| Tue 30 Oct 2007, 7:00 | | PPC - Pretoria Portland Cement Company Limited - A |
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PPC
PPC
PPC - Pretoria Portland Cement Company Limited - Audited Preliminary Report
For The Year Ended 30 September 2007
PPC
PRETORIA PORTLAND CEMENT COMPANY LIMITED
(Incorporated in the Republic of South Africa)
(Company registration number: 1892/000667/06)
JSE code: PPC
ISIN: ZAE 000005559
Audited preliminary report for the year ended 30 September 2007
- Continued growth in cement sales volumes
- Revenues up 19% to R5,6 billion
- HEPS up 16% to 263 cents
- Cash generated from operations up 8% to R2,2 billion
- Batsweledi expansion project within budget and on time with commissioning
planned for 2nd calendar quarter 2008
- Final dividend of 166 cents per share plus a special dividend of 61 cents
per share
CEO John Gomersall said:
"This is another good set of results on the back of continued growth in cement
volumes with all of our production units running at very high utilisation
levels to meet the high cement demand. We remain focused on maximising our
efficiencies though this has not been without its challenges due to increased
energy and transport costs and a higher level of maintenance cost occasioned
by these high utilisation levels. We are on track to commission the new
Batsweledi capacity at Dwaalboom early next year which will increase our
output during the second half and therefore reduce the need to import. We are
confident about achieving another improved performance next year."
COMMENTARY
Group revenue increased 19% to R5,6 billion whilst operating profit rose 17%
to R2,2 billion. Cement margins were impacted by the dilutionary effect of
imports at little or no margin, and by increased energy, transport and
maintenance costs.
Finance costs increased in line with increased levels of borrowings to fund
the capital expansion projects. Income from investments reflected higher
levels of surplus cash on deposit and dividends from unlisted investments.
The effective tax rate is 35% and represents an effective company normal tax
rate of 28% together with STC on dividends. The impact of the STC charge on
special dividends of 10 cents per share is in line with that of the prior
year.
Headline earnings per share increased by 16% to 263 cents per share.
Cash generated from operations increased by 8% to R2,2 billion. Capital
expenditure amounted to R953 million (2006: R396 million) and related mainly
to the Batsweledi expansion. There were also environment-focused plant
upgrades of R30 million and expenditure of R30 million on expanding some of
our limestone quarries and plant upgrades at the Laezonia aggregate quarry,
the balance being attributable to routine plant replacements.
Capital expenditure related to expansion projects will continue to be funded
through borrowings. Strong cash flows and the current low level of borrowings
relative to interest and EBITDA cover ratios will enable the company to take
on higher levels of debt going forward. Cash flow related to expansion
projects is forecast at R607 million for the coming year.
The directors have reviewed and amended the target dividend cover to a range
of 1,2 to 1,5 times. In addition, in any given year, the directors will
consider an additional distribution to the shareholders of cash that is
surplus to requirements.
The directors have declared an increased final dividend of 166 cents per share
(2006: 110 cents per share) and a special dividend of 61 cents per share
(2006: 77 cents per share), effectively distributing all the current year
earnings to shareholders.
-Cement-
Regional cement sales volumes grew 10% over last year with the residential and
non-residential construction sectors performing strongly. The Inland market
experienced particularly strong growth, and to meet the market shortage supply
was supplemented by our Porthold and Western Cape factories. Coastal cement
supply was supplemented with 220 000 tons and Mozambique 110 000 tons, of
Surebuild cement manufactured to our specifications and imported from China.
This effectively freed up 330 000 tons of our Inland production for the Inland
and Botswana markets. We note that these imports accounted for around 5% of
our total cement sales and were at the lower end of our expectations mentioned
last year.
The logistics associated with movement of product around the country increased
costs. All factory kilns and mills ran at high utilisation levels, resulting
in the need for increased maintenance costs as a result of both equipment age
and higher stress on machinery. Profit margins will continue to feel pressure
from these additional costs whilst we continue to run these older production
lines. In addition, more frequent replacement and upgrade of minor equipment
will be required to lower maintenance cost and improve efficiencies.
Rail and coal energy cost increases also continued substantially above PPI
inflation. Growing international energy demand will continue to put pressure
on the availability of the appropriate coal quality for cement manufacture.
The spiraling international fossil fuel prices and concerns over the
consequent upward pressure on global cement prices is being voiced
internationally.
