Beyond STRENGTH

Johan Claassen, CEO, said: “The group has achieved key milestones in delivering on its FOH-FOUR strategic priorities. Our performance has been resilient against the backdrop of challenging economic and political environments in markets in which we operate. While our rest of Africa operations, particularly Zimbabwe and Rwanda, achieved good results, our materials division faced reduced demand and increased competition. Our results have also been impacted by a number of significant abnormal items: corporate action, impairment of Democratic Republic of the Congo (DRC) operations and restructuring costs. In 2017, we concentrated on getting back to basics and refocusing by introducing the FOH-FOUR strategic priorities: optimising the financial, operational and human capital of the group. Addressing these priorities has laid an important foundation that will enable the group to create long-term sustainable value for stakeholders in future.” GROUP PERFORMANCE

The group’s attributable headline earnings and headline earnings per share for the year increased by 172% and 114% to R231 million (2017: R85 million) and 15 cents (2017: 7 cents) respectively. Group revenue rose 7% to R10 271 million (2017: R9 641 million), impacted by the strengthening of average rand exchange rates against most foreign currencies. Group gross profit rose 3% on the strong performance of the Zimbabwe and Rwanda operations. On a constant-currency basis, revenue grew by 14%, accounting for the 7% strengthening in the rand against the US dollar to an average rate for the year of 13,06 (2017: 14,08). Excluding DRC sales, which were included for the first time for five months, like-for-like growth was 5%. Total cement volumes increased 6% to 5,9 million tonnes. Group cost of sales rose 8% to R7 924 million (2017: R7 359 million). Excluding the impact of DRC, like-for-like growth was 6%, in line with growth in the producer price index (PPI). Operational efficiencies and introducing the R50/tonne savings initiatives in South Africa contributed to good cost control. Administration and other operating expenditure rose 28% to R1 343 million (2017: R1 049 million), with DRC accounting for R146 million (2017: R35 million) of the cost. Administration costs were further impacted by corporate action, restructuring, separation costs and other non-recurring costs totalling R145 million. Like-for-like administration costs, excluding the impact of non-recurring costs and DRC would have risen 4%. The head office workforce was restructured, which is expected to generate future savings of some R20 million per annum. Group EBITDA declined 9% to R1 880 million (2017: R2 065 million) while the EBITDA margin was 18,3% (2017: 21,4%). The DRC operation contributed an EBITDA loss of R105 million (2017: R39 million loss). Excluding the impact of once-off costs and exchange rates, EBITDA would have risen 2%, with corresponding EBITDA margin of 19,7%. In addition, excluding the impact of DRC, like-for-like EBITDA would have risen 4%, and corresponding margins maintained compared with last year. Finance costs reduced 9% to R675 million (2017: R741 million), reflecting the benefits of the rights issue as well as liquidity and guarantee facility agreement fees incurred in the prior period. Additionally, finance costs for DRC were expensed post-commissioning. On a like-for-like basis, excluding the impact of DRC, finance costs would have reduced by 32%. Optimisation of the capital structure and liquidity management are yielding positive results, with average cost of finance in RSA reducing from 13 to 14% to 10 to 11%. In the results to March 2018, the DRC market continued to face uncertainty driven by political instability, lower cement demand and subdued selling prices. Furthermore, the competitive landscape remains challenging due to production capacity that is higher than market demand. The delayed elections have created uncertainty in the economy and most of the infrastructural projects have been put on hold or they are slow. As a result of these factors, management undertook an impairment assessment. Following the impairment assessment review, the recoverable amount of the DRC operation was considered lower than the current carrying value and an impairment of R165 million (US$14 million) was charged against property, plant and equipment for the year ended March 2018. Taxation was 34% higher at R205 million (2017: R153 million) on increased profitability. However, the effective taxation rate reduced from 85% to 68%, excluding the impact of equity-accounted earnings. The high tax rate was mainly due to the non-deductibility of certain abnormal costs (including impairments) and Zimbabwe tax penalties. The sustainable tax rate for the group in future should range between 30% and 35%. Cash tax increased by only 11%. Net profit attributable to PPC shareholders rose 60% to R149 million (2017: R93 million). Ethiopia, accounted for as an associate, contributed a net loss of R61 million due to foreign currency devaluation and finance costs being expensed to the income statement for three months. The DRC contributed an attributable net loss of R265 million (2017: R107 million loss). Basic earnings per share was 25% higher at 10 cents (2017: 8 cents) and headline earnings per share rose 114% to 15 cents (2017: 7 cents). On a like-for-like basis, EPS and HEPS increased to 33 cents and 37 cents respectively. Weighted average shares in issue increased from 1 137 million to 1 510 million for the period. Net cash flow from operating activities increased 69% to R1 430 million (2017: R845 million). Positive working capital movements totalled R411 million and, coupled with lower finance costs and a lower effective taxation paid rate, contributed to improved cash generation. The focus on liquidity and capital management is paying off as PPC is refocusing to improve free cash flow generation. Capital expenditure on property, plant and equipment decreased significantly to R921 million (2017: R2 058 million). The peak of the capex cycle was in 2017 and, in future, group capex will be concentrated on maintenance and efficiency improvements. Group net debt declined from R4 746 million in March 2017 to R3 846 million, while net debt to EBITDA improved from 2,3x to 2,0x. This is in line with our revised long-term gearing targets and covenants with lenders. There is significant headroom in the balance sheet. The group has made significant progress in improving its liquidity and strengthening the balance sheet. Restructuring South African debt to a maturity profile of between three and four years, coupled with reduced effective interest rate costs of 10 to 11%, and the two-year capital holiday negotiated with lenders for the DRC project funding debt, will enable the group to achieve its optimal capital structure. The group made deficiency funding payments to DRC totalling US$42 million (R556 million) in the period to deal with shortfalls in capital costs, interest cost and other working capital. This deficiency was reduced significantly by the renegotiated capital holiday. No dividend was declared during the period.

