Pretoria Portland Cement Company Limited. annual report 2003

Transcription

1 Pretoria Portland Cement Company Limited annual report 2003

2 Kambuku recognised over 200 performance award winners during the year Cover (top left, top right, bottom left, bottom right) Aisha Wadee, PPC Achiever, Parktown Iris Ross, Employee of the Year and PPC Achiever, Lime Acres Bheki Mthembu, PPC Achiever, Jupiter Joseph Jabane, PPC Achiever, Slurry Back cover (top left, top right, bottom left, bottom right) Johnny Niewenhuizen, Departmental Winner, Lime Acres Kingsley Kaars, Departmental Winner Plant, Lime Acres Yvonne Venter, Thank You Award, George depot Oneboy Matoto, Departmental Winner Mining, Lime Acres Koos Fourie, PPC Achiever, Botswana 6 Hydration, by Brian Addis When portland cement is mixed with water, the cement and water react chemically. In this reaction called hydration, each cement particle develops a growth called gel, which is the product of the reaction. Gel from neighbouring particles interlocks to form a rigid structure which gives concrete its strength. This concrete sculpture portrays a stage in hydration of cement particles. PPC is in the process of building a culture of sustainability to improve competitiveness, increase internal efficiencies, gain regulatory advantage and enhance stakeholder relationships, and, of course, build a better life for all.

3 8 7 7 Patrick Doekes, PPC Achiever, Afripack 8 Lance le Roux, PPC Achiever, Port Elizabeth 9 Hannes Engelbrecht, PPC Achiever, Jupiter 10 William Phiri, PPC Achiever, Porthold 11 Njabulo Gumpo, PPC Achiever, Porthold 12 Thinus Vlooh, Employee of the Year, Saldanha 9 13 Kagiso Kanakatse, Employee of the Year, Botswana 14 Suren Srikrishan, Thank You Award, Parktown contents 1 Financial highlights 2 Chairman s review 6 Chief executive officer s report 10 Organisational profile 13 The Kambuku process 16 Corporate governance structure and management systems 24 Board of directors 27 Management 29 Environmental performance indicators 36 Social performance indicators 44 Certificate by secretaries 45 Approval of annual financial statements 45 Report of the independent auditors 46 Directors report 49 Value added statement 50 Operational review: cement 52 Operational review: lime 53 Operational review: packaging 54 Seven-year review 57 Share performance 58 Definitions 60 Accounting policies 66 Financial results 105 Administration 105 Financial calendar 111 GRI content index For more information on our company and our products, contact Pretoria Portland Cement Company Limited. Telephone , Fax , contactus@ppc.co.za, Web

4 vision To become a significant international supplier of cement, lime and related products by achievement Through their dedication and efforts for more than a century, the people of PPC have built the leading cement and lime company in Africa. The group s products have also played a vital part in the development of southern Africa. It is a proud achievement. commitment PPC is committed to excellence in satisfying customers needs, and strives for total quality in everything it does. batho people

5 financial highlights % * change Revenue (Rm) 3 015, ,4 20 Operating profit (Rm) 866,2 616,8 40 Net profit attributable to shareholders (Rm) before exceptional items 623,1 446,2 40 after exceptional items 627,1 605,0 4 Earnings per share before exceptional items (cents) 1 159,4 833,2 39 Headline earnings per share (cents) 1 154,0 838,3 38 Dividends per share (cents) ordinary special Net asset value per share (cents) 3 998, ,7 1 Total assets (Rm) 3 486, ,0 2 Market capitalisation (Rm) 6 099, ,0 46 * Restated Revenue per employee (R000) Operating margin (%) Return on total assets (%) pretoria portland cement annual report 1

6 Responding to the challenge, achieving success in all our businesses. Significantly improved prospects for lower rates of inflation and interest Warren Clewlow Chairman Local cement demand is expected to show growth of 4% to 5% chairman s review Another pleasing year for PPC Revenue rose by 20% to R3 016 million (2002: R2 505 million), and operating profit rose by 40% to R866 million (2002: R617 million). These results reflect the benefits of embracing global best practices and the improvements being made in all our businesses including Portland Holdings Limited in Zimbabwe. Domestic cement sales volumes in South Africa ended the year ahead of expectations due to higher than anticipated growth in retail and infrastructure spending. The Coega harbour development, which came on stream during the year, also contributed to the year-on-year increase. South African based export volumes rose by 22,5%. The recovery of the rand however reduced year-on-year export margins. The lime division, which experienced a 3% reduction in lime and burnt dolomite sales, achieved satisfactory results supported by improvements in lime pricing and the achievement of planned utilisation levels at the PPC Saldanha material handling facility. The packaging division, which we are currently in negotiation to sell up to a 75% stake to an empowerment and management consortium, successfully completed its R38 million modernisation programme. It also extended its market share in all main segments and performed well. Capital expenditure remained at low levels and continued below the annual depreciation charge as it has done for the last few years. At the same time, operational cash flows increased in line with operating profit. Working capital management continued to receive focused attention. Accordingly operational cash flows rose 27% to R993 million (2002: R783 million). Other than for the Afripack modernisation, there were no major capital projects during the year. The company did however accelerate the replacement of a number of imported quarry vehicles, effectively taking advantage of the recovery of the rand. Dividends paid during the year amounted to R601 million (2002: 2

