RMB OFF PISTE INVESTOR 19 CONFERENCE - The Vault 2 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER...

19RMB OFF PISTE INVESTOR CONFERENCE

18 SEPTEMBER 2019

1 CEMENT DEMAND DRIVERS

2 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019

Construction economic drivers

Public sector infrastructure spending – medium term expenditure

▪ 1999 to 2018, the public sector spent R3 trillion

− spending grew by an annual average of 4.3% in

real terms

− state-owned companies spent R1,3 trillion

− expenditure as a share of GDP averaged 5.9%

▪ State-owned companies are the single largest

contributor to capital investment

− projected to spend R339 billion over the next three

years

− energy expenditure expected to total R158,1 billion

over the next three years, accounting for 18.3%

• Eskom at R134,3 billion (85%)

▪ SANRAL allocated R36,5 billion to upgrade, strengthen

and maintain non-tolled national roads. Additional 28

billion;

− allocated for the upgrade of the Moloto road, to

compensate for the reduced tariffs (Gauteng

freeway improvement project), for the construction

of two bridges on the N2 wild coast project and

general road strengthening and maintenance

▪ Another R36,5 billion allocated to the provincial roads

maintenance grant for resealing and rehabilitating of

provincial roads

Source: National Treasury , 2019 mid-term review ,annexure D .

1 - Human settlement includes public housing to households and bulk infrastructure amounting to R57,5 billion over the medium term expenditure framework (MTEF) period.

2 - Administration services include infrastructure spending by the Department of International Relations, the Department of Home Affairs , the Department of Public Works , Statistics South Africa and their entities.

0

20

40

60

80

100

120

140

2015/16 2016/17 2017/18 2018/19 2019/20 E 2020/21 E 2021/22 E

Bill

ions

(Z

AR

)

Infrastructure expenditure by source

National departments Provincial departments Local government

Public entities Public - private partnerships State-owned companies

158132

314

45 3457 58

31 37

219

118

288

1133

47 5731 31

0

50

100

150

200

250

300

350

Energy Water andsanitation

Transport andlogistics

Other economicservices

Health Education Humansettlements ¹

Other socialservices

Administrationservices ²

Bill

ions

(Z

AR

)

Medium term expenditure framework for the period 2016 - 2022

MTEF 2019 MTEF 2018



Public sector infrastructure spending – sector and source trends

▪ Upward trend illustrating government’s commitment to infrastructure

expenditure

− Limited by the sovereign debt burden

▪ 2019/20 budget prioritises social and economic infrastructure including

schools, health facilities, transport , water and sanitation.

− Water projects contributed the bulk of the value of awards in June 2019 for civil

mainly in KZN, Limpopo and Western Cape

▪ General government infrastructure investment is projected at R526 billion

over the next three years

− Government to contribute additional R100 billion to a blended-finance

infrastructure fund over the next decade in the form of new spending,

reprioritisation and guarantees.

− Fund to enable the public and private sectors to collaborate to finance

sustainable social and economic infrastructure projects.

▪ Human settlement includes public housing to households and bulk

infrastructure

▪ Administration services include infrastructure spending by government

departments such as international relations, home affairs and Statistics

South Africa

▪ Other economic services include agriculture, environmental, trade and

industry, science and technology and telecommunications infrastructure

▪ Others social services include infrastructure such as labour, arts and culture,

cooperative governance, rural and social development

Source: National Treasury , 2019 mid-term review ,annexure D.

65,9 67,0 55,1 50,6 52,6 52,8 52,8

31,5 30,826,8 38,3 42,8 41,8 47,4

81,3 70,975,4

78,094,8 103,8

115,3

13,214,3

17,116,7

15,114,2

15,2

0

50

100

150

200

250

2015/16 2016/17 2017/18 2018/19 2019/20 E 2020/21 E 2021/22 E

Bill

ions

(Z

AR

)

