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Edited Transcript of PPC.J earnings conference call or presentation 20-Nov-19 8:00am GMT

Half Year 2019 PPC Ltd Earnings Presentation

Johannesburg Dec 10, 2019 (Thomson StreetEvents) -- Edited Transcript of PPC Ltd earnings conference call or presentation Wednesday, November 20, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anashrin A. Pillay

PPC Ltd - Head of IR

* Mokate Ramafoko

PPC Ltd - MD of Rest of Africa Cement

* Njombo Lekula

PPC Ltd - MD of SA Cement & Materials

* Roland Van Wijnen

PPC Ltd - CEO & Director

* Ronel van Dijk

PPC Ltd - Interim CFO & Executive Director

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Conference Call Participants

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* Charles Boles;Titanium Capital;Manager

* Marc Ter-Mors

SBG Securities (Proprietary) Limited, Research Division - Head of Equity Research & Head of Industrials

* Tinashe Harry Dumile Kambadza

Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst

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Presentation

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Anashrin A. Pillay, PPC Ltd - Head of IR [1]

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Good morning, everybody. Welcome to PPC's interim results for the 6 months ended 30th September 2019. So we'll start immediately as we have a webcast. The format is pretty simple. We have our CEO, Roland van Wijnen, with the introduction and a setup of the presentation and the key messages. Then we have Ronel van Dijk with the financial presentation. And we have -- thereafter, we have Njombo and Mokate delivering the operational reviews. And lastly, we'll finish off with Roland again. Thereafter, we'll have questions, where we'll also have questions online as well.

So without further ado, over to Roland.

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Roland Van Wijnen, PPC Ltd - CEO & Director [2]

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Thank you very much. I don't think the mic -- I'm mic-ed up. Thank you very much, Anash. Good morning, everybody. Pleasure to stand in front of you, not just on behalf of myself. Also, although we have only 4 chairs here, on behalf of the total Exco, 5 members. We also have Phindo with us. And if there were any questions related to specifics on HR, I'm sure she'll be happy to step in there as well.

I'm very pleased to be in South Africa. One of the many reasons is that it is a country where my last name can be pronounced properly. So it's van Wijnen. In most other countries that is difficult. And in my introduction, if I can answer some of the questions that are being thrown at me quite often since I arrived. That is what is important to me as a business leader of PPC. What do I believe in when running a company, so I'll touch upon that. Secondly, why did I choose to come down to South Africa to be the CEO of PPC. So I'll touch upon specifically PPC. What do I think of PPC looking backwards, what has been achieved over the last couple of years. I'll touch upon that. And then, of course, the biggest question that you might have is where do I see this company going forward, and I'll touch on that as well a little bit. After that, I will hand over to Ronel, who will talk you through the results in more detail, supported by Njombo and Mokate on the specifics of the operation, and I'll close it out, as mentioned by Anashrin.

What do I believe in? I believe in this. I believe that companies that are truly thriving for a long period are looking after the 3 main elements of sustainability. Now you can say sustainability is one of those buzzwords. And you're right. Over the last, let's say, 10 years, it has become a bit of a buzzword. But if you look at cement companies in the cement industry in general, these 3 elements form our license to operate. Already many, many years before, sustainability became a hype, a cement company had to look after, obviously, its financials like every other company; obviously, it's environment because we do have a big environmental footprint; and obviously, the social components because we often operate in very remote areas where we have a very significant impact, both positive as well as negative from either environmental tracks on the road. So these 3 elements in the cement industry have always formed the basis for a license to operate.

Now if you look into the industry, there are companies that are tackling this well, and there are companies that tackle this less well. And I have had the pleasure to work for many years in a company that looked after this very, very well. So my background is in one of the internationals. And I've always felt very proud to work for a company that looked after these elements. And if you look at PPC for its 127 years, I dare to say that it is one of the leading company, if not the leading company on the African continent, to take care that they look on an integral basis to their business, looking after the economic value creation, the environmental performance and the social value creation. And that, for me, is very important as we take this business forward. So you will hear me coming back to those 3 elements quite a number of times as we craft our strategy around these elements.

Now why PPC? Obviously, from an investment perspective, PPC has a solid case. It is a business that has grown from a South African pure business into a business that has now an international footprint on the African continent. The vast majority of our assets are new assets. So we're coming out of an investment cycle where we're both in South Africa as well as outside of South Africa. Have invested in new assets. It's a market leader. In nearly all our markets, we have a top 3, if not top 1, position in the market. And we are recognized by our customers for the services and the solutions that we provide. So we are able to command this leadership position that translates in a premium in our pricing environment.

Another point that is important to me is actually the people itself. And from the moment I arrived and had my first interactions with Board, I've always focused very much, okay, what is the actual team? What is the strength that we have in the team? And it is not just the 4 people sitting here in front of me. That is actually the 3,000 people and 3,000-plus that we have from DRC, the one that's in Zimbabwe, Ethiopia down to Botswana in South Africa. And if you go around that operations, if you speak with our customers, which is what I have been doing mainly over the last 6 weeks, you actually get this feel that we have a strong asset in our people base. And it connects to a bigger picture. So PPC has formulated that actually very nicely recently. And they have said we're not just in the world to satisfy these 3 elements that I mentioned before: financial, environmental, social. We actually have a deeper purpose, and we formulated that purpose as the reason that we get out of bed in the morning to serve our customers and to serve all our stakeholders is that we do want to empower people to have a better quality of life. And I think that resonates wherever you go around in the continent extremely well. And if you see what we're doing in that space, we're actually moving quite a lot. And I think that is exciting to be part of a team that looks at that.

Obviously, this company is -- has a financial durability, a company that has been around for 127 years, has weathered a lot of difficult times and has been able to ride the waves of a lot of good times because at the end of the day, there is a certain number of things that a management of a company has to control and work on. And it has then to go into the global -- into the broader picture of the economic developments. As most of you will know, if you look at the cement industry in general, it will follow the rights of the GDP growth in countries. So I've been involved in quite a lot of modeling over the years to say, "Okay, what can we correlate cement demand with?" And I remember we once did a beautiful study with an economic university. And the bottom line at the end was that the best correlation is a very simple one, and it is a GDP correlation. And there are a number of elements that we can influence and a number of elements that we cannot influence in this.

Now if you look at PPC, there are certain elements that we have delivered upon and always looking at, what I call, the value drivers of the business. And for me, the value drivers start with customers. If we don't have customers, we wouldn't to be sitting in this building today. And to customers, I would like to say that our aim is always to serve them better than our competition. It's as simple as that. So if we are able to demonstrate to our customers on a day-to-day basis that we can deliver the products that they need for their applications better than our competitors can, they will be able, not only to buy from us but also to buy from us at a premium. And that translates, obviously, in the bottom line of the company.

If you look at customers and what have we achieved over years, very clearly, PPC is recognized a leader in its countries, not just in South Africa. I would say, in South Africa, we are an iconic company. If you go around, people will not come into a shop and say, "I would like to have a bag of cement." They would come into a shop and they say, "I'm building something. I want a bag with the elephant on it." And that is the strength that we have in many areas of the country.

Second item, going into a different direction is that we have, in the advanced part of the economy, concrete manufacturers, ready-mix concrete companies, companies that specifically value us for the technical support that we deliver. Yesterday, Njombo and myself were with a customer, and we were actually deeply talking about how can we make sure that the technical knowledge that we have, the laboratory that we have serves the need for this specific customer who makes a specific product. Often people tell me, "Cement is a commodity," and that's not true. I actually had a boss in a previous company that said to me the word commodity, he doesn't want to hear related to cement. He made it the C word, which actually he said is as bad as the C word in British English, and I'm not supposed to speak out loudly. So a commodity, cement is not, okay? And why is it not a commodity? For a very simple reason that it is a product of mother nature. So we're taking limestone out of a quarry and bring it to a process. The cement, per definition, that we produce in Slurry is not exactly the same as we produce in Dwaalboom. It's not exactly the same as what a competitor of us will produce. And that might not be so visible in the part of the market that use it for a general purpose, building a small wall or a small house. It becomes very important when you talk about very specific applications. And there, PPC is being recognized not just for its product but, actually, for what we say strength beyond, meaning we go beyond our product with the technical support that our customers need.

