Strategic and operational review










"Progress with our new strategy includes the acquisition of 3Q Mahuma Concrete, the largest independently owned readymix concrete supplier in southern Africa."




Darryll Castle
Chief executive officer

Being at the helm of a company that is evolving into a major player on the African continent has been invigorating. The theme of this integrated report is “strength in diversity”; this certainly captures the essence of the deep transformational change PPC has embarked on in recent years. Our fundamental DNA, being a trusted southern African cement player, is now evolving into a portfolio of lucrative assets across different countries in the continent and a deliberate move beyond cement into materials and other transformational businesses and solutions. Our new vision and strategy aptly capture this ambition, and we believe all our stakeholders will benefit from our increasingly diverse offering.

The diverse portfolio effect of PPC’s assets is evident in the variable performance achieved by different operating entities.
In October 2015, we launched our new vision and strategy to all PPC staff. This was crafted by 70 of our most senior managers and, once the PPC board had approved it, we launched it in an inspiring way to all staff. Since then, much work has been done to cascade this across our organisation. Relevant key performance indicators are being crafted to ensure we can measure the success of our strategy and incentivise all staff to work together towards achieving our goals.

We believe that our vision – to become a world-class provider of materials and solutions in the basic services sector, taking a strategic approach to more than doubling our business every 10 years – is achievable. Our initial focus is in Africa where research from various institutions confirms our belief that this continent will still require cement and related materials and solutions to meet growing demand for infrastructure. Research from the Mo Ibrahim Foundation suggests that, in the next 35 years, Africa will have to accommodate another 900 million new urban dwellers. This is significant given that the USA, Europe and Japan combined achieved this in the last 265 years. In addition, by 2050, Africa is expected to host nearly a quarter of the global urban population.

We have made some changes to our operating architecture to ensure we have the appropriate business model to deliver on our new vision and strategy. Two key changes include establishing a materials business division as well as a new commercial structure. The materials business is focused on expanding our product and service offering in the aggregates, readymix, fly ash, lime and related businesses. It will identify and capitalise on growth areas across our footprint in Africa. In July 2016, we concluded the acquisition of 3Q Mahuma Concrete, the largest independently owned readymix concrete supplier in southern Africa. The commercial division will create and entrench an increased commercial perspective to facilitate our ambitious move to become a world-class provider of materials and solutions. A dedicated project management office now operates in this division to ensure we realise our aspirations.

Performance outcomes
Our results in this period continue to reflect disciplined cost management in the face of headwinds in most operating geographies. We are particularly pleased by the continued success of our profit improvement programme (PIP) which is now well entrenched in PPC. In the review period, we generated an impressive R178 million from the PIP, largely on the back of improved cost efficiencies and strategic cost reductions. The success of this programme is evident in cost of sales only increasing 2% to R3 261 million (2015: R3 206 million) while administration and other operating expenditure actually declined by 12% to R489 million (2015: R554 million). This excellent cost performance also needs to be judged against the backdrop of rapidly raising producer and consumer inflation. In the absence of our PIP initiatives, our EBITDA performance could have been significantly lower. Our management teams are considering other ways to change our operating model to ensure sustained improvements in our revenue and cost performance in the medium term.

Our business units have therefore produced a credible performance in a challenging environment. Specifically, our revenues ended in line with the previous reporting period at R4 501 million (2015: R4 541 million). Despite rising finance costs, as we no longer capitalise interest costs from our Rwandan operations, we have benefited from the sale of non-core assets (generating over R100 million). Consequently profit attributable to PPC shareholders rose 35% to R369 million (2015: R274 million).

Covenants and empowerment transaction
As highlighted last year, discussions with our lenders ensured that our covenants are better aligned with our expansion imperatives. Our funders agreed to exclude non-recourse project finance from the definition of PPC’s indebtedness and relaxed the debt to EBITDA covenant from 3,0 to 3,3 times. In this period, we achieved debt to EBITDA of 2,7 times, well within the stated levels.

We previously announced our intention to develop a solution to resolve our broad- based black economic empowerment (BBBEE) transaction. After much investigation, the company opted to allow BBBEE 1 to run its course and mature in December 2016. The maturity of BBBEE 1 will probably be EPS positive (as some R100 million in finance costs, which were not tax deductible, will no longer recur), but the necessary introduction of BBBEE 3 could negate this benefit. On maturity of BBBEE 1, cash of almost R1 billion is expected to be received by PPC to retire debt.

African projects progressing well
In August 2015, we officially opened our new 600 000 tpa plant at CIMERWA in Rwanda. The final project cost is US$165 million and most provisional acceptance test certificates were issued at the end of March 2016. Good progress has been made in meeting our operational business plan although limited export opportunities have disappointed. Despite this, we met our first principal instalment at the end of March 2016. We still believe our plant should reach full capacity over the next two years.

Our 1 mtpa plant in the Democratic Republic of the Congo (DRC) is now 83% complete, with all civil and structural work finished. Commissioning is still expected to start towards the end of calendar 2016, with cement ready for sale early in calendar 2017. Contingency utilisation is high in relation to the construction programme and could result in a 4% to 6% increase in the US$280 million capital estimate. We have identified potential start-up funding requirements that PPC might have to contribute between US$20 million and US$50 million. These will be reimbursed to PPC as inflows from operating profits.

The 700 000 tpa mill in Harare, Zimbabwe, is now 70% complete and on track for commissioning towards the end of calendar 2016. Operational readiness activities are under way with staffing, skills transfer, material and equipment plans being implemented accordingly.

The 1,4 mtpa plant in Ethiopia that will be completed at a capital cost of US$170 million to US$180 million is now 71% complete and on track for commissioning in the second calendar quarter of 2017. Both PPC and the Industrial Development Corporation (IDC) followed their rights in the first capital raising, with PPC investing a further US$5,1 million in March 2016. PPC’s shareholding has risen to 35%. We remain optimistic about prospects for this project and its development plans, which include the opportunity to double production capacity.

We must, however, be cognisant that as we expand into new geographies across the continent, the complexity of our business increases significantly. As highlighted in our material issues, the risk of administrative and/or control deficiencies therefore rises. Ensuring appropriately skilled personnel across all jurisdictions and strengthening our oversight and compliance function becomes a key priority.

Safety and sustainability
We regretfully report two fatalities at our South African operations in the period. In October 2015, a contractor at Slurry (North West), was fatally injured in a conveyor belt tail-pulley incident. A PPC employee at Mooiplaas (Gauteng), was fatally struck by a front-end loader in March 2016. Our deepest condolences to the families, colleagues and friends affected by these fatalities. We continue to ensure all our people are safe in the workplace.

The global regulatory environment on climate-change mitigation is evolving. In South Africa, the government is developing carbon tax legislation, allocating carbon budgets and implementing other measures to transition to a lower-carbon economy. In line with this, PPC has made progress in reducing the carbon intensity of our cement. In the review period, the carbon intensity of finished cement decreased to 749 kg CO2 /ton (2015: 757 kg CO2 /ton). This reflects our mega-plant strategy where, regionally, the most thermally efficient kilns are prioritised to meet demand as well as Safika’s continued integration into our cement business. Safika produces highly extended cements with very low carbon intensities.

The draft carbon tax bill was released for comment in November 2015. Salient features include the promulgation of the Carbon Tax Act 2017, which will come into operation on 1 January 2017. The proposed headline carbon tax of R120 per ton of carbon dioxide equivalent (CO2e) has been maintained, but some adjustments have been made to allowances. Under the latest draft, this is now expected to be just below R120 million per annum.

