Wrap Text
Reviewed Condensed Consolidated Financial Statements for the quarter ended 30 June 2016
PPC Limited
(Incorporated in the Republic of South Africa)
(Company registration number 1892/000667/06)
JSE Code: PPC
JSE ISIN: ZAE 000170049
ZSE Code: PPC
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the quarter ended 30 June 2016
• GROUP CEMENT SALES VOLUMES IMPROVE BY 9%
• RWANDA RAMP UP CONTINUES AS PLANNED
• GROUP REVENUE OF R2,4 BILLION - UP 6%
• GOOD COST CONTAINMENT, WITH OVERHEAD COSTS DECREASING 17% TO R251 MILLION
• EBITDA OF R574 MILLION - DOWN 1%
• EARNINGS PER SHARE DOWN 55% TO 17 CENTS
Darryll Castle, CEO, said: “PPC’s group revenue has improved by 6% supported by strong cement sales volume growth in
South Africa and Rwanda. Cement sales volumes grew in excess of 30% in the Coastal regions in South Africa. The
downward pricing trend in the South African cement market seems to be slowing however on a year-on-year basis, single
digit declines were recorded. The materials business also contributed positively to group revenue. Good cost control
has led to further impressive declines in group overheads while variable delivered cost of sales per tonne in the
South African cement business were well below inflation. The steady ramp up in Rwanda continues at a measured pace,
with over 60 000 tonnes of cement sold in this quarter at market related pricing. The Harare mill is at an advanced
stage with first product sales expected during the last calendar quarter of 2016. We continue to expect product sales
in the DRC and Ethiopia in calendar 2017.”
COMMENTARY
PPC group performance
Group revenue increased by 6%, from R2 278 million for the three months ended 30 June 2015 to
R2 425 million for the three months ended 30 June 2016. Cement sales revenue in South Africa rose by 2% with volumes
rising 9%; reflective of a weaker year-on-year pricing environment. The strong volume growth is largely as a result
of reduced import activity in the coastal regions. Revenues from outside South Africa rose by 19% on the back of
significant volume growth at our newly commissioned plant in Rwanda as well as gains from currency translations in
Zimbabwe and Botswana. The materials division recorded a 1% increase in revenues despite some weakness in lime
volumes.
The group’s cost of sales increased by 14% to R1 795 million (2015: R1 569 million). This increase was mainly due to
higher volumes in the South African cement business and logistics costs increasing by 3% as a result of increased
lead distances while on variable cost per tonne, the South African cement business once again reflected good cost
management as costs ended in line with those achieved last year. On consolidation of foreign currency denominated
subsidiaries, the weakness of the rand contributed to rising cost of sales.
Gross profit decreased by 11%, from R709 million for the quarter ended June 2015 to R630 million for the current
quarter. This decrease was mainly ascribed to the impact of selling prices pressures felt in our key cement operating
markets together with the lower sales volumes in Zimbabwe and Botswana.
Administration and other operating expenditure of R251 million decreased by 17% from the R301 million recorded in
2015 following continued benefits from the Profit Improvement Programme, combined with savings from lower marketing
costs and IFRS 2 charges on the group’s long-term incentive schemes.
Group EBITDA declined 1% to R574 million (2015: R580 million), with an EBITDA margin of 23,7% (2015: 25,5%) mainly
due to weakness in the selling pricing environment.
Finance costs, including fair value adjustments on financial instruments, increased by 79% from R131 million to R235
million. The year-on-year increase was mainly due CIMERWA’s finance costs of R53 million being expensed to the income
statement during the current reporting period in comparison to the prior reporting period where they were capitalised
in terms of pre-commissioning costs. Raising and arrangement costs of R39 million were also incurred on the liquidity
and guarantee facility that was secured in June 2016 to redeem noteholders.
The group’s taxation charge decreased by 43% from R102 million to R58 million, while the effective taxation rate
increased four percentage points to 41.7%. The decrease in the taxation charge is as a result of the lower
profitability achieved partly offset by increased foreign withholding taxes of R19 million on dividends declared from
subsidiary companies.
Profit for the period of R81 million decreased by 52% from the R169 million recorded in 2015 on reduced gross profits,
higher finance costs and increased withholding taxation partially offset by savings in administration and other
operating expenditure.
Cash generated from operations of R470 million (2015: R666 million) was significantly lower on the back of increasing
working capital. Similarly, the group cash-conversion ratio at 0,8 was below the 1,1, which was achieved in the
previous period.
Capital investments in property, plant and equipment amounted to R542 million (2015: R1 013 million), with R481 million
used for the Slurry kiln 9 project in South Africa and expansions in the DRC and Zimbabwe. Group debt has increased to
R9 609 million (March 2016: R9 171 million) as the company made use of the project funding facilities.
CEMENT
PPC group cement revenue rose 9% to R1 959 million (2015: R1 795 million) on volume growth despite increased
competition, while EBITDA fell 2,5% to R467 million (2015: R479 million). The EBITDA margin fell to 24% from 27% due
to selling pricing pressures.
South Africa
PPC’s cement sales volumes improved by 9% reflecting strong volume growth in the coastal regions. Sales volumes in the
Western and Eastern Cape provinces rose by over 30% benefitting from lower import activity. No volume growth was
recorded in the Inland and Gauteng regions reflecting the intense competitor pressure in these regions. Average selling
prices declined by 7% across the country against the same period last year.
Variable delivered cost of sales per tonne ended in line with the amount achieved in the prior reporting period while
fixed costs decreased by 1%. Cost savings were realised from maintenance, depreciation and power, partly offset by
higher fuel costs.
International
Cement revenue in the International business division rose 19% to R687 million (2015: R577 million) largely due to the
ramping up of the 600 000 tonne per annum plant in Rwanda. In line with this, EBITDA increased 26% to R195 million
(2015: R150 million), bringing the EBITDA margin in this segment to 29%. Weakness in the Zimbabwean economy as well as
the effect of some import activity has led to EBITDA margins in this unit declining 7 percentage points. Similarly,
the Botswana division also recorded declines in EBITDA as volumes and selling prices declined. Volumes in excess of
60 000 tons were sold in Rwanda during the quarter leading to increased contributions to revenues and EBITDA.
MATERIALS BUSINESS
Revenue in the lime business decreased 2% while it rose 4% in the aggregates and readymix divisions. Good product mix
and cost control in the lime business led to EBITDA remaining flat at R56 million while rising 13% in the aggregates
and readymix divisions to end at R51 million (2015: R45 million).
PROJECTS UPDATE
Democratic Republic of the Congo
As at 30 June 2016, overall total factory construction was 85% complete. The group expects hot commissioning and first
clinker production to take place at the end of the 2016 calendar year, with first cement production and sales to start
in early 2017. Performance testing will be performed over the two months ending 30 April 2017, with an expected project
completion date and handover of operations by the end of June 2017. Production ramp-up will coincide with first cement
production.
Zimbabwe
The Harare Mill was 84% complete at 30 June 2016, and commissioning and ramp-up is expected during the last calendar
quarter of 2016. Operational readiness activities are under way with staffing, skills transfer, material and equipment
plans being implemented against a ramp-up plan. Once the Harare Mill is commissioned, two smaller cement mills will be
retired resulting in a combined national capacity of 1.4mtpa benefitting from improved technology and scale
efficiencies.
Ethiopia
As at 30 June 2016, the Habesha plant was 74% complete. It is expected to be commissioned in the second calendar
quarter of 2017. The main plant power agreement is in place with the Ethiopian power authorities and the contract
for supply and construction of a 14km 132KV transmission line has been awarded.
Slurry
Work on the new approximately R1.7 billion, 1mtpa clinker production line (SK9) at PPC Slurry is on schedule. Tower
crane erection and load tests are completed, preheater civil works are completed and on site manufacturing is about
31% complete. While issuing work permits to the EPC contractor’s workforce has been delayed for 3 months, as an
interim plan to avoid delaying implementation, the contractor has partnered with local contractors to begin the
main earthworks. The project is on schedule for commissioning and ramp-up in 2018.