Inventory levels increased as higher levels of maintenance and consumable
stores, coal and raw materials and imported cement stocks are necessary at
this time of higher output levels and logistics complexities.
Following the launch of the company`s Behaviourial-Based Safety initiative in
October 2006, the safety environment has shown a continued pleasing
improvement. Our Lost Time Injury Frequency Rate (LTIFR) for the year declined
to only 0.4 which compares very favourably to international benchmarks. There
were no fatalities. We are proud of this achievement given the pressures the
team has been working under this past year.
-Zimbabwe cement-
Operating and trading conditions became increasingly more difficult as the
country reeled under inflation rates increasing into the thousands. As an
emergency measure, in June 2007 the Zimbabwe Government decreed a price "roll-
back" and freeze on all goods manufactured or sold in the country.
Whilst there has been some relaxation of these harsh measures, ongoing
shortages of production inputs and a Zimbabwe selling price which is
insufficient to cover production costs require us to increasingly focus on
exports to sustain operations. On a positive note, the ability to earn foreign
exchange from these exports has allowed the company to continue with capital
projects that will address production bottlenecks in the future.
The ongoing inability to exercise effective control justifies the continued
non-consolidation of this company`s results.
-Other operations-
Lime revenue and operating profit improved significantly over the prior year
as the benefits of renegotiated long-term supply agreements flowed through for
the full year. Local demand reduced mainly due to an extended Mittal blast
furnace shut-down, but this was fortunately off-set to some degree by exports.
Significant input cost increases, particularly coal and the railage thereof,
will impact margins over the next few months, until such time as contractual
price adjustments kick in.
Aggregate operations reflected good profit growth and a capacity expansion of
340 000 tons per annum to 1,34 million tons is currently underway at the
Laezonia quarry in Gauteng.
-Broad based black economic empowerment (BBBEE) social transformation-
The company remains committed to transformation and fully embraces the
objectives of the Mining Charter and the Department of Trade and Industry
BBBEE transformation guidelines. The company is proud of its progress and
track record in this regard.
In line with the transformation goals of the company, the board approved the
principles of the structure and likely funding of our BBBEE empowerment
transaction which will also meet the Mining Charter`s 15% initial equity
ownership target allowing conversion of "old order" mining rights to "new
rights".
The scheme comprises two elements, namely, equity ownership by employees,
communities and industry associations through the establishment of various
trusts, and a strategic partner element involving a number of strategic black
partners including an education provider.
The broad-based nature and complexity of the transaction is such that we were
not able to meet the original self-imposed deadline of 30 September. However,
significant progress has been made and we are in the final phase of concluding
the transaction. Shareholder approval of the scheme is anticipated to be
sought early next year.
-Board resignations and appointments-
Messrs WAM Clewlow, AJ Philips and CB Thomson resigned from the board
effective 23 January 2007.
Mr DG Wilson resigned from the board effective 16 July 2007.
Ms ZJ Kganyago and Ms NB Langa-Royds were appointed to the board on 17 October
2007 as independent non-executive directors.
Mr EP Theron retired from the board following the board meeting on 29 October
2007. Mr Theron had earlier this year expressed his intention to retire after
the completion of the unbundling and related matters.
-Prospects-
The recent continued rise in interest rates is likely to have some impact on
residential construction in the coming year. We believe that low-cost housing
projects will continue growing. In addition, the level of infrastructural
investment planned by Government, Eskom and other sectors is gathering
momentum, and we therefore expect continued demand growth in the year ahead.
These views are confirmed by construction and engineering customer groupings
who all talk of full order books.
As a result of positive indications that industry growth will continue well
past 2010, most local cement manufacturers are busy with or have announced
expansion projects to increase capacity. In addition, Orascom, an Egyptian
cement company announced plans to establish a cement plant near Mafikeng in
the Northwest Province of South Africa by late 2010. Indications are that
these investments will allow industry demand to be met by local producers from
2011 onwards, and this will eliminate or reduce the need for imports.
The Batsweledi capacity expansion at Dwaalboom is planned to be commissioned
during the second calendar quarter of 2008 and should ramp up to full
production by the financial year end. Consequently the benefit of additional
cement production will be limited to the second half-year dependant on how
quickly the ramp-up is achieved. In the meantime, we will continue to
supplement any cement shortfall with imported Surebuild product, albeit at
little or no margin.
