings per share up 35% to 70 cents including sale of non-core assets Recently commissioned plant in Rwanda generates tons in cement sales volumes Capital raising plans progressing Profit for the period up 25% to R351 million PPC LTD condensed provisional consolidated results for the six Page 3

4 Commentary continued In the last quarter of, the board approved the change of the financial year end from ember to. PPC GROUP PERFORMANCE PPC s total cement sales volumes for the six-month reporting period were 1% below last year. Group revenue also declined 1% to R4 501 million (: R4 541 million). In South Africa, cement volumes were up by 1% although lower selling prices reduced revenue. Revenues from our recently commissioned plant in Rwanda increased by almost 150% but could not offset declines in our other African markets, Zimbabwe and Botswana. While revenue in our lime business declined 12%, our aggregates and readymix operations contributed positively to group revenue. Cost of sales at R3 261 million was only 2% higher than last year (: R3 206 million), with cost increases particularly well managed in the South African and Botswana cement businesses as well as the lime division. Cost of sales in the South African cement business was down 3%, on a per ton basis, for the period. The continued focus on cost management reduced administration and other operating expenditure by 12% to R489 million (: R554 million). The Profit Improvement Programme, which aimed to deliver R400 million by 2017, generated R178 million for the period after providing R212 million by September. The total of R390 million comprised mainly operational efficiencies and overhead reductions. Group EBITDA is up 2% to R1 144 million (: R1 123 million), with an EBITDA margin of 25.4% (: 24,7%) primarily due to improved efficiencies and cost savings as part of the PPC group s Profit Improvement Programme. Finance costs were R350 million, up 26% over last year s R277 million mainly due to interest expensed post the commissioning of the Rwanda operation which amounted to R88 million. Cash generated from operations of R813 million was significantly lower than the prior period (: R1 140 million) impacted by changes in working capital mainly inventories and reduction in trade and other payables. Similarly, the group cash-conversion ratio at 0,7x was below the 1,0x, achieved in the previous period. Taxation of R156 million (: R163 million) translating to an effective tax rate of 30.8% (: 36.4%) mainly due to the inclusion of capital profit made on the disposal of non-core assets and favourable prior year tax reassessments. Capital investments in property, plant and equipment and intangible assets were R1 188 million (: R1 008 million), with R970 million used for the Slurry kiln 9 project in South Africa and expansions in the DRC and Zimbabwe. Group debt increased to R9 171 million (: R6 772 million) due to project finance drawdowns, leading to the group debt to EBITDA ratio rising to 3.8x on an annualised basis. When non-recourse project finance debt is excluded, this ratio drops to 2.7x, well within the financial covenant range. Despite rising finance costs, net profit attributable to PPC shareholders rose 35% to R369 million (: R274 million), supported by the sale of non-core assets. In line with this, earnings per share were 35% higher at 70 cents (: 52 cents) albeit the headline earnings per share fell 12% to 53 cents (: 60 cents) due to weaker trading conditions as well as higher finance costs and depreciation. Page 4

5 As stated in September, the company s Dividend policy takes into consideration the growth phase, trading conditions as well as the need to strengthen its capital structure and as such no dividend is declared. CEMENT Group cement revenue declined 1% to R3 700 million (: R3 752 million) while EBITDA was down 2% to R972 million (: R988 million). Consequently, the EBITDA margin remained flat at 26,3%. South Africa Cement sales volumes improved marginally, as a result of strong volume growth in the coastal regions benefiting from reduced imports and increased supply to local infrastructure projects. Lower sales volumes in Gauteng and other inland provinces reflect increased competitor activity. However, the Limpopo area was hardest hit, with double-digit volume declines. The North West region, although also under pressure, showed some resilience with positive volumes. In Gauteng, the construction and industrial segments produced a relatively better performance than the highly contested retail space. Average selling prices declined 4% for the period. Variable delivered cost of sales per ton increased 2% while fixed costs of production decreased by 11%. Cost savings were realised from refractories, maintenance, depreciation and power. Zimbabwe Our Zimbabwe operations, including exports, recorded overall volume declines of 22% while local selling prices in US dollars declined 3%. Contribution to group revenue decreased 4% due to exchange rate effects, EBITDA margins contracted by 4%. Domestic cement demand dropped significantly in the review period after several years of growth. This reflected a poor agricultural season, tighter market liquidity, increased local competition and lower disposable incomes. Supported by weakening regional currencies against the US dollar and increased regional capacity, imports from neighbouring countries have grown despite a number of barriers to entry. Botswana The increase in cement capacity and competitiveness in the southern African region has affected pricing and volume in all segments. Consequently, volumes declined 15% while EBITDA margins dropped 8% in the reporting period. Rwanda Our tpa plant was commissioned in the second half of at a cost of US$165 million. Ramp-up has been satisfactory to date and most of the plant s provisional acceptance certificates were issued by. Since commissioning, the plant has sold tons of cement; this gradual rampup will continue and the plant should reach planned capacity over the next two years. Plant performance for the review period was satisfactory. Further business improvements are expected once current initiatives are implemented. MATERIALS BUSINESS As part of PPC s strategy to be a world-class provider of materials and solutions, we revised our business structure to consolidate PPC Aggregates, PPC LTD condensed provisional consolidated results for the six Page 5

