PPC s Slurry plant in the North West Province

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1 Annual report for the year ended 30 September 2009

2 For PPC, our icon, the elephant, symbolises strength, stature and dependability. This, combined with its wisdom, maturity, family orientation and loyalty, encapsulates the essence of PPC PPC s Slurry plant in the North West Province

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4 Fast facts Profile Our strategy Focus on core businesses Generate superior cash flow returns Achieve global competitiveness Develop globally competitive people Practise sound corporate, environmental and social governance Build on our strengths through synergistic growth Reader note: Given its broad stakeholder base, PPC has elected to publish separate annual financial and sustainability reports in 2009 to enable wider but cost-effective dissemination of its sustainability practices and progress. We also believe a stand-alone sustainability report will enable the group to elicit pertinent feedback from stakeholders that will be incorporated into future strategies and initiatives. These reports should be read together for a fuller understanding of the group s performance, strategies and objectives.where reference is made to other sections in this report, readers are given the page number. Where reference is made to the companion volume to this report, readers are guided by the icon and page number. Group revenue 9 Accredited as BBBEE level Energy consumed per ton of product The roots of Pretoria Portland Cement Company Limited (PPC) stretch back well over a century to 1892 when it established the first cement plant in South Africa. PPC listed on the then Johannesburg Stock Exchange in Today, PPC is the leading supplier of cement in southern Africa. Collectively, eight manufacturing facilities and three milling depots in South Africa, Botswana and Zimbabwe are capable of producing almost eight million tons of cement products each year. PPC s established distribution network supplies quality branded cement to the building and construction industry, concrete product manufacturers, hardware stores and DIY centres. The group s product range spans all applications, supported by a technical services team known for developing innovative industry solutions. Related products include aggregates from PPC s Gauteng quarries at Mooiplaas and Laezonia, and in Botswana. PPC Lime is the leading supplier of metallurgicalgrade lime, burnt dolomite, limestone and related products in southern Africa. It operates one of the largest lime plants in the world at Lime Acres in the Northern Cape, South Africa. A vital element in maintaining its market leadership in the region is PPC s unwavering commitment to excellence in satisfying customers needs and striving for total quality across its operations.

5 Moving forward Business objectives Economic Ensure cash flow returns that allow for continued reinvestment in and replacement of capacity Continuously explore ways to reduce costs and improve efficiency of operations Operational Reduce energy cost Increase manufacturing capacity to meet the country s needs Environmental Reduce energy consumption Rehabilitate and obtain closure certificates for all worked-out mining areas Meet all legislated emission level requirements and further reduce emissions Reduce non-renewable resource requirements by optimising the level of extenders in the final product Social Assist with uplifting disadvantaged communities by investing in and using resources from the communities in which PPC operates Skills transfer in disadvantaged communities for sustainable empowerment Continue to develop BBBEE in line with applicable guidelines and legislation Page 1 Pretoria Portland Cement Company Limited Annual Report 2009

6 Financial highlights Revenue (R million) EBITDA (R million) Headline earnings per share (cents) Cash available from operations (R million) Operating profit* Cash earnings Operating profit up 4% to R2 418 million (2008: R2 323 million) Cash earnings per share up 6% to 329 cents (2008: 311 cents per share) * Excluding impact of the BBBEE IFRS 2 charges and the take-on gain arising from the consolidation of Porthold Page 2

7 Financial summary Financial results (R million) Revenue Operating profit* Property, plant and equipment Total assets Cash generated from operations Ordinary share analysis (cents per share) Headline earnings per share (cents)* 256,8 282,6 263,1 Earnings per share (cents)* 257,3 283,5 265,8 Dividends per share (cents) 200,0 225,0 265,5 Number of employees # * Excluding BBBEE IFRS 2 charges and take-on gain on consolidation of Porthold # Includes employees in Botswana and Zimbabwe Sustainability highlights Over 7% of payroll spent on employee training and development Behaviour-based safety campaign results in 1,5 million accident-free hours for the Ntšhafatso project 15% reduction in CO 2 emissions per ton cement, lime and dolomite from 1990 to % reduction in energy consumption per ton cement, lime and dolomite from 2000 to 2009 PPC s sustainability performance for 2009 is summarised on pages 58 to 65. A separate sustainable development report accompanies this annual report. It can also be accessed on Page 3 Pretoria Portland Cement Company Limited Annual Report 2009

8 Investment proposition Leading producer with best geographic spread Strong infrastructural demand outlook to 2014 New capacity available Cash generative Excellent dividend yield history Strong balance sheet Financial strength to explore expansion opportunities Experienced management team Operations and locations * Cement plants Limestone quarries Aggregate quarries Lime quarries Lime plant Gypsum quarry Head office * Materials handling facility 1 Hercules 2 Jupiter 3 Slurry 4 Dwaalboom 5 Riebeeck 6 De Hoek 7 Port Elizabeth 8 Colleen Bawn (Zimbabwe) 9 Bulawayo (Zimbabwe) 10 Beestekraal quarry 11 Dwaalboom quarry 12 Slurry quarry 13 Zoutkloof quarry 14 Riebeeck quarry 15 Grassridge quarry 16 Colleen Bawn quarry (Zimbabwe) 17 Lime Acres 18 Lime Acres quarry 19 Mount Stewart quarry 20 Laezonia quarry 21 Mooiplaas quarry 22 Kgale quarry (Botswana) 23 Gaborone (Botswana) 24 Head office (Sandton) 25 Saldanha Page 4

9 Group at a glance Cement R million Change Revenue % EBITDA % EBITDA margin (%) 42,6 42,5 Total assets* % *Includes Porthold assets of R675 million in 2009 Overview PPC was established 118 years ago as De Eerste Cement Fabrieken Beperkt and is today the acknowledged market leader in South Africa. The history of PPC is closely linked to the growth and development of South Africa PPC has produced cement for many of the country s most famous landmarks and construction projects, including the Union Buildings, Gariep Dam, Van Staden s River Bridge, new Greenpoint Stadium and much of the rest of southern Africa s infrastructure. The company s cementitious brands in South Africa include the market-leading Surebuild and specialist cement brands Rapo and OPC. In addition to serving southern African markets, cement is exported to other African countries and the Indian Ocean islands. PPC International Trading is responsible for exports of PPC cement from South Africa, and trading cement sourced elsewhere into various other markets. Porthold Registered in Zimbabwe, Porthold s core product is Unicem, a trusted cement made at the Bulawayo factory from high-quality raw materials. PPC Botswana PPC Botswana has been operational for over 50 years. From its sales office and cement-blending operation in Gaborone, it supplies cement throughout Botswana. Page 5 Pretoria Portland Cement Company Limited Annual Report 2009

10 Group at a glance continued Lime R million Change Revenue (9%) EBITDA (28%) EBITDA margin (%) 22,3 27,9 Total assets (3%) Overview PPC Lime has grown from small beginnings in 1907 at Uitloop in Limpopo producing lime for the burgeoning gold mining industry, into one of the largest lime producers in the southern hemisphere, supplying almost 60% of the lime consumed in southern Africa. PPC Lime is certified to ISO 9001, and OHSAS (safety management) standards. Together with SANS 1841 and a five-star Dekra rating, customers are continually assured of superior quality products. Lime products Unslaked lime, hydrated lime and limestone. PPC Lime PPC Lime is the leading supplier of metallurgicalgrade lime, burnt dolomite and related products in southern Africa. Page 6

11 Aggregates R million Change Revenue % EBITDA (10%) EBITDA margin (%) 28,4 33,1 Total assets % Overview PPC Aggregates supplies quality construction aggregates to the civil construction sector as well as products for the chemical, metallurgical and agricultural industries. Mooiplaas, Laezonia and Kgale quarries are ISO 9001:2000 certified and members of the Aggregate and Sand Producers Association of South Africa (ASPASA). All operations are committed to producing quality products to meet customers requirements in the most cost-effective manner. Aggregate products Concrete stone, road stone, crusher sand, river sand, building sand, plaster sand, Magalies silica, natural base, sub-base, fill material, dolomite and agricultural lime. PPC Aggregate Quarries Mooiplaas dolomite mine and Laezonia quarry produce quality aggregates and sands to meet diverse customer requirements. Kgale Quarries At this quarry in Kgale Hills, Botswana, granite is processed into quality aggregates and sands. Page 7 Pretoria Portland Cement Company Limited Annual Report 2009

12 Directorate Note: Directors CVs can be found on page 56 in the corporate governance section of this annual report Page 8

13 IFC Profile 2 Financial highlights 3 Financial summary and sustainability highlights 4 Investment proposition 4 Operations and locations 5 Group at a glance 8 Directorate in brief 01 Overview 12 Chairman s report 18 Chief executive officer s report 24 Chief financial officer s report 12 Management review Porthold review 34 Operational review: Cement 37 Operational review: Lime and Aggregates 28 Operational review Corporate governance structure and management systems 56 Board of directors full CVs 38 Corporate governance 12 1 Bheki Lindinkosi Sibiya Chairman 2 Paul Stuiver Chief executive officer 3 Salim Abdul Kader Executive director, organisational performance and transformation 4 Robert Harley Dent Executive director, lime, aggregates and strategic projects 5 Peter Esterhuysen Chief financial officer 6 Zibusiso Janice Kganyago Independent non-executive director 7 André Jacobus Lamprecht Independent non-executive director 8 Nomalizo Beryl Langa-Royds Independent non-executive director 9 Mangalani Pieter Malungani Non-executive director 10 Timothy Dacre Aird Ross Independent non-executive director 11 Joe Shibambo Independent non-executive director 12 Jerry Siklulumi Vilakazi Non-executive director Page 9 58 Sustainability review 69 Report of the independent auditors 70 Directors report 89 Accounting policies 100 Group financial results 154 Company financial results 181 Administration 182 Notice of annual general meeting 185 Form of proxy 187 Index to Global Reporting Initiative indicators 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

14 PPC s Port Elizabeth plant has a number of initiatives under way to allow it to operate in harmony with the surrounding community PPC s Port Elizabeth plant in the Eastern Cape

15 Financial summary Operational review 38 Corporate governance 58 Corporate responsibility Management review 66 Page 11 Financial statements

16 Chairman s report A solid operating performance despite depressed economic conditions Total dividend 200 cents per share Consolidation of Zimbabwe operations Paul Stuiver appointed as new CEO Bheki Lindinkosi Sibiya Chairman The 2009 financial year has been busy and challenging for the company. Some of the noteworthy events that occurred during the year under review: A solid performance by the company despite depressed economic conditions The successful bedding down of new production capacity Consolidation of our Zimbabwe operation back into the group Retirement of the old CEO and appointment of a new CEO Appointment of additional nonexecutive directors to the board Practical implementation of the empowerment transaction PPC accredited with a level 3 BBBEE rating The investigation by the Competition Commission. Economic environment While we are more than a year on from the collapse of some of the world s largest financial institutions, the effects of the economic crisis remain. Demand for cement has dropped significantly in developed economies and Russia, but to a lesser extent in emerging economies. This has halted the acquisition spree of many Page 12

17 major multinational cement producers. Some have been forced to effect significant debt restructuring, recapitalisation and cost-saving plans. While PPC s strong financial position and balance sheet shielded our company from financial trauma and South Africa s prudent banking systems and regulations shielded our economy from the subprime crisis, our country was not immune to the effects of the global economic slowdown. With South African GDP shrinking since the last quarter in 2008 it was inevitable that these effects would flow through to the region s cement demand. The positive impact of our government s ongoing infrastructure programme was not enough to offset a significant decrease in residential and light-commercial building activity. While interest rates have now reduced by a cumulative 500 basis points since their peak, it has historically taken nine to 12 months for this to impact positively on residential activity. In addition to continued support of its announced infrastructure programme of more than R800 billion, the new government has signalled its intentions to address our country s growing housing shortage by appointing a prominent business leader to the ministry of human settlements. This will hopefully assist with the recovery of residential activity in due course. Group results Group revenue increased by 9% to R6,8 billion. After the accounting treatment of the BBBEE transaction and the consolidation of Portland Holdings (Porthold) in Zimbabwe, group operating profit reduced by 8% to R2,1 billion (2008: R2,3 billion) and net profit by 25% to R1,1 billion (2008: R1,5 billion). On a comparable basis, excluding the impact of the BBBEE transaction and consolidation of Porthold, the group s operating profit rose 4% to R2,4 billion and net profit declined 8% to R1,4 billion. Dividends declared by the board totalled 200 cents per share (2008: 225 cents). The continued dividend policy reflects the board s confidence in the company s ability to maintain its performance and cash flow in future years. Board appointments and succession Firstly I would like to express my and the board s sincere appreciation to my predecessor, Martin Shaw, who retired in November 2008 after serving on the board since 2001 and as chairman of PPC since During his tenure and under his leadership, the company reached a number of important milestones including an increase in production capacity, unbundling from the Barloworld group and the successful completion of the black economic empowerment transaction. Management review 28 Operational review 38 Corporate governance 58 A further government initiative at ministerial level has been the separation of the departments for energy and mineral resources. The cement industry falls under the ministry of mineral resources. One of this ministry s first tasks will be to align the mining charter with the Department of Trade and Industry s codes of good practice for black economic empowerment. After 17 years as chief executive officer of PPC, John Gomersall retired from the board and the company at the end of June During his term, John and the PPC Team took the company to many new heights and laid a solid foundation for its future success. Such long and distinguished service by a CEO of a public company is not common today and I thank John, on behalf of the board and all his colleagues, for his invaluable contribution during a significant period in the company s 117-year history. Page 13 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

18 Chairman s report continued In his last 12 months as CEO John, together with the board, was instrumental in a number of significant transformation and empowerment developments. The board was pleased to announce the appointment of Paul Stuiver as CEO of PPC from July This followed an extensive process which began in 2008 to identify the best candidate to succeed John Gomersall. Paul is no stranger to the company, having occupied various positions during his 18 years at PPC between 1983 and 2001, including seven years as a director on the PPC board. Paul was previously CEO at Barloworld Logistics and was responsible for leading its significant growth and transformation. This included conclusion of a 25% equity empowerment transaction and successful handover to a black CEO. This track record should underpin his success in developing a black successor which has been agreed as a key deliverable in his contract. Dr Orrie Fenn, chief operating officer, resigned in August. During his 10-year tenure at PPC, he made a valuable and important contribution to the success of this company. Orrie served on the board from 2004 and, on behalf of the board, I thank him for his contribution. During the year the board s nominations committee recommended the appointment of Messrs Peter Malungani and Jerry Vilakazi as non-executive directors to represent our empowerment partners. We look forward to benefiting from their experience and insights during the board s deliberations. The board is ever mindful of its responsibility to manage succession and continuity in the senior ranks of the company and has spent recent months developing a plan to ensure transformation through sustainable succession. The CEO s report will cover this in more detail. Corporate governance PPC remains committed to maintaining a high standard of corporate governance and, accordingly, we are analysing the recent King III report to ensure the company will comply fully with its requirements. The board sub-committees have been busy this year and I am pleased to report that our annual evaluation of board performance was satisfactory. Competition Commission investigation Subsequent to the Competition Commission s (the Commission) search-and-seizure operations at all South African cement producers in June this year, the board immediately appointed legal advisors to conduct its own investigation under the supervision of a board sub-committee consisting of non-executive directors. Our internal investigation revealed marketsharing arrangements with other cement producers dating back to the late 1990s and that market activities were influenced by these arrangements which were introduced into the organisation under the guise of normal commercial behaviour, by a few former employees who knew about them. Under the Commission s Corporate leniency policy, PPC disclosed all the information discovered in its internal investigation to the Commission and recently concluded a conditional leniency agreement with the Commission in terms of which PPC will have immunity from prosecution. The leniency agreement is conditional on ongoing co-operation with the Commission to which the company is committed. Sustainability This is the first year in which PPC will be publishing a separate, yet complementary, sustainability section to the annual report. Not only is this a practical consideration, it also highlights the many different activities that are involved with sustainability management and the Page 14

19 importance of integrated risk management and sustainability in the company. PPC has always maintained that the key to sustainability is through its people and therefore it is important that the safety and health of our staff and contractors remains our top priority. We remain committed to the ultimate achievement of zero injuries. This year PPC continued to build on its efforts to educate and develop our employees and the PPC Academy extended its scope to include a leadership division. This leg of the academy is aimed at providing up-and-coming senior managers with a balanced academic and practical education in key leadership areas. PPC s drive to improve its environmental performance continues and, in this regard, the advantages of replacing old equipment with new technology can clearly be seen. Dwaalboom s kiln 2 is proving to be a very energy efficient production unit, resulting in reduced cost and carbon footprint. Commissioning the new vertical roller mill at Hercules early in 2010 will further reduce our electricity consumption and improve the company s environmental performance. While PPC is totally committed to sustainable business practices, we are concerned that everincreasing complexity in environmental, labour and social legislation will place an extra burden on the resources of the company. Prospects Although there are murmurings of green shoots emanating from economic commentators, there are still many indications that the world is not yet on a definite road to recovery. While manufacturing outputs in the largest economies are starting to trend upwards, there is little positive data on job creation. Our view is that until job creation improves, economic recovery will be uncertain and fragile. The trend for the South African economy will be similar. While infrastructure programmes will continue to support regional cement demand, recovery of the residential sector will be a key factor in returning to historical levels of demand. The situation in Zimbabwe is still transient and difficult to forecast with certainty. Should utilisation levels remain as they are currently, we look forward to a positive contribution from the Porthold operations during the 2010 financial year. Considering these factors, we expect cement demand in 2010 to remain at similar levels as in In response, PPC will continue to drive operational efficiencies and improved service to customers and will be well placed to take immediate advantage of improved market conditions. Appreciation I extend my appreciation to my colleagues on the board and to all the dedicated members of Team PPC for their efforts in producing a good set of results under difficult economic circumstances. My thanks also go to our strategic partners, customers, shareholders and other stakeholders for their continued support. Bheki Sibiya Chairman 10 November 2009 Page 15 Management review 28 Operational review 38 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

20 The new 3-D branding on PPC tankers builds awareness as we transport quality products to our customers PPC s Riebeeck plant in the Western Cape

21 Corporate responsibility Corporate governance Operational review Management review 66 Page 17 Financial statements

22 Chief executive officer s report Team PPC has built a platform that will allow the launch of new strategies and objectives for the future Revenue increases to R6,8 billion Operating cash flow employees benefited from the PPC Academy Let me start by saying how excited I am to be back at PPC and to have the privilege of leading a fantastic team of people and a great company. The year has been an eventful one for PPC with many achievements, changes and unfortunately a few disappointments. Our main challenge was to respond to economic conditions that reduced regional cement demand by 11%. Team PPC again rose to the challenge by producing a solid performance under difficult circumstances. Paul Stuiver Chief executive officer Excluding the accounting treatment of the BBBEE transaction and consolidation of Zimbabwe, the group s revenue increased 9% to R6,8 billion, EBITDA rose by 8% to R2,7 billion and operating profit by 4% to R2,4 billion. The dilution in operating profit was a result of increased depreciation charges relating to the new Dwaalboom kiln 2. Following from higher finance costs and an increased number of shares in issue, headline earnings reduced by 9% to 257 cents per share. The year s aggregated dividend of 200 cents per share represented a dividend cover ratio of 1,29 that was comfortably within our target range. Page 18 Page 18

23 Operations overview: Cement A 20 30% decline in activity in the residential and light-commercial construction sectors, especially in metropolitan areas, was the key driver in the decline in regional cement demand. While interest rates in South Africa reduced by approximately a third during the year this did not impact positively on residential demand. Historically, activity in the residential sector has lagged interest rate movements by a year or more. Metropolitan areas in Gauteng, the Western and Eastern Cape provinces were hardest hit while sales in provinces with a higher proportion of rural activity showed surprising resilience, with demand similar or slightly better than the previous year. Infrastructure projects had a positive impact and the civil construction sector recorded an 11% improvement in cement demand compared to the previous year. Significant projects included the rapid rail link (Gautrain), the Gauteng Freeway Improvement Plan, the Medupi and Kusile power stations, improvements to the national roads network and the construction of several new dams. Overall, PPC s regional sales declined by 10%. During the year we did not import any cement into South Africa and we ceased cement imports into Mozambique that we had previously arranged from China, initiating exports from our South African plants to Mozambique and West Africa. Due to lower demand, some of the older lessefficient kilns that were recommissioned during the peak-demand period were stopped and the opportunity to conduct major maintenance on other kilns was taken. The new Dwaalboom kiln 2 exceeded expectations and, given its capacity, its increased efficiency has had a positive effect on the overall operational efficiency of the group. Input costs remained under pressure in 2009 with key cost drivers such as coal, maintenance and electricity increasing significantly more than the published producer price index. However, through the combination of using the more efficient capacity of Dwaalboom s kiln 2, switching off older kilns and being able to streamline distribution costs due to lower demand, PPC was able to optimise its production and distribution costs and to some extent counter the higher input costs. Our outlook on future input cost hinges primarily on movement of energy prices. There are indications that coal and fuel prices are again trending up while electricity, which currently accounts for 5% of the direct cost to deliver cement to customers, is expected to increase by more than 200% in the next few years. In addition to its direct impact, we are concerned about the knock-on effect of higher electricity prices on other input costs. As in recent years, our pricing philosophy will endeavour to recover the net increase in our input costs. Operations overview: Lime and Aggregates Lime sales volumes declined by 29% compared to the previous year as a result of a severe downturn in the local steel and alloy industries. Operating profit and margins were further impacted by significant increases in the cost of coal and electricity compared to previous years. Page 19 Management review 28 Operational review 38 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

24 Chief executive officer s report continued However, the ability to run only the most efficient production units resulted in record-low energy consumption. During the second half of the year there was some recovery of input costs through sales price increases and indications of a recovery in local steel production which, if sustained, would improve prospects for the Lime division in Aggregate and metallurgical dolomite sales in South Africa reduced by 12% as a result of lower economic activity in the Gauteng region. This was partially offset by improved demand relating to the government road investment programme in Botswana. The situation in Zimbabwe is still transient and difficult to forecast with certainty. Should utilisation levels remain as they are, we look forward to a positive contribution from the Porthold operations during Shareholders The company maintained a busy investor relations programme during the year, resulting in valuable feedback from many existing and potential shareholders. PPC is regarded as a well-managed company and valued for its predictability, cash generation and generous dividend policy. There is growing interest from international investors who currently make up approximately 30% of the shareholder base. Operations overview: Zimbabwe Zimbabwe s adoption of US dollar and rand currencies earlier this year eliminated many of the obstacles and distortions in the Zimbabwean cement industry. As a result, we now believe we have regained control over input costs, operations and selling prices in Zimbabwe and, accordingly, Portland Holdings Limited (Porthold) was consolidated back into our accounts from 30 September Considering the challenges they faced, our team in Zimbabwe has done exceptionally well to maintain both Porthold facilities in good condition, fully operational and fully staffed. A confirmation of their efforts was that our Bulawayo facility was recently declared the winner in Zimbabwe s annual safety awards. Plant utilisation has steadily improved from approximately 10% in the first part of the calendar year to around 45% currently while input costs and cement selling prices have come in line with regional prices. In 2010, PPC will celebrate its 118th anniversary and become one of only four companies to be listed on the JSE for 100 years or more. During the last 99 years, the company has never failed to pay a dividend a record we hope to maintain in future. People Safety in the workplace continues to be one of our most important priorities. While PPC s losttime injury frequency rate, at 1,5 injuries per million hours worked, is better than the average for comparable industries, we ultimately aim to achieve zero injuries for PPC employees and contractors. We are sad to report that two of our team were fatally injured at work during the year. The board and colleagues join me in extending our sincere condolences to the families of those employees. For more than a decade now PPC has championed the philosophy that people are Page 20

25 ultimately the key to a successful organisation. Through our Kambuku Way, we continued to monitor feedback and aspirations of our employees, enhance our two-way communications, develop tomorrow s leaders through training, coaching and mentoring programmes and ensure all employees received frank and honest feedback on their performance. Individual development plans are one of the key pillars of the Kambuku Way as they allow not only for employees personal development but also for effective succession planning. More on this can be found on the success and implementation of succession planning in our sustainability report (page 21). This year we launched a leadership and management faculty as a further extension to the PPC Academy. In total, 354 employees benefited from various training programmes in the PPC Academy, ranging from educationbridging programmes to operations, technical and leadership training. In the last few months we have completed a comprehensive review of organisation structures, competencies, remuneration, retention, succession and transformation for the top three layers of management. Following from this, a three-year organisational and succession plan has been formulated. The plan will follow a step-by-step approach and will be logically implemented to ensure that the company s performance will be maintained. Transformation We focus on all potential areas of transformation. This resulted in the company being upgraded to level 3 status according to the codes of good practice for BBBEE in the latter part of the year, after achieving a level 4 status earlier in the year. Transformation at director and executive level continued and, combined with non-executive director appointments during the year and those announced recently, has resulted in significant progress in employment equity. The broad-based black economic empowerment transaction that was announced and approved last year was successfully completed on 15 December This allowed a number of new shareholders, including our employees who now hold 2,34% of the shares in the company, to benefit from dividend payments and to exercise their rights by voting at the annual general meeting. Significant progress has been made in implementing the internal staff trust and external community, industry and education trusts that were integral to the BBBEE transaction. More information appears in our sustainability report (page 31). Sustainability During the year, six of our plants had impromptu visits from the Green Scorpions of the national department of the environment. We are pleased to report that no non-conformance notices or clean-up directives were issued as a result of these visits. Management review 28 Operational review 38 Corporate governance 58 Corporate responsibility 66 Page 21 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

26 Chief executive officer s report continued PPC is committed to improving its sustainable business practices not only because we want to be a responsible corporate citizen, but also because we believe there is a compelling business case through improved governance and operational efficiencies. A sustainability committee has been formed to facilitate the more effective integration of our many sustainability programmes. One of the key tasks of this committee is to further develop our sustainability reporting and a decision has been taken to develop this in line with the latest Global Reporting Initiative (GRI) sustainability reporting guidelines, known as G3. More detail on this can be found in the 2009 sustainability report, page 6. In terms of plans submitted to the Department of Mineral Resources, PPC is committed to spending more than R60 million over the next five years on 28 economic development projects in 12 local communities in which we operate. PPC s social investment continued to focus on job creation, skills development and education, and we spent R6 million on projects such as school supplies and refurbishments, community bursaries and education for deaf and blind adults. Comprehensive details on all our social investment projects can be found in our sustainability report, page 36. The energy efficiency envisaged with the new kiln at Dwaalboom has been realised and this is making a significant contribution to the group s improved environmental performance. We await the commissioning of a new, electrically efficient cement mill at our Hercules plant in Pretoria early in 2010 which will reduce PPC s overall electricity consumption by at least 1% and further improve our environmental footprint. There were also a number of other projects to enhance efficiency and environmental performance of existing equipment. More details on these projects can be found in our sustainability report, page 63). Corporate governance I would like to highlight the immediate action taken by the board in appointing legal advisors and a sub-committee of non-executive directors to conduct our own internal investigation following the Competition Commission s action in June this year. While the revelation of market-sharing arrangements with other cement producers in the late 1990s was extremely disappointing, it has allowed the company to address these issues once and for all, to demonstrate its commitment by cooperating with the commission and to eliminate residual issues that might have resulted from the historical arrangements. Through the commission s corporate leniency policy, PPC disclosed all information from its internal investigation to the commission. We have now concluded a conditional leniency agreement with the commission in terms of which PPC will have immunity from prosecution, conditional on ongoing co-operation with the commission. Although the events took place many years ago, the few former employees who were aware of the arrangements did influence decisions that were made at the time under the guise of normal commercial behaviour. The commission was particularly concerned about detailed disclosure of sales information through the Cement and Concrete Institute since the 1990s and we have stopped the submission of this information. It is important to note that the Cement and Concrete Institute was merely a Page 22

27 vehicle for publishing the information and was not involved in anti-competitive behaviour. The Cement and Concrete Institute is an important technical/training resource and promoter of the industry and other than the disclosure of sales information, PPC is committed to continue supporting the Institute with its technical and promotional activities. Industry sales figures, albeit at a less detailed level, are essential for many industry stakeholders such as economists, analysts and industry commentators and the commission has agreed to facilitate a process that will eventually result in appropriate cement sales statistics being available to interested stakeholders again. Corporate governance and risk management are key tenets of managing our business and in the year ahead we will further entrench this by ensuring that all our practices are legally compliant and in line with best practice. Strategy PPC s vision over the past five years has been to more than double the value of the company for all stakeholders by By all accounts Team PPC will achieve this vision and provide us with a platform from which to launch new strategies and objectives for the future. While PPC has done exceptionally well in its chosen region spanning South Africa, Botswana and Zimbabwe, there are emerging opportunities in other areas of the African continent that should be explored. It must be emphasised that the company will be conservative and deliberate in this regard and that opportunities will be carefully evaluated for value enhancement and strategic fit. Outlook There are currently mixed signals on the state of the global and local economies. On the positive side, we welcome the South African government s commitment to job creation and infrastructure development, and South African GDP seems to be heading into positive territory again. GDP has historically been a good leading indicator of cement demand. On the negative side, there are concerns over recovery of consumer confidence, timing of infrastructure projects, ongoing political uncertainty in Zimbabwe and the effects of extended holidays around the 2010 world cup soccer tournament. These conflicting factors create uncertainty for the outlook on regional cement demand in We would however expect to maintain good operating efficiencies and strong cash flow under current market conditions. Appreciation In conclusion, I thank Team PPC for their support and commitment during the past year. It is clear that the future will present many challenges and I call on them to rise to the occasion in true PPC fashion. Paul Stuiver Chief executive officer 10 November 2009 Page 23 Management review 28 Operational review 38 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

28 Chief financial officer s report Steady performance with strong operating cash flow expected for 2010 Operating profit 4 Dividend cover 1,29* Group revenue improved by 9% to R6,8 billion and operating profit, before the impact of the broad-based black ownership initiative and consolidation of Porthold, rose 4% to R2,4 billion. Capital expenditure R921 million PPC s regional cement volumes declined 10% on significantly lower demand from the residential sector, particularly in metropolitan areas and was only slightly offset by increased demand from the construction sector. Cost of sales rose by 10% given the material increases in coal, electricity and maintenance costs. Fortunately, there was some relief in operational costs in the second half of the year with lower diesel fuel prices and improved operating efficiencies as old and inefficient units were shut down in response to lower demand. Depreciation charges increased after commissioning the R1,2 billion Dwaalboom plant at the end of the previous financial year. Peter Esterhuysen Chief financial officer The cement selling price increase in January 2009 reflected a recovery of net inflationary input cost pressures. No cement was imported during the financial year for the domestic market. While imported cement was supplied to the Mozambique market in the early part of the year, this is now supplied from South African production. Lime operating profit and margins were affected by the impact of the economic downturn on the local steel and alloy industries, and significant increases in the cost of coal and electricity. The operation ran its most efficient production units during the year, and achieved historically low energy consumption levels. The lower burnt product volume supplied affected the division s ability to recover historical input cost increases. * Excluding BBBEE IFRS charge and take on gain arising from Porthold consolidation Page 24

29 Any upturn in future volume supplied will have a positive impact on results. Local aggregate volume reduced during the year, while Botswana benefited from continued infrastructural investment in that country. The fragmented Gauteng market will continue to constrain the ability to recover margins. Administrative and other operating expenditure included R9 million (2008: R20 million) in costs relating to the broad-based black economic empowerment transaction and R22 million (2008: R10 million) in corporate social investment and social and labour plan expenditure as part of agreed commitments under the mining charter. Cost relating to the implementation of the SAP ERP system planned for next year, that were not capitalised, amounted to R7 million. Group EBITDA grew by 8% to R2,7 billion (2008: R2,5 billion; 2007: R2,4 billion). The group EBITDA margin reduced by 0,4% given declines in the lime and aggregates divisions while the cement division s EBITDA margin was in line with the prior year, reflecting a small increase of 0,1%. Borrowing costs increased on last year after a R1,7 billion rise in net borrowings. Of these, R1,1 billion related to the IFRS requirement to consolidate the debt of the broad-based black economic empowerment transaction trusts and trust-funding special purpose vehicles. The balance of R0,6 billion related to own funding requirements. A finance charge of R91 million is associated with the debt arising from consolidation of the trusts. A total of R17 million of finance costs was capitalised to capital projects (2008: R44 million; 2007: R8 million). The reduction related to commissioning the new Dwaalboom plant at the end of the previous financial year. Finance charges on short- and long-term borrowings before interest capitalised were R283 million (2008: R201 million; 2007: R92 million). Lower investment income reflects reduced average cash balances during the review period to minimise finance cost. Net profit of R1,1 billion (2008: R1,5 billion; 2007: R1,4 billion) reduced by 25% on the previous year, impacted by higher finance costs. Excluding the IFRS 2 charges and recycling gain on the consolidation of Porthold for the first time since 2004, net profit reduced by 8% to R1,4 billion. Headline earnings per share decreased by 40% to 170 cents (2008: 283 cents per share; 2007: 263 cents per share). As required by Circular 8/2007 (Headline Earnings), the recycling gain on consolidation of Porthold was excluded from headline earnings. Normalised headline earnings per share, which exclude the IFRS 2 charges, decreased by 9% to 257 cents. Cash flow The company maintained its strong cash flow generation, with cash generated from operations increasing to R2,6 billion (2008: R2,5 billion; 2007: R2,2 billion). Working capital management Strong focus on working capital management continued, with account receivable balances increasing by only R31 million. The higher investment in inventories related to increased maintenance spares required by the new Dwaalboom and Hercules plants, and cement and clinker stocks increasing from low prior-year levels. Dividends The directors have declared a final dividend of 155 cents per share (2008: 180 cents per share; 2007: 166 cents per share). Total dividends for the year are 200 cents per share (2008: 225 cents per share; 2007: 205 cents per share) and reflect a dividend cover of 1,29 times, excluding the impact of the non-cash IFRS 2 charges and gain on consolidation of Porthold, which is within the company s target range of 1,2 to 1,5 times. Page 25 Management review 28 Operational review 38 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

30 Chief financial officer s report continued The 48,6 million new shares issued to the empowerment partners of the broad-based black economic empowerment transactions shared in dividends with effect from the 2008 final dividend, which was paid in January Capital expenditure Capital expenditure, including interest capitalised of R17 million (2008: R44 million; 2007: R8 million), was R938 million (2008: R841 million; 2007: R972 million) and related mainly to the Hercules mill and new Dwaalboom kiln. This expenditure was in line with indications given in the 2008 financial statements. To comply with stated environmental targets, capital expenditure on environmental projects will total an estimated R370 million over the next five years. The company continued to use available shortterm facilities to fund capital expenditure and working capital requirements, and will raise appropriate long-term borrowings to fund major expansion projects R million Dwaalboom (Batsweledi) expansion project 126 Hercules (Ntšhafatso) expansion project 370 Other expansion projects 34 Expansion projects 530 Replacement projects 380 Environmental projects 11 Total 921 Projected cash flows for 2010 Hercules (Ntšhafatso) expansion project 120 Riebeeck (Se Kïka) expansion project 50 Other expansion projects 30 Expected annual replacement projects Environmental projects 90 Porthold capital projects 80 Broad-based black economic empowerment transaction The 15,29% broad-based black economic empowerment transaction became effective on 15 December The transaction comprised a combination of debt funding, preference share funding and contributions from PPC group companies. A total of 48,6 million new shares were issued and treated as a separate class of shares, and a further 38 million shares were acquired from existing PPC shareholders by means of a scheme of arrangement in terms of section 311 of the Companies Act at a consideration of R31,32 per share, being the 30-trading day volume weighted average price at the close of business on 21 August In terms of SIC Interpretation 12 (Consolidation Special Purpose Entities) and as PPC has provided guarantees for part of the transaction funding, debt of R1,1 billion is consolidated with a corresponding debit against equity. The related 38 million ordinary shares are treated as treasury shares. The IFRS 2 charges for 2009 totalled R490 million, which included a cash contribution of R109 million. Further charges totalling an estimated R82 million will be expensed in future financial years over the respective vesting periods of the shares. Page 26