Additional cement milling capacity will also come on stream during 2009 in the
Inland region. In February 2007 the board approved this R604 million project
for a new milling facility at the Hercules factory in Pretoria.
The Riebeeck West expansion and modernisation project study for the Western
Cape is progressing well but has been delayed by the environmental impact
assessment and regulatory approval process. Whilst this delay is unfortunate,
we have continued with the specification of equipment, plant layout and
engineering design. Over the last year there has been no growth in cement
demand in the Western Cape and therefore this delay should not have any major
impact on either the project or our ability to supply the cement requirements
in the province over the medium-term.
The positive market outlook, combined with incremental cement output in the
second half of 2008, should enable the company to report improved performance
and a strong operating cash flow for the ensuing year.
On behalf of the board
M J Shaw J E Gomersall
Chairman Chief executive officer
29 October 2007
CONSOLIDATED INCOME STATEMENT
Year ended
2007 2006
Audited Audited %
Rm Rm Change
Continuing operations
Revenue 5 566 4 686 19
Cost of sales 3 069 2 520 (22)
Gross profit 2 497 2 166 15
Non-operating income 1 1
Administrative expenditure 37 43
Other operating expenditure 287 263
Operating profit 2 174 1 861 17
Fair value gains on financial 1 -
instruments
Finance costs 84 52 (62)
Investment income 82 67 22
Profit before exceptional items 2 173 1 876 16
Exceptional items 14 -
Share of associate`s retained profit 7 -
Profit before taxation 2 194 1 876 17
Taxation 615 542 (13)
STC on net dividends paid 150 128 (17)
Net profit from continuing operations 1 429 1 206 18
Discontinued operation
Net profit from discontinued operation - 8
Net profit attributable to shareholders 1 429 1 214 18
Earnings per share (cents)*
From continuing and discontinued
operations
- basic and fully diluted 266 226 18
From continuing operations
- basic and fully diluted 266 224 19
Ordinary shares (000)*
- in issue 537 610 537 610
- weighted average number of shares 537 610 537 610
- diluted weighted average number of 537 610 537 610
shares
Dividends per share (cents)*
- special 61,0 77,0 (21)
- final 166,0 110,0 51
- interim 38,5 33,0 17
265,5 220,0 21
*Restated for effect of the 10:1 share subdivision.
CONDENSED CONSOLIDATED BALANCE SHEET
2007 2006
Audited Audited
Rm Rm
ASSETS
Non-current assets 2 546 1 817
Property, plant and equipment 2 178 1 414
Intangible assets 20 14
Investment in non-consolidated 260 290
subsidiary
Other non-current assets 78 99
Investment in associate company 10 -
Current assets 2 336 2 538
Inventories 337 223
Accounts receivable 696 605
Short-term investment 2 98
Asset classified as held for sale - 130
Cash and cash equivalents 1 301 1 482
Total assets 4 882 4 355
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 868 868
Other reserves 16 90
Retained profit 1 465 1 245
Total equity 2 349 2 203
Non-current liabilities 341 364
Long-term borrowings 68 83
Deferred taxation liabilities 156 174
Provisions and other non-current 117 107
liabilities
Current liabilities 2 192 1 788
Short-term borrowings 1 366 983
Liabilities directly associated with - 112
asset held for sale
Accounts payable and provisions 826 693
Total equity and liabilities 4 882 4 355
Net asset value per share (cents)* 437 410
*Restated for effect of the 10:1 share subdivision.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Year ended
2007 2006
Audited Audited
Rm Rm
Total equity
Balance at beginning of year 2 203 2 027
Revaluation of investments (net of (3) (1)
deferred taxation)
Net movement on equity settled share (29) 1
incentive scheme
Foreign currency translation reserve and (6) (15)
other movements
Cash flow hedge reserve (net of deferred (33) 36
taxation)
Net profit for the year 1 429 1 214
Dividends declared (1 212) (1 059)
Balance at end of year 2 349 2 203
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Year ended
2007 2006
Audited Audited
Rm Rm
Cash flow from operating activities
Operating cash flows before movements in 2 370 2 039
working capital
Net increase in working capital (178) (8)
Cash generated from operations 2 192 2 031
Net investment income 11 15
Taxation paid (743) (608)
Cash available from operations 1 460 1 438
Dividends paid (1 207) (1 059)
Equity settled share incentive scheme (30) -
payment
Net cash inflow from operating 223 379
activities
Net cash outflow from investing (772) (243)
activities
Net cash inflow from financing 368 761
activities
Net (decrease)/increase in cash and cash (181) 897
equivalents
Cash and cash equivalents at beginning 1 482 592
of year
Effects of exchange rates on opening - 1
cash position
Deconsolidation of subsidiary company - (8)
Cash and cash equivalents at end of year 1 301 1 482
NOTES
1. Basis of preparation
The condensed group annual financial statements have
been prepared using accounting policies compliant
with International Financial Reporting Standards
(IFRS), and are in compliance with IAS 34: Interim
Financial Reporting, the JSE Limited`s listing
requirements and the South African Companies Act.