6 Commentary continued Pronto Readymix, Ulula Ash and PPC Lime into a materials business. This business will report into the South African operations through a management committee. The lime business generated revenue of R383 million which was 12% lower (: R436 million) on the back of continued pressure in the steel industry. In line with this, burnt product sales volumes declined by 19%. EBITDA of R96 million was 23% higher (: R78 million) due to the non-recurrence of a provision for bad debt passed in and good cost containment. Aggregates and readymix revenues were 9% higher at R503 million (: R463 million) due to improved sales volumes in South African aggregates and Pronto Readymix. As a result, EBITDA rose 33% to R76 million (: R57 million). Major projects supplied include Mall of Africa, the N14 and Cedar road construction projects as well as the Steyn City development. PROJECTS UPDATE Democratic Republic of the Congo Construction of the US$280 million, 1mtpa plant was 83% complete by March. Contingency utilisation is high in relation to the construction programme, which could result in a 4 6% increase in the capital estimate. Construction is slightly ahead of schedule, and cold commissioning, using generator power, is under way. Power, supplied by Société Nationale d Electricité (SNEL), is likely to be later than scheduled, however hot commissioning remains on track for end calendar with first cement sales expected early in calendar Management has identified potential startup funding requirements to which PPC might have to contribute between US$20 million and US$50 million which will be reimbursed from future operating profits. These payments may arise because of delayed VAT repayments (VAT exemption was only received in January ), settling of bank facilities relating to cement trading losses incurred ahead of commissioning and pre-funding of future debt repayments. Zimbabwe Construction of the US$85 million mill in Harare was around 70% complete at. Operational readiness activities are under way with staffing, skills transfer, material and equipment plans being implemented against a ramp-up plan. Plant commissioning is expected towards the end of calendar. Ethiopia The US$170 million to US$180 million, 1,4mtpa plant remains scheduled to be commissioned in the second quarter of calendar The additional funds will be sourced from equity and debt funding. Both PPC and South Africa s Industrial Development Corporation followed their rights in the first capital raising, with PPC investing a further US$5 million in March. PPC s shareholding has risen to 35% as some shareholders did not follow their rights. The capital-raising programme is forecast to be concluded by the end of the third calendar quarter of. Plant construction is progressing well, with overall project progress at 71%. The main plant power agreement is in place with the Ethiopian power authorities and the contract for supply and construction of a 14km 132KV transmission line has been awarded. Page 6

7 Slurry Work on the new R1.5 billion to R1.7 billion, 1mtpa clinker production line ( SK9 ) at PPC Slurry is on schedule. A number of leading technology features has been incorporated into the SK9 plant design to optimise production, reduce heat and electrical energy consumption, and increase plant availability. While issuing work permits to the EPC contractor s workforce has been delayed, as an interim plan to avoid delaying implementation, the contractor has partnered with local contractors to begin the main earthworks. The project is on schedule for commissioning and ramp-up in calendar BOARD CHANGES Mr Bheki Sibiya, who had served as chairman of the board since November 2008, did not offer himself for re-election and, accordingly, retired from the board at the end of the company s annual general meeting ( AGM ) held on 25 January. As a consequence of his retirement, his alternate, Ms Zibusiso Kganyago, also retired at the AGM after serving since October Mr Peter Malungani, a nonexecutive director since February 2009, elected not to stand for re-election at the AGM and, accordingly, retired from the board. The Board would like to thank the aforementioned retired directors for their dedicated service and valuable contribution during their respective tenures. Their input and involvement often ext beyond the ordinary call of duty and at great personal expense, for which the board is most grateful. Special thanks must go to Bheki Sibiya. While PPC achieved a number of key milestones under his stewardship, most notably he ensured board continuity and the preservation of corporate expertise during a challenging phase in the company s recent history. The board has appointed Mr Peter Nelson as an interim chairman, until such time as a new chairman is appointed. The board believes that the qualifications and experience of Mr Nelson will enable him to guide the board and the company until such time as the selection process has been completed. Ms Salukazi Dakile-Hlongwane was elected a nonexecutive director of the Board with effect from 26 January. The Board welcomes her and is looking forward to her input and contribution. STRATEGY In the short to medium term PPC s focus is on consolidating current expansion projects and operational efficiency initiatives introduced in the past 18, stabilising the company and ensuring it is able to deliver on its strategic priorities. The group has made changes to its operating structure to ensure that it has the appropriate business model to deliver on its long-term growth strategy. Two key changes include the establishment of the materials business division, noted earlier, and a new commercial function. The materials business division is focused on expanding PPC s product range and service offering in aggregates, readymix, fly ash, lime and related businesses. Progress to date includes the imminent acquisition of 3Q Mahuma Concrete, the largest independently owned readymix concrete supplier in southern Africa. The new commercial function is int to create and entrench an increased commercial perspective to facilitate PPC s aim to become a world-class provider of materials and solutions. A dedicated project management office now operates from this division to ensure the company realises its aspirations. PPC LTD condensed provisional consolidated results for the six Page 7

