Integrated annual report 2012

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1 Integrated annual report 2012



4 Contents About this report Scope and boundary of report 1 Reporting approach 1 Group overview 2 Our profile 2 Our vision 2 Investment proposition 2 Salient features Operations and geography 4 Leadership 5 Approach to sustainable business 10 Stakeholder engagement 11 Material issues 14 Our strategy 18 Commentary Chairman s report 22 Chief executive officer s report 24 Chief financial officer s report 28 Integrated review of 2012 Summary of integrated performance 34 Value added statement 38 Mining charter scorecard Operations review 44 People review 48 Social review 60 Environmental review 66 Corporate governance review 76 Risk review 89 Remuneration review 92 Assurance statement 109 GRI index 110 Summarised group annual financial statements Full financials are available on our website Directors report 114 Report of the independent auditor on the summarised annual financial statements 118 Consolidated statement of financial position 119 Consolidated income statement 120 Consolidated statement of comprehensive income 121 Consolidated statement of changes in equity 122 Consolidated statement of cash flows 123 Segmental information 124 Notes to the summarised group annual financial statements 126 Seven-year review of the group s results 128 Administration PPC in the stock market 140 Corporate information 141 Notice of annual general meeting 142 Form of proxy 149 Glossary of definitions and acronyms 152 Forward-looking statements This report 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 the expectations reflected in such statements are reasonable, no assurance can be given that these expectations will prove 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, other government action and business and operational risk management. While PPC takes reasonable care to ensure the accuracy of information presented, we accept no responsibility for any damages be they consequential, indirect, special or incidental, whether foreseeable or unforeseeable based on claims arising out of misrepresentation or negligence in connection with a forward-looking statement. This document is not intended to contain any profit forecasts or profit estimates, and some information in this document may be unaudited. Empowered to deliver Innovation Enterprise development Economic Empowerment CONTINUAL MODERNISATION In October 2012, Pretoria Portland Cement Company Limited changed its name to PPC Ltd. How to get the most out of our integrated report Like us Follow us Watch us page 20 page 32 page 42 Readers are encouraged to start with the About this report section, as this will provide context This icon indicates material issues discussed in this report This icon refers to supplementary information that can be found online At the back of the report is the glossary of definitions and acronyms which are referred to throughout the report page 112 page 138

5 ABOUT THIS REPORT About this report partnering in africa Scope and boundary of report This integrated annual report covers PPC s financial and non-financial performance between 1 October 2011 and 30 September It follows the integrated annual report published for the 2011 financial year. Details for obtaining copies of the integrated report from the PPC group company secretary appear on page 137. For further details on sustainability matters, please contact: Ms Tshilidzi Dlamini, PPC group manager, sustainability and environment, tel +27(11) , fax +27(11) , The scope of this report covers all PPC s manufacturing facilities (cement and lime), aggregate quarries and depots in South Africa, Botswana, Zimbabwe and Mozambique. Our annual financial statements were prepared in accordance with international financial reporting standards (IFRS), requirements of the South African Companies Act, regulations of JSE Limited (JSE) and recommendations of King III. Reporting approach This is our third integrated annual report a style of reporting that allows us to emphasise the fundamental link between our financial and non-financial performance (environmental, economic, social and governance issues), contextualise the risks and opportunities the group faces, and how these influence our business strategy. The JSE requires listed companies to produce integrated annual reports, in line with the recommendations of King III. What, precisely, constitutes integrated reporting remains the subject of international debate, although we have noted the discussion papers from the International Integrated Reporting Committee. We have also been guided by accepted best practice in annual reporting and GRI G3.1 reporting guidelines. This integrated annual report focuses on the most material sustainability issues that drive business strategy. These were identified after analysing stakeholder concerns, business risks and global trends, and how they impact our long-term business sustainability. In compiling this report, PPC has considered the latest Global Reporting Initiative sustainability reporting guidelines, known as GRI G3.1, as well as guidelines on corporate governance in South Africa set out in King III and the Listings Requirements of the JSE. The GRI classification for our report is application level C+, which is self-declared and requires the group to report on at least ten GRI indicators across economic, social and environmental performance. Certain indicators have been externally assured by Deloitte & Touche, whose report appears on page 109. The indicators published in this report reflect the extent to which we meet GRI reporting requirements. We have also included areas we believe will enhance understanding of our processes, achievements, challenges and progress for the year. Online version available Integrated annual report