7 Infrastructure projects could boost the economy and create employment R524 million) including the special dividend of 600 cents per share. At the same time, and as a direct result of these higher dividends, the tax charge by way of secondary tax on companies increased to R69,1 million (2002: R55,6 million). The continuing strong cash flow from operations and limited requirements for capital expenditure has added to the group s cash resources. Taking into account relatively low capital expenditure needs for 2004 and the company s strong cash position, the directors have declared a final cash dividend of 550 cents and a special dividend of 650 cents per share. This brings the total dividends declared for the year to cents per share, a 21% increase on last year. The PPC share price rose from R78,00 at the beginning of the year to R113,50 at year-end and R122,50 at the date of signing this report, thereby increasing the market capitalisation of PPC from R4,2 billion to R6,1 billion and lifting PPC into the JSE Top 40 share index for the first time. Economic outlook The recovery of the rand, while reducing the competitiveness of exporters and manufacturers who compete with imports, has significantly improved the prospects for lower inflation and interest rates. These, together with favourable developments in other leading indicators, suggest that the economy may start to pick up in Gross fixed capital formation which increased strongly in 2002 has continued to grow at a rate of between 5% and 8% in Government has continued to expand and upgrade its capacity for service delivery. This development, together with the completion of several mining sector expansions and the ongoing Coega harbour project, has underpinned capital formation in the year. Notably, real fixed capital outlays by the manufacturing sector have slowed down following the decline in their exports and capacity utilisation, partly influenced by the recovery of the rand. In addition, many new mining sector capital projects appear to be on hold due to the uncertainties surrounding the outlook on the rand, and in certain instances, the proposed Mineral and Petroleum Royalty Bill. Apart from Coega, no significant large scale public sector infrastructure investment projects have commenced. For this reason combined with the low growth rate of the economy, gross fixed capital formation remains at low levels in absolute terms. As an economic rule of thumb, a developing country needs to invest in excess of 25% of its GDP to grow its fixed infrastructure capital base. At levels between 20% and 25% the infrastructure is merely maintained, while below 20% it deteriorates. South Africa s gross fixed capital formation expressed as a percentage of GDP has been below 20% for over a decade. Encouragingly, it appears that many individuals within government rightly believe that addressing this situation will create jobs, project confidence to the international investor community and ultimately provide the country with competitive logistical and societal support services. Accordingly the rate of growth in public sector infrastructure investment is expected to accelerate. This is a much needed development as employment numbers, which remained static through the second half of 2002, have declined in Black Economic Empowerment Bill and the Minerals and Petroleum Resources Development Act PPC strongly supports the national government s vision of a globally competitive mining industry which has full participation from all South Africans. The proposed sale of up to 75% of Afripack Limited to an empowerment and management consortium establishes a credible Black Economic Empowerment (BEE) force in the packaging industry and facilitates the future growth of that company in markets beyond the cement industry. The much talked about Mining Charter, which sets out a balanced scorecard of broad based empowerment goals for companies operating with state issued mining licences is a good step in the path to providing a clear set of rules for everyone involved. I am pleased to be able to report that PPC is making excellent progress in areas such as procurement, employee development, and community upliftment and in the support and introduction of black entrepreneurs into key cement sales and distribution segments of the construction industry. Notably however, a lack of available funding remains a major obstacle to achieving targeted levels of BEE equity participation. pretoria portland cement annual report 3

8 chairman s review continued Zimbabwe The government replaced cement price controls with cement price monitoring in May. The socio-economic crisis in Zimbabwe continued through 2003 and hyperinflation, fuel shortages, breakdown in services and a general absence of economic activity are facts of everyday life for Zimbabweans. Notwithstanding the current crisis, we remain committed to Zimbabwe for the long term and look forward to an eventual resolution of the current crises to the benefit of the Zimbabwean people and our operations there. Prospects Local cement demand is expected to show growth of 4% to 5% in the year ahead supported by continuing gross fixed capital formation and the lower interest rates. Cement export revenues and export margins are likely to be lower following the recovery of the rand. Porthold Zimbabwe is unlikely to meaningfully contribute to earnings in 2004 as hyperinflation, a shortage of railway rolling stock and the lack of foreign exchange are expected to continue for some time yet. In the medium term, this business remains well positioned to benefit from any economic improvement in Zimbabwe and from exports. No growth is expected in lime and burnt dolomite sales as their main customers in the steel industry face difficult market conditions. Notably the group s input costs are increasing at levels above those currently reported for the year-on-year Producer Price Index. In particular, there is an indication from Spoornet of their intention to increase inward and outbound tariffs by more than 40%. At the same time, the relatively stronger rand and the continued prospects for lower inflation are likely to limit selling price increases with resultant pressure on margins. The declining interest rates will affect the level of investment income earned on surplus cash deposits. Notwithstanding these developments, improved operating profits are expected although net profit attributable to shareholders will be impacted by increased tax charges. The group remains well positioned to benefit from any opportunities that may arise. The strong cash flows are expected to continue and no major capital expenditure is planned in Board changes Mr Des Arnold retired as a director with effect from 31 March His valuable contribution to the group, since his appointment as a director in 1994, is sincerely appreciated. Mr Peter Nelson has resigned from the company effective 31 December Much of the success of the company in recent years is due to his stewardship and guidance in matters financial and in the overall management of the company. I would like to extend my sincere thanks and appreciation to him for his contribution to the company. Mr Peter Esterhuysen has been appointed director: finance and administration with effect from 1 December 2003 and I welcome him to the board. Mr Russel Chambers has indicated that he intends to formally retire as a director at the forthcoming AGM in January 2004 and accordingly has not offered himself for re-election. Appreciation PPC has enjoyed a record year of achievement and I would like to take this opportunity of thanking the board, John Gomersall, the PPC executive team and all our employees for their continued contribution and dedication. Their hard work and loyalty remains the key to PPC s future success. The strength of the company s peoplebased approach is evidenced by the fact that the company was recently recognised by its employees as best company to work for in South Africa in the manufacturing sector, and the sixth best of all companies in South Africa. These awards recognise both the company, and its employees, for their positive contribution towards the creation of a sustainable competitive advantage in the long-term interests of all stakeholders. WAM Clewlow Chairman 5 November