Under the revised Department of Trade and Industry’s BBBEE codes of good practice, PPC was rated a level 8 contributor in December 2015. We had anticipated this outcome and management has plans to improve our BBBEE score to level 4 over the next three years. This will enable our customers to claim back 100% of their spending with our group for their own preferential procurement points. To reach level 4, we will concentrate on improving our score in the categories of management control, skills development as well as enterprise and supplier development.

The group’s remuneration policy, which includes non-financial measures such as safety, transformation and environmental compliance in the scorecard, successfully aligns staff to our key sustainability measures. However, in this period no short- term incentive was paid.

A housing support scheme was introduced in 2012 to assist over 300 PPC employees improve their living conditions. To date, 471 South African employees have enrolled in the programme and are being assisted to become homeowners. In total, 73 employees in our South African

operations have moved into their new homes, upgraded an existing home or are awaiting title deeds before moving into their homes. Last year, we stated that we would introduce a similar housing initiative for our Zimbabwean operations in the 2016 financial year. Through this initiative, our Zimbabwean employees in lower grades are given preference to purchase their existing home or any company high- density house at our Bulawayo or Colleen Bawn sites. To date, over 100 employees have capitalised on this opportunity and we are currently finalising the individual homeownership transfer process.

The PPC Women’s Forum, established in 2011, focuses on attracting, nurturing and advancing female talent to lead PPC. Against the forum’s end-2016 objective of 30% female representation across all levels at PPC, we reached 24% in the review period.

We have also successfully realigned our organisational structure. This process, which we called Project Omega, became effective in April 2016.

Capital structure
Standard and Poor’s (S&P) downgraded PPC’s corporate credit rating to below investment grade due to liquidity and leverage concerns. The severity and timing of the ratings action was unexpected and compelled PPC to accelerate its capital raising plans and increase the quantum of the previously planned capital raise. This is now intended to be R4 billion as a sub-investment credit rating requires us to redeem our outstanding bonds.

Looking ahead to 2017
PPC is under no illusion about the challenging domestic market conditions we expect to encounter in the remainder of calendar 2016. These include a competitive landscape and difficult economic climate. However, we are better equipped to manage these effectively. Our change management programme is expected to deliver additional financial and non-financial benefits. We are also confident of delivering our remaining projects on time and within budget.

I thank my fellow board members, the executive committee, and Team PPC for their continued focus and energy during the review period. Our customers, shareholders and other stakeholders remain critical to our success and we are grateful for their support.



Darryll Castle


Chief executive officer

12 September 2016


PPC embarked on its change management programme, #IGNITE in mid-2015. This umbrella project focuses on providing the strategy, plans and leadership needed to transform PPC into more than just a cement company through five focus areas:
  • Leadership effectiveness
  • Strategy alignment
  • Profit improvement
  • Delivering a “PPC one-team” culture – Talent and performance management.



Leadership alignment
We developed a leadership model appropriate to the reality of the business and suited to our strategic thrusts of innovation, being world-class and more competitive.

The leadership framework was developed by executives, senior managers and input from a specially selected team of “igniters” spanning operations and support business units.

The model was translated into a 360° instrument and administered to the top management team, with detailed reports and development plans in the latter part of the year. We will continue to review the model.
Strategy alignment
The project has developed clear and coherent corporate, business unit and divisional strategies. These were developed in-house in a top-down/bottom-up way and are currently being implemented.

The strategies and plans were presented to the board in the third quarter of 2015 and to the rest of the business in an interactive and learning-oriented medium later in the year. The plans are reviewed each quarter and we believe will result in PPC evolving into a provider of an innovative building solutions and materials provider in South Africa and the rest of Africa.

The strategy and business plans are being executed by a skilled and aligned team within a performance-based culture. Each team member delivers against carefully designed key performance indicators (KPIs) which are reviewed each quarter. Reviews include space for reflection, learning and agreeing on new and innovative ways of working.



Profit improvement programme
The programme is designed to:
  • Deliver short-term reliable results
  • Drive cultural and behavioural change
  • Support strategic positioning of businesses in the group
  • Deliver sustainable solutions for long- term value creation


The R400 million profit improvement programme (PIP) concept was introduced to stakeholders in May 2015. In our first reporting period, we recorded R212 million in savings. Momentum was maintained in the second reporting phase, with additional savings of R178 million. This brings total savings to date to R390 million which comprises cost efficiencies of R288 million, cost reduction of R78 million and revenue enhancement of R24 million.

To ensure the integrity of PIP, we included an internal audit component for objective assurance and independent insight into its results.

We believe the success of the programme to date has been in mobilising employees from various parts of the business to manage the process. While there have been tangible monetary benefits, the positive cultural shift has been marked. This is key to the sustainability of the programme.

PPC continues to reward contributions made by employees to the programme. A monthly non-financial reward system has been in place from the start while related KPIs are reflected in all employee performance scorecards.


A PPC one-team culture
The executive committee recognised the importance of galvanising the business, a process that began by reviewing our values, guiding principles and practices. We implemented monthly operational, support and business reviews to track progress, to facilitate knowledge sharing, change, transparency and, equally important, to communicate our priorities. These forums are complemented by monthly engagement and communication sessions. We also use the forums to recognise individuals and teams who have contributed to changing the culture of Team PPC.
Talent management
Two company-wide talent boards were held in the year where all executives, senior and middle managers’ talents and skills are scrutinised and discussed. These sessions identified talent that is not yet fully leveraged while identifying gaps in our development programmes.


Innovation
Innovation is one of PPC’s five strategic pillars that will contribute to our economic, organisational and individual success, and a key driver of business competitiveness and growth. One of our key focus areas is building our innovation culture by extending a historical focus on incremental improvement for improved profit, to differentiated innovation. We will do things differently to drive growth and sustainability. Differentiated innovation is characterised by medium-scale changes with low to medium risk across business sectors.

Our innovation strategy will create an environment that encourages creative and non-linear ideas and systematically transforms these ideas, knowledge and unique connections through collaboration into profit. We see innovation as a tangible, effective and sustainable activity with the potential to deliver on key strategic objectives.




Investment and growth
Innovation metrics have been developed to ensure we measure both input and outcomes to achieve our objectives. We have committed financial resources for training and the commercialisation or implementation of ideas.

Organisational capability and innovation culture
Sustainable innovation requires that we embed a culture of innovation based on transparency, increased risk tolerance and collaboration. To build innovation capability, a series of creativity and idea- generation workshops were held to stimulate creativity inside PPC and create opportunities to innovatively solve challenging issues. The portfolio of opportunities will be managed as a pipeline to transform ideas into profit or organisational value.

To build our innovation capability, PPC implemented a best practice web-based idea management system – PPC Innov8 – to encourage a bottom-up flow of ideas, ensure continuous feedback and remove barriers to implementation. The system democratises the process through social participation where ideas can be submitted, commented on and voted for. The social aspect enhances inclusiveness, collaboration and knowledge sharing. A formal process of review and feedback identifies ideas with potential for further development and implementation. Ideas are stimulated by challenges that are issue- based or have site-specific goals. These challenges have rewards and recognition programmes. They are managed in a business-integrated approach to build a culture of everyday innovation.

Future capability-building plans include idea development and collaboration with customers, suppliers and partners using focused challenges. As an example, the PPC Imaginarium (page 123) is an innovation platform that uses creativity and design to explore alternative uses for cement and concrete. PPC has also completed two pilot studies with international technology scouts to evaluate the potential for outward-in innovation.