CONCLUSION OF ACQUISITION
In line with the materials business strategy, PPC concluded the acquisition of 3Q Mahuma Concrete (Pty) Ltd (3Q)
on an asset-for-share agreement for a consideration of R135 million in July 2016. 3Q was one of the largest
independently owned readymix concrete supplier in South Africa and has been in business for the past 9 years. The
company has branches in Limpopo, Northwest, Northern Cape, Mpumalanga and Mozambique. This acquisition will extend
PPC’s readymix footprint.
RIGHTS ISSUE
Following the finalisation of the liquidity and guarantee facility with the banks in June 2016, the company repaid
noteholders who elected to early redeem their notes following the downgrading of the company’s corporate credit
rating in May 2016.
In terms of the proposed rights issue, shareholders approved all resolutions at the general meeting held on
1 August 2016, thereby allowing the company to progress with its planned rights issue. In addition, on
24 August 2016 the R4 billion capital raise was successfully underwritten. The timing of the rights issue remains
on track for completion during September 2016.
Following the completion of the liquidity and guarantee facility and underwrite of the rights issue, the initial
disclaimer raised by the auditors on the group’s reviewed results to March 2016 is no longer applicable as the
auditors have provided the company with an unmodified audit opinion on the results for the six months ended March
2016. The company believes that once the proceeds of the rights issue are received, it will be able to meet its
obligations as they fall due and be a going concern for the foreseeable future.
On behalf of the board
PG Nelson DJ Castle MMT Ramano
Interim chairman Chief executive officer Chief financial officer
24 August 2016
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six month
Quarter ended Quarter ended period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited % Audited
Notes Rm Rm Change Rm
Revenue 2 425 2 278 6 4 501
Cost of sales 1 795 1 569 14 3 261
Gross profit 630 709 (11) 1 240
Administration and other operating expenditure 251 301 (17) 489
Operating profit before item listed below: 379 408 (7) 751
Empowerment transactions IFRS 2 charges 8 9 18
Operating profit 371 399 (7) 733
Finance costs (including fair value adjustments on
financial instruments) 2 235 131 79 350
Investment income 3 6 12
Profit before exceptional items 139 274 (49) 395
Impairments - (3) (5)
Profit on sale of non-core assets - - 117
Profit before taxation 139 271 (49) 507
Taxation 3 58 102 (43) 156
Profit for the period 81 169 (52) 351
Attributable to:
Shareholders of PPC Ltd 87 198 (56) 369
Non-controlling interests (6) (29) (18)
Other comprehensive income, net of taxation
Items that will be reclassified to profit or loss (26) (57) 177
Cash flow hedges (19) - 10
Taxation on cash flow hedges 5 - (3)
Reclassification of profit on sale of available for
sale financial asset to profit and loss - - (82)
Taxation impact on reclassification of profit on sale
of available for sale financial asset to profit and loss - - 15
Translation of foreign operations (12) (57) 237
Total comprehensive income 55 112 528
Attributable to:
Shareholders of PPC Ltd 70 174 520
Non-controlling interests (15) (62) 8
EARNINGS PER SHARE (CENTS) 4
Basic 17 38 (55) 70
Diluted 16 38 (58) 69
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Notes Rm Rm Rm
ASSETS
Non-current assets 13 955 10 609 13 579
Property, plant and equipment 5 12 082 8 854 11 716
Goodwill 6 258 248 255
Other intangible assets 7 738 752 766
Equity accounted investments 8 200 219 200
Other non-current assets 9 621 516 590
Deferred taxation assets 56 20 52
Non-current assets held for sale 10 42 - 42
Current assets 2 879 2 627 2 768
Inventories 1 070 1 045 1 121
Trade and other receivables 11 1 197 1 096 1 187
Cash and cash equivalents 612 486 460
Total assets 16 876 13 236 1 ,389
EQUITY AND LIABILITIES
Capital and reserves
Stated capital 12 (1 113) (1 165) ( ,113)
Other reserves 1 555 942 1,558
Retained profit 2 667 2 189 2 583
Equity attributable to shareholders of PPC Ltd 3 109 1,966 3,028
Non-controlling interests 520 695 535
Total equity 3 629 2 661 3 563
Non-current liabilities 7 495 7 380 6 729
Provisions 414 401 408
Deferred taxation liabilities 13 1 165 938 1 178
Long-term borrowings 14 5 373 5 897 4 614
Other non-current liabilities 15 543 144 529
Current liabilities 5 752 3 195 6 097
Short-term borrowings 16 4 236 1 557 4 557
Trade and other payables and short-term provisions 17 1 516 1 638 1 540
Total equity and liabilities 16 876 13 236 16 389
Net asset book value per share (cents) 588 373 573
CONSENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six month
Quarter ended Quarter ended period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Notes Rm Rm Rm
Cash flow from operating activities
Operating cash flows 575 565 1 137
Working capital movements (105) 101 (324)
Cash generated from operations 470 666 813
Finance costs paid 2/14 (324) (90) (292)
Investment income received 2 6 8
Taxation paid (5) (43) (195)
Cash available from operations 143 539 334
Dividends paid - (126) (185)
Net cash inflow from operating activities 143 413 149
Cash flow from investing activities
Acquisition of additional shares in equity accounted
investment - - (75)
Investments in property, plant and equipment and intangible assets (542) (1 013) (1 188)
Movement in other non-current assets - - (181)
Proceeds on sale of equity accounted investment and available-for-sale
financial asset - - 153
Other investing movements (13) - 8
Net cash outflow from investing activities (555) (1 013) (1 283)
Cash flow from financing activities
Net borrowings raised before repayment of notes 14 571 684 1 499
Purchase of shares in terms of the FSP share incentive scheme 12 - (24) -
Repayment of notes 14 - - (650)
Net cash inflow from financing activities 571 660 849
Net movement in cash and cash equivalents 159 60 (285)
Cash and cash equivalents at beginning of the period 460 464 718
Exchange rate movements on opening cash and cash equivalents (7) (38) 27
Cash and cash equivalents at end of the period 612 486 460
Cash earnings per share (cents) (a) 27 103 63
Cash conversion ratio (b) 0.8 1.1 0.7
(a) Cash earnings per share is calculated using cash available from operations divided by the total weighted average number of shares
in issue for the period.
(b) Cash conversion ratio is calculated using cash generated from operations divided by EBITDA.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Other reserves
Foreign Equity Non-
currency Available- Equity attri- cont-
trans- for-sale compen- butable to rolling
Stated lation financial Hedging sation Retained shareholders inter- Total
capital reserve asset reserve reserve profit of PPC Ltd ests equity
Rm Rm Rm Rm Rm Rm Rm Rm Rm
Balance at March 2015 (unaudited) (1 141) 625 84 - 232 2 123 1 923 757 2 680
Dividends declared - - - - - (129) (129) - (129)
IFRS 2 charges - - - - 22 - 22 - 22
Shares purchased in terms of FSP
incentive scheme treated as
treasury shares (refer note 12) (24) - - - - - (24) - (24)
Total comprehensive income/(loss) - (24) - - - 198 174 (62) 112
Transfer to retained profit - - - - 3 (3) - - -
Balance at June 2015 (unaudited) (1 165) 601 84 - 257 2 189 1 966 695 2 661
Dividends declared - - - - - (185) (185) (7) (192)
IFRS 2 charges - - - - 32 - 32 - 32
Investment by non-controlling
shareholder in PPC Barnet DRC
Holdings (refer note 15) - - - - - - - 134 134
Issuance of shares to fund an
additional investment in Safika
Cement (refer note 12 and 15) 26 - - - - - 26 - 26
Put option recognised on
non-controlling shareholder
investment in subsidiary
(refer note 15) - - - - - - - (422) (422)
Total comprehensive income/(loss) - 644 (70) 34 - 595 1 203 122 1 325
Transactions with
non-controlling shareholders
recognised directly in equity - - - - - (14) (14) 13 (1)
Transfer to retained profit - - - - 2 (2) - - -
Vesting of FSP share incentive
scheme awards 26 - - - (26) - - - -
Balance at March 2016 (audited) (1 113) 1 245 14 34 265 2 583 3 028 535 3 563
IFRS 2 charges - - - - 11 - 11 - 11
Total comprehensive income/(loss) - (3) - (14) - 87 70 (15) 55
Transfer to retained profit - - - - 3 (3) - - -
Balance at June 2016 (reviewed) (1 113) 1 242 14 20 279 2 667 3 109 520 3 629
SEGMENTAL INFORMATION
The group discloses its operating segments according to the business units which are regularly reviewed by the group
executive committee and comprise cement, lime, aggregates and readymix and other. There has been no change in reporting
segments during the quarter under review.