Civil

Energy Water and sanitation Transport and logistics Other economic services

10,3 10,4 9,7 12,1 11,8 11,1 11,5

18,0 17,8 17,6 18,5 18,2 19,0 19,7

18,3 18,3 14,318,2 18,8 19,0 19,7

11,9 10,311,2

10,6 10,3 9,9 10,4

10,9 10,19,1

12,3 11,7 12,2 13,1

0

10

20

30

40

50

60

70

80

2015/16 2016/17 2017/18 2018/19 2019/20 E 2020/21 E 2021/22 E

Bill

ions

(Z

AR

)

Building

Health Education Human settlements Other social services Administration services



Private sector expenditure - building plans passed and completed

Building plans passed & buildings completed : Y/Y %

Constant ZAR, smoothed 4 months

0

50

40

30

20

10

-10

-20

-30

Buildings completed Plans passed

2017 2018 2019

▪ Building plans passed considered a leading indicator for

building materials demand however subject to postponement

− Constitutes 50% of SepCem’s market exposure

▪ 10.3% YoY contraction in real value of plans passed for

January – June 2019 with the highest decline in non-

residential plans at 17.4%

− Gap between plans passed and completed buildings

implying downward trend in private sector infrastructure

investment

− Firmer growth in plans passed necessary to prevent future

contractionary growth

▪ High growth rates of buildings completed in the interim mainly

due to the completion of a few large projects such as

Fourways Mall as well as flats and townhouses in the

residential sector

− Growth in flats and townhouses driven by concerns about

safety and affordability

▪ Building activity expected to flatten over the remainder of the

year

− Evidence of oversupply of non-residential stock and

bottoming out of residential building activity

Sources : Econometrix - EcoBulletin , 15 August 2019 ; Stats SA - Preliminary selected building statistics of the private sector as reported by local government institutions ,June 2019

Statistics SA , Econometrix

“The postponement rate (of plans passed) is close to double digits since the 1st quarter of 2018, and is currently at

the highest level since 2010. The postponement rate moderated slightly to 36.9 percent in May 2019 (including

education projects), but rose to 39.7 percent in June 2019.” – Industry Insight, Construction Monitor July 2019


▪ June YTD imports at 542Kt an increase of 6.2% YoY

− Vietnam at 504kt an increase of 155%

▪ Imports indirectly impacting inland market resulting in increased aggressive sales tactics

− Coastal producers attempt to recover lost volumes due to cheap imports

− SepCem has introduced the Falcon brand in KZN to recover sales volumes

▪ Industry lobbying ITAC to impose safeguard tariffs on all imported cement citing;

− Local producers have additional cost burden of doing business due to legislative requirements and high regulatory standards

− Declining demand impacting profitability with potential job losses

Competitive pressures

Imports - Vietnamese influx

-

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

450 000

Ton

nes

Cement imports by country of origin

Pakistan China Vietnam

-

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

450 000

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

Ton

nes

Cement imports by province of entry

KZN EC WC


Competitive pressures

Imports - exchange rate impact

10

11

12

13

14

15

16

17

-

50 000

100 000

150 000

200 000

250 000

300 000

350 000

US

D/Z

AR

exc

hang

e ra

te

Ton

nes

3-month volume moving average

Volume Exchange Rate 2 month lag

▪ 2 months lagged exchange rate aligns with the 3 – month rolling import volumes

▪ Recent ZAR appreciation may result in an increase in imports from Vietnam

− Strengthening of emerging market currencies due to temporary easing of China / USA trade woes

− Weak EU economic performance and BREXIT

− ZAR rally is not expected to be long term

− Vietnamese dong , largely flat to the USD over the past 12 months

▪ Analyst project imports at 1,0 – 1,1 million tonnes in 2019

− May be lower if industry lobbying for higher import tariffs is achieved



Industry expert forecasts

Source: Econometrix 2019 Q2 . Industry Insight Forecast Report July 2019

2016 2017 2018 2019f 2020f 2021f 2022f 2023f

Residential % ∆ -Industry Insight -3,9 2,3 -3,2 1,0 -1,5 0,5 2,0 2,0

Non-residential % ∆ -Industry Insight 2,7 -7,1 -3,3 -3,8 -1,8 1,0 1,0 1,5

Construction works (GFCF) % ∆ -Industry Insight -2,9 -0,4 -0,1 -2,0 -0,8 1,0 0,8 1,4