6 GROUP OVERVIEW Our profile In 2012, PPC celebrated its 120th year a formidable 12 decades of innovation as a leading cement producer in southern Africa. This milestone comes two years after PPC celebrated its 100th year listing on the JSE in 2010, becoming part of an extremely small and elite group of listed centenarians, not only in South Africa but worldwide. Established as De Eerste Cement Fabrieken Beperkt in 1892, PPC has tracked the growth and development of South Africa, producing the cement used in many of the country s iconic landmarks and construction projects, including the Union Buildings, Gariep Dam, Van Staden s River Bridge, Gautrain, Medupi Power Station, the new Cape Town Stadium in Green Point and much of southern Africa s infrastructure. Since unbundling from Barloworld in 2007, PPC concluded R3,9 billion broad-based black economic empowerment transactions in 2008 and 2012, commissioned a R1,4 billion clinker plant in Dwaalboom and completed the R700 million mining facility at its Hercules plant. The group is the leading supplier of cement in southern Africa through eight cement manufacturing facilities and three milling depots in South Africa, Botswana and Zimbabwe that can produce around eight million tonnes of cement products each year. PPC also produces aggregates, metallurgical-grade lime, burnt dolomite and limestone. Our Mooiplaas aggregates quarry in Gauteng has the largest production capacity in South Africa. Our focus extends beyond our group to the broader industry. As a leader in this industry, PPC has actively invested in technology to reduce air emissions, minimise waste production, recycle and recover raw materials, enhance energy efficiency and conserve natural resources while producing a reliable and affordable supply of building materials to support the economies of countries where we operate. PPC is a truly African success story a focused business that reflects the strengths of its people, products and services. As we expand into the rest of Africa, we will deploy our sustainable business model one built to last and the brand of choice in our chosen marketplaces. Our vision To grow PPC into a leading emergingmarket business. PPC currently operates in emerging markets, where 70% of the world s cement is produced. These markets present higher growth in populations, GDP and cement demand, new opportunities, and deliver higher returns for producers of cement and related products. Investment proposition Cash generative Excellent dividend yield and history Leading producer in southern Africa with best geographic spread New capacity available Strong financial position Financial strength to explore expansion opportunities Experienced management team 2 PPC Ltd

7 SALIENT FEATURES 2012 About this report Normalised earnings* per share increased by 11% Annual dividends increased to 146 cents per share 12% Cash earnings per share rose by 16% Team PPC delivered a good result by improving efficiencies and increasing normalised earnings by 11% despite another tough year. The company finalised a number of key strategic issues including conversion of mining rights in South Africa and our first new investment into sub-saharan Africa. People Social Employees participate in 68% (R730 million) of the second BBBEE ownership transaction. Invested R42,3 million or 5,7% of payroll in skills development. R38 million of a planned R60 million over five years spent on approved local economic development projects. 88% of total procurement (R3,5 billion) spent with BBBEE suppliers. Environmental Corporate governance and risk Successful completion of the environmental authorisation process for new Riebeeck plant. As part of our five-year energy-saving plan, integrated demand management projects realise energy savings of R2,8 million. New CEO appointed. Ongoing improvement in integrated reporting acknowledged. Governance aligned with new Companies Act. Financials (R million) Revenue Operating profit* Property, plant and equipment Total assets Cash generated from operations Ordinary share analysis Headline earnings per share (cents)* Earnings per share (cents)* Dividends per share (cents) Number of employees * Excludes BBBEE IFRS 2 charges. Integrated annual report