8 Commentary continued The Board approved a corporate restructure to streamline and optimise the South African and foreign operations, effective 1 April. As a consequence, the legal structures and management accountability are fully aligned and Project Omega is now substantially complete. PPC s 2008 broad-based black economic empowerment transaction (BBBEE 1) matures in December, however discussions to accelerate the unwind of BBBEE 1 continues. Under the revised Department of Trade and Industry s broad-based black economic empowerment codes of good practice, PPC was rerated from a level 2 contributor to level 8 in December. We had anticipated this outcome and management plans to improve our BBBEE score to level 4 over the next three years. This rating will enable our customers to claim back 100% of their spending with our group for their own preferential procurement points. To reach level 4, the company will focus on improving the score in the categories of management control, skills development, and enterprise and supplier development. GOING CONCERN AND CAPITAL RAISE On 30 May, S&P Global Ratings ( S&P ) released a report downgrading the company s long- and short-term South African national scale corporate credit ratings to zabb-/zab from zaa/ zaa-2, respectively. At the time of the downgrade the company was at an advanced stage with the finalisation of a capital raise. Due to its long-term rating falling below investment grade, the company was obliged to offer early redemption to noteholders in terms of the Domestic Medium Term Note Programme Memorandum. As a result the notes, with an outstanding principal value of R1,75 billion plus interest, have been reclassified from long-term to short-term borrowings. The early settlement, which has negatively impacted the group s shortterm liquidity, highlights a material uncertainty regarding the group s viability as a going concern. Due to the pressures on the liquidity position of the company, it is in the final stages of concluding agreements with local financial institutions for a bridging guarantee facility of R2 billion to settle the outstanding note obligations and provide the company with the appropriate funding requirements until the conclusion of the proposed capital raise. Shareholders are referred to an announcement released on the Stock Exchange News Services of the JSE Limited ( SENS ) on 31 May wherein, inter alia, the Company outlined it s funding strategy which included the intention to raise between R3 billion and R4 billion gross proceeds through a proposed rights issue. The company has mandated a syndicate of banks comprising The Standard Bank of South Africa, Nedbank Limited, Absa Bank Limited and Rand Merchant Bank, a division of FirstRand Bank Limited. Finalisation of the capital raise is still subject to agreement on terms, approval from shareholders to proceed, followed by the exercising of their rights. Page 8

9 Once the capital raise is in place and terms fulfilled, the company believes that it will have an appropriate capital structure. Further details of the going concern assumption and risks thereto are included in note 1 to this announcement. Solvency and liquidity The group is currently solvent with a total equity of R3,6 billion. However, on liquidity, current liabilities of R6,1 billion exceed current assets of R2,8 billion due to the reclassification of the R1,75 billion noteholders liabilities from long term to short term as well as the maturing of the BBBEE1 debt in December. Cash flow The decrease in cash flows from operations to R813 million (: R1 140 million) is in part due to a decrease in trade and other payables and an increase in inventory due to operational requirements. The group maintained its strict cash flow management policy and was able to meet its working capital obligations, however the forecast cash flow has been negatively affected by the accelerated payment of R1,75 billion to noteholders. Cash flow management remains critical in this challenging period. FURTHER CAUTIONARY ANNOUNCEMENT Shareholders are advised to continue to exercise caution when dealing in PPC securities until a further announcement in this regard is made. On behalf of the board PG Nelson Interim chairman DJ Castle Chief executive officer MMT Ramano Chief financial officer 13 June PPC LTD condensed provisional consolidated results for the six Page 9