Leadership
PPC’s innovation leadership capability was benchmarked using the Innovation Leadometer from the Research Institute for Innovation and Sustainability. This assessment tool uses an organisational dynamics framework to assess the dimensions and determinants of success in a 360o approach, generating individual innovation leadership profiles as well as organisational benchmark indices. The survey highlighted our strengths in implementation and development of innovative solutions, but that our ability to coordinate, communicate and organise knowledge was an area for development. Organisational support for innovation through leadership support will be driven by performance metrics on scorecards. The results of the assessment were used to plan future capability-building initiatives.
Case study:
Innovative bag designs
Pre-packaged cement is sold in 50 kg paper bags which have to conform to the compulsory cement standard. This resulted in a large number of bag designs, each specific to the cement product, type and manufacturing site. Bags were not interchangeable, and product changes or marketing initiatives required changes to all bag designs at great cost. A simple solution was developed to accommodate a number of different products and manufacturing sites using a common bag design. Fewer bag designs reduce the cost of design changes and require less management time. This innovative approach also reduced bag inventories and lowered the risk of obsolescence or stock-outs.




"The company has made significant progress in addressing its short-term liquidity constraints."




Tryphosa Ramano
Chief financial officer

Introduction

Post-completion of our first March year-end, S&P Global Ratings (S&P) released a report downgrading the company’s long and short-term South African national scale corporate credit ratings to zaBB-/zaB from zaA/zaA-2 respectively. As a result of this event-driven and unexpected ratings review which led to the company’s long-term rating falling below investment grade, the company was obliged to offer early redemption to noteholders in terms of the domestic medium-term note (DMTN) programme memorandum. As a result, the company reclassified the amounts outstanding to noteholders as short term, thereby negatively impacting the company’s short-term liquidity. The company has, subsequent to period end, made significant progress in addressing its short-term liquidity constraints, which have been discussed further in this report.

I am pleased to report that the group maintained its EBITDA and related margins despite continued pressures from a low economic growth environment combined with increased competitor activity. This has been achieved by the group’s continued commitment to the profit improvement programme (PIP), cost containment and strategy to improve all elements of cash flow generation.

In last year’s report, I noted the company was looking to restructure its first BBBEE transaction. After much investigation, the company has concluded that the most beneficial option for all parties is to allow the transaction to run its original course and conclude in December 2016.

We have recently completed the implementation of the group’s new legal organisational structure which will see the streamlining of our legal structure, changing the holding company from that of an operating and holding company into a traditional investment holding company and aligning the company structure with that of our group strategy. This streamlining became effective on 1 April 2016 and will form the basis of reporting going forward.

Income statement

In providing analysis on the income statement for the six months to March 2016, the comparison base used is the six months to March 2015. This, we believe, provides a more comparable basis for understanding the financial performance of the group rather than the 12 months to September 2015.

Total cement sales volumes for the six- month reporting period were 1% below last year at 2 614 kt (2015: 2 629 kt). South African cement volumes increased by 0,5%, compared to the prior reporting period as the Western Cape and Eastern Cape provinces recorded double-digit growth on the back of reduced imports, while volumes in Gauteng and other inland provinces were lower compared to the prior reporting period due to increased competition.

In our rest of Africa portfolio, volumes in Zimbabwe declined 22% due to tighter market liquidity, increased local competition and lower disposable income, while cement volumes in Botswana declined 15% following increased competition in the southern African region. Since commissioning of the new plant in Rwanda in September 2015, over 120 kt of cement has been sold seeing our market share rising in line with the increased output.

As a result of competition and overcapacity in the industry during the period under review, the group has experienced declining margins due to lower selling prices in South Africa and Botswana and our limited ability to pass on cost increases. Following the recent devaluation of the rand and other regional currencies against the US dollar, PPC Zimbabwe’s ability to compete in the export market has been negatively impacted and has been compounded by rising levels of imports into the country.

The group has maintained a policy of deliberate and calculated pricing, incentive and promotional initiatives to remain competitive and support brand confidence, further strengthened by its technical support services.

In the South African materials business, lime volumes were 12% lower for the six months ended 31 March 2016 compared to the corresponding period last year on the back of continued pressures in the steel industry. Volume growth was, however, recorded in both the aggregates and readymix businesses as they supplied major projects such as the Mall of Africa, Waterfall Estate, N14 and Cedar Road projects as well as the Steyn City development.

As a result of the above, group revenue declined by 1% to R4 501 million (2015: R4 541 million).

During the six months ended 31 March 2016, the group generated a further R178 million in savings from PIP, largely on the back of improved cost efficiencies and strategic cost reductions favourably impacting both the cost of sales and administration and other operating expenditure lines. The success of PIP is evident in cost of sales increasing only 2% to R3 261 million (2015: R3 206 million), while administration and other operating expenditure declined by 12% to R489 million (2015: R554 million), with total administration and other operating expenditure approximating 11% of revenue (2015: 12%). It is pleasing to note that the cumulative sustainable benefits from PIP now amount to R390 million and reflect the group’s disciplined cost management culture which is evident in cost of sales for the South African cement business ending 3% lower than the prior period on a nominal price per ton basis.

EBITDA is up 2% at R1 144 million (2015: R1 123 million), with an EBITDA margin of 25,4% (2015: 24,7%) primarily due to improved efficiencies and cost savings.

Finance costs, including fair value adjustments on financial instruments, increased by 26% to R350 million (2015: R277 million). This increase was mainly due to interest of R88 million expensed to the income statement post-commissioning of our new plant in Rwanda in contrast to the prior reporting period where interest was being capitalised to property, plant and equipment during the commissioning phase.

Profit on disposal of non-core assets, being our investments in Afripack and Ciments du Bourbon amounted to R117 million. Impairments of R5 million were recorded on property, plant and equipment on loans advanced.

The group’s taxation charge decreased by 4% to R156 million (2015: R163 million) at an effective tax rate of 30,8% (2015: 36,4%). The decrease in the effective tax rate was mainly due to the tax rate differential on capital profits made on the disposal of non-core assets and favourable prior year tax reassessments.

Profit attributable to PPC shareholders increased 35% to R369 million (2015: R274 million), with the increase ascribed to the profit made on the sale of non-core assets partly offset by increased finance charges. In line with this, headline earnings per share ended 12% lower at 53 cents (2015: 60 cents) while normalised earnings per share of 56 cents was 8% lower than the prior year in part due to the increased finance costs as noted earlier.

Statement of financial position
In providing analysis on the statement of financial position, the comparable base used is the statement of financial position at 30 September 2015, as the group has invested substantially in expansion projects with a resultant increase in borrowings.

At 31 March 2016, property, plant and equipment amounted to R11 716 million (September 2015: R10 648 million), with capital investments in property, plant and equipment amounting to R1 176 million with R970 million being invested in the Slurry kiln 9 project in South Africa and expansions in the DRC and Zimbabwe. The group has made substantial progress with its projects; the 700 ktpa plant in Zimbabwe and the 1 mtpa plant in the DRC, are anticipated to be commissioned at the end of calendar 2016. The 1 mtpa Slurry kiln 9 project will be commissioned in 2018. Following the devaluation of the rand by approximately 7% post-September 2015, translation adjustments of R300 million were recorded to property, plant and equipment.

Capital commitments at period end amounted to R3 283 million (September 2015: R4 643 million). On the DRC project, we have identified additional potential startup funding requirements to which PPC might have to contribute between US$20 million and US$50 million which will be reimbursed to the company from future operating profits made by the DRC business. These payments may arise because of delayed VAT repayments (VAT exemption was only received in January 2016), settling of bank facilities relating to cement trading losses incurred ahead of commissioning and pre-funding of future debt repayments.