8 OPERATIONS AND GEOGRAPHY PPC has operations and strong brands in South Africa, Botswana, Zimbabwe and Mozambique. In addition to serving southern African markets, we export cement and lime to other African countries. Ethiopia 19 Addis Ababa 1. Jupiter 2. Hercules 3. Slurry 4. Dwaalboom 5. Riebeeck 6. De Hoek 7. Port Elizabeth 8. Colleen Bawn 9. Bulawayo 10. Lime Acres 11. Laezonia quarry 12. Mooiplaas quarry 13. Kgale quarry 14. Gaborone 15. Saldanha 16. Quarries of Botswana 17. George 18. Maputo 19. Habesha Zimbabwe Botswana 9 Bulawayo Gaborone Mafikeng Maputo Johannesburg 11 1 Richards Bay 10 Kimberley South Africa Durban Saldanha 17 George Port Elizabeth Cape Town Mozambique Cement plant Milling depot Aggregate quarry Lime plant Sales depots Project South Africa Rm Revenue Employees Rest of Africa Rm Revenue Employees PPC Ltd

9 About this report Cement Lime Overview PPC Cement not only has a proud and successful track record spanning 120 years, but can also lay claim to being the leading supplier of cement in South Africa, Botswana and Zimbabwe. Our unique combination of quality products and good geographic footprint allows us to meet most customer requirements in parts of these countries. Overview PPC Lime has grown from small operations in 1907 producing lime for the burgeoning gold mining industry into one of the largest lime producers in the southern hemisphere and the leading supplier of metallurgical-grade lime, burnt dolomite and related products in southern Africa. Lime products Unslaked lime, hydrated lime and limestone and burnt dolomite. Cement product range South Africa PPC s product range includes the premier specialist brand OPC in the 52.5N strength category, the market-leading 42.5N Surebuild general-purpose cement, and the new SureRoad brand for exclusive use in road construction. Zimbabwe Surebuild, Unicem, a trusted 32.5N multipurpose cement, and PMC are distributed from the Bulawayo factory while OPC from South Africa is also available on request. Botswana The popular 32.5R Botcem product, manufactured at the Gaborone milling depot, is complemented by the OPC and Surebuild brands which are also available in Botswana. Mozambique PPC s 42.5N Surebuild is distributed as the Força brand and the 32.5N Obras product was introduced during Aggregates Overview PPC Aggregates supplies quality construction aggregates to the civil construction sector and products for the chemical, metallurgical and agricultural industries. PPC has aggregate quarries in Gauteng (Mooiplaas and Laezonia) and in Botswana (Kgale, Selebi Phikwe and Francistown). Aggregate products Concrete stone, road stone, crusher sand, river sand, building sand, plaster sand, Magalies silica, natural base, sub-base, fill material, dolomite and agricultural lime. Integrated annual report