9 Lucas Booys, General Manager s Award, De Hoek 16 Chantal Corder, Francie Shonhiwa, Thank You Award, Parktown 17 Richard Marshall, Thank You Award, Parktown 18 Johann Rust, Excellence Award Engineering, De Hoek Gross fixed capital formation by type of asset (R000) /1 99/2 99/3 99/4 00/1 00/2 00/3 00/4 01/1 01/2 01/3 01/4 02/1 02/2 02/3 02/4 03/1 03/2 Year/Quarter Residential buildings Non-residential buildings Construction works Source: SARB Quarterly Bulletin September 2003 pretoria portland cement annual report 5

10 Mobilising our human intellect to ensure business sustainability, growth and competitive advantage John Gomersall Chief executive officer Our people and their Kambuku way are building a world-class company chief executive officer s report The company s strategies remain as follows: Focus on core businesses Generate superior cash flow returns Achieve global competitiveness Develop globally competitive people Practice sound corporate, environmental and social governance Build on our strengths through synergistic growth Focus on core businesses Last year we reported that part of our strategy was to unlock shareholder value by disinvesting from non-core businesses and to focus in future on growth opportunities where we have a direct involvement in value creation. Progress was made during the year in disposing of our 33% stake in Slagment. The transaction was still subject to the fulfilment of certain conditions precedent as at the balance sheet date, but hopefully these will be concluded early in the 2004 financial year. This will bring an end to the historical joint ownership of related businesses that existed during the legalised cement cartel era that ended in Since acquiring control of Afripack in 1995, this company s manufacturing facilities have been extensively modernised and Afripack is now a highly regarded and specialised niche packaging business. It is well positioned to grow a wider packaging offering and presents an ideal opportunity for black empowerment. Accordingly, PPC has reached agreement for the disposal of up to a 75% interest in Afripack to a BEE consortium which includes the management of Afripack. The transaction is subject to conditions which should be completed early in the new financial year. Cash flow returns Both the cement and lime divisions further improved their cash flow returns on investment (CFROI) this year. Pleasingly, the cement division returns are approaching levels that could justify future investment, notably, however returns in the lime division are not yet 6

11 Focusing on core business and unlocking shareholder value at these levels notwithstanding the recently renegotiated selling prices and efficiency gains. The Saldanha facility generated planned returns as a result of the significant improvement in Saldanha Steel s output. Although the Afripack CFROI declined this year, this was due to the investment in the capital modernisation project which was completed towards yearend. However, the underlying CFROI of the division is still inherently strong. Input cost pressures Last year I reported at some length on the adverse impact of the weak rand and rising inflation on our input costs. The Reserve Bank s monetary policies, the decline in inflation and the resulting strength in the rand are all positive fundamentals for the future of our economy. Together with the fiscal discipline being exercised by our government, it is possible that the country is experiencing a positive first phase in its economic maturity and development, that is more in keeping with the modern global economy. While the stronger rand and lower inflation rates are pleasing, we have yet to see a reduction in many domestically sourced inputs. To the contrary, Spoornet have recently advised the company that they intend increasing inward and outbound tariffs to both the cement and lime divisions in excess of 40%. Recently Eskom had announced an intended double digit price increase until this was overturned by the government regulator. Diesel fuel prices have not reduced commensurately with the recovery of the rand and this has a significant impact on both mining and outbound delivery costs. This trend is extremely worrying, particularly as these inputs are fundamental to the country s future economic growth. These costs above all others need to remain globally competitive. Global competitiveness Continued progress was made on our Global Competitiveness programme during the year resulting in further increases in operating efficiencies, cost and overhead reductions and the continued optimisation of logistics costs. The recovery of the rand has put pressure on export margins at a time when prices have felt the pressure of the global economic downturn, but fortunately, the company is more competitive today than it was several years ago. Globally competitive people Further great strides were made during the year in developing all our PPC people to be globally competitive. Their journey of continuous improvement leaves no stone unturned. The constant quest to do things more competitively, leads employees to question whether people retiring or resigning should be replaced, or whether their work outputs can be achieved in a different and better way. This has enabled PPC to again improve its results while realising a 7% reduction in the size of the workforce. This is reflected in both the increased revenue and wealth created per employee as shown in the value added statement on page 49. Over the past four years we have witnessed an employee driven journey of multi-skilling and requests for skills training and development, whose success has far surpassed all historic top-down approaches in this regard. Pleasingly, many of the benefits are lasting and further continued improvement is expected. The drive for continuous improvement and the notable results achieved have been built on continued discussion, involvement in and feedback on the achievement of strategies and objectives, at all levels in the organisation. It can be likened to a golden thread of communication, purpose and action that links everybody from the chief executive officer to the lowest levels in the company in creating increasing value for all stakeholders. The management culture and style has changed significantly in the last few years as a result of the Kambuku programme. There is a new level of energy in the organisation as people at all levels take pride in their part of their company. At the end of the year they see the benefits by way of their incentive or gainshare bonus, but incentives alone are not enough. Through the process, the lives of all of our employees both at work and at home have been enriched. Many of the employees have gained significant promotions since the programme started. It is pleasing to see how so many of our people from within are being promoted on merit and filling more senior positions in the progressive roll out of our affirmative action plans. pretoria portland cement annual report 7

