PPC Ltd (PPC) Earnings Call Transcript & Summary

Good morning, everyone. Welcome, and thank you for joining us at PPC's interim results presentation for the FY '21 financial year. My name is Kwame Antwi, and I'm going to be your emcee for the presentation. As usual, we're going to be hosted by the group's Chief Executive of PPC, Roland Van Wijnen, and he's also going to be supported by his executive team. In terms of the structure of the presentation, Roland is going to take us through the results for about 30 minutes. Thereafter, we are going to open the floor for Q&A. [Operator Instructions] Without taking too much of your time, I'm going to open the floor to Roland for him to take us through the results presentation. Roland, over to you.

Thank you very much, Kwame. Good morning, ladies and gentlemen and dear colleagues who are following this webcam (sic) [ webcast ] . It is a pleasure to share with you the first half of our financial year, which has been a challenging year to say the least. If we look at the contents of our presentation on the next slide, you will see that after my introduction, I will hand over to our CFO, Ronel van Dijk, who will take you through the financials. And afterwards, I will take you through the operational review, the restructuring of our operations and the financial impact thereof as well as the capital restructure. And after a brief summary, we will open it up for the Q&A. Before I continue, I think it is very important for me to get something off my chest, and that is a very big thank you to all the employees of PPC throughout the group. They have been instrumental in the support that they have given during the lockdown of April, May and June, and you will see some of the impact of that in our numbers as we talk through this presentation. And after the lockdown was lifted, they have done a tremendous job under very difficult circumstances, adhering to the strictest protocols that we have put in place to deal with the coronavirus outbreak. On the next slide, we summarized the approach that we have taken when we knew that the virus was going to hit us, and we'll take you back to February, March of this year. You have seen part of this slide before, but I think it is important that we put in context this last 6 months. We established a COVID-19 task force before the lockdown was in place. That consisted out of the executive committee of the group, supported by health and safety specialists as well as our group CIO, who is looking after our IT infrastructure. We, of course, implemented very stringent health and safety protocols as well as policies. And it is actually a pleasure to share with you that as we stand today, based on the latest information I have received yesterday, at the moment throughout our group, we have 1 precautionary person in isolation, in quarantine, and we have no active cases at the moment. This is probably the first time in -- since the outbreak that we have no active cases throughout the group. We have done close to 2,000 PCR tests for our employees and our contractors. We are screening thousands and thousands of people as they have to go into work and out of work every day. And we've all done that along the objectives to keep the economy going, to make sure that our products reach our customers, and of course, also to keep PPC going. So not just have we looked after our plants during and after the lockdown, we have also put in place immediate cost reductions that have actually benefited our financial results for this year, together with a strong focus on cash generation. That will bring me then to the next slide, where I'll give you a very high-level overview of our performance in the first half of FY '21. As an industry overall, we had severe restrictions in the first quarter of our financial year during the months, April, May, and to some extent, the June. That translated to a significant reduction year-on-year in our cement sales volumes. We looked at close to 40% reduction of sales volumes in South Africa and Botswana during these 3 months. We looked at more than 20% reduction in Zimbabwe during these months. And although DRC and Rwanda were less impacted compared to the other countries, they also saw a slight decline. Now if we look at where we stand on the full year, It is pleasing to tell you that in the second quarter, we had a very strong rebound across all our jurisdictions, everywhere double digits, which led to a first half cement volume slight decrease still in South Africa, mainly because we see that the coastal operations hasn't recovered as strong as our inland operations. And across the board in DRC, Rwanda and Zimbabwe, our sales volumes of cement are up. That, combined with a temporary decline in imports and nonconforming products, gave a boost to our overall performance. Unfortunately, we have seen imports coming back very strongly in South Africa, and we remain very concerned going forward that this undermines the mandate that was given by the President of South Africa to make sure that local manufacturing flourishes in the country, which we, of course, wholeheartedly support. Our focus areas remain to optimize our operations following the stringent protocols that we have in place. We will continue to find ways to reduce our fixed and variable costs, and I'll give you a few examples throughout the presentation. And we keep a very strong focus on net working capital management and CapEx. Especially in South Africa, we will continue to address the topic of imports and nonconforming products, which are a threat to the construction industry. And of course, I'll touch on the capital restructuring project, which is of the essence to position our group again for growth. The actions speak against the focus areas. So without further ado, I will close out with salient points to our performance on the next slide before I will hand over to Ronel. In terms of our profit and loss statement, our profitability driven by our group revenues that are despite the fact that we had a very severe impact of lockdown during April and May. Our revenues are slightly up compared to last year, and our group EBITDA has seen a 15% increase up to the level of ZAR 1 billion compared to below ZAR 900 million or ZAR 0.9 billion as you see on this slide in the same period in 2019. Our EBITDA margins have gone up. As a group, we have achieved 20%. I will unpack that for you in more detail. And the earnings per share and the headline earnings per share will be explained to you by Ronel in her presentation. On the side of the cash flow and the financial position, we had a strong cash generation from our operations in the first 6 month on the back of higher EBITDA and a significant reduction in working capital absorption compared to the same period last year. That has led to a reduction of our South African gross debt, and our international growth debt has reduced largely due to currency movements compared to last year. The international debt with recourse to South Africa stands at ZAR 2.5 billion at the end of September, which obviously is the main focus of our capital restructure, which I'll allude on in a little while. For now, I'd like to hand over to Ronel to talk you through the highlights of the financials. