|08 Nov 2011
Good cash generation despite difficult business environment Cement products enhanced significant momentum on strategic projects. Contribution from rest of Africa increases to 20%. Final dividend 95 cents per share.
Paul Stuiver, CEO, said: "The results reflect the difficult conditions experienced by local building and construction industries. Demand in South
Africa and Botswana has only recently begun to improve and the only region
where we enjoyed growth during the year was Zimbabwe. Although results are down, they have been improving since the first half of the year and we maintained good cash generation and respectable margins. We also managed to reduce overhead costs whilst delivering on a number of strategic projects."
PPC's total cement sales reduced by 3% following lower sales in coastal areas and Botswana and lower exports, partly offset by growing demand in
Zimbabwe. Group revenue was almost flat at R6 826 million (2010: R6 807 million) with improved selling prices compensating for lower sales volumes.
Cost of sales of R4 500 million (2010: R4 067 million) increased by 11% mainly due to electricity and diesel prices increasing significantly above inflation accompanied by increased logistics costs and higher depreciation resulting from recent capital projects.
Administration and other operating expenditure was well controlled and reduced to R627 million (2010: R635 million). This was achieved despite greater marketing activity and restructuring costs in respect of employees who accepted voluntary severance packages.
EBITDA declined by 14% to R2 146 million (2010: R2 483 million) while operating profit decreased by 19% to R1 699 million (2010: R2 105 million).
The group's EBITDA margin declined to 31,4% (2010: 36,5%) due to the combined impact of lower sales and under-recovery of input cost inflation.
Net finance charges were R325 million (2010: R347 million) and taxation amounted to R520 million (2010: R622 million). An increase in the overall taxation rate was mainly attributable to a R19 million benefit from a reduction in the Zimbabwean taxation rate during 2010 that was not repeated during 2011.
Earnings per share at 164,4 cents declined by 22% (2010: 211,1 cents per share). The directors have declared a final dividend of 95 cents per share
(2010: 130 cents per share) which brings the year's total dividend to 130 cents per share (2010: 175 cents per share). The policy of 1,2 to 1,5 times dividend cover remains unchanged.
Cash generated from operations remained strong at R2 102 million (2010: R2 442 million). Capital investment was R483 million (2010: R613 million). The group's capital investment programme was reduced during the year in sympathy with depressed trading conditions. Gearing remained substantially unchanged with gross debt amounting to R3 510 million (2010: R3 521 million).
Cement: Although South African industry statistics have improved in recent months, overall volume for the 12 month period ending September 2011 was similar to last year. PPC's South African cement volumes were 4% lower due to our exposure to lower demand in the Western and Eastern Cape provinces.
Over-capacity in the South African cement industry continued to drive competitive market dynamics and pressure on cement selling prices. A weighted average increase of 4% in selling prices during the year was insufficient to recover rising input costs.
Input cost inflation resulted primarily from rising energy prices and from having to supplement inadequate rail transport with more expensive road transport. To align production capacity, significant voluntary staff reductions were achieved at our Port Elizabeth factory.
Through on-going research and development, we were able to launch an enhanced cement product range offering greater value to customers across all strength categories. These products are currently available in South Africa, Botswana and for export with plans to release in Zimbabwe in the near future.
The modernisation of our Western Cape factories is progressing according to schedule and budget. Civil construction for the R280 million De Hoek project is complete, installation of equipment has commenced and we expect that the upgraded plant will be re-commissioned during mid-2012. The environmental impact assessment for the Riebeeck factory is also progressing according to schedule and supplier selection for this project is nearing completion.
PPC Zimbabwe's domestic sales improved by more than 50% during the year due to a combination of increased demand and operational problems suffered by competitors. Operating performance at the Colleen Bawn factory improved during the second half of the year and equipment at our Bulawayo grinding depot that had been mothballed for 15 years was re-commissioned to meet increased demand. Significant input price inflation on key items such as electricity continues to be a concern for our Zimbabwean operations.
Demand in Botswana weakened during the second half of the year mainly as a result of a slow-down in government spending on infrastructure projects.
Exports to neighbouring countries decreased by 35% mainly as a result of the strong South African rand that prevailed throughout most of the financial year.
In accordance with the leniency agreement concluded during 2009, PPC continued to co-operate with the Competition Commission in its investigation into the South African cement industry.
Lime and aggregates: Lime sales were negatively impacted by operational problems and extended shutdowns suffered by customers in the steel and alloys industries. Increased exports to other African regions to some extent compensated for the decline in local volumes. Overall sales volumes declined by 4% and combined with higher energy and maintenance costs resulted in a 19% reduction in EBITDA to R154 million (2010: R190 million) for the lime division.
Sales volumes for the aggregates division reduced by 5% as a result of lower construction activity. Combined with a competitive pricing environment this reduced EBITDA by 23% to R56 million (2010: R74 million).
Board changes: Ms Bridgette Modise was appointed to the board as an independent non-executive director and as a member of the audit committee effective 1 December 2010.
Ms Tryphosa Ramano was appointed to the board on 1 August 2011 as an executive director and to the position of chief financial officer. Mr Peter Esterhuysen, the previous chief financial officer was appointed as director business development, responsible for mergers and acquisitions to focus on the company's expansion plans into other parts of Africa.
Strategy: PPC's strategies are:
Local positioning of the company will be enhanced by the proposed purchase of Pronto Holdings (Pty) Ltd, a prominent Gauteng based readymix and fly ash supplier with whom PPC has negotiated to purchase an initial 25% plus remaining shareholding over a two year period. The total transaction value will be R280 million less debt and is subject to competition authority approval.
Our Botswana aggregates operations will benefit from increased volume and geographical positioning as a result of the recently acquired Quarries of Botswana for 48 million Pula.
Our business development team has during the past year explored eight significant expansion opportunities into other regions in Africa. Four opportunities were abandoned due to either a lack of value creation, unacceptable levels of risk or a combination of both.
Of the remaining four, one has resulted in a US$44 million conditional offer for a 58% stake in Cimenterie Nationale (CINAT), a government owned cement producer in the Democratic Republic of the Congo. We await the outcome of our bid. The remaining opportunities are being pursued and we expect that further opportunities will arise in due course.
Prospects: Recent improvements in South African cement industry sales are encouraging but clouded by continued uncertainty over the future of the global economy. We expect cement demand in Zimbabwe to continue growing unless conditions deteriorate. The outlook for the lime division will continue to depend mainly on demand from local steel and alloys industries.
Based on historical trends and previous industry cycles, a long-term recovery in South African cement demand is long overdue and latest industry trends indicate that further decline is unlikely.
The company is fully prepared and well-placed for either a continuation of challenging business conditions or for any upturn in cement demand.
On behalf of the board
BL Sibiya P Stuiver