Merrill Lynch Conference Sun City March 2015

Transcription

1 Merrill Lynch Conference Sun City March 2015 Darryll Castle CEO Tryphosa Ramano CFO Azola Lowan Investor Relations 1

2 Agenda Introduction Operational Review Corporate Update Projects Update Outlook & Questions 2

3 Compelling Investment Case Competitive Position Pan African Player Clear Expansion Strategy Delivery and Execution Resilience Superior Growth and Margin Capital Structure Strong market position in South Africa, Zimbabwe, Botswana and Rwanda Iconic brands and comprehensive reach Increasing presence on African continent Diversified portfolio across products and geographies Quality of portfolio Clearly defined rest of Africa strategy with significant expansion plans underway; tangible progress made in Rwanda, Zimbabwe, DRC & Ethiopia Supported by highly regarded financial partners Demonstrating ability to execute complex projects and run businesses across the African continent Entry point to fast growing African countries that require significant infrastructure investment Resilient performance through the cycle Well-demonstrated cash conversion ability Value enhancing strategic allocation of capital; delivering ROIC > WACC Sustainable margins with high returns on investment Continued focus on optimisation and cost cutting Capital structure supportive of expansion ambitions Ability to access project financing across the African continent - > $400m of project finance secured 3

4 Progress with Strategy Keeping the Home Fires Burning strategy Channel management strategy embedded by the acquisition of Safika Cement (IDM) Pronto Readymix Ulula Ash Progress with 3 mega-plant strategy Rwanda: tpa plant to be commissioned 2H of calendar 2015 Rest of Africa (RoA) Expansion strategy: 40% of revenues by 2017 Ethiopia: Stake in 1.4 mtpa plant to rise to 51% Democratic Republic of the Congo: Construction on 1 mtpa plant underway Zimbabwe: Construction of tpa Harare mill underway Further expansion opportunities: Actively engaged in building a solid pipeline for growth 4

5 African Expansion Journey PPC Capacity Expansion (mtpa) % growth 4 2 Clear expansion strategy execution 0 Current PPC capacity Rwanda (2015E) DRC (2016E) Ethiopia (2016E) Zimbabwe (2016E) PPC capacity 2017 Truly pan-african footprint Building a quality portfolio 5

6 Solid Financial Metrics Revenue (Rm) EBITDA (Rm) % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Revenue Growth (rhs) EBITDA EBITDA margin (rhs) Dividends 90% 80% 70% 60% 50% 40% 30% 20% 10% 78% 80% 78% 80% 78% 79% 73% 64% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Solid financial metrics over time Resilient performance over time Revenue and profitability doubling in the past decade 0% Dividend payout Dividend yield 0.0% Delivering superior returns to shareholders over time 6

7 Enhancing Shareholder Value ROIC versus IRR ROIC excl expansion versus IRR 40.0% 40.0% 35.0% 35.0% 30.0% 25.0% 30.0% 25.0% ROIC to > 20% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% % ROIC ROIC IRR ROA target = real WACC + (6.0%-10%) IRR ROA target = real WACC + (6.0%-10%) IRR RSA target = real WACC + 3% IRR RSA target = real WACC + 3% Continuing to deliver ROIC in excess of the cost of capital 7