10 Condensed provisional consolidated statement of comprehensive income Notes Six Six % change Twelve Revenue (1) Cost of sales Gross profit (7) Administration and other operating expenditure (12) Operating profit before item listed below: (4) Empowerment transactions IFRS 2 charges (a) (28) 43 Operating profit (3) Finance costs (including fair value adjustments on financial instruments) Investment income Profit before equity accounted earnings and exceptional items (19) Earnings from equity accounted investments (3) (16) Impairments 3 (5) (44) (81) Other exceptional adjustments Profit before taxation Taxation (4) 391 Profit for the period Attributable to: Shareholders of PPC Ltd Non-controlling interests (18) 7 (37) Page 10

11 Other comprehensive income, net of taxation Notes Six Six % change Twelve Items that will be reclassified to profit or loss (28) 775 Cash flow hedges Taxation on cash flow hedges (3) (11) Translation of foreign operations (b) Reclassification of profit on sale of available-for-sale financial asset to profit and loss (82) Taxation impact on reclassification of profit on sale of available-for-sale financial asset to profit and loss 15 Revaluation of available-for-sale financial asset (7) Taxation impact on the revaluation of available-forsale financial asset 3 Total comprehensive income Attributable to: Shareholders of PPC Ltd Non-controlling interests EARNINGS PER SHARE (CENTS) 5 Basic Diluted (a) Comprises BBBEE, Zimbabwe indigenisation and DRC IFRS 2 charges. (b) In March translation of foreign operations only included the portion owing to shareholders of PPC Ltd and has been adjusted to include the portion owing to non-controlling interests. This was previously shown directly in the consolidated statement of changes in equity. PPC Ltd changed its financial year-end from September to March. This is the first reporting cycle of the company using the March year-end. PPC LTD condensed provisional consolidated results for the six Page 11

12 Condensed provisional consolidated statement of financial position ASSETS Notes Non-current assets Property, plant and equipment Goodwill Other intangible assets Equity accounted investments Other non-current assets Deferred taxation assets Non-current assets held for sale Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves Stated capital 13 (1 113) (1 141) (1 165) Other reserves Retained profit Equity attributable to shareholders of PPC Ltd Non-controlling interests Total equity Non-current liabilities Provisions Deferred taxation liabilities Long-term borrowings Other non-current liabilities Current liabilities Short-term borrowings Trade and other payables and short-term provisions Total equity and liabilities Net asset book value per share (cents) Page 12

13 Condensed provisional consolidated statement of cash flows Twelve Notes Cash flow from operating activities Operating cash flows Working capital movements (324) (31) 300 Cash generated from operations Finance costs paid (292) (252) (408) Investment income received Taxation paid (195) (252) (489) Cash available from operations Dividends paid (185) (423) (559) Net cash inflow from operating activities Acquisition of additional shares in equity accounted investment 9 (75) Acquisition of additional shares in subsidiary 15 (108) Proceeds on sale of equity accounted investment and available-for-sale financial asset 153 Investments in property, plant and equipment and intangible assets 17 (1 188) (1 008) (2 892) Movement in other non-current assets (181) Other investing movements Net cash outflow from investing activities (1 283) (999) (2 995) Net borrowings raised before note repayment Purchase of shares in terms of the FSP share incentive scheme 13 (24) Repayment of note (650) Net cash inflow from financing activities Net movement in cash and cash equivalents (285) (143) 65 Cash and cash equivalents at beginning of the period Exchange rate movements on opening cash and cash equivalents Cash and cash equivalents at end of the period Cash earnings per share (cents) (a) Cash conversion ratio (b) 0,7 1,0 1,1 (a) Cash earnings per share is calculated using cash available from operations divided by the total weighted average number of shares in issue for the period. (b) Cash conversion ratio is calculated using cash generated from operations divided by EBITDA. PPC LTD condensed provisional consolidated results for the six Page 13

14 Condensed provisional consolidated statement of changes in equity Stated capital Foreign currency translation reserve Other Availablefor-sale financial asset Balance at September 2014 (audited) (1 173) Dividends declared IFRS 2 charges Recognition of non-controlling interest in subsidiary Total comprehensive income 209 Transfer to retained profit Vesting of shares held by BBBEE 1 entities 9 Vesting of FSP share incentive scheme awards 23 Balance at March (unaudited) (1 141) Dividends declared IFRS 2 charges Non-controlling interest recognised following investment in subsidiary Put option recognised on non-controlling shareholder investment in subsidiary (a) Shares purchased in terms of FSP incentive scheme treated as treasury shares (24) Total comprehensive income/(loss) 409 (3) Transactions with non-controlling shareholders recognised directly in equity Transfer to retained profit Balance at September (audited) (1 165) Dividends declared IFRS 2 charges Increase in stated capital from issuance of shares 26 Total comprehensive income/(loss) 211 (67) Transactions with non-controlling shareholders recognised directly in equity Vesting of FSP share incentive scheme awards 26 Balance at March (reviewed) (1 113) (a) For details on the put options refer note 15 and 16. Page 14