In Ethiopia, the US$170 million to US$180 million, 1,4 mtpa plant remains scheduled to be commissioned in the second quarter of calendar 2017. Plant construction is progressing well, with overall project progress at 71%. During the period, the group invested a further R75 million into Habesha, thereby increasing PPC’s shareholding to 35%.

Other non-current assets have increased by R235 million from September 2015 to R590 million following the reclassification of VAT incurred on the DRC project as the local revenue authorities indicated that there would be delays in refunding VAT receivables.

During March 2016, the company acquired the shareholding in Safika Cement that was previously owned by Safika Cement management, under a put option agreement, for R44 million. The purchase consideration was settled with a combination of cash and through the issue of new PPC shares. PPC now holds 95% of Safika Cement with the balance being owned by management, via a trust, through a notional vendor financing mechanism.

Borrowings and going concern

Group debt increased to R9171 million (September 2015: R8 221 million) following further investments in our DRC, Zimbabwe and Slurry projects. As the project funding debt is mainly denominated in US dollar and Rwanda franc, the devaluation of the rand had an unfavourable impact on borrowings when translated into rand.

As noted earlier, the amounts outstanding on the DMTN programme were reclassified to short-term borrowings. The group secured funding, through a liquidity and guarantee facility agreement, from Absa Bank, Nedbank, Rand Merchant Bank and Standard Bank to facilitate early redemption of the notes. This repayment was successfully concluded in July 2016, where R1 614 million of outstanding notes were repaid where noteholders selected early redemption.

On 22 August 2016, the company concluded an underwrite agreement for the R4 billion rights issue, which is subject to standard material adverse change clauses. On successful conclusion of the rights issue, the group’s capital position will have been significantly enhanced ensuring the group continues to be a going concern for the foreseeable future. Further details can be found in the going concern basis of preparation section on page 20 of this report.

Review audit opinion
Post-finalisation of the liquidity and guarantee funding and rights issue underwrite agreements, the disclaimer opinion received from our auditors on the reviewed financial results for the six months to March 2016, published on 14 June 2016, has been replaced with an unmodified audit opinion on the audited financial statements for the six months to March 2016. The auditors have, however, included an emphasis of matter in their unmodified report, which makes reference to the going concern note.

Cash flow

The group’s net cash inflow from operating activities decreased by R75 million from R224 million in the six months ended 31 March 2015 to R149 million for the current reporting period. This decrease was due to an increase in working capital, in particular accounts payable and inventory, and higher finance costs paid offset in part by lower dividend and taxation payments.

Net cash outflow from investing activities increased by R284 million to R1 283 million (2015: R999 million) as the group further invested in property, plant and equipment, incurred further VAT payments on property, plant and equipment acquired for the DRC project, which will be recovered over time, and an additional investment into Habesha Share Company Limited.

The group’s net cash inflow from financing activities increased by R217 million from R632 million in the six months ended 31 March 2015 to R849 million. This increase was due to net borrowings of R1 499 million raised in the six months to March 2016 in comparison to the R632 million raised in 2015 as the group utilised further on project funding for its expansion projects. Drawdowns on project funding were partly offset by the repayment of our first note (PPC001) of R650 million.

Dividends
In line with the revised, more flexible dividend policy implemented last year and taking the current liquidity constraints and phasing of our build programme into consideration, no dividend was declared.

Looking forward
We will focus on ensuring a successful rights issue with R4 billion gross proceeds expected to flow into the group to repay outstanding amounts advanced under the liquidity and guarantee facility while the remainder of the proceeds will be used to reduce current debt levels. Post-receipt of the rights offer proceeds and strengthening of the group’s capital structure, we will engage with the banks in order to optimally restructure our debt and related funding terms.

As noted earlier in the report, the company’s first BBBEE transaction will conclude in December 2016. Work has already commenced with advisers and engagements taking place with the authorities in order to implement a suitable mechanism to address the future BEE ownership shortfall following the limited transfer of BBBEE I.

On 1 July 2016, the acquisition of 100% of 3Q Mahuma Concrete was concluded. This acquisition further enhances our channel management strategy and growth in the readymix concrete segment. We will focus on integrating 3Q Mahuma Concrete into our business materials division further enhancing our service offering to our customers.

A key focus item will be the delivery on our financial and operating targets post- commissioning of the DRC plant.

In conclusion, I would like to thank team PPC for their support of PIP and its related initiatives, and particularly the finance teams across the group for their continued dedication during this period.



MMT Ramano


Chief financial officer

12 September 2016





"PPC’s revenue from South Africa was R3,1 billion while revenue from operations outside South Africa was R1,4 billion. Revenue from outside South Africa now accounts for 30% of PPC’s group revenue"


Cement
PPC Cement has a successful track record spanning over 120 years as the leading supplier of cement in southern Africa. During this time PPC has expanded into Botswana, Zimbabwe and Rwanda. Our unique combination of quality products and good geographic footprint allows us to meet customer requirements in most parts of these countries.

Weakness in the operating environment has led to group cement revenue dropping 1% to R3,7 billion while EBITDA was down 2% to R972 million.

Group cement


"In the Western Cape and Eastern Cape provinces, volumes continued to rise on the back of reduced imports. A number of road, residential and non-residential projects have been awarded in the Western Cape. "


South Africa Cement
Fixed capital
Growth in real gross fixed capital gained momentum from -0,4% in 2014 to 1,4% for 2015. Growth in the private business enterprise sector increased by 0,4%, mainly due to higher capital spending by the private electricity sector in turn underpinned by a noticeable increase in capital outlays on projects included the government’s renewable energy independent power producer procurement programme.

Real capital investment contracted in the fourth quarter of 2015, particularly in agriculture where capital spend on machinery contracted due to the drought.

Real fixed capital expenditure by public corporations increased nominally to 0,8% in 2015, underpinned by higher spending on construction works and transport equipment by the water and transport sectors in particular.

Real capital spending by general government increased fairly steadily at over 5% throughout 2015. Increased capital outlays by local government focused largely on improving social and economic infrastructure as part of government’s priorities. Growth in real fixed capital expenditure by general government, however, dropped from 10,3% in 2014 to 5,9% in 2015.





Demand
Cementitious volumes (including imported cement) for South Africa rose by 3,1% for calendar 2015. PPC’s South African equivalent volumes (including Safika Cement) declined by 0,6% over the same period. However, for the six months ended March 2016, PPC’s volumes rose by 0,5%.

With increased competitor activity in Gauteng and other inland provinces, PPC recorded lower cement volume in most of these regions. Limpopo was again hardest hit, with double-digit volume declines. The North West region, although also under pressure, showed some resilience with positive volumes. In the Gauteng area, the construction and industrial segments produced a relatively better performance than the highly contested retail space.

The coastal regions performed better, with double-digit volume increases in most regions. In the Western Cape and Eastern Cape provinces, volumes continued to rise on the back of reduced imports. A number of road, residential and non-residential projects have been awarded in the Western Cape.

The International Trade Administration Commission (ITAC) finally imposed anti-dumping duties of between 14% and 77% on Portland cement originating in or imported from Pakistan from December 2015. These will be enforced for five years. Since imposing these duties, imports from Pakistan have declined in KwaZulu-Natal, Eastern Cape and Western Cape. In 2015, cement imports fell by 38% to 820 000 tons. Imports have continued to decline in 2016.

Despite declining shipping rates, total imports have dropped substantially, supported by the continued weakening of the rand. The local cement industry continues to engage with the authorities to align anti-dumping duties.

