Interim Results March 2012 Paul Stuiver - CEO 1
Agenda Context Financial Overview Divisional Overview Outlook Questions 2
Context For the six months from October 2011 to March 2012 The positive trend in overall South African cement demand continues PPC s total cement sales down 3% Mainly due to weak demand in high exposure areas (Western Cape and Botswana) Strategy to maintain sensible selling prices PPC margins stabilised PPC cement selling price increases of 6% yoy achieved in SA, but inadequate to recover rising input costs (primarily electricity and diesel) Key events Modernisation of Western Cape factories progressing well Significant headway on African projects Good progress with the Zimbabwean indigenisation plan Integration of Quarries of Botswana acquisition completed Acquisition of Pronto ready mix approved by Competition Commission 3
Context <-10% 0 to -10% >0% Cement industry demand growth by province / country Growth based on PPC estimates for Oct 2011 to Mar 2012 compared with Oct 2010 to Mar 2011 4
Financial Overview 5
F2012 H1 Financial overview Revenue R3.53bn 8% [R3.26bn] Group EBITDA R1.09bn 5% [R1.04bn] Group EBITDA margin 31.0% [31.8%] Cash generated from ops. R0.89bn -1% [R0.90bn] Operating profit R0.86bn 4% [R0.82bn] Headline earnings per share 77.6 cps 8% [71.8 cps] Interim dividend 38 cps 9% [35 cps] 6
F2012 H1 Summary income statement 2012 R million 2011 R million % Change Revenue 3 529 3 257 8 Cost of sales 2 347 2 120 (11) Gross profit 1 182 1 137 4 Administration and other operating expenditure 324 314 (3) Operating profit 858 823 4 Net finance costs 172 170 (1) Share of associates retained profit 2 7 Profit before taxation 688 660 4 Taxation 281 282 Profit for the period 407 378 8 EPS and HEPS (cents) 78 72 8 DPS (cents) 38 35 9 1 2 3 Includes 30% increases in electricity and diesel prices R28m for business development and other projects R16m IFRS 2 charge for past retention schemes Includes R53m as the final STC payment (2011: R74m) 7
F2012 H1 EBITDA analysis EBITDA Margin vs Cement Demand 50% 190 45% 170 40% 150 35% 130 30% 110 25% 2002 2003 2004 2005 2006 2007 H1 2007 H2 2008 H1 2008 H2 2009 H1 2009 H2 2010 H1 2010 H2 2011 H1 2011 H2 2012 H1 90 Group EBITDA Margin Indexed Cement Volumes (RHS) 8
F2012 H1 Summary balance sheet 2012 R million 2011 R million ASSETS Non-current assets Property, plant and equipment 4 318 4 182 Intangibles 129 96 Other non-current assets 208 204 Current assets Inventories 802 660 Trade and other receivables 896 867 Cash and cash equivalents 121 260 TOTAL ASSETS 6 474 6 269 EQUITY AND LIABILITIES Capital and reserves 751 552 Non-current liabilities Deferred taxation 754 635 Long-term borrowings 2 686 2 641 Provisions and other non-current liabilities 413 394 Current liabilities Short-term borrowings 1 166 1 378 Trade and other payables 704 669 TOTAL EQUITY AND LIABILITIES 6 474 6 269 4 5 R58m for De Hoek upgrade R137m operational capex Raised minimum stock levels to ensure customer service and some inventory build ahead of peak winter electricity tariffs 9
F2012 H1 Summary cash flow statement Cash flow from operating activities 2012 R million 2011 R million Operating cash flows before movement in working capital 1 091 1 054 Net investment in working capital (202) (157) Net finance costs paid (105) (109) Taxation paid (261) (284) Cash available from operations 523 504 Capital investment in PPE (277) (231) Other investing activities (131) - Net funding raised 287 442 Net cash flow before dividends paid 402 715 Dividends paid (505) (695) Net cash outflow for the period (103) 20 6 R42m acquisition of Quarries of Botswana R89m purchases of two tranches (2011 & 2012) of shares for employee incentive and retention scheme 10
F2012 H1 Capital expenditure H1 2012 R million H1 2011 R million Total for FY 2012e R million Western Cape modernisation phase 1 (De Hoek) 58 20 150 Western Cape modernisation phase 2 (Riebeeck) 3 2 20 PPC Zimbabwe 38 16 70 Operational capex 178 193 300-400 Total capital expenditure 277 231 540-640 11
F2012 H1 STC and Dividends Secondary tax on companies (STC) STC change more beneficial on earnings for companies with higher dividend yield The change from STC to withholding tax in April 2012 did not impact H1 Will have minimal impact on the full 2012 financial year; expected to reduce effective tax rate from 38% to ~36.5% and increase HEPS by ~2% From 2013, the absence of STC is expected to result in the effective tax rate reducing to ~31% to 32% and increase HEPS by ~8% Dividends In spite of the termination of STC, we do not anticipate changing the dividend cover range of 1.2 to 1.5 times Indications are that the timing of our modernisation and expansion strategies can be accommodated within our existing debt headroom 12
Empowerment and indigenisation South Africa Phase I of PPC s empowerment which was concluded in December 2008 remains intact PPC is currently in discussions to meet the 2014 BEE requirements in order to secure its mining rights PPC will communicate with shareholders as soon as key terms have been finalised Zimbabwe Continue to engage with authorities Good progress towards finalisation of our indigenisation plan 13
Divisional Overview 14
SA cement demand SA market Industry cement sales grew by >10% yoy for five months to February 2012 Strong recovery in the Eastern Cape due to new infrastructure projects All producers introduced new products Mostly in the lower end of the market Cheap imports continue (approx. 5% of demand, mainly in KZN) PPC countered the trend by improving product quality PPC SA sales lagged industry due to: Continued weak performance in the Western Cape Pricing of cheaper products However, the PPC 15% more! value proposition is increasingly gaining ground 15