12 chief executive officer s report continued Apart from the excellent results produced yet again by the PPC team, perhaps the greatest accolade reflecting these achievements came through the employees themselves. In the Deloitte & Touche/Financial Mail Best Company to Work For 2003 Survey, which the company entered for the first time this year, the employees rated PPC as the best Manufacturing Company in South Africa to work for and the sixth best South African Company overall. It is an external validation that their daily contribution is helping to build a better life for themselves and has positioned PPC as one of the best employers in the country. Corporate governance The many areas of progress in the accreditation to international standards and the company s compliance with both legislation and sound environmental, social and good corporate governance are covered in detail elsewhere in this annual report. Many of the foundations of these structures, committees, systems, processes and practices have been built over many years and are a part of the fabric of the company s daily life. Their integration into the formal corporate governance framework has contributed to the sustainability of our business and created a business climate of which I believe all our stakeholders can be proud. Building on our strengths through synergistic growth The company is well positioned and has a strong balance sheet and the essential skills required to expand and continues to look for investment opportunities that will enhance value creation and expand our geographic footprint. In conclusion PPC today is a professionally run company with motivated and dedicated people. This is reflected in the total shareholders returns achieved over the past few years and the increase in the market capitalisation of the company. We believe that it epitomises what triple bottom line reporting is attempting to achieve an appropriate balance between shareholder, customer, employee and societal value creation. JE Gomersall Chief executive officer 5 November Mthokozisi Mchunu, newly appointed director of Afripack 20 Control panel of recently installed palletising unit at Riebeeck 21 The SPL handling facilities at Dwaalboom 8

13 Henri van den Berg, Thank You Award, Parktown 23 André Visagie, General Manager s Award, Mooiplaas 24 Raymond Benjamin, Excellence Award Quality Assurance, De Hoek 25 Shadrack Njobeni, Morgan Mnikazi, Thank You Award, Parktown 26 Jacob Bailey, Thank You Award, Parktown pretoria portland cement annual report 9

14 organisational profile Pretoria Portland Cement Company Limited was established in 1892 as De Eerste Cement Fabrieken Beperkt and listed on the JSE Securities Exchange South Africa in 1910 and Zimbabwe Stock Exchange in At year-end it was a 67,42%-owned subsidiary of Barloworld Limited. PPC Cement is the leading supplier of cement in southern Africa. Its eight manufacturing facilities in South Africa, Zimbabwe and Botswana have capacity to produce 6,4 million tons of cementitious products per annum. The company s distribution network supplies quality branded cements to the building and construction industry, concrete product manufacturers and retail outlets such as builders, merchants, hardware stores and DIY centres. The company s cementitious brands include the market-leading Surebuild brand in South Africa and Unicem in Zimbabwe. In addition to serving the southern African domestic markets, cement is exported to other African countries and the Indian Ocean islands. Related products include aggregates from the company s quarries at Mooiplaas and Laezonia and in Botswana. PPC Lime is the leading supplier of metallurgical grade lime, burnt dolomite, limestone and related products in southern Africa. It operates one of the largest lime plants in the world at Lime Acres in the Northern Cape province of South Africa. Lime is one of the world s most widely used chemicals. Its major applications include its use as a flux in pyrometallurgical industries (eg steelmaking) and as a neutraliser, coagulant or chemical catalyst in gold extraction, water purification, effluent treatment, sugar refining and the manufacture of industrial chemicals Hercules 2. Jupiter 3. Slurry 4. Dwaalboom 5. Riebeeck 6. De Hoek 7. Port Elizabeth 8. Colleen Bawn 9. Bulawayo 10. Beestekraal quarry 11. Dwaalboom quarry 12. Slurry quarry 13. Zoutkloof quarry 14. Riebeeck quarry 15. Grassridge quarry 16. Colleen Bawn quarry 17. Lime Acres 18. Lime Acres quarry 19. Mount Stewart quarry 20. Laezonia quarry 21. Mooiplaas quarry 22. Kgale quarry 23. Gaborone Readymix 24. Gaborone Cement