Selling prices
Competition in the South African cement industry remained fierce during the period. Higher demand was offset by the entry of another competitor in December 2015 in the inland provinces. While PPC continues to earn a premium, we maintained our policy of deliberate and calculated pricing, incentive and promotional initiatives to remain competitive and support brand confidence. As a result, while we defended and grew volume, average selling price declined by 4% from the comparative period last year.

Customers
Maintaining our customer base in this competitive environment was a key challenge in the review period. Around 60% of all cement consumed in the country is sold through the retail industry. Our focus in this sector has been to leverage off the strong PPC brand and cost competitiveness of the IDM brand. During the period, we started migrating and integrating the IDM brand to complete the PPC suite of products, enabling the group to cover the range of products in the retail space.

PPC continued to perform well in the readymix concrete, construction and concrete product manufacturing channels. We attribute this to our strong brand, industry-leading delivery service, highly respected technical support team and consistent product quality. In certain instances, new customer-specific products have been introduced with great success.

Operations
Cost of sales decreased by 3% with fixed costs falling 11% while variable delivered costs rose 2%.

Construction of the new 1 mtpa clinker production line (SK9) at PPC Slurry is on schedule. A number of leading technology features have been incorporated into the SK9 plant design which will ensure optimised production, reduced heat and electrical energy consumption, and increased plant availability. A higher level of automation and process controls will enable better tracking and quicker adjustment of process parameters to enhance consistent quality of plant output. With resource efficiency and sustainability considered central to the design of the SK9 plant, it will use a number of technologies that enhance the longevity of its components.

Manufacturing, quality inspections and delivery to site of major key equipment are on schedule. The appointed EPC contractor’s site management team mobilised to site and established its construction camp, using local contractors. All site-preparation works to accommodate the footprint of the new plant are complete. While issuing work permits to the EPC contractor’s workforce has been delayed, as an interim plan to avoid delaying implementation, the contractor has partnered with local contractors to begin the main earthworks.

The project is estimated to cost between R1,5 billion and R1,7 billion and is currently on schedule for commissioning and ramp-up in 2018.

Safety
Six lost-time injuries were recorded at South African sites, leading to a lost-time injury frequency rate (LTIFR) of 0,24. However, a fatality was recorded at the Slurry factory.

Outlook
Projections for economic growth in South Africa have disappointed. Recently, the IMF has cut its growth forecast for 2016 from 1,3% to 0,7%, the lowest forecast on record. The IMF’s forecast for 2017 was also revised down, from 2,1% to 1,8%. The Bureau for Economic Research forecasts a contraction of cement demand in 2016 but, from 2017 to 2020, cement demand growth is expected to continue outpacing GDP. Over this period, some 1,4 million tons of additional cement will be required to meet forecast demand.



Materials business
As part of PPC’s strategy to be a world-class provider of materials and solutions, we revised our business structure to consolidate PPC Aggregates, Pronto Readymix, Ulula Ash and PPC Lime into a materials business. This business will report into the SA operations through a management committee.

The materials business strategy includes:
  • Expanding product range and service offering
  • Broadening the offering into other African countries – Protecting and growing cement volumes.
It will identify and capitalise on growth areas through both existing operations and new entities. Achieving this strategic aspiration will require a new and innovative approach to doing business.

In line with this strategy, PPC concluded the acquisition of 3Q Mahuma Concrete (Pty) Limited for an asset-for-share agreement for a consideration of R135 million in July 2016. 3Q Mahuma Concrete was the largest independently owned readymix concrete supplier in South Africa and has been in business for the past nine years. The company has branches in Limpopo, North West, Northern Cape, Mpumalanga and Mozambique.
Overview

PPC Aggregates supplies quality construction aggregates to the civil construction sector and products for the chemical, metallurgical and agricultural industries. PPC has two aggregate quarries in Gauteng (Mooiplaas and Laezonia).

Review of 2016
Sales volumes were 15% up, mainly due to higher sales of concrete stone to the readymix concrete and concrete product manufacturers segments, supported by supply to commercial and road construction projects. Significant volumes were supplied to the Mall of Africa development, the N14 and Cedar Road construction projects that started in the prior period.

Above-inflation increases for power, explosives, labour and certain maintenance spares were partially offset by cost-saving initiatives and efficiency improvements. Combined with increased sales volumes, this resulted in total cost of sales rising by only 1% compared to last year. Regrettably, one fatality was recorded.

Outlook
The outlook for 2017 is comparable with the reporting period as some major projects will continue well into the new financial year. Replacement projects for the completed Mall of Africa have been identified. Increased competition in the base course (road construction) market may affect volume and pricing as well as the metallurgical dolomite market due to the decline in the steel industry.

The installation and commissioning of additional equipment will improve operational efficiency and flexibility.

Aggregates Botswana
PPC Aggregates supplies quality construction aggregates to the building and civil construction sector. PPC has two aggregate quarries in Botswana (Gaborone and Francistown).

Review of 2016
The aggregate trading environment remains tough. Our strategic response of consolidating our operations paid off via improved cost and plant performance and positioning our business as a major supplier of construction aggregates in the greater Gaborone and Francistown markets. In the final step of the consolidation process, the two legal entities will be combined in April 2016.

Outlook
The outlook for 2017 is similar to 2016, with a marginal increase in sales volume due to projects in the Gaborone central business district and Jwaneng. We commissioned additional capacity at Kgale towards the end of the review period, which will assist with operational efficiency and flexibility in matching production yield to market demand.

The aggregates industry is expected to remain very competitive, but we anticipate an improved performance from the restructured business and optimised support services. Our participation in construction activity will depend on our regional footprint relative to the location of these projects.
Overview

PPC Lime is the leading supplier of metallurgical-grade lime, burnt dolomite and related products and solutions in southern Africa. Products are used in key local industries such as steel and alloys, food manufacturing, gold, uranium and copper mining, as well as water purification and other environmental applications. Steel manufacturing remains the biggest consumer of lime-related products in the South African market, with growth potential in environmental applications.

Review of 2016
As noted, PPC Lime’s sales volumes are directly tied to steel production, and current conditions in the local industry had a major impact on 2016 revenue. The closure of Highveld Steel (8% of 2015 sales) in mid-2015 had a substantial impact on lime sales volumes. Production interruptions and stoppages at some steel customers in the review period negated growth in other markets.

PPC Lime achieved better revenue per ton sold through a more favourable customer mix (higher-value products), and cost of sales (rand per ton) was flat on 2015. This reflects savings on coal and maintenance, as well as manpower cost. Capital expenditure for the review period focused on mobile equipment replacement.

Outlook
The South African (and global) iron and steel market is under severe pressure, and latest forecast is that conditions might only improve in 2017. The outcome of current interaction between the local steel industry and government on the local steel-pricing mechanism, import tariff protection and commitment to using local steel for government infrastructure spend will be the main driver of prospects in the South African lime market in the year ahead.

We will continue to focus on capitalising on growth and diversification opportunities, reducing fixed cost and optimising production operations in FY17.

Overview
Pronto (100% owned by PPC) is a leading supplier of quality readymix concrete and mortars, with 10 batch plants in the greater Gauteng area supplying key commercial and industrial projects.

Review of 2016
Although pricing came under pressure in a tough trading environment, sales volume increased 6% compared to the prior period. This reflects increased market share in the residential and small to medium commercial segments.

The Midrand area of Gauteng was particularly busy with Pronto supplying a number of projects near the Mall of Africa development and Waterfall Estate. Construction at the Steyn City development also increased in the review period.