31 Consolidation of Porthold Due to the improvement in Zimbabwean macroeconomic conditions after significant changes announced by the Zimbabwean government, the directors of PPC believe the requirements for effective control over Portland Holdings Limited (Porthold), in terms of the definition and requirements of IAS 27 (Consolidated and Separate Financial Statements) have been met, and accordingly Porthold was consolidated from 30 September The changes made removed many of the distortions that existed in the Zimbabwean economy, which included unrealistic local market cement price realisations, not receiving the full benefit of export proceeds, exchange rate uncertainty and foreign currency restrictions, shortage of inputs and the effects of hyperinflation. The carrying value of the investment in Porthold at the effective date was R260 million. In terms of IFRS 3 (revised 2008) (Business Combinations), the effective-date fair value of Porthold was determined at R473 million, and the appropriate balance sheet values of Porthold were included in the PPC consolidated balance sheet from the effective date. The resultant take-on gain of R213 million was recognised in the income statement and excluded from headline earnings. Porthold Trust (Private) Limited, an employee trust, holds 1,1 million PPC shares listed on the Zimbabwean Stock Exchange. These shares, valued at R18 million, were treated as treasury shares from the effective date. Share trading During the review period, the volume of PPC shares traded on the JSE Limited remained high. The percentage of PPC shares held offshore decreased marginally to 30% at year end (2008: 32%). Market capitalisation at year end was R19,4 billion (2008: R15,9 billion; 2007: R24,4 billion). Effect of significant changes in IFRS PPC has early-adopted a number of revised standards, amendments and interpretations in the current period, which did not have a material impact on the reported results of the group. A number of statements and interpretations will become effective in the 2010 and 2011 financial years, none of which is expected to materially impact the reported results of the group. Capital structure and debt Gross debt to EBITDA levels increased to 1,3 times (2008: 0,7 times; 2007: 0,6 times), well within the targeted two to three times level. To manage the interest rate exposure of the broad-based black economic empowerment transaction, a portion of variable interest rates was swapped for fixed interest rates. PPC has not applied hedge accounting for the period under review. Competition Commission investigation PPC is co-operating fully with the Commission and has concluded a conditional leniency agreement with the Commission in terms of which PPC will have immunity from prosecution, conditional on ongoing co-operation with the Commission. As a result of this agreement, no fines or penalties are expected to be levied against the company. Cash flow 2010 The company should continue to reflect steady performance with strong operating cash flow for the year ahead. Peter Esterhuysen Chief financial officer 10 November 2009 Management review 28 Operational review 38 Corporate governance 58 Corporate responsibility 66 Page 27 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

32 PPC s Porthold kiln in Zimbabwe is a modern five-stage pre-heater kiln with pre-calciner PPC s Colleen Bawn plant in Zimbabwe

33 28 38 Corporate governance 58 Corporate responsibility Operational review 66 Page 29 Financial statements

34 Porthold review Zimbabwe operations at a glance Portland Holdings Limited (Porthold) is Zimbabwe s oldest and largest cement manufacturer It has a reputation for strong customer focus and the Unicem brand is known for its product quality and consistency The two Porthold plants in Colleen Bawn * and Bulawayo are among the most modern in southern Africa and well located to serve both the Zimbabwean and neighbouring export markets Combined, the two plants and quarry have an annual capacity of tons of cement Bulawayo plant can produce another tons of cement per annum with clinker supplied from PPC s South African operations The installation of a new cooler and upgrade to the kiln at Colleen Bawn will increase capacity by around 20% in * Colleen Bawn is situated in the south-west of Zimbabwe, halfway between Beit Bridge and Bulawayo. Highlights Zimbabwe takes top honours in the 2009 PPC Achievers Awards, fielding two nominees in the top 10 and the overall winner Robust increase in domestic sales after the US dollar becomes the functioning currency in March Q FY2009 sales are up 162% to tons against tons in 3Q Over 3,6 million hours worked without lost-time injury. The Bulawayo factory and Colleen Bawn plant are currently ranked first and third respectively in the country for safety by the National Social Security Authority (NASSA). 1 1 After two years of construction between 1992 and 1994, the Mtshabezi dam wall contained m 3 of Unicem cement a lasting legacy to the quality of Porthold s products. 2 Porthold s two clinics provide primary healthcare and medical services to over 500 employees, members of their families and surrounding communities. These include essential services for people on anti-retroviral treatment or managing chronic conditions. The clinics services complement other initiatives under way to improve the health and quality of life of Porthold s people and communities. 2 3 Porthold sponsors four schools. Portland Primary at Colleen Bawn is a private school, funded and run by the company. The other two schools at Colleen Bawn, CB Primary and CB Secondary, as well as Cement Primary at Bulawayo are state-run schools on our property and maintained by the company. Schooling in the past year has become an issue, with teachers often on strike against low wages. Students are forced to pay school fees to subsidise teachers salaries and other running expenses. PPC has assisted its employees in overcoming these challenges. 3 Page 30

35 Porthold is PPC s wholly owned subsidiary in Zimbabwe, acquired in 2001 but dating back to 1913 when the factory 15km east of Bulawayo was the first cement company in Zimbabwe. The factory at Colleen Bawn was established in Porthold s core brand is Unicem, a cement made at the Bulawayo factory from high-quality raw materials and found in virtually every key structure in the region from Harare International Airport to mighty dam walls. Nine years ago, acquiring Porthold was identified as another step in the development and growth of PPC s geographic footprint part of a focused growth strategy to catapult PPC from a South African business to the leading supplier of cement in South Africa, Botswana and Zimbabwe, steadily increasing our exports across the continent. That rationale is unchanged. Despite the numerous challenges of operating a business in Zimbabwe over the past decade, members of the team at Porthold have repeatedly demonstrated their initiative and willingness to develop innovative solutions to maintain their plant in the absence of parts, retain their skills base by working with their employees to address individual needs, and empower their communities through a range of projects that spans clinics, schools and vegetable gardens. Today, Porthold operations can produce tons of quality cement per annum for customers in Zimbabwe and into Africa through Botswana and Zambia. Working with some of the most sophisticated plant in the region, the 580-strong workforce typifies the resilient, professional ethos of the PPC group. This is a team ready for new challenges, ready to act as PPC s springboard into Africa, and just as ready to play its part as Zimbabwe begins to rebuild a nation and an economy, and resume its role as one of the largest sub-saharan markets outside South Africa. Operational review 38 Porthold s Bulawayo nutrition garden project In July 2006, five men and 12 women started a small nutrition garden at Porthold s Bulawayo factory clinic, with the support of Porthold management. Driven by the shortage of food in Zimbabwe and the HIV/Aids pandemic, the clinic had been motivating people through Invocoms and widespread screenings of a video on positive health and reducing food expenses. Corporate governance Land near the clinic was allocated as the site for the project and Porthold bought watering hoses, manure, seeds and pesticides for the project. Water pipes were laid. In December 2006, the company hired a tractor to plough the land, which lies south of the dam adjacent to the clinic. The total area measures about one hectare. The land was then subdivided and portions allocated to residents of Village 3, the people who most needed gardens as the yards attached to their houses were not big enough to enable them to grow a variety of vegetables at home. With the help of the government AREX (Agricultural Research and Extension) officials, plot holders were given basic horticultural skills from bed preparation to soil mixtures, crop rotation and pest control. Soon more people came to register for their share of the beds. There are now 93 households who own seven beds per family. AREX officials visit the project weekly to offer free advice. There are still challenges, like boreholes breaking down which plot holders overcame by fetching water from the nearby dam. Because of the cash crisis affecting the whole country, plot holders now contribute money to buy seeds by selling surplus produce. In turn, these sales are helping to make the project self-sustaining. 58 Corporate responsibility 66 The project s benefits are now emerging, most importantly in lower rates of absenteeism as people s health improves. Given the number of people waiting to join, possible expansion is being investigated. Page 31 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

36 PPC is committed to identify, assess and reduce the environmental impact of its activities PPC s De Hoek plant in the Western Cape

37 38 Corporate governance 58 Corporate responsibility Operational review 66 Page 33 Financial statements

38 Operational review: Cement Slower cement demand has enabled PPC to optimise distribution and stop older, lessefficient kilns Number of clinker manufacturing plants 8 Dwaalboom kiln 2 running exceptionally well PPC s cement sales 10 Market conditions Industry regional cement sales declined by 11% compared to the previous financial year. There were marked differences between the provinces and neighbouring countries. Gauteng and the Western and Eastern Cape showed the largest declines while provinces such as KwaZulu-Natal, Limpopo and Mpumalanga continue at a similar pace to the previous year. The demand in Botswana remained positive for the year. The largest influence on this regional decline is the drop in private residential and building activity. This decline was partly offset by the significant number of infrastructure projects in progress including the rapid rail link (Gautrain), the Gauteng Freeway Improvement Plan and the Medupi and Kusile power stations. Contribution to revenue 88% Cement Contribution to EBITDA 93% Cement Zero lost-time injuries in 1,5 million hours on Hercules Ntšhafatso project The industry imported some tons of cement and clinker into South Africa during the period under review. This is considerably down on the 1 million tons imported the previous year. This indicates that local capacity is again capable of meeting the needs of the region. PPC s regional sales volume was down 10%. The disappointing demand in the Western and Eastern Cape was offset by PPC being able to supply a number of the infrastructure projects and the more resilient Limpopo and Mpumalanga provinces. Export sales have increased this year with PPC resuming exports to traditional markets in Africa, including Mozambique and Angola. Page 34

39 Despite some signs of recovery in the economic slowdown it is likely to take a number of months for the impact of interest rate cuts to filter through to the private building sector. The demand from infrastructure projects will continue to offset weaker private sector demand. Cement sales are not expected to show any improvement in the next review period. Operations With the successful commissioning of Dwaalboom s new kiln 2 and softening in demand, there has been some opportunity to rationalise clinker production. This has involved the optimisation of product sourcing and consequent stopping of smaller less efficient kilns. Some of these kilns were unexpectedly recommissioned for peak demand in 2005 to It has also afforded the opportunity to undertake some major maintenance which was not possible during periods of high utilisation. Contractual performance tests were successfully completed at kiln 2 at Dwaalboom in the first quarter. The kiln has since performed above expectations in both production output and energy efficiencies. Kiln 7 at Slurry is undergoing major maintenance including the installation of a new heat exchanger, to improve energy efficiency and output and upgrading the filter to further reduce dust emissions. Operations at the Saldanha materials handling and slag grinding facility ran well, but utilisation was affected by the slowdown in demand for steel, particularly in the first half. The cement manufacturing process* Dust, noise, vibration and water impacts Mining limestone Raw mill Energy efficiency, air emissions and noise impacts Fugitive dust emissions Crushing plant Coal mill Mining and crushing The primary raw material for cement manufacture is calcium carbonate or limestone. This is obtained from the quarry where, after the removal of overburden, the rock is blasted, loaded into trucks and transported to the crusher. A multistage crushing process reduces the rock to stone less than 25mm in diameter. Most modern cement factories are located close to a source of limestone as about 1,5 tons of limestone are needed to produce one ton of cement. Blending and storage The crushed rock is stored in stockpiles where, by a carefully controlled process of stacking and reclaiming across the stockpile, blending takes place and a uniform quality of raw material is achieved. Systematic sampling and laboratory testing monitor this process. The other raw materials, normally shale, iron ore and sand, are also stored in stockpiles. Raw milling and homogenisation Carefully measured quantities of the various raw materials are fed, via raw mill feed silos, to mills where steel balls grind the material to a fine powder called raw meal. Homogenising silos are used to store the meal where it is mixed thoroughly to ensure that the kiln feed is uniform, a prerequisite for the efficient functioning of the kiln and for good quality clinker. Burning The most critical step in the manufacturing process takes place in the huge rotary kilns. Raw meal is fed into one end of the kiln, either directly or via a pre-heater system, and pulverised coal is burnt at the other end. The raw meal slowly cascades down the inclined kiln towards the heat and reaches a temperature of about 1 450oC in the burning zone where a process called clinkering occurs. The nodules of clinker drop into coolers and are taken away by conveyors to the clinker storage silos. The gas leaving the kiln is cleaned by electrostatic precipitators prior to discharge into the atmosphere. Cement milling The cement mills use steel balls of various sizes to grind the clinker, along with a small quantity of gypsum, to a fine powder which is then called cement. Without gypsum, cement would flash set when water is added and gypsum is therefore required to control setting times. The finished cement is stored in silos where further blending ensures consistency. Quality assurance Extensive sampling and testing during the manufacturing process ensures the consistency and quality of the end product. Cement dispatch Cement is dispatched either in bulk or packed in 50kg bags and distributed from the factory in rail trucks or road vehicles. The 50kg bags are packed directly onto trucks or palletised. Various types of cement are sold. * Adapted from Polysius schematics Energy efficiency, air emissions and climate change Limestone blending Dust and water impacts Coal stockpile Fugitive dust emissions Pre-heater, kiln line & cooler Clinker storage Cement milling & dispatch Page 35 Operational review 38 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

40 Operational review: Cement continued Projects The Ntšhafatso Project (Hercules mill) is progressing well and commissioning is estimated to be early in the 2010 calendar year. The project has recorded some time slippage due to unexpected geological conditions which required more piling and the complex nature of working between existing plant. The project is expected to be completed within the current budget of R700 million. The project lost-time injury frequency rate remained zero for the year under review. Financial results Revenue grew by 11% to R5 948 million while operating profit grew by 8% from R2 100 million to R2 263 million due to some price realisation and higher efficiencies. R million Revenue EBITDA EBITDA margin (%) 42,6 42,5 Assets* * Includes Porthold assets of R675 million in 2009 The Se Kïka Project, which includes the planned construction of a new 1,4 million ton per year cement plant at PPC s Riebeeck site, is still awaiting a record of decision on the environmental impact assessment (EIA). The final environmental impact assessment report was submitted in March 2009 to the Western Cape provincial government. The newly promulgated Waste Act will have an impact on the EIA timeline as another public participation period is required. It is unlikely that any significant capital expenditure on this project will be incurred in the 2010 financial year. Page 36

41 Operational review: Lime Operational review: Aggregates Market conditions Sales of burnt product were affected by the severe slowdown in local and international steel and alloy markets. The prospects of the Lime division are closely aligned with the steel and metallurgical industries and uncertainty remains on the level and timing of a recovery in international demand for steel and alloy products. South African steel and alloy producers have seen recent improvement in demand, but are maintaining a short-term view with production to order only. This could result in an improvement in demand for burnt product in Operations and financial results Results were impacted by the noted drop in demand and high energy prices. The net result was a decrease in operating profit by 35% to R91 million. The reduced demand has allowed for the optimisation of plant and mining operations and emphasis on efficiency. This resulted in two of the kilns achieving record levels of heat consumption efficiency. Major projects are focused on environmental legal compliance and process efficiency improvements. R million Revenue EBITDA EBITDA margin (%) 22,3 27,9 Assets Market conditions Sales in South Africa remained under pressure as a result of the general slowdown in demand for aggregates and metallurgical stone from the steel industry. This was partially offset by demand relating to the government roads investment programme in Botswana. Demand for aggregates in the next financial year is expected to be in line with the year under review, with no significant recovery expected in construction activity. Demand for metallurgical stone depends on the recovery in the steel industry as noted in the lime review. Demand for aggregates in Botswana is expected to continue to show positive growth. Operations and financial results Revenue increased by 5% to R296 million and operating profit was down by 12% to R72 million. All plants performed well during the year under review and the new plant at Laezonia quarry was commissioned. The mobile plant relocated from Mooiplaas to Kgale quarry was successfully commissioned during the year and has achieved the objective of improving production flexibility and capacity at the quarry. R million Revenue EBITDA EBITDA margin (%) 28,4 33,1 Assets Operational review 38 Corporate governance 58 Corporate responsibility 66 Page 37 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

42 Governance is the cornerstone of sustainability PPC s Mooiplaas quarry in Gauteng supplies quality aggregates and sands to the construction industry

43 38 58 Corporate responsibility Corporate governance 66 Page 39 Financial statements

44 Corporate governance structure and management systems PPC is incorporated in the Republic of South Africa under the provisions of the Companies Act, 1973, as amended (the Companies Act) PPC has a strong ethos of corporate governance which is an important consideration in its dayto-day operations. The company is incorporated in South Africa under the provisions of the Companies Act, 1973, as amended (the Companies Act). PPC and its subsidiaries are fully committed to the principles of fairness, discipline, independence, accountability, transparency and social responsibility associated with good corporate governance. The company accepts the principles and firm recommendations set out in the Code of Corporate Practices and Conduct in the King Report on Corporate Governance for South Africa (2002) (King II), complies with the additional governance requirements of the JSE Limited and the Public Investment Corporation s (PIC) Principles, Policies and Practical Application regarding corporate governance. In this report, instances of non-compliance are noted and reasons are given. In terms of non-financial aspects, the company complements these extended reporting requirements by adopting the Global Reporting Initiative s (GRI) sustainability reporting guidelines on economic, environmental and social performance. This year, the company has again been included in JSE Limited s Socially Responsible Investment Index, moving into the best performer category. PPC s systems of corporate governance are continually evolving in pursuit of best practice and as the needs and expectations of stakeholders develop. Key achievements Key achievements during the period in line with best practices and stakeholder expectations include: The appointment of a new chairman to the PPC board. The appointment of a new CEO for the PPC group. The Dekra audit and excellent rating of corporate governance in the PPC group which has resulted in PPC Lime being awarded a fivestar Dekra rating. Board of directors The shareholders meeting is the company s highest decision-making forum. Among other issues, the shareholders meeting elects the members of the board of directors. The board is responsible for governance and its duties include, among other issues, the appointment and dismissal of the chief executive officer. The board of directors primary responsibility is to provide effective governance over the company s affairs for the benefit of its shareholders, and for creating sustainable shareholder value through balancing the interests of all constituencies, including its customers, employees, suppliers and local communities. The board is governed by a formal board charter setting out its duties and responsibilities. The board has formally reserved the following functions for itself: Approval and monitoring the implementation of the strategic plan and the annual business plan, setting objectives and reviewing key risks and performance areas, especially technology and systems, environmental issues and transformation. Appointment of the chief executive officer and maintaining a succession plan. The appointment of directors. Determining overall policies and processes to ensure the integrity of the company s management of risk and internal control. While retaining overall accountability and subject to matters reserved to itself, the board has delegated to the chief executive officer and other executive directors authority to run the day-today affairs of the company. Page 40

45 Annual strategic review In accordance with its annual meeting plan, the board reviewed the company s long-term strategic plans and principal issues it expects the company may face in future during a special board meeting in August Board committees Specific responsibilities have been delegated to the committees of the board that have access to independent advice at the group s expense. Audit, risk management and compliance, black economic empowerment and transformation, nominations and remuneration committees assist the company s board in the discharging of its duties and report to the board on their activities. Each committee acts within its written terms of reference, under which certain functions of the board are delegated with clearly defined purposes and membership requirements. The performance and effectiveness of the committees were evaluated during the annual evaluation by the board. Chairmen of the board committees are required to attend annual general meetings to answer questions raised by shareholders. Directors 26 Jan 2009 Evaluation of the board and board committee performance A formal self-evaluation of the board and its committees performance and effectiveness was carried out during the period under review. This exercise was conducted by individual questionnaires completed by each board and committee member. The group company secretary collated the results of all the questionnaires which were reported to the board in November 2009 and the board concluded that it continues to operate effectively. The exercise has ensured that the board remains effective and relevant to the business objectives of the company. The performance of individual directors is evaluated by the nominations committee before each occasion when a director comes up for reelection. The performance of the chairman is evaluated separately by the board. During the period under review the following scheduled board meetings were held in accordance with the annual meeting plan and attendance at these meetings is indicated: 26 Feb May Aug Sep Nov 2009 Corporate governance BL Sibiya P Stuiver S Abdul Kader RH Dent X P Esterhuysen O Fenn Resigned Resigned Resigned JE Gomersall Retired Retired Retired Retired ZJ Kganyago AJ Lamprecht NB Langa-Royds X MP Malungani X TDA Ross J Shibambo JS Vilakazi X Present/Attended X Absent/Apology Not yet appointed Page Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

46 Corporate governance structure and management systems continued Special (unscheduled) board meetings were held on 21 May 2009, 10 July 2009 and 5 August Ms NB Langa-Royds, Messrs J Shibambo and JS Vilakazi could not attend the meeting on 21 May 2009 and Mr AJ Lamprecht could not attend the meeting on 10 July Number and selection of board members At the date of this report, the board comprises five executive and eight non-executive directors. A significant number of changes were made to the board during the year. Mr BL Sibiya was appointed chairman of the board on 11 November Messrs MP Malungani and JS Vilakazi were appointed to the board on 27 February 2009, and the new CEO, Mr P Stuiver, on 1 June The aim is to have a board that has an appropriate balance of skills and experience to support our strategy and meet present requirements to lead the company effectively. The nominations committee is responsible for overseeing the process for appointing new directors to the board and it reports on its activities on page 47. The selection and nomination of directors takes place according to well-defined procedures and any proposed new appointment of a director is considered by the board as a whole, on the recommendation of the nominations committee. Succession planning The nominations committee annually reviews the board s performance, structure, size and composition and makes recommendations to the board on succession, training and replacements. Director independence In line with best practice around the globe, more than half the board members are independent non-executive directors. The board considered the issue of independence at its board meeting in November 2009 and concluded that Ms ZJ Kganyago, Ms NB Langa-Royds and Messrs TDA Ross, BL Sibiya, AJ Lamprecht and J Shibambo are independent non-executive directors of PPC as contemplated in sub-paragraph of the King Code of Corporate Practices and Conduct and paragraph 3.84(f) of the JSE Limited s listings requirements. The PPC board is of the view that Messrs MP Malungani and JS Vilakazi, who represent the interests of BBBEE partners of the company, should be considered non-executive directors for the period under review. The curriculum vitae of each director of the company is published on pages 56 and 57. Director orientation and continuing education All new directors receive a comprehensive induction. The induction is the responsibility of the group company secretary and includes a comprehensive information pack, an explanation of their fiduciary duties and responsibilities, meetings with the chairman and executives of the company to facilitate an understanding of the company s affairs and operations, and director development programmes arranged through the Institute of Directors. The group company secretary continually facilitates additional training and updates for directors on particular issues such as competition and mining legislation etc. In certain circumstances it may become necessary for a non-executive director to obtain independent professional advice in order to act in the best interests of the company. Such a director also has unrestricted access to the chairman, executive directors and group company secretary. Where a non-executive director takes reasonable action and costs are incurred, these are borne by the company. Page 42

47 Retirement from the board and terms of contracts By convention, executive directors retire from the board at 63 years of age while non-executive directors retire at the next annual general meeting following their 70th birthday. In terms of the company s articles of association, at every annual general meeting, at least one-third of the directors retire from the board. In addition, a director appointed by the board to fill a vacant seat must retire from that office at the next annual general meeting. Directors retiring in this manner may offer themselves for election or re-election, as the case may be, subject to recommendation from the nominations committee. At the forthcoming annual general meeting, Messrs SG Helepi, MP Malungani, P Stuiver and JS Vilakazi, having been appointed as directors by the board during the year, are required to retire and Mr S Abdul Kader, Ms ZJ Kganyago, Ms NB Langa-Royds and Mr J Shibambo are required to retire by rotation in terms of the articles of association. All have offered themselves for election and re-election respectively at that meeting and the nominations committee has recommended their re-election. There are no contracts of service between any directors and the company or any of its subsidiaries that are terminable at periods of notice exceeding three months and requiring payment of compensation with the exception of fixed term contracts with Mr JE Gomersall and Mr P Stuiver. Mr Gomersall s contract was to expire on 31 January 2010, after the annual general meeting and four months after his 63rd birthday. As the company had been unbundled from Barloworld, and was in the middle of a major capital expenditure programme until 2010, it was deemed to be in the company s best interests that the services of the then chief executive officer were secured to lead the company through this important phase. Mr JE Gomersall however exercised his option to take early retirement with six months notice, and this option was exercised in November 2008 with effect from 30 June The company has entered into a three-year fixedterm contract with Mr P Stuiver which may be extended by agreement. Director compensation The form and amount of director compensation is determined by the board based on the recommendation of the remuneration committee. The remuneration committee conducts an annual review of director compensation. The executive directors (who are employees of the company) do not receive any additional compensation for their services as directors. Directors who are not employees of the company may not enter into any consulting arrangements with the company without the prior approval of the board and their fees are recommended by the board and fixed by shareholders at the annual general meeting. The remuneration of executive directors is determined by a disinterested quorum of the board based on the recommendations of the remuneration committee which is also responsible for the annual review and approval of criteria to measure the performance of executive directors in discharging their functions and responsibilities. Refer to the report on page 48. Chairman and chief executive officer In line with King ll recommendations and the board charter, the roles and offices of the group CEO and chairman of the board are strictly separated. While non-executive directors are not involved in the day-to-day operations of the company, they have unfettered access to management. The group company secretary The group company secretary is Mr JHDLR Snyman and he provides the board as a whole and directors individually with detailed guidance on discharging their responsibilities. He is a central source of information and advice to the board and within the company on matters of ethics and good governance. He also ensures that the proceedings and affairs of the board, its committees, the company itself and, where Page 43 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

48 Corporate governance structure and management systems continued appropriate, owners of securities in the company are properly administered in accordance with relevant laws. He is responsible for compliance with the rules and listings requirements of the JSE Limited and the Zimbabwe Stock Exchange on which the company s securities are listed and administers the statutory requirements of the company and its subsidiaries in South Africa. All directors have direct access to the group company secretary at all times and the directors and officers of the company must keep him advised of all their dealings in securities of the company. Insider trading The Securities Services Act regulates transactions by directors and officers in securities issued by the company and the company has issued a set of guidelines and rules for its directors, officers and employees. When any director or officer wishes to buy, sell or take a position in securities of the company, they must notify the group company secretary of their intentions prior to the transaction and record in writing immediately after the transaction the details thereof and deliver a detailed written record to the group company secretary within 24 hours. During the review period, a misunderstanding between the chairman and a director resulted in delayed disclosure of a director s dealings in securities. Accounting and reporting The board places strong emphasis on achieving the highest standards of financial management, accounting and reporting to shareholders. Audit committee The committee comprises the following members: TDA Ross, ZJ Kganyago and J Shibambo. No changes were made to the committee during the period under review. The audit committee consists of three independent non-executive directors as required by legislation and corporate governance best practice. Its chairman, Mr TDA Ross, is an independent non-executive. As stipulated by its terms of reference, the committee assists the board in discharging its duties on safeguarding assets, operation of adequate systems and control processes, and presentation of accurate and balanced financial statements and reports complying with all relevant corporate governance disclosure requirements and accounting standards, including International Financial Reporting Standards. The audit committee met on: 28 November 2008, to consider internal and external audit plans for the 2009 year. The committee approved these plans and mandated the chairman to sign the engagement letter for external audit and non-audit services. The committee s terms of reference were also updated; 6 May 2009, to consider reports from internal and external auditors and to review the financial statements for the half-year ended 31 March The committee was satisfied that the financial statements and interim report were fairly stated and resolved that the chairman recommend approval by the board on 11 May 2009; 16 October 2009, to consider internal and external audit plans for the 2010 year. The committee approved these plans; and 9 November 2009, to consider reports from internal and external auditors and to review the financial statements for the year ended 30 September The committee was satisfied that the financial statements and audited preliminary report should be recommended for approval by the board on 10 November The Deloitte principal engagement partner responsible for the audit was present and the committee held discussions in the absence of management with both internal and external auditors. Similarly, discussions were held with management in the absence of the internal and external auditors. Members attended the following meetings: Directors 28 Nov May Oct Nov 2009 TDA Ross ZJ Kganyago X X J Shibambo Present/Attended X Absent/Apology Page 44

49 At the board meeting on 10 November 2009, the audit committee reported on how it has carried out its duties and reports as follows to shareholders: Audit committee report 2009 We are pleased to report to you on the audit committee's (the committee) activities in The committee executes its responsibility in compliance with the Companies Act (the act) and within the mandate given by the PPC board as stipulated in its terms of reference. Membership and meetings. The committee comprises solely independent non-executive directors as required by legislation. The members are Mr Tim Ross (chair), Ms Zibusiso Kganyago and Mr Joe Shibambo. In accordance with its annual meeting plan, the committee has held four meetings in 2009 and we confirm that it has discharged its oversight responsibilities within the scope of its mandate. External audit. The committee reviewed with the external audit firm, which is responsible for expressing an opinion on the conformity of those audited financial statements and related schedules with IFRS and its judgements as to the quality, not just the acceptability, of the company s accounting principles. There is a formal procedure that governs the process whereby the external auditors are considered to provide non-audit services. These services are set out in an engagement letter for and approved by the committee in advance. The committee has satisfied itself through enquiry that the external auditor is independent as defined by the act. The committee has met with the internal and external audit firms in the absence of management, to discuss the results of their examinations; evaluations of the company s internal control, including internal control over financial reporting, and the overall quality of the company s financial reporting. No matters of concern were raised during those meetings. The committee has agreed to an audit fee for the 2009 financial year which is disclosed in note 18 to the group financial statements. We are of the view that this fee is appropriate. In reliance on the reviews and discussions referred to above, the committee has nominated Deloitte & Touche as the external auditors for the 2010 financial year subject to approval at the annual general meeting. Mr Michael John Jarvis (IRBA no ) from the noted firm of auditors has been nominated as the designated auditor. Financial director review. The committee has also reviewed the performance, appropriateness and expertise of the chief financial officer Mr Peter Esterhuysen, and confirms his suitability for appointment as financial director in terms of the JSE listings requirements. The annual report. In fulfilling its oversight responsibilities, the committee has reviewed and discussed the audited financial statements and the related schedules as reported in the annual report with company management. The committee considers that the report complies with the act and International Financial Reporting Standards and has therefore recommended the annual financial statements for approval by the board. These statements will be open for discussion at the forthcoming annual general meeting. TDA Ross Audit committee chair ZJ Kganyago Audit committee member J Shibambo Audit committee member 9 November 2009 Corporate governance 58 Corporate responsibility 66 The board has determined that the audit committee, which has no executive powers, has satisfied its responsibilities for the period under review in compliance with its terms of reference. Page 45 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

50 Corporate governance structure and management systems continued Risk management and compliance committee To comply with best practice and following the committee s recommendations, the board has decided that this committee should comprise exclusively non-executive directors. The committee now comprises the following members: J Shibambo (chairman), TDA Ross and JS Vilakazi (appointed during the year). The following members resigned during the year: RH Dent, O Fenn, JE Gomersall and MJ Shaw. The chairman of the committee, Mr J Shibambo, is an independent non-executive director. As stipulated by the committee s terms of reference, the committee assists the board in discharging its duties with respect to recognising all material risks to which the group is exposed and ensuring the requisite risk management culture, practices, policies, resources and systems are in place and functioning effectively, and that controls are in place to provide reasonable assurance that the company is in compliance with those laws and regulations to which it is subject. During 2009, this committee reviewed high-level risk areas and their potential impact on the business. Further details on page 51. In the period under review, the committee met as follows: Directors 6 May Nov 2009 J Shibambo TDA Ross JS Vilakazi Present/Attended The board has determined that the risk management and compliance committee, which has no executive powers, has satisfied its responsibilities for the period under review in accordance with its terms of reference. Black economic empowerment (BEE) and transformation committee The committee comprises the following members: NB Langa-Royds (chair), J Shibambo, AJ Lamprecht and MP Malungani. In terms of mining legislation passed in South Africa, including the Minerals and Petroleum Resources Development Act, the broad-based socio-economic charter for the mining industry (the mining charter) was developed. The goal of the charter is to create a non-racial mining industry in South Africa. To assess the progress of mining companies to reach defined socioeconomic goals, a mining scorecard has been developed. As the PPC group has quarrying operations governed by this act, it has to comply with the act even though the group is not a mining company per se and its quarrying operations are a minor part of its overall operations. The BEE and transformation committee assists the board in adopting a holistic approach to transformation and complying with all relevant legislation and charters in this regard. The committee had five scheduled meetings during the period under review: 26 February 2009, the dividend flow to BEE trusts was noted and Mr Abdul Kader reported on the implementation and administration of the BEE trusts. 11 May 2009, the members of the allocation committee (the committee proposing participation in the benefits of the BEE trusts) were appointed and funding of the trusts discussed in detail. The PPC BBBEE scorecard as at March 2009 was discussed and an improvement from level 7 to level 4 was noted. Page 46

51 The committee met as follows: Directors 26 Feb May Aug Nov 2009 JE Gomersall Retired Retired NB Langa-Royds AJ Lamprecht MP Malungani X J Shibambo Present/Attended X Absent/Apology Not yet appointed 11 August 2009, the committee considered the BEE strategic plan and it was decided to progress from a scorecard rating of 4 to a rating of 3. Employment equity targets would be the focus for improvement. 6 November 2009, the committee considered an update on the activities of the BEE trusts and the Ntsika fund and also discussed BEE procurement. The improvement of the BBBEE scorecard from level 4 to level 3 was noted. The board has determined that the BEE and transformation committee has satisfied its responsibilities for the period under review in compliance with its terms of reference. Nominations committee The committee comprises the following members: BL Sibiya, J Shibambo, NB Langa-Royds and AJ Lamprecht. During the period under review Mr BL Sibiya was appointed as chairman of the committee in accordance with the JSE listings requirements. The nominations committee is composed entirely of independent non-executive directors and makes recommendations to the board on the composition of the board and the balance between executive and non-executive directors. Skill, experience and diversity are taken into account in this process. The committee is responsible for identifying and nominating candidates for the approval of the board as additional directors or to fill any board vacancies when they arise, in terms of a policy detailing the procedures for such appointments and which requires these to be formal and transparent. It also advises the board on succession planning, especially in respect of the chairman of the board and chief executive officer. During the period under review, the committee met for the following scheduled meetings: 26 January 2009, progress with appointing a new CEO was discussed. 6 November 2009, the independence of directors was discussed, the report on the board performance noted and director rotation and succession was discussed. Corporate governance 58 Corporate responsibility 66 Page 47 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

52 Corporate governance structure and management systems continued Directors 26 Jan Nov 2009 MJ Shaw Retired BL Sibiya NB Langa-Royds AJ Lamprecht J Shibambo Present/Attended The committee also met for special meetings on 16 April 2009, 17 April 2009 and 11 May 2009 to discuss and recommend to the board the appointment of Mr P Stuiver to the board as chief executive officer. The board has determined that the nominations committee, which has no executive powers, has satisfied its responsibilities for the period under review in compliance with its terms of reference. Remuneration committee This committee is composed entirely of independent non-executive directors. It is mandated, within agreed terms of reference, to deal with remuneration policy in general and to approve the salaries and benefits of executive directors and senior management. The committee also advises on non-executive directors fees, and fees for those directors who are members of board committees, for onward recommendation to shareholders at the annual general meeting. The committee comprises the following members: NB Langa-Royds (chair), J Shibambo and JS Vilakazi. The company s philosophy is to set remuneration that is appropriate, taking into account levels of responsibility and the need to attract, motivate and retain directors, executives and individuals of high calibre. Basic guaranteed packages are normally reviewed once a year and take into account external market practices and conditions as well as the achievement of targeted individual performance. Annual salary increases are not guaranteed. The committee appointed Pricewaterhouse- Coopers to provide advice and recommendations as corporate governance requirements for executive remuneration have become more onerous. In terms of the company s approved long-term incentive scheme, share appreciation rights were approved by the board on the recommendation of the remuneration committee and granted on 25 September Exercise is subject for executive directors and certain senior management, to fulfilment of the following performance condition: cumulative headline earnings per ordinary share over the two financial years following the financial year ending September 2009 exceeding 2% real growth per annum. If the performance condition is not met for the two financial years, retesting is subsequently permitted for the third, fourth or fifth financial years, with the rights being forfeited thereafter if the performance condition has not been met. The remuneration committee may waive, amend or replace the performance conditions if events cause the committee to reconsider reasonably Page 48

