Materials business

MATERIALS BUSINESS: LIME, AGGREGATES, READYMIX AND FLY ASH

Lime

PPC Lime is the leading supplier of metallurgical-grade lime, burnt dolomite and related products and solutions in southern Africa. These are used in key local industries such as steel and alloys, sugar manufacturing, gold, uranium and copper mining, as well as water purification and other environmental applications. Although steel manufacturing remains the biggest consumer of lime-related products in the South African market for the foreseeable future, there is growth potential in environmental applications.

Strategy

Operationally, PPC Lime is focused on maintaining high levels of cash generation by growing revenue from higher-margin sectors and optimising logistics costs for key customer segments. At the Lime Acres operation in the Northern Cape, kiln and mining efficiencies are key drivers of cash generation, underpinned by a performance-driven culture.

The business made good progress in improving its competitiveness in the environmental and water-treatment market during the year, commissioning an additional mill for producing fine unslaked lime in November 2017. A well-located lime handling, storage and processing depot was successfully commissioned in December 2017, enhancing PPC Lime's ability to add value to key customers.

Overview of the year
Competitive landscape

Competition in the southern African lime market is strong, reflecting spare production capacity and tough conditions in the local lime-consuming industry. Sales to local steel producers improved substantially from the prior year, but subdued local infrastructure development remains a limiting factor.

Operational

PPC Lime's results were affected by a coal-supply change and unexpected coal shortages, as well as an imbalance between fine and lump sales. By the end of the period, coal supply was back to normal.

Volumes

Total quicklime and burnt dolomite sales were maintained, with a reduction in limestone sales after reduced offtake by a key customer in the steel industry.

Pricing and revenue

While prices achieved for calcined products were 3% up on last year, they were affected by changes in customer composition from last year. Total revenue (including transport charges) rose 4% to R850 million.

Cost of sales

Total cost of sales increased 5,7%, mainly due to an increase in the delivered cost of coal and once-off high maintenance cost in the crushing and screening plants.

EBITDA

EBITDA decreased 12%, affected by the customer mix and increased costs.

People

The major focus this year was engaging all team members to develop a world-class work environment in terms of safety and health. Good progress was made in entrenching the right culture and implementing a tailored safety programme.

Outlook

The local iron and steel sector will remain under pressure in the medium term, subduing revenue growth opportunities for PPC Lime. Smaller new prospects in the environmental and non-ferrous sectors should compensate in terms of creating additional value. The company is positive on prospects for improving cash generation in the medium term.

Aggregates

PPC Aggregates supplies quality aggregates to the civil construction industry, readymix sector and concrete product manufacturers. Metallurgical-grade dolomite products are supplied to the chemical, steel and agricultural industries. PPC has two aggregate quarries in Gauteng (Mooiplaas and Laezonia) and three in Botswana (Kgale, Mokolodi and Francistown). The Mooiplaas quarry has one of the best metallurgical dolomite reserves in South Africa.

Strategy

The PPC Aggregates team is focused on delivering high-quality sand and stone products, while optimising production costs to offer customers the best value. Continually optimising variable costs in key areas like loading and hauling, maintenance and cost of explosives has reduced total cost per tonne of material produced from the previous year. The recent tertiary upgrade at Laezonia now allows us to pursue projects like the N14 road rehabilitation phase 2 and secure customers in various segments.

Initiatives to penetrate the Botswana market were successful, with volumes rising almost 50% from the prior year and innovative contract crushing solutions, in particular, making a substantial contribution. Benefits from the restructured business and optimised support services also enhanced performance.

The business will continue to focus on enabling PPC to provide materials and innovative solutions to the markets we serve, while remaining a good cash generator that complements the cement and readymix businesses.

Overview of the year
Competitive landscape

The market in South Africa is particularly tough and margins are under pressure from intense competitor activity. While our supply to the readymix and concrete product manufacturers segments declined, supply to the steel and agricultural industries improved. Similarly, the market in Botswana remains tough but there are projects in the Gaborone central business district and road-construction projects supporting improved performance.

Operational

In tough economies, maintaining and expanding margins is critical, and our focus remains on optimising production and maintenance at all our quarries.

Volumes

PPC Aggregates improved volumes 6% on the previous year, with Botswana operations making the greatest contribution to growth.

Pricing and revenue

Despite improved sales volumes, revenue was under pressure, declining 2% year on year due to product-mix effects weighing down average selling prices.

Cost of sales

Total cost of sales was well managed, declining 3% from the prior year, supported by lower fixed and variable costs per tonne.

EBITDA

Cost-saving initiatives improved EBITDA for the year and supported an expansion in the business unit's EBITDA margin.