Outlook
The building industry is expected to slow in the year ahead. Prices will be under further pressure as companies attempt to consolidate their market shares. Pronto’s focus will remain on quality products and excellent service to maintain and grow market share. It will also begin a truck-replacement programme to ensure better availability. The company plans to open two new strategically placed readymix plants, which will be operational by the second and third quarters of the new financial year.
Overview
Ulula supplies fly ash to the southern African market from its beneficiation plant at Eskom’s power station in Kriel, Mpumalanga. Producing both classified and unclassified fly ash, the plant is designed and operated to facilitate excellent turnaround times for tankers collecting loads. In recent years, Ulula Ash has penetrated various markets in supplying cement, concrete, readymix, civil, building, blenders, tile adhesives, mining and ash sand operations.

Review of 2016
Volumes increased 10% for the period. Growth in ash sales is predominantly from new customers and increased offtake from the tile adhesive industry. The latter is due to formulation and technical innovation enabling a higher ash component in the end product.

Outlook
The company’s key focus for 2017 will be expanding into new markets and increasing its fleet of tankers to cater for increased volumes.

Company overview
    PPC’s business structure in Botswana comprises three wholly owned subsidiaries:
  • PPC Botswana Pty Limited
  • Kgale Quarries Pty Limited
  • PPC Aggregate Quarries Botswana Pty Limited
Review of 2016
The political landscape in Botswana remains stable and the country again improved its position on the World Economic Forum’s Global Competitiveness ranking, from 74 (2015) to 71 out of 140.

Botswana has a government-driven economy, with the majority of revenue generated by the diamond industry. Its economy has not escaped the global commodity pricing collapse and contracted for a second consecutive quarter at the end of calendar 2015.

Cement
The increase in cement capacity and competitiveness in the southern African region has affected pricing and volume in all segments. Consequently, our volumes declined over the reporting period, affecting results. We maintained our market leadership, however, by focusing on our brand, operational efficiencies and cost competitiveness. Management remains in regular contact with the Botswana government on issues that will strengthen the local industry to serve national objectives.

We are particularly pleased with our safety record, achieving one million injury-free hours (over four years) in March 2016.

Aggregates
The aggregates trading environment remains tough. We continue to strategically consolidate our operations, reflected in improved volumes and profitability by positioning our business as a major supplier of construction aggregates in the greater Gaborone and Francistown markets. In the final step of this consolidation process, the two legal entities will be combined in the near future.

The 12-month rolling average LTIFR for our aggregates operations was 0,49, with 216 days since the last LTI.

Outlook
We remain optimistic about the medium-term outlook for the Botswana economy. The government has recently communicated its economic stimulus package, specifically targeting small and medium enterprises as well as local contractors. This should support increased government infrastructure development, especially for water, electricity and roads.

While our cement operation remains well placed to participate in the expected growth in local demand, a very competitive landscape with resultant volume and pricing pressure will continue as South Africa has surplus cement capacity. To remain competitive, we continue to evaluate the nature of our presence in Botswana.

The aggregates industry is expected to remain very competitive, but we anticipate an improved performance from the restructured business and optimised support services. Our participation in construction activity will depend on our regional footprint relative to the location of these projects.

Aggregates
The aggregate trading environment remains tough. Our strategic response of consolidating our operations is bearing fruit, with improved volume and profitability from positioning our business as a major supplier of construction aggregates in the greater Gaborone and Francistown markets. In the final step of the consolidation process, the two legal entities will be combined in 2016.

The LTIFR for our aggregates operations was 0,49.

Outlook
We remain optimistic about growth in cement demand, driven by government infrastructure development, especially for water, electricity and roads. The caveat for the timely execution of these construction projects remains a continuous supply of electricity and water.

The national strategy office has been tasked to develop and implement a national monitoring and evaluation system for project execution that should assist with construction projects being completed on time and within budget.

While our cement operation remains well placed to participate in the expected growth in local demand, we anticipate increased volume and pricing pressure, particularly from the very competitive South African cement industry.

The aggregates industry is expected to remain very competitive, but we expect an improved performance from the restructured business and optimised support services. Participation by this business in construction activity will depend on our regional footprint relative to the location of these projects.


Company and project overview
PPC Zimbabwe is a 70%-owned subsidiary of the group, comprising a clinker manufacturing operation at Colleen Bawn – a grinding and packaging plant in Bulawayo. It is both the market leader and largest cement manufacturer in Zimbabwe, with a well- established brand.

With a current installed capacity of just over 1 mtpa, we are the only supplier in Zimbabwe capable of offering palletised cement, which has reduced cost and customer turnaround times. Construction of a new 700 000 tpa grinding and dispatch plant in Harare is progressing well.


Review of 2016
Domestic cement demand declined significantly in the review period after several years of growth. This reflected a poor agricultural season, tighter market liquidity, increased local competition and lower disposable incomes. Supported by weakening regional currencies against the US dollar and increased regional capacity, imports from neighbouring countries have grown despite a number of barriers to entry. To maintain market leadership, we reduced pricing, especially in the border areas.

Lower volumes were offset by the benefits of improved operational efficiencies as a result of prior period initiatives. The focus on operational excellence continues, laying the platform for efficient output in the medium to long term, should demand improve.

PPC Zimbabwe’s current capacity is just over 1 mtpa, produced solely in Bulawayo. After commissioning the Harare plant we plan to retire two of our smaller and less efficient cement mills, resulting in a combined national capacity of 1,4 mtpa.

Construction of the US$85 million mill in Harare was around 70% complete at 31 March 2016. The rail-siding works were 82% complete, and 95% of equipment manufactured and delivered to site. Civil and structural construction works are 68% complete. Operational readiness activities are under way with staffing, skills transfer, material and equipment plans being implemented against a ramp-up plan. Plant commissioning is expected towards the end of calendar 2016.

In line with the policy of conserving natural resources and ensuring continued water security for Colleen Bawn, an advanced water- treatment plant was commissioned in January 2016. This plant treats effluent water for use in the plant conditioning towers, reducing raw water demand from the water utility.



A mine planning review was completed at Colleen Bawn during the period and the life of mine has been extended as a result.

PPC Zimbabwe is about to conclude its employee housing scheme which involves selling company-owned houses in high-density residential areas to our people. To date, 100 employees in the country have benefited from this initiative to support homeownership.

Commendably, our operations and the Harare mill project maintained their zero LTIFR status, with Colleen Bawn at 1 492 days, Bulawayo at 1 048 days and Harare at 516 days at the end of the period.

Outlook
The slowdown in Zimbabwe’s economic growth, caused by ongoing liquidity problems and high external debt levels, will continue for calendar 2016 and challenge the objective to grow domestic sales. With increased competition in the region and Zimbabwe’s deflationary environment, the outlook for pricing remains muted. PPC will continue its strategy to defend and grow its domestic and export market by investing in marketing and sales initiatives and remaining customer focused.

Production may be affected by the poor domestic and regional power-supply outlook, but the company has maintained sound relations with relevant power utilities and continues to benefit from a tariff structure that supports continued supply.

Commissioning of the Harare plant by the end of calendar 2016 will ensure the company is positioned for the expected economic upturn and associated infrastructural development and investment in the medium term.

Company and project overview
In 2013, PPC acquired a 51% equity stake in CIMERWA Limited, the only integrated cement producer in Rwanda.

Our new 600 000 tpa plant was commissioned in the second half of 2015 at a cost of US$165 million. Ramp-up has been satisfactory to date and most of the plant’s provisional acceptance certificates were issued by 31 March 2016.

Review of 2016
Between commissioning and the end of March 2016, the plant has sold over 120 000 tons of cement. This gradual ramp-up will continue and the plant should reach full capacity over the next two years. Plant performance for the review period was satisfactory, with further improvements expected once current initiatives are implemented. Particle emissions during the period were maintained below 50 mg/Nm3.