53 that a changed performance condition would be a fairer measure of performance. Rights may not be exercised during a closed period, and must be exercised before the tenth anniversary of the grant date, failing which they will lapse. A restricted share scheme is in place with the objective of retaining the services of key employees who are critical to the future of the group. The scheme is a notional scheme in that participants will not be entitled to acquire actual shares in the capital of the company, but the scheme will enable a participant who has been granted restricted share units to receive a future cash amount subject to the conditions of this scheme and calculated with reference to a share in the capital of the company. The grants are based on multiples of basic salary used in companies operating in similar industries. The terms governing future long-term incentive awards are likely to be substantially similar to the 2009 award, with annual grant values set each year in line with market benchmarks for long-term incentives, although the remuneration committee may change certain aspects such as the vesting period, lapse period and performance conditions at its discretion to ensure new awards are in line with market trends, and remain fair and motivating long-term rewards. All rights immediately lapse if a participant resigns or is dismissed for disciplinary reasons. In the case of retirement, a participant s rights will be subject to the same conditions as if he/she had continued to be an employee. In the case of retrenchment, or termination of employment due to ill health, disability or any other circumstances which the committee may consider appropriate, a participant must exercise vested rights within three months. The committee also has absolute discretion to allow a portion of the unvested rights to vest. In the case of transactions involving restructuring of the company, variations in share capital, capital distributions and similar events, the committee will take such action as it considers appropriate to protect the interests of participants. In the event of a reconstruction or takeover leading to a change of control, the committee is obliged to deem as vested a portion of the rights of executive participants pro rata to the performance period lapsed, if, in their reasonable opinion, they consider that the performance conditions have been substantially met. The company will periodically recommend to the remuneration committee which employees it intends to incentivise by making grants of share appreciation rights or restricted share units, the quantum of the awards to be made, vesting dates and nature of performance conditions. The committee, after review and due consideration, will recommend such allocations as it deems fit to the board for approval. Recipients of share appreciation rights (SAR) and restricted share units (RSU) 2009 SAR RSU S Abdul Kader RH Dent P Esterhuysen Executive directors (subject to performance conditions) Senior management (subject to performance conditions) Senior management (not subject to performance conditions) More detail on the above is available in note 36.1 on page 136. The company continues to review the balance between the fixed and variable components of its remuneration with the aim of increasing, subject to company and individual performance, the variable component. The proposed change is motivated by the need to sustain superior performance and increase shareholder value in the long term. Page 49 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

54 Corporate governance structure and management systems continued The CEO, Mr P Stuiver, attends committee meetings ex officio. He does not participate in discussions on his own remuneration, which is set by the committee. In respect of each director, details are given in note 31 to the group annual financial statements on salary, bonus, retirement and medical aid contributions, gains from Barloworld share options exercised or ceded and other benefits. Details of directors shareholdings are also disclosed. Non-executive directors are remunerated for their membership of the board of PPC and its committees. These fees are benchmarked annually against companies of similar size and complexity and take into account the increasing level of responsibilities and risks associated with directorships. Executive directors of PPC are not entitled to fees. Shareholders are referred to note 39 on page 148 regarding the share option allocation to some of the non-executive directors in terms of the BBBEE transaction. During the period under review, the committee met five times for the following scheduled meetings: 26 February 2009, the formulae for the annual gain share and management bonuses were considered and approved, the financial performance targets for 2009 were considered and approved, and the personal objectives of the executives for 2009 noted. 11 May 2009, the annual meeting programme for the committee was considered and approved and the committee discussed remuneration trends and market developments. 11 August 2009, the committee discussed plans to retain key employees and allocations in terms of the long-term incentive plan of the company. 25 September 2009, Mr Stuiver presented the management restructuring plan and implications for remuneration at executive level were considered by the committee, allocations in terms of the long-term incentive plan were approved and amendment of the restricted share scheme rules proposed. 6 November 2009, the committee considered inter alia the report on the CEO s performance and proposed board fees for The board has determined that the remuneration committee has satisfied its responsibilities for the period under review in compliance with its terms of reference. The committee met as follows: Directors 26 Feb May Aug Sep Nov 2009 NB Langa-Royds J Shibambo JS Vilakazi X X X X Present/Attended X Absent/Apology Not yet appointed Page 50

55 Internal audit The board and the audit committee appointed Ernst & Young to fulfil PPC s internal audit requirements until the end of the calendar year. The use of group-wide audit professionals fosters independence, standardisation of audit procedures and sharing of best practices. Internal audit activities principally address the following key issues at each of the business units of the company: Appraising systems, procedures and management controls. Assessing the effectiveness of risk management processes. Evaluating the reliability and integrity of management and financial information. Assessing the control over assets and verifying their existence. Reviewing compliance with policies and procedures. Recommending improvements in procedures and systems to enhance efficiencies and prevent fraud. The internal audit function reports to the audit committee on its findings and has unrestricted access to that committee and its chairman. Audit plans are drawn up annually and take account of changing business needs and risk assessments. Cognisance is taken of issues highlighted by the audit committee and management. Follow-up audits are planned in areas where weaknesses are identified. The audit committee approves the internal audit plan. During the period under review, no major breakdowns in internal controls were identified. Assessing risk PPC is committed to managing its risks and opportunities in the interests of all stakeholders and to ensure that it meets its social, environmental, governance and economic objectives and obligations. A systematic, multi-tiered risk assessment process supports the company s risk management philosophy. This ensures risks are adequately identified, evaluated and managed at the appropriate level in the business units, and that their individual and joint impact on the company as a whole is considered. An enterprise-wide risk management framework is currently being developed. Risk registers are maintained as part of the risk management process. Where appropriate, internal, external and joint audit protocol auditors adapt their audit procedures to include coverage of these risks in their reviews and compliance audits. Divisional boards and senior managers carry out detailed annual self-assessments of risk. This process identifies the critical business, operational, financial and compliance exposures facing the company, and the adequacy and effectiveness of control factors are reviewed and updated every six months. The process is facilitated in alternate years by external risk advisers Marsh. Business recovery plans have been compiled for each operation and are subject to regular testing. The audit and risk management and compliance committees regularly review the main risks and risk management processes and advise the board accordingly. The audit, risk management and compliance committees regularly review the main risks and risk management processes and advise the board accordingly. Page 51 Corporate governance 58 Corporate responsibility 66 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

56 Corporate governance structure and management systems continued PPC group main risks Risk Electricity supply Electricity supply, quality, reliability and price Speed of economic recovery Extent and duration of the South African economic recovery Competitor actions Actions by competitors that could erode the company s competitive position and profitability Skills Inadequate depth, numbers and span of skills base (applies to operations and project teams, key suppliers and contractors) Exposure to regional economies Management response Reduce electricity consumption where possible through improved efficiencies. Maintain relationship with Eskom through co-operation and voluntary load shifting. Reduce costs by optimising production facilities (kilns and mills). Ensure strategic intelligence is current. Reinforce the brand and relationships. Explore alternative, more cost-effective technical solutions. Pursue other feasible markets. Ensure competitive fixed and variable remuneration with emphasis on scarce skills. Robust succession planning which includes bench positions, individual development plans and training. Extraordinary effort in employee training and development, eg PPC Academy. Use specialist consultants for projects and source the best available supplier skills. Flexibility in starting and stopping plant in response to demand. Cautiously explore opportunities in other areas of Africa. Third-party management No part of the company s business was managed during the year by any third party in which any director had an interest. Communication The company subscribes to the principles of objective, honest, timely, balanced, relevant and understandable communication of both its financial and non-financial matters. The focus is on substance, not form, and communication with stakeholders with a legitimate interest in the company s affairs is sensitive and systematic. The company regularly enters into dialogue with institutional investors with due regard for statutory, regulatory and other directives prohibiting the dissemination of unpublished price-sensitive information by the company and its directors and officers. In accordance with the Promotion of Access to Information Act, the company has prepared and published the required manual. This is available on the company website and contains all necessary details on requesting information as well as what information is freely available. Page 52

57 The board has also approved a disclosure policy on external communications of the financial and operational performance of the company. The policy considers the requirements of the JSE Limited and global best practice for disclosure by public companies. The group s disclosure policy is not only in respect of information disclosed to the investment community and financial media. This policy applies to communication with anyone who would not normally be privy to that information, including suppliers, customers and also employees within the group. Company results communications Earnings press release Earnings press releases will be released on the Stock Exchange News Service (SENS) and posted on the corporate website as soon as possible, prior to the start of any discussions or meetings on the results. Earnings presentation Any earnings presentations will be posted on the PPC website at the time of the presentation. There may also be a live broadcast on a South African television business channel and the event will be recorded and subsequently posted on the PPC website. These broadcasts are to assist with fair and timely disclosure to all investors and to act as a record of events. Fines and prosecutions Following notification of the Commission s investigation in June 2009, PPC immediately appointed external legal advisers to conduct an investigation under the supervision of a board sub-committee consisting entirely of non-executive directors. PPC s investigation revealed historical marketsharing arrangements with other cement producers in the late 1990s. These were introduced into the organisation under the guise of being autonomous behaviour by a few former employees who knew about the arrangements and who made arrangements to disclose detailed sales information through the Cement and Concrete Institute. In November 2009, PPC was granted conditional leniency from prosecution under the Competition Act by the Competition Commission. This was in exchange for PPC s complete and truthful disclosure of market sharing arrangements between PPC and its competitors in the late 1990s. A specific concern of the Commission is this practice of submitting detailed sales information through the Cement and Concrete Institute. PPC will stop this practice immediately and the Commission has indicated it will facilitate a process with relevant stakeholders to determine an appropriate means for publication of industry sales statistics. Code of ethics All employees are accountable for adherence to the company s code of ethics, and equal opportunity and anti-discrimination policies published by the company. These provide steps to be taken if an employee feels that the letter or intent of the policies is broken. No retaliation may be taken against an employee who files a complaint. The integrity of new employees is assessed in the company s selection and promotion procedures. Corporate governance 58 Corporate responsibility 66 Page 53 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

58 Corporate governance structure and management systems continued Due care is exercised in delegating discretionary authority to individuals in the company. All new employees are advised, at the time of their induction, about the company s values, standards and compliance procedures. Employees are consulted with and trained on all policies and practices concerning human rights in the workplace. All employees have an opportunity to provide input and the policies have been amended accordingly. Furthermore, contractors to PPC are entitled to the same privileges and treatment as permanent employees. As a company that aims to provide fair and equal employment opportunities, PPC continually strives to subscribe to the legislative frameworks and guidelines that address the needs of indigenous people in the countries in which it operates, and as such conditions of employment are adjusted accordingly. The company s procurement policy ensures that outsourced service providers have policies and procedures to protect the human rights of their employees. Contractor services are secured according to legal compliance practices in the country. The code of ethics is consistently enforced with appropriate discipline and action is taken to prevent any recurrence of an offence. The PPC ethics policy prohibits child, compulsory or forced labour, which is enforced throughout the company. Hiring labour is aligned to the relevant legislation and standards of the country in which PPC operates. Freedom of association is another right that has been enshrined and protected by the PPC ethics policy. PPC has a long-standing tradition of recognising and dealing with trade unions that represent employees at our business units. The ethics policy also governs bribery and corruption, and PPC has applied a zero tolerance stance to this issue. The penalty for an employee found guilty of such practices is dismissal. In addition, a register of gifts received by employees with permissable guidelines is kept. The ethics policy outlines the principles for relationships with political parties and no contributions are made to fund political parties, election campaigns or electoral candidates. The company has no affiliations with any political parties. The company has provided an independent, confidential and safe system by which employees or other parties can report unethical or risky behaviour. Such reports can be submitted to the PPC Ethics Line, details of which are set out alongside. Page 54

59 South Africa PPC Ethics Line Deloitte & Touche Tip-offs Anonymous Telephone Free fax Address PPC Ethics Line Freepost c/o Tip-offs Anonymous FreePost DN298 Umhlanga Rocks 4320 South Africa International Tip-offs Anonymous is an independent body within Deloitte & Touche which provides an opportunity to anyone wishing to report unethical activities or dishonest behaviour that affects the PPC group. Total anonymity, if desired, is assured. Each incident reported through the ethics line is fully investigated and the risk and compliance committee and audit committee are appraised of the outcome required to address shortcomings, if any. or Zimbabwe Deloitte & Touche Tip-offs Anonymous Telephone Fax Address The Call Centre Freepost PO Box HG 883 Highlands Harare Zimbabwe 58 Corporate responsibility Corporate governance 66 Page 55 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

60 Board of directors Bhekokuhle Lindinkosi Sibiya (52) Chairman Appointed to the board: 2008 Bheki holds a BAdmin degree from the University of Zululand and an MBA from Western Michigan University (USA). He has also completed several management development programmes. In addition to senior positions with a number of public and private-sector entities, Bheki served as president of the Black Management Forum and was the founding chief executive of Business Unity South Africa. He is non-executive chairman of Brait South Africa and deputy chairman of Tiger Brands, and a non-executive director of other listed and unlisted companies. Paul Stuiver (52) Chief executive officer Appointed to the board: 2009 An engineer by profession (BEng, University of Pretoria), Paul joined PPC from the steel industry and spent 18 years in operations and management in PPC s Lime, Packaging and Logistics divisions. He served on the board of PPC from 1995 to He left PPC to join Barloworld as CEO of its Logistics division where he was involved with international expansion and served on boards in South Africa, Spain, the UAE, the UK and the USA. He rejoined PPC as CEO in Salim Abdul Kader (39) Executive director: organisational performance and transformation Appointed to the board: 2005 Salim holds BSc, BB&A (Hons) and MBA (cum laude) degrees and joined PPC in 2004 as director of organisational performance in the cement division. In 2007, he also assumed executive responsibility for transformation. Prior to joining PPC, he was a senior executive in the Tiger Brands group, responsible for human resources development after developing broad experience in technical and operations functions. Robert Harley Dent (58) Executive director: lime, aggregates and strategic projects Appointed to the board: 1993 Harley joined Cape Portland Cement Company Limited, a subsidiary of PPC, in 1978 and has now been with the group for 30 years. He holds BSc (Hons) and BCom degrees and a diploma in datametrics. Harley is a fellow of the South African Chemical Institute, the South African Institute of Mining and Metallurgy and the Institute of Quarrying of Southern Africa, of which he is also a past chairman. He is currently chairman of the Aggregate & Sand Producers Association of South Africa (APASA). Peter Esterhuysen (53) Chief financial officer Appointed to the board: 2003 Peter was a divisional director of PPC s cement division from 1996 to 2001, and then group financial director of Barloworld s coatings division until rejoining PPC in Prior to joining PPC in 1996, Peter held executive directorships in a number of South African manufacturing and retailing companies, including major corporations. A chartered accountant by profession, he also holds BCom and BAcc degrees, and has extensive experience in all aspects of manufacturing, corporate finance and taxation. Zibusiso Janice Kganyago (43) Independent non-executive director Appointed to the board: 2007 Zibu holds a BCom degree from the University of Natal, and a post-graduate diploma in property planning, development and management. Zibu s property experience spans 15 years. She has served as non-executive director on the board of the Johannesburg Property Company and as a member of the Land Affairs Board. Currently, she is the executive director of developments for Tsogo Sun Gaming. She has been on the business development programme at the Wharton School of Business and the executive development programme at the University of Nevada, Reno. André Jacobus Lamprecht (57) Independent non-executive director Appointed to the board: 1997 André is chief executive of listed Freeworld Coatings, and holds BCom, LLB and PED-IMD degrees. In addition to a career spanning 28 years with Barloworld before his retirement from this board in 2007, he served on numerous public bodies, including Business South Africa. He is a non-executive director of the National Business Initiative, trustee of the Business Trust, and a member of the retirement funds advisory committee of the Minister of Finance. Nomalizo Beryl Langa-Royds (47) Independent non-executive director Appointed to the board: 2007 Ntombi was appointed to the PPC board in October She owns Nthake Consulting, a human resources consulting firm specialising in human resources management and allied services. She has 21 years experience in the HR environment, with previous positions as director of human resources at Independent Newspapers Holdings Limited, SABC and the Bevcan division of Nampak Limited. Ntombi is a non-executive director of Momentum Group Limited, Momentum Health (Pty) Limited and Respiratory Care Africa Limited. Board race balance Board gender balance Black White Women Men Page 56

61 Mangalani Pieter Malungani (51) Non-executive director Appointed to the board: 2009 Peter is executive chairman and founder of the Peu Group. After an early accounting career with Philips (SA), he started his own business management consultancy. In 1996 he founded Peu as an investment company. Peter has a BCom degree (Unisa) and completed an advanced management programme with Wits Business School and a leadership development programme at Wharton University (USA). He is chairman of Phumelela Gaming and Leisure and Super Group, and a director of Investec Limited and Investec plc and certain subsidiaries. Peter has held various advisory positions in government and directorships in state-owned enterprises. Timothy Dacre Aird Ross (65) Independent non-executive director Appointed to the board: 2008 Tim was a partner with Deloitte for 36 years and retired in May His extensive experience at Deloitte included leading the Johannesburg audit practice and serving on the executive as client service director as well as the board and remuneration committees. Tim was the lead/advisory partner for a number of multinational clients and headed the Deloitte World Cup 2010 initiative. He was appointed to the boards of Liberty Group in 2007, Eqstra Holdings in 2008 and Adcorp in He chairs the audit and actuarial committee and the group risk committee of Liberty and the audit committee of Eqstra and Adcorp. Joe Shibambo (61) Independent non-executive director Appointed to the board: 2005 Joe is the managing director of Hlamalane Projects (Pty) Limited and has been involved in the construction industry for 30 years, acquiring extensive knowledge and experience of the construction industry, viz construction management, project management, property development, rail construction and maintenance. Through his organisation, he assists new entrants (especially Africans) in the construction industry to acquire basic management principles for the industry. Joe was one of the first independent residential developers to start a greenfields township and the first independent contractor to build a shopping centre, both in Soweto. Jerry Sikhulumi Vilakazi (61) Non-executive director Appointed to the board: 2009 Jerry is chief executive of Business Unity South Africa, and former managing director of the Black Management Forum. He holds a teaching diploma, BA (Unisa), master s degrees (Thames Valley University, University of London) and MBA. He is non-executive chairman of Netcare and Mpumalanga Gaming Board, chairman of ExecuPrime, and director of several other companies. Jerry serves on the King committee on corporate governance, National Anti-Corruption Forum, Business Against Crime, SADC Employer Group and the EU Southern Africa Business Council Board balance Management Johan Claassen (50) Executive, lime operations BEng (mech), PrEng Brian Graumann (46) Executive, finance treasury and compliance BCom, BAcc, CA(SA) Sello Helepi (38) Executive, transformation Bed, DipEd Roshni Lawrence (35) Executive, group technical services BSc (hons) Zak Limbada (52) Managing director, Portland Holdings Limited BSc, MBL Pepe Meijer (49) Executive, cement operations BEng (mech), BB&A (hons), MBA Kgathola Ngasheng (50) Executive, group supply chain services BCom Kevin Odendaal (42) Executive, investor relations and strategy BSc (mech eng), PrEng Riaan Redelinghuys (39) Executive, aggregates ND (ind eng) Jaco Snyman (43) Executive, secretarial and legal BA (law), LLB, LLM (corporate law), MBA Koos Taljaard (51) Executive, projects BEng (mech), PrEng Richard Tomes (40) Executive, cement sales and marketing NHD (civ eng) Jacques van Jaarsveld (43) Executive, group finance BAcc, BCom (hons), CA(SA) Corporate governance 58 Corporate responsibility Executive directors Non-excutive directors Page 57 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

62 Sustainability review* Sustainability encompasses the balanced integration of corporate governance, social, ethical, economic, environmental as well as health and safety factors into all the planning, implementation and decisionmaking stages of the business. PPC exercises due diligence in all areas of operation to promote sustainable development in its business, employees, the environment and communities in which it operates. Group sustainability policy PPC embraces the principles of social justice and fairness to achieve optimal well-being and prosperity for all its stakeholders. The group is committed to delivering stakeholder value in all its endeavours: Board accountability PPC directors are accountable for PPC s sustainability performance. Aligning values and principles with sustainable development PPC aligns all decisions on the company s financial sustainability and the fundamental rights of all its stakeholders (employees, customers, shareholders, suppliers and the communities in which it operates) within an established framework of values and ethical principles. Assessing risks and opportunities In identifying and effectively responding to sustainability risks and opportunities, the company continues to enhance long-term shareholder value and simultaneously fulfils its broader economic, social and environmental responsibilities to society. Management systems PPC performs regular audits of its management systems and programmes to ensure its sustainability policy is implemented and remains effective. The International Organisation for Standardisation (ISO) and Aggregate and Sand Producer Association of South Africa (Aspasa) systems are externally audited. Performance and quality requirements are internationally recognised by the ISO certification. PPC is committed to using systems and programmes that meet or exceed applicable legal and regulatory standards. Performance monitoring and reporting PPC s sustainability performance is reported publicly to stakeholders. The company is committed to monitoring its use of natural resources and developing indicators to assess its progress against recognised standards. Engaging stakeholders PPC establishes and maintains constructive, proactive and informed relationships with all stakeholders. Minimising environmental impact PPC is committed to identify, assess and reduce the environmental impact of activities performed by employees, contractors and suppliers. Training and research PPC promotes innovative research, training and technology cooperation in the search for environmentally sensitive solutions to minimise the organisation s environmental impact. * As per reader note on inside front cover this is an overview of the information found in the companion sustainability report for Page 58

63 Key impacts, risks and opportunities Material issues and risks to PPC In terms of PPC s sustainability policy, 10 material sustainability risks have been identified, with mitigating actions summarised below. Detailed discussion is included in the sustainability report: Material issue Key performance indicator/target GRI performance indicator Health and safety Minimum operating and safety standards reviewed and updated. Ongoing safety induction programme and refresher safety training. All contractors required to adopt PPC health and safety standards on site. Risk assessment training at all sites. LA7 Rates of injury, occupational diseases, lost days and absenteeism, and number of work-related fatalities by region. LA8 Education, training, counselling, prevention, and riskcontrol programmes in place to assist workforce members, their families, or community members on serious diseases. LA10 Average hours of training. LA11 Programmes for skills management and lifelong learning. LA12 Percentage employees receiving regular performance and career development reviews. Skills Inadequate depth, numbers and span of skills base (operations and project teams, key suppliers/contractors). Regular update of succession plan. Appropriate investment in developing people. Developing PPC academies. Regular salary surveys and salary adjustments. Scarcity allowance introduced. Contracting consultants for projects. Added reserve positions in operations (graduate development programme, increased pool of apprentices and production trainees) and outsourcing. PPC reputation attracts employees and suppliers. Continue overseas technical trips. Ensure best-available supplier skills are sourced. Use independent specialists to audit performance of suppliers and staff. 58 Climate change Exposure to regional economies Speed of economic recovery Extent and duration of the South African economic recovery. Target for CO 2 emitted for cement, lime and dolomite in 2009 is 850kg/ ton. Flexibility in starting and stopping plant in response to demand. Reduce costs by optimising production facilities (kilns and mills). EN16 Total direct and indirect greenhouse gas emissions. Corporate responsibility 66 Page 59 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

64 Sustainability review continued Key impacts, risks and opportunities continued Material issues and risks to PPC continued Material issue Legislation and compliance many of the company s activities are regulated by legislation. Staying abreast of the complex and changing nature of these regulations and maintaining full compliance is challenging. Competitor actions Actions by competitors that could erode the company s competitive position and profitability. Electricity supply Stakeholder engagement Key performance indicator/target Legal registers updated and linked to management system. Ensure strategic intelligence is current. Reinforce the brand and relationships. Explore alternative, more costeffective technology. Pursue other feasible markets. Climate change targets. Reduce electricity usage in line with legislation. Find and develop alternative electrical energy sources. Participate in voluntary load shifting. Stakeholder maps. Stakeholder engagement meetings. GRI performance indicator SO8 Monetary value of significant fines, total number of non-monetary sanctions for non-compliance. EN3 Direct energy consumption by primary source. EN4 Indirect energy consumption by primary source. SO1 Nature, scope, and effectiveness of any programmes and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting. Social highlights 7% of payroll spent on employee skill development R10 million of a planned total of R60 million spent on local economic development projects approved by the Department of Mineral Resources Rated level 3 BBBEE contributor status in terms of Department of Trade and Industry s Codes of Good Practice 45% of total procurement representing R1,48 billion spent with BBBEE suppliers employees become new share owners More than improvement suggestions generated by our people, of which over 60% contributed to direct savings of over R19 million An initiative known as Optimising Diversity launched to further empower the organisation towards its REAL transformation philosophy Page 60

65 The PPC way of life Our sustainable success relies on our people, who are integral to maintaining the Kambuku philosophy. This PPC way of life creates a healthy, rewarding and satisfying working environment in which everyone has opportunities to contribute to the success of the organisation and their own development, and be recognised for excellence. The company believes in maintaining open and honest dialogue with its employees, and accordingly concentrates on engaging and consulting with its people at all levels. Key leader summits and Invocoms are two key forums used to ensure the communication process is efficient. PPC uses the annual individual perception monitor survey to check that its key internal processes and systems are functioning well. This monitor gives all our people the opportunity to express their views and rate the company on critical processes, including understanding its vision, employee benefits, leadership behaviour, remuneration, training, coaching and communication. Participation in the survey is both voluntary and confidential. Saving costs through employee innovations and suggestions During the review period, over valueadding suggestions were generated via Invocom structures. Of these, more than 60% were evaluated, accepted by management and implemented. An estimated R20 million (see table below) was saved through these suggestions in 2009, taking the four-year total to some R72 million in cost savings. Learning and development Learning for growth remains core to the PPC way of life and exemplifies our ongoing commitment to develop globally competitive people. The learning and development model is firmly entrenched in the culture of PPC. The learning and development model includes the following: Adult basic education (ABET). The PPC bridging programme. Dinaledi bursaries. Graduate development programme. Leadership development. Average hours of training per category On average, a PPC employee spends around 88 hours or 11 days on training per annum. Employee levels Average training hrs Senior management 19,4 Middle management 47,8 Professionally qualified specialists 68,9 Skilled (upper) supervisors 114,9 Skilled technical employees 44,0 Semi-skilled employees 70,2 Apprentices/trainees 266,1 Unskilled employees 70,6 Overall average 87,7 Cost of training (Rm) (SA only) White male R8,9 million Indian female R Indian male R White female R1,8 million African male R19,5 million Corporate responsibility Coloured female R1,4 million Coloured male R7,4 million African female R2,9 million 66 Financial statements Page 61 Pretoria Portland Cement Company Limited Annual Report 2009

66 Sustainability review continued The PPC Academy Under the umbrella of the PPC Academy, the group has incrementally expanded the number of specialist academies available to employees. The PPC leadership and management academy was launched in May 2009, while the academies for sales and marketing, operations and mining, which complement the existing technical skills (engineering) academy, are now fully operational. The first learners graduated from the sales and marketing academy in June this year. SA recruitment by race % 24% 22% 51% n African n Indian n Coloured n White Broad-based empowerment PPC external broad-based and internal staff trusts Since announcing the PPC broad-based black economic empowerment transaction in August 2008, a year later good progress has been made in terms of operationalising both the external broad-based and internal staff trusts linked to the transaction. A significant portion (over half or 8% of the 15,29% equity stake in question, totalling R1,4 billion) relates to the trusts. As such, it required dedicated focus, sharing of ideas, coming together of mind (the Kambuku Way) and commitment from all stakeholders to ensure the successful launch and implementation of the individual trusts. Corporate social investment PPC spent R6 million supporting various CSI projects across the country during the review period, with preference given to projects and initiatives that promote: Education and training Health and welfare Infrastructure development Poverty alleviation Sport Job creation Drug rehabilitation 0,1% HIV/Aids 2,6% Arts & culture 0,7% Welfare 9,1% Infrastructure 12,9% Community training 6,4% Other Sport 1,3% Job creation 5,7% Education 61,3% Socio-economic development PPC has committed in its 10 social and labour plans submitted to the Department of Mineral Resources to spending over R60 million over five years on local economic development (LED) projects in the communities. This involves a total of 28 projects in 12 communities in partnership with municipalities and six provinces in South Africa. In 2009, PPC spent over R10 million of a planned R60 million implementing projects approved by the Department of Mineral Resources and agreed with municipalities, over and above the group s own CSI projects. Page 62

67 Health and safety highlights Four PPC sites recorded over one million lost-time injury-free hours during the year (Zimbabwe 3,6m; Port Elizabeth 2,37m; projects 1,9m; sales and marketing including three depots 1,4m) Ongoing behaviour-based safety campaign producing results lost-time injuries have declined from 28 in 2007 to 19 during the year (2008: 20) On track to 2010 target of 100% of PPC employees knowing their HIV status Environmental highlights 15% reduction of CO 2 emissions per ton cement, lime and dolomite from 1990 to % reduction in energy consumption per ton of cement, lime and dolomite versus year 2000 Energy efficiency accord target achieved before target date (2015) All sites have environmental stakeholder forums and management committees All environmental management systems remain externally certified (ISO or ASPASA) Significant spend on technology upgrades resulting in environmental improvements Environmental master plan projects Managing diesel-driven vehicles on public roads completed Capacity building completed Dust management alternatives investigation completed Radioactive sources permit assessment completed Mine EMP review in progress Integrated water licences in progress Management of process waste completed Environmental Hazardous chemicals management review completed Dangerous goods transportation review completed Structure of alien vegetation replacement programme ongoing Integrated waste permits in progress 66 Financial statements Corporate responsibility Air quality permit amendment completed Flammable substances management completed Page 63 Pretoria Portland Cement Company Limited Annual Report 2009

68 Sustainability review continued Environmental performance in feedback In 2008 we said we would Progress in 2009 Identify best practices to be noted in PPC annual report. Decrease energy consumption in line with PPC's energy efficiency accord targets. Track non-renewable inputs of kilns even more closely. Increase use of renewable materials as a thermal energy source by 5% by 2015, subject to environmental approvals. Achieve a target for CO 2 for clinker, lime and dolomite in 2009 of 1 000kg/ton. Note: this target only includes scope 1 emissions, ie direct emissions from the cement-production process which excludes CO 2 emissions relating to electricity consumption. Achieve a target for CO 2 per ton of cement, lime and dolomite in 2009 of 850kg/ton. Note: this target only includes scope 1 emissions, ie direct emissions from the cement-production process which excludes CO 2 emissions relating to electricity consumption. Ensure that all sites will undergo ecological (flora and fauna) and heritage impact assessments to further inform management efforts. Target is to have 100% completion of all reasonably possible concurrent rehabilitation. Target is to ensure ongoing adherence to the 100% concurrent rehabilitation goal, with particular focus on meeting specified environmental management plans. Ensure that all plants will have updated water balances and water meters at strategic locations. Publish water-saving targets in the 2009 annual report. Summarise training modules and deliver it to all PPC staff and discuss it in environmental stakeholder forums. Maintain environmental legal compliance by facilitating required behavioural changes at PPC operations and increasing level of awareness about environmental matters. Achieve zero non-compliance to conditions of all environmental authorisations by Major best practices developed for 2009 include: air quality management; Global Reporting Initiative (GRI) disclosure standards; stakeholder engagement; climate change management and reporting and incident reporting. Energy consumption declined by 6% in the review period. This is managed through the GRI reporting system. Replacements for natural materials are continually sourced by PPC. See section under Secondary Materials. PPC has not been able to increase the use of renewable materials significantly due to continuing slow progress with developing legislation. Through the internal auditing process, PPC has identified and corrected CO 2 emission levels reported in previous annual reports to include both scope 1 and 2 emissions. PPC will continue to improve on the accuracy and transparency of the data reported through more rigorous assurance processes. The scope 1 CO 2 per ton of cement, lime and dolomite in 2009 was 863kg. The targets were not met due to delayed plans for increased cement extension processes. In progress. Most sites are at 70% completion. Good progress has been made at the Beestekraal, Dwaalboom and Riebeeck operations on outstanding rehabilitation tasks. Final assessment will be based on the September 2009 aerial survey. Management plans as set out in the environmental management plan (EMP) are implemented through the ISO system. In progress. Due to the delay in finalising water balances for all plants, water-saving targets can not yet be determined. This has been implemented. External service provider appointed to roll out environmental training to all sites. External legal audits have identified a few areas of noncompliance, however management plans have been drawn up to address these areas of concern. Page 64

69 In 2008 we said we would Progress in 2009 Ensure that all operations have formalised environmental forums and committees. Structure a complete stack-emission profile for cement and lime kilns. Set quantifiable targets for selected PPC environmental indicators. Continue to develop environmental and sustainability training modules for all levels. Develop and implement a PPC green procurement strategy. Achieve environmental compliance audits of 20% of major suppliers and customers. Compile an emissions inventory informed by mass balance and fugitive emission estimation for all PPC plants. Train every environmental specialist and manager in environmental best practices and standards. Create stakeholder maps and formalised environmental forums for each PPC operation. Entrench environmental framework objectives and recommendations throughout PPC. Continue to use UN Global Compact principles as important criteria for project selection and milestone evaluation. All sites have established environmental stakeholder forums. In progress. This has been undertaken. Targets for CO 2 and energy use have been established. In progress. Completed awaiting sign-off. Completed. In progress. Ongoing. Undertaken at all sites. Ongoing. PPC continues to apply principles relating to responsible environmental management as per UN Global Compact. PPC s CO 2 emissions cement only scope 1 and scope 2 emissions kg CO 2 /ton Per ton cement World average CO 2 emission per ton of cement PPC s carbon footprint scope 1 and scope 2 emissions Corporate responsibility kg CO 2 /ton Clinker, dolomite, lime Cement, dolomite, lime Page 65 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

70 Annual financial statements for the year ended 30 September Certificate by company secretary 68 Approval of annual financial statements 69 Report of the independent auditors 70 Directors report 72 Value added statement 74 Seven-year review of the group s results 82 Share performance 84 Glossary of accounting terminology 89 Accounting policies 98 Judgements made by management 100 Consolidated statements of financial position 101 Consolidated income statements 102 Consolidated statements of comprehensive income 104 Consolidated statements of changes in equity 106 Consolidated statements of cash flows 108 Operating segments 110 Notes to the group annual financial statements 154 Company statements of financial position 155 Company income statements 156 Company statements of comprehensive income 157 Company statements of changes in equity 158 Company statements of cash flows 160 Notes to the company annual financial statements 178 Annexure PPC in the stock market 181 Administration 182 Notice of annual general meeting 185 Form of proxy Reader note: For your convenience a duplicate consolidated statements of financial position and income statements has been provided at the end of this report on a pull out flap. As a whole, learned knowledge takes a far greater place in the elephant species than innate or instinctive knowledge

