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PPC - Pretoria Portland Cement Company Limited - Audited Preliminary Report For
The Year Ended 30 September 2008
Pretoria Portland Cement Company Limited
(Incorporated in the Republic of South Africa)
(Company registration number: 1892/000667/06)
JSE code: PPC
ISIN: ZAE000096475
AUDITED PRELIMINARY REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2008
REVENUES UP 12% TO R6,2 BILLION
CASH GENERATED FROM OPERATIONS UP 16% TO R2,5 BILLION
BATSWELEDI EXPANSION PROJECT COMMISSIONED
HEPS INCREASES 8% TO 283 CENTS
FINAL DIVIDEND OF 180 CENTS PER SHARE
Condensed consolidated income statement
Year ended
2008 2007
Audited Audited %
Rm Rm Change
Continuing operations
Revenue 6 248 5 566 12
Cost of sales 3 547 3 069 (16)
Gross profit 2 701 2 497 8
Administrative and other operating 378 323 (17)
expenditure
Operating profit 2 323 2 174 7
Fair value gains on financial 4 1
instruments
Finance costs 157 84 (87)
Investment income 84 82 2
Profit before exceptional items 2 254 2 173 4
Exceptional items 2 14
Share of associate`s retained 10 7
profit
Profit before taxation 2 266 2 194 3
Taxation 767 765
Net profit 1 499 1 429 5
Earnings per share (cents)
- basic and fully diluted 283 266 6
Adjusted for treasury shares purchased during the current period (refer to note
8)
Condensed consolidated balance sheet
2008 2007
Audited Audited
Rm Rm
ASSETS
Non-current assets 3 196 2 546
Property, plant and equipment 2 813 2 178
Intangible assets 19 20
Investment in non-consolidated subsidiary 260 260
Other non-current financial assets 90 78
Investment in associate 14 10
Current assets 1 338 2 336
Inventories 363 337
Trade and other receivables 751 696
Short-term investment - 2
Cash and cash equivalents 224 1 301
Total assets 4 534 4 882
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 115 868
Other reserves 57 16
Retained profit 1 541 1 465
Total equity 1 713 2 349
Non-current liabilities 511 340
Deferred taxation liabilities 299 156
Long-term borrowings 55 68
Provisions and other non-current liabilities 157 116
Current liabilities 2 310 2 193
Short-term borrowings 1 619 1 366
Trade and other payables and provisions 691 827
Total equity and liabilities 4 534 4 882
Net asset value per share (cents) 331 437
Adjusted for treasury shares purchased during the current period (refer to note
8)
Condensed consolidated statement of changes in equity
Year ended
2008 2007
Audited Audited
Rm Rm
Total equity
Balance at beginning of the year 2 349 2 203
Purchase of treasury shares (753) -
Cash flow hedge reserve (net of deferred 3 (33)
taxation)
Other movements 16 (38)
Net profit 1 499 1 429
Dividends declared (1 401) (1 212)
Balance at end of the year 1 713 2 349
Condensed consolidated cash flow statement
Year ended
2008 2007
Audited Audited
Rm Rm
Cash flow from operating activities
Operating cash flows before movements in 2 563 2 370
working capital
Net investment in working capital (17) (178)
Cash generated from operations 2 546 2 192
Net (finance costs)/investment income (102) 11
Taxation paid (800) (743)
Cash available from operations 1 644 1 460
Dividends paid (1 401) (1 207)
Equity-settled share incentive scheme 2 (30)
refund/(payment)
Net cash inflow from operating activities 245 223
Acquisition of property, plant and equipment (809) (772)
and other movements
Acquisition of treasury shares (753) -
Net cash outflow from investing activities (1 562) (772)
Net cash inflow from financing activities 240 368
Net decrease in cash and cash equivalents (1 077) (181)
Cash and cash equivalents at beginning of the 1 301 1 482
year
Cash and cash equivalents at end of the year 224 1 301
John Gomersall, CEO said "These are good results in a challenging year. Team PPC
worked tirelessly to achieve several milestones in the past year. The
commissioning of the new kiln at Dwaalboom, our 15% BBBEE transaction, record
cement production and an improved safety record. Unfortunately input costs such
as fuel, coal and electricity escalated alarmingly in the second half of the
year."
COMMENTARY
Industry Regional cement volumes declined marginally by 1.6% after seven
consecutive years of strong growth. This was due mainly to the continued drop in
demand from the formal residential sector but, in spite of the delays in
commencement of many infrastructure projects, demand from that sector virtually
offset the residential market decline.
Group revenue increased 12% to R6,2 billion whilst operating profit rose 7% to
R2,3 billion. All production units ran at full capacity to meet demand. The very
high increase in diesel prices caused a substantial increase in cement
distribution costs. Coal, electricity and maintenance costs also increased
significantly above inflation and future selling price increases will need to
achieve cost recovery of all these abnormal inflationary pressures.