15 Hydrated lime is used primarily for water purification and soil stabilisation. Graded and crushed limestone products are sold to the water treatment and metallurgical industries. Dolomite products are sold primarily to the metallurgical industries. PPC Saldanha is a specialised bulk materials handling facility. It handles raw materials and waste products as an outsourced service to Saldanha Steel in the Western Cape province, and is a world first. Afripack manufactures paper sacks for the cement industry, paper bags for the manufacturing and food sectors as well as laminated wrapping materials at its factory in Durban, South Africa. It has been a major supplier of flexible paper packaging products to the South African and export markets since 1933 and has the most modern plant of its kind in South Africa. Barloworld PPC 67,42% 100% 100% 100% PPC Cement * PPC Lime Afripack 100% Mooiplaas Dolomite 33,3% Slagment 100% Porthold^ 100% PPC Botswana ~ 50% Kgale Quarries ~ 100% PPC Saldanha 100% PPC Slag * PPC Cement is a division of PPC ^ Registered in Zimbabwe ~ Registered in Botswana pretoria portland cement annual report 11

16 Kambuku has brought an improvement in key employee perceptions towards the company 27 Kambuku has turned VBM into measurable benefits for all stakeholders Leon Adams, Excellence Award Risk/Admin/OP, Riebeeck 28 Alexander de Mingo, Excellence Award Quarry, Riebeeck 29 Derik Bester, Excellence Award Quality Assurance, Riebeeck 30 Tommie Jordaan, Schalk Victor, Team of the Year, Lime Acres 31 Deon Moller, Leon Horn, Team of the Year, Lime Acres 32 Herman Geusteyn, Excellence Award Production and General Manager s Award, Riebeeck 12 usimende cement

17 the Kambuku process Setting stretch targets Kambuku is the name given to the collective process used in PPC to mobilise the talent and energy of our people and to align their goals with the value creation strategy of the company. It is now firmly entrenched as part of the culture of our company. It has also fundamentally changed the style of managing the company with our employees participating more fully in the decision making process. Every day, across all levels, teams of people meet with the single common purpose of reviewing the previous day s performance and planning to do that particular day s work more effectively in terms of cost and time. The results achieved are astounding. The process allows ordinary people to achieve extraordinary levels of performance. Also, it is not unusual for teams to set goals which either create new records or operate plant and machinery beyond supplier expectations. Each year, as the PPC team builds its knowledge base and grows in confidence, it becomes more capable of achieving goals and targets previously considered impossible. Recognising performance At the start, the Kambuku intervention set out to identify those elements which would have the greatest impact on the improvement of performance of the organisation, so that Value Based Management (VBM) principles could be successfully turned into measurable benefits for all stakeholders including customers, employees, suppliers and shareholders. We are in the fourth year of the Kambuku process and thus far our investment in building a performance culture has been successful. One of our operations has succeeded in increasing the number of implemented improvement suggestions per employee, from one to seven per year, generating savings of R4,8 million in the process. PPC recognised over 200 performance award winners in the year. The top ten PPC Achiever Award winners generated pretoria portland cement annual report 13

