Pretoria Portland Cement (PPC) has celebrated an outstanding trading year to end September by declaring total dividends of more than R1bn.

SA’s largest cement and lime producer reports exceptionally strong cash flows and has declared a final dividend of 700 cents (2003: 550 cents) a share. PPC’s capital expenditure is planned to remain low next year.  It has therefore also declared a special dividend of 1 400 cents (650 cents) a share. Together, the dividends amount to a cash payout of R1 129-million.

Last year PPC was also exceedingly generous with ordinary and special dividends totalling R645m. Notwithstanding these large payouts, the group is comfortably liquid with current cash reserves of over R1-billion.

Headline earnings per share for the year grew 27 per cent to 1463,2 cents a share (2003: 1154,0 cents).  Although operating profits grew 35 per cent, lower investment income and a higher effective tax rate limited the growth in headline earnings.

The improved performance derives from increased domestic cement demand, improved levels of infrastructural investment, interest rate cuts and a continuous focus on creating value through the group’s Value-Based Management process, "Kambuku".

Domestic cement demand was higher than expected, resulting in a 14 per cent improvement on 2003.  Volume growth was recorded throughout the country, with the coastal region between Cape Town and Port Elizabeth the most buoyant, thanks to the Ngqura (Coega) Harbour Project, which saw the Port Elizabeth operation running at full capacity with additional supplies sourced from inland factories.  It is expected that Ngqura demand will start reducing from the last calendar quarter of 2004.

"Our Kambuku process continues to reap rewards.  As a company that prides itself on being a key component of building this nation, we continue to look at ways to create stakeholder value.  This is evident in the improvement in operating profit which exceeded revenue growth," commented John Gomersall, PPC’s chief executive officer.

Group operating profit increased by 35 per cent, with the cement margin reflecting an improvement on the back of higher volumes, combined with improved cost control and production efficiencies.  The lime and packaging margins were in line with the previous year.

Highlighting employee commitment was PPC’s achievement of 2nd overall and 1st in its sector in the Deloitte / Financial Mail Best Company to Work For 2004 survey (ranked 6th overall in 2003).

"This demonstrates that we have a professional workforce, committed to improving operational performance that directly translates into improved value creation for all stakeholders," said Gomersall.

The Cement division reported a 40 per cent increase in operating profit, from R740.6m in 2003 to R1 038,2-million this year, benefiting from significant growth in volumes.

Operating profit in the Lime division increased by 3 per cent to R101.9m
(2003: R98.8m) in the wake of improved efficiencies and tight cost control, despite a decline in burnt product volumes.

The growth in cement demand had a direct impact on the Packaging division, which grew operating profit by 16 per cent, from R26.9m to R31.2m. Gomersall said that the cement sack growth, together with volume growth in the ream wrap market, had increased volumes by 18 per cent, ahead of the industry average.

"It has been an exciting period for the Packaging division.  We celebrated the sale of a 75 per cent stake in the packaging business to an empowerment consortium in August this year and we look forward to our partnership with the ladies at Nozala and the Afripack management" he said.  Owing to the structure of the deal, PPC will continue to consolidate the results until the loans have been repaid.

Recently advised rail tariff increases that are significantly above inflationary levels will increase production costs, particularly in the Lime division.  The increase in PPC’s cost index of inputs at a higher level than the official Producer Price Index (PPI) will inevitably have an impact on selling prices.

Looking forward, PPC forecasts cement demand to increase by 6 to 8 per cnet during the next financial year. The forecast derives from:
-  Government’s stated intention of increasing infrastructural investment;
-  Lower interest rates;
-  Continued growth in the formal housing sector; and
-  Ongoing expansion in the informal housing sector.
Volumes in Zimbabwe are expected to remain at low levels until the elections in March 2005.  Lime volumes have the potential to increase based on the potential growth in the domestic steel industry output. The outlook for 2005 remains positive and PPC expects to report improved profits. Strong cash flow is expected to continue with minimal capital expenditure planned for the next financial year.

The planned inland cement capacity expansion project will only begin to impact on cash flows from 2006 onwards.