We have extracted below the Chairman’s Statement from the 2019 annual report of Pretoria Portland Cement Co. Ltd (PPC.zw), listed on the Zimbabwe Stock Exchange:
The PPC board of directors has pleasure in presenting its report on the financial statements of the company and group for the year ended 31 March 2019.
NATURE OF THE BUSINESS
PPC Ltd, its subsidiaries and equity accounted investments operate in Africa as producers of cement, aggregates, readymix, lime and limestone and fly ash. The principal activities of the group remain unchanged from the previous reporting period.
The group subscribes to the code of good corporate practices and conduct as contained in the King IVTM* report on corporate governance. The PPC board has satisfied itself that the company has complied in material aspects with the codes as well as the JSE Listings Requirements.
REVIEW OF OPERATIONS
A comprehensive review of operations is detailed in the attached integrated report.
KEY AREAS FROM THE YEAR-END AUDITOR’S REPORT
The consolidated annual financial statements include balances, transactions and other items where the application of judgement is necessary. To the extent that significant judgement was applied, the areas of judgement are noted and the appropriate disclosure is reflected in the respective notes to the consolidated annual financial statements.
Further details on the judgements, key inputs and sensitivity disclosures can be found in note 1 to the consolidated annual financial statements.
Potential impairment of significant assets
PPC performs impairment calculations twice each year, at interim and at year-end stage. All PPC’s subsidiaries are assessed for indications or conditions that may suggest an impairment. In accordance with International Accounting Standards (IAS) 36.10(a) and (b), the following are assessed irrespective of whether there is any indication of impairment:
- Goodwill acquired in a business combination
- Intangible asset with an indefinite useful life
- Intangible asset not yet available for use
Where such an indication exists, PPC estimates the recoverable amount of the asset and compares this to the current carrying amount of the entity and the goodwill balance (where applicable). PPC measures the recoverable amount as value in use, as it expects to recover the value of the asset through use, unless an asset has been identified as held for sale or there is a suitable market where fair values are readily available. The selection of an appropriate method is prescribed by International Financial Reporting Standards (IFRS) requirements.
Given the economic and political environments, the Zimbabwe change in functional currency and life-of-mine estimates, impairment assessments were undertaken by management on all subsidiaries. The board concluded that there was no impairment required on any of the cash-generating units, being PPC Barnet DRC, CIMERWA, PPC Zimbabwe, PPC Cement South Africa and the rest of the materials businesses.
Impairments were approved for specific PPC Cement SA assets not in use and planned for retirement in 2020 of R82 million and recorded in the 2019 financial year. Refer to the audit, risk and compliance committee report as well as note 3 in the consolidated financial statements for detailed notes on impairments.
Valuation of the Zimbabwe subsidiary and reporting of its financial performance
After considering the application of IAS 21 Effects of Changes in Foreign Exchange Rates, the board concluded that the functional currency of the Zimbabwe subsidiary has changed from the United States dollar (US$) to the Zimbabwean Real Time Gross Settlement dollar (RTGS$). The effect of the change in functional currency has been accounted for prospectively from FY2019 onwards. This is as per IAS 21, paragraph 35. There is no restatement required on comparative results for the PPC group.
In determining the appropriate basis of preparation of the financial statements, the directors are required to consider whether the group and company can continue in operational existence for the foreseeable future.
Based on the expectation that the group’s current trading position and forecasts will be met and taking banking facilities into account, the directors believe that the group and company will be able to comply with their financial covenants and be able to meet their obligations as they fall due, and accordingly have concluded that it is appropriate to prepare the financial statements on a going concern basis. Refer to the audit, risk and compliance committee report for additional information relating to going concern.
Deferred taxation assets
Deferred taxation assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Future tax profits are estimated based on the business plans which include estimates and assumptions regarding economic growth, interest, inflation and tax rates and the competitive environment. At year-end, the group had deferred taxation assets of R220 million (March 2018: R245 million).
The deferred taxation balances were recognised for each subsidiary in line with IAS 12 Income Taxes, and the applicable tax laws in the countries in which PPC has operations.
The report to shareholders on the activities of the audit committee includes the approach the audit committee undertook to ensure appropriate judgements have been applied to these key audit matters. The report can be found on pages 12 to 17 of these annual financial statements.
Details of the group’s subsidiaries can be found on page 66 . There has been no change in the shareholding of operating subsidiaries during the year.
PROPERTY, PLANT AND EQUIPMENT
At March 2019, the group’s net investment in property, plant and equipment amounted to R12 587 million (2018: R11 393 million), details of which are set out in note 3 to the consolidated financial statements.