15 Hedging reserve reserves Equity compensation reserve Retained profit Equity attributable to shareholders of PPC Ltd Noncontrolling interests Total equity (411) (411) (12) (423) (5) 5 (9) (23) (129) (129) (7) (136) (422) (422) (24) (24) (7) (7) 7 5 (5) (185) (185) (185) (7) (7) 6 (1) (26) PPC LTD condensed provisional consolidated results for the six Page 15

16 Segmental information The group discloses its operating segments according to the business units which are regularly reviewed by the group executive committee and comprise cement, lime, aggregates and readymix and other. There has been no change in reporting segments during the period under review but lime and aggregates and readymix are shown under the materials business. Revenue is split between South Africa and the rest of Africa based on where the underlying products are anticipated to be consumed or used by the customer. No individual customer comprises more than 10% of group revenue. Group Cement (a) Revenue South Africa Rest of Africa Inter-segment revenue (85) (110) (192) Total revenue Operating profit before items listed below Empowerment transactions IFRS 2 charges Restructuring costs Operating profit South Africa Rest of Africa Fair value (loss)/gains on financial instruments (20) (1) 22 (20) 4 34 Finance costs Investment income Profit before earnings from equity accounted investments and exceptional items Earnings from equity accounted investments (3) (16) (3) (16) Impairments and other exceptional adjustments 112 (43) (81) 113 (22) (59) Profit before taxation Taxation Profit for the period Depreciation and amortisation EBITDA South Africa Rest of Africa EBITDA margin (%) 25,4 24,7 25,6 26,3 26,3 26,9 Page 16

17 Materials business Lime Aggregates and readymix (b) Other (c) (3) (1) (5) (12) (42) (52) (103) (1) (22) (22) (42) (51) (103) (7) 19 (42) (51) (103) (1) 4 25,0 17,9 20,4 15,1 12,3 16,1 PPC LTD condensed provisional consolidated results for the six Page 17

18 Segmental information continued Assets Group Cement (a) Non-current assets South Africa Rest of Africa Current assets Non-current assets held for sale Total assets South Africa Rest of Africa Investments in property, plant and equipment and intangible assets Capital commitments (refer note 18) Liabilities Non-current liabilities Current liabilities Total liabilities South Africa Rest of Africa (a) Includes head office activities. (b) Aggregates and readymix have been aggregated in line with industry practices. (c) Comprises BBBEE trusts and trust funding SPVs. Page 18

19 Materials business Lime Aggregates and readymix (b) Other (c) PPC LTD condensed provisional consolidated results for the six Page 19

20 Notes to the condensed provisional consolidated results 1 Basis of preparation The condensed provisional consolidated financial statements have been prepared in accordance with the framework concepts, recognition and measurement criteria of International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board in issue and effective for the group at and the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee and financial reporting pronouncements as issued by the Financial Reporting Standards Council. The results are presented in accordance with minimum requirements of IAS 34 Interim Financial Reporting and comply with the Listings Requirements of the JSE Limited for provisional reports and the requirements of the Companies Act of South Africa applicable to condensed consolidated financial statements. These condensed provisional consolidated financial statements have been prepared under the supervision of MMT Ramano CA(SA), chief financial officer, and were approved by the board of directors on 13 June. The accounting policies and methods of computation used are in terms of IFRS and consistent with those used in the preparation of the consolidated annual financial statements for the twelve ember, the group s previous financial year-end. There were no revised accounting standards and interpretations adopted during the period under review. Going concern In 2010, PPC embarked upon an expansion strategy to extract value from high-growth economies by expanding its footprint into the rest of Africa. The Rwanda expansion project was successfully commissioned in and during the next twelve the group will commission its expansion projects in Zimbabwe, the DRC and Ethiopia. The result of these expansions will see an increase in gross production capacity of approximately three million tons per annum giving the group a strong foundation for further growth. Given the long lead time required to develop greenfield operations, the group has drawn down on pre-arranged project finance debt without an immediate concomitant increase in earnings and resultant cash flow. During the same period of our expansion growth on the continent, external factors beyond the group s control have seen a slowing global economy, significant decline in oil and commodity prices which culminated in downward pressures on selling prices in the regions in which the group operates. In addition, South Africa, which is the major contributor to earnings, has seen intensified competition in terms of new entrants and also imports into the country despite the economic slowdown, resulting in overcapacity in the South African market. The board and executive management had reviewed the group s business and capital structure and developed appropriate business plans in order to be able to deal effectively with the effects of a continuation of the current low price environment and slowing economic growth. Key elements of the business plans were the reduction of costs and improvements in efficiencies, in part through right-sizing of the various operations and the profit improvement programme (PIP) implemented in, the curtailment of discretionary capital expenditure while preserving the ability of the business to increase production and compete efficiently when cement prices and economies improve. The board had in principle approved that the group undertakes a capital raise in order to strengthen its capital structure and was well advanced at the date of the S&P Global ratings review. Page 20