For a better understanding of the group`s financial
position, the results of its operations and cash
flows for the year, this summarised preliminary
report of annual results should be read in
conjunction with the annual financial statements
from which this summarised preliminary announcement
of annual results was derived. The accounting
policies and methods of computation used are
consistent with those applied in the preparation of
the annual financial statements for the year ended
30 September 2007.
The group has adopted the following new or revised
accounting pronouncements in the current period,
which did not have a material impact on the reported
results:
AC 503: Accounting for BEE transactions
IAS 1 Amendment: Presentation of financial
statements
IAS 21 Amendment: The effects of changes in foreign
exchange rates: Net investment in a foreign
operation
IAS 23 Amendment: Borrowing costs
IAS 39 Amendment: Financial instruments, recognition
and measurement
IFRIC 4: Determining whether an arrangement contains
a lease
IFRIC 10: Interim financial reporting and impairment
IFRIC 11: Group and treasury transactions
IFRIC 12: Service concession arrangements
IFRIC 13: Customer loyalty programmes
IFRIC 14: The limit on a defined benefit asset,
minimum funding requirements and their Interaction
2007 2006
Audited Audited
Rm Rm
2. Profit before taxation
Included in profit before taxation
are:
Amortisation of intangible assets 4 4
Depreciation 192 165
3. Finance costs
Bank and other borrowings 68 19
Financial lease interest 16 26
Unwinding of discount on 8 7
rehabilitation provisions
92 52
Interest capitalised to property, (8) -
plant and equipment
84 52
4. Headline earnings per share
(cents)*
- basic and fully diluted 263 226
Determination of headline earnings
per share*
Earnings per share (cents) 266 226
Adjusted for (after taxation):
- Profit on disposal of property, (3) -
plant and equipment, investments
and intangible assets
263 226
*Restated for effect of the 10:1
share subdivision.
Headline earnings
Net profit attributable to 1 429 1 214
shareholders
Profit on disposal of property, (15) -
plant and equipment, investments
and intangibles
Impairments 1 -
1 415 1 214
5. Investments
Listed and unlisted investments at 28 130
fair value
Directors` valuation of unlisted 28 130
investments
6. Asset classified as held for sale
In line with IFRS 5 (Non-current assets held for
sale and discontinued operations), Afripack (Pty)
Limited was consolidated as an asset classified as
held for sale for the year ended 30 September 2006.
During October 2006, the preference shares were
redeemed and Afripack (Pty) Limited`s results
deconsolidated.
The results of Afripack (Pty) Limited as at 30
September 2006 were as follows:
Revenue 177
Operating profit 44
7. Non-consolidation of Portland Holdings Limited
(Porthold)
Consistent with 2006, the results of Porthold, a
wholly-owned Zimbabwean subsidiary, have not been
consolidated into the group.
There are significant constraints impacting on the
normal operation of Porthold and the PPC board
concluded that management does not have the ability
to exercise effective control over the business. In
view of the circumstances, the results of Porthold
have continued to be excluded from the group results
in the current year and have been accounted for on a
fair value investment basis.
The summarised results of Porthold, adjusted for
hyperinflation and converted to rands, using the
official rate of exchange of ZWD4 189,89: ZAR, were:
Year ended
2007 2006#
Rm Rm
Revenue 352 252
Operating profit 124 19
Loss before taxation (28) (21)
Taxation (17) (2)
Loss after taxation (11) (19)
Total assets 655 598
Total liabilities 250 199
The effects of not consolidating
Porthold are as follows:
Headline earnings per share (cents)
- as reported 263 226
- Porthold impact on group results (2) (4)
261 222
Earnings per share (cents)
- as reported 266 226
- Porthold impact on group results (2) (4)
264 222
#Restated for the effects of applying
hyperinflationary accounting.