71 66 Page 67 Financial statements

72 Certificate by company secretary for the year ended 30 September 2009 In terms of section 268G(d) of the Companies Act, 1973, as amended (Act), I certify that Pretoria Portland Cement Company Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act. Further, that such returns are true, correct and up to date. JHDLR Snyman Company secretary 10 November 2009 Approval of annual financial statements for the year ended 30 September 2009 The directors of the company are responsible for the integrity and objectivity of the annual financial statements and other information contained in this annual report, which have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, South Africa. In discharging this responsibility, the group maintains suitable internal control systems designed to provide reasonable assurance that assets are safeguarded and that transactions are executed and recorded in accordance with group policies. The directors, supported by the audit committee, are satisfied that such controls, systems and procedures are in place to minimise the possibility of material loss or misstatement. The directors believe that the group has adequate resources to continue in operation for the foreseeable future and the financial statements appearing on pages 70 and 71 and 89 to 179 have, therefore, been prepared on a going-concern basis. The annual financial statements were approved by the board of directors on 10 November 2009 and are signed on its behalf by: BL Sibiya Chairman P Stuiver Chief executive officer 10 November 2009 Sandton Page 68

73 Report of the independent auditors for the year ended 30 September 2009 To the shareholders of pretoria Portland cement company limited We have audited the annual financial statements and group annual financial statements of Pretoria Portland Cement Company Limited, which comprise the directors report, statement of changes in financial position as at 30 September 2009, and the income statements, the statements of comprehensive income, the statements of changes in equity and the cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 70 and 71 and 89 to 179. the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall financial statement presentation. Directors responsibility for the financial statements The company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act, 61 of 1973 of South Africa. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements and group financial statements fairly present, in all material respects, the financial position of the company and the group at 30 September 2009 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act 61, of 1973 of South Africa. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance on whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including Deloitte & Touche Registered auditors Per MJ Jarvis Partner 10 November 2009 Buildings 1 and 2, Deloitte Place, The Woodlands Office Park, Woodlands Drive, Sandton. National Executive: GG Gelink Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Tax, Legal and Advisory, L Geeringh Consulting, L Bam Corporate Finance, CR Beukman Finance, TJ Brown Clients & Markets, NT Mtoba Chairman of the Board, CR Qually Deputy Chairman of the Board. A full list of partners and directors is available on request. Page 69 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

74 Directors report for the year ended 30 September 2009 The directors have pleasure in presenting their report on the annual financial statements of the company and of the group for the year ended 30 September Business activities Pretoria Portland Cement Company Limited, its subsidiaries and associates, operate in southern Africa as manufacturers of cementitious and aggregate products, lime and limestone. The principal activities of the company and its subsidiaries remain unchanged from the previous year. Review of operations A comprehensive review of operations is detailed in the attached annual financial statements. Share capital and premium The authorised share capital is ordinary shares of 10 cents each. On 30 September 2009 the issued share capital of the company was shares of 10 cents each (2008: ; 2007: ). The broad-based black economic empowerment transaction became effective on 15 December In terms of this transaction shares of 10 cents each were issued to the Strategic Black Partners and Community Service Groups. The share premium balance at 30 September 2009 was R1 141 million debit (2008: R63 million credit; 2007: R814 million credit), following the consolidation of the various BBBEE trusts and funding special purpose vehicles, and the consolidation of Porthold Trust (Private) Limited. Details of shares authorised, issued and unissued at 30 September 2009 are given in note 11 to the group financial statements. Register of members The register of members of the company is open for inspection to members and the public, during normal office hours, at the offices of the company s transfer secretaries, Link Market Services South Africa (Pty) Limited, or at Corpserve (Private) Limited (Zimbabwe). Directors interest in share capital Details of the beneficial holdings of directors of the company and their families in the ordinary shares of the company are given in note 39 to the group financial statements. Certain non-executive directors have indirect shareholding in the company following the completion of the broad-based black economic empowerment transaction, and details are provided in note 39 to the group financial statements. There has been no change in the directors interest in share capital since year end. Holding and subsidiary companies Details relating to the beneficial shareholders owning more than 5% of the issued share capital of the company appear in the PPC in the stock market section on page 180. The names and country of registration, as well as the amount of their share capital, percentage holding and interest held by PPC in each of its principal subsidiary companies are set out in Annexure 1 on page 178. All subsidiary companies share the same financial year end as PPC. Consolidation of Portland Holdings Limited (Porthold) Due to the improvement in the Zimbabwean macroeconomic conditions following the significant changes announced by the Zimbabwean government, the directors of PPC are of the opinion that the requirements for effective control over Porthold have been met, and accordingly Porthold was consolidated into the group with effect from 30 September Further details can be found in the CFO s report on page 27 and note 30 on page 133 in the group financial statements. Acquisition by the company of issued shares The company did not exercise its authority to buy back shares in the current financial year. Special resolutions A special resolution authorising the directors to acquire issued shares in the ordinary share capital of the company was passed at the annual general meeting held on 26 January 2009 and registered on 29 January Special resolutions passed by subsidiary companies No special resolutions were passed by subsidiaries of the company. Dividends No Description Declaration date Record date Payment date Cents per share Special 61,0 212 Final 10 November January January ,0 180,0 166,0 211 Interim 11 May June June ,0 45,0 38,5 Page 70

75 Property, plant and equipment Certain of the company s properties are the subject of land claims. The company is in the process of discussion with the Land Claims Commissioner and awaiting the outcome of claims referred to the Land Claims Court. The claims are not expected to have a material impact on the company s operations. In terms of the Constitution of Zimbabwe, land with a value of R23 million is exposed to the risk of expropriation by the Zimbabwean government without compensation. At 30 September 2009 the group s net investment in property, plant and equipment amounted to R3 941 million (2008: R2 813 million; 2007: R2 178 million), details of which are set out in note 1 to the group financial statements. Capital commitments at the year end amounted to R439 million (2008: R805 million; 2007: R1 303 million). There has been no change in the nature of the property, plant and equipment or to the policy relating to the use thereof during the year. Borrowings The company s borrowing powers are unlimited. At 30 September 2009 borrowings and guarantees amounted to R3 392 million (2008: R1 674 million; 2007: R1 434 million), and remain within the board s target debt levels. The increase in borrowings follows the requirement to consolidate debt relating to the broad-based black economic empowerment transaction that became effective on 15 December 2008, and PPC s own capital expenditure and working capital funding requirements. Further details can be found in note 13 to the group financial statements. The borrowing powers of Portland Holdings Limited, a wholly owned subsidiary company, are limited by its articles of association to twice the amount of shareholders interest. At 30 September 2009 Portland Holdings Limited did not have any borrowings. Post-balance sheet events There are no post-balance sheet events that may have an impact on the group s reported financial position at 30 September Directors and GROUP company secretary The directors in office at the date of this report appear on pages 8 and 9. Details relating to the group company secretary appear in the administration section on page 181. At the annual general meeting held on 26 January 2009, Messrs RH Dent, P Esterhuysen, AJ Lamprecht, TDA Ross and BL Sibiya were re-elected as directors of the company. Subsequent to the last annual general meeting, Messrs JS Vilakazi (effective 27 February 2009), MP Malungani (effective 27 February 2009) and P Stuiver (effective 1 June 2009) were appointed to the board. Mr JE Gomersall retired (effective 30 June 2009) and Dr O Fenn resigned (effective 5 August 2009) from the board. In terms of the company s articles of association, Messrs JS Vilakazi, MP Malungani and P Stuiver, having been appointed as directors by the board during the year, are required to retire. Messrs S Abdul Kader and J Shibambo and Ms ZJ Kganyago and Ms NB Langa-Royds are required to retire by rotation in terms of the articles of association. All have offered themselves for election and re-election respectively at that meeting and the nominations committee has recommended their election and re-election respectively. COMPETITION COMMISSION On 25 June 2009 PPC advised that the Competition Commission (the Commission) had conducted search and seizure operations at all cement producers and that PPC was co-operating with the Commission. PPC immediately appointed legal advisors to conduct its own investigation under the supervision of a board sub-committee consisting of non-executive directors. PPC s investigation revealed market-sharing arrangements with other cement producers dating back to the late 1990s and ongoing arrangements to disclose detailed sales information through the Cement and Concrete Institute. PPC will stop the submission of this information with immediate effect. PPC is concerned that its market strategies may have been influenced by the market-sharing arrangements which were introduced into the organisation under the guise of being autonomous behaviour by a few former employees who knew about the arrangements. Using the Commission s Corporate Leniency Policy, PPC has disclosed its information to the Commission in a detailed leniency application and has now concluded a conditional leniency agreement with the Commission in terms of which PPC will have immunity from prosecution, conditional on ongoing co-operation with the Commission. Auditors Deloitte & Touche were re-appointed as auditors to the company at the annual general meeting held on 26 January Page 71 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

76 Value added statement for the year ended 30 September 2009 A measure of the wealth created by the group is the amount of value added to the cost of raw materials, products and services purchased. This statement shows the total wealth created and how it was distributed Notes Rm Rm Rm Revenue Paid to suppliers for materials and services 1/4 (3 289) (3 017) (2 589) Value added BBBEE IFRS 2 charges (490) Take-on gain arising from consolidation of Porthold 213 Exceptional items 2 14 Income from investments^ Total wealth created Wealth distribution: Salaries, wages and other benefits Providers of capital Finance costs Dividends Ordinary dividends Special dividend Dividends paid to external BBBEE trusts by consolidated SPVs 7 Government Reinvested in the group to maintain and develop operations Depreciation and amortisation Retained (loss)/profit (60) Deferred taxation (3) Value added ratios Number of employees (30 September) Revenue per employee (R000) # Wealth created per employee (R000) # ^ Includes interest received, dividend income and share of associate s retained profit Excludes employees of Porthold (2009: 583; 2008: 591; 2007: 592) Page 72

77 Rm Rm Rm NOTES 1. Paid to suppliers for materials and services Transnet Freight Rail and Barloworld Logistics are the only suppliers of services exceeding 10% of total amounts paid. All contracts are paid in accordance with agreed terms. 2. Salaries, wages and other benefits Salaries, wages, overtime payments, commissions, bonuses and allowances Employer contributions ~ Government Taxation Normal, CGT and STC Rates and taxes paid to local authorities Customs duties, import surcharges and excise taxes Skills development levy Cash grants and subsidies received from the government (4) (2) Included in Paid to suppliers for materials and services is: Donations and social labour plan expenditure Dividends paid to BBBEE transaction beneficiaries ~ In respect of pension funds, retirement annuities, provident funds, medical aid and insurance Revenue (R million) Value added (R million) Financial statements Page 73 Pretoria Portland Cement Company Limited Annual Report 2009

78 Seven-year review of the group s results for the year ended 30 September Rm Rm Rm Rm Rm Rm Rm CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Assets Non-current assets Property, plant and equipment Intangible assets Investment in non-consolidated subsidiary Negative goodwill (1) (1) Other non-current financial assets and investment in associates Deferred taxation assets Current assets Inventories Trade and other receivables Short-term investment Assets classified as held-for-sale 130 Cash and cash equivalents Total assets Equity and liabilities Capital and reserves Share capital and premium (1 088) Reserves and retained profit Equity attributable to equity holders of the parent Outside shareholders interest 21 8 Total equity Non-current liabilities Deferred taxation liabilities Long-term borrowings Other non-current liabilities Current liabilities Short-term borrowings Taxation payable Trade and other payables Liabilities directly associated with assets classified as held-for-sale 112 Provisions Total equity and liabilities Page 74

79 Rm Rm Rm Rm Rm Rm Rm CONSOLIDATED INCOME STATEMENTS Revenue Cost of sales Non-operating income Operating expenditure Operating profit before items listed below BBBEE IFRS 2 charges (490) Take-on gain arising from consolidation of Porthold 213 Operating profit Fair value (losses)/gains on financial instruments (6) 4 1 (7) 7 Finance costs Investment income Profit before exceptional items Exceptional items Share of associates retained profit Profit before taxation Taxation Net profit from continuing operations Discontinued operations Net profit from discontinued operations 8 Net profit Attributable to: Equity holders of parent ordinary shareholders other shareholders 104 Outside shareholders interest Attributable net profit excluding exceptional items CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash available from operations Dividends paid (1 195) (1 401) (1 207) (1 059) (1 269) (737) (601) Equity-settled share incentive scheme refund/(payment) 2 (30) Net cash inflow/(outflow) from operating activities (174) Net cash outflow from investing activities (2 208) (1 562) (772) (242) (128) (44) (137) Net cash inflow/(outflow) from financing activities (65) 34 (21) Net (decrease)/increase in cash and cash equivalents (19) (1 077) (181) 897 (367) Page 75 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

80 Seven-year review of the group s results continued for the year ended 30 September STATISTICS Share performance Weighted average number of ordinary shares in issue during the year (000) Earnings per share (cents) basic Earnings per share before exceptional items, BBBEE IFRS 2 charges and take-on gain arising on consolidation of Porthold (cents) basic Headline earnings per share (cents) basic Headline earnings per share, before BBBEE IFRS 2 charges (cents) basic Ordinary dividends per share (cents) Special dividend per share (cents) Dividend cover (times) (excluding special dividend) Net asset value per share (cents) Time weighted number of ordinary shares in issue during the year (refer note 24.1) Net profit attributable to ordinary shareholders of PPC Company Limited Weighted average number of ordinary shares in issue during the year Net profit attributable to ordinary shareholders of PPC Company Limited adjusted for the exceptional items net of taxation* Weighted average number of ordinary shares in issue during the year Net profit attributable to ordinary shareholders of PPC Company Limited adjusted for the exceptional items net of taxation, amortisation of goodwill and capital profits or losses net of taxation Weighted average number of ordinary shares in issue during the year Net profit attributable to ordinary shareholders of PPC Company Limited adjusted for the exceptional items, amortisation of goodwill and capital profits or losses net of taxation and excluding the BBBEE IFRS 2 charges Weighted average number of ordinary shares in issue during the year Interim dividend per share paid and final dividend per share declared A non-recurring dividend that is exceptional in terms of either size or date declared Earnings per share before exceptional items* Ordinary dividends per share Total equity, including investments at market value Total number of shares in issue * Also excludes the impact of BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold Page 76

81 ,3 1,3 1,3 1,6 1,6 1,6 1, Page 77 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

82 Seven-year review of the group s results continued for the year ended 30 September Profitability and asset management Operating margin (%) EBITDA (Rm) EBITDA to revenue (%) Net asset turn (times) Return on net assets (%) Return on total assets (%) Return on shareholders interest (%) Return on shareholders interest (excluding exceptional items) (%) Effective rate of taxation (%) Operating profit (excluding BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold) Revenue Profit from continuing operations before exceptional items, adjusted for BBBEE IFRS 2 charges, take-on gain arising from consolidation of Porthold, investment income, finance costs, fair value adjustments, depreciation and amortisation EBITDA Revenue Revenue Average net assets Profit before exceptional items adjusted for finance costs, associate income and amortisation of goodwill* Average net assets Profit before exceptional items adjusted for finance costs, associate income and amortisation of goodwill* Average total assets Net profit attributable to shareholders of PPC Company Limited Average interest of shareholders of PPC Company Limited Net profit attributable to shareholders of PPC Company Limited less exceptional items net of taxation Average interest of shareholders of PPC Company Limited Taxation (excluding prior year taxation, secondary taxation on companies and taxation on exceptional items)* Profit before taxation, excluding dividend income and exceptional items * Excludes the impact of BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold Page 78

83 ,6 37,2 39,1 39,7 38,0 34,0 28, ,3 40,7 42,6 43,3 42,0 38,6 34,5 1,6 1,6 1,4 1,4 1,4 1,1 1,0 57,6 61,1 57,0 59,6 55,0 42,3 33,8 48,0 51,4 49,0 50,7 46,7 36,5 29,0 77,9 73,8 62,8 57,7 43,4 35,0 29,4 77,9 73,7 62,2 57,7 42,8 35,1 29,2 29,3 28,0 28,3 28,9 29,1 29,7 28,5 EBITDA (R million) Return on shareholders interest (%) ,4 57,7 62,8 73,8 77, , , Financial statements Page 79 Pretoria Portland Cement Company Limited Annual Report 2009

84 Seven-year review of the group s results continued for the year ended 30 September Liquidity and leverage Total liabilities to shareholders interest (%) Total borrowings to shareholders interest (%) Current ratio (times) Quick ratio (times) Interest cover (times) Number of years to repay interest-bearing borrowings Cash generated from operations (Rm) Cash flow from operations to total liabilities (times) Current and long-term liabilities, excluding deferred taxation Interest of ordinary shareholders of PPC Company Limited Short-term and long-term borrowings Interest of ordinary shareholders of PPC Company Limited Current assets Current liabilities Current assets, excluding inventories Current liabilities Profit before exceptional items, excluding finance costs Finance costs, including finance costs capitalised Total borrowings Cash available from operations Cash derived from normal operating activities Cash available from operations Total liabilities Value added Number of employees Revenue per employee (R000) ~ Wealth created per employee (R000) ~ Number of persons employed full-time, part-time or on another basis during each of the pay periods of the preceding 12 months Revenue for the year Average number of employees Wealth created during the year Average number of employees ~ Excludes employees of Porthold (Zimbabwe) (2009, 2008, 2007, 2006 and 2005) and employees of Afripack (2008, 2007 and 2006) Page 80

85 ,1 0,6 1,1 1,4 2,0 3,1 2,6 0,7 0,4 0,9 1,3 1,7 2,7 2,2 6,6 12,0 24,6 37,4 24,9 21,7 17, ,4 0,7 0,6 0,7 1,0 0,8 0, Page 81 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

86 Share performance for the year ended 30 September JSE Limited Number of shares in issue (millions) ~ Volume of shares traded (millions) Number of authorised shares that are sold to and held by the shareholders of PPC Company Limited on the JSE Limited Number of shares transacted during the year Market price (cents) high Highest prevailing price at which share was sold low Lowest prevailing price at which share was sold at year end Prevailing price at which share was sold on 30 September Value of shares traded (Rm) Number of shares transacted during the year times prevailing price Volume of shares traded as a percentage of total issued shares (%) Number of transactions FTSE/JSE All Share Industrial index Number of shares transacted during the year Number of shares in issue Number of exchanges of PPC Company Limited shares between a buyer and a seller Average prices of a selected number of shares listed on the JSE Limited Zimbabwe Stock Exchange Number of shares in issue (millions) ~ Market price at year end (cents) Market capitalisation at 30 September (Rm) JSE Limited Zimbabwe Stock Exchange Number of authorised shares that are sold to and held by the shareholders of PPC Company Limited on the Zimbabwe Stock Exchange Prevailing price at which share was sold on 30 September Number of shares in issue listed on JSE Limited times market price per share at year end Number of shares in issue listed on the Zimbabwe Stock Exchange times market price per share at year end Earnings yield (%) Earnings per share excluding exceptional items for the most recent 12 months* Market price per share at year Dividend yield (%) Total dividends paid out of current year s earnings Market price per share at year Price-earnings ratio Market value per share at year Earnings per share excluding exceptional items for the most recent 12 months* ~ Includes treasury shares * Excludes the impact of BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold ^ As data and exchange rates are not deemed meaningful, prior year s information has not been disclosed for shares listed on the Zimbabwe Stock Calculated using weighted market price of JSE Limited and the Zimbabwe Stock Exchange Page 82

87 ^ 2007^ 2006^ 2005^ 2004^ 2003^ ,9 118,8 59,2 24,9 28,8 26,1 15, ,8 9,1 5,6 6,5 6,0 8,0 10,2 6,0 7,2 5,6 6,3 6,5 12,8 12,1 12,9 11,0 18,0 15,4 16,9 12,4 9,8 Volume of shares traded on the JSE Limited (millions) Value of shares traded on the JSE Limited (R million) Financial statements Page 83 Pretoria Portland Cement Company Limited Annual Report 2009

88 Glossary of accounting terminology Accounting policies The specific principles, bases, conventions, rules and practices applied in preparing and presenting financial statements. Accrual accounting The effects of transactions and other events are recognised when they occur rather than when the cash is received or paid. ACQUISITION DATE The date on which control in subsidiaries, special purpose vehicles, joint control in joint ventures and significant influence in associates commence. Actuarial gains and losses The effect of differences between the previous actuarial assumptions and what has actually occurred as well as the effect of changes in actuarial assumptions. Amortised cost The amount at which a financial asset or financial liability is measured at initial recognition, adjusted for principal repayments, plus or minus the cumulative amortisation using the effective interest rate method of any difference between that initial amount and the maturity amount and minus any reduction for impairment or uncollectibility. Asset A resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow. Associate An entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Available-for-sale financial assets Non-derivative financial assets that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Borrowing costs Finance and other costs incurred in connection with the borrowing of funds. Business combination A business combination is the bringing together of separate entities or businesses into one reporting entity. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits. They are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Cash flow hedge A hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with an asset or liability, or a highly probable forecast transaction that could affect profit or loss. Cash-generating unit The smallest identifiable group of assets that generates cash inflows and is largely independent of the cash inflows from other assets or groups of assets. Change in accounting estimate An adjustment to an asset or a liability as a result of new information or developments. Constructive obligation An obligation that derives from an established pattern of past practice, published policies or a sufficiently specific current statement such that it created a valid expectation on the part of other parties that the obligation will be met. Consolidated financial statements The financial statements of a group presented as those of a single economic entity. Contingent asset A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent liability A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability. Carrying amount The amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses. Control The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Page 84

89 Costs to sell The incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income taxation expense. Date of transaction The date on which transaction first qualifies for recognition in accordance with International Financial Reporting Standards. Depreciation (or amortisation) The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset less its residual value. Equity instrument A contract that evidences a residual interest in the total assets after deducting the total liabilities. Equity method A method in which the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the share of net assets of the investee. Profit or loss includes the share of the investee s profit or loss. Employee benefits All forms of consideration given in exchange for services rendered by employees. Derecognition The removal of a previously recognised asset or liability from the statement of financial position. Derivative A financial instrument whose value changes in response to an underlying contract, requires no initial or minimal net investment in relation to other types of contracts that would be expected to have a similar response to changes in market factors and is settled at a future date. Development The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before starting commercial production or use. Discontinued operation A component that has either been disposed of or is classified as held-for-sale and represents a separate major line of business or geographical operational area or a subsidiary acquired exclusively with a view to resell. Discount rate The rate used for purposes of determining discounted cash flows defined as the yield on relevant South African government bonds that have maturity dates approximating the term of the related cash flows. The pre-taxation interest rate reflects the current market assessment of the time value of money. In determining the cash flows, the risks specific to the asset or liability are taken into account and are not included in determining the discount rate. Effective interest rate The derived rate that discounts the expected future cash flows to the current carrying amount of the financial asset or financial liability. Expenses The decreases in economic benefits in the form of outflows or depletion of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Fair value The amount for which an asset could be exchanged between knowledgeable and willing parties in an arm s length transaction. Fair value hedge A hedge of exposure to changes in fair value of a recognised asset, liability or firm commitment. Finance lease A lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. Financial asset Cash or cash equivalents, a contractual right to receive cash, an equity instrument or a contractual right to exchange financial instruments under favourable conditions. Financial liability A contractual obligation to pay cash or transfer other benefits, or a contractual obligation to exchange a financial instrument under unfavourable conditions. Financial instrument A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Page 85 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

90 Glossary of accounting terminology continued Financial asset or liability at fair value through profit or loss A financial asset or financial liability that is classified as held-fortrading or is designated as such on initial recognition other than investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. FINANCIAL GUARANTEE A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of the debt instrument. Held-for-trading financial asset or financial liability One that is acquired or incurred principally for the purpose of selling or repurchasing in the near term or as part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of shortterm profit-taking or a derivative (except for a derivative that is a designated and effective hedging instrument). Held-to-maturity investment A non-derivative financial asset with fixed or determinable payments and fixed maturity where there is a positive intention and ability to hold it to maturity. Firm commitment A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates. Immaterial If individually or collectively it would not influence the economic decisions of the users. Forecast transaction An uncommitted but anticipated future transaction. Functional currency The currency of the primary economic environment in which an entity operates. Going-concern basis The assumption that the entity will continue in operation for the foreseeable future. Gross investment in lease The aggregate of the minimum lease payments receivable by the lessor under a finance lease and any unguaranteed residual value accruing to the lessor. Impairment loss The amount by which the carrying amount of an asset or a cashgenerating unit exceeds its recoverable amount or sales price. Impracticable When, after making every reasonable effort to do so, the requirement cannot be applied. Income Increase in economic benefits in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Joint control The contractually agreed sharing of control over an economic activity. Group The group comprises Pretoria Portland Cement Company Limited, its subsidiaries and associates. Joint venture A contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Hedged item An asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that exposes the entity to risk of changes in fair value or future cash flows and is designated as being hedged. Hedging instrument A designated derivative or non-derivative financial asset or nonderivative financial liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. Legal obligation An obligation that derives from a contract, legislation or other operation of law. Liability A present obligation arising from a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Loans and receivables Non-derivative financial asset with fixed or determinable repayments that are not quoted in an active market. Page 86

91 Minimum lease payments Payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with any amounts guaranteed by the lessee or by a party related to the lessee or, in the case of a lessor, any residual value guaranteed to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. Monetary asset An asset which will be settled in a fixed or determinable amount of money. Monetary liability A liability which will be settled in a fixed or determinable amount of money. Net investment in the lease The gross investment in the lease discounted at the interest rate implicit in the lease. Operating lease A lease other than a finance lease. Onerous contract A contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. other comprehensive income Comprises items of income and expenditure (including reclassification adjustments) that are not recognised in the income statement and includes the effect of translation of foreign operations, cash flow hedges, available-for-sale financial assets and changes in revaluation reserves. OTHER SHAREHOLDERS These shareholders relate to the Strategic Black Partners and Community Service Groups who have taken up PPC shares at par value. PPC has a call option at the end of eight years to acquire the 8,5% shares issued to the two groups mentioned above. Profit attributable to other shareholders is determined in proportion to their shareholding. Owner-occupied property Property held by the owner or by the lessee under a finance lease for use in the production or supply of goods or services or for administrative purposes. Past service cost The increase or decrease in the present value of the defined benefit obligation for employee service in prior periods resulting from the introduction of, or changes to, post-employment benefits or other long-term employee benefits. Point-of-sale costs Commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges and transfer taxes and duties, excluding transport and other costs necessary to get the assets to the market. Post-employment benefits Employee benefits (other than termination benefits) that are payable after the completion of employment. Post-employment benefit plans Formal or informal arrangements under which an entity provides post-employment benefits to employees. Defined contribution benefit plans are where there are no legal or constructive obligations for the employer to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Defined benefit plans are post-employment benefit plans other than defined contribution plans. Presentation currency The currency in which the financial statements are presented. Prior period error An omission from or misstatement in the financial statements for one or more prior periods arising from a failure to use, or the misuse of, reliable information that was available when financial statements for those periods were authorised for issue and could reasonably be expected to have been obtained and taken into account in the preparation of those financial statements. Proportionate consolidation A method where the venturer s share of each of the assets, liabilities, income and expenses of a jointly controlled entity is combined line by line with similar items in the venturer s financial statements or reported as separate line items in the venturer s financial statements. Page 87 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

92 Glossary of accounting terminology continued Prospective application Applying a new accounting policy to transactions, other events and conditions occurring after the date the policy changed, or recognising the effect of the accounting policy change in the current and future periods. Recoverable amount The higher of an asset s or cash-generating unit s fair value less costs to sell and its value-in-use. Regular way purchase or sale A purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the timeframe established by regulation or convention in the marketplace concerned. Related party Parties are considered to be related if one party directly or indirectly has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions or is a member of the key management of the entity. Research The original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. SPECIAL PURPOSE VEHICLE An entity established to accomplish a narrow and well-defined objective, including the facilitation of the group s black economic empowerment transaction. Subsidiary An entity that is controlled by the parent. TaxATION BASE The taxation base of an asset is the amount that is deductible for taxation purposes if the economic benefits from the asset are taxable or is the carrying amount of the asset if the economic benefits are not taxable. The taxation base of a liability is the carrying amount of the liability less the amount deductible in respect of that liability in future periods. The taxation base of revenue received in advance is the carrying amount less any amount of the revenue that will not be taxed in future periods. Temporary differences The differences between the carrying amount of an asset or liability and its taxation base. Residual value The estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. Retrospective application Applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. Retrospective restatement Correcting the recognition, measurement and disclosure of amounts as if a prior period error had never occurred. Share-based payment A transaction in which the entity issues shares or share options to employees in exchange for services rendered. Transaction costs Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability. Unearned finance income The difference between the gross investment in the lease and the net investment in the lease. Useful life The period over which an asset is expected to be available for use, or the number of production or similar units expected to be obtained from the asset. Value-in-use The present value of the future cash flows expected to be derived from an asset or cash-generating unit. Significant influence Significant influence is the power to participate in the financial and operating policy decisions of the associate, which is not control or joint control over those policies. Page 88

93 Accounting policies for the year ended 30 September 2009 Basis of preparation Accounting framework The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations of those standards using the historical cost convention except for certain financial instruments that are stated at fair value. The basis of preparation is consistent with the prior year except where the group has adopted new or revised accounting standards and interpretations of those standards. The following accounting standards, interpretations, amendments and circular, which did not have a material impact on reported results, were adopted in the current year: IAS 1 (revised): Presentation of Financial Statements IFRS 1 and IAS 27 (revised): Cost of an Investment in Subsidiary, Jointly Controlled Entity or Associate IFRS 7 (amendment) Financial Instruments: Disclosures Fair Value and Liquidity Risk Enhancements IFRIC 17: Distributions of Non-cash Assets to Owners IFRIC 18: Transfer of Assets from Customers IAS 32 (amendment) and IAS 1 (amendment): Puttable Financial Instruments and Obligations Arising on Liquidation IAS 39 (amendment): Eligible Hedged Items IAS 39 and IFRS 7 (amendment): Reclassification of Financial Assets IASB improvement project 2008 Circular 3/2009 Headline Earnings The following standards have been adopted and have made an impact on the group s reported results: IFRS 3 (revised): Business Combinations and IAS 27 (revised): Consolidated and Separate Financial Statements IAS 38 (amendment) Intangible Assets (measuring the fair value of intangible assets acquired in a business combination) Underlying concepts The financial statements are prepared on the going-concern basis using accrual accounting. Assets and liabilities and income and expenses are not offset unless specifically permitted by an accounting standard. the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously. Changes in accounting policies are accounted for in accordance with the transitional provisions in the standard. If no such guidance is given, then they are applied retrospectively, unless it is impracticable to do so, in which case they are applied prospectively. Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively. Changes in accounting estimates are recognised in profit or loss. Preparing financial statements in conformity with IFRS requires estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from these estimates. Recognition of assets and liabilities Assets are only recognised if they meet the definition of an asset, it is probable that future economic benefits associated with the asset will flow to the group and the cost or fair value can be measured reliably. Liabilities are only recognised if they meet the definition of a liability, it is probable that future economic benefits associated with the liability will flow from the group and the cost or fair value can be measured reliably. Financial instruments are recognised when the group becomes a party to the contractual provisions of the instrument. Financial assets and liabilities, as a result of firm commitments, are only recognised when one of the parties has performed under the contract. Derecognition of assets and liabilities Financial assets are derecognised when the contractual rights to receive cash flows have been transferred or have expired or when substantially all the risks and rewards of ownership have passed. Financial assets and financial liabilities are offset and the net amount reported only when a legally enforceable right to set off All other assets are derecognised on disposal or when no future economic benefits are expected from their use or on disposal. Page 89 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

94 Accounting policies continued for the year ended 30 September 2009 Financial liabilities are derecognised when the relevant obligation has either been discharged or cancelled or has expired. Property, plant and equipment Property, plant and equipment represents tangible items and intangible items that are integrated with tangible items that are held-for-use in the production or supply of goods and are expected to be used during more than one period. Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes expenditures on materials, direct labour and an allocated portion of project overheads. Cost also includes the estimated cost of dismantling and removing the assets and site rehabilitation costs to the extent that they relate to the construction of the asset as well as gains and losses on qualifying cash flow hedges attributable to that asset. Owner-occupied properties in the course of construction are carried at cost, less any impairment loss where the recoverable amount of the asset is estimated to be lower than its carrying value. Factory decommissioning and quarry rehabilitation Group companies are generally required to restore mine and processing sites at the end of their producing lives to a condition acceptable to the relevant authorities and consistent with the group s environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value, is provided and capitalised at the beginning of each project. The capitalised cost is depreciated over the expected life of the asset and the increase in the net present value of the provision for the expected cost is included with finance costs. Changes in the measurement of an existing decommissioning or restoration liability that result from changes in the estimated timing or amount of expected costs, or a change in the discount rate, are accounted for in the respective asset or recognised in profit or loss as appropriate. An environmental rehabilitation trust fund was created in accordance with statutory requirements. Annual contributions are made to this fund where applicable. Depreciation is charged so as to write off the depreciable amount of the assets, other than land, over their estimated useful lives, using a method that reflects the pattern in which the asset s future economic benefits are expected to be consumed by the entity. Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives. The methods of depreciation, useful lives and residual values are reviewed annually. The following methods and rates were used during the year: Buildings Straight-line 30 years Plant Straight-line 5 to 35 years Vehicles Straight-line 5 to 10 years Furniture and equipment Straight-line 3 to 6 years Mineral rights Straight-line Estimated life of reserve Assets held under finance leases are depreciated over their expected useful lives or the term of the relevant lease, where shorter. The gain or loss arising on the disposal or scrapping of property, plant and equipment is recognised in profit or loss. Intangible assets An intangible asset is an identifiable non-monetary asset without physical substance, which is not integrated with a tangible asset. It includes patents, trademarks, capitalised development costs and certain costs of purchase and installation of major information systems (including packaged software). Intangible assets are initially recognised at cost if acquired separately or internally generated or at fair value if acquired as part of a business combination. If assessed as having an indefinite useful life, it is not amortised but tested for impairment annually and impaired if necessary. If assessed as having a finite useful life, it is amortised over its useful life (generally three to seven years) using a straight-line basis and tested for impairment if there is an indication that it may be impaired. Research costs are recognised in profit or loss when they are incurred. Development costs are capitalised only when and if they meet the criteria for capitalisation. Otherwise they are recognised in profit or loss. Page 90

95 Patents and trademarks are measured initially at cost and amortised on a straight-line basis over their estimated useful lives. Goodwill Goodwill represents the future economic benefits arising from assets that are not capable of being individually identified and separately recognised in a business combination. Goodwill arising on the acquisition of a business, subsidiary, associate or joint venture is recognised as an asset and is stated at cost less impairment losses. Goodwill is not amortised. Goodwill of associates is included in the carrying amount of the associate. If an impairment loss subsequently reverses, the carrying amount of the asset, or cash-generating unit, is increased to the revised estimate of its recoverable amount but limited to the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Goodwill and intangible assets with indefinite useful lives and cash-generating units to which these assets have been allocated are tested for impairment annually even if there is no indication of impairment. Impaired goodwill and intangible assets with indefinite lives are only reversed when the associated business is sold. If, on a business combination, the fair value of the group s interest in the identifiable assets, liabilities and contingent liabilities exceeds the cost of acquisition, this excess is recognised in profit or loss immediately. On disposal of a subsidiary, associate, joint venture or business unit to which goodwill was allocated on acquisition, the amount attributable to such goodwill is included in the determination of the profit or loss on disposal. Impairment of assets At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Value-in-use is estimated taking into account future cash flows, forecast market conditions and the expected lives of the assets. At each reporting date the carrying amount of financial assets, other than those at FVTPL, are assessed for indicators of impairment. For financial assets carried at amortised cost, the amount of impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets except for trade receivables, where the carrying amount is reduced through the use of an allowance account. Subsidiaries, associates and joint ventures Investments in subsidiaries, associates and joint ventures in the separate financial statements presented by the company, are recognised at cost. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities, income, expenses and cash flows of the company and its subsidiaries as if they were a single economic entity. If the recoverable amount of an asset, or cash-generating unit, is estimated to be less than the carrying amount, its carrying amount is reduced to the higher of the recoverable amount or zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal. Inter-company transactions and balances between group entities are eliminated on consolidation. On acquisition of a subsidiary, minorities interest is measured at the proportion of the pre-acquisition fair values of the identifiable assets and liabilities acquired. Page 91 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