18 the Kambuku process continued savings in excess of R30 million. Interestingly though, the outright winner was acknowledged both for her contribution to the company and her dedication to her community. As an occupational nurse, she has conducted highly effective HIV/AIDS awareness campaigns amongst employees, their families and the local community. Organisational elements Taking its cue from systems thinking, Kambuku established that performance was underpinned by a whole series of interconnected elements. The organisational elements necessary for top performance simply did not occur by chance in any organisation. They were the result of deliberate effort, hard work, and ongoing maintenance and a culture or climate which encourages out of the box thinking. Importantly, employees have the opportunity to contribute and are recognised and rewarded for their achievements. The Kambuku intervention has installed an elaborate and integrated network of processes and methods at every operation, so that the elements necessary for excellent performance are maintained, enhanced and monitored. The human resource function, now realigned as the organisational performance function, is responsible for the maintenance and enhancement of these performance systems in the same way the engineering function is responsible for the maintenance, capacity utilisation and outputs of each piece of plant and equipment in the factory. Measuring performance A comprehensive set of performance measures allows the company to monitor how each of these performance systems is operating and the level of improvement achieved as a result of their application. The graphs on page 15 indicate the improvement on some key performance elements since the Kambuku process began. Employee perceptions with regard to understanding of individual goals, culture and climate, management style and communication effectiveness have all shown marked improvement since first measured in Improvements have been shown in all of the many measures used to assess employee perceptions. Not surprisingly, all operations have benefited from improved functionality the effect of which is also reflected in the results of the company. External recognition In the 2003 Deloitte & Touche/Financial Mail Best Company to Work For Awards PPC was voted sixth in the overall competition, and first in the manufacturing sector. This was a remarkable accomplishment, considering the nature of companies against which PPC was competing. This award confirms that a motivated and focused workforce is a significant and competitive advantage for an organisation and that our Kambuku methodology is a highly effective means of creating and sustaining it. Internal recognition At PPC we are also acutely aware of the role our employees play in meeting our commitment to deliver excellence to all our stakeholders. Every day our employees acknowledge that Kambuku has changed their lives. They participate more in the decision making and are regularly recognised or thanked for their personal contribution. The Kambuku way has become the PPC way and the company s success is their success. Excellence By all accounts Kambuku was the most awe inspiring of the Kruger National Park elephants. The association of PPC with elephants goes back many years, as does the use of the elephant in our corporate logo and on our branded products. We have incredible respect for their ability to learn and retain knowledge, their strength and their resilience. It is therefore not surprising that we chose Kambuku to lead us in our quest to be the best. PPC's group training centre (GTC) is playing an important role in training members of a nearby community who are not only unemployed, but also have the added burden of being disabled. The project was such a success that the GTC was approached to provide similar training for a group of disadvantaged members from the government-sponsored Itsoseng Village, not far from Lichtenburg. The training focused on a range of practical, basic mechanical, electrical and general handyman tasks. Despite the learners' disadvantages, this in no way dampened their enthusiasm and willingness to learn. They participated in the training with a huge amount of spirit and goodwill. When they left after two weeks, not only had they learnt skills; they had also gained in self-confidence. 14

19 Claude Alexander, Excellence Award Engineering, Riebeeck 34 Morne Liebenberg, Excellence Award Customer Service, Riebeeck 35 Kingsley Kaars, Tebogo Neo, Deon Stander, Team of the Year, Lime Acres 36 Llewellyn Manzana, Marshall Philander, Bester Wiese, Team of the Year, Lime Acres PPC employee survey on performance management (%) Understanding your aims and goals Culture/climate Management style Communication effectiveness pretoria portland cement annual report 15

20 Lydia Mokoena, General Manager s Award, Hercules 38 Lucky Kidikilwe, Andries Kgobodi, Adolph Dithlopo, Invocoms (Kopano Team), Beestekraal 39 Renier Vorster, Continuous Improvement, Hercules 39 corporate governance structure and management systems The company is listed on the JSE Securities Exchange South Africa (JSE) and on the Zimbabwe Stock Exchange. By virtue of its JSE listing, the company is obliged to comply with the Code of Corporate Practices and Conduct contained in the King Report on Corporate Governance in South Africa, published in March 2002 and included in the JSE listing requirements with effect from 1 September In terms of non-financial aspects, the company complements these extended reporting requirements by adopting Global Reporting Initiative s Sustainability Reporting (GRI) guidelines on economic, environmental and social performance. Board accountability and delegated functions The general powers of the directors of PPC are conferred either in the company s articles of association or by the South African Companies Act. In accordance with a formal charter the board has reserved to itself the following responsibilities: approval of the strategic plan and rolling forecasts; setting of objectives and performance targets; reviewing of key risks, especially in respect of technology and systems; appointment of the chief executive officer; maintenance of succession plans; determination of overall policies and processes to ensure the integrity of the company s management of risk and internal control; and monitoring the implementation of board plans and strategies, as well a the mitigation of risks by management against a background of economic, environmental and social issues relevant to the company. The charter expresses the board s philosophy in regard to excellence in 16

21 customer satisfaction, quality and safety of products and services; optimisation in the use of assets and employee development; respect for human dignity and observance of fundamental human rights; national and international corporate citizenship, including sound relationships with regulatory authorities. While retaining overall accountability and subject to matters reserved to it, the board has delegated to the chief executive officer, the chief operating officer and other executive directors authority to run the day-to-day affairs of the company. Audit, compliance, nominations and remuneration committees assist the board in the discharge of its duties. Each committee acts within written terms of reference, under which certain functions of the board are delegated with clearly defined purposes and membership requirements. Board committees may take independent professional advice at the company s expense when necessary. The committees are subject to regular evaluation by the board in regard to performance and effectiveness. Chairmen of the board committees are required to attend annual general meetings to answer any questions raised by shareholders. Board of directors At year-end, there were five executive and six non-executive directors. As a subsidiary of Barloworld Limited it is to be expected that a number of PPC directors would also be directors of the holding company. In terms of the Code of Corporate Practices and Conduct such directors are technically not regarded as independent but rather as non-executive. Therefore: Mr WAM Clewlow is a non-executive director of Barloworld Limited and a non-executive director and chairman of PPC; Messrs RKJ Chambers and EP Theron are independent non-executive directors of Barloworld Limited and non-executive directors of PPC; Messrs AJ Phillips and AJ Lamprecht are executive directors of Barloworld Limited and non-executive directors of PPC. Mr MJ Shaw is an independent nonexecutive director of PPC. The non-executive directors are considered to have the skill and experience to bring balanced and unrestrained judgement to bear on board business. Their mix of experience and ability meets the present and future requirements of the company. The agenda and supporting papers are distributed to all directors prior to each board meeting. Explanations and motivations for items of business requiring decisions are given in the meeting by the appropriate executive director. This ensures that all the relevant facts and circumstances are brought to the attention of directors who, in any event, have unrestricted access to all company property, information and records. Four board meetings were held during the financial year. All of the directors attended these meetings, except as indicated in the table below: Date Apologies tendered WAM Clewlow, PJ Blackbeard WAM Clewlow Any new appointment of a director is considered by the board as a whole, on the recommendation of the nominations committee. The company arranges an induction programme for new directors. This includes an explanation of their fiduciary duties and responsibilities and visits to the main operations, where discussions with management facilitate an understanding of the company. Directors are appraised, whenever relevant, of any new legislation and changing commercial risks that may affect the affairs of the company. In certain circumstances it may become necessary for a non-executive director to obtain independent professional advice in order to act in the best interests of the company. Such a director has unrestricted access to the chairman, executive directors and the group secretary. Where a nonexecutive director takes reasonable action and costs are incurred, these are borne by the company. By convention, executive directors retire from the board at 63 years of age whilst non-executive directors retire at the next annual general meeting following the director s 70th birthday. pretoria portland cement annual report 17