21 The unexpected event-driven review by S&P resulted in a downgrade in our credit rating thereby triggering the acceleration of the outstanding notes amounting to R1.75 billion. The group is in the process of securing bridging funding guarantees from a consortium of local financial institutions which will be effective until the proceeds of the capital raise are received. Based on the group s expectation that the conditions of the planned capital raise will be met, in addition to the group s current trading position and forecasts and facilities and guarantees in place, the directors believe that the group will be able to comply with its financial covenants and be able to meet its obligations as they fall due, and accordingly have formed a judgement that it is appropriate to prepare these condensed provisional consolidated financial statements on a going-concern basis. These condensed provisional consolidated financial statements therefore do not include any adjustments that would result if the going-concern assumption was not used as the basis for the underlying preparation of these condensed provisional consolidated financial statements. Auditors conclusion These condensed provisional consolidated financial statements for the period have been reviewed by Deloitte & Touche, who expressed a disclaimer conclusion thereon. The auditors basis for their disclaimer opinion is noted as follows: We make reference to note 1 in the condensed provisional consolidated financial statements under the heading Going Concern and note 14 Borrowings, on disclosures relating to the Domestic Medium Term Notes (DMTN). Subsequent to year end, Standard and Poor s released its report in which the credit rating of PPC Ltd was lowered to below investment grade. As a result of this downgrade, the DMTN to the value of R1,75 billion became due and payable in the short term as per Clause 11 of the DMTN Programme Memorandum, thus creating a liquidity challenge. As a result, management has entered into negotiations with its current consortium of local financial institutions to provide a guarantee to the DMTN noteholders to ensure that the company will be able to meet any obligations once they become due as a result of Clause 11 of the Programme Memorandum. In addition, the board of directors have announced their intention to execute a capital raise which will ensure the group has sufficient funding to settle the obligations arising from the guarantee and to ensure that the business has adequate funding for its continuing business. The group s ability to address its liquidity and funding obligations is contingent on: the successful conclusion of the negotiations referred to in the preceding paragraph; and the ability to raise the capital funding. On conclusion of our review work, there were conditions yet to be fulfilled in order to secure the guarantee to the DMTN noteholders. Furthermore, management is still working to fulfil the conditions for the capital raise. Accordingly, at the date of this report, management s plans on both the bridging facility and the capital raise were not sufficiently advanced to allow us to draw a review conclusion on PPC Ltd s ability to continue as a going concern. A copy of the auditors report on the condensed provisional consolidated financial statements is available for inspection at the company s registered office. PPC LTD condensed provisional consolidated results for the six Page 21

22 Notes to the condensed provisional consolidated results continued 2 Finance costs (including fair value adjustments on financial instruments) Twelve Bank and other short-term borrowings Notes Long-term loans Capitalised to plant and equipment and intangibles (119) (39) (196) Finance costs before BBBEE transaction and time value of money adjustments BBBEE transaction Dividends on redeemable preference shares Long-term borrowings Time value of money adjustments on rehabilitation and decommissioning provisions and put option liabilities Finance costs Fair value loss/(gains) on financial instruments 20 1 (22) South Africa Rest of Africa Page 22

23 3 Impairments and other exceptional adjustments Twelve Impairment of goodwill (22) (22) Reversal of impairment/(impairment) of financial asset 1 (1) Impairment of loans advanced (1) (1) Impairment of property, plant and equipment (4) (22) (57) Profit on disposal of equity accounted investment and available-for-sale financial asset 117 Impairment of goodwill 112 (43) (81) In, the recoverable amount of Pronto was calculated to be lower than its carrying amount, resulting in an impairment of R22 million. Pronto is included under aggregates and readymix in the segmental analysis. Impairment of property, plant and equipment Following reviews of property, plant and equipment for the period March, other minor impairments of R4 million were processed. While in the prior reporting period the following impairments occurred: Post the group s decision to no longer pursue the Algeria expansion project, it was deemed appropriate that the costs capitalised of R15 million be impaired in March. An impairment of R7 million relating to the old plant at CIMERWA that would not be used postcommissioning of the new plant was recorded in March, while a further R7 million was impaired during the second half of the financial year. Also in the second half of the financial year, R27 million relating to a limestone quarry in Zimbabwe was impaired due to uncertainty of future prospects. Other minor impairments to property, plant and equipment of R1 million in September was processed. Profit on disposal of equity accounted investment and available-for-sale financial asset Profit on disposal of equity accounted investment and available-for-sale financial asset relates to the sale of Afripack and Ciments de Bourbon, R34 million and R83 million respectively. Refer to notes 10 and 11. PPC LTD condensed provisional consolidated results for the six Page 23