96 Accounting policies continued for the year ended 30 September 2009 The results of special purpose vehicles, that in substance are controlled by the group, are consolidated. Special purpose vehicles The financial results of special purpose vehicles (SPVs) are consolidated into the group s results from the date that the group controls the SPV until the date that control ceases. Control is based on an evaluation of the substance of the SPV s relationship with the group and the SPV s risks and rewards. Interests in associates The consolidated financial statements incorporate the assets, liabilities, income and expenses of associates using the equity method of accounting, applying the group s accounting policies, from the acquisition date to the disposal date, except when the investment is classified as held-for-sale, in which case it is accounted for as non-current assets held-for-sale. The investment is carried at cost and adjusted for post-acquisition changes in the group s share of net assets of the associate, less any impairment in value in the individual investment. Losses of an associate in excess of the group s interest in that associate are not recognised, unless the group has incurred a legal or constructive obligation or made payments on behalf of the associate. Where a group entity transacts with an associate of the group, unrealised profits and losses are eliminated to the extent of the group s interest in the relevant associate. Financial assets Financial assets are initially measured at fair value plus transaction costs. However, transaction costs in respect of financial assets classified at fair value through profit or loss are expensed. Financial assets are classified into the following categories: at fair value through profit or loss are carried at fair value with any gains or losses being recognised in profit or loss. Fair value, for this purpose, is market value if listed or a value arrived at by using appropriate valuation models if unlisted. Loans and receivables Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables and are measured at amortised cost using the effective interest rate method less provision for doubtful debts. Write-downs of these assets are expensed in profit or loss. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Available-for-sale financial assets Investments in unlisted shares are classified as available-for-sale financial assets. These investments are carried at fair value with any gains or losses being recognised directly in equity. Fair value, for this purpose, is a value arrived at by using appropriate valuation models. An investment intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, is classified as non-current availablefor-sale financial assets. Where the investment is disposed of or determined to be impaired, the cumulative gain or loss previously recognised in equity is included in profit or loss for the period. Financial liabilities Financial liabilities are classified as either financial liabilities at fair value through profit or loss or financial liabilities measured at amortised cost. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are measured at fair value with any resultant gain or loss recognised in profit or loss. Held-to-maturity investments Investments classified as held-to-maturity financial assets are measured at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Financial liabilities measured at amortised cost Financial liabilities measured at amortised cost are initially measured at fair value, net of transaction costs. These financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss where the financial asset is either held-for-trading or it is designated as at fair value through profit or loss. Financial assets Derivative financial instruments Derivatives that are assets are measured at fair value, with changes in fair value being included in profit or loss other than derivatives designated as cash flow hedges. To the extent that a derivative Page 92

97 instrument has a maturity period of longer than one year, the fair value of these instruments will be reflected as a non-current asset or liability. Derivatives that are liabilities are measured at fair value, with changes in fair value being included in profit or loss other than derivatives designated as cash flow hedges. Hedge accounting If a fair value hedge meets the conditions for hedge accounting, any gain or loss on the hedged item attributable to the hedged risk is included in the carrying amount of the hedged item and recognised in profit or loss. Leasing Classification Leases are classified as finance leases or operating leases at the inception of the lease. In the capacity of a lessee Finance leases are recognised as assets and liabilities at the lower of the fair value of the asset and the present value of the minimum lease payments at the date of acquisition. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to profit or loss over the term of the lease and at interest rates applicable to the lease on the remaining balance of the obligations. If a cash flow hedge meets the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in profit or loss. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease or another basis if more representative of the time pattern of the user s benefit. If an effective hedge of a forecast transaction subsequently results in the recognition of a financial asset or financial liability, the associated gains or losses recognised in equity are transferred to income in the same period in which the asset or liability affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated gains or losses recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. Hedge accounting is discontinued on a prospective basis when the hedge no longer meets the hedge accounting criteria (including when it becomes ineffective), when the hedge instrument is sold, terminated or exercised, when for cash flow hedges, the forecast transaction is no longer expected to occur or when the hedge designation is revoked. Any cumulative gain or loss on the hedging instrument for a forecast transaction is retained in equity until the transaction occurs, unless the transaction is no longer expected to occur, in which case it is transferred to profit or loss for the period. In the capacity of a lessor Rental income from operating leases is recognised on straightline basis over the term of the lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straightline basis over the lease term. Share-based payments Cash-settled The cost of cash-settled transactions is measured initially at fair value at the grant date using the binomial option pricing model, taking into account the terms and conditions upon which the instruments were granted. This fair value is expensed over the vesting period with a corresponding charge to liabilities. The liability is remeasured at each reporting date, up to and including the settlement date, with changes in fair value recognised in profit or loss over the vesting period. Equity-settled The fair value of the share options is recognised and charged against profit or loss together with a corresponding movement in equity. Fair value adjustments are calculated over the vesting period, ending on the date on which the performance conditions are fulfilled and the employees become fully entitled to exercise their options. The cumulative expense recognised for share Page 93 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

98 Accounting policies continued for the year ended 30 September 2009 options granted at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the number of share option grants that will ultimately vest, based on management s best estimate, at that date. This is based on the best available estimate of the number of share options that will ultimately vest. Fair value is measured using the binomial option pricing model. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations such as volatility, dividend yield and the vesting period. Broad-based black economic empowerment (BBBEE) To the extent that an entity grants shares or share options in a BBBEE transaction and the fair value of the cash and other assets received is less than the fair value of the shares or share options granted, such difference is charged to profit or loss in the period in which the transaction becomes effective. Where the BBBEE transaction includes service conditions, the difference is charged to profit or loss over the period of these service conditions. A restriction on the transfer of the shares or share options is taken into account in determining the fair value of the share or share option. Deferred taxation assets A deferred taxation asset represents the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused taxation losses and the carry forward of unused taxation credits, including unused credits for secondary taxation on companies. A deferred taxation asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised and is accounted for using the balance sheet liability method. It is measured at the taxation rates that have been enacted or substantially enacted at the reporting date. Inventories Inventories are assets held-for-sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process. Inventories are stated at the lower of cost or net realisable value. Cost includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, net of discount and rebates received. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion, distribution and selling. The specific identification basis is used to arrive at the cost of items that are not interchangeable. Otherwise the first-in firstout method or weighted average method for certain classes of inventory is used to arrive at the cost of items that are interchangeable. Non-current assets held-for-sale Non-current assets held-for-sale or disposal groups are classified as held-for-sale if the carrying amount will be recovered principally through sale rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset held-for-sale or disposal groups are available for immediate sale in their present condition. Immediately prior to being classified as held-for-sale, the carrying amount of the item is measured in accordance with the applicable accounting standard. After classification as held-for-sale, it is measured at the lower of the carrying amount and fair value less costs to sell. An impairment loss is recognised in profit or loss for any initial and subsequent write-down of the asset and disposal group to fair value less costs to sell. A gain for any subsequent increase in fair value less costs to sell is recognised in profit or loss to the extent that it is not in excess of the cumulative impairment loss previously recognised. Non-current assets or disposal groups that are classified as heldfor-sale are not depreciated. Cash and cash equivalents Cash and cash equivalents are measured at fair value, with changes in fair value being included in profit or loss. Deferred taxation liability A deferred taxation liability represents the amount of income taxes payable in future periods in respect of taxable temporary differences. Page 94

99 A deferred taxation liability is recognised for taxable temporary differences, unless specifically exempt, at the taxation rates that have been enacted or substantially enacted at the reporting date and is accounted for using the balance sheet liability method. Deferred taxation arising on investments in subsidiaries, associates and joint ventures is recognised except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Defined contribution retirement plans Payments to defined contribution retirement plans are charged to profit or loss as incurred. Defined benefit post-employment healthcare benefits The cost of providing defined healthcare benefits is determined using the projected unit credit method. Valuations are conducted every three years and interim adjustments to those valuations are made annually. Actuarial gains and losses that exceed 10% of the greater of the present value of the group s pension obligations or the fair value of plan assets are amortised over the expected average remaining working lives of the participating employees. Gains or losses on the curtailment or settlement of a defined benefit plan are recognised in profit or loss when the group is demonstrably committed to the curtailment or settlement. The amount recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and the unrecognised past service costs. Provisions Provisions represent liabilities of uncertain timing or amount. Provisions are recognised when the group has a present legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions for onerous contracts are established after taking into consideration the recognition of impairment losses that have occurred on assets dedicated to those specific contracts. Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-taxation discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. Treasury shares Shares in the company held by group subsidiary companies and by SPVs that require consolidation are classified as treasury shares. The consideration paid, inclusive of directly attributable costs, is disclosed as a deduction from equity. The issued and weighted average number of shares is reduced by the treasury shares, weighted for the period they have been held by the subsidiary company or SPVs, for the purpose of determining earnings and headline earnings per share calculations. Dividends received on treasury shares are eliminated on consolidation. Dividends Dividends to equity holders are only recognised as a liability when declared and are included in the statement of changes in equity. Secondary taxation on companies in respect of such dividends is recognised as a liability when the dividends are recognised as a liability and are included in the taxation charge in profit or loss. Revenue Revenue represents the gross inflow of economic benefits during the period arising in the course of the ordinary activities when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Revenue is measured at the amount received or receivable net of cash and settlement discounts, rebates, VAT and other indirect taxes. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred, when delivery has been made and title has passed, when the amount of the revenue and the related costs can be reliably measured and when it is probable that the customer will pay for the goods. Cost of sales When inventories are sold, the carrying amount is recognised as part of cost of sales. Any write-down of inventories to net realisable value and all losses of inventories or reversals of previous write-downs or losses are recognised in cost of sales in the period the write-down, loss or reversal occurs. Page 95 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

100 Accounting policies continued for the year ended 30 September 2009 Employee benefit costs The cost of providing employee benefits is accounted for in the period in which the benefits are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted. The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur. The expected cost of profit-sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are expensed in the period in which they are incurred. Investment income Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Secondary taxation on companies (STC) is recognised as part of the current taxation charge when the related dividend is declared. Deferred taxation is recognised if dividends received in the current period can be offset against future dividend payments to the extent of the reduction of future STC. Deferred taxation is recognised in profit or loss, except when it relates to items credited or charged directly to equity, in which case it is also recognised in equity, for all temporary differences, unless specifically exempt at the taxation rates that have been enacted or substantially enacted at the reporting date. Discontinued operations The results of discontinued operations are presented separately in profit or loss and the assets associated with these operations are included with non-current assets held-for-sale in the statement of financial position. Foreign currencies The functional currency of each entity within the group is determined based on the currency of the primary economic environment in which that entity operates. Transactions in currencies other than the entity s functional currency are recognised at the rates of exchange ruling on the date of the transaction. Monetary assets and liabilities denominated in such currencies are translated at the rates ruling at the reporting date. Dividend income from investments is recognised when the shareholders right to receive payment has been established. Gains and losses arising on exchange differences are recognised in profit or loss. Exceptional items Exceptional items cover those amounts, which are not considered to be of an operating nature, and generally include profit or loss on disposal of property, investments and businesses, other non-current assets, and impairments of capital items and goodwill. Taxation The charge for current taxation is based on the results for the period as adjusted for income that is exempt and expenses that are not deductible using taxation rates that are applicable to the taxable income. The financial statements of entities within the group, whose functional currencies are different to the group s presentation currency, are translated as follows: Assets, including goodwill, and liabilities at exchange rates ruling on the reporting date Income, expense items and cash flows at the average exchange rates for the period Equity items at the exchange rate ruling when they arose. Resulting exchange differences are classified as a foreign currency translation reserve and recognised directly in equity. On disposal of such a business unit, this reserve is recognised in profit or loss. Page 96

101 Hyperinflationary currencies The financial statements of foreign entities that report in the currency of a hyperinflationary economy are restated for the decrease in general purchasing power of the currency at the reporting date before they are translated into the group s presentation currency. Post-balance sheet events Recognised amounts in the financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events that are indicative of conditions that arose after the reporting date are dealt with by way of a note. Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period errors. Furthermore, where there is a subdivision of ordinary shares during the current period, the comparative figures are restated. The group s reporting segments comprise the following: Cement The Cement division s activities include the mining of limestone for the manufacture and supply of cementitious products. Lime The Lime division s activities include the mining of limestone, and the manufacture and supply of metallurgical grade limestone, burnt lime and burnt dolomite. Aggregates The Aggregate division s activities include the mining and supply of aggregates and metallurgical grade dolomitic limestone. Other Other comprises the various consolidated trusts and trust funding SPVs relating to the broad-based black economic empowerment transaction. Operating segment information Reporting segments The group has four main reporting segments that comprise the structure used by the group executive (GE) to make key operating decisions and assess performance. The group s reportable segments are operating segments that are differentiated by the activities that each undertakes and the products they manufacture and market. The group evaluates the performance of its reportable segments based on operating profit. The group accounts for inter-segment sales and transfers as if the sales and transfers were entered into under the same terms and conditions as would have been entered into in a market-related transaction. The financial information of the group s reportable segments is reported to the GE for purposes of making decisions about allocating resources to the segment and assessing its performance. Page 97 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

102 Judgements made by management for the year ended 30 September 2009 Preparing financial statements in conformity with IFRS requires estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from these estimates. Judgements made by management in applying the accounting policies, other than those dealt with previously, that could have a significant effect on the amounts recognised in the financial statements are: Asset lives and residual values Property, plant and equipment are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product lifecycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Impairment of assets Goodwill is considered for impairment annually. Property, plant and equipment and intangible assets are considered for impairment if there is a reason to believe that impairment may be necessary. Factors taken into consideration in reaching such a decision include the economic viability of the asset itself and where it is a component of a larger economic unit, the viability of that unit itself. The future cash flows expected to be generated by the assets are projected, taking into account market conditions and the expected useful lives of the assets. The present value of these cash flows, determined using an appropriate discount rate, is compared to the current net asset value and, if lower, the assets are impaired to the present value. Consolidation of special purpose vehicles Special purpose vehicles established in the broad-based black economic empowerment transaction have been consolidated in the group results in terms of IAS 27 (Consolidated and Separate Financial Statements). Valuation of financial instruments The valuation of derivative financial instruments is based on the market situation at the reporting date. The value of the derivative instruments fluctuates on a daily basis and the actual amounts realised may differ materially from their value at the reporting date. Provision for doubtful debts The provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due in accordance with the original terms of credit given and includes an assessment of recoverability based on historical trend analysis and events that exist at the reporting date. Deferred taxation assets Deferred taxation assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Future taxation profits are estimated based on business plans which include estimates and assumptions regarding economic growth, interest, inflation and taxation rates and competitive forces. Deferred taxation assets are also recognised on STC credits to the extent it is probable that future dividends will utilise these credits. Fair value of share-based payments Fair value used in calculating the amount to be expensed as a share-based payment is subject to a level of uncertainty. The group is required to calculate the fair value of the equity and cashsettled instruments granted to employees in terms of the share option schemes implemented, and share-based payment charge relating to the implementation of the broad-based black economic empowerment transaction. These fair values are calculated by applying a valuation model which is in itself judgemental and takes into account certain inherently uncertain assumptions (refer note 36). Factory decommissioning and rehabilitation obligations Estimating the future costs of these obligations is complex as most of the obligations will be fulfilled in the future. Furthermore, the resulting provisions are influenced by changing technologies, political, environmental, safety, business and statutory considerations. Page 98

103 Post-employment healthcare benefit valuations Actuarial valuations of employee benefit obligations under the now closed defined healthcare benefit plans are based on assumptions which include employee turnover, mortality rates, inflation rates, discount rates, medical inflation, the expected long-term return on plan assets and the rate of compensation increases. Consolidation of Portland Holdings Limited (Porthold) The following judgements and key sources of estimation have been applied in consolidating Porthold during the 2009 year: Date of effective control The definitions and requirements of IAS 27 (Consolidated and Separate Financial Statements) were considered in determining the date on which PPC obtained effective control over Porthold. The PPC board concluded this date to have been 30 September 2009 and accordingly Porthold was consolidated from that date. Consolidation of the Porthold Trust (Private) Limited (the Trust) The Trust has been consolidated in accordance with the requirements of SIC Interpretation 12 (Consolidation Special Purpose Entities (SPVs)). The Trust holds 1,1 million PPC shares listed on the Zimbabwe Stock Exchange, for the sole benefit of existing Porthold employees. These shares have been carried as treasury shares on consolidation. Intangible assets Identifiable intangible assets were valued by an independent professional company and included brands, mineral resources and reserves. The valuation used the principles of IAS 38 Intangible Assets and IFRS 3 (revised) Business Combinations and involved the use of significant judgements and estimates. Purchase consideration In order to determine the purchase consideration of Porthold, management performed a discounted cash flow calculation using the capital asset pricing model, and involved the use of significant judgements and estimates such as capacity levels. The value of shares held by the Trust was determined with reference to the ruling Zimbabwe Stock Exchange value of the shares. The outcome of the calculations was utilised to assess the reasonableness of the values determined for the tangible assets. Cash and cash equivalents Included in cash and cash equivalents is foreign currency denominated cash and cash equivalents which have been impaired in full. These funds were subject to surrender in Zimbabwe. Taxation The taxation bases of Porthold are still tentative as the Zimbabwean revenue authority has not yet provided clear unequivocal guidance on the procedures required arising from the change of Zimbabwe dollar balances to the new US dollar functional currency. No established basis exists for the determination of allowances previously granted. Tangible assets and liabilities Tangible assets and liabilities were valued by management involving contracting professional valuers, suppliers and applying PPC group standards. An economic obsolescence factor was applied where applicable. Included in property, plant and equipment is land amounting to R23 million, which is exposed to the risk of expropriation by the Zimbabwean government without compensation in terms of the Constitution of Zimbabwe. For further details on the consolidation of Porthold, refer to note 30 in the group financial report. Sources of estimation uncertainty There are no significant assumptions made concerning the future or other sources of estimation uncertainty that have been identified as giving rise to a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. Economic obsolescence Property, plant and equipment as determined by the various valuation methodologies, excluding land were reduced, where applicable, to their economically supported fair values based on management s assessment of Porthold s fair value. Page 99 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

104 Consolidated statements of financial position at 30 September Notes Rm Rm Rm ASSETS Non-current assets Property, plant and equipment Intangible assets Investment in non-consolidated subsidiary Non-current financial assets Long-term receivables Investment in associates Current assets Inventories Trade and other receivables Short-term investment 4 2 Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves Share capital and premium 11 (1 088) Other reserves Retained profit Total equity Non-current liabilities Deferred taxation liabilities Long-term borrowings Provisions Other non-current liabilities Current liabilities Short-term borrowings Taxation payable Trade and other payables Provisions Total equity and liabilities Page 100

105 Consolidated income statements for the year ended 30 September Notes Rm Rm Rm Revenue Cost of sales Gross profit Non-operating income 1 Administrative and other operating expenditure Operating profit before items listed below BBBEE IFRS 2 charges (490) Take-on gain arising from consolidation of Porthold 213 Operating profit Fair value (losses)/gains on financial instruments 19 (6) 4 1 Finance costs Investment income Profit before exceptional items Exceptional items Share of associates retained profit Profit before taxation Taxation Net profit Attributable to: Ordinary shareholders Other shareholders^ Earnings per share (cents) 24.3 basic 210,1 283,5 265,8 diluted 209,1 283,5 265,8 ^ For details on other shareholders refer note 11 Page 101 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

106 Consolidated statements of comprehensive income for the year ended 30 September 2009 Unrealised surplus on reclassification of plant Foreign currency translation Availablefor-sale financial assets Hedging reserves Retained profit Total comprehensive income Rm Rm Rm Rm Rm Rm 2007 Profit for the year Other comprehensive income, net of taxation (3) (6) (3) (33) 3 (42) Exchange differences on translation of foreign operations (6) (6) Revaluation of investments (4) (4) Deferred taxation on revaluation 1 1 Cash flow hedge recognised directly through equity (14) (14) Cash flow hedge recognised in cost of plant (33) (33) Deferred taxation on hedging movements Transfer to retained profit (3) 3 Total comprehensive income (3) (6) (3) (33) Profit for the year Other comprehensive income, net of taxation (3) Exchange differences on translation of foreign operations 5 5 Revaluation of investments Deferred taxation on revaluation (1) (1) Cash flow hedge recognised directly through equity Cash flow hedge recognised in profit and loss (2) (2) Cash flow hedge recognised in cost of plant (4) (4) Deferred taxation on hedging movements (1) (1) Transfer to retained profit (3) 3 Total comprehensive income (3) Page 102

107 Unrealised surplus on reclassification of plant Foreign currency translation Availablefor-sale financial assets Hedging reserves Retained profit Total comprehensive income Rm Rm Rm Rm Rm Rm 2009 Profit for the year Other comprehensive income, net of taxation (3) (14) 2 (6) 3 (18) Exchange differences on translation of foreign operations (14) (14) Revaluation of investments 2 2 Cash flow hedge recognised directly through equity (7) (7) Revaluation of investment in nonconsolidated subsidiary (refer note 3) Take-on gain arising from consolidation of Porthold (213) (213) Deferred taxation on hedging movements 1 1 Transfer to retained profit (3) 3 Total comprehensive income (3) (14) 2 (6) Page 103 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

108 Consolidated statements of changes in equity for the year ended 30 September 2009 Share capital Rm Share premium Rm Balance at 1 October Movement for the year Equity-settled share incentive scheme charge Equity-settled share incentive scheme payment Total comprehensive income Dividends declared to PPC shareholders Balance at 30 September Movement for the year (2) (751) Equity-settled share incentive scheme refund Purchase of PPC shares by group subsidiary, treated as treasury shares (2) (751) Other reserve movements Total comprehensive income Deferred taxation on other reserve movements Dividends declared to PPC shareholders Balance at 30 September Movement for the year 1 (1 204) BBBEE IFRS 2 charges Treasury shares held by the BBBEE trusts and funding SPVs (4) (1 186) Treasury shares held by Porthold Trust (Private) Limited (18) Shares issued to the BBBEE CSG and SBP funding SPVs 5 Transfer to retained profit Total comprehensive income Dividends declared by funding SPVs to non-consolidated trusts Dividends declared to PPC shareholders Balance at 30 September (1 141) Page 104

109 Other reserves Unrealised Total equity surplus on Foreign Available-for- Equity attributable to reclassification currency sale financial Hedging compensation Retained equity holders of plant translation assets reserves reserves profit of parent Rm Rm Rm Rm Rm Rm Rm 26 (4) (3) (6) (3) (33) (29) (30) (30) (3) (6) (3) (33) (1 212) (1 212) 23 (10) 23 3 (23) (3) (636) 2 2 (753) 26 (25) 1 (3) (1) (1) (1 401) (1 401) 20 (5) (3) (14) 2 (6) (798) (1 190) (18) 5 (376) 376 (3) (14) 2 (6) (7) (7) (1 188) (1 188) 17 (19) Page 105 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

110 Consolidated statements of cash flows for the year ended 30 September Notes Rm Rm Rm CASH FLOWS FROM OPERATING ACTIVITIES Profit before exceptional items Adjustments for: depreciation amortisation of intangible assets profit on disposal of plant and equipment and intangibles (4) (2) (3) BBBEE IFRS 2 charges 490 take-on gain arising from consolidation of Porthold 30 (213) dividends received (9) (8) (8) interest received (56) (76) (74) finance costs loss on derivatives (cash-settled share-based payment hedge) 4 15 other non-cash flow items Operating cash flows before movements in working capital Increase in inventories (107) (26) (116) Increase in trade and other receivables (31) (55) (147) Increase in trade and other payables and provisions Cash generated from operations Finance costs paid 27 (297) (192) (84) Dividends received from investments and associate Interest received Taxation paid 28 (645) (800) (743) Cash available from operations Dividends paid 29 (1 195) (1 401) (1 207) Equity-settled share incentive scheme refund/(payment) 2 (30) Net cash inflow from operating activities Page 106

111 Notes Rm Rm Rm CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment 31 (883) (794) (954) to enhance existing operations (341) (277) (129) to expand operations (542) (517) (825) Acquisition of intangible assets (38) (3) (10) Dividends received from non-consolidated subsidiary company 30 Net proceeds received on disposal of property, plant and equipment Movements in investments and loans 32 (118) (27) 114 Redemption of preference shares 30 Acquisition of treasury shares held by consolidated subsidiary company (753) Treasury shares held by the BBBEE trusts and funding SPVs (1 190) Receipt of instalment on long-term loan Net cash outflow from investing activities (2 208) (1 562) (772) Net cash outflow before financing activities (1 675) (1 317) (549) CASH FLOWS FROM FINANCING ACTIVITIES Issue of shares 5 Long-term borrowings raised (13) (111) BBBEE funding transaction 868 Net short-term borrowings (repaid)/raised (862) Net cash inflow from financing activities Net decrease in cash and cash equivalents (19) (1 077) (181) Cash and cash equivalents at beginning of the year Cash acquired on consolidation of Porthold Cash and cash equivalents at end of the year Cash earnings per share (cents) ,6 310,9 271,6 Page 107 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

112 Operating segments for the year ended 30 September 2009 The group discloses its operating segments according to the business units which are regularly reviewed by the group executive. These comprise Cement, Lime, Aggregates and Other Rm Group 2008 Rm 2007 Rm 2009* Rm Cement Revenue South Africa Other Africa Inter-segment revenue (5) (6) Total revenue Operating profit before items listed below BBBEE IFRS 2 charges (490) (475) Take-on gain arising from consolidation of Porthold Operating profit Fair value adjustments on financial instruments (6) 4 1 (1) 4 1 Finance costs Investment income Profit before exceptional items Exceptional items Share of associates retained profit Profit before taxation Taxation Net profit Material non-cash items included in segment profit: Depreciation and amortisation EBITDA ~ Operating margin ~ (%) 35,6 37,2 39,1 38,0 39,1 40,7 EBITDA margin (%) 40,3 40,7 42,6 42,6 42,5 44,0 Assets Total assets Non-current assets Current assets Included in non-current assets Additions to property, plant and equipment Liabilities Total liabilities Non-current liabilities Current liabilities ^ Other comprises BBBEE trusts and funding SPVs * Includes Porthold with effect from 30 September 2009 (refer note 30) ~ Excluding BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold 2008 Rm 2007 Rm Page 108

113 2009 Rm Lime Aggregates Other^ 2008 Rm 2007 Rm 2009 Rm 2008 Rm 2007 Rm 2009 Rm 2008 Rm 2007 Rm (8) (13) (2) (8) (5) (102) (102) (103) (8) 16,7 23,5 30,1 24,3 29,2 26,3 22,3 27,9 34,4 28,4 33,1 31, Page 109 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

114 Notes to the group annual financial statements for the year ended 30 September 2009 Freehold and leasehold land, buildings and mineral rights Rm Factory decommissioning and quarry rehabilitation assets Rm Plant, vehicles, furniture and equipment Rm Capitalised leased plant Rm Total Rm 1. PROPERTY, PLANT AND EQUIPMENT 2009 Cost Accumulated depreciation and impairments Net carrying value Cost Accumulated depreciation and impairments Net carrying value Cost Accumulated depreciation and impairments Net carrying value Plant and equipment with a net carrying value of R39 million (2008: R107 million; 2007: R135 million) are encumbered as disclosed in note 13. The insured value of the group s property, plant and equipment at 30 September 2009 amounted to R million (2008: R million; 2007: R million), which is based on the cost of replacement of such assets, except for motor vehicles which are included at estimated retail value. The value of land included amounts to R66 million (2008: R56 million; 2007: R56 million). Included in freehold land, buildings and mineral rights is land amounting to R23 million, which is exposed to the risk of expropriation by the Zimbabwean government without compensation in terms of the Constitution of Zimbabwe (refer note 30). Certain of the company s properties are the subject of land claims. The company is in the process of discussion with the Land Claims Commissioner and is awaiting the outcome of the claims referred to the Land Claims Court. The claims are not expected to have a material impact on the company s operations. The registers of land and buildings are open for inspection at the registered offices of the company and its subsidiaries. Included in plant, vehicles, furniture and equipment is capital work-in-progress of R866 million (2008: R330 million; 2007: R931 million). Page 110

115 Freehold and leasehold land, buildings and mineral rights Rm Factory decommissioning and quarry rehabilitation assets Rm Plant, vehicles, furniture and equipment Rm Capitalised leased plant Rm Total Rm 1. PROPERTY, PLANT AND EQUIPMENT continued Movement of property, plant and equipment 2009 Net carrying value at beginning of the year Acquired on consolidation of Porthold (refer note 30) Transfers between categories 57 (57) Additions to enhance existing operations to expand operations Disposals (6) (6) Depreciation (18) (2) (278) (11) (309) Translation differences^ (1) (1) (2) Net carrying value at end of the year ^ The translation differences comprise cost (4) accumulated depreciation 2 (2) 2008 Net carrying value at beginning of the year Additions to enhance existing operations to expand operations Disposals (3) (3) Depreciation (18) (168) (28) (214) Translation differences^ Net carrying value at end of the year ^ The translation differences comprise cost 4 accumulated depreciation (2) Net carrying value at beginning of the year Additions to enhance existing operations to expand operations Disposals (1) (2) (3) Depreciation (13) (160) (19) (192) Impairment (1) (1) Translation differences^ (1) (1) (2) Net carrying value at end of the year ^ The translation differences comprise cost (5) accumulated depreciation 3 (2) Page 111 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

116 Notes to the group annual financial statements continued for the year ended 30 September 2009 ERP Right of use of mineral right asset Restraint of trade development and other software Total Rm Rm Rm Rm 2. INTANGIBLE ASSETS 2009 Cost Accumulated amortisation and impairments Net carrying value Cost Accumulated amortisation and impairments Net carrying value Cost Accumulated amortisation and impairments Net carrying value Included in ERP development and other software is software work-in-progress of R36 million (2008 and 2007: nil) which relates to costs incurred on the implementation of the SAP ERP system. Movement of intangible assets 2009 Net carrying value at beginning of the year Additions Acquired on consolidation of Porthold (refer note 30) 2 2 Amortisation (1) (5) (6) Net carrying value at end of the year Net carrying value at beginning of the year Additions 3 3 Amortisation (4) (4) Net carrying value at end of the year Net carrying value at beginning of the year Additions Amortisation (1) (3) (4) Net carrying value at end of the year Page Rm Rm Rm 3. INVESTMENT IN NON-CONSOLIDATED SUBSIDIARY Carrying value at beginning of the year Less: Dividends received (30) Take-on gain arising on consolidation of Porthold 213 Consolidation of Porthold (473) Carrying value at end of the year The results of Porthold were consolidated with effect from 30 September Prior to 30 September 2009, the PPC board concluded that management did not have the ability to exercise effective control over the business, and the results of Porthold were excluded from the group results (refer note 30).