10 Leadership Board Bheki Lindinkosi Sibiya (55) PPC understands that diversity, empowerment and development at every level can only be achieved through effective, transparent and accountable leadership. Chairman (independent non-executive director) Bheki was appointed independent non-executive director and chairman of the PPC board in November He holds an MBA degree from the University of Western Michigan (USA) and is a founding chief executive of Business Unity South Africa, the most authoritative voice of business in South Africa. He has worked in a number of South African blue-chip companies including Ford Motor Company (human resources), SA Breweries (procurement, logistics and human resources), Tongaat Hulett Sugar (director: human resources), Transnet (director: human resources) and is currently chief executive of the Chamber of Mines. Bheki has also served in a number of significant national policy-formulating structures, such as the national anti-corruption forum, President s working group with business and the national Africa peer review mechanism council. Paul Stuiver (55) Chief executive officer Paul is an engineer by profession (BEng, University of Pretoria) and his early career was spent in the steel industry. After joining PPC he spent 18 years in PPC s lime, packaging and logistics divisions and was a member of the board from 1995 to He joined Barloworld in 2001 as CEO of its logistics division where he was involved with international expansion and served on boards in South Africa, Spain, the UAE, UK and USA. Paul rejoined PPC as CEO in Ketso Gordhan (51) Chief executive officer designate Effective 1 January 2013, Ketso Gordhan will succeed Paul Stuiver as chief executive officer of PPC. Most recently, Ketso was with The Presidency for the government of South Africa, after almost ten years as head of private equity at FirstRand Financial Services Group, where he gained valuable experience of the manufacturing environment. Other successful roles in the public sector include the turnaround of the City of Johannesburg s financial performance as city manager (1999 to 2000) and in-depth knowledge of the transportation sector gained as director general of that national department ( ). Ketso holds a BA in political studies and sociology (University of KwaZulu-Natal), MPhil in development studies (University of Sussex, UK) and was a visiting fellow in finance at the University of Pennsylvania, Wharton, USA. Ketso is currently serving as a non-executive director at Life Healthcare. Mmakeaya Magoro Tryphosa Ramano (41) Chief financial officer Tryphosa, CA(SA), was appointed chief financial officer (CFO) of PPC in Prior to that, she was CEO of WIP International (a subsidiary of WIPHOLD focused on African expansion). Tryphosa also served as CFO of SAA, and prior to that, she was requested to join National Treasury, where she set up a business unit with financial oversight of state-owned entities. As chief director of this unit, she was instrumental in listing Telkom on the Johannesburg and New York stock exchanges. Her diverse professional development includes financial and strategic planning, corporate governance reform, industry analysis and corporate restructuring. She has served on a number of boards, and is currently on the Airports Company of SA and Land Bank of SA boards as a non-executive director. Salim Abdul Kader (42) Managing director, South Africa operations Salim holds BSc, BB&A (Hons) and MBA (cum laude) degrees from the University of Stellenbosch and joined PPC in He was executive director responsible for organisational performance and transformation until 2009 when he was appointed managing director of PPC s cement operations. In 2012, he was appointed to his current position and is responsible for all local operations, including cement, lime, aggregates and the recently acquired readymix business. Prior to joining PPC, he was a senior executive in the Tiger Brands group, responsible for organisational effectiveness after acquiring managerial experience in various technical and operational roles. Sello Godfrey Helepi (41) 6 PPC Ltd Executive director Organisational performance and transformation Sello joined PPC in 2007 as group corporate social transformation manager and was appointed executive: transformation in He holds a BEd (Hons) from Avondale College and a BEd Studs (Hons) from the University of Newcastle, Australia. Over a ten-year career with Gold Fields, Sello held positions in human resources, corporate communications and was appointed group transformation manager prior to joining PPC. Peter Esterhuysen (56) Executive director Business development and international expansion Peter was a divisional director of PPC s cement division from 1996 to 2001 and group financial director of the Barloworld Coatings group prior to rejoining PPC as chief financial officer in A chartered accountant by profession, he also holds BCom and BAcc degrees, and has extensive experience in all aspects of manufacturing, corporate finance and taxation. He now heads up the business development team responsible for furthering PPC s African growth strategies.