I touched upon the point routes to market. An example of that, and I think Mokate will come back to it, take a country like DRC. DRC is growing, and it's, at the moment, from an EBITDA generation, one of our bright spots in the portfolio. However, DRC does have an overcapacity around Kinshasa, which is the main consumption market. The team in DRC, under the leadership of Mokate, is developing a route to market to bring our product inland, to reach areas where cement is not easily available. Those things are not easy because you've got to think of navigating through the DRC. And for those of you who have been to the DRC, you know that it is not South Africa where you put something on a train, and it travels hundreds and hundreds of miles. So this goes on track, on a boat, on a smaller boat, on another truck, on a tricycle. So just to give you a picture of the complexity that people are dealing with. But at the end, it does generate market demand.

On the people side, for me, it's the second one. If you don't have customers, you don't have a business. Same you can say about people. If we don't have people, we cannot serve our customers. So for me, in the people side, the key thing is to have what is so nicely called engaged people. Now how do you engage people in a business that, in some of its markets, is going through a tough time? And we have restructured, okay? So clearly, the spirits needs to be looked after. Part of it is thinking about the purpose, why are we here, what is it that gets us out of bed, improving the quality of life of the people around us. It is also centered around common values. And the values -- and that makes it easy for me to speak in PPC, the values of PPC around doing the right things, excelling in what we do, passion, people, customers. Those are things that are close to my heart personally. And sometimes, people have said to me, "Listen, you're only 6 weeks in the business, but you talk a lot like you've been in the business longer." And the fact is that my values are very aligned with PPC values. It makes it a lot easier.

And the last part that I want to mention here very recently that we've completed that within -- in the team of Phindo is to define very clearly what are the leadership competencies. So what do we actually expect a leader of PPC to do when it comes to translating these values into day-to-day leadership? So think very concretely, if we talk about doing the right things, what does it actually mean, right? And it means, for example, that if we see that we can skirt the quality, no, we're not going to skirt the quality. We're going to actually stop a process to fix it. Safety for us, very important. If we see an unsafe act in our plants, we stop the plant, and we fix the problem. Very basics, but very important that we have that consistently entrenched throughout our business.

So if you have the customers and the people, you obviously need to look after your operations. Cement, at the end of the day, is a capital-intensive industry. And any capital-intensive industry will only thrive if it has the lowest cost and the lowest cost in their operations as well as in their logistics network. And this is a debate that we've had in the business. I know that there is a view that if you're not the lowest cost producer, it will be difficult on the long term.

We have also to recognize that PPC is 127 years in business and has a number of assets in place that are not brand new. I said before, we have a lot of assets that are new. We still have a number of assets that are not the newest. If you take South Africa, there are 2 new entrants that have come online in, let's say, the last 10 years, more or less. Obviously, they have newer technology. They have 1 single plant. So they might run at a lower cost base than we do. So that doesn't discharge us from the fact that we say, "No, we need to be premium." It gives us an extra push to make sure that we have the lowest possible cost in our network. And it is something that Njombo will touch upon more because we obviously have, there, the task in the current market to make sure that we have an optimum route to market at the lowest possible cost. And in Zimbabwe, there is, at the moment, exactly the same. Market demand has fallen because of the situation, and we need to adjust our cost structure to that.

In Rwanda and DRC, again, Mokate will talk more details, but it is pleasing to see that the output, especially in Rwanda, has been able to grow. In Rwanda, we are in a very nice situation that every tonne we produce, we sell. So the only question there to the management team of Rwanda is how can we make more tonnes. And you do that by improving your plant. You also do that by what is called extending the clinker. So the clinker product that comes out of your manufacturing plant, how can we make more cement out of that within the quality specifications.

Often people overlook the fact that distribution in our business is as important as the manufacturing side. So sometimes, you can actually say to us, "PPC is not just a manufacturing company. It is actually a logistics company." And especially in South Africa, where we have a network of multiple plants, multiple depots, customers that are dependent on certain products, the whole logistics optimization is a key element. It's in other countries. If you take -- again, if you take Rwanda, it is an issue. It is a cost issue, and we're managing it. But it is less complex because we have 1 plant that goes to the market. The moment you have multiple plants, this is a key topic.

And last but not least, I touched upon the restructuring work was done to reduce our overall fixed cost basis, and this has been a major contributor to the ZAR 70 per tonne cost savings initiatives that we announced 2 years ago. And Ronel will touch upon that in the financial presentation.

Now as you see, I've put financials then on the right because for me, if we look after our customers better than our competitors, if our people are engaged and do the right thing in our operations, the right thing will happen by itself. It will take care of itself. It doesn't mean that it's not important, but it means that, for me, I'd rather focus on our customers, our people, our operations, and let Ronel calculate the outcome of that. And obviously, we take action when we see deviations, but the focus should not be what is the number, and what do I need to do. The focus is what is the right thing for our customers. What do they want? Are our people engaged? Are we doing the right thing in operations? And the rest will fall in place.

Now if you look at it from a high level, I think an important comment to make is South Africa. In South Africa, we'll touch upon this later, the current business of the cement, not just for PPC, of the industry, is not at a sustainable level from a financial perspective. Simply, the profitability is too low compared to the assets that have been invested. How do you fix that? Increase the prices. Obviously, an important lever. But there are limits to increasing the prices. Limit number one is competition in the market. And competition, we welcome because it drives us. It gives us innovation. It gives us a cost focus. But there are also elements of competition that are unfair, and we're fighting those. First one that you've read about in the media is that there are substandard products being brought in the market by people who, in my opinion, are bringing in a substandard product to make profit on the back of people that are actually building their houses. And not only does it give us unfair competition, it is completely immoral and unethical, and that's why we've taken a very firm stand on that.

Second point is importation. Now you can say importation is just another element of competition. To some extent, it might be true. To an important extent, it is not. I'll give you an example. I have been in the business where we do these kind of trading activities. You buy from Asia. You ship it to Africa and other places. If you look at the cement business, a cement business has a kiln, for example, invested a lot of capital, high fixed cost. If you cannot completely utilize that kiln for your domestic market, you can produce extra at a relatively low amount of variable cost. Now if I will be sitting in Asia and I have a plant at the coast, and I know that there is a vessel coming with coal to my country that goes back empty, I will talk to this guy and say to him, "Maybe you can take a little bit of my product. I'm not selling it to you at full cost. I'm selling it to you at variable cost with a little bit of margin, and I ship it to South Africa. Put it on the market there." That, that destroys the overall market of South Africa. Where I'm sitting in Asia, I couldn't care less. And this is something that the country needs to take into perspective because if you look at how you build a country, there are 3 basic commodities that play an important role: electricity, steel, cement. I'm not going to talk about electricity. We've had a lot of the newspapers what is happening there. It's not all positive. Steel industry recently making announcement that they're closing down on plants. Cement industry, not long-term economic viable. Now this is a message in a country that has all the resources in its own boundaries to produce these elements. Now there is therefore no surprise that we, as a company, say to the industry, "Let's go to the government. We need to protect this industry." Because this industry does not only employ 7,000 employees directly and 35,000 employees indirectly. It is a major contributor to the economic growth of the country. And therefore, I am, on the one hand, pleased that we are working with the government to put barriers in place to protect the industry. I am not yet completely pleased with the speed with which this is going. But to some extent, we have to accept how the governments work through the process, and Njombo will talk a little bit more about that as well.