117 Rm Rm Rm 4. NON-CURRENT FINANCIAL ASSETS Unlisted investments at fair value Derivative financial instrument (fair value hedge)^ Unlisted collective investment* Loans advanced ~ Directors valuation of unlisted investments Preference shares The unlisted preference shares earned dividends at an average rate of 9,6% per annum in 2007 and were redeemable at the option of the group as follows: 1 October Unlisted preference shares at amortised cost 2 Less: Transferred to current assets (2) Non-current portion of preference shares The company redeemed the remaining portion of the preference shares in 2008 (2007: R98 million). The investment in preference shares was encumbered as per note 13. ^ Derivative financial instrument Fair value of the premium paid to hedge cash-settled share-based payments (refer notes 36 and 38). * Unlisted collective investment Comprises investment by the PPC Environmental Trust in Old Mutual Capital Builder unit trusts. In addition, put options are held over the value of the assets in order to protect the capital of the portfolio. At 30 September 2009, the value of the put option was not significant. ~ Loans advanced These loans have been advanced to fund new enterprise development companies. These loans bear interest at prime less 2%, are secured by bonds over land and moveable assets and are repayable between 31 August 2010 and 30 November LONG-TERM RECEIVABLES Guaranteed loan in respect of railway line ~ 3 Long-term loan > ~ Guaranteed loan in respect of railway line Amortised over the period of the loan by way of reduced payment to Transnet Freight Rail for rail transport services, and bears interest at prime less 4%. The <R1 million balance was fully repaid during the 2009 financial year. > Long-term loan This loan is repayable in annual capital instalments of R10 million payable on 30 June each year, with the last payment due on 30 April 2013, and bears interest at an effective interest rate of 13,5% per annum. Page 113 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

118 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 6. INVESTMENT IN ASSOCIATES Investment at cost 7 7 Cost of previously accounted for as an asset held-for-sale Share of retained profit: Retained profit at beginning of the year 7 3 Previously accounted for as an asset held-for-sale 11 Current year movement: share of current year's retained profit dividends received (3) (6) (13) Other movements (2) Loans advanced to associates^ Valuation of interest in associates Fair value of unlisted associates, including loans advanced, as determined by the directors ^ Loans advanced to associates Of the loans advanced to associates, R20 million bears interest at the prime lending rate, while the remaining R28 million is interest free. Where appropriate, bonds are registered over land and movable assets as security. The loans are repayable over a three-year period. Key financial information of associates* Assets Liabilities Net working capital (3) Revenue Profit after taxation Cash flow from operations Carrying value, including loans advanced Name Nature of business Interest Financial year end Rm Rm Rm Afripack (Pty) Limited Packaging 25% 30 September Shaleje Services Trust Admin services 15% 31 May Metlakgola Construction & Construction 40% 28 February 2 Development (Pty) Limited Rhulanani Concrete Mixers Readymix concrete 40% 28 February 5 (Pty) Limited Olegra Oil (Pty) Limited Used oil collection and filling station 49% 28 February 5 * The financial information provided represents the full results of the associates Page 114

119 Rm Rm Rm 7. INVENTORIES Raw materials Work-in-progress Finished goods Maintenance stores^ The value of inventories has been determined on the following cost formula bases: first-in first-out 34 weighted average Amount of inventories recognised as an expense during the year Amount of write-down of inventories to net realisable value and losses of inventories 4 2 ^ Obsolescence provision included in maintenance stores Amount of obsolescence provision acquired on consolidation of Porthold 43 Inventories to revenue (%) 8,21 5,81 6,06 Inventories to cost of sales (%) 14,29 10,23 10,98 Obsolescence provision to inventories (%) 15,08 11,29 10,97 No inventories have been pledged as security. 8. TRADE AND OTHER RECEIVABLES Trade receivables Less: Impairment of trade receivables (4) (5) (5) Originated loans and receivables Derivative financial instruments (held-for-trading financial assets) Derivative financial instruments (cash flow hedge) 6 4 Other financial receivables Trade and other financial receivables Prepayments Other non-financial receivables Trade receivables to revenue (%) 10,63 10,58 10,72 Originated loans and receivables comprise: Trade receivables that are neither past due nor impaired Trade receivables that would otherwise be impaired whose terms have been renegotiated 8 Trade receivables that are past due but not impaired Page 115 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

120 Notes to the group annual financial statements continued for the year ended 30 September 2009 Page 116 Cement* Lime Aggregates Total Rm Rm Rm Rm 8. TRADE AND OTHER RECEIVABLES continued Trade receivables that are neither past due nor impaired There is no history of default relating to trade receivables in this category. Trade receivables that are past due but not impaired 2009 Age analysis 47,5 0,5 6,9 54, days 43,5 0,2 6,3 50, days 4,0 0,3 0,6 4,9 Fair value of collateral held 17,1 17, Age analysis 50,7 5,1 3,0 58, days 47,5 4,7 2,9 55, days 2,6 0,3 0,1 3, days 0,6 0,1 0,7 Fair value of collateral held 16,7 16, Age analysis 29,2 8,0 2,8 40, days 23,0 7,7 2,5 33, days 4,4 4, days 1,4 1, days 0,4 0,3 0,3 1,0 Fair value of collateral held 4,8 4,8 The majority of collateral held consists of bank guarantees, with the balance comprising suretyships, mortgage bonds, notarial bonds and cessions. Impairment of trade receivables 2009 Balance at beginning of the year Acquired on consolidation of Porthold 1 1 Utilisation of allowance (2) (2) Balance at end of the year Impairment to trade receivables (%) 0,53 3,33 0, Balance at beginning of the year Allowance raised through profit and loss Utilisation of allowance (1) (1) (2) Balance at end of the year Impairment to trade receivables (%) 0,76 5,88 0, Balance at beginning of the year Allowance reversed through profit and loss (2) (2) Balance at end of the year Impairment to trade receivables (%) 0,80 6,67 0,90 No receivables have been pledged as security. No individual customer represents more than 10% of the group s revenue. * Includes Porthold with effect from 30 September 2009

121 Rm Rm Rm 9. ASSETS CLASSIFIED AS Held-for-sale Net carrying value at beginning of the year 18 Transferred to investment in associate (18) Net carrying value at end of the year During the 2004 financial year, PPC sold 75% of its share in Afripack (Pty) Limited (Afripack), to a black empowerment and management consortium. The purchase price was funded via PPC s subscription to redeemable preference shares and cash proceeds. Afripack continued to be consolidated into PPC s group results, in terms of IAS 27 (Revised) Consolidated and Separate Financial Statements, as PPC management continued to have effective control of Afripack until the preference shares were redeemed in October Following the redemption, Afripack s results were deconsolidated in the 2007 financial year. 10. CASH AND CASH EQUIVALENTS Cash on hand and on deposit Currency analysis: South African rand Botswana pula United States dollar Cash restricted for use relating to: PPC Environmental Trust Consolidated BBBEE entities Included in cash and cash equivalents is foreign currency denominated cash and cash equivalents of R7 million which have been impaired in full. These funds were subject to surrender in Zimbabwe and it is unlikely that the funds will be recovered from the Reserve Bank of Zimbabwe (refer note 30). Page 117 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

122 Notes to the group annual financial statements continued for the year ended 30 September Shares Shares Shares 11. SHARE CAPITAL AND PREMIUM Authorised shares Issued shares Ordinary shares Ordinary shares in issue at beginning of the year Ordinary shares bought back during the ( ) Treasury shares held by consolidated BBBEE trusts and trust funding SPVs^ ( ) Treasury shares held by consolidated Porthold Trust (Private) Limited ~ ( ) Total ordinary shares in issue at end of the year Other shares In issue at beginning of the year Shares issued to the BBBEE CSG and SBP funding SPVs* Total shares in issue at end of the year Rm Rm Rm Authorised share capital Ordinary shares of 10 cents each Issued share capital Ordinary shares Ordinary shares in issue at beginning of the year Ordinary shares bought back during the year (2) Treasury shares held by consolidated BBBEE trusts and trust funding SPVs^ (4) Total ordinary shares in issue at end of the year Other shares In issue at beginning of the year Shares issued to the BBBEE CSG and SBP funding SPVs 5 Total shares in issue at end of the year Share premium Balance at beginning of the year Treasury shares held by consolidated subsidiary company (751) Treasury shares held in respect of the BBBEE transaction^ (1 186) Treasury shares held by consolidated Porthold Trust (Private) Limited (18) Balance at end of the year (1 141) Total issued share capital and premium (1 088) Page 118

123 11. SHARE CAPITAL AND PREMIUM continued ^ In terms of SIC Interpretation 12 (Consolidation Special Purpose Entities), the PPC Black Managers Trust, The Current PPC Team Trust, The Future PPC Team Trust, the PPC Black Independent Non-Executive Directors Trust and the trust funding SPVs are consolidated, and as a result, shares owned by the entities are carried as treasury shares on consolidation. ~ Following PPC gaining effective control of Porthold with effect from 30 September 2009, the PPC shares owned by Porthold Trust (Private) Limited have been carried as treasury shares on consolidation. * In terms of the BBBEE transaction that was effected 15 December 2008, the Strategic Black Partners (SBPs) and Community Service Groups (CSGs) subscribed for newly issued shares in PPC at par value. The shares carry full economic and voting rights, have restrictions on transferability, and are subject to a call option by PPC to acquire these shares at par by 15 December In terms of a compulsory subscription agreement, the SBPs and CSGs are required to subscribe for new shares in PPC at R66,84, calculated at the effective date of the transaction, by 31 December 2017 subject to their ability to raise sufficient funding. The shares issued to the SBPs and CSGs have been pledged as security for their funding obligations and as a result are treated as a separate class of During the prior year, in terms of a special resolution authorised at the 28 January 2008 annual general meeting, PPC Cement (Pty) Limited, a group subsidiary company, bought back ordinary shares in the company. These shares are carried as treasury shares. The average purchase consideration, including costs, approximated R37,37 per share. As at 30 September 2008, the company had purchased 3,75% of the issued share capital of the company. There were no share buy-backs in the current year Rm Rm Rm Unissued shares This excludes the impact of shares held as treasury shares. Page 119 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

124 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 12. DEFERRED TAXATION Net liability at the beginning of the year income statement charge, including changes in taxation rates (3) acquired on consolidation of Porthold 130 charged directly to equity (1) 3 (15) other (1) (2) Net liability at end of the year Opening balance Charged to the income statement Charged directly to equity Changes in taxation rates Acquired on consolidation of Porthold Other Closing balance Rm Rm Rm Rm Rm Rm Rm 2009 Property, plant and equipment Other non-current assets 20 (1) Current assets (5) 8 (1) 1 3 Non-current liabilities (39) (8) (47) Current liabilities (16) (2) (18) Reserves 3 (3) (1) 130 (1) Property, plant and equipment (1) (7) Other non-current assets Current assets (5) 3 (3) (5) Non-current liabilities (28) (8) 1 (4) (39) Current liabilities (15) (2) 1 (16) Reserves (5) (5) (2) Property, plant and equipment Other non-current assets 4 (2) 2 Current assets 11 4 (15) Non-current liabilities (25) (3) (28) Current liabilities (12) (3) (15) Reserves (3) (15) 156 Page 120

125 Rm Rm Rm 13. LONG-TERM BORROWINGS Borrowings Terms Security Interest rate Long-term loan ~ Interest is payable semiannually with a bullet capital repayment on 15 December Unsecured Fixed 10,86% Finance lease liability Interest and capital are Secured Fixed 13,10% repayable annually with the last payment due in through encumbered assets (refer note 1) BBBEE funding transaction A preference shares^ Dividends are payable semi-annually with the capital redeemable from surplus cash. Compulsory annual redemptions are effective from 31 January 2012 to 15 December A preference shares* Dividends are payable semi-annually with the capital redeemable from surplus cash. Compulsory annual redemptions are effective from 31 January 2012 to 15 December B preference shares Both capital and dividends are payable on 15 December Long-term loans Both capital and interest are payable on 15 December Secured by guarantee from PPC Secured by PPC shares held by the special purpose vehicles Secured by guarantee from PPC Secured by guarantee from PPC Variable rates linked to prime and fixed rates between 8,34% and 9,37% Variable rates linked to prime and fixed rates between 8,91% and 9,54% Variable rates linked to prime swapped for a fixed rate of 9,62% Variable rates linked to prime swapped for a fixed rate of 11,20% Long-term borrowings Less: Short-term portion of long-term borrowings (refer note 16) ~ In terms of the BBBEE transaction, Pretoria Portland Cement Company Limited obtained funding from the Strategic Black Partners funding special purpose vehicle and the Community Service Groups funding special purpose vehicle. This long-term funding was used to settle existing short-term funding at the effective date of the transaction. ^ Relates to PPC Black Managers Trust Funding SPV (Pty) Limited, a subsidiary company of Pretoria Portland Cement Company Limited. * Relates to PPC Community Trust Funding SPV (Pty) Limited, PPC Construction Industry Associations Trust Funding SPV (Pty) Limited, PPC Education Trust Funding SPV (Pty) Limited and PPC Team Benefit Trust Funding SPV (Pty) Limited. Page 121 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

126 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 13. LONG-TERM BORROWINGS continued Maturity analysis of obligations: one year two years three years four years five and more years Assets encumbered are made up as follows: Plant and equipment (refer note 1) Current investment in preference shares (refer note 4) The group is in compliance with its debt covenants, none of which are expected to represent material restrictions on funding or investment policies in the foreseeable future. Further details of maturity analysis and interest rates on financial risk management are disclosed in note Rm Rm Rm 14. PROVISIONS Non-current Current Factory decommissioning and quarry rehabilitation Postretirement healthcare benefits Onerous contract Total Rm Rm Rm Rm Movement of provisions 2009 Balance at beginning of the year Amounts added Unwinding of discount Amounts reversed (5) (5) Acquired on consolidation of Porthold Balance at end of the year To be incurred: between two to five years 8 8 more than five years Page 122

127 Factory decommissioning and quarry rehabilitation Postretirement healthcare benefits Onerous contract Total Rm Rm Rm Rm 14. PROVISIONS continued Movement of provisions continued 2008 Balance at beginning of the year Amounts added Unwinding of discount 9 9 Amounts utilised (5) (1) (1) (7) Balance at end of the year To be incurred: within one year 1 1 between two to five years more than five years Balance at beginning of the year Amounts added Unwinding of discount 8 8 Amounts utilised (1) (1) Balance at end of the year To be incurred: within one year between two to five years more than five years Page 123 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

128 Notes to the group annual financial statements continued for the year ended 30 September PROVISIONS continued Factory decommissioning and quarry rehabilitation The group is required to restore mining and processing sites at the end of their productive lives to an acceptable condition consistent with the group s environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value, is provided for at the beginning of each project. PPC has set up an environmental trust in South Africa to administer the local funding requirements of its decommissioning or restoration obligations. The environmental trust is consolidated into PPC s group results. Post-retirement healthcare benefits Included in the provision are the following: Cement and Concrete Institute employees The provision relates to Pretoria Portland Cement Company Limited s proportionate share of the post-retirement healthcare liability for employees of the Cement and Concrete Institute. This amounted to R6 million (2008: R5 million; 2007: R3 million). This liability was last actuarially valued during February The liability has been determined using the projected unit credit method. Corner House Pension Fund and Lime Acres continuation members The provision relates to post-employment healthcare benefits in respect of certain Corner House Pension Fund and Lime Acres continuation members. This amounted to R11 million (2008: R10 million; 2007: R11 million). This liability was last actuarially valued during September The liability has been determined using the projected unit credit method. Porthold Post-retirement Medical Fund The provision relates to healthcare benefits for both active and retired employees who joined the medical aid scheme on or after 1 October This amounted to R2 million. This liability was last actuarially valued during August The liability has been determined using the projected unit credit method. Benefits under these schemes were granted to employees under historical employment contracts and the schemes are closed to new members. Onerous contract The provision for onerous contract related to a property lease agreement in Botswana following the decision to exit the local readymix operation. The provision for onerous contract was a financial liability carried at amortised cost, for which the carrying amount approximates its fair value. Page 124

129 Rm Rm Rm 15. OTHER NON-CURRENT LIABILITIES Cash-settled share-based payment liability Details of the cash-settled share-based payment liability are disclosed in note SHORT-TERM BORROWINGS Short-term loans and bank overdraft Short-term portion of long-term borrowings (refer note 13) Details of maturity analysis and interest rates on financial risk management are disclosed in notes 13 and TRADE AND OTHER PAYABLES Trade payables and accruals Other financial payables Derivative financial instruments (held-for-trading financial assets) 5 5 Trade and other financial payables Payroll accruals VAT payable Other non-financial payables Trade and other payables are payable within a day period. Trade payables and accruals to cost of sales (%) 11,24 10,97 10,65 Page 125 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

130 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 18. OPERATING PROFIT Operating profit includes: Amortisation of intangible assets (refer note 2) Auditors remuneration fees Consultation fees in respect of BBBEE initiative 9 20 Dividends paid to BBBEE trusts treated as an expense on consolidation 7 Depreciation (refer note 1) cost of sales operating costs Directors remuneration (refer note 39) Distribution costs included in cost of sales Exploration and research costs 1 1 Fees paid to previous holding company 19 Operating lease charges: land and buildings plant, vehicles and equipment Profit on disposal of plant and equipment and intangibles (4) (2) (3) Retirement benefit contributions (refer note 35) Share-based payments (refer note 36) cash-settled share incentive scheme charge equity-settled share incentive scheme charge Staff costs (inclusive of retirement benefit contributions) South Africa Other Africa Less: Costs capitalised to plant and equipment and intangible assets (11) (20) (11) Page 126

131 Rm Rm Rm 19. FAIR VALUE (LOSSES)/GAINS ON FINANCIAL INSTRUMENTS (Losses)/gains on derivatives designated as economic hedging instruments (6) 18 4 Loss on derivatives (cash-settled share-based payment hedge) (4) (15) Gains/(losses) on translation of foreign currency monetary items 4 1 (3) (6) FINANCE COSTS Bank and other borrowings BBBEE funding transaction 91 dividends on redeemable preference shares^ 12 dividends on redeemable preference shares* 39 long-term borrowings 40 Finance lease interest Unwinding of discount on decommissioning and rehabilitation provisions Capitalised to plant and equipment (17) (44) (8) ^ Relates to PPC Black Managers Trust Funding SPV (Pty) Limited, a subsidiary company of Pretoria Portland Cement Company Limited. * Relates to PPC Community Trust Funding SPV (Pty) Limited, PPC Construction Industry Associations Trust Funding SPV (Pty) Limited, PPC Education Trust Funding SPV (Pty) Limited and PPC Team Benefit Trust Funding SPV (Pty) Limited. 21. INVESTMENT INCOME Dividends unlisted investments Interest received on deposits non-current assets EXCEPTIONAL ITEMS Profit on disposal of investments 12 Profit on disposal of properties 2 3 Impairment of plant and equipment (1) Gross exceptional items 2 14 Taxation current Net exceptional items 2 14 Page 127 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

132 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 23. TAXATION South African normal taxation current year prior year Foreign taxation current year prior year Deferred taxation current year (2) prior year (7) (1) rate change (5) (3) Secondary taxation on companies current year Taxation attributable to the company and its subsidiaries Incurred: South Africa Other Africa % % % Reconciliation of rate of taxation Taxation as a percentage of profit before taxation (excluding prior year taxation) 39,0 33,8 34,8 Adjustment due to the inclusion of dividend income 0,1 0,1 0,1 Effective rate of taxation 39,1 33,9 34,9 Reduction in rate of taxation 4,3 1,1 1,4 permanent differences 0,4 0,1 0,8 take-on gain on consolidation of Porthold 3,3 rate change adjustment 0,2 foreign taxation differential 0,6 0,8 0,6 Increase in rate of taxation (15,4) (7,0) (7,3) disallowable charges (1,5) (0,8) (0,3) BBBEE IFRS 2 charges (7,0) taxation on unprovided temporary differences (0,2) secondary taxation on companies (6,9) (6,2) (6,8) South African normal taxation rate 28,0 28,0 29,0 Page 128

133 EARNINGS AND HEADLINE EARNINGS PER SHARE 24.1 FULLY WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES Weighted average number of shares in issue Less: weighted average impact of share buy-back completed in 2008 ( ) ( ) Less: weighted average number of shares held by consolidated BBBEE trusts and trust funding SPVs^ ( ) Less: weighted average number of shares held by Porthold Trust (Private) Limited ~ Add: weighted average number of shares issued to the BBBEE CSG and SBP funding SPVs^ Weighted average number of shares used for cash earnings per share calculation Less: weighted average number of shares issued to the BBBEE CSG and SBP funding SPVs* ( ) Weighted average number of shares used for basic earnings per share calculation Add: dilutive adjustment for potential ordinary shares # Weighted average number of shares used for dilutive earnings per share calculation ^ For additional information refer notes 11 and 13. * Treated as a separate class of shares for earnings per share calculations (refer note 11). ~ Following PPC gaining effective control of Porthold with effect from 30 September 2009, the PPC shares owned by Porthold Trust (Private) Limited have been carried as treasury shares on consolidation. # To the extent that the share-based payment grants have been made in terms of BBBEE trusts and trust funding SPVs, and the trust and trust funding SPVs have settled their funding obligations, the transaction will ultimately result in PPC shares vesting with the trust, trust funding SPVs and beneficiaries respectively. Consequently, these share-based payment grants are potential ordinary shares and are being treated in a manner similar to that of an option for the purposes of calculating diluted earnings per share and diluted headline earnings per share. Shares are weighted for the period in which they are entitled to participate in the net profit of the group BASIC EARNINGS (Rm) Net profit Attributable to: ordinary shareholders other shareholders Net profit Adjusted for: BBBEE IFRS 2 charges (net of taxation) 466 take-on gain arising from consolidation of Porthold (213) Net profit (excluding BBBEE IFRS 2 charge and take-on gain arising from consolidation of Porthold) Attributable to: ordinary shareholders other shareholders Page 129 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

134 Notes to the group annual financial statements continued for the year ended 30 September EARNINGS AND HEADLINE EARNINGS PER SHARE continued 24.3 EARNINGS PER SHARE (cents) basic 210,1 283,5 265,8 diluted 209,1 283,5 265,8 basic (excluding BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold) 257,3 283,5 265,8 diluted (excluding BBBEE IFRS 2 charges and take-on gain arising from consolidation of Porthold) 256,1 283,5 265, HEADLINE EARNINGS (Rm) Headline earnings is calculated as follows: Net profit Adjusted for: profit on disposal of property, plant and equipment, investments and intangibles (4) (4) (15) taxation on profit on disposal of property, plant and equipment and intangible assets 1 impairment of plant, equipment and intangibles 1 take-on gain arising from consolidation of Porthold (213) Headline earnings Attributable to: ordinary shareholders other shareholders Headline earnings Adjusted for: BBBEE IFRS 2 charges 490 taxation on BBBEE IFRS 2 charges (24) Headline earnings (excluding BBBEE IFRS 2 charges) Attributable to: ordinary shareholders other shareholders HEADLINE EARNINGS PER SHARE (cents) basic 169,9 282,6 263,1 diluted 169,1 282,6 263,1 basic (excluding BBBEE IFRS 2 charges) 256,8 282,6 263,1 diluted (excluding BBBEE IFRS 2 charges) 255,6 282,6 263, CASH EARNINGS PER SHARE (cents) 328,6 310,9 271,6 Calculated on cash available from operations (Rm) Page 130

135 Rm Rm Rm 25. DIVIDENDS Final No cents per share (2008: 166 cents; 2007: 110 cents) Special nil (2008: 61 cents; 2007: 77 cents) Interim No cents per share (2008: 45 cents; 2007: 38,5 cents) Relief on payment to foreign shareholders (5) On 10 November 2009 the directors declared dividend No 212 (final) of 155 cents per share. This dividend will be paid to shareholders on Monday, 18 January 2010, and is subject to approval by the shareholders at the annual general meeting and has not been included as a liability in these financial statements. In compliance with the requirements of the JSE Limited, the following dates are applicable: Last day to trade cum dividend Friday, 8 January 2010 Shares trade ex dividend Monday, 11 January 2010 Record date Friday, 15 January 2010 Payment date Monday, 18 January 2010 Share certificates may not be dematerialised or rematerialised between Monday, 11 January 2010 and Friday, 15 January 2010, both days inclusive. Dividends per share (cents) Interim No 211 declared 11 May Final No 212 declared 10 November Special Secondary taxation on companies is payable at a rate of 10% and the charge on the 2009 final dividend should approximate R59 million. 26. ATTRIBUTABLE INTEREST IN SUBSIDIARIES Attributable interest in the aggregate amount of profits and losses of subsidiaries, after taxation and outside shareholders interest: Profits Page 131 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

136 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 27. FINANCE COSTS PAID Finance costs as per income statement charge Unwinding of discount on decommissioning and rehabilitation provisions (11) (9) (8) Interest capitalised to plant and equipment BBBEE funding transaction (66) redeemable preference share dividends capitalised (26) interest capitalised on long-term borrowings (40) TAXATION PAID Net amounts outstanding at beginning of the year Charge per income statement (excluding deferred taxation) Net amounts outstanding at end of the year (96) (61) (236) DIVIDENDS PAID Dividends declared to PPC shareholders (refer note 25) Relief on payment to foreign shareholders (5) Dividends declared by funding SPVs to non-consolidated trusts Page 132

137 Rm Rm Rm 30. CONSOLIDATION OF PORTHOLD Property, plant and equipment 508 Intangible assets 2 Investment in PPC shares listed on the Zimbabwe Stock Exchange^ 18 Inventories 87 Trade and other receivables 35 Cash and cash equivalents 43 Deferred taxation (130) Long-term provisions (51) Trade and other payables (39) 473 Carrying value before consolidation 260 Take-on gain arising from consolidation of Porthold 213 On 28 September 2001 PPC acquired 100% of the ordinary shares of Porthold. Due to lack of effective control, the results of Porthold had not been consolidated for the period from 1 October 2003 to 29 September The directors of PPC are of the opinion that effective control over Porthold was obtained in terms of the definition and requirements of IAS 27, and accordingly required the consolidation of Porthold from 30 September 2009 (the effective date ). The table above summarises the fair value of assets and liabilities recognised on the consolidation of Porthold. Assets and liabilities raised were valued at fair market value, and an economic obsolescence factor applied where appropriate. The R473 million fair value of Porthold was determined by using a discounted cash flow valuation and market prices where applicable. The capital asset pricing model was used to determine a real discount rate, with appropriate adjustments to reflect country specific risk. Land amounting to R23 million included in the R508 million fair value of property, plant and equipment is exposed to the risk of expropriation by the Zimbabwean government without compensation in terms of the Constitution of Zimbabwe (refer note 1). The fair value of the intangible assets of R2 million relates to trademarks, and was determined by external valuation using an income approach valuation method (refer note 2). Included in the trade and other receivables is a provision for doubtful debts of R1 million (refer note 8). Cash and cash equivalents include foreign currency denominated cash and cash equivalents of R7 million which have been impaired in full, as it is considered unlikely that Porthold will be able to recover the funds from the Reserve Bank of Zimbabwe (RBZ). These assets were subject to surrender to the RBZ prior to the establishment of the Zimbabwe Government of National Unity under legislation effective at that time. No interest had been accrued on these balances. Porthold has adopted the US dollar as its functional currency with effect from 1 December The conversion of Porthold s financial statements to US dollar at the official rate of exchange, as required by IFRS, rendered historical accounting and determination of accurate transaction values impracticable. As a result, a meaningful financial statement impact can not be provided for the period from 1 October The taxation bases of Porthold are still tentative as the Zimbabwean revenue authority has not yet provided clear unequivocal guidance on the procedures required arising from the change of Zimbabwe dollar balances to the new US dollar functional currency. No established basis exists for the determination of allowances previously granted. Porthold is unable to assess with any degree of certainty the value of its assessed loss. Accordingly, no deferred taxation asset has been raised. ^ These shares have been treated as treasury shares on consolidation (refer note 11) Page 133 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

138 Notes to the group annual financial statements continued for the year ended 30 September Rm Rm Rm 31. ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT Freehold and leasehold land, buildings and mineral rights Plant, vehicles, furniture and equipment Interest capitalised (17) (44) (8) MOVEMENT IN INVESTMENTS AND LOANS Net movement (105) (12) 128 Revaluation of available-for-sale financial assets directly in equity 2 10 (4) Loss on derivatives (cash-settled share-based payment hedge) (4) (15) (107) (17) 124 Comprise: Movements in investments and loans (118) (27) 114 Receipt of instalment on long-term loan (107) (17) COMMITMENTS Capital commitments: contracted approved Commitments for capital expenditure are stated in current values which, together with expected price escalations, will be financed from surplus cash generated from operations and borrowing facilities available to the group. The majority of the commitments relate to the group s approved expansion projects and are to be incurred during the 2010 financial year. The group has foreign letters of credit guarantees unexpired at year end amounting to 0,2 million (R2 million), and foreign exchange contracts are in place to limit exposure to foreign currency movements. These guarantees relate to the Hercules Mill expansion project and expiry dates of the guarantees are during the 2010 financial year and Total Total Total thereafter Rm Rm Rm Rm Rm Rm Rm Rm Operating lease commitments Land and buildings Other CONTINGENT LIABILITIES Guarantees for loans, banking facilities and other obligations to third parties 8 Litigation, current or pending, is not considered likely to have a material adverse effect on the group. Page 134

139 35. RETIREMENT BENEFIT INFORMATION It is the policy of the group to encourage, facilitate and contribute to the provision of retirement benefits for all permanent employees. To this end, the group s permanent employees are usually required to be members of either a pension or provident fund, depending on local legal requirements. All current permanent employees belong to one of nine defined contribution retirement funds. Group employment is a prerequisite for membership of these funds. The South African funds are subject to the provisions of the Pension Funds Act of The list of retirement funds at 30 September 2009, is as follows: Pretoria Portland Cement Defined Contribution Pension Fund Pretoria Portland Cement Defined Contribution Provident Fund PPC Negotiated Provident Fund PPC Lime Employees Provident Fund BANP Provident Fund PPC Eastern Cape Provident Fund PPC Western Cape Provident Fund Barloworld Botswana Retirement Fund Unicem Pension Fund Historically, qualifying employees were granted certain post-retirement healthcare benefits. The obligation for the employer to pay medical aid contributions after retirement is no longer part of the conditions of employment for new employees. A number of pensioners remain entitled to this benefit, the cost of which has been fully provided and disclosed in note 14. Defined contribution plans The total cost charged to the income statement of R53 million (2008: R45 million; 2007: R38 million) represents contributions payable to these schemes by the group at rates specified in the rules of the schemes. At 30 September 2009, all contributions due in respect of the current reporting period had been paid over to the schemes. Page 135 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

140 Notes to the group annual financial statements continued for the year ended 30 September SHARE-BASED PAYMENTS 36.1 CASH-SETTLED Executive directors and certain senior employees have been granted cash-settled share appreciation rights in terms of PPC s Long- Term Incentive Plan. The scheme was implemented during the 2007 year, in recognition of services rendered, to encourage long-term shareholder value creation, and as an incentive for current and prospective employees to benefit from growth in the value of PPC in the medium and long term. All share appreciation rights are approved by the remuneration committee. Share appreciation rights granted: Total Date of grant 25/09/ /09/ /11/ /09/ /08/2007 Grant price (based on five-day volume weighted average price or zero) (rand) 35,35 31,80 43,00 Number of rights granted Directors (with performance conditions) Senior management (with performance conditions) Senior management Exercised/lapsed/forfeited due to leaving employment ( ) (36 000) ( ) ( ) Exercised Lapsed Forfeited 2007 ( ) ( ) Forfeited 2008 ( ) ( ) Forfeited 2009 (36 000) (36 000) Unexercised at 30 September Directors (with performance conditions) Senior management (with performance conditions) Senior management Vesting in thirds after the third, fourth and fifth anniversary of the grant date Yes Yes Yes Automatically exercised on the third anniversary of the grant date Yes Yes Expiry date (lapse if not exercised) 25/09/ /09/ /11/ /09/ /08/2017 Share appreciation rights were valued using binomial option pricing, taking into account the following inputs: Market price of PPC shares at end of the year (rand) 33,90 33,90 33,90 33,90 33,90 Expected volatility of stock over remaining life of the option (%) 30,00 47,00 49,00 31,00 32,00 Risk-free rate (%) 9,24 8,42 7,91 9,27 9,26 Expected volatility is based on the historical share price over the past year. Vesting of the rights granted to the directors and certain senior executives is subject to PPC group HEPS growth performance conditions. Vesting of the rights granted to directors on 25 September 2009 and having a zero grant price is subject to individual performance conditions related to the directors areas of responsibility. Page 136

141 36. SHARE-BASED PAYMENTS continued 36.1 CASH-SETTLED continued 2009 Rm 2008 Rm 2007 Rm Expense recognised in the current year (refer note 18) The carrying amount of the liability relating to cash-settled share appreciation rights as at 30 September (refer note 15) The group has partially hedged its exposure to fluctuations in the cash settlement amount in respect of the 2007 share appreciation rights granted, by acquiring derivative financial instruments in the form of extended European cash-settled call options from a financial institution. This derivative financial instrument is classified as held-for-trading at fair value through profit and loss (refer note 38) EQUITY-SETTLED Prior to the unbundling of PPC from Barloworld in the 2007 year, executive directors and senior executives were granted equity-settled share options in the ordinary share capital of Barloworld Limited. The salient features of this scheme are that all rights vest in thirds after the third, fourth and fifth anniversary of the grant date. During the 2007 year, PPC paid Barloworld R30 million in respect of the then market value of the equity-settled incentive scheme liability relating to the number of unexercised Barloworld share options held by PPC executive directors and senior executives. This payment was charged against equity compensation reserves. A total of R4 million (2008: R25 million) of the total reimbursement was transferred to distributable reserves during the year, and was based on the vesting period of the equity-settled share options. The expense recognised in the current year amounted to nil (2008: <R1 million; 2007: R1 million). Page 137 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

142 Notes to the group annual financial statements continued for the year ended 30 September CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) on a basis consistent with the prior year except for the adoption of the following revised accounting standards, interpretations to the standards and circulars: New or revised statements, interpretations and circulars adopted during the year Effective date reporting period on or after Early adopted The following amendments to statements have no financial impact on the group results: IAS 1 (revised) Presentation of Financial Statements (Current/non-current classification of 1 January 2009 derivatives) IFRS 1 and IAS 27 (revised) Cost of an Investment in Subsidiary, Jointly Controlled Entity or 1 January 2009 Associate IFRS 7 (amendment) Financial Instruments: Disclosures Fair Value and Liquidity Risk 1 January 2009 Enhancements IFRIC 17 Distributions of Non-cash Assets to Owners 1 July 2009 IFRIC 18 Transfer of Assets from Customers 1 July 2009 IAS 32 (amendment) and IAS 1 (amendment): Puttable Financial Instruments and Obligations 1 July 2009 Arising on Liquidation IAS 39 (amendment): Eligible Hedged Items 1 January 2009 IAS 39 and IFRS 7 (amendment): Reclassification of Financial Assets 1 July 2009 IASB improvement project 2008 (improvements to various standards) 1 January 2009 and 1 July 2009 Circular 3/2009 Headline Earnings Ending on or after 31 August 2009 The following amendments to statements have made an impact on the group results: IFRS 3 (revised): Business Combinations and IAS 27 (revised): Consolidated and Separate Financial Statements IAS 38 (amendment) Intangible Assets (measuring the fair value of intangible assets acquired in a business combination and consequential amendments arising from IFRS 3 (2008)) 1 July July 2009 The following amendments to published accounting standards are in issue but not yet effective. These revised standards will be adopted by PPC in the future. Revised statements in issue not yet effective Effective date reporting period on or after Financial implication on PPC IFRS 2 Share-based Payments (Scope of IFRS 2 and revised IFRS 3) 1 July 2009 No impact IFRS 2 Share-based Payments (Amendments relating to group cash-settled share-based payment 1 January 2010 No impact transactions) IFRS 5 (amendment) Non-current Assets Held-for-sale and Discontinued Operations (Disclosures 1 January 2010 No impact of non-current assets (or disposal groups) classified as held-for-sale or discontinued operations) IFRS 8 Segment Reporting 1 January 2010 No impact IAS 1 (revised 2007) Presentation of Financial Statements (Current/non-current classification of 1 January 2010 No impact convertible instruments) IAS 7 (amendment) Statement of Cash Flows (Classification of expenditure on unrecognised 1 January 2010 No impact assets) IAS 17 (amendment) Leases (Classification of leases of land and buildings) 1 January 2010 No impact IAS 36 (amendment) Impairment of Assets (Unit of accounting for goodwill impairment test) 1 January 2010 No impact IAS 39 (amendments) Financial Instruments Recognition and Measurement (Hedging using 1 July 2009 No impact internal contracts) IAS 39 (amendments) Financial Instruments Recognition and Measurement (Treating loan prepayment penalties as closely related derivatives, Scope exemption for business combination contracts, Cash flow hedge accounting) 1 January 2010 No impact Page 138

143 38. FINANCIAL RISK MANAGEMENT The group s financial instruments consist mainly of borrowings from financial institutions, deposits with banks, local money market instruments, accounts receivable and payable, and leases. Forward exchange contracts are used by the group for hedging purposes. The group does not speculate in the trading of derivative instruments. Capital risk management The group manages its capital to ensure that entities in the group will continue as going concerns, while maximising the return to stakeholders through the optimisation of the debt and equity balances. The capital structure of the group consists of debt, which includes the borrowings disclosed in notes 13 and 16, cash and cash equivalents and equity attributable to equity holders, comprising issued capital, reserves and retained profit as disclosed in notes 10 and 11 respectively. PPC s senior executives review the capital structure on a semi-annual basis. As part of this review, the cost of capital and the risks associated with each class of capital are considered. Based on recommendations of the committee, PPC will balance its overall capital structure through the payment of dividends, new share issues and buy-backs as well as the issue of new debt or the redemption of existing debt. Treasury risk management Senior executives meet on a regular basis to analyse currency and interest rate exposure and to re-evaluate treasury management strategies against revised economic forecasts. The group s treasury operation provides the group with access to local money markets and provides group subsidiaries with the benefit of bulk financing and depositing. Foreign currency management Trade and capital commitments The group is exposed to exchange rate fluctuations as it undertakes certain transactions denominated in foreign currencies. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts. The group s policy is to cover forward all material foreign currency commitments. Forward exchange contracts are carried at fair value with the resultant profit or loss included in income. The only exception relates to the effective portion of cash flow hedges, where profits or losses are recorded directly in equity and are either included in the initial acquisition cost of the hedged assets, or are transferred to income when the hedged transaction affects income where appropriate. Fair value of the forward exchange contracts at balance sheet date is R4 million. Foreign currency denominated commitments for the capital expansion projects have been settled during the year. The amounts below represent forward exchange contract commitments to sell and purchase foreign currencies. <1 year 1 3 years Total Rm Rm Rm Total forward exchange contracts comprise the following: Euros ( m) Average rate R/ 11,02 11,51 9,93 Dollar ($m) 2 <1 10 Average rate R/$ 7,56 8,36 7,12 The average rates shown above include the cost of forward cover. Page 139 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