Revenue is split between South Africa and the rest of Africa based on where the underlying products are anticipated to
be consumed or used by the customer.
No individual customer comprises more than 10% of group revenue.
Group Cement(a)
30 June 30 June 31 March 30 June 30 June 31 March
2016 2015 2016 2016 2015 2016
Reviewed Unaudited Audited Reviewed Unaudited Audited
kt kt kt kt kt kt
Volumes
1 415 1 298 2 614
Readymix volumes (000m3)
Rm Rm Rm Rm Rm Rm
Revenue
South Africa 1 757 1 699 3 219 1 272 1 218 2 386
Rest of Africa 718 605 1 367 687 577 1 314
2 475 2 304 4 586 1 959 1 795 3 700
Inter-segment revenue(d) (50) (26) (85)
Total revenue 2 425 2 278 4 501
Operating profit before item listed below 379 408 764 299 330 645
Empowerment transactions IFRS 2 charges 8 9 18 8 9 18
Restructuring costs - - 13 - - 13
Operating profit 371 399 733 291 321 614
South Africa 241 284 522 162 204 404
Rest of Africa 130 115 211 129 117 210
Fair value (losses)/gains on financial instruments (15) 3 (20) (16) 3 (20)
Finance costs 220 134 330 199 108 282
Investment income 3 6 12 - 3 8
Profit before exceptional items 139 274 395 76 219 320
Impairments and other exceptional items - (3) 112 - (3) 113
Profit before taxation 139 271 507 76 216 433
Taxation 58 102 156 36 83 129
Profit for the period 81 169 351 40 132 304
Depreciation and amortisation 195 172 393 168 149 340
EBITDA 574 580 1 144 467 479 972
South Africa 377 430 793 272 329 624
Rest of Africa 197 150 351 195 150 348
EBITDA margin (%) 24% 25% 25% 24% 27% 26%
Assets
Non-current assets 13 955 10 609 13 579 12 993 9 672 12 613
South Africa 5 318 5 279 5 205 4 397 4 392 4 280
Rest of Africa 8 637 5 330 8 374 8 596 5 280 8 333
Current assets 2 879 2 627 2 768 2 446 2 149 2 343
Non-current assets held for sale 42 - 42 42 - 42
Total assets 16 876 13 236 16 389 15 481 11 821 14 998
South Africa 6 877 6 593 6 753 5 564 5 284 5 441
Rest of Africa 9 999 6 643 9 636 9 917 6 537 9 557
Liabilities
Non-current liabilities 7 495 7 380 6 729 7 304 6 061 6 536
Current liabilities 5 752 3 195 6 097 4 676 2 872 5 038
Total liabilities 13 247 10 575 12 826 11 980 8 933 11 574
South Africa 8 128 7 989 8 148 6 889 6 370 6 921
Rest of Africa 5 119 2 586 4 678 5 091 2 563 4 653
Capital commitments (refer note 18) 2 869 3 509 3 283 2 841 3 472 3 219
SEGMENTAL INFORMATION continued
Materials business
Lime Aggregates and Readymix (b)
30 June 30 June 31 March 30 June 30 June 31 March
2016 2015 2016 2016 2015 2016
Reviewed Unaudited Audited Reviewed Unaudited Audited
kt kt kt kt kt kt
Volumes
239 250 413 799 758 1 405
Readymix volumes (000m3) 141 132 239
Rm Rm Rm Rm Rm Rm
Revenue
South Africa 215 220 378 270 261 455
Rest of Africa 5 4 5 26 24 48
220 224 383 296 285 503
Inter-segment revenue(d)
Total revenue
Operating profit before item listed below 44 44 75 36 34 44
Empowerment transactions IFRS 2 charges - - - - - -
Restructuring costs - - - - - -
Operating profit 44 44 75 36 34 44
South Africa 44 44 75 35 36 43
Rest of Africa - - - 1 (2) 1
Fair value (losses)/gains on financial instruments 1 - - - 1 -
Finance costs (1) 1 2 3 - 4
Investment income 1 1 1 2 2 3
Profit before exceptional items 47 44 74 35 37 43
Impairments and other exceptional items - - - - - (1)
Profit before taxation 47 44 74 35 37 42
Taxation 13 10 21 9 9 6
Profit for the period 34 34 53 26 28 36
Depreciation and amortisation 12 12 21 15 11 32
EBITDA 56 56 96 51 45 76
South Africa 56 56 96 49 45 73
Rest of Africa - - - 2 - 3
EBITDA margin (%) 25% 25% 25% 17% 16% 15%
Assets
Non-current assets 322 292 325 640 645 641
South Africa 322 292 325 599 595 600
Rest of Africa - - - 41 50 41
Current assets 168 190 187 264 279 237
Non-current assets held for sale - - - - - -
Total assets 490 482 512 904 924 878
South Africa 490 482 512 822 818 799
Rest of Africa - - - 82 106 79
Liabilities
Non-current liabilities 103 92 103 88 89 90
Current liabilities 78 91 90 144 139 125
Total liabilities 181 183 193 232 228 215
South Africa 181 183 193 204 205 190
Rest of Africa - - - 28 23 25
Capital commitments (refer note 18) 4 12 5 24 25 59
SEGMENTAL INFORMATION continued
Other (c)
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
kt kt kt
Volumes
- - -
Readymix volumes (000m3)
Rm Rm Rm
Revenue
South Africa - - -
Rest of Africa - - -
- - -
Inter-segment revenue(d)
Total revenue
Operating profit before item listed below - - -
Empowerment transactions IFRS 2 charges - - -
Restructuring costs - - -
Operating profit - - -
South Africa - - -
Rest of Africa - - -
Fair value (losses)/gains on financial instruments - - -
Finance costs 19 25 42
Investment income - - -
Profit before exceptional items (19) (25) (42)
Impairments and other exceptional items - - -
Profit before taxation (19) (25) (42)
Taxation - - -
Profit for the period (19) (25) (42)
Depreciation and amortisation - - -
EBITDA - - -
South Africa - - -
Rest of Africa - - -
EBITDA margin (%) - - -
Assets
Non-current assets - - -
South Africa - - -
Rest of Africa - - -
Current assets 1 9 1
Non-current assets held for sale - - -
Total assets 1 9 1
South Africa 1 9 1
Rest of Africa - - -
Liabilities
Non-current liabilities - 1 138 -
Current liabilities 854 93 844
Total liabilities 854 1 231 844
South Africa 854 1 231 844
Rest of Africa - - -
Capital commitments (refer note 18) - - -
(a) Includes head office activities
(b) Aggregates and readymix have been aggregated in line with industry practices
(c) Comprises BBBEE trusts and trust funding SPVs
(d) All inter-segmental transactions are done at arm’s length
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with International Financial
Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council
and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of
these interim financial statements are in terms of International Financial Reporting Standards and are consistent
with those applied in the previous consolidated annual financial statements.
These condensed consolidated financial statements have been prepared under the supervision of MMT Ramano CA(SA), chief
financial officer, and were approved by the board of directors on 24 August 2016.