I talked a little bit about the ZAR 65 per tonne that have been achieved so far. The main difference between the ZAR 60 per tonne that was reported prior and the ZAR 65 now is coming from fixed cost reductions that we have put throughout our network in South Africa. I have touched upon the improved EBITDA from Rwanda and DRC, and I will touch very briefly on the fact that, yes, there is a positive cash flow. We had a big debate in the company, is this positive, is this neutral because it's very small. But what is important is that in a very tough economic cycle in 2 of our main countries, South Africa and Zimbabwe, the company is stable at that level. And I think that is an important message and an important takeaway from today's meeting.

So that was looking back. Now probably what you've all been waiting for, what is this going to do forward. And here, the first thing I am going to ask you for is slightly patience because with 6 weeks in the company, I think it would be unfair to tell me what is your specifics. There's one thing that I do like to say, though. What we want to come back with after we thought through what is our strategic position, what do we need to do, what do we need to fix, is very specific, measurable initiatives along these 3 elements that I've mentioned of a sustainable business. How we're going to generate more economic value, how we're developing our social aspects of the business and how we're going to do better on the environmental footprint. You will see those back in very specific measurables. And the way we do that is we let ourselves be guided by the 4 principles that you see on this slide, purpose-led and performance-driven.

If you paid attention to my previous slide, under our people, I said the company has strength in the fact that it's being purpose-led. Where I think we need to add is that we become more performance-driven. Because if you're not performance-driven, you cannot execute on the purpose-led. And what I mean with performance-driven is basics. It's simple, that we promise something, we execute, we deliver. If we see that something happens that causes us not to be able to deliver, we raise our hand, and we ask for help. We will move away from the fact that we explain afterwards why we didn't achieve something. And that might sound small, but it's actually quite a big thing. We talk a lot in the company about high-performance organization. And I'm sure you've seen it somewhere in presentations. I don't like to talk about high-performance organizations. A high-performance organization is based on what you do and what you see and a culture that you feel in the company. So as we design topics around it, I just want to see the basics coming in place on being a performance-driven organization. I'm a big fan of giving responsibility throughout the line. So this morning, we had a phone call with all our senior leaders. Guy from Rwanda asks a question, and we answer the question. And one of the things he said is, "What do you want us to take out?" And I said, "Listen, for me, it's the general topic. You're in Rwanda. You know what is happening in Rwanda. You know your customers in Rwanda. You know your stakeholders in Rwanda. I don't. Mokate, to some extent, a lot more than I. But you're on the ground. Now that brings you a responsibility that I expect you to execute on." That responsibility people normally like they say, "Yes. We're getting empowered. We are making here the decisions." And I always tell them, "That's actually true. But mind you, it comes with an accountability as well." So responsibility comes with accountability, and these 2 elements we want to balance in our company.

Number two, people have told me, "PPC is complex. PPC is complex". And my response to that is, "It might be, could be." But if it is, we've created it ourselves because the cement company cannot be complex. Come on. We're creating 6 products, 7 products in a factory. We have, in a big country like this, 5 factories. We're not automotive where you have a lot of suppliers and a lot of moving parts. We're a simple business. So if it is complex, we've made it complex. So it is our mantra to simplify, standardize, automate. And as we craft our strategy, we look along those lines. What can we make simpler? What can we standardize across the business so we benefit from our scale? What can we automate to drive productivity?

The third point is around the financial aspect. When I go around the business and I talk to people in the business, I see a very sharpness on price revenue side and cost elements. I want to see a greater sharpness on taking this one step further and looking at value generation. Give you an easy example. I ask people, "Why are we doing this in-house? Why are we not outsourcing it?" And they say, "Well, we've looked at this, and it is more expensive to outsource than to do it ourselves." And I said, "No, I understand that." But do you know that we have ZAR 30 million of equipment to actually execute these tasks sitting on our balance sheet? And then probably, our shareholders are expecting an 18% return on assets on that. And people were like, "No, we haven't taken that into consideration." No? You should because if you go to an outsourced model, whoever offers you the service does take that into consideration. So it becomes more expensive. Very simple example, but it's the thinking that I want to drive into the business that we always think about our asset side as much as we think about our simple profit and loss -- profit and loss side.

And the fourth one is a given but important to keep on mentioning. We must continue to be able to command premium pricing for our products and services at the absolute lowest possible cost. So we try to work along those 4 simple guiding principles: purpose-led, performance-driven; everything we do, simplify, standardize, automate; does it generate value and cash, what we are doing; and does it contribute to the fact that we can command premium pricing at the lowest possible cost? And we will go in the process over the next 3 or 4 months where we craft our strategy along that. Coming out of it is a clear, strategic positioning, which can help us position our different elements of the portfolio and, as I said, very measurable actions that you can hold us as well accountable to. Because when I distribute the responsibility, shareholders of our company, Board of our company will do the same towards me and our executive team, who will be held accountable for that as well.

That, in a nutshell, is what I believe in, what I see the company has been doing and where the company will go at least in the coming months.

I will hand over to Ronel to actually talk about the core of this presentation, which is the financial results.

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Ronel van Dijk, PPC Ltd - Interim CFO & Executive Director [3]

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Thanks, Roland.

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Roland Van Wijnen, PPC Ltd - CEO & Director [4]

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All yours.

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Ronel van Dijk, PPC Ltd - Interim CFO & Executive Director [5]

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Thank you. Hi, everyone. Welcome from my side. I have been with PPC for a full -- is it 5 weeks? So please don't ask me any questions because I may not have the answer. I'm kidding.

Let's move on to the serious stuff. From a profitability point of view, group revenue, just under ZAR 5 billion for the 6 months, down from ZAR 5.6 billion last year. Group EBITDA on ZAR 868 million. Roland mentioned hyper inflation in Zimbabwe. And sorry, I'm very short of breath all of a sudden. Hyper inflation and currency devaluation in Zimbabwe, that impacted the results. Probably the currency devaluation more so. I will go into a little bit more detail on that on a later slide, but you will see revenue declined 1% if we exclude PPC Zimbabwe, and group EBITDA declined 3% if we exclude Zim.

Earnings per share is sitting on a loss of ZAR 0.004 per share with headline earnings per share on ZAR 0.06. Roland also mentioned the financial position, the debt position being stable since March 2019 on around ZAR 5 billion with South Africa constant on ZAR 1.7 billion and international up slightly, also impacted by foreign exchange.

On the income statement, a few things I'd like to point out. First is the admin and overhead that includes ZAR 83 million worth of restructuring cost that Roland also referred to. If you exclude that from the admin and overhead line, that expense line actually decreased by 19%, which shows good cost and expense management.

Zimbabwe, included in that line -- where is the pointer? Fair value and foreign exchange loss of ZAR 270 million is an amount of ZAR 307 million that relates to Zimbabwe. Of that ZAR 76 million is an expected credit loss provision against the financial asset that results from the Zimbabwe Reserve Bank settling a Zimbabwe debt. ZAR 231 million is a provision raised against the blocked funds and the nonresident Stanbic account that PPC Limited holds in Zimbabwe. A gain of ZAR 43 million relates to the translation into rands of foreign currency-denominated monetary items. Then we have the big -- where is it now? There we go. The ZAR 543 million net monetary gain. That is a result of the application of hyperinflationary accounting. I must say applying the accounting standards relating to Zimbabwe to the results this year really complicates comparability. And to that end, you will see in the booklet note 29, the last note, we carved out the PPC Zimbabwe information for you to make your analysis a little bit easier and maybe help you to compare the results better. We also -- I'd like to point out that we write off the equity investment. We impaired it to 0. That is the investment in Ethiopia.

