Darryll Castle CEO Tryphosa Ramano CFO RMB MORGAN STANLEY CONFERENCE CAPE TOWN

Transcription

1 Darryll Castle CEO Tryphosa Ramano CFO RMB MORGAN STANLEY CONFERENCE CAPE TOWN September

2 Agenda Context Operational Update Expansion Projects Update Outlook Questions 2 2

3 Highlights Production ramp up of the new tpa plant in Rwanda commenced in August 2015 The project costs of the plant were well controlled; coming in at just under the budgeted $170 million All three remaining projects in the DRC, Zimbabwe and Ethiopia are ~45% complete The 1 million tpa, Slurry kiln 9 project has commenced Production ramp up is anticipated in 2018 The use of tyre burning as an alternative thermal energy source, began at De Hoek in August

4 CEO priorities change management People and Culture Profit Improvement Programme Sales and Marketing Delivery and performance-driven culture Creative tension and constructive confrontation People structures and the role of the head office Creating a matrix organisation Revenue optimisation Cost efficiencies Strategic cost reductions Up to R400 million Strengthen management and enhance team on the ground Strategic and analytical approach to pricing and products 4 Expansion Strategy Implementation Focus on delivering projects on-time and onbudget Focus on delivering business plans that ensure attractive returns 5 Optimal Capital Structure Managing debt to optimal levels Optimising balance sheet and company structure to position company for growth Review of BBBEE structures 4

5 Profit improvement programme Profit improvement programme (PIP) consists of 3 pillars 1) Revenue optimisation 2) Cost efficiencies 3) Strategic cost reduction PIP Up to R130m Up to R150m Up to R120m Pricing strategy Logistics optimisation Innovation Up to R400m improvement in 3 years Regain market share Supply chain optimisation Operating architecture Geographic segmentation Increase use of alternative energy Refine role of head office Channel management Raw material optimisation Operational fixed costs 5

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7 South African operating environment Cement demand vs. GDP growth Cement demand vs. GDP growth forecast % 6.0% 5.0% 4.0% 3.0% 4.0% 2.0% 2.0% 1.0% 0.0% % 2015f 2016f 2017f 2018f 2019f 2020f Cement Industry (incl. imports) GDP Growth Cement demand forecast (incl. imports) GDP growth forecast Source: South Africa Revenue Services, IMF Source: IMF, Bureau for Economic Research During , cement demand (including imports) has grown by an average 5% per annum, exceeded GDP by an average 2 percentage points per annum Cement consumption is set to reach ~14 million tons in 2015; levels last seen in 2007 Over , cement demand growth is set to continue to outpace growth in GDP Over this period, an additional 2.4 million tons of cement will be required to meet the forecast demand By 2020, demand in cement of million tons is anticipated Economy Competitive landscape Imports PPC Performance 7

8 South African operating environment Retail price of 42.5 cement, January to August 2015 (Rands) Source: PPC Research PPC Surebuild Competitor A Competitor B Competitor C Increased local competition, has weighed on retail cement prices Margins have come under pressure as rising input costs have not been offset by higher selling prices PPC Surebuild s price premium has now been repositioned; activating the inherent brand equity strength Pricing environment does however remain highly volatile across the various regions Economy Competitive landscape Imports PPC Performance 8

9 South African operating environment Imported cement volumes by port of entry (tons) Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Source: South African Revenue Services Durban PE & EL Cape Town Imports from Pakistan have declined substantially in calendar Q From January May 2015, eleven vessels landed in SA with imported cement From June August 2015, only two vessels landed with imports However, the dramatic reduction in shipping rates is of major concern The cement industry continues to engage with the authorities in order to align dumping duties across Pakistani producers Dumping Duties In May 2015, antidumping duties of between 14% and 77% were imposed on Pakistani cement Economy Competitive landscape Imports PPC Performance 9