The accounting policies and methods of computation used are consistent with those used in the preparation of the financial
statements for the period ended 31 March 2016, the group’s new financial year end, except for the following revised accounting
standards and interpretations that became effective during the period, and which did not have a material impact on the reported
results:
IAS 1 Presentation of financial statements (amendment) Disclosure initiative
IFRS 14 Regulatory Deferral Accounts
IAS 16 Property, plant and equipment and 41 Agriculture (amendments) Agriculture: Bearer Plants
IFRS 11 Joint arrangements (amendment) Accounting for Acquisition of Interests in Joint Operations
IAS 16 Property, plant and equipment and IAS 38 Intangible assets (amendment) Clarification of Acceptable Methods of
Depreciation and Amortisation
IAS 28 Investment in Associates and Joint Ventures, IFRS 10 Consolidated financial statements and IFRS 12 Disclosure
of Interests in Other Entities (amendments) Investment Entities: Applying the Consolidation Exception
IAS 27 Separate financial statements (amendment) Equity Method
IASB improvements to IFRS 2012 - 2014
These financial statements have been prepared on the going concern assumption. Details thereof can be found in
note 21.
Auditor’s conclusion
These condensed consolidated financial statements for the quarter ended 30 June 2016 have been reviewed by Deloitte & Touche,
who expressed an unmodified review conclusion thereon. The auditors have however included an emphasis of matter in their report,
which makes reference to the going concern note. A copy of the auditor’s review report on the condensed consolidated financial
statements is available for inspection at the company’s registered office. The auditor’s report does not necessarily report on
all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor’s engagement, they should obtain a copy of that report.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
2 Finance costs (including fair value
adjustments on financial instruments)
Bank and other short-term borrowings 12 18 49
Notes 39 47 98
Long-term loans 241 131 229
292 196 376
Capitalised to plant and equipment
and intangible assets (102) (98) (119)
Finance costs before BBBEE transaction
and time value of money adjustments 190 98 257
BBBEE transaction 19 25 41
Dividends on redeemable preference shares 9 10 19
Long-term borrowings 10 15 22
Time value of money adjustments on rehabilitation
and decommissioning provisions and put option liabilities 11 11 32
Finance costs 220 134 330
Fair value loss/(gains) on financial instruments 15 (3) 20
235 131 350
South Africa 176 130 239
Rest of Africa 59 1 111
Included in finance costs, as part of notes, long-term loans and BBBEE transactions, are transaction costs of R50 million
(March 2016: R10 million, June 2015: Rnil million) that were incurred in raising borrowings and are being amortised over the
respective periods of the borrowings.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
3 Taxation
The taxation charge comprises:
Current taxation 50 144 74
Current period 44 146 67
Prior periods 6 (2) (14)
Capital gains taxation - - 21
Deferred taxation (12) (43) 61
Current period (12) (43) 61
Withholding taxation 20 1 21
58 102 156
Taxation rate reconciliation
A reconciliation of the standard South African normal taxation rate is shown below:
% % %
Profit before taxation (excluding earnings from
equity-accounted investments) 41.7 37.6 30.8
Prior year's taxation impact 5.7 0.7 2.8
Effective rate of taxation 47.4 38.3 33.6
Income taxation effect of: (19.4) (10.3) (5.6)
Disallowable charges, permanent
differences and exceptional items (0.7) (6.2) (1.6)
Empowerment transactions and IFRS 2
charges not taxation deductible (1.4) (0.5) (1.0)
Finance costs on BBBEE transaction
not taxation deductible (4.3) (3.0) (1.8)
Foreign taxation rate differential 1.4 0.1 0.5
Capital gains differential on sale
of non-core assets - - 2.4
Withholding taxation (14.4) (0.7) (4.1)
South African normal taxation rate 28.0 28.0 28.0
4 Earnings and headline earnings
Earnings per share cents cents cents
Basic 17 38 70
Diluted 16 38 69
Headline earnings per share
Basic 17 38 53
Diluted 16 38 52
Headline earnings Rm Rm Rm
Profit for the period 81 169 351
Other exceptional items and impairments - 3 (112)
Taxation on other exceptional items and impairments - (1) 24
Headline earnings 81 171 263
Attributable to:
Shareholders of PPC Ltd 87 201 281
Non-controlling interests (6) (29) (18)
The difference between earnings and diluted earnings per share relates to shares held under the forfeitable share
incentive scheme that have not vested, together with the dilution impact of the group’s various empowerment transactions.
Normalised earnings per share has not been included as the normalisation adjustments were not material during the
current period.
For the weighted average number of shares used in the calculation, refer note 12.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
5 Property, plant and equipment
Net carrying value at the beginning of the period 11 716 8 009 10 648
Additions 555 1 001 1 122
Depreciation (173) (146) (348)
Other movements (4) 1 (6)
Translation differences (12) (11) 300
Balance at the end of the period 12 082 8 854 11 716
The growth in property, plant and equipment from June 2015 is as a result of the group’s expansion strategy, which has seen substantial
investments made into the DRC, Rwanda and Zimbabwe. Further investments have also been made into the expansion of the Slurry operation
in South Africa.
Included in property, plant and equipment is capital work in progress of R4 527 million (June 2015: R4 200 million; March 2016:
R4 317 million), relating to the DRC, Zimbabwe, Rwanda and Slurry SK9 expansion projects.
For details on capital commitments, refer note 18.
Assets pledged as security
Property, plant and equipment with a net carrying value of R7 293 million (March 2016: R6 853 million, June 2015: R4 977 million) are
encumbered and used as security for the borrowings in the DRC, Rwanda and Zimbabwe (refer note 14).
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
6 Goodwill
Balance at the beginning of the period 255 249 254
Translation differences 3 (1) 1
Balance at the end of the period 258 248 255
Goodwill, net of impairments, is allocated to the following cash generating units:
CIMERWA Limited 53 43 50
Safika Cement Holdings Pty Limited 78 78 78
Pronto Holdings Pty Limited 127 127 127
258 248 255
During the current reporting period a review of impairment indicators was done and no impairments were necessary.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
7 Other intangible assets
Balance at beginning of the period 766 774 772
Additions 2 10 12
Amortisation (22) (26) (45)
Transfers and other movements (3) - -
Translation differences (5) (6) 27
Balance at end of the period 738 752 766
Comprising:
Right of use of mineral assets 195 220 214
ERP development and other software 141 147 140
Brand and trademarks 333 311 339
Customer relationships - contractual and non-contractual 69 74 73
738 752 766
The group does not have any indefinite life intangible assets, other than goodwill.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
8 Equity accounted investments
Investments at cost 201 133 201
Loans advanced - 45 -
Share of retained profit (1) 41 (1)
Balance at end of the period 200 219 200
Comprising:
Afripack Limited (Afripack) - 94 -
Habesha Cement Share Company (Habesha) 196 121 196
Other minor equity accounted investments 4 4 4
200 219 200
During the period ended March 2016 an additional investment of R75 million was made towards Habesha as PPC took up its share
of a rights offer made by the company. As not all shareholders followed their rights, PPC’s shareholding subsequently increased to
35% (March 2016: 35%, June 2015: 32%).
During the second half of the 2015 financial year, the board approved the sale of the investment in Afripack. During the first quarter
of the 2016 calendar year the sale became effective and the group disposed its full shareholding in Afripack.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
9 Other non-current assets
Advance payments for plant and equipment (a) 164 304 142
Derivative asset 2 - 2
Investment in government bonds (b) 8 - 8
Loans advanced - 1 -
Unlisted collective investment (c) 121 116 119
Unlisted investment at fair value (d) - 95 -
VAT receivable (e) 326 - 319
621 516 590
(a) In terms of the construction agreements with the suppliers of the new cement plants in Rwanda, DRC and Zimbabwe,a portion of the
full contract price is required to be paid in advance of the plant construction. The advance payments will be re-cycled to
property, plant and equipment as the plants are constructed, and are secured by advance payment bonds.
(b) Represents government of Zimbabwe treasury bills carried at fair value. The treasury bills were issued in September 2015 in
exchange for funds previously expropriated by the government in 2007.
The treasury bills have a face value of USD706 831, repayable in three equal annual instalments from June 2017 to June 2019.