This is the comparison of the impact of Zimbabwe on revenue and EBITDA. And you will see that as reported, revenue declined 12%, and EBITDA declined 17%. But if you carve out Zimbabwe, the decline is 1% and 3%. The difficulty with Zimbabwe is twofold, maybe threefold. From an operational point of view, Mokate will go into detail on that, there has been a volume movement. Then secondly, we have hyperinflation accounting, which possibly makes the income statement look better because you uplift the performance through the hyperinflation accounting. But then you have a very sharp and quick devaluation in the currency, the Zim dollar versus the South African rand. So if in March, for the 6 months -- call it, 6 months through the end of March, you sold hundreds of dollars worth of cement, it would have shown as approximately ZAR 100 of sales. Now in September, that same ZWD 100 of cement is shown as ZAR 20. So it has quite a significant impact on the results that you need to also bear in mind.

The EBITDA bridge, I'm sure some of you are used to looking at information like this. We start off with just over ZAR 1 billion in September 2018. You can see the impact of South Africa cement is quite marked, and Njombo will go into detail on that. There is the impact on Zimbabwe. You can see it is quite significant. And then if we move back to the restructuring costs, and I think what's important to point out here is the margin, 18.6%. We report 17.5%. But if we take the restructuring cost out, the EBITDA margin ends up on 19.2%, which is a positive indicator for us.

If we split the revenue, Roland also referred to the contribution and the partial offset of Rwanda and the DRC. And here, you can see it. While South Africa cement down 8%; materials, down 3%; Zimbabwe, I've discussed, in real terms, it's not down 54% but reported, it is. We see the uplift of Rwanda and DRC at 28% and 26%, respectively.

EBITDA, similar comparison. And again, we see the theme repeating itself with cement and materials in South Africa declining. I'm starting to sound like a bit of a refrain, and Rwanda and DRC contributing positively. And we've also put, yes, for you, the comparison of the margins in the different regions. Obviously, on international, their contribution comes from Rwanda and the DRC.

I'm sure some of you have looked at the effective tax rate of 114% and said, "What the hell is going on here?" We thought we would just show you a short reconciliation. Obviously, we have all these exceptional items, which is the expected credit loss, the net monetary gain, the equity investment impairment. There's also a prior year tax under provision. So this just shows you the reconciliation. If you take out the main bulk items, the effective tax rate is around 33%.

From a financial position point of view, there's not much I want to point out or focus on, on the balance sheet. I'll just mention that we did apply IFRS 16, which is the leases. It's not a significant number on our balance sheet. Maybe we should just take note that PPC currently has ZAR 10.9 billion worth of assets, and what everyone wants to know about is the debt position. So if we do a bridge from March to September, not much movement, as I said, ZAR 193 million on foreign exchange. What we did do for you here is to split between the 2 reporting periods or the reporting dates. The SA gross debt, you will see, remains stable on ZAR 1.7 billion. The international debt, which is the sum of the 2 blocks, the part of the debt does have recourse to South Africa, and that is ZAR 2.15 billion that moved to ZAR 2.7 billion. And in the nonrecourse debt, ZAR 1,152 million versus ZAR 1,157 million.

Also mentioned by Roland is we're embarking on a project to improve the maturity profile and the liquidity, smoothen liquidity in the company, replace project finance with longer-term finance, longer-term debt. This is obviously a project that's not going to happen in 2 or 3 months, but it is definitely a great focus of the CFO's office. Currently, the gross debt-to-EBITDA ratio is 2.9 compared to 2.6 at March.

From a CapEx point of view, the newer assets that Roland referred to earlier incurred in '15, '16, '17, as you can see there, the CapEx cycle is now normalizing. It may be alarming to some of you that it's as low as it currently is on ZAR 225 million for the 6 months under review. We expect it to finish up between ZAR 600 million and ZAR 800 million for the year. And we can assure you that we are not neglecting the compliance and maintenance CapEx. We take that, obviously, very seriously in our business.

From a cash flow point of view, we reported ZAR 868 million EBITDA, but that was impacted quite significantly by the working capital investment in the period of ZAR 342 million. That's impacted by things like Zimbabwe where we're preserving cash by stocking up. The DRC's production cycle requires stock to build up at time as well. Some accounts payable were quite high in March that was settled in the period under review. So we expect -- or that isn't higher than normal by approximately ZAR 110 million, ZAR 120 million. Then we had net finance costs of ZAR 282 million, CapEx of ZAR 219 million. And from a free cash flow point of view, we end up on ZAR 4 million.

In summary, the results are impacted by Zimbabwe hyperinflation and devaluation of the currency. It does complicate comparability. Unfortunately, there's not much we can do about that. Zimbabwe, we also had the expected credit losses. And you can also expect that at year-end, the hyperinflation will still be there. The currency will not, all of a sudden, stabilize or I don't expect it to stabilize all of a sudden. So the results will be impacted similarly in March. Overall, EBITDA margin improved if you exclude the ones-off costs. We have strong operating cash flows, and our debt position is stable, albeit that our aim is to lengthen the maturity profile.

So in closing from me, my position is an interim CFO position. I am here to provide support to Roland and the Executive Committee and the company during his introduction in the business to make sure he can focus on the important initiatives that he mentioned and to provide a level of continuity and support.

And I thank you very much for your attention, and I'll hand over to Njombo to go through South Africa.

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Njombo Lekula, PPC Ltd - MD of SA Cement & Materials [6]

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Thank you, Ronel. Good morning. It's true. The market is tough, but the elephant is tougher. And I think if you look at the context of our results and take that into context, it's very clear that we're trying our level best in the market.

So I'll just give you an overview in terms of the industry. Industry volumes down 10% to 15% nationally. In the inland, just to put it into context, we expect that it's between 15% and 20%. On the coastal side, we expect about 5% thereabout. And Botswana is also impacted negatively by the recent elections that they had, so we are about 5% to 8% down. And obviously, with all these job losses, the muted consumer spend and industrial demand is very evident in the market. And as you will see it in terms of our materials business, the infrastructure that is not taking off has had a huge impact into our numbers.

The imports are up 5%, and and we expect that at this rate, we'll probably finish the year above 1 million tonnes of imports coming into our country. I'll tell you a little bit more about what we're doing in and around the issue of impact imports later.

And then the blender activity, especially in the inland area, has had a negative effect in terms of our pricing. And as you may have seen in the media, we've gone out in terms of challenging the effect of the blenders. I must just say, blending is not a negative thing. When we sell cement in bulk, the expectation is that the cement is going to be blended with stone, with sand and actually make a product. But the anomaly in South Africa is that we sell cement, and we do not sell to blenders, per se. But when you sell cement and somebody takes that product, brings in the ash into it and actually recreate another bag into the market, it obviously destroys value, and it actually disproportion the pricing in the market. And the reason why we actually went out into the market about the quality issue is to try and get to those pricing and remain competitive. Some of those blenders are actually starting to utilize less of the original product and expand much more than what it's required and outside the quality standard, which obviously has got an impact. And as Roland mentioned, when we saw some of those results, we felt that it is our responsibility to actually take that issue into the market.

We had quite a few focus areas. Last year, when we gave our results, we said we will focus on the financial returns in terms of the business and higher-margin volumes, and that's exactly what we did. We've achieved real price increases and some cost reduction in terms of our operation. The volumes of -- unfortunately, were affected by the fact that, obviously, when you increase price and you don't get a follow from your competitors, in a very tough market, it is always a balance that you need to maintain. So we did get our price increases as expected. However, the market did not increase as much. So as PPC, as rightfully so, as a leader in the market, we do expect to have the premium. However, because of the fact that there has been that gap in terms of the price increases, the premium became a bit higher than what we anticipated, and that resulted in an impact or a significant impact on the volumes and specifically on the inland area. However, we're quite satisfied with the fact that we've achieved good prices, and we are able to hold those prices in areas where PPC is obviously stronger from a brand and also in terms of the premiumness of our brand.

We've achieved our cost savings, and I think Ronel told you more about the ZAR 70 per ton that we've worked on. So our achieved average selling price of 8% to 10%, it is a bit out of sync with the current market environment. But as I explained, it is something that to ensure that this business or this industry remains sustainable, we had to get to those price increases.