22 corporate governance structure and management systems continued At every annual general meeting, at least one-third of the directors retire from the board. In addition, a director appointed by the board to fill a vacant seat must retire from that office at the next annual general meeting. Directors retiring in this manner may offer themselves for election or re-election, as the case may be, subject to any recommendation made by the nominations committee. Mr P Esterhuysen is to be appointed as a director by the board with effect from 1 December 2003 and is therefore required to retire. Messrs RJ Burn, RKJ Chambers, AJ Lamprecht and EP Theron are required to retire by rotation in terms of the articles of association at the forthcoming annual general meeting. Other than Mr RKJ Chambers, who has decided to formally retire, all have offered themselves for election and re-election respectively at that meeting, and the nominations committee has recommended their re-election. There are no contracts of service between any directors and the company or any of its subsidiaries that are terminable at periods of notice exceeding three months and requiring payment of compensation. Formal board evaluations are not carried out annually; however the chairman of the board, the board and its sub-committees retain regular contact in this regard. Ten meetings of the executive directors and senior executives were held during the year in order to assist the chief executive officer to guide and control the overall direction of the business of the company, monitor business performance and to act as a medium of communication and co-ordination between business units, group companies and the board. Chairman and chief executive officer No individual has unfettered powers of decision-making. Responsibility for running the board and executive responsibility for conduct of the business are differentiated. Accordingly, the roles of the chairman of the board and chief executive officer are separate. The group secretary The group secretary provides the board as a whole and directors individually with detailed guidance on the discharge of their responsibilities. He is also a central source of guidance and advice to the board and within the company on matters of ethics and good governance. Appointment and removal of the group secretary are matters for the board as a whole. He sees that in accordance with the pertinent laws, the proceedings and affairs of the directorate, its subcommittees, the company itself and, where appropriate, owners of securities in the company are properly administered. He ensures compliance with the rules of the JSE and the Zimbabwe Stock Exchange on which the company s securities are listed. The group secretary also administers the statutory requirements of the company and its subsidiaries in South Africa. All directors have direct access to him at all times. He is kept advised about all dealings by directors and officers in securities of the company and a report is tabled at the board meeting following any such dealings. Insider trading The Insider Trading Act regulates transactions by directors and officers in securities issued by the company. No employee, his/her nominee or members of their immediate family may deal either directly or indirectly, at any time, in the securities of the company on the basis of unpublished price-sensitive information regarding the company s business or affairs. No director or officer of the company may deal in the securities of the company during the closed periods determined by the board in terms of a formal policy controlled by the group secretary. From time to time, additional periods may be declared closed if circumstances warrant this action. Dealing in the securities of the company at any other time is permitted but approval must be obtained in advance of any transaction from the chief executive officer. When any director or officer wishes to buy, sell or take a position in securities of the company, they must notify the group secretary of their intentions prior to the transaction and record in writing immediately after the transaction, the details thereof and deliver detailed written record thereof to the group secretary within 24 hours. A list of persons who are restricted for this purpose has been approved by the 18