11 About this report Zibusiso Janice Kganyago (46) Non-executive director Zibusiso holds a BCom degree (University of Natal) and a postgraduate diploma in property planning, development and management. She has completed management development programmes at the Wharton School of Business and University of Nevada, Reno. With 18 years property experience, Zibu has served as non-executive director of the Johannesburg Property Company and member of the Land Affairs Board. Currently, she is executive director of development for Tsogo Sun Gaming. André Jacobus Lamprecht (60) Independent non-exeutive director André holds BCom, LLB and PED-IMD qualifications. He is retired after a long career as a director and later CEO of a listed company and chairman of industrial groups in Botswana and Namibia. During his career he also had wide exposure to construction and miningrelated industries. He served on numerous public bodies, including as chairman of Business South Africa and Business Unity South Africa, and as trustee of the Business Trust. He is a director of Business Leadership South Africa and a member of its executive. Nomalizo Beryl Langa-Royds (50) Independent non-executive director Ntombi has BA (Law) and LLB degrees from National University of Lesotho and owns Nthake Consulting, a human resources consultancy specialising in human resources management and allied services. She has over 25 years experience in the human resources environment, gained as director of human resources at Independent Newspapers Holdings Limited, SABC and the Bevcan division of Nampak Limited. Ntombi is a non-executive director of African Bank Limited and Mpact Limited. Mangalani Peter Malungani (54) Non-executive director Peter is executive chairman and founder of the Peu Group. After an early accounting career with Philips (SA), he started his own business management consultancy in 1984 and investment group Peu in Peter has a BCom degree (Unisa) and completed management programmes at Wits Business School and Wharton University (USA). He is chairman of Phumelela Gaming and Leisure, a director of Investec Limited, Investec plc and certain Peu subsidiaries. Peter has also held advisory positions in government and directorships in state-owned enterprises. Sydney Knox Mhlarhi (39) Non-executive director Sydney was appointed to the board on 1 March 2012 as a representative of the PPC consortium of strategic black partners and as a member of the deal committee and remuneration committee of the board. He is a founder and director of Tamela Holdings (Pty) Limited and has over 14 years experience in investment banking. A chartered accountant, Sydney completed his articles at Ernst & Young in 1997 and is a member of the South African Institute of Chartered Accountants education and examinations committee. He was a member of the Securities Regulation Panel from 2004 to Bridgette Modise (45) Independent non-executive director Bridgette holds a BCompt (Hons) CTA degree, CA(SA) and CIMA certification and has completed several management development programmes. She is the CEO of Kutira Capital and a non-executive director of Sun International Limited, Nestlife Assurance Limited, Unisa School of Business Leadership and Kanhym Estates (Pty) Limited. She was an audit partner at KPMG for 10 years. She sits on the audit committees of various companies. Tim Dacre Aird Ross (68) Independent non-executive director Tim, CA(SA), was a partner with Deloitte & Touche for 36 years, retiring in He led the Johannesburg audit practice and served on the executive as client service director as well as the board and remuneration committees. Tim was the lead/advisory partner for a number of multinational clients and headed the Deloitte & Touche World Cup 2010 initiative. He is a director of Liberty Group, Eqstra Holdings, Adcorp and Mpact, chairing the audit and actuarial committee of Liberty and the audit committees of Eqstra, Adcorp and Mpact. He is also a member of the risk committees of Liberty, Eqstra and Mpact. Joe Shibambo (64) Independent non-executive director Joe (Dip Bus Econ, Dip Bus Admin, Dip Estate Agency) is managing director of Hlamalane Projects (Pty) Limited and has been in the construction industry for over 30 years. He has extensive knowledge and experience of construction management, project management, property development, rail construction and maintenance. Through his organisation, he also assists the youth to acquire basic management principles for the construction industry. Joe is a co-director of various other companies, and was one of the first independent residential developers and the first contractor to develop and build a shopping centre in Soweto. Integrated annual report

12 LEADERSHIP GROUP EXECUTIVE COMMITTEE Paul Stuiver (55) Ketso Gordhan (51) Chief executive officer See page 6 Chief executive officer designate See page 6 Mmakeaya Magoro Tryphosa Ramano (41) Chief financial officer See page 6 Salim Abdul Kader (42) Managing director, South Africa operations See page 6 Peter Esterhuysen (56) Executive director, business development and international expansion See page 6 Sello Godfrey Helepi (41) Executive director, organisational performance and transformation See page 6 Klaas Paulus Pieter Meijer (52) Managing director, international operations Pepe is a mechanical engineer (BEng) and holds BB&A (Hons) and MBA degrees from the University of Stellenbosch. He previously held the positions of executive group services, executive cement operations and various other senior and general management roles across the cement and lime divisions since joining PPC in Prior to that, he worked in the gold mining industry, with the last appointment being as section engineer, and in the fishing/processing/frozen-food industry as group projects manager. Kevin Pieter Odendaal (45) Executive, strategy and corporate communications Kevin holds a degree in mechanical engineering and is a registered professional engineer. He joined PPC in 1991 as a plant engineer at PPC s Riebeeck factory. Since then, he has gained extensive knowledge of PPC and the cement industry. He has held a number of positions at both manufacturing and corporate level including factory engineering manager, group logistics manager and executive of the group supply chain department. Jacobus Hendrik De La Rey Snyman (45) Executive, secretarial and legal Jaco joined PPC in 2007 in his current position. He holds BA, LLB, LLM and MBA degrees and is an attorney of the High Court of South Africa. He started his career as an attorney but after a short stint as lecturer at a university was appointed as group legal advisor by Absa. He was responsible for corporate governance in the Absa Group prior to joining PPC. Jaco is the company secretary of PPC. Phuti Semenya (36) Chief audit executive* Phuti started as a trainee with a major audit firm, and spent four years in external audit management before taking on an executive finance role with a medium-sized printing company. He then moved into internal audit and covered two leading financial institutions before entering the forensic audit field. Phuti holds qualifications as a chartered accountant CA(SA), certified internal auditor (CIA), certified control self-assessor (CCSA), certificate in advanced banking law (cum laude) and is currently studying towards a master s degree in international accounting. *Attends as observer only 8 PPC Ltd