We have improved our quality of customer base. And by source, I mean we've basically focused on the customers that actually add value in terms of the quality of the earnings that we make with those customers. And we've also looked at the footprint in terms of where are those areas where we actually -- it makes business sense for us to go there. And the quality of the customers that we have in our pool in terms of the partnerships, we're very strong on the CPM and industrial area. And obviously, we've allowed, in most cases, where we've managed to keep our pricing in the retail sector that we will let go of some of the volumes that did not make sense in terms of pushing our pricing down.

In terms of our overheads, a significant amount of work has been done, as Roland mentioned, in terms of the overheads at the head office. But also in terms of our operations, there was a very specific focus on our fixed costs, and we managed to take it down by 23% if you consider the restructuring costs that we have done. So if you look at the financial impact, yes, the market is more severe than what we anticipated. So we've got a double whammy where we expected the market to drop. We expected to lose volumes because we were pushing price. But the market actually did less than what we expected. And figures of anything above 10%, 15% contraction in terms of industry, it's very significant. So our revenue is down 8%, and EBITDA, down from ZAR 367 million -- ZAR 481 million to ZAR 367 million. If you look at our EBITDA margins, we're reporting a 14.4%. But if you consider that that includes restructuring cost, we're actually almost flat on the EBITDA margin, which is quite significant in terms of operations.

If we look at the strategic initiatives, we want to continue maintaining the price momentum. That's the only way in which we can return the business or the industry into sustainability. We have a very focused route-to-market strategy, which we have implemented, and it's starting to yield a lot of good results for us with a lot of strategic partnerships, especially on the CPM and industrial sector. We have a very strong focus on our SURERANGE of products, which are created to be specific to purpose in terms of the usage of those products. And one of the most important aspect is that we have made our strategy in terms of the LED and approaching that to improve the quality of the lives of people that we work with. You would have seen in the media, we've done quite a lot of brick-making workshops throughout the country. And there is so much that is behind that exercise. Firstly, in terms of embedding our SURERANGE but also in terms of our social responsibility in terms of growing those brickmakers, and we've seen quite interesting results with regards to that.

Well, in terms of volumes, we believe that we're likely going to remain subdued. Estimate 1% to 3% in terms of the growth. And the substandard quality products, which are mainly from nonintegrated producers, we believe they will remain in the market. We've got some strategies in terms of how to deal with that particular aspect. But the market will remain competitive, especially in the inland region. We've seen some green shoots with regards to the coastal, and there's quite a few projects that are up and coming within the coastal region, which are very encouraging in terms of ourselves.

Roland mentioned that we've engaged with the government on imports through the ITAC. Yes, the process is quite slow, but it is very encouraging that we get constant inquiries from the government requiring more information and additional information. We've, since last year, been able to get 2 presentations to the Parliamentary Committee via our ITAC, which is an industry body. And it seems like there is a response in terms of debt. And we've just finalized our submissions to the government, and we're hoping that sooner than later, there will be some action with regards to the imports. From PPC's point of view, we had specific strategies that we have put in place, especially in the Western Cape region, and it does yield results. We've managed to fend off the entry of imports into the industrial sector, which is quite a significant impact into our business.

With regards to the integration of the materials business, that process has been completed and it's starting to yield positive results, both for the ready-mix business and the cement business equally so. The Botswana market, we're hoping that after the election, there will be a benefit from the infrastructure development. And there is a positive view in terms of the mining with regards to the Botswana and especially in the diamond sector.

From a cost point of view, we've been talking about the 3 mega plant strategy. We've managed to embed that footprint optimization at this point. Obviously, it came with retrenchment of some of our employees. We've managed to go through the process without having to actually do forced retrenchment. It comes at the cost, but now we are at this stage where we're starting to see the benefits of running a very compact and -- business. And we look at the -- some of our units, the efficiency has improved because of the forecast in terms of that. And you will see it in translated into the CapEx spend because most of those units that we are running now is the newest units in our portfolio.

The reorganization of the production and sales facilities, we've actually shut down all sales offices in the regions. And we have set up a one-stop shop in terms of the Center of Excellence. We call it Center of Excellence at Jupiter. And this is moving towards what Roland was mentioning about being automated and simplified. And we find a lot of value, and that increases our ability to actually service our customers. We've got the logistics team actually sitting with the Center of Excellence in terms of the sales offices, and that has yielded quite a lot of benefit in terms of how we do things.

In terms of the plants, there is a very specific forecast. We've integrated the blending plants into the whole cement production in the inland sector. And we actually specifically look at the products that are more extended into the blending side than, obviously, integrated plants forecasting on clinker production and high-end products.

The conversion of Port Elizabeth has been completed. We are now operating as a milling operation, and we had few trading problems in terms of taking it up and integrating with the TFR in terms of transportation of clinker to PE. And in the last month, we actually started hitting top volumes and plant operating quite well. The improvement in the plant reliability, I've spoken about, and that is more in terms of being focused and focusing on running the new units. And then the integration with the ready-mix, it actually yields very good results in the inland because we've actually integrated ready-mix ash and aggregates into 1 center. And the communication between cement and ready-mix, we always go into 1 client with the same team, and we are able to add the value from a technical point of view and also from service in terms of the market offering.

We've got a very strong focus on the logistics. Obviously, it's a very high cost for us. And we basically have created a dedicated logistics team. And we've embedded now our new TMS system that is helping with their optimization in terms of the logistics side.

Okay. In terms of lime, on the materials side of the business, the revenue growth was about 6%. Obviously, there's quite a bit more uncertainty on the lime side being dependent on the steel and airline industry, and that has remained a constraint with regards to lime. And then we've had significant costs earlier on in the year in terms of the risk refractory and maintenance costs, but it is a timing issue. And -- but that resulted on a half year with 17% contraction on our EBITDA.

Aggregates, highly affected by the conditions in the inland, specifically, with the lack of infrastructure. In fact, we produce one of the most sought-after product into road construction. But the current economic situation has got a huge impact on our Laezonia factory or Quarry because of the fact that we're not building enough roads. But the aggregates is also an offtake into our ready-mix, and they are all influenced by the economic conditions within the inland area. So we've seen decline of about 6% on the ready-mix. However, we've seen a slight price improvement. But the recovery on the EBITDA, be it, we are quite encouraged about it. It's from a very low base. And I think the efficiency in terms of combining all of this and a special focus on the materials business has yielded some very interesting cost-saving initiatives within the materials business. And I'm very positive that this will make a very good contribution onto the materials business.

And that's me. Thank you.

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [7]

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.I think a lot has been said about the Zimbabwe situation, so I'll try not to bore you about Zimbabwe hyperinflation and liquidity. But for me, the question that I always put across to my team is what can we do as management under these difficult trading conditions? And there are a lot of things that, as a team, we've embarked on. Roland spoke about a triangle, and part of the triangle is about environmental sustainability. And I always say to the team, "The reality is current tax is going to be part of our life, whether it's legislated in your country or not." And we've done quite a lot in Zimbabwe in driving production costs down through extended products, and again, it lead us to what Roland said earlier to say our focus should be to produce premium product at very -- at lowest cost possible. And that's exactly what we've done in Zimbabwe. We've spent quite a lot of effort to reduce our input costs to try and sustain the business through these difficult trading conditions.

Another part of that we've done in terms of the market share, you'll see in terms of the industry, there's a lot of -- there's some significant decline in the industry volumes because of the reduction in the disposable income of the consumer. But also, we've got extensive increase of imports coming into the Zimbabwe market. If you all know, Zambia has got overcapacity. So with the overcapacity in the Zambian market, you started to get imports coming to Zimbabwe. Last year, same period, imports were banned in Zimbabwe. Because of the shortage of cement in the second half of last year, the government opened up the borders for imports, and that is starting to create problems for us. We are in a process of engaging government. We've prepared the position papers, the industry in Zimbabwe to try and lobby for the ban of inputs as this is actually destroying our industry in Zimbabwe. And also, the other issue that we've had because of the economic situation in Zimbabwe is the stability of the power supply. And this is quite critical in particular to our Colleen Bawn factory, which is, if you all know, a kiln process, does not require instability of unstable power supply. It's costly to start-up a kiln every time there's an outage. So we are engaging and looking at options to see how we can secure power for our operation at the Colleen Bawn factory.