10 South African cement F2015 August YTD Volumes Pricing Movement Comment PPC s South African cement volume growth was flat Excluding Safika Cement, PPC s volumes in the core business declined by 4% Competitor intensity has led to substantial customer churn Worst affected areas: Mpumalanga and Polokwane Volumes in the Gauteng area also declined however the construction segment showed resilience Volumes in the coastal regions have also been under pressure however positive performance is beginning to emerge Work on a number of wind farm projects was concluded during the course of the financial year PPC continues to supply a number of high profile projects including Menlyn Maine, the new Discovery head office, Mutual Place head office and the expansion of the CTICC Average selling prices in the core South African business declined by 2% Economy Competitive landscape Imports PPC Performance 10

11 Zimbabwe, Botswana and Rwanda F2015 August YTD Zimbabwe Movement Comment Volumes Overall volumes declined by 2% However, domestic volumes grew by 5% relative to the previous period The stronger US dollar, increased competitor and pricing pressure led to decreased exports ~10% of volumes are exported Pricing Price increases in the local market remain muted Good control of costs has led to improved margins Botswana Movement Comment Volumes Pricing Volume growth in excess of 20% on the back of technical issues experienced by competitors as well as strong growth in the retail segment Despite reduced net selling prices, cost efficiencies as well as improved volumes resulted in margins improving Rwanda Movement Comment Volumes Pricing Production ramp up at the new plant has commenced Increased production capacity has been well received by the market Customary teething issues are being ironed out With the launch of the new plant, a promotional price was introduced Despite marginally lower prices, the improved efficiency of the new plant has led to improved margins 11

12 Lime, Aggregates and Readymix F2015 August YTD Lime Movement Comment Volumes Volumes in burnt product sales have continued their upward trend Pricing Increased selling prices, higher volumes as well as cost saving initiatives have led to improved margins Aggregates and RMC Movement Comment Volumes Volumes in our aggregates business in Botswana rose but were more than offset by declines in the South Africa division Pricing The consolidation of Pronto Readymix from July 2014 has positively impacted performance 12

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14 CIMERWA Ltd, Rwanda The budgeted $170 million, tpa plant was successfully concluded within the allocated budget Once the provisional acceptance certificate is received, finance charges will begin to be expensed The USD denominated debt (61%) bears interest at 650 bps above LIBOR; repayable over eight years The RwF denominated debt (39%) is fixed at 16% p.a. and is repayable over an eight year period Provisional acceptance testing is proceeding well with all the crushers, stacking and reclaiming systems as well as the entire pyro system performing well Heat consumption was 3.47 MJ/kg clinker against design of 3.51 MJ/kg clinker Acceptance testing on mills and kilns to be completed shortly The Honourable Prime Minister of Rwanda, Mr ANASTASE MUREKEZI, presided over the official opening of the new CIMERWA plant on 18 August

15 CIMERWA Ltd, Rwanda The tpa plant was successfully concluded within the $170 million budget CIMERWA is the only integrated producer of cement in Rwanda The factory is well positioned to supply cement within the region: Rwanda, E-DRC and Burundi At steady state, exports are expected to contribute ~30% of total volume CIMERWA boasts a modern and efficient plant which can compete successfully in the region Good road infrastructure ensures easy access to main markets Support from the government of Rwanda, a significant shareholder, is highly valued CIMERWA is engaging with various stakeholders to capacitate the local transport industry Competitive landscape Most competitors are a fair distance away from CIMERWA s target markets New road traffic regulations limit truck load sizes Competitive Landscape Kilimanjaro (Tz) National (Ke) TPCC (Tz) Tanga (Tz) Tororo (Ug) Hima (Ug) Interlacs (DRC) Buceco (Bu) ARM CIMERWA Imports Regional - Grinding Regional - Integrated Rwanda - Grinding Rwanda - Integrated Kilotons per annum 15