13 About this report Awards in 2012 During the year, PPC was recognised at a number of levels from its integrated reporting to its progress with transformation reflecting a group concentrating on every aspect of its role in society and its responsibility to stakeholders. Nkonki/Financial Mail award for integrated reporting PMR Diamond Arrow Award Black Business Quarterly (BBQ) 2012 awards Kaap Agri 2012 PPC won the industrial category and was ranked second overall for its 2011 integrated report out of over 100 listed companies. Importantly, the company s overall score improved, placing it among very few top-rated companies for the quality of its integrated reporting. Fifth consecutive award for PPC Cement in this benchmark survey, and first for PPC Botswana. PMR s annual national survey evaluates and measures customer service and satisfaction. Nolwandle Mantashe, PPC s executive for transformation and government relations, was named BBQ s transformation champion of the year. PPC was rated supplier of the year for the first time, and won the category: hardware building materials for the second year. Integrated annual report

14 Approach to sustainable business PPC understands that managing a sustainable business requires the balanced integration of performance, corporate governance, social, economic and environmental factors into the strategy and operation of the business. Equally, we understand that this is dynamic and requires an ongoing review process. To formulate our strategy and identify our material issues, PPC uses a wide range of criteria, processes and stakeholder engagements, summarised below: Internal factors External factors Group s vision, mission, key values, policies, strategies, operational management systems, objectives and targets. Challenges and emerging issues for the cement sector, for example global industry consolidation. Expectations and concerns of stakeholders, including employees, customers, shareholders, governments, suppliers and communities. Relevant laws, regulations and changes to legislation that affect PPC and its stakeholders Companies Act, skills development, employment equity, waste management, air quality, and local by-laws. Underlying risks to PPC as defined by internal integrated risk methodologies. Changes involving sustainability issues, impacts, risks or opportunities (eg climate change, energy efficiency) identified through published global research and development. Innovation, including product development and the manner in which PPC could potentially influence suppliers and customers in terms of sustainable development. Advice received through external experts in the business strategy, risk and sustainability fields. 10 PPC Ltd

15 Stakeholder engagement About this report Employees Non-governmental and community organisations Trade unions Banks, funders and insurance companies shareholders and investment community Academic institutions and professional organisations Industry associations Media National, provincial and local government, and regulatory bodies Suppliers Customers In terms of PPC s inclusive process, we engage with all stakeholder groups. While interacting with such diverse groups is challenging, we know that without their input we cannot run a truly sustainable business. PPC uses many avenues to facilitate this engagement as listed below. One of the most successful means has been through formal stakeholder forums at both corporate and operational level. Integrated annual report

16 Stakeholder engagement continued Stakeholder Type of engagement Issues raised Action taken Employees In-house publications, intranet, roadshows, factory Invocoms and key leader meetings, individual perception monitor, performance and one-on-one meetings, factory safety and environmental meetings. All PPC leaders drive various forums, from the CEO down Employee benefits including salaries Company performance Safe working environment Understanding transformation strategy and plans Individual performance and development Succession planning Through the Kambuku philosophy, PPC has ongoing dialogue with all employees to address issues raised. The response is often via the same engagement process through which the issue was raised. Organisational climate Environmental awareness Trade unions Regular meetings as per respective recognition agreements, key leader meetings with all employee representatives at each operation Cost-of-living salary adjustments and other employee benefits Negotiated annual salary adjustments. Academic institutions and professional organisations Meetings, conferences, site forums Stack emissions and dust fallout Emission levels recorded in the integrated annual report. Industry associations Meetings Conferences Working groups Publication of cement statistics Proposed CO 2 tax PPC provides environmental inputs on projects and legislation in various industry associations and other forums. National, provincial and local government regulatory bodies Meetings, conferences, working groups, factory inspections Air quality and waste management Financial provisioning for rehabilitation Integrated water use licences and water quality Social and labour plan implementation Western Cape expansion plan Mining charter scorecard Environmental authorisation applications Financial provisions are made for factory decommissioning and quarry rehabilitation (see annual financial statements). Applications for licences have been submitted. Social and labour plans already implemented. Frequent government interaction during the current environmental impact assessment process. All health and safety elements reviewed and complied with. 12 PPC Ltd