24 Notes to the condensed provisional consolidated results continued 4 Taxation Taxation rate reconciliation A reconciliation of the standard South African normal taxation rate is shown below: % % Twelve % Profit before taxation (excluding earnings from equity accounted investments) 30,8 36,4 36,6 Prior year taxation impact 2,8 6,1 2,7 Profit before taxation, excluding prior year taxation adjustments 33,6 42,5 39,3 Adjustment due to the inclusion of dividend income 0,3 Effective rate of taxation 33,6 42,5 39,6 Income taxation effect of: (5,6) (14,5) (11,6) Disallowable charges, permanent differences and exceptional items (1,6) (6,4) (8,9) Empowerment transactions and IFRS 2 charges not taxation deductible (1,0) (2,1) (1,1) Finance costs on BBBEE transaction not taxation deductible (1,8) (4,0) (2,1) Foreign taxation rate differential 0,5 1,6 Capital gains differential on sale of non-core assets 2,4 Withholding taxation (4,1) (2,0) (1,1) South African normal taxation rate 28,0 28,0 28,0 Page 24

25 5 Earnings and headline earnings Earnings per share Cents Cents Twelve Cents Basic Diluted Basic (normalised) (a) Diluted (normalised) (a) Headline earnings per share Basic Diluted Basic (normalised) (a) Diluted (normalised) (a) Determination of headline earnings per share Earnings per share Adjusted for: Other exceptional adjustments and impairments (21) 8 15 Taxation on other exceptional adjustments and impairments 4 (3) Headline earnings per share PPC LTD condensed provisional consolidated results for the six Page 25

26 Notes to the condensed provisional consolidated results continued 5 Earnings and headline earnings continued Headline earnings Twelve Net profit Other exceptional items and impairments (112) Taxation on other exceptional items and impairments 24 (2) (15) Headline earnings Attributable to: Shareholders of PPC Ltd Non-controlling interests (18) 7 (32) Normalised earnings Net profit Normalisation adjustments (a) (76) Normalised net profit Attributable to: Shareholders of PPC Ltd Non-controlling interests (18) 7 (32) (a) Normalised earnings adjusts the reported earnings for the effects of empowerment transaction IFRS 2 charges, restructuring costs, impairments and other exceptional adjustments net of taxation and prior year taxation adjustments. The difference between earnings and diluted earnings per share relates to shares held under the forfeitable share incentive scheme that have not vested, together with the dilution impact of the group s various empowerment transactions. For the weighted average number of shares used in the calculation, refer note 13. Page 26

27 6 Property, plant and equipment Twelve Net carrying value at beginning of the period Additions Depreciation (348) (293) (612) Other movements 2 (2) (22) Impairments (refer note 3) (4) (22) (57) Reallocation to other intangible assets (refer note 8) (115) (115) Transfer to non-current assets held for sale (refer note 11) (40) Translation differences Balance at end of the period Comprising: Freehold and leasehold land, buildings and mineral rights Factory decommissioning and quarry rehabilitation assets Plant, vehicles, furniture and equipment Capitalised leased plant Change in accounting estimate In the current period the useful life of certain assets was reviewed, as assets were being used for longer than their estimated useful life. The remaining life of reserves was aligned with the useful life of the relevant assets and buildings and structural assets assumed a useful life of 30 years from 1 October. The change in accounting estimate was applied prospectively and resulted in an annual decrease in depreciation for the current period of R37 million with deferred taxation of approximately R10 million. Assets pledged as security Property, plant and equipment with a net carrying value of R6 853 million (March : R3 951 million; September : R4 355 million) are encumbered and used as security for borrowings in the DRC, Rwanda and Zimbabwe (refer note 14). PPC LTD condensed provisional consolidated results for the six Page 27