In terms of market share, if you look at our market share in the first half of last year, there was a lot of noise. In terms of our volumes, if you recall, last year, we said our volumes are higher. We're up more than 40% in the first half of last year. And the rationale for that is because consumers in the market, they were anticipating the separation of the RTGS from the dollar. So consumers, they actually secured the RTGS into fixed assets, so our volumes sort. But the second thing is, one of our competitors in the market had breakdowns. So we sort of took over some of those volumes. And our market share was a bit skewed. So if you look at market share on an annualized basis, our market share was -- is fairly consistent. Even this year, we are at the same market share levels in Zimbabwe.

The other thing that we've also done because of the deduction in the retail sector is to focus on the construction sector. We actually secured the bulk of the major infrastructure projects in Zimbabwe. And some of them, we actually secured them because they are FDI-funded on dollar sales. So we've secured most of those projects, and that is actually what is helping us to sustain through these difficult trading conditions.

And again, it touches back to this point of ensuring the business remains sustainable. You require ForEx to import goods. And if you did ForEx to import goods to sustain your operation, you need to generate ForEx. And we've done a little bit of exports into the neighboring countries to try and generate some ForEx. Like I said, some of the projects we've secured them in ForEx, and that is actually helping us to sustain our business during these difficult trading conditions. But overall, if you look at Zimbabwe as a business, over the years, I think -- not I think. We anticipated this development. So we've reduced the proportion of the imports into our input costs. We actually -- the bulk of our costs are local. So more than 90% of our input costs are actually secured or procured locally. So that actually makes quite -- it easier for us to sustain during these difficult conditions where ForEx is a issue. And I think Ronel spoke about it. As you remember, when Statutory Instrument 142 was introduced in Zimbabwe businesses. The Reserve Bank had what they call legacy debt or legacy funds. So we've registered our debt in Zimbabwe as part of the legacy funds, which Reserve Bank is going to liquidate on a one-is-to-one basis. And the good thing is the June payment was affected by the Reserve Bank in June or 2 months ago for the June payment. So our debt is coming down slowly in Zimbabwe. We are actually left with 5, 6 monthly payments, which actually will take our debt to close to nothing in Zimbabwe.

And if you look at all the initiatives in terms of the financial impact, you will see there in terms of costs, our production costs have come down by 24%. The pricing, what we've done with our pricing for lime, the pricing with the inflationary increases in terms of the exchange rate. So that has actually shielded our margins in that market. And the volumes declined by 30% to 35% if you compare it against last year. But like I said, if you look at the industry, it came down by 15% to 20%, also the imports coming in. So relatively, we've maintained our annual annualized market share in that market.

What are we doing going forward? There is a strong focus on continuously increasing our ForEx generation because it actually shields you from the depreciation of the local currency. Maintaining our EBITDA margins is quite critical for us. But more importantly, I mean as much as we want to sustain our Zimbabwe business, what is more important is we need to position our business in Zimbabwe for growth. Because it is the reality. What has happened with other players in the market? When times are tough, spend less on maintenance. When there's an upside, they fail to capture the opportunity. So we are investing on our operations, especially our clinker facility to position it for the future growth. There's a lot of work being done in terms of product optimization and innovation. As much as there's a huge milestones that we've achieved in the last few months, we are doing a whole lot of other initial tests to see if we can even further reduce the clinker factor in our products. And there's a lot of work being done as part of our key focus area or people who remain a priority. As a business, we are investing on our people to make sure that when there's an upside, the same team can actually carry us forward.

The other thing that is quite key for us in Zimbabwe is strategic raw materials. These are the times where you need to look at the future and say, "How do I reduce my input costs by securing strategic raw materials? But how do I also position myself for the future?" And that's exactly what we are doing in Zimbabwe.

Rwanda is a different story because a very stable country. GDP growth, it's solid. In fact, the latest forecast of GDP is even above 8% that came out yesterday. There's a huge demand for cement. We are in a very unforgiving position because we are not able to supply the entire market with the product. But there's a lot of work that has been done in debottlenecking our operation. I think we've spoken about Phase 1 of the debottlenecking of Cimerwa last year, and you've seen the results, the impact of the first phase. In fact, we're just coming out of a shutdown now where we've done quite a lot of work to try and get our Cimerwa operation as close as possible to a design capacity. And that we should start seeing improvement in terms of our ability to serve the market.

In terms of our route-to-market, I think this is something quite unique about us, especially in the international -- on the international side and also in South Africa, and there's a lot of work being done in terms of route-to-market. But outside South Africa, most markets are served on a own-collect basis. And we've done quite a lot to actually increase our efficiency to sell to the market by delivering the product to the end user. And that has actually made us unique because it allows us to even charge premium pricing into the market. And we continue with our route-to-market. I mean Rwanda, we deliver almost 100% of our product into the market, same as in Zimbabwe. So there's no own-collect.

And we had previously in the media where there's -- I mean our partner in Rwanda is government, and people were worried that the government wants to sell. But there's a lot of -- it is a very good relationship that we have with government. In fact, we -- they see us as partners in that market because Cimerwa is quite a significant business in the Rwandan context. It's not a small business. It's quite significant. And I think the government of Rwanda has given us a lot of support to go through these processes.

If you look at the financial impact, we've stabilized. The prices are fairly stable in Rwanda. Volumes increased. Our EBITDA has increased compared to the previous year. Our revenue has gone up. The key thing for us, if you remember, if you recall, with Rwanda, it was all about the limestone. And we've done a lot of drilling exercises. We've increased our limestone reserve. And we're actually in the process of drilling additional sites to try and increase our limestone reserves beyond where it is at the moment.

The DRC, one of my favorite countries. As much as it is tough, but it's a country with huge opportunities. As Roland said, it's a country with overcapacity. You find the industry operating at 30% of installed capacity. But it's a country where, actually, if you look at on a marginal contribution basis, it's actually the -- we thought the debt -- if you take out the debt, the DRC is actually a very good business. Unfortunately, you need the volumes to absorb your fixed cost. And that's really, for us, the biggest issue. And we've been able to stabilize the pricing. I think if you look at the past few years, the pricing has been all over, and it's fairly stabilized. Our focus has been to maintain our installed capacity market share because that's critical for us.

If you look at the market, we actually projected the market to increase by 9% last year in terms of our forecast, and that has actually materialized. We've seen a 17% to 10% increase in the domestic market. But unfortunately, the bulk of those volumes were consumed by illegal imports. As much as there is a ban on imports, we've seen infiltration of inports, particularly out of China, come into the market through the port. As much as -- and we've approached government and tried to engage government on this. But we still have those -- that cement into the market and it absorbed the growth that you've seen in the market. The Minister of Trade has given us -- extended the ban on the imports recently, which is positive. But the issue is how effective is the ban? And that's really where we are engaging as an industry with the government to make the ban effective.

And if we're looking at the restructuring of the debt as well in the DST, I think Ronel spoke a little bit about it. In terms of our route-to-market, our focus has been get a bag of cement to markets where they've never seen a bag of cement readily available. And we're now moving into markets that some of them is very difficult. If we would put the cement on scooters in the DRC to try and reach the last village close to the port or close to the city to try and increase the pie because that's really what is important for us in that market. And some of this market, actually, we find them to be quite profitable, better than Kinshasa. So it's exactly what we're looking at to say, "Let's focus on markets that actually are much more profitable, and that can give us an upside."