17 About this report Stakeholder Type of engagement Issues raised Action taken Customers Customer visits Factory visits Industry conferences Industry associations Hospitality events Independent customer satisfaction surveys In-store visits and promotions Technical support and education Price, service, product range, quality Managing cement waste (used bags and spillage) Empowerment status PPC communicates price increases in writing in advance. A technical marketing function evaluates quality and product range feedback. Empowerment status certificate available to all stakeholders. Appointed key account managers. Advertising Suppliers Site visits (including suppliers suppliers) Meetings Supplier audits Tender briefing sessions Product development Alignment to customer strategy Environmental status of supply chain Health and safety for contractors Increased focus and capital approved for material handling where necessary. Standard practice is for all contractors entering a site to receive safety induction training. Media Press releases Interviews Meetings Industry outlook Financial results Carbon footprint Products PPC has a specific engagement plan and specific media interactions were held during the year. People Shareholders, investors, banks, funders and insurance companies Annual and interim results Website Integrated annual reports Investor roadshows Meetings Conferences Cement demand and pricing outlook Financial performance Implementation of strategy Competitor activity Carbon footprint CEO succession Written reporting and responses given at the various engagements. New CEO appointed. Communities including nongovernmental and community organisations Public forums Meetings Internet PPC Community Trust (community engagement forum meetings) Operational environmental performance Employment Projects to support community upliftment submitted to trustees from beneficiary communities See social and environmental reports. Where possible employees are sourced from the communities in which we operate. Trustees approve funding allocations and community projects for implementation. Integrated annual report

18 Material issues Based on our approach to managing a sustainable business (page 10), stakeholder engagement and comprehensive risk assessments, we have identified the material issues our stakeholders need to consider. For convenience, each issue is identified by an icon and a number. Where a material issued is addressed in this report, it is cross referenced. In 2012, PPC has successfully dealt with three material issues from the 2011 integrated annual report, namely meeting requirements for conversion of mineral rights, indigenisation of our Zimbabwe operations and CEO succession. These have thus been removed as material issues but are discussed elsewhere in the report. Material issues Response strategy Status 1 High exposure to South African economy In 2012, 79% of PPC s revenue was generated from its South African operations. Increase revenue generated in other countries by expanding PPC s footprint into developing/ emerging market economies. Initial focus is in sub-saharan Africa to grow revenue earned outside South Africa to at least 40% by % stake secured in Habesha Cement, Ethiopia. Operations under construction; expected to come on stream in PPC is currently engaged in four more projects which, if all successful, would add some three million tonnes of capacity or 35% to revenue by Markets 2 Weak demand and overcapacity in South Africa, Botswana and Namibia Existing overcapacity in South Africa, Namibia and Botswana puts pressure on selling prices in competitive markets. Rationalise production capacity to improve utilisation and efficiency across all PPC sites. Contain manufacturing costs. Increased focus on customer needs, marketing and product enhancement. Continue to evaluate and exploit all export opportunities. Older less-efficient equipment remains on care and maintenance, pending changes in market demand. Continue to ensure most efficient allocation of resources and strong customer focus. Improvements at Transnet s rail service have allowed us to maximise use of our most efficient kilns in Dwaalboom. Upgrade of De Hoek kiln 6 completed in July 2012, ensuring that our largest production unit in the Western Cape now operates at competitive efficiency levels. 3 Imported cement into South Africa and Mozambique Cement imports have steadily risen to around 6% of South African demand, despite fluctuations in the exchange rate. Imports into Mozambique have dampened prices. Ensure PPC is competitive in cost, quality and customer service. Lobbying industry bodies, government departments and customers to understand the threat of unstable supply, quality breaches and local manufacturing job losses. Continuous focus on efficiency, quality and customer service. Engaging with relevant industry bodies and supporting legal action to ensure fair application of quality standards has been unsuccessful. Customer education on disadvantages of using imported product has had limited success. 14 PPC Ltd