23 Committed to organisational integrity, proactive in risk management board and is revised from time to time. A register of directors, secretary and officers is available for inspection at the company s registered office in Sandton, South Africa. The new rules of the JSE extend obligations regarding transactions in the securities of the company to be disclosed to the market within 48 hours and specifically include the directors and the secretary including any associate of the director or secretary or any independent entity or investment managers through which the directors or secretary may derive a present or future beneficial or nonbeneficial interest. Accounting and reporting The board places strong emphasis on achieving the highest level of financial management, accounting and reporting to shareholders. Successful harmonisation with International Financial Reporting Standards has been achieved, whilst maintaining full compliance with South African Generally Accepted Accounting Practice. PPC s annual report for 2002 earned a third consecutive award from Ernst & Young for Excellence in Financial Reporting. Audit committee MJ Shaw (Chairman), WAM Clewlow, RKJ Chambers, AJ Phillips. The audit committee consists exclusively of independent and non-executive directors. Its chairman is an independent director. The board has considered the recommendation, contained in the Code of Corporate Practices and Conduct, that the chairman of the board should not be a member of the audit committee but believes that it is in the best interests of the company to retain the experience of Mr WAM Clewlow on this important committee. The quorum for a meeting is two nonexecutive directors. The Barloworld Limited head of internal audit and the senior audit partner in charge of the external audit are invited to attend all meetings. They have unrestricted access to the chairman and other members of the audit committee. The financial director and any other executives may, at the discretion of the chairman of the audit committee, also be invited to attend and be heard. No attendee has voting rights. The audit committee has written terms of reference. Its duties relate to the management of risk across the PPC group, the safeguarding of assets, the identification of and exposure to significant risks, the operation of adequate systems and control processes and the presentation of accurate and balanced financial statements and reports complying with all relevant corporate disclosure requirements and accounting standards. The board places strong emphasis on maintaining appropriate systems of internal control. An Internal Control Scoreboard is reported to the audit committee for each business operation annually. All defalcations above R1 000 are also reported. The audit committee met on: 30 April 2003, to consider reports from internal and external auditors and the interim report for the halfyear ended 31 March The committee was satisfied that the financial statements and the interim report were accurate and resolved that the chairman recommend approval by the board on 14 May August 2003, to consider disaster continuity and business recovery plans, the high level risk assessment process, internal audit activities and recommendations, as well as technical and general accounting issues. 3 November 2003, to consider reports from internal and external auditors and the financial statements for the year ended 30 September The committee was satisfied that the financial statements and the preliminary report were accurate and resolved that the chairman recommend approval by the board on 5 November The lead engagement partner and manager responsible for the audit were present. The committee also considered the company s ability to continue as a going concern, the valuations of investments, exceptional items, the adequacy of insurances and fees for audit services. PPC has implemented a formal policy to limit and regulate the use of external auditors in so far as the non-audit services are concerned. In particular external auditors cannot be used in the provision of internal audit or such other services which could in any way impair their audit independence. The company requires the external auditors to carry out their audit with pretoria portland cement annual report 19

24 corporate governance structure and management systems continued due regard for the findings and work of the internal audit function. To this end the audit committee encourages consultation between the external and internal auditors and ensures that meetings are held periodically to discuss matters of mutual interest and that working papers, management letters and reports are exchanged so that there is a common understanding of audit techniques, methods and terminology. The audit committee has recommended that the external auditors be reappointed at the forthcoming annual general meeting. During the year under review, the committee met three times. All committee members attended these meetings except Mr WAM Clewlow who was unable to attend the meeting on 13 August 2003 and tendered his apologies accordingly. The board has determined that the audit committee has satisfied its responsibilities for the year under review in compliance with its terms of reference. Compliance committee RKJ Chambers (Chairman), PJ Blackbeard, JE Gomersall, GT Heyns, MJ Shaw. The head of the Joint Audit Process (JAP) is invited to attend all meetings. She has unrestricted access to the chairman and other members of the compliance committee. At the discretion of the chairman, other executives may also be invited to attend and be heard. No attendee has voting rights. The primary function of the compliance committee is to assist the audit committee and the board in assessing risk, legal compliance and their related management and audit processes in order to ensure that these are being adequately identified, evaluated and addressed at the appropriate organisational level. It primarily addresses health and safety, environment, mining, production and engineering issues. During 2003 this committee continued to review the new Minerals and Petroleum Resources Development Act, the proposed Black Economic Empowerment Bill, the King Code of Corporate Practice and Conduct and other legislation applicable to PPC. The compliance committee is a subcommittee of the audit committee. The terms of reference are governed by a compliance committee charter approved by the board and the audit committee. The chairman is a nonexecutive director. Other than for external audit, the company has merged its auditing activities under one umbrella referred to as the Joint Audit Process with the group-wide objective of fostering: audit methodologies and the avoidance of duplication; a holistic view of the business and its related risks; internal and external line specialists involvement; the sharing of best practice and knowledge; encouraging continuous improvement; and adherence to company policies. During the year under review, the committee met twice. All committee members attended these meetings. The board and the audit committee have determined that the compliance committee has satisfied its responsibilities for the year under review in accordance with its terms of reference. Nominations committee WAM Clewlow (Chairman), RKJ Chambers, MJ Shaw, EP Theron. The nominations committee makes recommendations to the board on the composition of the board and the balance between executive and nonexecutive directors. Skill and experience, demographics and diversity are taken into account in this process. It is responsible for identifying and nominating candidates for the approval of the board as additional directors or to fill any board vacancies when they arise. They also advise the board on succession planning, especially in respect of the chairman of the board and chief executive officer. In addition, the committee recommends for re-election directors who retire in terms of the company s articles of association. Its terms of reference were formalised in 2003 and approved by the board. During the year under review, the committee met once. All committee members attended this meeting. The board has determined that the nominations committee, which has no executive powers, has satisfied its responsibilities for the year under review in compliance with its terms of reference. 20