Due to extreme volatility in both the inflation and
exchange rates during the year, comparison of
Porthold`s results against prior reporting periods
is not meaningful.
2007 2006
Audited Audited
Rm Rm
8. Contingent liabilities
Guarantees for loans, banking 8 7
facilities and other obligations
to third parties
9. Commitments
- Contracted capital commitments 766 668
- Approved capital commitments 537 631
Capital commitments 1 303 1 299
Operating lease commitments 22 27
1 325 1 326
These commitments will be met from
surplus cash generated from
operations and borrowing
facilities available to the group.
10. Borrowings 1 434 1 066
During the year, the group increased its short-term
borrowing facilities with external financial
institutions following the unbundling from
Barloworld. Part of these facilities were utilised
to fund capital expansion programmes and investment
in working capital. The borrowings bear interest at
prevailing market rates. The company`s borrowing
powers are not restricted.
11. Segmental analysis
The board considers the cement operations to be the
predominant activity of the company and as a result,
no segmental reporting has been included.
12. Post-balance sheet events
There are no post-balance sheet events that may have
an impact on the group`s reported financial position
at 30 September 2007.
13. Auditors` review
The auditors, Deloitte & Touche, have issued their
opinion on the group`s financial statements for the
year ended 30 September 2007. A copy of their
unqualified report is available for inspection at
the company`s registered office.
DIVIDEND ANNOUNCEMENT
Notice is hereby given that the following dividends
have been declared in respect of the year ended 30
September 2007:
- number 207 (final dividend) of 166 cents per share
- number 208 (special dividend) of 61 cents per
share
These dividends will be paid out of profits as
determined by the directors, to shareholders
recorded as such in the register at the close of
business on the record date Friday, 4 January 2008.
The last date to trade to participate in the
dividends is Thursday, 27 December 2007. Shares will
commence trading ex-dividends from Friday, 28
December 2007.
The important dates pertaining to these dividends
for shareholders trading on the JSE Limited are as
follows:
Last day to trade "cum" dividends Thursday, 27 December 2007
Shares trade "ex" dividends Friday, 28 December 2007
Record date Friday, 4 January 2008
Payment date Monday, 7 January 2008
Share certificates may not be dematerialised or
rematerialised between Friday, 28 December 2007 and
Friday, 4 January 2008, both days inclusive.
- Zimbabwe -
The important dates pertaining to these dividends
for shareholders trading on the Zimbabwe Stock
Exchange are as follows:
Currency conversion date* Friday, 4 January 2008
Shares trade "ex" dividends Friday, 28 December 2007
Last day to register to receive the Thursday, 27 December 2007
dividends
Payment date Monday, 7 January 2008
The register of members in Zimbabwe will be closed
from Friday, 28 December 2007 to Friday, 4 January
2008, both days inclusive, for the purpose of
determining those shareholders to whom the dividends
will be paid.
* The dividends will be paid in Zimbabwe Dollars at
the rate quoted by Stanbic Bank Zimbabwe Limited as
the official market buying rate of the SA Rand
against the Zimbabwe Dollar at or about 11:00 am on
Friday, 4 January 2008 or the first business day
thereafter on which foreign currency dealings are
transacted.
By order of the board
Barloworld Trust Company Limited
Secretaries
Per AR Holt
29 October 2007
Directors: MJ Shaw (Chairman), JE Gomersall* (Chief
executive officer), O Fenn* (Chief operating
officer), S Abdul Kader, RH Dent, P Esterhuysen, ZJ
Kganyago,
AJ Lamprecht, NB Langa-Royds, J Shibambo, EP Theron
*British
Registered office
180 Katherine Street, Sandton, South Africa
PO Box 782248
Sandton, 2146
South Africa
Transfer secretaries
Link Market Services SA (Pty) Limited
11 Diagonal Street, Johannesburg
South Africa
PO Box 4844, Johannesburg, 2000
South Africa
Transfer secretaries Zimbabwe
Corpserve (Private) Limited
4th Floor, Intermarket Centre, Corner
1st Street/Kwame Nkrumah Avenue
Harare, Zimbabwe
PO Box 2208, Harare, Zimbabwe
These results and other information are available on
the PPC website: www.ppc.co.za
Date: 30/10/2007 07:00:03 Produced by the JSE SENS Department.
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