A discount rate of 12% was applied in determining the fair value on initial recognition. Interest is paid bi-annually at a
rate of 5% per annum.
These have all been classified as non-current due to liquidity constraints in Zimbabwe.
(c) Comprises an investment by the PPC Environmental Trust in local unit trusts. These investments are held to fund PPC’s South
African environmental obligations.
(d) During the six month period ended 31 March 2016, PPC disposed of its 6.75% shareholding in Ciments de Bourbon, with the resulting
gain of R83 million recorded in other exceptional items.
(e) The group has incurred VAT during the construction of its plant in the DRC and the amount receivable has been classified as
non-current as the group only expects to receive refunds or utilise the asset post June 2017.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
10 Non-current assets held for sale
Property, plant and equipment 42 - 42
In September 2015, the PPC Zimbabwe board approved the disposal of houses at its Colleen Bawn and Bulawayo factories which was
anticipated to be finalised in 12 months. The disposal, initially planned for June 2016, is now planned to be finalised by November
2016. No impairment loss was recognised on the initial reclassification as management concluded that the fair value (estimated based
on market prices of similar properties) less costs to sell was higher than the carrying amount. The conclusion by management that no
impairment loss should be recognised is still appropriate during the current reporting period. PPC Zimbabwe is included under the
cement segment in the segmental analysis.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
11 Trade and other receivables
Trade receivables 1 079 1 046 982
Impairment of trade receivables (87) (82) (77)
Net trade receivables 992 964 905
Mark to market cash flow hedge 29 - 48
Mark to market fair value hedge 12 3 28
Other financial receivables 102 94 111
Trade and other financial receivables 1 135 1 061 1 092
Prepayments 41 20 65
Taxation prepaid 1 1 30
VAT receivable 20 14 -
1 197 1 096 1 187
Shares (000) Shares (000) Shares (000)
12 Stated capital
Number of shares and weighted average number of shares
Number of shares
Total shares in issue at the beginning of the period 607 181 605 380 605 380
Shares issued to non-controlling shareholders in
Safika Cement on exercise of put option - - 1 801
Total shares in issue at the end of the period before
adjustments for shares treated as treasury shares 607 181 605 380 607 181
Adjustments for shares treated as treasury shares:
Shares held by consolidated participants of the
second BBBEE transaction (a) (37 382) (37 382) (37 382)
Shares held by consolidated BBBEE trusts and trust
funding SPVs (b) (34 477) (34 477) (34 477)
Shares held by consolidated Porthold Trust (Private)
Limited (c) (1 285) (1 285) (1 285)
Shares purchased in terms of the FSP incentive
scheme (d) (5 563) (5 328) (5 563)
Total shares in issue at the end of the period (net
of shares treated as treasury shares) 528 474 526 908 528 474
Weighted average number of shares, used for:
Earnings and headline earnings per share 528 474 527 189 526 076
Dilutive earnings and headline earnings per share 534 037 532 236 534 037
Cash earnings per share 528 474 527 189 527 877
Shares are weighted for the period in which they are entitled to participate in the profits of the group.
Rm Rm Rm
Stated capital
Balance at the beginning of the period (1 113) (1 141) (1 165)
Shares issued to non-controlling shareholders in
Safika on exercise of put option - - 26
Shares purchased in terms of the FSP share incentive
scheme treated as treasury shares (d) - (24) -
Vesting of shares held in terms of the FSP share
incentive scheme - - 26
Balance at the end of the period (1 113) (1 165) (1 113)
(a) Shares issued in terms of the second Broad Based Black Economic Empowerment (BBBEE) transaction which was facilitated by means
of a notional vendor funding (NVF) mechanism, with the transaction period concluding on 30 September 2019. These shares
participate in 20% of the dividends declared by PPC during the NVF period. With the exception of the Bafati Investment Trust,
entities participating in this transaction are consolidated into the PPC group in terms of IFRS 10 Consolidated financial
statements, during the transaction term.
(b) In terms of IFRS 10, certain of the BBBEE trusts and trust funding (Special Purpose Vehicle) SPVs from PPC’s first BBBEE
transaction are consolidated, and as a result, shares owned by these entities are carried as treasury shares on consolidation.
(c) Shares owned by a Zimbabwean employee trust company treated as treasury shares.
(d) In terms of the forfeitable share incentive scheme, 5 563 488 (March 2016: 5 563 488, June 2015: 5 328 219) shares are held in
total for participants of this long-term incentive scheme. During the period no shares vested (March 2016: 779 152, June 2015:
nil). The shares are treated as treasury shares during the various vesting periods of the awards.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
13 Deferred taxation
Net liability at end of the period 1 460 918 1 126
Deferred taxation asset 56 20 52
Deferred taxation liability 1 516 938 1 178
Analysis of deferred taxation
Property, plant and equipment 1 777 948 1 490
Other non-current assets 143 14 164
Current assets 14 - (2)
Non-current liabilities (97) (22) (89)
Current liabilities (22) (30) (38)
Reserves (19) 8 (37)
Taxation losses (336) - (362)
1 460 918 1 126
Included in the deferred taxation balance are taxation losses of R336 million (March 2016: R362 million, relating to CIMERWA unused
tax loss carry-forwards and deductible temporary differences. At period end and based on the approved business plans, the company
considered it probable that these taxation losses will be offset against future taxable profits. The utilisation of the taxation
loss is highly dependent on economic growth in the region and performance of the business. If the economic growth or level of
profitability is not achieved as anticipated, the company may need to write down the taxation losses in future reporting periods.
Monitoring thereof will be done at each reporting period.
14 Borrowings
Six
Quarter Quarter months
ended ended ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Terms Security Interest rate Rm Rm Rm
Notes(a) Various, refer below Unsecured Various, refer below 1 747 2 398 2 398
Long-term loan Interest is payable biannually Unsecured Fixed 10.86% 1 036 1 520 1 417
with a bullet capital repayment
in December 2016
Long-term loan(b) Interest is payable quarterly
with a bullet capital repayment Unsecured Variable rates at 400 927 - 555
in September 2017 basis points above JIBAR
Long-term loan Interest is payable monthly with Unsecured Variable rates at 125 basis
a bullet capital repayable points above JIBAR 900 - 900
18 months after notice period
Project funding 3 695 1 564 3 372
US dollar-denominated US dollar denominated, repayable Secured by CIMERWA’s Variable at 725 basis points 735 545 806
in monthly instalments over a property, plant and equipment above six-month US dollar
10-year period, starting March 2016 (refer note 5) LIBOR
Rwandan franc- Rwanda franc denominated, repayable Secured by CIMERWA’s Fixed rate of 16% 510 320 474
denominated in monthly instalments over a property, plant and equipment
10-year period, starting March 2016 (refer note 5)
US dollar-denominated US dollar-denominated, interest Secured by PPC Zimbabwe’s Six-month US dollar 635 232 550
payable biannually. First capital property, plant and equipment LIBOR plus 700 basis
repayment in December 2016; thereafter (refer note 5) points
biannual repayments in equal
instalments over five years
US dollar-denominated US dollar-denominated, capital and Secured by PPC Barnet DRC’s Six-month US dollar LIBOR 1 815 467 1 542
interest payable bi-annually starting property, plant and equipment plus 725 basis points
July 2017 ending January 2025 (refer note 5)
Long-term borrowings
before BBBEE
transaction 8 305 5 480 7 991
BBBEE transaction 855 1 231 844
Preference shares Dividends are payable biannually, Secured by guarantee Variable rates at 81.4% 34 66 33
with annual redemptions ending from PPC Ltd of prime and fixed rates
December 2016 of 9,24% to 9,37%
Preference shares Dividends are payable biannually Secured by PPC shares Variable rates at 86.9% 17 75 16
with capital redeemable from held by the SPVs of prime
surplus funds. Compulsory annual
redemptions until December
2016
Preference shares Capital and dividends repayable Secured by guarantee Variable rates at 78% 392 395 393
by December 2016, with capital from PPC Ltd of prime
capped at R400 million
Long-term borrowings Capital and interest repayable by Secured by guarantee Variable rates at 285 412 695 402
December 2016, with capital from PPC Ltd basis points above
capped at R700 million JIBAR
Long-term borrowings 9 160 6 711 8 835
Less: Short-term
portion of long-term
borrowings (3 787) (814) (4 221)
5 373 5 897 4 614
Maturity analysis
of long-term
liabilities
obligations:
One year 3 787 814 4 221
Two years 2 441 1 335 1 777
Three years 725 206 394
Four years 602 1 011 393
Five and more years 1 635 3 345 2 050
9 160 6 711 8 835
(a) Comprise three unsecured notes at 31 March 2016, issued under the company’s R6 billion domestic medium-term note programme, and are recognised net of capitalised
transaction costs:
Twelve
Six months Six months months
ended ended ended
31 March 31 March 30 Sept
2016 2015 2015
Reviewed Unaudited Audited
Note number, term and interest rate Rm Rm Rm
Issue date
PPC 001: three years; three-month JIBAR plus 1,26% March 2013 - 650 -
PPC 002: five years; three-month JIBAR plus 1,5% December 2013 750 750 750
PPC 003: five years; three-month JIBAR plus 1,48% July 2014 750 750 750
PPC 004: seven years; 9,86% July 2014 250 250 250
1 750 2 400 1 750
Less: Transaction costs capitalised (3) (2) (3)
1 747 2 398 2 398
Less: Short-term portion (1 614) (650) (1 747)
133 1 748 -
On 30 May 2016, S&P Global Ratings (S&P) released a report on PPC which reflected a decline in ratings from zaA/zaA-2 to zaBB-/zaB long and short-term South Africa
national scale. Due to the long-term rating falling below zaBBB-, the company was obliged to offer early redemption to noteholders in terms of the bond programme
memorandum.