16 Democratic Republic of the Congo Construction of the $280 million, 1 million tpa plant is ~45% complete Commissioning of the project remains on track for end calendar 2016 Sinoma EPC contract progress Civil construction on target for completion by ~September 2015 Structural steel and mechanical erection work has commenced on key items Bulk power supply The order for the main transformers, substation and PPC switchyard has been placed The overhead transmission line tender has closed The tender evaluation and adjudication process is in progress (managed by local electricity utility, SNEL#) Contract to be placed by the end of September Permanent power to be available on site by end June 2016 # Société Nationale d Electricité SEE PPC WEBSITE FOR DRC VIDEO CLIP New 1mtpa plant 16

17 Democratic Republic of the Congo PPC has the first mover advantage for significant new capacity in the DRC New factory is well located to serve the Kinshasa, Matadi and interior markets Brand already established, and PPC has a good understanding of the local business environment Demand outlook remains positive significant infrastructure development projects ahead of local elections Complex logistics due to poor road network and access restrictions In-country management continues to build good relationships with all stakeholders On-going engagement with government for local industry protection Competitive Landscape Nyumba Ya Akiba 2018/9? PPC Barnet End 2016 CILU (Heidelberg) 2018? CINAT (Nova Cimangola) Not operational Competitive landscape Only one active local producer (CILU) Increase in imports from Angola and insufficient border control applying downward pressure on pricing New capacity under construction in Congo Brazzaville of 1.5 mtpa (Dangote) Kilotons per annum Current Future 17

18 Zimbabwe Construction of the $85 million, tpa mill in Harare proceeding well, commissioning end of calendar 2016 Overall project ~45% complete Rail siding EPC contract - construction is 20% complete Sinoma EPC contract Civil construction 40% complete Design work is 95% complete Procurement and manufacturing is 90% complete Equipment delivered to site is 60% complete Infrastructure work Plant power supply from Zesa is complete Roads to the site have been completed Water and sewage infrastructure work is complete New tpa mill 18

19 Zimbabwe Largest cement manufacturer in Zimbabwe with market leader status and a well established brand Recently invested in technical upgrades Well situated to serve the major market areas in Zimbabwe plants well located for major road and rail infrastructure The only supplier in Zimbabwe capable of offering palletised cement reduced cost and time to serve Export opportunities especially to Mozambique and Malawi Competitive Landscape Zambia - Dangote Zambia - LafargeHolcim Zambia - ZPC Sino Competitive Landscape Border regions vulnerable to imports due to USD appreciation, but importers face long distances to the key inland markets LafargeHolcim is situated in the major market region of Harare Dangote recently announced expansion plans in Zimbabwe LafargeHolcim PPC (incl. Harare mill) Zambia -Integrated Zimbabwe - Integrated Kilotons per annum 19

20 Habesha Cement, Ethiopia Work underway to confirm capital costs and time frame - will communicate once concluded, however it may result in an impairment charge PPC shareholding remains at 31% Overall project ~45% complete EPC contract (NHI) Design ~95% complete 86% of the total procurement, manufacturing and supply work is complete 70% of equipment delivered to site Civil construction ~40% complete however rainy season currently hampering construction progress Main plant power - agreement is in place with the Ethiopian power authorities to allow for the construction of the 14km single circuit transmission line to site Recruitment of a Marketing Research Manager as well as a Sales and Distribution Manager in progress Key technical personnel screening is being undertaken, selection to start soon New 1.4mtpa plant 20

21 Habesha Cement, Ethiopia Plant is close to major markets, good roads - 35 km from Addis Ababa New modern plant with lowest cost to serve the Addis Ababa market Potential to expand into a second line Mesobo Cement National Cement Competitive Landscape Competitive Landscape Dangote entered the market in June 2015 The cement consumption pattern has changed over the last three years, with demand for 42.5 and 32.5 strength now similar This has a potential to reduce stated capacity by 25% Clinker and cement imports are not allowed The government announced a new five year growth and transformation plan giving more emphasis to infrastructure development, industrialisation and housing This underscores future demand Ethio Cement Habesha Cement East Cement Small producers Dangote Derba MIDROC Muger Cement start Q Addis Ababa Eastern Ethiopia Northern Ethiopia Kilotons per annum Capacities based on 32.5 strength cement 21