Residential % ∆ - Econometrix -3,8 2,3 -3,2 -2,1 1,3 3,6 4,5 2,7

Non-residential % ∆ - Econometrix 2,8 -7,1 -3,2 -5,6 3,2 1,7 3,5 3,0

Construction works (GFCF) % ∆ -Econometrix -2,8 -0,4 -0,1 0,1 2,5 3,3 3,0 2,2

-8

-6

-4

-2

0

2

4

6

% C

hang

e

2016 2017 2018 2019f 2020f 2021f 2022f 2023f

Total construction (GFCF) % ∆ - Industry Insight -2,0 -1,3 -1,4 -1,7 -1,1 0,9 1,1 1,5

Total construction (GFCF) % ∆ - Econometrix -2,0 -1,3 -1,4 -1,5 2,4 3,1 3,4 2,5

-3

-2

-1

0

1

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3

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% C

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2 SEPHAKU CEMENT

RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 20199

Industry demand

▪ Industry estimates;

− Clinker capacity at 17 – 19 million tonnes per annum (mtpa)

• Clinker rather than cement capacity considered as real constraint

− Demand (including imports) at 12 mtpa – 13 mtpa

▪ Demand impacted by macro-economic downturn

− Gross fixed capital formation (total building) statistics illustrate a downward trend

▪ Estimates of decline in industry demand of 5% - 10% in CY 2018

− DCSA sales volumes declined by 6.4% in CY 2018 and by 19% in Q1 2019 YoY

▪ Further sales volume demand decline estimated for CY 2019

Calendar year 2016 2017 2018

DCSA: 4% flat 6.4%

GFCF: 2% 1.3% 1.4%


▪ Protracted low bulk cement pricing has increased blender activity in selected inland markets

− Bulk pricing markedly increased in H1 2019

▪ DCSA increased pricing in February and July 2019

− July increase incorporated carbon tax impact

− All producers have passed on the carbon tax impact in July price increases

▪ Increased imported volumes in coastal markets intensifying price competition

▪ Discretionary consumer incomes impacted by increase in cost of living – reduced demand for cement

Market dynamics

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0

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2

10

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10

1

10

1

10

1

10

1

10

1

10

1

10

2

10

2

10

2

10

4

10

7

10

7

10

8

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6

10

7

92

94

96

98

100

102

104

106

108

110

112

114

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19

Overall Bag Bulk

SepCem indexed average pricing per tonne of cement


▪ Coal, electricity and fuel price increases

− Fuel prices have been increasing since

2017

− In 2018, sharp price increases surpassed

the record highs of 2014

− Constrained availability of coal as a result

of increased global demand resulted in

significant increase in the coal prices.

▪ Poor coal quality resulted in higher

maintenance and operational costs against

budget due to;

− Lower extension capability due to poor ash

quality

− Downtime

− Reduced plant efficiencies

Impact of input cost inflation

Transport 21%

Salaries 13%

Electricity 9%

Depreciation 10%

Raw materials8%

Coal8%

Maintenance 6%

Packaging5%

Other - pallets , refractories and clinker transfer

costs 20%

COST SUMMARY


2400 2057 1800 1622 15270

500

1000

1500

2000

2500

FY 2015 FY 2016 FY 2017 FY 2018 H1 2019

Mill

ions

(Z

AR

)

Outstanding principal ▪ SepCem had reduced debt

capital by R873 million by

30 June 2019

▪ Total debt payments R187

million in H1 2019

− R94 million capital

− R93 million interest

▪ On-going discussions with

lenders

▪ Dangote Cement PLC quasi

− loan balance at R501

million

− Interest rate at JIBAR

plus 4%

SepCem targeting debt to EBITDA ratio of x2.5

Strengthening the balance sheet


Cash generation ability

413 109

483 356

313 945

507 938

444

168 967

181 873 27 146

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

Mill

ions (

ZA

R)

FY 2018 CASH FLOW ANALYSIS

3 MĒTIER MIXED CONCRETE


SepCem has a December year-end as a

subsidiary of Dangote Cement PLC.