And we've actually looked at innovative products. We recently, in September, launched the premixes. We actually are the first in the market to launch a premix product, which actually is designed for the DIY market. If a niche market, if you want to do a little pole in your house, you can go and buy a bag of a premix and get into the market. And we are continuously looking at other opportunities to grow our market share through innovative products and solutions.

Okay. And then if you look at financial performance, you'll see the numbers there. And we've also dropped and reduced our costs quite drastically. There's a lot of work that the team and the plant has done. I think we've got a very neat kit. Our kiln, actually in their last campaign, we went much higher above installed capacity. All it needs is the market, and then we can start to grow our EBITDA number. It's basically -- that's from my side. I don't know. Roland?

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Roland Van Wijnen, PPC Ltd - CEO & Director [8]

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Ladies and gentlemen, I will not take much of your time by going and read through these 7 points. I just want to allude to the picture that you see on your hand on the right, a picture of the elephant. And it was mentioned by Njombo how strong an elephant is.

I just want to underline one thing. There's a number of topics happening in our industry. And if I look at PPC, and you want to change a company like PPC, just bear in mind, I don't like to make the comparison with an elephant that dances in the circus because I think elephants need to be in the wild. But once an elephant dances, it has a good rhythm. To change the rhythm will take a little bit of time, and that is what we're going through at the moment.

Second point related to the elephant. I once had the pleasure, many years ago, to be on a safari through Botswana. And when I turned my car around the corner, I actually almost drove into an elephant. And the elephant stood up and started to flip a bit with its ears and started to scrape a little bit with his foot. And it was very impressive. I was lucky we backed up. I think PPC on some of the topics that you've heard today, importation, substandard quality, is also an elephant that is about to get angry. And I would just mention that I think if you look at an elephant, it is a very wise animal. But if it charges, it will charge. And I think that is what Njombo is trying to make across. If we have to go into heavy competition and get our points across, we will, with determination.

And with that, I'd like to hand back to Anashrin to open for questions and invite my colleagues on the stage. Thank you.

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Questions and Answers

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Anashrin A. Pillay, PPC Ltd - Head of IR [1]

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Okay. So we'll take questions. So your name and where you're from.

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Roland Van Wijnen, PPC Ltd - CEO & Director [2]

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And what is your question?

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Charles Boles;Titanium Capital;Manager, [3]

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Charles Boles from Titanium Capital. Two questions. With the Saldanha plant closing in the -- potentially closing in the Western Cape, the supply of slag into your operation, what will the effect of that be?

The second question is over the last couple of years, we've heard pricing being announced but pricing not holding. So very consistently try to come out signal to the market that pricing needs to change, but it never seems to hold. And the question is with the structure of the industry as is with the number of players, is South Africa able to reach stability without corporate activity to rationalize the operators?

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Roland Van Wijnen, PPC Ltd - CEO & Director [4]

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I'll take -- I will do my take on it. Charles, thank you very much. Saldanha closure is a concern for the topic that you mentioned, but it's actually my broader concern, electricity, steel and cement, where I think the South African government needs to think hard on how it can help these industries. This specific item in Saldanha, we have not been caught by surprise. So in the sense of our annual business risks and opportunities, we have covered this. So the teams have taken these mitigation measures out of the cupboard. I will not give you specific numbers because what I can tell you is that it will have an impact, both on some of the people that are involved, and I would prefer that they hear that from their managers and not from the media, with all due respect. And the second thing is that a number of the related topics with ArcelorMittal are commercially relevant. And if we would disclose information on that, it might influence the negotiations that we have. So I hope you understand that.

On the second point, on the pricing announcements. Yes, absolutely right. I got a "Whats up?" this morning from a customer that sent me the increased announcement of Shibaku, 10% to 12%. I think that is an absolutely right move to make. You have seen that we have stuck to it in our numbers. So from our side, we are absolutely determined to keep that. It has hit our volumes more than what we wanted. And so we have clearly said to ourselves we need to keep the price momentum. As to whether other players in the industry stick to their word, you have to talk to them, obviously. And we are committed to maintain prices, but we are, at the same time, also determined to take out competition that we consider unfair in a nutshell.

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Njombo Lekula, PPC Ltd - MD of SA Cement & Materials [5]

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I think what Roland mentioned, we've seen it again now with their announcements. There's also 2 other suppliers that are talking between 8.5% and 10% in terms of the increases. What happened last year, there was a lot of retraction by the suppliers, obviously, with the reduced demand. But we believe that maybe there is also a realization that the sustainability of the industry is not going to happen unless we get that price push.

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Roland Van Wijnen, PPC Ltd - CEO & Director [6]

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To your other point, Charles, you did ask about consolidation, which we didn't touch upon. I do not believe that consolidation is a necessity. The integrated cement manufacturers are in competition with each other. That is clear. Njombo mentioned blenders that are taking a pure product and repackaging it and selling it. That doesn't make any sense and, in my opinion, doesn't add any value. That is where the core problem lies, and that you don't solve with consolidation.

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Marc Ter-Mors, SBG Securities (Proprietary) Limited, Research Division - Head of Equity Research & Head of Industrials [7]

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Marc Ter-Mors with SBG Securities.

There's quite a discussion around the correlation of cement to GDP. So I'd just like to hear an explanation why GDP is relatively flat, volumes are down. Must be price elasticity. What do your price elasticity models say about recovery potential in volumes going forward?

And then second question, are there any changes to your debt governance, given that interest cover ratios have come down substantially?

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Roland Van Wijnen, PPC Ltd - CEO & Director [8]

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I can briefly elaborate on the first one. As I mentioned to you before, it was in the Philippines where we did quite an extensive study on a lot of factors. And at the end, we did say that the best one, over longer term, obviously, is a GDP indicator. So if you make a decision to invest in a country, at the end, the best is GDP and consumption per capita. Because you would normally see that developing countries will go through a cycle where the consumption per capita can go as high as 800 to 1,000 kilos per capita, and then it will come down. So what you obviously see as a consequence of that is that you see an oversupply. You see supply being built up to meet this 800 kilograms per capita. And then a normal developed country will sit between 350 to 400. Hence, if you look at Europe, for example, a country like Spain that was up to 1,000 to 1,200 kilos per capita is back down to 250 to 300 and sitting on a huge, huge, huge overcapacity. So strategically, I would look at those 2.

The other question that you asked is the price elasticity that was mentioned by Njombo. It depends a bit on the customer type. If you look at the general purpose cement. A price premium for a company like PPC in many of its markets could be around 5% to 10%. And if you go above that, you will start seeing an immediate decline of your volumes, and that has been confirmed, I would say. On the debt covenants, Ronel?

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Ronel van Dijk, PPC Ltd - Interim CFO & Executive Director [9]

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As we mentioned, it is a big focus area for us to look at the financing. We are in continuous discussions with our funders, both here in South Africa. In Zimbabwe, as we mentioned, the reserve Bank has made the first payment. The second one is up soon. The DRC, the OPO continuous discussions. So the covenants, we are still within, but we will be having discussions with our funders.

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Tinashe Harry Dumile Kambadza, Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst [10]

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Tinashe Kambadza from Afrifocus Securities. A few questions from my side. Just -- I think the first one has to do with just what's the current split between bulk and bag in South Africa just now?

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Njombo Lekula, PPC Ltd - MD of SA Cement & Materials [11]

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About 30:70.

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Tinashe Harry Dumile Kambadza, Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst [12]

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30:70. Okay. So because I think at some point, you guys keep talking about some continued or maintaining a price increase in this market. How sustainable is it, actually? Just realistically speaking, in this current climate, given that -- I mean we all know that the consumer's under pressure, and it's -- right now, the market is skewed 70% to 30% towards the consumer? So how realistic is it? I think that's stocky.