8 Experienced Management Team Darryll Castle (46) CEO Tryphosa Ramano (43) CFO Appointed CEO of PPC in December 2014 Darryll has extensive experience in the mining industry and served as a CEO of Trafigura Mining Group and Anvil Mining, as well as COO of Metorex Group Darryll has a broad range of skills in corporate management, fund management, financial analysis, mining and engineering. Darryll s first-hand knowledge of various countries in Africa and emerging markets as well as deep relationships built over the years are expected to add value BSc (Civil), BCom, MBA, CFA Appointed CFO of PPC in 2011 Tryphosa was CEO of WIP International (a subsidiary of WIPHOLD focused on African expansion) Tryphosa also served as CFO of SAA, and prior to that, she was requested to join National Treasury, where she set up a business unit with financial oversight of state-owned entities Tryphosa has served on a number of Boards, and is currently on the Airports Company of SA and Land Bank of SA boards as a non-executive director CA(SA) Johan is a professional engineer who joined PPC in 1989 He has served PPC in a number of key positions including as an executive in cement operations and lime He was previously employed by the Department of Water Affairs, progressing to regional engineer BEng (University of Stellenbosch), EDP (Wits Business School) Johan Claassen (55) MD PPC Cement RSA Pepe Meijer (54) MD International Pepe is a mechanical engineer who joined PPC in 1988 He previously held the positions of executive group services, executive cement operations and various other senior and general management roles across the cement and lime divisions of PPC Prior to that, he worked in the gold mining industry, with the last appointment being as section engineer, and in the fishing/processing/frozen-food industry as group projects manager BEng, BB&A (Hons), MBA from the University of Stellenbosch 8

9 CEO priorities 1. Change Management Programme Implementation People and Culture Delivery and performance-driven culture Creative tension and constructive confrontation People structures and the role of the head office Creating a matrix organisation Profit Improvement Programme (targets to be communicated) Cost optimisation and reductions Improving operational efficiencies 2. Sales and Marketing Strengthen management and enhance team on the ground Improved analytics of pricing and products 3. Expansion Strategy Implementation Focus on delivering projects on-time and on-budget Focus on delivering business plans that ensure adequate returns 4. Optimal Capital Structure Managing debt levels to optimal levels Optimising balance sheet to position company for growth 9

10 Women sort coffee beans in Addis Ababa, Ethiopia Operational Review 10

11 Operational update Positive growth in group cement sales volumes for the first five months of F2015 Declines in SA cement sales offset by sales by Safika Cement, now consolidated Volume growth achieved in Zimbabwe, Botswana and Rwanda Limited selling price growth achieved Overall margins under pressure as rising cost of sales outstrips revenue growth, and rising overheads due to expansion strategy Lime division has shown an improved performance The aggregates and readymix division has been impacted by reduced demand from project-related construction customers Pronto Readymix, consolidated from July 2014, has positively contributed to results 11

12 South African Operating Environment Key macroeconomic variables Residential & non residential (Rbn) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% f 2015f 2016f 2017f Gross Fixed Capital Formation Real GDP Growth Final Household Consumption % CAGR growth Source: National Treasury, SA Reserve Bank Source: BMI Housing units Cement industry capacity rising at a time when GDP is at a cyclical low Introduction of carbon taxes to negatively impact the industry Dept. of Human Settlements to build an additional units by Beyond 2016, optimistic that upswing in cement demand will ensue Source: Department of Human Settlements, National Treasury, PPC calculations 12

13 South Africa Rising imports into the Eastern and Western Cape provinces as well as aggressive competitor pricing have resulted in volumes declining in the Coastal and Inland regions (ex Safika) Cement sales volumes (ex Safika) have fallen by single digits Aggressive competitor pricing has stretched PPC price premium to uncomfortable levels Selling prices have marginally decreased on the back of a tough operating environment Lower volumes result in margins being squeezed by fixed costs Imported cement volumes by port of entry Tons 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 Q2-14 Q3-14 Q4-14 Durban PE & EL Cape Town Source: South African Revenue Services 13

14 Zimbabwe, Botswana and Rwanda Zimbabwe In-country cement sales volumes exhibiting a pleasing trend while export sales have reduced Export sales currently making up about 10% of total cement sales volumes Limited growth in domestic selling prices while export prices remain attractive Improvements in cost management will enhance margins Favourable impact of rand devaluation Botswana Cement sales volumes have improved in the retail sector as well as supply into the Tonota road project Good cost management will result in margins in this business unit improving Rwanda Cement sales volumes continue to improve but expensive heavy fuel oil costs continue to offset the revenue growth 14