FY 2019 performance

for the period ended 31 March 2019

Financial

▪ Sales revenue of R835,8 million

− FY2018 : R830,7 million

− 1% increase in concrete sales volumes and flat pricing YoY

▪ Cost of sales increased by 5.4% mainly due to the sales mix

▪ Inflationary increase of 7.1% in expenses due to the 13th

plant

− EBITDA of R52,2 million

− EBIT of R38,9 million

− Net profit after tax of R21,5 million

▪ Métier wrote off R8,95 million in debtors

− Strict debtor management continually implemented to

minimise customer credit default risk

Operational

▪ Strategic increase in plant footprint within Gauteng through the

thirteenth plant supported sales volumes YoY

– Total annual sales volumes increased by 1%

• Gauteng volumes increased by 15%

• KZN volumes decreased by 11%

− Like for like sales volume decrease of 5%

▪ The mobile plant provides ability to swiftly access new or

expanding supply nodes

− Métier can supply short–term construction projects

− Métier can pro-actively supply whilst determining viability for

a fixed plant , long term


Challenge : Low pricing and inflationary cost increases

▪ Continuous cost management initiatives focused on:

− Competitively priced inputs – to negotiate for below inflationary increases for 72% of input costs

− Reduction of expenses – targeting zero increase YoY in administration and management expenses by 31 March 2020

− Distribution fleet rationalisation – reduced outsourced fleet by 16% in FY2019. Ongoing focus on optimal routing and

enhanced efficiency per truck

Challenge : Declining volumes

▪ Retention of existing customers to defend current geographical positioning and identification of new customers across

all market segments.

− Métier to improve sales strategy implementation to increase repeat and new supply orders from current and new customers

respectively

▪ Métier to actively seek value added concrete supply contracts that are not easily replicable by competitors

Challenge : Customer credit default risk

▪ Review credit limits for all customers and apply guidance from credit vetting institutions

▪ Subsidiary to increase the proportion of cash sales to minimise the incidence of default

Métier’s ongoing response to the tough trading environment from FY 2019


Indexed average pricing and cost comparison for Q1 2020 to Q1 2016

• Margin continues to be negatively impacted by low prices and above inflation costs for raw materials and transport

• Implementation of strategic sourcing of key inputs to minimise cost increases

Impact of low pricing and inflationary input costs

Q1 2015/16 Q1 2018/19 VS Q1 2015/16 Q1 2019/20 VS Q1 2015/16

Total volumes (m³) 100% 104% 91%

Average selling price ZAR/m³ 100% 106% 104%

Margin over material and delivery 100% 89% 75%

Raw material cost ZAR/m³ 100% 112% 112%

Transport cost ZAR/m³ 100% 121% 128%

0%

20%

40%

60%

80%

100%

120%

140%


Positive volume impact from strategic plant expansion

• The additional plant capacity in Gauteng improved total sales volumes by 3% in FY2019

• 2020 Q1 volumes for the period ended 30 June 2019 supported by 14% from plant 12 and 13

11 11

12

13

FY 2016 FY 2017 FY 2018 FY 2019

Impact of additional plants on annual volumes

KZN region (m³) Gauteng region (m³) New footprint (m³) Number of active plants

11 11

12

13 13

2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1

Impact of additional plants on quarterly volumes

KZN region (m³) Gauteng region (m³) New footprint (m³) Number of active plants


Debt profile

Strengthening the balance sheet

136111 116

80

41

137

139

100

81

80

0

50

100

150

200

250

300

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Mill

ion (

ZA

R)

Term loan balance Revolving debt balance

▪ Term loan debt at a quarterly interest rate of JIBAR plus

3.49% has been decreasing by 11% annually since

FY2015

– Outstanding balance was R40,7 million at YE and

R 31,8 million at 30 June 2019

– Final instalment to be paid in April 2020

▪ R100 million revolving facility at a quarterly interest rate

of JIBAR plus 4%

− Repaid R39,7 million capital by 31 March 2019

− Outstanding capital of R90 million at 30 June 2019

− Métier in negotiations with the lenders on the

repayment terns of the facility due to reduced level of

EBITDA .