By the end of 2015, Rwanda’s cement market had reached some 570 000 tons, reflecting growth of around 10% over the last three years. The product from the new plant was well accepted in the market, and CIMERWA’s market share has risen in line with improved output. Unfortunately, the political environment in neighbouring Burundi has restricted our ability to export to this key market.

Initiatives to develop the local transport industry are progressing and a contracted fleet has been introduced. We will continue to optimise inbound and outbound logistics opportunities.

A range of empowerment-focused corporate social responsibility initiatives have been launched, focused on growing local cooperatives. A particular success was the Environmental Sustainability Ladies Co-operative, which manufactures and supplies retaining blocks for use in the plant. This cooperative is also responsible for planting trees on site and in surrounding areas as part of our environmental management programme.

CIMERWA’s 12-month rolling average LTIFR at the end of March 2016 was 0,83, with 92 days since the last safety incident.



Outlook
The plant is well located to supply cement to the Rwanda, eastern DRC and Burundi regions. The medium-term economic outlook for Rwanda and the region remains positive, with the main Rwanda market expected to continue expanding at 6% to 8% in a stable inflation environment.
Until an amicable resolution to political challenges in Burundi is achieved, our ability to export to that market will remain restricted. Exports to the region remain a key focus and strategic response to our foreign currency exposure.

Aligned with the government’s national development plans (Rwanda Vision 2020, Economic Development and Poverty Reduction Strategy 2) and a rapidly growing middle class, cement demand is expected to grow steadily over the medium term. The percentage of the population living in urban settlements is now about 17%, and expected to rise to 35% by 2020. Aligned with national plans, six secondary cities were selected to promote urban development outside of Kigali.

To further support the Rwanda Vision 2020, CIMERWA has developed a localisation programme aimed at fast-tracking cement- specific skills development through a structured shadowing initiative. This will strengthen both the local skills base and CIMERWA’s competitiveness.


Company and project overview
PPC, in partnership with the Barnet Group and International Finance Corporation (IFC), is building a 1 mtpa integrated cement plant for around US$280 million. The plant is near Kimpese in the Kongo Central province in western DRC, 230 km south-west of the capital Kinshasa. Ercom Engineering is the technical consultant and Sinoma is the EPC contractor.

The new plant is 60% project debt funded with the IFC and PTA Bank as joint lead arrangers.

The PPC Barnet DRC Company is 69% owned by PPC, 21% by the Barnet Group, our local partner, and 10% by the IFC.







Review of 2016
Construction of the new plant is on schedule, with civil and structural erection work completed in 2015. The plant was 83% complete by March 2016, with mechanical and site electrical installation due for completion in May and commissioning starting later in the year.

Contingency utilisation is high in relation to the construction programme and could result in a 4% to 6% increase in the capital estimate.

In conjunction with the country’s utility company, Société Nationale d’Electricité (SNEL), PPC Barnet DRC is constructing a 13 km overhead transmission line to supply power to the cement plant as a public-private partnership. SNEL has appointed an EPC contractor and PPC Barnet DRC is actively managing this contract to ensure permanent power is on-site.

Construction of a village to house company employees is well advanced, with the first houses ready for handover.

In addition to key investment incentives by the country’s investment promotion agency, ANAPI, the ministry of finance has also awarded fiscal incentives for a four-year period to the manufacturing business.

Our cement trading business continues to import and trade own- manufactured PPC-branded cement into Kinshasa and Matadi. The PPC brand is now recognised in the market and the management team is developing a solid understanding of the country and business environment. Selling prices deteriorated as low-cost imports from neighbouring Angola increased markedly on the back of local exchange rate variations. Imports from Angola continue to fill the gap left by current local production capacity being well below market demand. A local cement producers association was formed under the auspices of the Fédération des Enterprises du Congo (FEC) as a vehicle to engage with government on local industry protection as it moves towards self-sufficiency.

The new technical training facility at the factory site, focused on developing the skills of people from villages near the plant, is well established and awaiting formal accreditation from the department of labour. Courses on basic engineering and life skills are ongoing.

The operational readiness programme is on track to secure key raw materials and recruit qualified and skilled staff. Skills transfer programmes with new recruits are under way using PPC’s Technical Skills Academy in South Africa and exposure to operational plants across the group.

After achieving over two million injury-free hours, the project recorded three lost-time injuries by March 2016. The 12-month rolling average LTIFR at year-end was 0,06.

A number of sustainability initiatives are under way in the area, including a malaria vector-control programme of spraying and fogging in nearby villages, establishing a tree nursery for rehabilitation projects, improving sanitation and providing desks at a local school, as well as a number of basic healthcare improvement programmes. Stakeholder engagement continues at all levels to entrench our brand while building relationships and a strong local cement industry as a responsible corporate citizen.

Outlook
GDP growth in the DRC of above 5% is expected in the medium term, reflecting a steady reduction of the infrastructure deficit and expanding investment due to ongoing government reforms. This will support a continued increase in cement demand, and we are well located to serve the Kinshasa, Matadi and interior markets. With additional regional capacity being constructed, our targeted commissioning date for the new plant of end calendar 2016 will give us a first-mover advantage.

The situation surrounding the presidential election scheduled for November 2016 remains uncertain, affecting current cement demand growth, but this is expected to be temporary. We recognise that the election could coincide with the scheduled cement plant commissioning.

We have identified potential start-up funding requirements and PPC might have to contribute between US$20 million and US$50 million. These will be reimbursed to PPC as inflows from operating profits.


Company and project overview
PPC holds a 35% equity stake in Ethiopia’s Habesha Cement Share Company (Habesha) and South Africa’s Industrial Development Corporation (IDC) holds 20%.

Habesha is the first cement public company in Ethiopia, with over 16 000 local shareholders. Designed for annual cement capacity of 1,4 million tons and situated just 35 km north-west of the capital, Addis Ababa, the modern plant is well positioned to serve this market. The plant is being supplied and built by China’s Northern Heavy Industries Group (NHI) which has built over 100 cement plants in China, and supplied and erected a plant for Ethiopia’s National Cement in Dire Dawa.




The project is funded by a combination of equity and debt financing by Development Bank of Ethiopia and PTA Bank. With an expected full project cost of US$170 million to US$180 million, additional funds will be sourced from a two-step rights issue and debt funding. Both PPC and the IDC have followed their rights in the first capital raising, with PPC investing a further US$5,1 million in March 2016. The capital-raising programme is forecast to be concluded by the third calendar quarter of 2016.

Review of 2016
Construction is progressing well, with overall project progress at 71%, civil construction 86% complete and mechanical erection at 34%. The plant design is 99% complete, with 95% of equipment manufactured and delivered to site. The main plant power agreement is in place with the Ethiopian power authorities and the contract for supply and construction of a 14 km 132 KV transmission line has been awarded.

Operational readiness preparation is progressing on schedule, with training for 30 key technical personnel in China planned for the second quarter of calendar 2016. Recruitment is also on track, with 110 employees already on site.

The project’s 12-month rolling average LTIFR was 0,53 with 183 days since the last lost-time injury.

Outlook
Construction activity in Ethiopia is brisk and our outlook for cement demand in the country is strong. The government’s growth and transformation plan (2010) focuses on infrastructure development, industrialisation and housing to improve the country’s economy and raise GDP. This will underscore future cement demand, particularly in Addis Ababa and surrounding areas.

The plant is expected to be commissioned in the second calendar quarter of 2017, and development plans include the opportunity to double production capacity.