Administrative and other operating expenditure was negatively impacted by R33
million representing R20 million in costs relating to the broad-based black
empowerment transaction and R13 million unbundling related medical aid costs.
Funding of the investment on expansion projects from borrowings, increased
finance charges to R157 million, net of interest capitalised to projects in
progress of R44 million.
The current year taxation charge was favourably impacted by reductions in both
the corporate taxation and STC rates. The impact of this rate reduction resulted
in a R62 million lower taxation charge.
In terms of shareholder authority granted at the previous annual general
meeting, a wholly-owned subsidiary of PPC acquired 14.9 million PPC shares
between 15 February 2008 and 31 March 2008 at an average price of R39.51 per
share, inclusive of transaction costs. A further 5.2 million shares were
acquired between 5 September 2008 and 30 September 2008 at an average price of
R31.29 per share. The total share repurchase cost of R753 million was funded
from surplus cash. This repurchase reduces the dilution effect of new shares to
be issued in terms of the BBBEE transaction and accounts for the equivalent
reduction in net asset value of the group.
Headline earnings per share increased by 8% to 283 cents per share, calculated
using the weighted number of shares in issue of 529 049 918 shares and also
adjusted for treasury shares held in terms of the share buy-back.
Cash generated from operations increased by 16% to R2,5 billion. Capital
expenditure outflows amounted to R794 million (2007: R954 million) with R471
million spent on the Dwaalboom kiln and Hercules mill projects. The balance of
expenditure was mainly of a replacement nature with the only significant
expansion project being R36 million to replace and upgrade the crusher at the
Laezonia quarry in Gauteng.
The directors have declared a final dividend of 180 cents per share (2007: 166
cents per share). Dividends declared for the year total 225 cents per share
(2007: 205 cents per share excluding the 2007 special dividend of 61 cents per
share).
CEMENT
PPC`s regional cement sales volumes were flat compared with last year. Whilst
the inland market continued to show some growth, excessive rain in the Western
and Eastern Cape Provinces during the September quarter saw demand reduce
significantly compared to the previous financial year.
We reduced cement imports into South Africa to 70 000 tons (2007: 202 000 tons)
and as from January were able to supply from our local operations. We continued
to supply the Mozambique market from imports.
Input cost increases above the average PPI inflation continued as international
energy and resource demand grew during most of the financial year, putting
pressure on availability and pricing. Whilst the current international economic
crisis has already impacted on international pricing specifically for crude oil,
steel and coal, the reduction in local input cost is expected to take some time
to flow through.
The company`s Behavioural-Based Safety initiative has shown further improvement
this year with the Lost Time Injury Frequency Rate declining to 1.5 lost time
injuries per every million man-hours worked. This is a proud achievement given
the pressure the team has been working under this past year.
The Batsweledi capacity expansion at Dwaalboom was commissioned in the last week
of September, within budget and achieved warranted output during a 5-day test in
the first month of production. This is a remarkable achievement for such a large
and complex project. The ramp up to consistent full output will however take
some months.
The Hercules mill upgrade and expansion project is progressing on schedule and
within budget and will provide additional cement milling capacity in the Inland
region when it comes on stream by the end of the third calendar quarter 2009.
The Riebeeck West expansion project in the Western Cape continues to be delayed
by the environmental impact assessment and regulatory approval process.
ZIMBABWE CEMENT
The situation in Zimbabwe has reached the point where effectively major parts of
the economy including parastatals are only functioning in foreign currency.
Zimbabwe now desperately requires a political settlement to facilitate the
economic reconstruction that is so badly needed.
LIME AND AGGREGATES
The spiralling coal, diesel and electricity price increases in the Lime
operation reduced margins during the second half and will continue to do so in
the short term until such time as they are recovered in terms of contractual
sales price adjustments. Operations performed well during the period under
review and a new milestone of 3 million injury free hours was achieved in
September 2008, a new PPC record. The recent announcements of production cut-
backs by steel producers will lead to reduced demand in the year ahead.
Local aggregate volumes improved on last year with increased metallurgical
dolomite stone demand. The volumes at the Kgale quarry in Botswana increased
substantially following the continued investment in infrastructure and
commercial development projects in that country.
BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION
The company announced details of its empowerment transaction in August 2008,
which is to be approved by shareholders at a general and a scheme meeting to be
held today. The 15.29% broad-based black ownership initiative incorporates PPC
employees, the communities in which PPC operates, construction and related
industry associations, education and community service groups, the disabled, and
strategic black partners.
BOARD APPOINTMENTS
Mr BL Sibiya was appointed to the board on 10 November 2008 and as the
independent non-executive chairman with effect from 17 November 2008. Mr TDA
Ross was appointed to the board on 17 July 2008 as independent non-executive
director and was also appointed as chairman of the Audit Committee.