During the period the company has secured funding up to a maximum of R2 billion from Nedbank, Standard Bank, Rand Merchant Bank and Absa (the liquidity and guarantee
facility agreement) which can only be used to reimburse the noteholders for the outstanding notes and related accrued finance costs.
The liquidity and guarantee facility will bear interest at JIBAR plus 10% and repayment is due from the proceeds of the proposed capital raise or 1 November 2016
if earlier. Post-reporting date, the company utilised this facility to repay noteholders. The facility incurred fees of R171 million which will be amortised to
the income statements over the five-month period of the facility. Further details are included in note 20.
(b) In March 2016 the company secured funding of R2 billion repayable September 2017. The funding was partly used to settle the first note repayment
while the balance of the facility will be used to repay the remaining portion of the BBBEE liability due in December 2016 after which the company will receive proceeds
from the compulsory subscription by the Strategic Black Partners and Community Service Groups in terms of the company’s first BBBEE transaction.
The loan is reflected net of transaction costs of R30 million (March 2016: R35 million, June 2015: Rnil) which are being amortised over the period of the funding.
During the current period, R367 million was drawn against the facility in order to partly reduce the long-term loan in order to achieve minimum asset cover ratios
following the recent decline in the share price
Refer to the going concern basis of preparation in note 21.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
15 Other non-current liabilities
Cash-settled share-based payment liability 2 15 3
Liability to non-controlling shareholder
in subsidiary company (a) 17 - 17
Put option liabilities 420 45 415
Retentions held for plant and equipment (b) 106 98 97
545 158 532
Less: Short-term portion of other non-current
liabilities (2) (14) (3)
543 144 529
(a) Relates to interest payable on the initial equity contributions into the DRC group of companies by a non-controlling shareholder.
The accruing of interest ceased in September 2015 and the amount payable will be repaid once the external funding has been
settled.
(b) Retentions held for the construction of the various cement plants. These retentions will be paid over to the contractors once
the plant achieves guaranteed performance targets and timing of the repayments is expected over the next 24 months.
Put option liabilities
PPC Barnet DRC Holdings
The International Finance Corporation (IFC) was issued a put option in September 2015 in terms of which PPC is required to purchase
all or part of the class C shares held by the IFC in PPC Barnet DRC Holdings. The put option may be exercised after six years from
when the IFC subscribed for the shares but only for a five-year period. The put option value is based on the company’s forecast EBITDA
applying a forward multiple less net debt. Forecasted EBITDA is based on financial forecasts approved by management, with pricing and
margins similar to those currently being achieved by the business unit while selling prices and costs are forecast to increase at local
inflation projections and extrapolated using local GDP growth rates ranging between 5% and 9% taking cognisance of the plant production
ramp-up. The forward multiple was determined using comparison of publically available information of other cement businesses operating
in the similar territories. The present value of the put option was calculated at R420 million (March 2016: R415 million,
June 2015: Rnil).
Safika Cement
“With the purchase of the initial 69,3% equity stake in Safika Cement, PPC granted non-controlling shareholders individual put options,
with different exercise dates, for the sale of their remaining shares in the company to PPC. As at June 2016 all the put options had been
exercised and no liability is therefore reflected. Following the exercise of the put options, PPC now holds 95% of the equity in Safika
Cement.
At June 2015, the first of the put options was anticipated to be exercised in the short term at an anticipated value of R111 million. The
second put option, was anticipated to only be exercised on the fifth anniversary of the transaction in line with the agreements and the
estimated liability of R45 million was therefore classified as non-current. The put option liabilities were calculated using the company’s
forecast EBITDA applying an earnings multiple dependent on the level of EBITDA achieved less net debt.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
16 Short-term borrowings
Short-term loans and bank overdrafts 449 743 336
Short-term portion of long-term borrowings (a) 3 787 814 4 221
4 236 1 557 4 557
(a) Includes the transaction costs of R171 million that have been incurred in securing the liquidity and guarantee facility as
discussed in note 14. The transaction costs are being amortised over the facility term of five months ending on 1 November
2016. For the period to June 2016 R39 million of transaction costs have been expensed to finance costs.
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
17 Trade and other payables and short-term provisions
Cash-settled share-based payment liability
(short-term portion) (refer note 15) 2 14 3
Capital expenditure payables 123 5 229
Derivative financial instruments 1 - 1
Other financial payables 134 88 89
Put option liability (refer note 15) - 111 -
Retentions held for plant and equipment 286 196 67
Trade payables and accruals 747 898 994
Trade and other financial payables 1 293 1 312 1 383
Payroll accruals 195 128 139
Taxation payable 28 198 18
1 516 1 638 1 540
Quarter ended Quarter ended Six month period ended
30 June 30 June 31 March
2016 2015 2016
Reviewed Unaudited Audited
Rm Rm Rm
18 Commitments
Contracted capital commitments 2 013 2 430 2 289
Approved capital commitments 856 1 079 994
Capital commitments 2 869 3 509 3 283
Operating lease commitments 111 119 124
2 980 3 628 3 407
Capital commitments
South Africa 1 298 1 253 1 649
Rest of Africa 1 571 2 256 1 634
2 869 3 509 3 283
Capital commitments are anticipated to be incurred:
- within one year 2 312 1 984 2 731
- between one and two years 547 1 517 543
- greater than two years 10 8 9
2 869 3 509 3 283
Project funding has been secured for the DRC and Zimbabwe projects, amounting to US$168 million and US$75 million respectively. In
addition the IFC subscribed for equity in the DRC in September 2015 and now holds 10% equity. The one million tonnes per annum
plant in the DRC is expected to be commissioned at during PPC’s 2017 financial year, while the 700 000 tonnes per annum mill in
Zimbabwe is on track to be commissioned at the end of the 2016 calendar year. The one million tonnes per annum kiln expansion at
Slurry is planned to be commissioned during the 2018 financial year.