15 Lime, Aggregates and Readymix Lime Lime revenues showing an improving trend on the back of improvement in sales of burnt product volumes Improved customer mix and higher offtake from key clients has benefitted the business Good progress with cost containment will likely see margins in the lime business expanding Aggregates and Readymix Decreases in projects in operating zones have led to weaker volumes achieved in South Africa and Botswana Rising cost of sales in the aggregates division will see margins reducing Pronto, consolidated since July 2014, is contributing positively 15

16 Chitungwisa Market, Harare, Zimbabwe Corporate Update 16

17 Investment Portfolio Management & Funding 1. Portfolio Management Process Scarce capital allocation Expected returns on capital investments Tax guidance 2. Capex Guidance Flexibility in prioritising and funding capex 3. Funding 17

18 Investment Portfolio Management Process Developing PPC Strategy Developing Strategic Direction of Group Continuous evaluation of returns Reevaluation of Portfolio Scarce Capital Allocation Translating PPC Strategy Cementing Strategy into action plans Project management Funding solutions (project finance etc.) Execution of Portfolio Portfolio Planning Cementing action plans into projects Determining adequate returns Allocation of capital resources Prioritising portfolio 18

19 Expected return targets for Capital Investments Return targets for capital investments are based on hurdle rates Group WACC is based on PPC market value and target gearing SA Hurdle rate = Group Real WACC + 3% ROA = Group Real WACC + country risk premium + project specific risks Specific hurdle rate targets for capex Maintenance capex Compliance - no hurdle rate requirement Discretionary - hurdle rate requirement Growth capex - hurdle rates requirement Economically justifiable to improve efficiency New business opportunities Mechanisms to mitigate investment risks Project financing for RoA with no recourse to group cash flow EPC contracts and Project Managers Investments are structured 19

20 Tax Guidance F2014 effective taxation rate fell to 30% following the revenue authority s favourable assessment of prior year taxes PPC s effective taxation rate going forward will range between 30% - 34% mainly due to withholding taxes for foreign subsidiaries The table below summarises the applicable taxation incentives: VAT is refunded when operations commence in all geographies 20

21 Capex Guidance Capex F2015 F2016 F2017 Maintenance Capex Expansion Capex: SA Expansion Capex: RoA R400m - R500m R500m - R600m R450m - R550m R500m - R600m R500m - R600m R100m - R150m R2bn - R2.7bn R1.1bn - R1.6 bn R700m - R1bn Total R3bn - R4bn* R2bn - R2.8bn* R1.3bn - R1.7bn* Flexibility in funding capex Internal options Phase/defer capex to maintain flexibility Optimise project costs Reduce discretionary capex External options Bank loans and facilities Domestic medium term note program Project financing Internally generated cash Review of dividend policies Capex in South Africa to be driven by construction of a new kiln at Slurry (SK9) Successfully secured non-recourse project finance of over $400 million for expansion projects Zimbabwe DRC Rwanda (88% debt: 12% equity/ Zim cash flows) (60% debt : 40% equity) 90% of equity contribution already paid (60% debt : 40% equity) PPC equity 100% paid Ethiopia (70% debt : 30% equity) PPC equity requires additional $13m (for 51%) More than 80% of PPC s equity contributions has been paid *Currency sensitivity 21

22 Funding PPC long term gearing Debt to EBITDA (Rbn) R10bn - R11bn RSA ROA Debt/EBITDA 0.0 Debt projected to peak in 2017 between R10bn R12bn Debt/EBITDA cover anticipated to remain within covenant levels (non-recourse is removed) 22

23 Increased Borrowing from F2013 Borrowings F2014 Borrowings BEE Debt R million R million Bonds R 645 million R million Rwanda R 110 million R 605 million Total R million R million Debt will peak at between R10bn to R12bn in 2017 due to debt drawdown on projects Debt rose by R2.3bn in FY14, with interest costs escalating by ~ R100m p.a. This was due to PPC s African expansion strategy Interest on project debt is currently being capitalised and will be expensed when production commences 23