PROSPECTS
The current turmoil in global markets will have an impact on the South African
economy. However, this is likely to be less in the infrastructural intensive
sector than in the formal residential sector. Cement demand for rural and
affordable housing is expected to continue as the Government plans to eliminate
the backlog of almost 3 million houses by 2014.
Treasury announced in its Medium Term Budget Policy Statement that Government
plans capital investment in excess of R600 billion over the next three years.
This will give rise to accelerated investment by public enterprises and should
ensure that the strong demand from infrastructure projects will continue.
In the current environment it is impossible to give a definitive outlook for the
year ahead. The company has examined different scenarios for cement demand
ranging from modest to negative growth and has action plans in place that will
be implemented as the actual scenario unfolds.
The company will also optimise production units, benefiting from the additional
output and lower production cost of the new Dwaalboom kiln2 and should be able
to supply all regional demand without the need for imports. In addition plans to
re-enter export markets from own production have already been implemented.
Together with appropriate increased cost recovery, this should enable the
company to report a steady performance and continue to reflect a strong
operating cash flow for the year ahead.
On behalf of the board
MJ Shaw JE Gomersall
Chairman Chief executive officer
10 November 2008
Dividend announcement
Notice is hereby given that the following dividend has been declared in respect
of the year ended 30 September 2008:
- number 210 (final dividend) of 180 cents per share
This dividend will be paid out of profits as determined by the directors.
The important dates pertaining to this dividend for shareholders trading on the
JSE Limited are as follows:
Last day to trade cum dividend Friday, 2 January 2009
Shares trade ex dividend Monday, 5 January 2009
Record date Friday, 9 January 2009
Payment date Monday, 12 January 2009
Share certificates may not be dematerialised or rematerialised between Monday, 5
January 2009 and Friday, 9 January 2009, both days inclusive.
Zimbabwe
The important dates pertaining to this dividend for shareholders trading on the
Zimbabwe Stock Exchange are as follows:
Currency conversion date* Friday, 9 January 2009
Shares trade ex dividend Monday, 5 January 2009
Last day to register to receive
the dividend Friday, 9 January 2009
Payment date Monday, 12 January 2009
The register of members in Zimbabwe will be closed from Monday,
5 January 2009 to Friday, 9 January 2009, both days inclusive, for the purpose
of determining those shareholders to whom the dividend will be paid.
*The dividend 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 Friday, 9 January 2009 or the first
business day thereafter on which foreign currency dealings are transacted.
By order of the board
JHDLR Snyman
Group company secretary
10 November 2008
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 polices and methods of computation used are
consistent with those applied in the preparation of the annual financial
statements for the year ended 30 September 2008.
The group has adopted the following new or revised accounting standards and
interpretations in the current period, which did not have a material impact on
the reported results:
IFRS 7: Financial Instruments: Disclosures
IFRS 8: Operating Segments
IFRS 2: Share-based Payment (Amendment) (Vesting Conditions and Cancellations)
IFRIC 15: Agreements for the Construction of Real Estate
IFRIC 16: Hedges of a Net Investment in a Foreign Operation
The following revised standard is in issue but not yet effective:
IAS 1 (Revised): Presentation of Financial Statements
This standard will be adopted by PPC in the future.
Various improvements to IFRSs
Various standards have been amended as a result of the IASB`s improvement
project. Management is in the process of considering the relevant amendments to
the standards and determining the financial implications on the group.
2008 2007
Audited Audited
Rm Rm
2. Profit before taxation
Included in profit before taxation are:
Amortisation of intangible assets 4 4
Depreciation 214 192
Proposed broad-based black ownership 20 -
initiative consultation fees expensed
3. Finance costs
Bank and other borrowings 182 68
Financial lease interest 10 16
Unwinding of discount on rehabilitation 9 8
provisions
201 92
Interest capitalised to property, plant and (44) (8)
equipment
157 84
4. Ordinary shares
- in issue, net of treasury shares (000) 517 472 537 612
- weighted average number of shares (000) 529 050 537 612
- diluted weighted average number of shares 529 050 537 612
(000)
5. Dividends per share
- special (cents) - 61,0
- final (cents) 180,0 166,0
- interim (cents) 45,0 38,5
225,0 265,5
6. Headline earnings per share
Headline earnings per share (cents)
- basic and fully diluted, adjusted for 283 263
treasury shares
Determination of headline earnings per
share
Net profit per share (cents) 283 266
Adjusted for (after taxation):
Profit on disposal of property, plant and - (3)
equipment, investments and intangible
assets
283 263
Headline earnings (Rm)
Net profit 1 499 1 429
Profit on disposal of properties, plant and
equipment, investments
and intangible assets (4) (15)
Impairments - 1
1 495 1 415
7. Cash earnings per share
Cash earnings per share (cents)
- basic and fully diluted, adjusted for 311 272
treasury shares
Cash earnings per share is calculated using cash available
from operations divided by the weighted average number of
shares in issue for the period.