Sales and marketing

The cement industry differs from other commodity markets. While all are highly competitive, our industry is integral to infrastructural development, which often relates to quality of life. In that respect, marketing the myriad benefits of cement is as important in our industry as it is in, say, the platinum industry which annually invests significantly in raising awareness of the diverse applications of this metal.

PPC has been a nation-building company for generations, instrumental in building many landmarks in Africa. Equally, we believe it is our responsibility to partner with governments and communities to provide infrastructure and housing for citizens and thus play a role in building better communities.

We believe it is our moral responsibility to provide quality products that will build dependable structures. Building is a significant undertaking for our customers and we need to support them with solutions, not just products. Innovation in cement and concrete is at the centre of this.

In general, most cement markets are under pricing pressure due to muted construction growth and new entrants chasing market share.

In South Africa, the retail inland area remains a highly congested and contested market. At this point, we are under immense pressure to lower our prices in certain retail markets where we supply bagged cement. We have repositioned our prices to support the inherent strength of the PPC brand while still maintaining a premium over competitors. We have also bolstered our product range with the quality 32,5N IDM product to complement our brand leading 42,5N Surebuild.

On the bulk-cement side, our total value offering, brand and national footprint remain key differentiating attributes over our competitors. Our seasoned technical team also advises manufacturers of readymix concrete, precast and concrete products and construction companies on the use of PPC products. Together with customer, they develop innovative and cost-effective solutions.

PPC also has a flexible pricing mechanism that accommodates market-specific needs – per area, per segment, per customer, per product.

Our people are our competitive advantage. Their skills and commitment ensure we are able to meet all our responsibilities. We create an environment for them to develop and be fairly rewarded and recognised for their efforts.
The PPC brand
PPC is transitioning from a local (South African) brand to an African brand and, ultimately, a global brand. Our aim is to operate a simplified and harmonised portfolio, investing in one priority – the PPC brand.

The power of our brand will be leveraged across the PPC product portfolio, making it easier to cross-sell. We believe that accumulating brand exposures over time and in different countries will have an impact far beyond their intended function.

In recent years, PPC has acquired IDM, Pronto and Ulula Ash, and most recently 3Q Mahuma Concrete, enabling our team to sell a portfolio of building materials. This is the initial stage of becoming a strategic provider of building materials and solutions. In addition, PPC partners with its customers in certain regions to offer the solutions they require.

Our business is built on a philosophy of providing “strength beyond the bag”. This is why we develop products and solutions for customers, with customers – so that they can harness our strength to realise their vision.

Technical support
PPC assists customers with technical support which includes testing materials in our laboratories and helping customers resolve problems or issues in their operations.

Our technical team offers customers a number of sophisticated analytical techniques that can be used for investigations in the field of concrete, concrete products and mortars.

PPC central laboratories (cement, chemistry and concrete) have been accredited under ISO/IEC 17025 for the past 12 years. All three laboratories have the latest scientific equipment and a highly skilled team which enables us to develop a large number of advanced technical products and assist in solving complex problems, eg efflorescence (the migration of water to the surface of concrete and subsequent deposition of salts when the water evaporates) in various products.

Our technical team conducts training, delivers technical papers at conferences and conventions, lectures at universities, maintains relationships with authorities and associations, contributes actively to shaping standards and norms, and publishes specialist articles.

Marketing
Brand building


Marketing initiatives are localised informed by in-depth customer surveys, to ensure we better align to their needs. We select relevant mediums based on target markets to cover public, consumers, builders and business-to-business partners.

  • South Africa: PPC has secured the naming-rights sponsorship to Newlands cricket stadium, now known as PPC Newlands, under a two-year agreement with an option to renew for a further year. As part of the sponsorship, PPC has extensive branding and advertising rights at the stadium. To leverage the sponsorship, PPC has partnered with cricketer JP Duminy to build three concrete pitches at disadvantaged Cape Town schools. PPC also advertises in FNB stadium and Newlands rugby stadium
  • Botswana: PPC brand on billboards, wall murals, radio and in print
  • Zimbabwe: PPC brand on billboards and at Rufaro stadium – Rwanda: PPC brand on bus shelters and in print
  • DRC: PPC brand importing Surebuild
Business-to-business support
Sponsoring industry conferences reflects our commitment to contribute to the industry and sector, using this platform to improve standards, enable stakeholders to network, and explore how we can create a sustainable building industry in Africa together.

Engagement is a critical element of this process – and it is only through proactive partnerships and innovative collaborations that we will meet both South Africa and Africa’s infrastructure needs. With the continent currently growing at around 5% per annum and investment in large infrastructure projects a priority, participants across the building ecosystem are being called to find dynamic solutions to the continental challenges of affordability, sustainability and long implementation timeframes, among others.

While manufacturers, including PPC, are already looking at ways to produce products more sustainably, traditional design approaches will also need rethinking which is where our industry partners come in. With the construction phase of any building accounting for around 15% of its total energy footprint and the remaining 85% being produced during its life, designing for energy efficiency means that the original 15% can – and should – be offset by savings during the building’s useful life.

This is the type of conversation we encourage conference delegates to be part of so that we can find viable solutions across the construction ecosystem and lifecycle. Accordingly, we promote the use of our Cement & Concrete Cube (C3) online platform throughout and beyond conferences. Designed to drive dialogue, share industry content and promote collaboration, anyone interested in the ndustry is invited to sign up, join the conversation and help shape our industry. In this way, construction companies can tap into the wealth of expertise and experience already available in the sector, and use these insights to grow their own businesses.

Retail/consumer segment
In all our markets, retail accounts for a significant share of volume, and remains highly competitive due to new entrants and imports. The PPC brand is the strongest in most markets where we operate, justifying some price premium.

Given the category commoditisation by competitors and retailers, PPC needs to move from retail relationships built on price to ones built on long-term partnerships.

Most people are indifferent about cement and have little knowledge of the product, so they are guided by price. PPC’s main focus is to inspire behavioural change – encourage homeowners and builders to think beyond price when choosing cement because it is the proverbial glue that gives a structure fundamental integrity but accounts for less than 10% of its building costs.

We encourage consumers to ask for and insist on PPC despite cheap choices available as our brand has offered consistent quality and a durable build for over 120 years.

Case study:
PPC conference participation
South Africa

South African Forum of Civil Engineering Contractors (SAFCEC) conference
SAFCEC supports large, medium and small civil engineering contracting companies, and is affiliated to Business Unity South Africa (BUSA). The annual awards gala for outstanding achievements for 2014/2015 attracted over 30 project entries.

Green Building Council’s annual convention
This brings together participants across the infrastructure, construction, architecture, design and property sectors. The week- long programme includes building tours, education courses and high-profile speakers. It is a platform to discuss trends, share knowledge and insights shared, and host compelling debates.

Roads Paving Forum
This is a platform to share information and technologies and discuss issues of strategic importance to the road-construction industry. It enables wider representation and participation from the broader roads industry, particularly urban and provincial authorities, tertiary institutions and contractors.

Zimbabwe
Zimbabwe Builders and Constructors Association congress

This annual event is attended by builders, contractors and suppliers to the construction industry. It is also attended by some government ministers and their deputies.

Zimbuild general conference
An interactive three-day focus on the health of the construction sector.

Rwanda
Proudly Rwandan expo
The campaign to promote locally made goods among Rwandans was significantly boosted after the Private Sector Federation and Trade and Industry Ministry organised an exhibition targeting Rwandan producers like CIMERWA to exhibit their offerings and encourage the public to buy locally produced products.