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Njombo Lekula, PPC Ltd - MD of SA Cement & Materials [13]

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I think if you look at it, Tinashe, I've mentioned the issue of operationalizing our production capacities. So basically, we've taken our capacity out of the market by doing so. We're running 1 unit in Dwaalboom and 2 units or 1.2 units in slurry. And that takes out capacity from the market. And we believe that if you forecast then your production into those specific markets where you actually can extract value, and that's where you can get sustainable pricing. And we've seen it in the past year, it does happen.

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Tinashe Harry Dumile Kambadza, Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst [14]

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And then just -- I think you mentioned something along the lines of, I think, in lime and aggregates that you guys are producing one of the materials products, which are like, what you call it in high demand by the market. I mean, we've been hearing from other construction players that, for instance, quite a bit of work seems to be coming out from SANRAL now and something that the market has been waiting for the last, I don't know, call it a year or two. So I'm just wondering to say, haven't you guys started to see some traction from that perspective? And what is the outlook on that on aggregates of going into...

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Njombo Lekula, PPC Ltd - MD of SA Cement & Materials [15]

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There's a lot of tendering that is taking place at the moment. And yes, SANRAL is done. We've attended quite a few of the 3 things in terms of what the government is trying to do. But we do not believe that, that whole process in terms of the tendering is going to affect immediately. We do expect that by the second quarter next year, some of these projects will be kicking in from SANRAL specifically, and this is all contained in the development program that the government is talking about.

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Tinashe Harry Dumile Kambadza, Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst [16]

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Just 2 more questions. On Zimbabwe, I think you mentioned that -- okay, I know that it's obviously a tough situation. So I'm not even going to go into the detail of that. But something along the lines of debt repayments you say that, that should be done over the next 5 to 6 months. So you're saying that you're going to clear that debt, first of all. Am I correct on understanding that?

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [17]

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No. So we pay that debt in Zimbabwe every 6 months. It's a 6-monthly payment schedule. So what I said is we are left with 5 payment -- payments in Zimbabwe.

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Tinashe Harry Dumile Kambadza, Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst [18]

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Okay. And just to clarify on that. There's no deficiency funding that's going from SA to Zim right now, and we say it's self-sufficient?

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [19]

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Correct. Zimbabwe is self-sufficient at this moment, yes.

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Tinashe Harry Dumile Kambadza, Afrifocus Securities (Pty) Ltd., Research Division - Equity Analyst [20]

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Okay. Then lastly, on DRC. I think you guys have been talking about renegotiating that debt for a while now. And that seems to be something that has been -- you've been mentioning over the last few results. I'm just wondering to what point can we actually get to a certainty when you can actually agree to have restructured that debt?

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Roland Van Wijnen, PPC Ltd - CEO & Director [21]

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Our expectation is that in the first quarter, we have a clear opinion. And obviously, our partner that we're talking with, they are not appreciating that we keep on asking for capital rescheduling. So we're sitting down with them, and I expect first quarter next year, this will be concluded one way or the other.

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Anashrin A. Pillay, PPC Ltd - Head of IR [22]

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Okay. There are some questions from the website. Okay. The question is on Ethiopia. Can you provide more detail on how the operations are going? Because we haven't disclosed that margin.

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Roland Van Wijnen, PPC Ltd - CEO & Director [23]

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Before I ask you, Mokate, to give the operation review, I think what is very important about -- to understand about Ethiopia is that in difference to the other countries that we have in the international portfolio, Ethiopia is not under our management control. So Ethiopia there with is at this stage an investment where we have influence through the Board. And that influence is not -- has not been sufficient to come to satisfactory results. We are renegotiating with other shareholders and with other partners to make this business come to a turnaround. But this business will only come to a turnaround if all these parties agree. Whereas in the other countries, be it Zimbabwe, DRC, South Africa, you can really hold PPC accountable because we have full management control. That is also the reason that we have not disclosed as many details on Ethiopia as we did on DRC and Rwanda because we see it from a very different perspective. Nevertheless, we know a lot about Ethiopia.

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [24]

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Yes. Yes. Thanks a lot. And I think you've cutted the crux of the question. In terms of the issues in Ethiopia, and I'll summarize them in probably 3 to 4, one, I think -- one is actually Ethiopia experienced a drought early this year or sometime this year where the power supply in Ethiopia was an issue. So as an industry, we were allowed to run 15 -- 10 to 15 days in a month for about a 3-month period. Obviously, that will impact on your -- on the volumes. But number two, the plant has not been able to run consistently and efficiently, which has obviously put pressure on costs and ability to sell to the market. And number three, I think, which probably summarizes everything is -- I think the issue in Ethiopia is leadership to really make impact and to turn around the business. And that's why what Roland said is we are engaging all the parties to see if we can affect a turnaround play to get Ethiopia to a reasonable level.

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Anashrin A. Pillay, PPC Ltd - Head of IR [25]

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Okay. There's just one more question. I think we...

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Unidentified Analyst, [26]

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[Andrew Merricks. I'm an independent analyst. My question is directed to Mokate. You mentioned power supply and stability in Zimbabwe, which I assume is motivating your decision to explore solar options. Plans to look at solar for other plants in Africa? That's the one question. And also, any intention to enter West Africa as a producer that is...

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [27]

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Thanks for the question. In fact, we've done quite a lot of work in terms of solar in small scale. In Zimbabwe, actually, all of our houses, we converted to solar. In Rwanda, we've done the same. In Rwanda, on top of that, we've actually put up a solar -- 250-kilowatt solar, and the plan is to expand it to 1 megawatt. But with solar, you need land. And as you may appreciate, a country like Rwanda does not have plenty -- a lot of land. So it becomes a bit of an issue. So we're trying to use the space and lack of material sales to actually put more solar panels to try and diversify electricity supply.

In Zimbabwe, yes, it's something that we are looking at but with a third-party in a PPA form. And we have the discussion phase now to look at what options we have because as you may appreciate, when you start to align your entire plant on solar, you also need a much bigger land. And we may have to do this in phases. And maybe do a partial displacement of our grid power. And then you really can do the grid if you don't utilize it. So -- and this requires back-to-back agreements not only with the service provider but also with the utility service provider because if you don't use it, then you will return it to the grid.

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Roland Van Wijnen, PPC Ltd - CEO & Director [28]

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The second part of his question.

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [29]

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West Africa. I think so far, we've got a lot on our plate. So we're focusing on stabilizing these operations at this moment. But when opportunity arises that is much more lucrative, we'll always explore all of these things.

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Roland Van Wijnen, PPC Ltd - CEO & Director [30]

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Yes. Exactly. So in that line, we position ourselves as a Sub-Saharan African player. So we monitor constantly what is happening in these markets. But as said by Mokate, currently, our appetite is limited not only because our plate is full, but also because of the balance sheet that we have.

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Unidentified Analyst, [31]

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Okay. And then just the last question is how are you able to service your debt in the various countries or maybe just explain it.

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Ronel van Dijk, PPC Ltd - Interim CFO & Executive Director [32]

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I think a lot has been said about the debt. We are, as we said, in discussion with our funders. We do have capital holidays in place in some of these countries in Zimbabwe. The Reserve Bank is settling our debt with our legacy funds.

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [33]

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In Rwanda, the business is paying its debt. So no issues.

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Ronel van Dijk, PPC Ltd - Interim CFO & Executive Director [34]

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So overall, there is work to be done with regards to the funding of the business, but for now, everything is under control.

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Roland Van Wijnen, PPC Ltd - CEO & Director [35]

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One point that Ronel mentioned in her presentation, it is worthwhile to repeat is that we're migrating or intending to migrate some of the project financing to long-term debt.

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Anashrin A. Pillay, PPC Ltd - Head of IR [36]

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Okay. Thank you. Thank you. There will be some refreshments outside, and you can ask management questions outside. Thank you.

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Roland Van Wijnen, PPC Ltd - CEO & Director [37]

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Thank you.

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Mokate Ramafoko, PPC Ltd - MD of Rest of Africa Cement [38]

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Thank you.