PROSPECTS

The South African landscape remains an economically challenging trading environment, with minimal gross domestic product (GDP) growth projected for the next 12 months. The regulatory regime is increasingly adding to compliance costs in the RSA cement sector. The outlook for our materials division is also muted, as it is linked to infrastructure investment growth, with the lime division mainly exposed to the steel industry, and readymix and aggregates relying on construction projects. To mitigate this, management will implement the BEE III transaction to strategically position the business from a commercial and regulatory standpoint. The cement business, with its focused R50/tonne savings initiatives, will continue its disciplined approach to growing price and volume, and driving operational efficiencies. The business will continue to defend and maintain its leading position and competitive advantage from the perspectives of footprint, scale and efficiency. In the rest of Africa, strong demand is expected to continue, driven by Zimbabwe and Rwanda businesses, while we ramp up in the DRC and Ethiopia. The political landscape is improving in Zimbabwe, with elections scheduled for July 2018. The CIMERWA plant has been modified to improve efficiencies to operate at optimal capacity and efficiency. Continued good growth in Rwanda’s GDP should sustain demand, which currently appears to be exceeding supply. In DRC, elections are scheduled for December 2018. We continue to ramp up in that country, despite being constrained by overcapacity and muted demand. In Ethiopia, the political landscape is expected to improve, with forecast strong growth in GDP of 7 to 8% supporting cement demand in the country. PPC will continue to execute its FOH-FOUR strategic priorities over the next 12 to 18 months. The group will optimise capital allocation based on the valued-based management system implemented, in pursuit of achieving an optimal capital structure through the cycle. The group will also continue to look at options with regard to PPC Barnet in the DRC, to further mitigate the group’s risk exposure. We have completed our major capex investments and, in the process, enhanced and modernised our plants. Reduced capex, coupled with significantly lower interest rate charges, is expected to improve free cash flow going forward. The group remains well positioned to benefit from growth in the regions in which it operates. On behalf of the board PJ Moleketi Chairman JT Claassen Chief executive officer MMT Ramano Chief financial officer 15 June 2018