4 CONCLUSION


SepHold cost reduction initiative update

▪ SepHold expenses reduction initiative to align with tough trading environment commenced in October 2018

▪ Reduction in expenses for the interim ending September estimated at R2,4 million below the comparative period mainly due to :

− savings from the reduction of the CEO remuneration and non – cash expenses

▪ Total expenses target of R18,4 million by 31 March 2020

14 858

18 46220 045

18 20216 172

7 131

5 072

5 240

4 754

2 238

F Y 2 0 1 6 F Y 2 0 1 7 F Y 2 0 1 8 F Y 2 0 1 9 F Y 2 0 2 0 E S T I M A T E

Non - cash expenses

Cash expenses


▪ Operating entities have distinctive advantages which enhance competitiveness ;

− State of the art plants with proven cost efficiencies

• Cement plants awarded tax credit for energy efficiency

• Low emissions of NOₓ compared to industry average at SepCem

− Operational management with deep industry skills

▪ Focus for the next 6 to 12 months is to :

− continue reducing debt at both Métier and SepCem

− continue closely managing head office (SepHold) expenses

− optimising sales reach from the 12th and 13th plants

− evaluating potential opportunities to enhance shareholder value

Competitive advantages position the group well


The information contained in this presentation is the responsibility of the directors of Sephaku Holdings and has not been subject to any independent audit

or review and may contain forward-looking statements, estimates and projections. All statements other than statements of historical fact are, or may be

deemed to be, forward-looking statements, including, without limitation, those concerning: Sephaku Holdings’ strategy; the economic outlook for the

industry; production; cash costs and other operating results; growth prospects and outlook for Sephaku Holdings’ operations, individually or in the

aggregate; liquidity and capital resources and expenditure; and the outcome and consequences of any pending litigation proceedings.

These forward-looking statements are not based on historical facts, but rather reflect Sephaku Holdings’ current expectations concerning future results,

events and generally may be identified by the use of forward-looking words or phrases such as “believe”, “target”, “aim”, “expect”, “anticipate”, “intend”,

“project” ,“foresee”, “forecast”, “likely”, “should”, “planned”, “may”, “estimated”, “potential” or similar words and phrases. Similarly, statements concerning

Sephaku Holdings’ objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks,

uncertainties and other factors that may affect Sephaku Holdings’ actual results, performance or achievements expressed or implied by these forward-

looking statements.

Whilst all reasonable care has been taken to ensure that the facts stated herein are accurate and that the opinions and expectations contained herein are

fair and reasonable, it has not been independently verified and no representation or warranty, expressed or implied, is made by Sephaku Holdings or any

subsidiary or affiliate of Sephaku Holdings with respect to the fairness, completeness, correctness, reasonableness or accuracy of any information and

opinions contained herein. In particular, certain of the financial information contained herein has been derived from sources such as accounts maintained by

management of Sephaku Holdings in the ordinary course of business, which have not been independently verified or audited.

Neither Sephaku Holdings nor any of its respective affiliates, advisers or representatives shall have any liability whatsoever (in negligence or otherwise) for

any loss or damage howsoever arising from any use of this presentation or its contents, or any action taken by you or any of your officers, employees,

agents or associates on the basis of the this presentation or its contents or otherwise arising in connection therewith. Although Sephaku holdings believes

that the estimates and projections reflected in the forward-looking statements are reasonable, they may prove materially incorrect, and actual results may

materially differ. As a result, you should not rely on these forward-looking statements. Sephaku Holdings undertakes no obligation to update or revise any

forward-looking statements.

Disclaimer

Sakhile Ndlovu

Investor relations officer

Tel: +27 12 612 0210

Email: [email protected]

Website: www.sephakuholdings.com

2019

RMB OFF PISTE INVESTOR 19 CONFERENCE - The Vault 2 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER...

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