28 Notes to the condensed provisional consolidated results continued 7 Goodwill Twelve Balance at beginning of the period Impairments (refer note 3) (22) (22) Translation differences Balance at end of the period Goodwill, net of impairments, is allocated to the following cash generating units: CIMERWA Limited Safika Cement Holdings Pty Limited Pronto Holdings Pty Limited During the current reporting period no impairments were deemed necessary as the respective recoverable amounts were considered to be higher than the carrying values, while in the prior reporting periods, the recoverable amount of Pronto of R758 million was calculated to be lower than its carrying amount and resulted in an impairment of R22 million. 8 Other intangible assets Balance at beginning of the period Additions Amortisation (45) (49) (90) Transfers and other movements (a) Translation differences Balance at end of the period Comprising: Right of use of mineral assets ERP development and other software Brand and trademarks Customer relationships contractual and noncontractual (a) The split between property, plant and equipment (PPE) and intangible assets on the contribution made by a then non-current shareholder into PPC Barnet DRC Holdings was finalised in and R115 million was transferred from PPE and represents the value of the mineral reserves and mining rights. The group does not have any indefinite life intangible assets, other than goodwill. Page 28

29 9 Equity accounted investments Twelve Investments at cost Loans advanced 45 Share of retained profit (1) 41 (1) Balance at end of the period Comprising: Afripack Limited 94 Habesha Cement Share Company Other minor equity accounted investments During the period an additional investment of R75 million was made in Habesha as PPC took-up its share of a rights offer made by the company. As not all shareholders followed their rights, PPC s shareholding subsequently increased to 35% from the 32% recorded at both March and September. During the second half of the financial year, the board approved the sale of the investment in Afripack, resulting in R36 million being classified to non-current assets held for sale (refer note 11). During the current reporting period the sale became effective and the group disposed its full shareholding in Afripack. PPC LTD condensed provisional consolidated results for the six Page 29

30 Notes to the condensed provisional consolidated results continued 10 Other non-current assets Twelve Advance payments for plant and equipment (a) Derivative asset 2 Investment in government bonds (b) 8 7 Loans advanced 1 Unlisted collective investment (c) Unlisted investment at fair value (d) VAT receivable (e) (a) In terms of the construction agreements with the suppliers of the new cement plants in Rwanda, DRC and Zimbabwe, a portion of the full contract price is required to be paid in advance of the plant construction. The advance payments are secured by advance payment bonds, and will be recycled to property, plant and equipment as the plants are constructed. (b) Represent government of Zimbabwe treasury bills carried at fair value. The treasury bills were issued in September in exchange for funds previously expropriated by the government in The treasury bills have a face value of R10 million, repayable in three equal annual instalments from June 2017 to June A discount rate of 12% was applied in determining the fair value on initial recognition. Interest is paid biannually at a total rate of 5% per annum. (c) Comprises an investment by the PPC Environmental Trust in local unit trusts. These investments are held to fund PPC s South African environmental obligations. (d) PPC Ltd disposed its 6,75% (March : 6,75%, September : 6,75%) shareholding in Ciments du Bourbon, incorporated in Reunion, during the current reporting period, with the resulting gain of R83 million recorded in other exceptional items (refer note 3). Ciments du Bourbon was included under the cement segment in the segmental analysis. (e)the group has incurred VAT during the construction of the plant in the DRC and the amount receivable has been classified as non-current in the current reporting period in contrast to the prior reporting period where the full amount was classified as current. The change follows communication from the local revenue authorities around the delay in refund of VAT receivables. Page 30

31 11 Non-current assets held for sale Twelve Equity accounted investment (refer note 9) (a) 36 Property, plant and equipment (refer note 6) (b) (a) During the current reporting period, the company finalised the sale of its 25% stake in Afripack for R70 million. The resultant profit of R34 million has been included in other exceptional items. In, the carrying amount immediately before classification as held for sale was R36 million which was lower than its fair value less costs to sell of R70 million (which represented the estimated selling price per the sales agreement less estimated transaction costs). Afripack was included under the cement segment in the segmental analysis. (b) In September, the PPC Zimbabwe board approved the disposal of houses at its Colleen Bawn and Bulawayo factories which was anticipated to be finalised in 12. The disposal is planned to be finalised by June. No impairment loss was recognised on the initial reclassification as management concluded that the fair value (estimated based on market prices of similar properties) less costs to sell was higher than the carrying amount. The conclusion by management that no impairment loss should be recognised is still appropriate during the current reporting period. PPC Zimbabwe is included under the cement segment in the segmental analysis. 12 Trade and other receivables Trade receivables Impairment of trade receivables (77) (54) (70) Net trade receivables Loan relating to non-current asset held for sale Afripack (refer notes 9, 11) 46 Mark to market cash flow hedge Mark to market fair value hedge Other financial receivables Trade and other financial receivables Prepayments Taxation prepaid 30 8 VAT receivable on plant and equipment imported into the DRC (refer note 10) PPC LTD condensed provisional consolidated results for the six Page 31