24 Chitungwisa Market, Harare, Zimbabwe Projects Update 24

25 Execution of Projects African project execution strategy PPC Highly experienced special projects team supported by the business to ensure in-country expertise is developed Sinoma - Appointed as EPC contractors for PPC projects in Zimbabwe and the Democratic Republic of the Congo Holtech Consulting engineers with over 45 years experience servicing ~800 cement industry clients in 80 countries Sinoma clients Ercom Indian consulting engineering company that has worked on 105 cement plants across the globe * Execution of projects approach applies mainly to PPC driven projects e.g. DRC, Zimbabwe 25

26 Project Update Rwanda - Production of new tpa plant to commence in 2H of Steady ramp-up period expected in first six months with full production achievable thereafter - The existing tpa kiln will be decommissioned Democratic Republic of the Congo - Construction of 1mtpa plant progressing well; commissioning remains set for end Electricity infrastructure is on our critical path and delivery is in the hands of SNEL # - Current indications suggest that delivery will be on time to ensure commissioning Zimbabwe - Construction of the tpa Harare mill is progressing well and commissioning remains set for 2016 Ethiopia - Once outstanding documentation is finalised, PPC will increase its stake in Habesha to 51% - Majority shareholding will allow for greater access and influence on this project, which will mitigate potential delays # Société Nationale d Electricité 26

27 CIMERWA Ltd, Rwanda About Rwanda Population 12.3 million Urbanisation 19% GDP per capita $ 704 Cement consumption per capita 52kg Real GDP growth forecast 6.5% Retail price of cement $240 - $290 per ton PPC s new tpa plant Current national cement production tonnes Source: International Monetary Fund Busi Legodi CEO of CIMERWA Ltd 27

28 Democratic Republic of the Congo About the DRC Population 77.4 million Urbanisation 34% GDP per capita $ 388 Cement consumption per capita 26kg Real GDP growth forecast 8.1% Construction site of PPC s new tpa plant Retail price of cement $250 - $400 per ton Current national cement production tonnes Source: International Monetary Fund 28

29 Zimbabwe About Zimbabwe Population 13.7 million Urbanisation 29% GDP per capita $ 1006 Cement consumption per capita 76kg Real GDP growth forecast 3.6% Construction site of PPC s new tpa mill Retail price of cement $180 - $290 per ton Current national cement production tonnes Source: International Monetary Fund 29

30 Habesha Cement, Ethiopia About Ethiopia Population 94 million Urbanisation 17% GDP per capita $ 517 Cement consumption per capita 115kg Real GDP growth forecast 8.7% Transporting of kiln shell section (top) and construction site image below for new tpa plant Retail price of cement $100 - $130 per ton Current national cement production tonnes Source: International Monetary Fund 30

31 Skyline of Kinshasa, Democratic Republic of the Congo Outlook 31

32 Outlook Focused on delivering on African expansion projects and continuing to efficiently manage businesses across the continent Capital structure supportive of current projects however constrained ability to execute further expansion projects Tough trading conditions likely to persist for the remainder of F2015 in South Africa Acquisition of Safika Cement cushioning decline in volumes Fruition of government s infrastructure plans supportive of cement demand Awaiting pronouncements from ITAC regarding cement imports By 2017 PPC to benefit from recovery in the SA business as well as production ramp-up of expansion projects 32

33 Questions? 33

34 Investor contacts Darryll Castle Tryphosa Ramano Azola Lowan Vuyo Nombila Chief Executive Officer Chief Financial Officer Investor Relations Investor Relations Tel

35 Addendum: Southern African cement industry map 35

36 Disclaimer This document including, without limitation, those statements concerning the demand outlook, PPC s expansion projects and its capital resources and expenditure, contain certain forwardlooking statements and 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 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 they 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. 36