8. Share capital and premium
Issued share capital
537 612 390 ordinary shares in issue at 54 54
beginning of the year
20 140 401 ordinary shares bought back (2) -
during the year
517 471 989 ordinary shares in issue at end 52 54
of the year
Share premium 63 814
Balance at beginning of the year 814 814
Utilised for purchase of treasury shares (751) -
Total issued share capital and premium 115 868
During the year, a group subsidiary company bought back 20 140
401 ordinary shares in the company, which are held as treasury
shares. As these shares were purchased during the year, the
impact on earnings and headline earnings per share is reduced
as the shares are weighted for the period for which they have
been held as treasury shares.
9. Investments
Unlisted investments at fair value 36 28
Directors` valuation of unlisted 36 28
investments
10. Group segment analysis
Revenue
Cement 5 368 4 798
Lime 599 512
Aggregates 281 262
6 248 5 572
Less: Intersegment-revenue - (6)
Total revenue 6 248 5 566
Operating profit
Cement 2 100 1 951
Lime 141 154
Aggregates 82 69
2 323 2 174
Total assets
Cement 3 944 4 407
Lime 404 338
Aggregates 186 137
4 534 4 882
11. Non-consolidation of Portland Holdings Limited (Porthold)
The results of Porthold, a wholly-owned Zimbabwean subsidiary, have not been
consolidated into the group as at 30 September 2008. There are significant
constraints impacting on the normal operations 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 group results in the current reporting
period.
Due to the exceptional economic circumstances being experienced in Zimbabwe, and
the difficulty in determining a reasonable exchange rate, disclosure of the
financial results of Porthold is not meaningful, and has therefore not been
provided.
12. Borrowings 1 674 1 434
These facilities were mainly utilised to fund capital expansion programmes and
working capital investments. The borrowings bear interest at prevailing market
rates. The company`s borrowing powers are not restricted. At year end, the
company had borrowing facilities of R2 570 million.
In terms of the proposed broad-based black ownership initiative, the company
will receive approximately R1,5 billion in long-term debt, which is intended as
part repayment of the short-term borrowings.
The increased cost of borrowings has led to a 9,85 cents per share reduction in
both EPS and HEPS over the prior year.
13. Commitments
- contracted capital commitments 378 766
- approved capital commitments 427 537
Capital commitments 805 1 303
Operating lease commitments 31 22
836 1 325
These commitments will be met from existing cash resources and borrowing
facilities available to the group.
14. Contingent liabilities
Guarantees for loans, banking facilities and other - 8
obligations to third parties
15. Post-balance sheet events
There are no post-balance sheet events that may have an impact on the group`s
reported financial position as at 30 September 2008.
16. Auditors` review
The auditors, Deloitte & Touche, have issued their opinion on the group`s
financial statements for the year ended 30 September 2008. A copy of their
unmodified report is available for inspection at the company`s registered
office.
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, TDA Ross, NB Langa-Royds, J
Shibambo *British
Registered Office: 180 Katherine Street, Sandton, South Africa (PO Box 787416,
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)
Disclaimer
This document contains certain forward-looking statements with respect to
certain of the group`s plans and its current goals and expectations relating to
its future financial condition and performance. Examples of forward-looking
statements include, among others, statements regarding the group`s future
financial position, income growth, impairment charges, business strategy,
projected levels of growth in the construction industry, projected costs,
estimates of capital expenditures, and plans and objectives for future
operations. By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances, including,
but not limited to, domestic and global economic and business conditions, the
effects of continued volatility in credit markets, market related risks such as
changes in interest rates and exchange rates, the policies and actions of
governmental and regulatory authorities, changes in legislation, the further
development of standards and interpretations under International Financial
Reporting Standards (IFRS) applicable to past, current and future periods,
evolving practices with regard to the interpretation and application of
standards under IFRS and other strategic transactions and the impact of
competition - a number of which factors are beyond the group`s control. Whereas
the group`s actual future results may differ materially from the plans, goals,
and expectations set forth in the group`s forward-looking statements, PPC
accepts no responsibility for any consequential, indirect, special or incidental
damages, whether foreseeable or unforeseeable, based on claims arising out of
misrepresentation or negligence arising in connection with a forward-looking
statement.
Forward-looking statements apply only as of the date on which they are made, and
we do not undertake other than in terms of the Listing Requirements of the JSE
Limited, any obligation to update or revise any of them, whether as a result of
new information, future events or otherwise. All profit forecasts published in
this preliminary report are audited.
These results and other information are available on our website:
www.ppc.co.za
Date: 11/11/2008 07:05:12 Supplied by www.sharenet.co.za
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