19 Fair values of financial assets and liabilities
The financial assets and liabilities carried at fair value are classified into three categories as reflected below:
Note Level * Rm Rm Rm
Financial assets
Available-for-sale
Unlisted investments at fair value 9 3 - 95 -
Loans and receivables
Investment in government bonds 9 2 8 - 8
Loans advanced 9 2 - 1 -
Mark to market hedges 9/11 1 43 3 78
Amounts owing by equity accounted investment 8 2 - 45 -
Trade and other financial receivables 11 2 1 094 1 058 1 001
Cash and cash equivalents 1 612 486 460
At fair value through profit and loss
Unlisted collective investments at fair value
(held for trading) 9 1 121 116 119
Non-current assets held for sale 10 2 42 - 42
Total financial assets 1 920 1 804 1 708
Level 1 776 605 657
Level 2 1 144 1 104 1 051
Level 3 - 95 -
Financial liabilities
At amortised cost
Long-term borrowings 14 2 5 373 5 897 4 614
Short-term borrowings 14 1/2 4 236 1 557 4 556
Trade and other financial payables 17 2 1 004 991 1 476
At fair value through profit and loss
Cash-settled share-based payment liability 17 2 2 14 3
Put option liabilities 15/17 3 420 156 415
Derivatives
Derivative instruments-current (cash flow hedge) 17 2 1 - 1
Total financial liabilities 11 036 8 615 11 065
Level 1 - - 2 086
Level 2 10 616 8 459 8 564
Level 3 420 156 415
Methods and assumptions used by the group in determining fair values:
* Level 1 - financial assets and liabilities that are valued accordingly to unadjusted market prices for similar assets and
liabilities. Market prices in this instance are readily available and the price represents regularly occurring transactions which
have been concluded on an arm’s length transaction.
* Level 2 - financial assets and liabilities are valued using observable inputs, other than the market prices noted in the level 1
methodology, and make reference to pricing of similar assets and liabilities in an active market or by utilising observable prices
and market-related data.
* Level 3 - financial assets and liabilities that are valued using unobservable data, and requires management judgement in determining
the fair value. Refer note 16 for quantitative information and significant assumptions on the unobservable inputs used to determine
fair value liabilities.
The estimated fair value of financial instruments is determined, at discrete points in time, by reference to the mid price in an active
market wherever possible. Where no such active market exists for the particular asset or liability, the group uses valuation techniques
to arrive at fair value, including the use of prices obtained in recent arm’s length transactions, discounted cash flow analysis and
other valuation techniques commonly used by market participants.
The fair value of the unlisted investment has been valued based on the purchase agreement following the decision to dispose of the
investment. Further details are disclosed in note 10.
The fair value of loans receivable and payable is based on the market rates of the loan and the recoverability.
The fair value of cash and cash equivalents, trade and other financial receivables and trade and other financial payables approximate
their respective carrying amounts of these financial instruments because of the short period to maturity.
Put option liabilities have been calculated using EBITDA forecasts prepared by management and discounted to present value. Further details
are disclosed in note 16.
The fair value of derivative financial instruments relating to cash-settled share appreciation rights is determined with reference to
valuation performed by third-party financial institutions at reporting date, using an actuarial binomial pricing model.
Level 3 sensitivity analysis
Financial Instrument Valuation technique Main assumptions Carrying value Increase / Decrease (Rm)
Put option liabilities Earnings multiple EBITDA and net debt 420 74
If the EBITDA multiple applied in the valuation was 1 multiple higher/lower while all other variables were held constant, carrying amount
of the put option liabilities would decrease/increase by R74 million.
The sensitivities are only based on the DRC put option as the Safika put options have been settled during the period.
Movements in level 3 financial instruments
Financial assets Rm Rm Rm
Balance at beginning and end of the period - 95 -
Following the sale of the group’s investment in Ciments du Bourbon in January 2016,
the group does not have any level 3 financial assets.
Financial liabilities
Balance at beginning of the period 415 151 464
Exercised during the period - - (42)
Remeasurements (included under fair value
adjustments on financial instruments) - - (16)
Time value of money adjustments 5 5 9
Balance at end of the period 420 156 415
In the current period, the level 3 financial liability relates to the put option granted on the DRC project, while in the prior period
the level 3 financial liability related to the Safika put options.
20 Events after the reporting date
“Liquidity position
Following the finalisation of the liquidity and guarantee facility, the company early redeemed R1 614 million of the outstanding notes
on 15 July 2016, with the balance of the outstanding notes of R136 million (excluding transaction costs) following the original terms
of the respective notes.“
“On the 1 August 2016, the shareholders approved the following resolutions at a general meeting of shareholders:
• The increase of the authorised stated capital from 700 000 000 shares to 10 000 000 000 shares
• The amendment to the MOI reflecting the increase in the authorized stated capital
• The authorization to issue additional shares that will exceed 30% of the existing voting power of the shares that were in issue
• The granting of a general authority to directors to issue the required number of shares for purposes of implementing the proposed rights
offer.“
On 24 August 2016, the proposed R4 billion rights offer was fully underwritten by the banks. The company believes that once the proceeds
from the rights issue is received, the group will be able to comply with its financial covenants and be able to meet its obligations as
they fall due.
Financial statements for the period ending 31 March 2016
The results for the six months to March 2016, initially published on 14 June 2016, have been finalised with no changes being made to the
initial results published. In the reviewed results, the auditors had noted a disclaimer on the review opinion based on the going concern
assumption. The company is now pleased to advise that the audited financial statements, which supersede the reviewed results, includes an
unmodified opinion thereon.
Business combination
On 1 July 2016, all terms and conditions on the transaction to acquire 100% of 3Q Mahuma Concrete (Pty) Ltd (3Q) were achieved and the
3Q became a wholly owned group subsidiary. The acquisition was settled via the issuance of 17 565 872 new PPC shares. The fair value of
the shares for asset acquisition, using the ruling share price of R7.68 on the effective date of the transaction, amounted to
R135 million.
The commercial rationale for the transaction is to progress the company’s channel management strategy that serves as a complementary
platform for cement growth in South Africa. PPC’s strategic intention is to be a provider of materials and solutions into the basic
services sector. Cementitious distribution channels including readymix is increasingly being utilized as conduit to grow and sustain
cement sales volumes. At the time of acquisition, 3Q was one of the largest independent readymix concrete provider in South Africa and
provides PPC with a further complementary platform to grow our service offering in this market segment. The South African market is
evolving towards a concrete delivery model, which requires complementary building materials including cement, aggregates and readymix.
Controlling cement distribution channels is vital, with customers and end users requiring integrated solutions. 3Q will assist PPC in
achieving its vision.
The company is in the process of finalising the fair value of the assets and liabilities as on the acquisition date.
Provisional fair values of assets and liabilities is reflected below:
Non-current assets 113
Current assets 108
Non-current liabilities (9)
Current liabilities (77)
Total consideration 135
21 Going concern
In determining the appropriate basis of preparation of the financial statements, the directors are required to consider whether the group
can continue in operational existence for the foreseeable future.
The financial performance of the group is dependent upon the wider economic environment in which it operates. Factors exist which are outside
the control of the group which can have a significant impact on the business, specifically, volatility in the rand / US dollar exchange rate,
energy prices and prices of commodity prices, which impact on the business’s input costs. Despite the operational and cost containment
achievements of the group over the last 12 months, the weaker cement price environment due to competitive pressures has put the group’s cash
flows and profitability under pressure. The directors have determined that the group needs to take further decisive measures to improve its
ability to operate in the current competitive pricing environment and enable it to benefit from any recovery in cement prices in the medium to
long term.
In 2010, PPC embarked upon an expansion strategy to extract value from high-growth economies by expanding its footprint into the rest of Africa.
The Rwanda expansion project was successfully commissioned in 2015 and during the next 12 months the group will commission its expansion projects
in Zimbabwe, the DRC and Ethiopia. The result of these expansions will see an increase in gross production capacity of approximately three million
tonnes per annum giving the group a strong foundation for further growth. Given the long lead time required to develop greenfield operations, the
group has drawn down on pre-arranged project finance debt without an immediate concomitant increase in earnings and resultant cashflow.
