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Resilient results for PPC in a challenging economic environment

Salient Features:

•Group Revenues up  9% to R6.8bn[2008: R5.6bn]

•Strong cash generation,

oOperating cash flow up 8% to R2.7bn[2008: R2.5bn]

oCash earnings per share up 6% to 329 cents[2008: 311cps]

•HEPS excl BBBEE transaction down 9% to 257cents [2008: 283cps]

•Total dividend declared 200 cps[2008: 225cps]


•BBBEE level 3 accreditation achieved ahead of plan

•Dwaalboom Kiln 2 performing extremely well

•Competition Commission of Enquiry update


Paul Stuiver, CEO said; “This year’s results are complicated by the accounting treatment of our BBBEE transaction and the consolidation of our Zimbabwean operations. Looking through these, PPC has delivered a resilient performance in a challenging economic climate. Cash flows remained strong, despite a decrease in demand and pressure from input costs. The company is well positioned and will benefit significantly from an economic recovery.” 



Regional cement demand declined by 11%, while PPC sales declined by 10% for its financial year ended 30 September 2009. Demand in the construction sector grew by 11%, reflecting the positive impact from the many infrastructure projects but this was offset by lower demand from residential sector, which declined significantly in the larger metropolitan areas.


Group revenue increased 9% to R6.8 billion. The accounting treatment of the BBBEE transaction (IFRS 2 charge of R490 million) and the consolidation of Portland Holdings Limited (Porthold) in Zimbabwe (R213 million gain) resulted in group operating profit reducing 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 Porthold, group operating profit rose 4% to R2.4 billion and net profit declined 8% to R1.4 billion. 

Our Zimbabwean operations were consolidated into the Group accounts from 30 September 2009.  Both our facilities near Bulawayo are in good condition, fully staffed and utilisation levels have improved significantly from below 10% in the first part of the calendar year to between 35% and 45% currently. 

Stuiver commented; “The situation in Zimbabwe remains difficult to predict. Should utilisation levels remain as they are currently, we can look forward to a positive contribution from our Zimbabwean operations in future.”

Administration and other operating expenditure of R468 million (2008: R378 million) reflect a number of initiatives to improve the future positioning and effectiveness of the company. These include Corporate Social Investment and Social and Labour Plans to convert old-order mining licences, significant upgrading of IT systems and an increased focus on sales and marketing activities.  

Stuiver added, “After some softening of input costs during 2009, local and international fuel prices are beginning to trend upwards again and this will be aggravated by the extraordinary electricity price increases that have been proposed. We are very pleased with the new Dwaalboom kiln and its efficiencies will to some extent offset rising energy costs. We expect to maintain strong operating cash flows in the year ahead.”

Capital expenditure amounted to R921 million (2008: R797 million) with R370 million spent on the Hercules mill project and R126 million on finalising the Dwaalboom kiln project. The balance related to equipment replacement and environmental improvement projects.

Headline earnings per share including the BBBEE transaction decreased by 40% to 170 cents per share (2008: 283 cents per share).  Excluding the BBBEE transaction, headline earnings per share reduced by 9% to 257 cents per share. 

The directors have declared total dividends of 200 cents per share for 2009 (2008: 225 cents per share).  

Competition Commission

During 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. 

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 market-sharing 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 made ongoing arrangements to disclose detailed sales information through the Cement and Concrete Institute. 

Paul Stuiver said; “Management and the board have taken full responsibility and we believe that we have acted quickly, decisively and correctly by cooperating with the Commission. We were shocked and disappointed when these issues were revealed and we apologise. We want to reassure the public and all who work for PPC that we do not tolerate this kind of behaviour. We will get rid of it and ensure that this does not happen again.”

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.

Stuiver added; “Although PPC has received conditional leniency, the industry investigation by the Commission is still ongoing and they have asked that we do not share further information on specific events, the timing or the people involved. What I can say is that people who seem to have been involved, are no longer employed at PPC.”


Indications that the world economy is showing signs of recovery are encouraging, especially if seen against recent statements by the our Treasury which indicate that the government remains committed to job creation, rural development, social services and infrastructure development.  The effects of the 500 basis point reduction in interest rates over the past 18 months should improve activity in the formal residential sector. Demand from government infrastructure projects should remain robust through 2010 and beyond. 

Significant improvements in regional demand should result from a recovery in demand from the residential sector but is difficult to predict and therefore creates some uncertainty for the outlook on cement demand during 2010.

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