There has been no change in the nature of the property, plant and equipment or to the policies relating to the use thereof during the year.
During the year, the Slurry kiln 9 (SK9) was commissioned. The total costs capitalised into the project amounted to R1.4 billion. Impairment assessments were undertaken for the 2019 financial year. Details of these impairments have been discussed earlier in this report. Discussion around the methodology applied is included in note 3 to the consolidated financial statements.
Details of the group capital commitments of R245 million (2018: R596 million) can be found in note 4.
On 31 March 2019, the issued stated capital of the company was 1 593 114 301 (2018: 1 591 759 954) no par value shares. During the current reporting period, 7 190 432 shares (2018: 9 774 028 shares) were purchased in terms of the group’s long- term employee incentive scheme, the forfeitable share plan, and have been treated as treasury shares from an IFRS perspective during the vesting period of the awards. At year-end, stated capital amounted to R3 943 million (2018: R3 984 million). Except for the purchase of the shares held for participants of the long-term employee incentive scheme noted earlier, the company did not purchase any of its own shares during the year under review.
Details of authorised, issued and unissued shares at 31 March 2019 are disclosed in notes 14 and 21 to the consolidated financial statements.
In considering the dividend policy framework, the board considered the liquidity and solvency requirement of the business. In addition, the optimal capital structure of the business was reviewed. Therefore the board resolved not to declare a dividend for the 2019 financial year.
EVENTS AFTER REPORTING DATE
Refer to note 32 in the consolidated financial statements for events after the reporting date.
REGISTER OF MEMBERS
The register of members of the company is open for inspection to members and the public, during normal office hours, at the offices of the company’s transfer secretaries, Computershare Investor Services Pty Limited, or at Corpserve Pvt Limited (Zimbabwe). Details of the transfer secretaries can be found in the administration section on page 107.
Details relating to the beneficial shareholders owning more than 3% of the issued stated capital of the company appear in the PPC shareholder analysis.
DIRECTORS’ INTEREST IN THE ISSUED SHARES OF THE COMPANY
Details of the beneficial holdings of directors of the company and their families in the ordinary shares of the company are given in the abridged remuneration report included in the financial statements.
Certain directors and non-executive directors have an indirect shareholding in the company. Details thereof are also provided in the abridged remuneration report.
There has been no change in the directors’ interest since year-end.
The directors in office at the date of this report appear in the administration section. At the annual general meeting (AGM) held on 30 August 2018, Messrs J Claassen, J Moleketi, A Ball, I Sehoole, Ms N Mkhondo and Adv M Gumbi were elected as directors, while Mr T Moyo was re-elected as director. Post the AGM, Messrs I Sehoole, T Leaf-Wright, Ms N Goldin and Ms S Dakile- Hlongwane resigned as directors of the
company. The board would like to thank them for their service to the company. Messrs A Ball, C Naude and Ms N Gobodo are required to retire by rotation in terms of
the company’s memorandum of incorporation. Details of re-elections will be provided in the notice to the AGM. Following the appointment of Mr MR Thompson as director by the board during May 2019, and in terms of the company’s memorandum of incorporation, all are required to retire as director. He has offered himself for election and the nominations committee has recommended his election.
The PPC board believes the appointment of the new director aligns the composition of the board with its strategic priorities.
At the AGM held on 30 August 2018, the following special resolutions were approved: Granting approval for the company to enter into intercompany loans with subsidiaries and other related entities within the group. Authorised the company to pay remuneration to non-executive directors for their services as non-executive directors.
The company be and is hereby authorised to pay once-off remuneration to non-executive directors of an equivalent amount to any VAT paid by qualifying non-executive directors. General authority to repurchase own shares or acquisition of the company’s shares by a subsidiary company.
SPECIAL RESOLUTIONS PASSED BY SUBSIDIARY COMPANIES
A minor amendment to Safika Cement Holdings Pty Limited’s memorandum of incorporation was implemented on 29 June 2018 to give effect to the integration of its business into PPC Cement SA Pty Limited.
The company secretary of PPC Ltd is Kristell Holthauzen. Her business and postal address appear in the administration section.
AUDIT RISK AND COMPLIANCE COMMITTEE
The directors confirm that the audit committee has addressed specific responsibilities required in terms of section 94(7) of the Companies Act 71 of 2008, as amended. Further details are contained within the audit committee report.
In terms of the conditional leniency agreement with the Competition Commission, PPC continues to cooperate with its investigation and from our perspective there have been no significant new developments.
Deloitte & Touche was reappointed as auditor to the company at the AGM held on 30 August 2018.