Botswana cement demand Botswana market Double-digit decline in demand due to Slow-down in government spending on infrastructure Pricing more competitive 16
PPC SA cement input costs Key cost Proportion of components for cost of sales Movement H1 F2012 (R/t) (R/t) Distribution 30% +10% Salaries (R) 10% -1% Depreciation (R) 10% +6% Coal 10% +2% Electricity 9% +30% Maintenance 7% +1% 1 2 2 2 Approximately 1/3 of distribution cost is diesel (i.e. 10% of total cost of sales) Total energy-related costs are 30% 30% increase in electricity and diesel prices translated into 6% increase in overall costs Packaging 4% +8% Other 20% +10% 17
SA cement cost drivers 450 400 Cement prices compared to key input costs 2002 = 100 Represents 40% of costs 350 300 250 200 150 100 50 0 PPI* Ordinary & extended cement*$ Cement (Retail)* Private Remuneration# Coal#Δ Diesel# Electricity^ Sources: * Stats SA, # INET Bridge, Price in R/t at Richards Bay, $ Price at factory gate for 32.5 and 42.5 class cement (includes 1 blender), ^ PPC data and calculations 18
Western Cape modernisation project update Phase 1 De Hoek Kiln 6 New clinker cooler and coal firing system will improve efficiency Commissioning on track for June 2012 On time and within budget of R280m Filter system Clinker cooler New generation grate clinker cooler and dust abatement equipment for Kiln 6 Phase 2 New Riebeeck Kiln 3 EIA initial feedback received from authorities and addressing their concerns Supplier selection and detailed engineering continues Budget estimate remains at R1.3bn 19
Zimbabwe Demand continues to grow by double digits Still mostly retail customers and concrete product manufacturers Product range is being aligned with SA, but allowing for local brand awareness and market requirements Production problems tempered the good sales Major transformer failure during H1 required clinker imports from SA at higher transport costbeing required Production has since resumed and planned outputs are being achieved 20
Lime and Aggregates divisions Lime Volumes up 6% due to higher demand from steel and alloys industries as well as increased exports to Zambia and the DRC Combination of rising demand, better selling prices and good cost control resulted in operating profit increasing to R95m (2011: R61m) Aggregates Sales volumes increased by ~20% but pricing remained very competitive Quarries of Botswana is now fully integrated and boosted aggregate sales volumes Operating profit declined to R8m (2011: R11m) due to pricing pressures and once-off integration costs for the newly acquired quarries Readymix (Pronto Holdings) Unconditionally approved by Competition Commission during March 2012 Will only contribute marginally as an associate during 2012 21
Outlook 22
Outlook Rest of Africa strategy Tunisia Western Sahara Morocco Algeria Libya Egypt Population (millions) Annual per capita consumption (kg) Current Region Senegal Gambia Target Region 64 350 200 55 Mauritania Guinea Liberia Mali Burkina Faso Niger Togo Nigeria GhanaBenin Cameroon Ivory Coast E Guinea Gabon Congo Chad Central AR DRC Sudan South Sudan Ethiopia Kenya Tanzania Djibouti Somalia Current cement demand (million tons/yr) Current production capacity(million tons/yr) 14 20 18 16 Angola Malawi Zambia Zimbabwe Madagascar Namibia Botswana Mozambique Target operating region (2015/16) Current operating region (2012) RSA 23
Outlook Rest of Africa strategy (cont.) Strategy remains to grow revenue outside SA to 40-50% by 2016 (2012 H1 = 19%) Limited acquisition possibilities so focussing on greenfields opportunities Plant size between 0.6 and 1 million ton per annum Capex lower than US$200 per annual ton capacity including services and mining equipment Securing 30 years of adequate limestone reserves and suitable local partner is time-consuming, but crucial for sustainability Projects planned or under investigation CINAT plant in DRC still awaiting outcome of tender Detailed feasibility on four other projects in target area One PPC board approved waiting for third party Early feasibility on three new projects commenced 24
Outlook Trading conditions will remain challenging for the remainder of the year Demand in Botswana likely to remain depressed during the second half Cement demand in Zimbabwe continues to grow and should make a better contribution to the group in the second half Positive trend in SA cement demand expected to continue Supported by SA government s continued commitment to increase infrastructure spend and their initiatives to unlock delivery constraints Construction sector is notoriously cyclical, but we seem to have passed the bottom of the cycle 25
Questions? 26
Investor contacts Paul Stuiver Tryphosa Ramano Kevin Odendaal Azola Lowan Chief Executive Officer Chief Financial Officer Investor Relations Investor Relations Tel. +27 11 386 9000 www.ppc.co.za 27
Disclaimer This document including, without limitation, those statements concerning the demand outlook, PPC s expansion projects and its capital resources and expenditure, contain certain forwardlooking statements and views. By their nature, forward-looking statements involve risk and uncertainty and although PPC believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment, other government action and business and operational risk management. Whilst PPC takes reasonable care to ensure the accuracy of the information presented, PPC accepts no responsibility for any damages be it consequential, indirect, special or incidental, whether foreseeable or unforeseeable, based on claims arising out of misrepresentation or negligence arising in connection with a forward-looking statement. This document is not intended to contain any profit forecasts or profit estimates, and the information published in this document is unaudited. 28