19 About this report Material issues Response strategy Status Regulatory 4 Increasingly onerous regulatory environment in South Africa The nature, complexity and increase of legislation is making manufacturing in SA uncompetitive. Ensure an effective and appropriately skilled compliance function in place. Allocate capital to ensure compliance. Lobby industry and state bodies to ensure regulatory environment congruent with a competitive manufacturing industry. PPC has a compliance function in place and group-wide compliance to legislation is monitored. Western Cape modernisation programme progressing satisfactorily. Appropriate budgets in place to cater for upgrades at other sites. Engaging with relevant industry and state bodies on: Developing an appropriate carbon tax strategy Waste handling legislation Air emission legislation. Strategic 5 Risks associated with acquisition, partnership and/or investment in a new country Investments into the rest of Africa carry sovereign and operational risks. Thoroughly assess each investment opportunity by ensuring the appropriate resources are in place, including industry and country experts, to ensure compliance with PPC s risk appetite. Consult with relevant government authorities. Promote equity participation by local partners. Use funding opportunities from development funding institutions as these projects have broad development implications and therefore fall within their mandates. Apply lessons learnt from deals concluded. Dedicated business development team under leadership of an experienced director in place. A board deal committee assesses each opportunity. Appropriate risk assessments per opportunity. Political 6 Uncertainty on government policy direction Clarity required to understand government s stated intent of nationalising strategic assets. Implications of fluid empowerment criteria. 7 Political or civil instability in Zimbabwe due to 2013 national elections Improve relationships with government to better understand policy direction. Lobby government through industry bodies. Abide by all regulations of the government of the day and mitigate potential impact by implementing contingency plans. The DMR has approved PPC s current empowerment status. The company will remain engaged with government to keep abreast of any policy developments. Ongoing monitoring of situation and contingency plans in place. Any instability due to these elections will affect cement demand and may hamper production at PPC Zimbabwe. Integrated annual report

20 Material issues continued Material issues Response strategy Status Human capital 8 Lack of critical skills In all countries where PPC operates, there is competition for skills to operate a sustainable manufacturing business. This not only has the potential to affect business performance, but causes costs to spiral to keep remuneration and retention schemes market-related, especially with new entrants to the industry. PPC continues to practise its Kambuku* people philosophy to empower, motivate and develop employees. Fixed and performance-based remuneration and retention schemes to be market-related. Develop existing employees at the accredited PPC Academies. Maintain current succession planning. Employee turnover has declined for 2012 to 14% in South Africa but risen to 10,7% in Botswana while it is 12,4% in Zimbabwe. Internal individual perception monitor has increased to 87%. PPC Academies continue to develop team members in leadership, sales and marketing, vocational training and bridging programmes. 9 Safety The number of lost-time injuries remains unacceptable. Safety remains the top priority for PPC. We continually strive to improve safety standards, develop a healthy work environment and a safety-aware workforce. The group s LTIFR reduced from 0,34 to 0,23 in PPC Alive! project has added momentum to our safety efforts, resulting in fewer lost-time injuries. Operational 10 High cost of manufacturing in SA and Zimbabwe making industry uncompetitive Additional regulatory and compliance requirements increase the cost of doing business. The level of administered energy prices and labour costs make our products uncompetitive relative to Asian counterparts. Ensure compliance with all applicable legislation. Engage government on implications of current and proposed legislation and propose more efficient solutions. Operate as efficiently as possible. Improve electrical and thermal efficiency. Evaluate alternative forms of energy supply. Group-wide compliance to legislation is monitored. PPC is a member of the ACMP, Manufacturing Circle and EIUG. These industry bodies actively engage authorities and affected parties. Efficiency and environmental performance upgrade at De Hoek factory concluded in July Environmental impact assessment for new Riebeeck plant in Western Cape approved. PPC/Inowind Wind Farm project in Port Elizabeth granted preferred-bidder status. Burning waste materials to replace coal remains delayed by authorities. * See page PPC Ltd

December 2012 Rwanda 51% equity stake in CIMERWA acquired. 600 000tpa plant under construction, to be commissioned in 2015.

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