144 Notes to the group annual financial statements continued for the year ended 30 September FINANCIAL RISK MANAGEMENT continued Interest rate management The group is exposed to interest rate risk arising from fluctuations in financing costs on loans, which are at floating interest rates. As part of the process of managing the group s fixed and floating rate borrowings mix, the interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest rates. The group has entered into interest rate swap agreements to hedge fluctuations in interest rates. The interest rate profile of total borrowings is as follows: Year of Description repayment Rm Rm Rm Secured BBBEE funding transaction Finance lease liability Unsecured Long-term loan Short-term loans and bank overdraft The group has entered into interest rates swap agreements for which variable rates have been swapped for fixed rates ranging from 8,34% to 11,20% (refer note 13). Unsecured, short-term loans bear interest at rates varying between 10,50% 13,00% per annum for the year under review. The company had borrowing facilities of R3 789 million and had utilised 90% of these facilities at 30 September At year end R392 million of borrowing facilities remains unutilised. Sensitivity analysis Interest rate risk At 30 September 2009, if all interest rates on interest-bearing loan receivables, short-term cash investments, short-term loans payable and bank overdrafts at that date had been 100 basis points higher, with all other variables held constant, attributable earnings would have been R6 million (earnings per share: 0,88 cents) lower. Conversely, at 30 September 2009, if all interest rates at that date had been 100 basis points lower, with all other variables held constant, the attributable earnings would have been R6 million (earnings per share: 0,88 cents) higher. Equity price risk Cash-settled share appreciation rights At 30 September 2009, if the share price of PPC Limited had been R10,77 higher, with all other variables held constant, attributable earnings would have been R1 million (earnings per share: 0,19 cents) higher. Conversely, at 30 September 2009, if the share price of PPC Limited had been R10,77 lower, with all other variables held constant, attributable earnings would have been R1 million (earnings per share: 0,19 cents) lower. Page 140

145 38. FINANCIAL RISK MANAGEMENT continued Fair values of financial assets and liabilities The carrying values of certain financial assets and liabilities, which are accounted for at historical cost, may differ from their fair values. The estimated fair values have been determined using available market information and approximate valuation methodologies. Cement Lime Aggregates Other Total Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Notes Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm 2009 Financial assets Available-for-sale Unlisted investments at fair value Loans and receivables Long-term loans Loans to associate companies Loans advanced Trade and other financial receivables Cash and cash equivalents At fair value through profit and loss held-fortrading Derivative financial instrument Unlisted collective investment Mark-to-market fair value hedge Financial liabilities Financial liabilities measured at amortised cost Long-term borrowings Other short-term borrowings Trade and other financial payables Page 141 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

146 Notes to the group annual financial statements continued for the year ended 30 September FINANCIAL RISK MANAGEMENT continued Cement Lime Aggregates Other Total Carrying Fair Carrying Fair Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value amount value amount value Notes Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm 2008 Financial assets Available-for-sale Investment in nonconsolidated subsidiary Unlisted investments at fair value Loans and receivables Long-term loan Trade and other financial receivables Cash and cash equivalents Derivative financial instruments (cash flow hedge) At fair value through profit and loss held-fortrading Derivative financial instrument non-current Derivative financial instruments current Financial liabilities Financial liabilities measured at amortised cost Long-term borrowings Short-term borrowings Trade and other financial payables Page 142

147 38. FINANCIAL RISK MANAGEMENT continued Cement Lime Aggregates Other Total Carrying Fair Carrying Fair Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value amount value amount value Notes Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm 2007 Financial assets Available-for-sale Investment in nonconsolidated subsidiary Unlisted investments at fair value Current portion of preference shares Loans and receivables Long-term loan Guaranteed loan in respect of railway line Trade and other financial receivables Cash and cash equivalents Derivative financial instruments (cash flow hedge) At fair value through profit and loss held-fortrading Derivative financial instruments Financial liabilities Financial liabilities measured at amortised cost Long-term borrowings Short-term borrowings Trade and other financial payables Provision for onerous contract Methods and assumptions used by the group in determining fair values: The estimated fair value of financial instruments is determined, at discrete points in time, by reference to the mid-price in an active market wherever possible. Where no such active market exists for the particular asset or liability, the company uses a valuation technique to arrive at the fair value, including the use of prices obtained in recent arm s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. Page 143 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

148 Notes to the group annual financial statements continued for the year ended 30 September FINANCIAL RISK MANAGEMENT continued The fair value of derivative financial instruments relating to cash-settled share appreciation rights is determined with reference to valuations performed by third-party financial institutions at reporting date, using an actuarial binomial pricing model. The inputs into the model are shown in note 36. Credit risk management The potential exposure to credit risk is represented by the carrying amounts of trade receivables, short-term cash investments and derivative assets in the statement of financial position. Trade receivables comprise a large, widespread customer base and credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk, the granting of credit is controlled by application and account limits, and the group only deals with creditworthy customers supported by appropriate collateral. The group periodically re-evaluates counterparty limits and the financial reliability of its customers. Provision is made for specific doubtful debts, and as at 30 September 2009, where appropriate, management did not consider there to be any material credit risk exposure that was not already covered by security or a doubtful debt provision. The group only deposits short-term cash surpluses with financial institutions of high-quality credit standing. The following table highlights the split of maximum credit exposure: Cement Lime Aggregates Other Total Rm Rm Rm Rm Rm Maximum credit risk exposure Liquidity risk management Liquidity risk is the risk of the group being unable to meet its payment obligations when they fall due and being unable to replace funds if facilities are withdrawn. The group manages liquidity risk centrally by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities to meet its liquidity requirements at all times, and by continuously monitoring forecast and actual cash flows. The following table details the group s remaining contractual maturity for its financial liabilities. The table has been prepared based on undiscounted cash flows at the earliest date on which the group can be required to pay. The amounts include both interest and capital. The maturity analysis of financial liabilities is summarised as follows: Nominal value of liability <1 year 1-3 years >3 years Total Notes Rm Rm Rm Rm Rm 2009 Long-term borrowings Short-term borrowings Trade and other payables Long-term borrowings Short-term borrowings Trade and other payables Long-term borrowings Short-term borrowings Trade and other payables Provisions onerous contract The company s borrowing powers are not restricted. The group does not have any other material financial instruments that are not based in the currency in which the entity operates. Page 144

149 39. DIRECTORS REMUNERATION AND INTEREST The directors remuneration for the year ended 30 September 2009 was as follows: Executive directors Salary R000 Incentive bonus R000 Retirement and medical contributions R000 Car allowances R000 Other benefits R000 Total R000 JE Gomersall (retired 30 June 2009) * P Stuiver (appointed 1 June 2009)^ O Fenn (resigned 5 August 2009) S Abdul Kader RH Dent P Esterhuysen * Includes a contractual settlement on retirement ^ P Stuiver has a three-year contract with the company, effective 1 June 2009 The annual bonus is capped at 125% of basic salary for all the executive directors on the achievement of stretch performance targets, which are measured relative to both financial and non-financial measures. Non-executive directors Fees R000 Nomination committee R000 Audit committee R000 Risk management and compliance committee R000 Remuneration committee R000 Chairman fees R000 BEE and transformation committee R000 Special board meetings R000 Total R000 AJ Lamprecht BL Sibiya (appointed 10 November 2008) J Shibambo MP Malungani (appointed 27 February 2009) JS Vilakazi (appointed 27 February 2009) ZJ Kganyago NB Langa-Royds TDA Ross Total Page 145 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

150 Notes to the group annual financial statements continued for the year ended 30 September DIRECTORS REMUNERATION AND INTEREST continued The directors remuneration for the year ended 30 September 2008 was as follows: Executive directors Salary R000 Incentive bonus R000 Retirement and medical contributions R000 Car allowances R000 Other benefits R000 Total R000 JE Gomersall O Fenn S Abdul Kader RH Dent P Esterhuysen Non-executive directors Fees R000 Audit committee R000 Risk management and compliance committee R000 Nomination committee R000 Remuneration committee R000 Chairman fees R000 BEE and transformation committee R000 Total R000 AJ Lamprecht MJ Shaw J Shibambo EP Theron (resigned 29 October 2007) ZJ Kganyago NB Langa-Royds TDA Ross Total The directors remuneration for the year ended 30 September 2007 was as follows: Executive directors Salary R000 Incentive bonus R000 Retirement and medical contributions R000 Car allowances R000 Other benefits R000 Total R000 JE Gomersall* O Fenn S Abdul Kader RH Dent P Esterhuysen Page 146

151 39. DIRECTORS REMUNERATION AND INTEREST continued Non-executive directors Fees R000 Audit committee R000 Risk management and compliance committee R000 Nomination committee R000 Remuneration committee R000 Chairman fees R000 BEE and transformation committee R000 Total R000 WAM Clewlow (resigned 23 January 2007) AJ Lamprecht AJ Phillips (resigned 23 January 2007) MJ Shaw J Shibambo EP Theron CB Thomson (resigned 23 January 2007) DG Wilson (appointed 7 November 2006; resigned 16 July 2007) Total Salary R000 Incentive bonus R000 Retirement and medical contributions R000 Car allowances R000 Other benefits R000 Total R000 * In addition, the following remuneration was received from the Barloworld group Gains on equity settled share options exercised/ceded by directors R000 R000 R000 JE Gomersall (retired 30 June 2009) O Fenn (resigned 5 August 2009) RH Dent P Esterhuysen Page 147 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

152 Notes to the group annual financial statements continued for the year ended 30 September DIRECTORS REMUNERATION AND INTEREST continued Interest of directors in share capital The aggregate beneficial holdings as at 30 September 2009 of the directors of the company and their immediate families (none of which has a holding in excess of 1%) in the issued ordinary shares of the company are detailed below. There have been no material changes in these shareholdings since that date Direct Indirect Direct Indirect Direct Indirect Executive directors JE Gomersall (retired 30 June 2009) P Stuiver O Fenn (resigned 5 August 2009) RH Dent P Esterhuysen Non-executive director AJ Lamprecht A register detailing directors and officers interest in the company is available for inspection at the company s registered office. BBBEE transaction In terms of the BBBEE transaction, the following directors were granted shares, which are subject to vesting conditions and have restrictions on transferability. The transferability of shares granted to the executive director lapses on 31 December 2016, while the transferability of shares granted to non-executive directors lapses on 31 December All shares vest in thirds after the fourth, fifth and sixth anniversary of the grant date. Executive director S Abdul Kader Non-executive directors J Shibambo ZJ Kganyago NB Langa-Royds Directors loans The directors have loans with the company, granted in terms of the Barloworld share option scheme that was in place prior to the unbundling of PPC from Barloworld. The balances outstanding at year end are: P Esterhuysen 2009: R0,4 million (2008: R0,4 million; 2007: R0,4 million) O Fenn 2009: R0,8 million (2008: R0,9 million; 2007: R1 million) The loans bear interest at a fixed rate, calculated using the ruling prescribed rate applicable when the loan is granted to the director, and have no predetermined terms of repayment. Interest of directors in contracts The directors have certified that they had no material interest in any transaction of any significance with the company or any of its subsidiaries. The interests of the executive and non-executive directors of Pretoria Portland Cement Company Limited in terms of the Barloworld Share Option Scheme (refer note 36.2), provided in the form of equity-settled share options, are shown in the table below. The executive directors participated in the Barloworld Share Option Scheme before the unbundling of Pretoria Portland Cement Company Limited from Barloworld Limited on 16 July 2007, and the right to Pretoria Portland Cement Company Limited options relate to the unbundling. Pretoria Portland Cement Company Limited has no equity-settled share option scheme in existence. Page 148

153 39. DIRECTORS REMUNERATION AND INTEREST continued 2009 First exercisable date Number of options as at 30 Sep 2007 Number of options as at 30 Sep 2008 Options exercised/ ceded Number of options as at 30 Sep 2009 Option strike price on date exercised/ 30 Sep 2009 Market price on date exercised Expiry date Barloworld share options RH Dent Exercisable post-unbundling 01/04/ ,59 114,50 01/04/ /05/ ,48 94,75 26/05/2010 Total P Esterhuysen Exercisable post-unbundling 01/04/ ,59 110,77 01/04/ /05/ ,48 95,48 26/05/2010 Total AJ Lamprecht Exercisable post-unbundling 01/04/ ,59 111,57 01/04/ /05/ ,48 46,95 26/05/2010 Total Resigned or retired during the year: O Fenn (resigned 5 August 2009) Exercisable post-unbundling 01/04/ ,59 40,87 01/04/ /05/ ,48 41,20 26/05/2010 Total JE Gomersall (retired 30 June 2009) Exercisable post-unbundling 01/04/ ,59 01/04/ /05/ ,48 26/05/2010 Total Total Barloworld share options Page 149 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

154 Notes to the group annual financial statements continued for the year ended 30 September DIRECTORS REMUNERATION AND INTEREST continued 2009 First exercisable date Number of options as at 30 Sep 2007 Number of options as at 30 Sep 2008 Options exercised/ ceded Number of options as at 30 Sep 2009 Option strike price on date exercised/ 30 Sep 2009 Market price on date exercised Expiry date PPC share options RH Dent 01/04/ ,88 38,00 01/04/ /05/ ,95 33,44 26/05/2010 Total P Esterhuysen 01/04/ ,88 37,89 01/04/ /05/ ,95 26/05/2010 Total AJ Lamprecht 26/05/ ,95 33,38 26/05/2010 Total P Stuiver 26/05/ ,95 26/05/2010 Total Resigned or retired during the year: O Fenn (resigned 5 August 2009) 01/04/ ,88 27,45 01/04/ /05/ ,95 27,45 26/05/2010 Total JE Gomersall (retired 30 June 2009) 01/04/ ,88 01/04/ /05/ ,95 26/05/2010 Total Total PPC share options Page 150

155 39. DIRECTORS REMUNERATION AND INTEREST continued The interests of the executive directors in cash-settled share appreciation rights in terms of PPC s Long-term Incentive Plan (refer note 36.1) is reflected in the table below: Date of grant At beginning of the year Awarded during the year Share appreciation rights Forfeited during the year At end of the year Grant price S Abdul Kader 08/08/ ,00 17/09/ ,80 25/09/ ,35 25/09/ RH Dent 08/08/ ,00 17/09/ ,80 25/09/ ,35 25/09/ P Esterhuysen 08/08/ ,00 17/09/ ,80 25/09/ ,35 25/09/ Directors who retired or resigned during the year: O Fenn (resigned 5 August 2009) 08/08/ ,00 17/09/ , JE Gomersall (retired 30 June 2009) 08/08/ , Total Page 151 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

156 Notes to the group annual financial statements continued for the year ended 30 September RELATED PARTY TRANSACTIONS Parent company of reporting entity Rm Associates of the group Rm Subsidiary of reporting entity Rm 2009 Goods and services sold Portland Holdings Limited (25) Interest received Afripack (Pty) Limited (1) Dividends received Afripack (Pty) Limited (3) Goods and services purchased Afripack (Pty) Limited 124 Amounts due (to)/from as at end of the year Afripack (Pty) Limited (5) 35 Group companies, in the ordinary course of business, entered into purchase transactions with associates and subsidiaries. The terms and conditions of these transactions are determined on an arm s length basis. In addition to the above related party transactions, dividends of R90 million (2008 and 2007: nil) were paid to PPC SBP Consortium Funding SPV (Pty) Limited. This company owns shares in PPC, and JS Vilakazi and MP Malungani are common directors of both PPC and the PPC SBP Consortium Funding SPV (Pty) Limited Goods and services sold Portland Holdings Limited (3) Goods and services purchased Afripack (Pty) Limited 114 Portland Holdings Limited Amounts due (to)/from as at end of the year Afripack (Pty) Limited (4) Portland Holdings Limited 2 (4) 2 Page 152

157 40. RELATED PARTY TRANSACTIONS continued Parent company of reporting entity Rm Associates of the group Rm Fellow subsidiaries of reporting entity Rm Subsidiary of reporting entity Rm 2007 Goods and services sold Barloworld Logistics (Pty) Limited 1 Interest received Barloworld Capital (Pty) Limited 8 Goods and services purchased Afripack (Pty) Limited 43 Avis Southern Africa 1 Barloworld Equipment (Pty) Limited 29 Barloworld Limited (franchise fees) 13 Barloworld Limited (internal audit) 2 Barloworld Limited (other) 16 Barloworld Logistics (Pty) Limited 488 Barloworld Motor 1 Portland Holdings Limited Interest paid Barloworld Capital (Pty) Limited 28 Equity-settled share incentive scheme payment Barloworld Limited 30 Amounts due (to)/from as at end of the year Afripack (Pty) Limited (7) Portland Holdings Limited 1 (7) 1 Related party transactions with Barloworld include amounts in respect of transactions concluded up to 16 July Barloworld is no longer a related party of PPC post the unbundling of PPC from Barloworld. 41. ADDITIONAL DISCLOSURE Directors and key management The executive directors of PPC are regarded as key management personnel. Details regarding directors remuneration and interest are disclosed in note 39. Shareholders The principal shareholders of the company are disclosed on page POST-BALANCE SHEET EVENTS There are no post-balance sheet events that may have an impact on the group s reported financial position at 30 September Page 153 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

158 Company statements of financial position at 30 September Notes Rm Rm Rm ASSETS Non-current assets Property, plant and equipment Intangible assets Investment in non-consolidated subsidiary Other non-current assets Long-term receivables Investment in associate Current assets Inventories Trade and other receivables Amounts owing by subsidiaries Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves Share capital and premium Other reserves Retained profit Total equity Non-current liabilities Deferred taxation liabilities Long-term borrowings Provisions Other non-current liabilities Current liabilities Short-term borrowings Taxation payable Trade and other payables Amounts owing to subsidiaries Provisions Total equity and liabilities Page 154

159 Company income statements for the year ended 30 September Notes Rm Rm Rm Revenue Cost of sales Gross profit Non-operating income Administrative and other operating expenditure Operating profit before item listed below BBBEE IFRS 2 charges 474 Operating profit Fair value (losses)/gains on financial instruments 17 (3) 3 3 Finance costs Investment income Profit before exceptional items Exceptional items Profit before taxation Taxation Profit for the year Page 155 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

160 Company statements of comprehensive income for the year ended 30 September 2009 Availablefor-sale financial assets Hedging reserves Retained profit Total comprehensive income Rm Rm Rm Rm 2007 Profit for the year Other comprehensive income, net of taxation (3) (33) (36) Revaluation of investments (4) (4) Deferred taxation on revaluation 1 1 Cash flow hedge recognised directly through equity (14) (14) Cash flow hedge recognised in cost of plant (33) (33) Deferred taxation on hedging movements Total comprehensive income (3) (33) Profit for the year Other comprehensive income, net of taxation Revaluation of investments 9 9 Deferred taxation on revaluation (1) (1) Cash flow hedge recognised directly through equity Cash flow hedge recognised in profit and loss (2) (2) Cash flow hedge recognised in cost of plant (4) (4) Deferred taxation on hedging movements (1) (1) Total comprehensive income Profit for the year Other comprehensive income, net of taxation 208 (6) 202 Revaluation of investments 2 2 Cash flow hedge recognised directly through equity (7) (7) Revaluation of investment in non-consolidated subsidiary (refer note 3) Deferred taxation on hedging movements 1 1 Total comprehensive income 208 (6) Page 156

161 Company statements of changes in equity for the year ended 30 September 2009 Other reserves Share capital Share premium Availablefor-sale financial assets Hedging reserves Equity compensation reserves Retained profit Total Rm Rm Rm Rm Rm Rm Rm Balance at 1 October Movement for the year (3) (33) (29) Equity-settled share incentive scheme charge 1 1 Equity-settled share incentive scheme payment (30) (30) Total comprehensive income (3) (33) Dividends declared (1 212) (1 212) Balance at 30 September (23) Movement for the year Equity-settled share incentive scheme refund 2 2 Other reserve movements 26 (26) Deferred taxation on other reserve movements (1) (1) Total comprehensive income Dividends declared (1 408) (1 408) Balance at 30 September Movement for the year 2 (827) 208 (6) 3 22 (598) BBBEE IFRS 2 charges Treasury shares held by the BBBEE trusts and funding SPVs (refer note 9) (3) (827) (830) Shares issued to the BBBEE CSG and SBP funding SPVs 5 5 Other reserve movements (376) 376 Total comprehensive income 208 (6) Dividends declared (1 295) (1 295) Balance at 30 September (13) Page 157 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

162 Company statements of cash flows for the year ended 30 September Notes Rm Rm Rm CASH FLOWS FROM OPERATING ACTIVITIES Profit before exceptional items Adjustments for: depreciation amortisation of intangible assets (profit)/loss on disposal of property, plant and equipment and intangibles (4) 1 (3) dividends received (10) (14) (20) income from subsidiary companies (237) (191) (153) interest received (36) (60) (64) finance costs loss on derivative (cash-settled share-based payment hedge) 4 15 non-cash portion of BBBEE IFRS 2 charges 379 other non-cash flow items 4 (4) 2 Operating cash flows before movements in working capital Increase in inventories (109) (9) (97) Increase in trade and other receivables (42) (48) (113) Increase in trade and other payables and provisions Cash generated from operations Finance costs paid 22 (284) (195) (89) Dividends received from investments and associate Interest received Income from subsidiary companies Taxation paid 23 (582) (706) (680) Cash available from operations Dividends paid 24 (1 295) (1 408) (1 207) Equity-settled share incentive scheme refund/(payment) 2 (30) Net cash inflow from operating activities Page 158

163 Notes Rm Rm Rm CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment 25 (826) (758) (881) to enhance existing operations (296) (241) (120) to expand operations (530) (517) (761) Acquisition of intangible assets (38) (4) (9) Dividends received from non-consolidated subsidiary company 30 Net proceeds received on disposal of property, plant and equipment Movements in investments and loans 26 (60) 2 Redemption of preference shares 30 (Increase)/decrease in net amounts owing by subsidiary and associate companies 4 (53) (798) 28 Receipt of instalment on long-term loan Treasury shares held by consolidated BBBEE trusts and funding SPVs 9 (830) Net cash outflow from investing activities (1 726) (1 587) (778) Net cash outflow before financing activities (1 427) (1 431) (614) CASH FLOWS FROM FINANCING ACTIVITIES Long-term borrowings repaid (13) (13) (13) Long-term borrowings raised BBBEE funding transaction Net short-term borrowings (repaid)/raised (890) Shares issued to the BBBEE CSG and SBP funding SPVs 5 Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents 11 (1 191) (146) Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Page 159 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

164 Notes to the company annual financial statements for the year ended 30 September 2009 Freehold and leasehold land, buildings and mineral rights Factory decommissioning and quarry rehabilitation assets Plant, vehicles, furniture and equipment Capitalised leased plant Total Rm Rm Rm Rm Rm 1. PROPERTY, PLANT AND EQUIPMENT 2009 Cost Accumulated depreciation and impairments Net carrying value Cost Accumulated depreciation and impairments Net carrying value Cost Accumulated depreciation and impairments Net carrying value Movement of property, plant and equipment 2009 Net carrying value at beginning of the year Additions Depreciation (16) (2) (240) (11) (269) Disposals (5) (5) Transfers between categories 57 (57) Net carrying value at end of the year Page 160

165 Freehold and leasehold land, buildings and mineral rights Factory decommissioning and quarry rehabilitation assets Plant, vehicles, furniture and equipment Capitalised leased plant Total Rm Rm Rm Rm Rm 1. PROPERTY, PLANT AND EQUIPMENT continued Movement of property, plant and equipment continued 2008 Net carrying value at beginning of the year Additions Depreciation (13) (143) (19) (175) Disposals (20) (20) Net carrying value at end of the year Net carrying value at beginning of the year Additions Depreciation (12) (127) (19) (158) Disposals (2) (2) Net carrying value at end of the year Included in plant, vehicles, furniture and equipment is capital work-in-progress of R827 million (2008: R285 million; 2007: R885 million). Property, plant and equipment with a net carrying value of R39 million (2008: R107 million; 2007: R126 million) is encumbered as disclosed in note 11. Certain of the company s properties are the subject of land claims. The company is in the process of discussion with the Land Claims Commissioner and is awaiting the outcome of the claims referred to the Land Claims Court. The claims are not expected to have a material impact on the company s operations. Refer to the group results for additional disclosures on property, plant and equipment. Page 161 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

166 Notes to the company annual financial statements continued for the year ended 30 September Rm Rm Rm 2. INTANGIBLE ASSETS ERP development and other software Cost Accumulated amortisation and impairments Net carrying value Movement of intangible assets Net carrying value at beginning of the year Additions Amortisation (5) (3) (2) Net carrying value at end of the year Included in ERP development and other software is software work-in-progress of R36 million (2008 and 2007: nil) which relates to costs incurred on the implementation of the SAP ERP system. 3. INVESTMENT IN NON-CONSOLIDATED SUBSIDIARY Carrying value at beginning of the year Less: Dividends received (30) Other reclassification movements Add: Unrealised fair value gain 206 Reclassification to other non-current assets (473) Carrying value at end of the year The results of Porthold have been consolidated with effect from 30 September Prior to 30 September 2009, the PPC board of directors concluded that management did not have the ability to exercise effective control over the business, and the results of Porthold were excluded from the group results. Refer to the group results for additional disclosure. In terms of IFRS 7, the investment was classified as an available-for-sale financial asset. 4. OTHER NON-CURRENT ASSETS Investment in subsidiaries Investment in subsidiaries at beginning of the year Other reclassification movements (7) Reclassification of investment in Porthold 473 Investment in subsidiaries at end of the year Unlisted investments Unlisted investments at fair value Contributions to PPC Environmental Derivative financial instrument (fair value hedge)^ Comprising: Other non-current assets Other non-current financial assets Page 162

167 Rm Rm Rm 4. OTHER NON-CURRENT ASSETS continued Interest in subsidiaries (Annexure 1) Shares at cost less amounts written off and dividends received Add: Unrealised fair value gain reclassified Add: Amounts owing by subsidiaries* Less: Amounts owing to subsidiaries* (36) (45) (64) Contributions to PPC Environmental Trust These contributions are invested with independent financial institutions in a collective investment scheme and cash investments and can be utilised on approval from the Department of Mineral and Energy Affairs for rehabilitation costs. ^ Derivative financial instrument Fair value of the premium paid to hedge cash-settled share-based payments (refer notes 36 and 38 in the group results). * Amounts owing by and to subsidiaries These loans have no fixed terms of repayment, are unsecured and, where appropriate, interest is calculated using ruling market-related interest rates. Refer to Annexure 1 for details of amounts owing by and owing to subsidiaries at year end. 5. LONG-TERM RECEIVABLES Guaranteed loan in respect of railway line ~ 3 Long-term loan > ~ Guaranteed loan in respect of railway line Amortised over the period of the loan by way of reduced payment to Transnet Freight Rail for rail transport services, and bears interest at prime less 4%. The <R1 million balance was fully repaid during the 2009 financial year. > Long-term loan This loan is repayable in annual capital instalments of R12 million payable on 30 June each year, with the last payment on 30 April 2013 and bears interest at an effective interest rate of 13,5% per annum. 6. INVESTMENT IN ASSOCIATE Investment at cost 7 7 Add: Transfer from assets classified as held-for-sale Fair value of unlisted associate as determined by the directors Dividends received from associate Refer to Annexure 1 and notes in the group results for further information. Page 163 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

168 Notes to the company annual financial statements continued for the year ended 30 September Rm Rm Rm 7. INVENTORIES Raw materials Work-in-progress Finished goods Maintenance stores The value of inventories has been determined on the following cost formula bases: first-in first-out 7 weighted average Amount of inventories recognised as an expense during the year Amount of write-down of inventory to net realisable value and losses of inventory Inventory obsolescence Balance at beginning of the year Raised during the year Released during the year (1) (1) (1) Balance at end of the year Inventories to revenue (%) 6,79 5,44 5,89 Inventories to cost of sales (%) 12,18 9,91 11,00 Obsolescence provision to inventories (%) 8,10 10,49 9,38 No inventories have been pledged as security. Page 164

169 Rm Rm Rm 8. TRADE AND OTHER RECEIVABLES Trade receivables Less: Impairment of trade receivables (3) (4) (3) Originated loans and receivables Derivative financial instruments (held-for-trading financial assets) 2 5 Derivative financial instruments (cash flow hedge) 6 4 Other financial receivables Trade and other financial receivables Prepayments Other non-financial receivables Trade receivables to revenue (%) 10,73 10,97 10,99 No receivables have been pledged as security. Amounts due to the company should be settled within the normal credit terms of days. Originated loans and receivables comprise: Trade receivables that are neither past due nor impaired^ Trade receivables that would otherwise be impaired whose terms have been renegotiated 8 Trade receivables that are past due but not impaired ^ There is no history of default relating to trade receivables in this category. Trade receivables that are past due but not impaired Age analysis 47,0 45,9 25, days 43,0 43,0 19, days 4,0 2,6 4, days 0,3 1, days 0,3 Fair value of collateral held 17,1 15,7 4,6 The majority of collateral held consists of bank guarantees, with the balance comprising suretyships, mortgage bonds, notarial bonds and cessions. Impairment of trade receivables Balance at beginning of the year Allowance raised through profit or loss 2 Allowance utilised (1) Allowance reversed through profit or loss (1) (2) Balance at end of the year Page 165 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

170 Notes to the company annual financial statements continued for the year ended 30 September Shares Shares Shares 9. SHARE CAPITAL AND PREMIUM Authorised shares Issued shares Ordinary shares Ordinary shares in issue at beginning of the year Treasury shares held by consolidated BBBEE trusts and funding SPVs^ ( ) Total ordinary shares in issue at end of the year Other shares Shares issued to BBBEE CSG and SBP funding SPVs* Total shares in issue at end of the year Rm Rm Rm Authorised share capital Ordinary shares of 10 cents each Issued share capital Ordinary shares Ordinary shares in issue at beginning of the year Treasury shares held by consolidated BBBEE trusts and funding SPVs^ (3) Total ordinary shares in issue at end of the year Other shares Shares issued to BBBEE CSG and SBP funding SPVs* 5 Total shares in issue at end of the year Share premium Balance at beginning of the year Treasury shares held by consolidated BBBEE trusts and funding SPVs^ (827) Balance at end of the year (13) Total issued share capital and premium ^ In terms of the BBBEE transaction that was effected 15 December 2008, Pretoria Portland Cement Company Limited provided guarantees to the holders of the A preference shares issued by the Black Managers Trust funding special purpose vehicle, the holders of the B preference shares issued by the respective trust funding special purpose vehicles, and all of the long-term loans issued to the Black Managers Trust and the respective trust funding special purpose vehicles. The funding raised by the Black Managers Trust and special purpose vehicles was used to purchase shares in Pretoria Portland Cement Company Limited at market value, in terms of a scheme of arrangement. In substance, the shares purchased by the Black Managers Trust and trust funding special purpose vehicles were indirectly funded by Pretoria Portland Cement Company Limited. The shares are accordingly reflected as treasury shares and the corresponding long-term borrowings were raised (refer note 11). * In terms of the said BBBEE transaction, the Strategic Black Partners (SBP) and Community Service Groups (CSG) subscribed for newly issued shares in PPC at par value. The shares carry full economic and voting rights, have restrictions on transferability, and are subject to a call option by PPC to acquire these shares at par by 15 December In terms of a compulsory subscription agreement, the SBPs and CSGs are required to subscribe for new shares in Pretoria Portland Cement Company Limited at R66,84, calculated at the effective date of the transaction, by 31 December 2017 subject to their ability to raise sufficient funding. The shares issued to the SBPs and CSGs have been pledged as security for their funding obligations and as a result are treated as a separate class of equity. Unissued shares This excludes the impact of shares held as treasury shares. Page 166

171 Rm Rm Rm 10. DEFERRED TAXATION Net liability at beginning of the year income statement charge, including changes in taxation rates (10) charged directly to equity (1) 3 (14) other (2) Net liability at end of the year Opening balance Charged to the income statement Charged directly to equity Changes in taxation rates Other Closing balance Rm Rm Rm Rm Rm Rm 2009 Property, plant and equipment Other non-current assets 14 (2) 12 Current assets (5) 8 (1) 2 Non-current liabilities (31) (5) (36) Current liabilities (16) (1) (17) Reserves 3 (1) (1) Property, plant and equipment (1) (4) Other non-current assets Current assets (5) 3 (3) (5) Non-current liabilities (21) (7) 1 (4) (31) Current liabilities (14) (2) (16) Reserves (5) (3) (2) Property, plant and equipment 129 (6) 123 Other non-current assets 3 (2) 1 Current assets 11 3 (14) Non-current liabilities (19) (2) (21) Current liabilities (11) (3) (14) Reserves (10) (14) 92 Page 167 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

172 Notes to the company annual financial statements continued for the year ended 30 September Rm Rm Rm 11. LONG-TERM BORROWINGS Borrowings Terms Security Interest rate Long-term loans* Interest is payable semiannually with a bullet capital repayment on 15 December Unsecured Fixed 10,86% Finance lease liability Interest is payable annually. Capital is repayable annually with the last payment due in Secured through encumbered assets (refer note 1) Fixed 13,10% BBBEE funding transaction^ 879 A preference shares Dividends are payable semi-annually with capital redeemable from surplus cash. Compulsory annual redemption is effective from 31 January 2012 to 15 December Secured by guarantee from PPC Variable rates linked to prime and fixed rates between 8,34% and 9,37% 152 B preference shares Long-term loans Both capital and dividends are payable on 15 December Both capital and interest are payable on 15 December Secured by guarantee from PPC Secured by guarantee from PPC Variable rates linked to prime swapped for a fixed rate of 9,62% Variable rates linked to prime swapped for a fixed rate of 11,20% Long-term borrowings Less: Short-term portion of long-term borrowings (23) (13) (13) Maturity analysis of obligations: one year two years three years four years five and more years Assets encumbered are made up as follows: Property, plant and equipment (refer note 1) * In terms of the BBBEE transaction, Pretoria Portland Cement Company Limited obtained funding from the Strategic Black Partners funding special purpose vehicle and the Community Service Groups funding special purpose vehicle. This long-term funding was used to settle existing short-term funding at the effective date of the transaction. ^ Pretoria Portland Cement Company Limited provided guarantees to the holders of the A preference shares issued by the Black Managers Trust funding special purpose vehicle, the holders of the B preference shares issued by the respective trust funding special purpose vehicles, and all of the long-term loans issued by the Black Managers Trust and the respective trust funding special purpose vehicles. These guarantees are accounted for as a financial liability (refer note 9). The company is in compliance with its debt covenants, none of which are expected to represent material restrictions on funding or investment policies in the foreseeable future. Page 168

173 Rm Rm Rm 12. PROVISIONS Non-current Current Factory decommissioning and quarry rehabilitation Retirement and postretirement benefits Total Rm Rm Rm Movement of provisions 2009 Balance at beginning of the year Amounts added Amounts reversed (3) (3) Unwinding of discount 9 9 Balance at end of the year To be incurred: between two to five years 5 5 more than five years Balance at beginning of the year Amounts added Amounts utilised (5) (5) Amounts reversed (1) (1) Unwinding of discount 7 7 Balance at end of the year To be incurred: within one year 1 1 between two to five years more than five years Page 169 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

174 Notes to the company annual financial statements continued for the year ended 30 September 2009 Factory decommissioning and quarry rehabilitation Retirement and postretirement benefits Total Rm Rm Rm 12. PROVISIONS continued Movement of provisions continued 2007 Balance at beginning of the year Amounts added Unwinding of discount 6 6 Balance at end of the year To be incurred: within one year between two to five years more than five years Factory decommissioning and quarry rehabilitation The group is required to restore mining and processing sites at the end of their productive lives to an acceptable condition consistent with the group s environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value, is provided at the beginning of each project. Pretoria Portland Cement Company Limited has set up an Environmental Trust to administer the funds required to fund the expected cost of decommissioning or restoration. To date R44 million has been contributed to the PPC Environmental Trust. Retirement and post-retirement benefits Included in the provision are the following liabilities: Cement and Concrete Institute employees The provision relates to Pretoria Portland Cement Company Limited s proportionate share of the post-retirement healthcare liability for employees of the Cement and Concrete Institute. This amounted to R6 million (2008: R6 million; 2007: R4 million). This liability was last actuarially valued during February The liability has been determined using the projected unit credit method. Corner House Pension Fund and Lime Acres continuation members The provision relates to post-employment healthcare benefits in respect of certain Corner House Pension Fund and Lime Acres continuation members, and amounted to R11 million (2008: R10 million; 2007: R11 million). This liability was last actuarially valued during September 2008, and has been determined using the projected unit credit method. Benefits under these schemes were granted to employees under historical employment contracts and the schemes are closed to new members Rm Rm Rm 13. OTHER NON-CURRENT LIABILITIES Cash-settled share-based payment liability For further details on the cash-settled share-based payment liability, refer to note 36 in the group results. 14. SHORT-TERM BORROWINGS Short-term borrowings and bank overdraft Short-term portion of long-term borrowings (refer note 11) Page 170