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23 Compelling Investment Case Competitive position Well positioned to capture market share Strong market position with iconic brands and comprehensive reach in all operating geographies Quality of portfolio Increasing presence on African continent Diversified operating portfolio across products and geographies Delivery and execution Demonstrating ability to execute complex projects and run businesses across Africa Entry point to fast growing African countries that require significant infrastructure investment Value enhancing Value enhancing strategic allocation of capital; ROIC > WACC Resilient performance through the cycle Well-demonstrated cash conversion ability Superior growth and margin R400 million worth of sustainable profit improvement Sustainable margins with high returns on investment Optimal capital structure Optimal capital structure supportive of expansion ambitions Ability to access project financing across the African continent - > $400m of project finance secured 23

24 Outlook We believe that we are at or near the bottom of the cycle however increasing competitive forces in South Africa, Zimbabwe and Botswana weigh on the near term outlook Production ramp up in Rwanda will offset some of the headwinds however increasing finance costs will counteract these initial revenue gains Progress with discussions with lenders on covenant relaxations is advanced Work is underway to review the BEE funding and gearing of the balance sheet Initial benefits of our profit improvement programme are expected to come through in F

25 Questions? 25

26 Disclaimer This document including, without limitation, those statements concerning the demand outlook, PPC s expansion projects and its capital resources and expenditure, contain certain forward-looking statements and views. By their nature, forward-looking statements involve risk and uncertainty and although PPC believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be 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. Whilst PPC takes reasonable care to ensure the accuracy of the information presented, PPC accepts 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 arising in connection with a forward-looking statement. This document is not intended to contain any profit forecasts or profit estimates, and the information published in this document is unaudited. 26

27 De Hoek tyre feed project De Hoek kiln 6 is expected to have a co-processing capacity of approximately tons of recycled tyres per year, resulting in a heat replacement of 15% REDISA # aims to supply 8000 tons of tyres to PPC, with 6000 tons coming from the Western Cape tyre availability The manual feed system was completed at a cost of under R10 million # REDISA is the Recycling and Economic Development Initiative of South Africa Installation of double flap airlock valve Alimak tyre feed lift SEE PPC WEBSITE FOR TYRE BURNING VIDEO CLIP 27

28 De Hoek tyre feed project Manual feed system operational mid August 2015 Initial 1 tyre per minute feed = 5% coal replacement Personnel required: 26 tyre feeders, 4 Bell truck operators to feed 24/7 Bell truck operators offloading tyres for feeding 28

29 Optimal capital structure (as at H1 2015) Gross debt by sources of funding 9% 36% Bonds Rm Debt maturity profile 15% Long-term loans BEE funding RoA RSA 18% Project funding % Short-term borrowings % 80% 60% 40% 20% 0% Funding by currency 85% 61% 34% 10% 5% 2% 0% 3% ZAR USD RwF BIRR Average maturity is ~3 years PPC BEE debt of ~R2,7 bn matures in December 2016 (F2017), before impact of compulsory subscription Review BBBEE structures in line with current environment 29

30 Capital expenditure (as at H1 2015) Capex F2015 H1 (Rm) F2014 H1 (Rm) Capex before expansion projects DRC Rwanda Zimbabwe Total Project finance for expansion projects has been fully secured *subject to currency fluctuations Capex H2(2015) F2016 F2017 Maintenance capex R100m R200m R300m R400m R500m R600m Expansion capex: SA R300m R400m R300m R400m R700m R800m Expansion capex: ROA R1bn R2bn R1bn R1.6bn R600m R900m Total R1.4bn R2.6bn* R1.6bn - R2.4bn* R1.8bn R2.3bn* 30

31 Investor Contacts Azola Lowan Vuyo Nombila Tel Investor Relations Investor Relations CIMERWA tpa plant 31