During the same period of our expansion growth on the continent, external factors beyond the group’s control have seen a slowing global economy,
significant decline in commodity prices which culminated in downward pressures on selling prices in the regions in which the group operates. In
addition, South Africa which is major contributor to earnings, has seen intensified competition in terms of new entrants and also imports into
the country despite the economic slowdown. That has resulted in overcapacity in the South African market. The board and executive management
have reviewed the group’s business and capital structure and developed a business plan in order to be able to deal effectively with the effects
of a continuation of the current low selling price environment and limited economic growth. Key elements of the business plan are the reduction
of costs and improvements in efficiencies, through the Profit Improvement Program (PIP) implemented in 2015; from which R390 million of savings
have been achieved; the curtailment of discretionary capital expenditure while preserving the ability of the business to increase production and
compete efficiently when cement prices and economies improve. In prior years, the group had also completed the right-sizing of the various
operations throughout the group.
As at 29 March 2016, the board had initiated a review of the group’s capital structure and potential rights issue.
This capital raise investigation was at an advanced stage at the date of the S&P Global ratings review.
During May 2016, S&P Global Ratings conducted an event driven ratings review which was unexpected given that their annual review was supposed
to be in June 2016. Given the unexpected event driven ratings review, the outcome was the downgrade to sub-investment grade to ZaBB-/ZaB
from ZaA/ZaA-2 long and short-term South African national scale. Due to long-term rating falling below ZaBBB-, the company was required to
offer early redemption in terms of its
Domestic Medium Term Note (“DMTN”) programme memorandum. The principal value of the notes issued in terms of DMTN programme amounted to
R1 750 million as at 31 March 2016 and their maturity date was from the company’s 2019 financial year onwards. At the reporting date, the company
reclassified the outstanding notes’ value from long-term borrowings to short-term borrowings, thereby creating a technical insolvency where
its current liabilities exceeded current assets.
In addition to this early redemption requirement, the company negotiated and finalised the liquidity and guarantee facility to a maximum of
R2 billion, from Standard Bank of South Africa Limited, Rand Merchant Bank, Absa/Barclays Bank Limited and Nedbank Limited, that will bear interest
at JIBAR plus 10% and guarantee fees of 7.5% post the reporting date. This facility was utilised to redeem the outstanding notes of R1 614 million
on 15 July 2016 where noteholders opted to accept the company’s offer (refer long-term borrowings, note 14, and events after reporting date,
note 20). The balance of the outstanding notes of R136 million will continue following the original terms of the respective notes, as no response
was received from noteholders.
Should there be a subsequent response from noteholders, the company may consider the request of noteholders but is not legally bond in terms of the
DMTN programme. The raising and guarantee fees, incurred post the reporting date, of R171 million will be capitalised to borrowings and amortised to the
income statement over the five month period of the facility.
The repayment of the liquidity and guarantee facility will be funded from the proceeds of the proposed rights issue, or 1 November 2016 if earlier. An
additional R1 billion will also be utilised to repay other existing debt facilities out of the rights issue proceeds.
The board’s review of the group’s capital structure has resulted in significant steps being taken to strengthen the group’s financial position. As
released on the JSE SENS on 31 May 2016, the board is undertaking a R4 billion rights issue. A significant step to the rights issue was taken on the
1 August 2016, where shareholders approved the following resolutions at a general meeting of shareholders:
- The increase of the authorised stated capital from 700 000 000 shares to 10 000 000 000 shares
- The amendment to the memorandum of incorporation reflecting the increase in the authorised stated capital
- The authorisation to issue additional shares that will exceed 30% of the existing voting power of the shares that were in issue
- The granting of a general authority to directors to issue the required number of shares for purposes of implementing the proposed rights offer.
Following these approvals, the company is proceeding with the R4 billion proposed rights offer which is subject to standard material adverse change clauses.
Management have prepared cash flow forecasts for a period in excess of 12 months. Various scenarios have been considered to test the group’s resilience
against business risks including:
- Significant adverse movements in the rand / US dollar exchange rate, from current forex levels, and cement selling prices or a combination thereof;
and
- Failure to meet forecast demand targets.
The directors have concluded that the group’s new capital structure, after a successful rights issue and debt facilities amendments, provides sufficient
headroom to cushion against downside operational risks and reduces the risk of breaching new debt covenants.
If the rights issue is unsuccessful for whatever reason, the group would have to consider other alternatives which may reduce the risk that the group
would be able to meet obligations as they fall due. These options may include:
- renegotiating or refinancing existing facilities;
- full or partial curtailment of capital projects, which may result in significant financial penalties;
- exploring the disposal of assets; or
- merger or acquisition transaction involving the company, although there is no certainty that such sales or transactions could be realised in the
available timeframe on acceptable terms, or at all.
These actions require the participation and agreement of external parties, the directors are therefore not confident that any such alternative
courses of action could be achieved in the limited time available, or that they would ultimately be successful or be in the best interest of
shareholders over the long term. As a result, in the event that the proposed rights issue is not completed and the amended facilities agreements do
not come into effect, the group would be unable to meet its obligations as they fall due.
The need for shareholder approval of the planned rights issue therefore represented a material uncertainty that could have cast significant doubt
about the group’s and company’s ability to continue as a going concern such that it may be unable to realise its assets and discharge its
liabilities in the normal course of business. Following approval from the shareholders at the general meeting on 1 August 2016, the directors
believe that this uncertainty has been significantly eliminated.
The directors have concluded that the group’s new capital structure, after fulfilling the successful rights issue, will provide the necessary
headroom to cushion against increased business risks and depreciation in the currency, and reduces the risk of breaching new debt covenants.
Accordingly, the directors believe that the successful completion of the planned rights issue is the best option available to the company.
Based on the group’s expectation that the conditions of the planned rights issue will be met, in addition to the group’s current trading position
and forecasts and facilities in place, the directors believe that the group will be able to comply with its financial covenants and be able to
meet its obligations as they fall due, and accordingly have formed a judgement that it is appropriate to prepare the financial statements on a
going concern basis. These financial statements therefore do not include any adjustments that would result if the going concern assumption was
not used as the basis for the underlying preparation of the financial statements.
Administration
PPC Limited
(Incorporated in the Republic of South Africa)
(Company registration number 1892/000667/06)
JSE Code: PPC
JSE ISIN: ZAE 000170049
ZSE Code: PPC
Directors
Executive: DJ Castle (chief executive officer), MMT Ramano (chief financial officer)
Non-executive: PG Nelson (interim chairman), S Dakile-Hlongwane, N Goldin, TJ Leaf-Wright, T Mboweni, SK Mhlarhi, B Modise, T Moyo*,
CH Naude, TDA Ross,
*Zimbabwean
Registered office
148 Katherine Street, Sandton, South Africa
(PO Box 787416, Sandton 2146, South Africa)
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Ground Floor, 70 Marshall Street, Marshalltown, South Africa
(PO Box 2209, Harare, Zimbabwe)
Transfer secretaries Zimbabwe
Corpserve (Private) Limited
4th Floor, Intermarket Centre,
Corner 1st Street/Kwame Nkrumah Avenue,
Harare Zimbabwe
(PO Box 2208, Harare, Zimbabwe)
Company secretary
JHDLR Snyman
148 Katherine Street, Sandton, South Africa
PO Box 787416, Sandton, 2146, South Africa
Sponsor
Merrill Lynch South Africa (Pty) Ltd
The Place, 1 Sandton Drive, Sandton, South Africa
(PO Box 651987, Benmore 2010, South Africa)
Disclaimer
This document including, without limitation, those statements concerning
the demand outlook, PPC’s expansion projects and its capital resources and
expenditure, contain certain forward-looking views. By their nature,
forward looking statements involve risk and uncertainty and although PPC
believes that the expectations reflected in such forward looking statements
are reasonable, no assurance can be given that such expectations will prove
to have been correct. Accordingly, results could differ materially from
those set out in the forward looking statements as a result of, among other
factors, changes in economic and market conditions, success of business and
operating initiatives, changes in the regulatory environment and other
government action and business and operational risk management. While PPC
takes reasonable care to ensure the accuracy of the information presented,
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. This document is not intended to contain any
profit forecasts or profit estimates.
Date: 24/08/2016 04:51:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.