175 Rm Rm Rm 15. TRADE AND OTHER PAYABLES Trade payables and accruals Other financial payables Derivative financial instruments (held-for-trading financial liabilities) Trade and other financial payables Payroll accruals VAT payable Other non-financial payables Trade and other payables are payable within a day period. Trade payables and accruals to cost of sales (%) 8,63 10,54 11, OPERATING PROFIT Operating profit includes: Amortisation of intangible assets (refer note 2) Auditors remuneration fees Consultation fees in respect of BBBEE initiative 9 20 Depreciation (refer note 1): cost of sales operating costs Distribution costs included in cost of sales Exploration and research costs 1 1 Fees paid to previous holding company 15 Income from subsidiary companies: fees interest 8 1 dividends Operating lease charges: land and buildings plant, vehicles and equipment (Profit)/loss on disposal of plant and equipment and intangibles (4) 1 (3) Retirement benefit contributions Share-based payments: cash-settled share incentive scheme charge equity-settled share incentive scheme charge Staff costs (including retirement benefit contributions) Less: Costs capitalised to intangible assets and plant and equipment (11) (20) (11) Page 171 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

176 Notes to the company annual financial statements continued for the year ended 30 September Rm Rm Rm 17. FAIR VALUE (LOSSES)/GAINS ON FINANCIAL INSTRUMENTS Gains on derivatives designated as economic hedging instruments Loss on derivative (cash-settled share-based payment hedge) (4) (15) Losses on translation of foreign currency monetary items (4) (1) (3) FINANCE COSTS Bank and other borrowings BBBEE funding transaction 72 dividends on redeemable preference shares 32 long-term borrowings 40 Finance lease interest Subsidiary companies Unwinding of discount on decommissioning and rehabilitation provisions Capitalised to plant and equipment (17) (44) (8) INVESTMENT INCOME Dividends unlisted investments associate Interest received on deposits and non-current assets EXCEPTIONAL ITEMS Profit on disposal of properties 2 3 Page 172

177 Rm Rm Rm 21. TAXATION South African normal taxation current year prior year Foreign taxation current year Deferred taxation current year (10) prior year (7) rate change (3) (10) Secondary taxation on companies current year Taxation attributable to the company % % % Reconciliation of rate of taxation Taxation as a percentage of profit before taxation (excluding prior year taxation) 41,3 32,2 33,7 Adjustment due to the inclusion of dividend income 3,5 2,3 2,0 44,8 34,5 35,7 Reduction in rate of taxation 0,3 0,3 0,9 permanent differences and exempt income 0,3 0,2 0,9 rate change adjustment 0,1 Increase in rate of taxation (17,1) (6,8) (7,6) disallowable charges (1,3) (0,4) (0,4) BBBEE IFRS 2 charges (7,8) secondary taxation on companies (7,5) (6,1) (6,9) taxation on foreign dividend received (0,5) (0,3) (0,3) South African normal taxation rate 28,0 28,0 29,0 Page 173 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

178 Notes to the company annual financial statements continued for the year ended 30 September Rm Rm Rm 22. FINANCE COSTS PAID Finance costs as per income statement charge Interest capitalised to plant and equipment Unwinding of discount on decommissioning and rehabilitation provisions (9) (7) (6) BBBEE funding transaction (60) redeemable preference share dividends capitalised (20) interest capitalised on long term-borrowings (40) TAXATION PAID Net amounts outstanding at beginning of the year Charge per income statement (excluding deferred taxation) Net amounts outstanding at end of the year (92) (54) (210) DIVIDENDS PAID Dividends declared Relief on payment to foreign shareholders (5) ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT Freehold and leasehold land, buildings and mineral rights Plant, vehicles, furniture and equipment Interest capitalised to plant and equipment (17) (44) (8) MOVEMENTS IN INVESTMENTS AND LOANS Net movement (192) (42) 20 Revaluation of available-for-sale financial assets 2 9 (4) Revaluation of investment in non-consolidated subsidiary 206 Loss on derivative (cash-settled share-based payment hedge) (4) (15) 12 (48) 16 Comprising: Movements in investments and loans (60) 2 Receipt of instalment on long-term loan (48) CONTINGENT LIABILITIES Guarantees for loans, banking facilities and other obligations to third parties 8 Secondary taxation on companies is payable on dividends declared at a rate of 10%. Litigation, current or pending, is not considered likely to have a material adverse effect on the company. Two wholly owned subsidiary companies, PPC Cement (Pty) Limited and PPC Ntsika Fund (Pty) Limited, are technically insolvent. The company has provided guarantees in the way of subordination agreements relating to the loan that is receivable from PPC Cement (Pty) Limited and PPC Ntsika Fund (Pty) Limited. For details on guarantees provided by Pretoria Portland Cement Company Limited in terms of the BBBEE transaction (refer note 9). Page 174

179 28. FINANCIAL RISK MANAGEMENT Fair values of financial assets and liabilities The carrying values of certain financial assets and liabilities, which are accounted for at historical cost, may differ from their fair values. The estimated fair values have been determined using available market information and approximate valuation methodologies. Disclosed below are the carrying amounts and fair values of financial assets and liabilities which differ from the amounts reflected under the group financial statements. Notes Carrying Fair Carrying Fair Carrying amount value amount value amount Rm Rm Rm Rm Rm Fair value Rm Financial assets Loans and receivables Long-term loan Trade and other financial receivables Amounts owing by subsidiaries Financial liabilities Financial liabilities measured at amortised cost Long-term borrowings Short-term borrowings Amounts owing to subsidiaries Trade and other financial payables Rm Rm Rm Credit risk management Maximum credit risk exposure Page 175 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

180 Notes to the company annual financial statements continued for the year ended 30 September Rm Rm Rm 29. RELATED PARTY TRANSACTIONS In addition to the related party transactions disclosed in the group results, the company had the following related party transactions: Goods sold to PPC Botswana (Pty) Limited Portland Holdings Limited 25 Technical services provided to PPC Lime Limited PPC Aggregate Quarries (Pty) Limited* 8 2 PPC Botswana (Pty) Limited 1 Technical services received from PPC Aggregate Quarries (Pty) Limited* 2 2 Interest received from PPC Lime Limited 5 1 PPC Aggregate Quarries (Pty) Limited* 3 Interest paid to PPC Lime Limited 2 PPC Aggregate Quarries (Pty) Limited* Dividends received from PPC Botswana (Pty) Limited PPC Lime Limited PPC Aggregate Quarries (Pty) Limited* PPC Cement (Pty) Limited 45 7 The Future PPC Team Trust 1 Dividends paid to PPC Cement (Pty) Limited 45 7 The Current PPC Team Trust 6 The Future PPC Team Trust 3 PPC Black Independent Non-executive Directors Trust 1 PPC Team Benefit Trust Funding SPV (Pty) Limited 5 PPC Construction Industry Associations Trust Funding SPV (Pty) Limited 22 PPC Education Trust Funding SPV (Pty) Limited 11 PPC Community Trust Funding SPV (Pty) Limited 8 Trade amounts due from PPC Botswana (Pty) Limited Portland Holdings Limited 7 For details on amounts due to and due from subsidiaries and associates, refer to Annexure 1. The terms and conditions of these transactions are determined on an arm s length basis. * The company name has been changed from Mooiplaas Dolomite (Pty) Limited to PPC Aggregate Quarries (Pty) Limited Page 176

181 30. ADDITIONAL DISCLOSURE Refer to the group financial statements for additional disclosure on the following: Accounting policies Commitments Directors remuneration and interest Financial risk management Foreign exchange gains and losses Related party transactions Retirement benefit information Share-based payments Post-balance sheet events Page 177 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

182 Annexure 1 Interest in subsidiary and unlisted associates for the year ended 30 September 2009 SUBSIDIARY COMPANIES Issued Percentage held share capital Name of company R % % % Cape Portland Cement Co Limited Cooper & Cooper Holdings (Pty) Limited PPC Aggregate Quarries (Pty) Limited^ PPC Botswana (Pty) Limited* A # B # Portland Holdings Limited ~ PPC Lime Limited Property Cats (Pty) Limited Kgale Quarries (Pty) Limited* # PPC Cement (Pty) Limited PPC Ntsika Fund (Pty) Limited Slurrylink (Pty) Limited Swaziland Portland Cement (Pty) Limited PPC Black Managers Trust Funding SPV (Pty) Limited Varsrivier Marmer (Pty) Limited Less: Amounts written off Associate Issued Percentage held share capital Name of entity Principal activity R % % % Afripack (Pty) Limited Paper sack manufacturers All subsidiary companies and associates are incorporated in the Republic of South Africa, except where indicated otherwise. A full list of subsidiary companies and unlisted associates is available for inspection at the registered office of the company. ^ The company name has been changed from Mooiplaas Dolomite (Pty) Limited to PPC Aggregate Quarries (Pty) Limited * Registered in Botswana # Botswana pula ~ Registered in Zimbabwe US dollar Registered in Swaziland Page 178

183 Shares Indebtedness (due to)/due by Rm Rm Rm Rm Rm Rm (5) (5) (5) (24) (36) (55) (3) (3) (3) (1) (1) (1) (57) (58) Shares Indebtedness (due to)/due by Rm Rm Rm Rm Rm Rm Page 179 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

184 PPC in the stock market for the year ended 30 September 2009 Category Number of shareholders % Number of shares % shares , , shares , , shares , , shares 276 0, , shares and over 55 0, , , ,00 Distribution of shareholders Banks 121 0, ,84 Brokers 38 0, ,82 Close corporations 366 0, ,29 Endowment funds 329 0, ,83 Individuals , ,83 Insurance companies 74 0, ,80 Investment companies 34 0, ,56 Medical aid schemes 15 0, ,18 Mutual funds 311 0, ,81 Nominees and trusts , ,97 Other corporations 345 0, ,20 Own holdings 1 0, ,44 Pension funds 321 0, ,79 Private companies 835 2, ,87 Public companies 50 0, ,77 Scrip accounts 6 0, , , ,00 Public and non-public shareholding Public , ,49 Non-public 7 0, ,51 Directors holdings 6 0, ,07 Company-owned holdings 1 0, ,44 Total , ,00 Beneficial shareholders holding of 3% or more Government Employees Pension Fund ,84 PPC SBP Consortium Funding SPV (Pty) Limited ,82 Lazard Emerging Markets Portfolio ,53 PPC Cement (Pty) Limited ,44 Broad-based black ownership: PPC SBP Consortium Funding SPV (Pty) Limited PPC Construction Industry Association Trust Funding SPV (Pty) Limited PPC Black Managers Trust PPC Broad-based Strategic Partnership Funding SPV (Pty) Limited PPC Education Trust Funding SPV (Pty) Limited PPC Community Trust Funding SPV (Pty) Limited PPC Team Benefit Funding SPV (Pty) Limited The Current PPC Team Trust The Future PPC Team Trust PPC Black Non-executive Directors Trust Page 180

185 Administration Pretoria Portland Cement Company Limited (Incorporated in the Republic of South Africa) Company registration number: 1892/000667/06 JSE code: PPC ZSE code: PPC Auditors Deloitte & Touche Deloitte Place The Woodlands Woodlands Drive Woodmead, Sandton Private Bag X6 Gallo Manor, 2052, South Africa Telephone Telefax Secretary and registered office JHDLR Snyman 180 Katherine Street, Sandton PO Box Sandton, 2146, South Africa Telephone Telefax Sponsor: South Africa Merrill Lynch 138 West Street Sandown, Sandton PO Box Benmore, 2010, South Africa Telephone Telefax ISIN code: ZAE Transfer secretaries: South Africa Link Market Services (Pty) Limited 11 Diagonal Street Johannesburg, South Africa PO Box 4844 Johannesburg, 2000, South Africa Telephone Telefax Transfer secretaries: Zimbabwe Corpserve (Private) Limited 2nd Floor, ZB Centre Corner First Street and Kwame Nkrumah Avenue Harare, Zimbabwe PO Box 2208 Harare, Zimbabwe Telephone / Telefax Sponsor: Zimbabwe Imara Edwards Securities (Private) Limited Block 2, Tendeseka Office Park Samora Machel Avenue Harare, Zimbabwe PO Box 1475 Harare, Zimbabwe Telephone Telefax Financial calendar Financial year end 30 September Annual general meeting 25 January 2010 Reports Interim results for half-year to March Published May Preliminary announcement of annual results Published November Annual financial statements Published December Dividends Interim Declared May Paid June Final Declared November Paid January Page 181 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

186 Notice of annual general meeting for the year ended 30 September 2009 PRETORIA PORTLAND CEMENT COMPANY LIMITED Incorporated in the Republic of South Africa (Registration No: 1892/000667/06) JSE share code: PPC ZSE share code: PPC ISIN code: ZAE (PPC) or (the company) NOTICE IS HEREBY GIVEN THAT the one hundred and fourteenth annual general meeting of Pretoria Portland Cement Company Limited will be held in the Umkombe Room, Hilton Hotel,138 Rivonia Road, Sandton, on Monday, 25 January 2010 at 12:00 for the purpose of conducting the following business: Agenda 1. To receive and adopt the annual financial statements for the year ended 30 September 2009, including the directors report and the report of the auditors. 2. To confirm the appointment of the following four directors who were appointed between the two annual general meetings: Messrs SG Helepi, MP Malungani, P Stuiver and JS Vilakazi. Brief curriculum vitae of the directors standing for election appear on pages 56 and 57 of this report. 2.1 Resolved that the appointment of SG Helepi as a director of the company effective from 1 December 2009 is hereby confirmed. 2.2 Resolved that the appointment of P Stuiver as a director of the company effective from 1 June 2009 is hereby confirmed. 2.3 Resolved that the appointment of MP Malungani as a director of the company effective from 27 February 2009 is hereby confirmed. 2.4 Resolved that the appointment of JS Vilakazi as a director of the company effective from 27 February 2009 is hereby confirmed. 3. To consider the re-election of Mr S Abdul Kader, Ms ZJ Kganyago, Ms NB Langa-Royds and Mr J Shibambo who are required to retire by rotation, have offered themselves for re-election and are recommended for re-election by the nominations committee. Brief curriculum vitae of the directors standing for re-election appear on pages 56 and 57 of this report. 3.1 Resolved that S Abdul Kader who is required to retire as a director of the company at this annual general meeting is hereby re-appointed as a director of the company with immediate effect. 3.2 Resolved that ZJ Kganyago who is required to retire as a director of the company at this annual general meeting is hereby re-appointed as a director of the company with immediate effect. 3.3 Resolved that NB Langa-Royds who is required to retire as a director of the company at this annual general meeting is hereby re-appointed as a director of the company with immediate effect. 3.4 Resolved that J Shibambo who is required to retire as a director of the company at this annual general meeting is hereby re-appointed as a director of the company with immediate effect. 4. To consider and, if deemed fit, to pass with or without modification, the following ordinary resolution: Resolved that with effect from 1 October 2009 and in terms of article 61 of the company s articles of association, the fees payable to the non-executive directors be set as follows: The chairman, an all-inclusive fee of R per annum; A board member, R per annum; The audit committee chairman, R per annum; An audit committee member, R per annum; The remuneration committee chairman, R per annum; A remuneration committee member, R per annum; The risk and compliance committee chairman, R per annum; A risk and compliance committee member, R per annum; Other committee chairman, R per annum; and Other committee member, R per annum. 5. To consider and, if deemed fit, to pass, with or without modification, the following resolution as a special resolution in order to provide the directors with flexibility to repurchase securities in terms of section 85 of the Companies Act as and when suitable situations arise: Resolved that the company or any subsidiary of the company may, subject to the Companies Act, the company s articles of association and the listings requirements of the JSE from time to time (listings requirements) and any other stock exchange upon which the securities in the capital of the company may be quoted or listed from time to time, repurchase securities issued by the company, provided that this authority shall be valid only until the next annual general meeting of the company or for 15 (fifteen) months from the date of the resolution, whichever is the shorter, and may be varied by a special resolution by any general meeting of the company at any time prior to the next annual general meeting. Page 182

187 Pursuant to the above, the following additional information, required in terms of the listings requirements, is submitted: It is recorded that the company or any subsidiary of the company may only make a general repurchase of the company s securities if: The repurchase of securities is effected through the order book operated by the JSE trading system and is done without any prior understanding or arrangement between the company or the relevant subsidiary and the counterparty; The company is authorised thereto by its articles of association; The company is authorised thereto by its shareholders in terms of a special resolution of the company in general meeting, which authorisation shall be valid only until the next annual general meeting or for 15 (fifteen) months from the date of the resolution, whichever period is the shorter; Repurchases are made at a price not greater than 10% (ten percent) above the weighted average of the market value for the securities for the 5 (five) business days immediately preceding the date on which the repurchase is effected; At any point in time, the company or the relevant subsidiary may only appoint one agent to effect any repurchases on the company s behalf; The company or the relevant subsidiary only undertake repurchases if, after such repurchase, the company still complies with shareholder-spread requirements in terms of the listings requirements; The company or the relevant subsidiary does not repurchase securities during a prohibited period defined in terms of the listings requirements, unless it has a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement on SENS prior to the commencement of the prohibited period; A paid press announcement containing full details of such repurchases is published as soon as the company or subsidiary has repurchased securities constituting, on a cumulative basis, 3% (three percent) of the number of securities in issue prior to the repurchases and for each 3% (three percent), on a cumulative basis, thereafter; and The general repurchase is limited to a maximum of 20% (twenty percent) of the company s issued share capital of that class in any one financial year. Any acquisition shall be subject to: The Companies Act, as amended; The listings requirements and any other applicable stock exchange rules, as may be amended from time to time; and The sanction of any other relevant authority whose approval is required in law. The directors of the company undertake that, after having considered the effect of the repurchases, they will not undertake such repurchases unless: The company and the group would be able to repay their debts in the ordinary course of business for the period of 12 (twelve) months after the date of the notice of the annual general meeting; The assets of the company and the group, fairly valued in accordance with International Financial Reporting Standards and the company s accounting policies used in the latest audited group financial statements, will be in excess of the liabilities of the company and the group for the period of 12 (twelve) months after the date of the notice of the annual general meeting; The company and the group will have adequate capital and reserves for ordinary business purposes for the period of 12 (twelve) months after the date of the notice of the annual general meeting; and The working capital of the company and the group will be adequate for ordinary business purposes for the period of 12 (twelve) months after the date of the notice of the annual general meeting. In terms of the listings requirements, the maximum number of shares that can be repurchased amounts to 20% (twenty percent) of the ordinary shares in issue. The reason for the passing of the special resolution is to enable the company or any of its subsidiaries, by way of a general authority from shareholders, to repurchase securities issued by the company. The effect of the special resolution, once registered, will be to permit the company or any of its subsidiaries to repurchase such securities in terms of the Companies Act. This authority will only be used if circumstances are appropriate. Page 183 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

188 Notice of annual general meeting continued for the year ended 30 September 2009 For the purposes of considering the special resolution and in compliance with paragraph of the listings requirements, certain information is either listed below or has been included elsewhere in this report, in which this notice of annual general meeting is included: Directors and management refer to pages 56 and 57 of this report; Major shareholders refer to page 180 of this report; No material changes in the financial or trading position of the company and its subsidiaries have occurred since 30 September 2009; Directors interests in securities refer to page 39 of this report; Share capital of the company refer to page 166 of this report; The directors, whose names are set out on pages 56 and 57 of this report, collectively and individually accept full responsibility for the accuracy of the information contained in this notice and accompanying documents and certify that, to the best of their knowledge and belief, there are no facts, that have been omitted which would make any statement false or misleading and that all reasonable enquiries to ascertain such facts have been made, and that this notice contains all information required by law and the JSE listings requirements; and There are no legal or arbitration proceedings (including any such proceedings that are pending or threatened of which the company is aware), which may have or have had a material effect on the company s financial position over the past 12 (twelve) months. 6. To confirm the re-appointment of Messrs Deloitte & Touche as external auditors of the company as recommended by the audit committee, to hold office from the conclusion of the one hundred and fourteenth annual general meeting until the conclusion of the next annual general meeting of the company. Mr Michael John Jarvis (IRBA No ) from the mentioned firm of auditors will undertake the audit. 7. To authorise the directors to fix the remuneration of the external auditors, Messrs Deloitte & Touche, for the past year s audit. 8. To transact such other business as may be transacted at an annual general meeting. Proxy and voting procedure Members who have not dematerialised their shares or who have dematerialised their shares with own name registration are entitled to attend or vote at the annual general meeting and are entitled to appoint a proxy to attend, speak and vote in their stead. The person so appointed need not be a member of the company. If certificated members or dematerialised members with own name registration are unable to attend the annual general meeting, but wish to be represented thereat, they must complete the proxy form on page 185 of this report. In order to be effective, proxy forms should be delivered to the transfer secretaries, Link Market Services South Africa (Pty) Limited, 11 Diagonal Street, Johannesburg, 2001 (PO Box 4844, Johannesburg, 2000) and for Zimbabwean PPC shareholders, Corpserve (Private) Limited, 2nd Floor, ZB Centre, Corner First Street and Kwame Nkrumah Avenue, Harare, Zimbabwe (PO Box 2208, Harare, Zimbabwe), so as to reach these addresses by no later than 12:00 on Thursday, 21 January Members who have dematerialised their shares, other than those members who have dematerialised their shares with own name registration, should contact their participant (previously Central Securities Depository Participant) or stockbroker: To furnish their participant or stockbroker with their voting instruction; or In the event that they wish to attend the meeting, to obtain the necessary authority to do so. Any shareholder having difficulties or queries with regard to the above may contact the company secretary on By order of the board JHDLR Snyman Company secretary 10 November 2009 Sandton Page 184

189 Form of proxy PRETORIA PORTLAND CEMENT COMPANY LIMITED Incorporated in the Republic of South Africa (Registration No: 1892/000667/06) JSE share code: PPC ZSE share code: PPC ISIN code: ZAE (PPC) or (the company) Only for the use of registered holders of certificated ordinary shares in the company and the holders of dematerialised ordinary shares in the capital of the company in own name form, at the annual general meeting to be held at 12:00 on Monday, 25 January 2010, in the Umkombe Room, Hilton Hotel,138 Rivonia Road, Sandton. Holders of ordinary shares in the company (whether certificated or dematerialised) through a nominee must not complete this form of proxy but should timeously inform that nominee, or, if applicable, their participant or stockbroker of their intention to attend the annual general meeting and request such nominee, participant or stockbroker to issue them with the necessary letter of representation to attend or provide such nominee, participant or stockbroker with their voting instructions should they not wish to attend the annual general meeting in person but wish to be represented at the meeting. Such ordinary shareholders must not return this form of proxy to the transfer secretaries. I/We (name and address in block letters) being a member/s of the above company and holding of ordinary shares therein, hereby appoint of or, failing him, the chairman of the meeting as my/our proxy to attend, speak and vote for me/us and on my/our behalf or to abstain from voting at the annual general meeting of the company to be held in the Umkombe Room, Hilton Hotel, 138 Rivonia Road, Sandton, on Monday, 25 January 2010, and at any adjournment of that meeting as follows: 1. Adoption of annual financial statements 2. To confirm the appointment of the following directors 2.1 SG Helepi 2.2 P Stuiver 2.3 MP Malungani 2.4 JS Vilakazi 3. To re-elect the following directors 3.1 Mr S Abdul Kader 3.2 Ms ZJ Kganyago 3.3 Ms NB Langa-Royds 3.4 Mr J Shibambo 4. Remuneration of non-executive directors/committee members and chairman 5. Acquisition of own shares* 6. Re-appoint Messrs Deloitte & Touche as external auditors of the company 7. Authorise directors to fix remuneration of external auditors * Special resolution In favour of Against Abstain Insert an X in the relevant spaces above according to how you wish your votes to be cast. However, if you wish to cast your votes in respect of a lesser number of ordinary shares than you own in the company, insert the number of ordinary shares held in respect of which you desire to vote (see note 2). Signed at on 20 Signature/s Assisted by (where applicable) Each member is entitled to appoint a proxy (who need not be a member of the company) to attend, speak and vote in place of that member at the annual general meeting. Please read the notes on the reverse side of this form of proxy. Page 185 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

190 Explanatory notes regarding proxy 1. A shareholder may insert the name of a proxy of the shareholder s choice in the space provided, with or without deleting the chairman of the meeting, but any such deletion must be signed in full by the shareholder. The person whose name stands first on the form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. 2. Please insert an X in the relevant space according to how you wish your votes to be cast. However, if you wish to cast your votes in respect of a lesser number of shares than you own in the company, insert the number of shares held in respect of which you wish to vote. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of the entire shareholder s votes exercisable at the annual general meeting. A shareholder or his/her proxy is not obliged to use all the votes exercisable by the shareholder or by his/her proxy, but the total of the votes cast in respect of which abstention is recorded may not exceed the total number of the votes exercisable by the shareholder or by his/her proxy. 4. Where there are joint holders of any shares, only that holder whose name appears first in the register in respect of such shares need sign this form of proxy. 5. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting and speaking and voting in person at the annual general meeting to the exclusion of any proxy appointed in terms of this proxy form. 6. Any alteration to this form of proxy must be signed in full and not initialled. 7. If this form of proxy is signed under a power of attorney, then such power of attorney or a notarially certified copy thereof must be sent with this form of proxy for noting (unless it has already been noted by the transfer secretaries). 8. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretaries. 3. In order to be effective, proxy forms should be delivered to the transfer secretaries, Link Market Services South Africa (Pty) Limited, 11 Diagonal Street, Johannesburg, 2001 (PO Box 4844, Johannesburg, 2000) and for Zimbabwean PPC shareholders, Corpserve (Private) Limited, 2nd Floor, ZB Centre, Corner First Street and Kwame Nkrumah Avenue, Harare, Zimbabwe (PO Box 2208, Harare, Zimbabwe), so as to reach these addresses no later than 12:00 on Thursday, 21 January The chairman of the annual general meeting may accept any form of proxy which is completed other than in accordance with these notes if he is satisfied as to the manner in which the shareholder wishes to vote. Page 186

191 Index to Global Reporting Initiative indicators This index is based on the 2007 GRI guidelines (G3) GRI element Topic Page Strategy and analysis 1.1 Statement from CEO Key impacts, risks and opportunities 2 Organisational profile 2.1 Name Inside front cover 2.2 Primary products Operational structure 2.4 Location of head office Countries of operation Inside front cover 2.6 Nature of ownership Inside front cover 2.7 Markets served Inside front cover 2.8 Scale of organisation Inside front cover 2.9 Significant changes to organisation Zero 2.10 Awards 52 Report parameters 3.1 Reporting period Date of previous report Reporting cycle Contact points Process for defining report content Boundary of report Limitations Basis for reporting on joint ventures, etc Data measurement techniques and assumptions Explanation of restatements Significant changes to scope, boundary or methods GRI index Policy and practice on external assurance 6 Governance, commitments and engagement Governance structure Status of chairperson Independent non-executive directors Mechanisms for stakeholders to interact with board Link between compensation and performance Process for avoiding conflict of interest Expertise of board Policies on economic, environmental and social performance Page 187 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

192 Index to Global Reporting Initiative indicators continued This index is based on the 2007 GRI guidelines (G3) GRI element Topic Page Governance, commitments and engagement continued 4.9 Procedures for board oversight of economic, environmental and social performance Board performance Precautionary approach 4.12 External principles endorsed Membership of industry associations and advocacy groups Stakeholder groups Basis for identification Approach to stakeholder engagement Topics and concerns raised, response 13, 7 10 Economic EC1 Economic value generated and distributed 4 EC2 Financial implications, risks and opportunities due to climate change n/a EC3 Coverage of defined benefit plan obligations EC4 Significant financial assistance from government Zero EC5 Standard entry-level wage compared to local minimum wage n/a EC6 Policy, practices and spending on local suppliers 43 EC7 Procedures for local hiring, proportion of senior management hired from local 30 community EC8 Development and impact of infrastructure investments and services for public benefit 32, 37, 38 EC9 Significant indirect economic impacts 4 Environmental Materials EN1 Materials used by weight or volume n/m EN2 Percentage recycled input materials 71 Energy EN3 Direct consumption by primary energy source 72 EN4 Indirect consumption by primary source 72 EN5 Energy saved from conservation and efficiency improvements 71, 72 EN6 Reductions from energy-efficient or renewable energy-based products and services n/m EN7 Initiatives to reduce indirect energy consumption, reductions achieved 71, 72, 73 Water EN8 Total water withdrawal by source 75 EN9 Sources significantly affected by withdrawal n/m EN10 Percentage and volume recycled and reused n/m Page 188

193 GRI element Topic Page Environmental continued Biodiversity EN11 Location/size of land owned, leased, managed or adjacent to protected areas, areas of 76, 77 high biodiversity value EN12 Significant impacts of activities, products and services on biodiversity in protected 76, 77 areas and areas of high biodiversity value EN13 Habitats protected or restored 76, 77 EN14 Strategies, actions and plans for managing impacts on biodiversity 76, 77 EN15 IUCN Red List species and national conservation list species in areas affected by 77 operations Emissions, effluents and waste EN16 Total direct and indirect greenhouse gas emissions by weight 69, 70 EN17 Other relevant indirect greenhouse gas emissions n/m EN18 Initiatives to reduce greenhouse gas emissions, reductions achieved 70, 74 EN19 Emissions of ozone-depleting substances n/m EN20 NO X, SO X and other significant air emissions by type and weight 74 EN21 Total water discharge by quality and destination n/m EN22 Total weight of waste by type and disposal method n/m EN23 Total number and volume of significant spills 80 EN24 Waste transported under terms of Basel Convention (Annex I, II, III, VIII) n/a EN25 Identity, size, protected status and biodiversity value of water bodies and related n/m habitats significantly affected by discharges of water and runoff Products and services EN26 Initiatives to mitigate environmental impacts of products, extent of mitigation 62, 63 EN27 Percentage of products sold and packaging materials reclaimed by category n/m Compliance EN28 Significant fines, sanctions for non-compliance with environmental laws and 80 regulations Transport EN29 Significant impacts of transporting products and members of workforce n/m EN30 Total environmental protection expenditures and investments by type n/m Page 189 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

194 Index to Global Reporting Initiative indicators continued This index is based on the 2007 GRI guidelines (G3) GRI element Topic Page Social performance: labour practices and decent work Employment LA1 Workforce by employment type, employment contract and region 30 LA2 Number and rate of employee turnover by age group, gender and region LA3 Benefits for full-time employees not provided to temporary/part-time employees Labour/management relations LA4 Percentage employees covered by collective bargaining agreements 16 LA5 Minimum notice period on significant changes, including specified in collective agreements Occupational health and safety LA6 Percentage workforce represented in formal joint health and safety committees LA7 Rates of injury, occupational diseases, lost days, absenteeism, work-related fatalities 51 LA8 Education, training, counselling, prevention and risk-control programmes to assist 50 workforce members, their families or community members with serious diseases LA9 Health and safety topics covered in formal agreements with trade unions Training and education LA10 Average hours of training per year per employee by employee category 22 LA11 Programmes for skills management and lifelong learning that support continued employability LA12 Percentage of employees receiving regular performance and career development 21 reviews Diversity and equal opportunity LA13 Composition of governance bodies and breakdown of employees per category: 22 gender, age group, minority group membership and other indicators of diversity LA14 Ratio of basic salary of men to women by employee category Page 190

195 GRI element Topic Page Social performance: human rights Investment and procurement practices HR1 Percentage and number of significant investment agreements with human rights clauses or screening HR2 Percentage significant suppliers and contractors screened on human rights and actions taken HR3 Total hours and percentage employee training on aspects of human rights relevant to operations Non-discrimination HR4 Total number of incidents of discrimination and actions taken Freedom of association and collective bargaining HR5 Operations where right to freedom of association and collective bargaining is at Zero significant risk, actions taken to support rights HR6 Operations with significant risk for incidents of child labour, measures to eliminate Zero HR7 Operations with significant risk of forced or compulsory labour, measures to eliminate Zero Security practices HR8 Percentage security personnel trained in policies/procedures on human rights relevant to operations Indigenous rights HR9 Number of violations involving rights of indigenous people and actions taken Social performance: society Community SO1 Programmes/practices to manage impacts on communities, including entering, 5, 13, operating, and exiting Corruption SO2 Percentage and number of business units analysed for risks related to corruption 51 SO3 Percentage of employees trained in anti-corruption policies and procedures SO4 Actions taken in response to incidents of corruption Public policy SO5 Public policy positions and participation in public policy development and lobbying 12 SO6 Total value of financial and in-kind contributions to political parties, politicians and Zero related institutions Anti-competitive behaviour SO7 Legal actions for anti-competitive behaviour, anti-trust and monopoly practices, 53 outcomes Compliance SO8 Significant fines, sanctions for non-compliance with laws and regulations 53 Page 191 Financial statements Pretoria Portland Cement Company Limited Annual Report 2009

196 Index to Global Reporting Initiative indicators continued This index is based on the 2007 GRI guidelines (G3) GRI element Topic Page Social performance: product responsibility Customer health and safety PR1 Lifecycle stages in which impacts of products and services are assessed for improvement, percentage of significant products and services categories subject to such procedures PR2 Number non-compliances with regulations and voluntary codes on health and safety impacts of products and services during lifecycle, by types of outcomes Products and service labelling PR3 Type of information required, percentage of significant products concerned PR4 Incidents of non-compliance with regulations and voluntary codes on labelling PR5 Practices related to customer satisfaction Marketing communications PR6 Programmes for adherence to laws, standards and voluntary codes 53 PR7 Incidents of non-compliance Zero Customer privacy PR8 Substantiated complaints on breaches of customer privacy and losses of customer n/a data Compliance PR9 Significant fines for non-compliance concerning provision and use of products and services. Page 192

197 Consolidated statements of financial position at 30 September 2009 Consolidated income statements for the year ended 30 September Notes Rm Rm Rm ASSETS Non-current assets Property, plant and equipment Intangible assets Investment in non-consolidated subsidiary Non-current financial assets Long-term receivables Investment in associates Current assets Inventories Trade and other receivables Short-term investment 4 2 Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves Share capital and premium 11 (1 088) Other reserves Retained profit Total equity Non-current liabilities Deferred taxation liabilities Long-term borrowings Provisions Other non-current liabilities Current liabilities Short-term borrowings Taxation payable Trade and other payables Provisions Notes Rm Rm Rm Revenue Cost of sales Gross profit Non-operating income 1 Administrative and other operating expenditure Operating profit before items listed below BBBEE IFRS 2 charges (490) Take-on gain arising from consolidation of Porthold 213 Operating profit Fair value (losses)/gains on financial instruments 19 (6) 4 1 Finance costs Investment income Profit before exceptional items Exceptional items Share of associates retained profit Profit before taxation Taxation Net profit Attributable to: Ordinary shareholders Other shareholders^ Earnings per share (cents) 24.3 basic 210,1 283,5 265,8 diluted 209,1 283,5 265,8 ^ For details on other shareholders refer note 11 Total equity and liabilities Elephant photographs courtesy of Jack Hochfeld BASTION GRAPHICS

198

199 Pretoria Portland Cement Company Limited Annual report 2009