People

The roll out of the snakes and hazards safety initiative has been well received at the quarries, and we celebrated Laezonia quarry achieving 2 million hours without an LTI.

Outlook

Our regional footprint largely determines our ability to participate in construction projects. In Gauteng, major projects we are actively pursuing include road-rehabilitation projects that are well located relative to our Laezonia quarry. Supply to road projects in Botswana is expected to continue in the new financial year. The South African quarries will benefit from an uptick in supply to the readymix and asphalt sectors.

Readymix

PPC Readymix comprises Pronto, which operates in Gauteng, and 3Q, which operates in the provinces of North West, Limpopo, Mpumalanga and Eastern Cape. As a leading supplier of quality readymix concrete and mortars, the focus is on maintaining high levels of customer service.

Strategy

PPC Readymix is predominantly a commercial supplier of readymixed concrete but is making inroads with project-based work by providing effective solutions for customers. This strategy allows customers to concentrate on the construction while we take responsibility for sourcing high-quality raw materials, batching the concrete and facilitating technical testing.

Effective fleet management remains a key focus area to deliver quality concrete timeously to meet customers' deadlines. A flexible production process enables the business to offer a variety of products, including no-fines concrete, self-compacting concrete and decorative concrete.

Overview
Competitive landscape

Competition in Gauteng remained extremely tough with volumes contracting over the period, particularly in the East Rand region. Sales volumes in Mpumalanga improved on the back of increased mining activity, benefiting our 3Q business.

Operational

We have made significant progress in integrating Pronto and 3Q, with increased alignment in financial and support services, fleet management and technical standards.

Volumes

Volumes were under pressure, reflecting intense competitor activity in Gauteng.

Pricing and revenue

While declining volumes affected revenue, there was some improvement in selling prices.

Cost of sale

Total cost of sale rose 7%, mainly on inflationary increases in a number of categories.

People

The well-being and development of our people is important and our recent drive to improve health and safety has led to our lost-time injury frequency rate dropping from 0,94 to 0,29. This, and the increased emphasis on staff development, has improved productivity.

Outlook

After two years of a depressed construction market, there are signs of a recovery. As such, we expect some improvement in volumes and pricing. With continued expenditure in the mining industry, we believe we have correctly positioned the company to benefit. Government has committed to further developing alternative energy and the company is considering partnering with suitable contractors to capitalise on these opportunities. We do not expect much growth in the residential market but, should this change, PPC Readymix is well positioned to assist its clients. On the commercial side, we expect the market to remain flat.

Fly ash

Ulula Ash is a leading supplier of fly ash in the southern African market, currently extracting and processing fly ash from its beneficiation plant at Kriel power station (owned by national power utility, Eskom) in Mpumalanga province. Producing both classified and unclassified products, Ulula mainly supplies cement producers, blenders, concrete product manufacturers and the readymix industry, while pursuing new and innovative applications for fly ash.

Strategy

Given that fly ash is a key input in PPC's materials and solutions strategy, constructing a new processing plant in Mpumalanga will expand our geographical footprint over the next year.

In recent months, the business has increased capacity at Kriel through operational improvements and plant modifications. This, coupled with expanding and optimising its logistics, contributed to sales volumes rising 40% year on year.

In line with PPC's environmental vision and policy, Ulula is integral in helping Eskom recycle as much fly ash as possible, avoiding current and future costs of waste dumps and the associated environmental impact.

Overview of the year
Competitive landscape

In recent years, there has been only a marginal increase in total fly ash-processing capacity, with the southern African market supplied by three companies. The industry is, however, expecting new fly ash-beneficiation capacity to come on line from power stations currently being commissioned in South Africa.

Operational

Optimising turnaround times and increasing capacity in a growing market has allowed us to operate the Kriel plant at full capacity.

Volumes

Sales volumes rose 40% in the review period, largely due to a significant increase in unclassified fly ash sales to Mozambique.

Pricing and revenue

Revenue grew faster than the rise in sales volumes, despite slightly lower average selling prices on the back of a shift to more unclassified sales.

Cost of sales

In line with rising sales volumes, total cost of sales increased over the period.

EBITDA

This business improved EBITDA from the previous year.

People

To maintain excellent customer service, targeted initiatives have ensured operational and support staff are available 24 hours a day to cater for the rise in sales volumes. Multi-skilling staff was a key focus to ensure the team is able to work smarter in the context of a rapidly growing business.

Outlook

There is a solid upward trend for fly ash demand in the near term and PPC, through Ulula Ash, remains committed to securing access to fly ash sources, while pursuing associated opportunities in innovative applications.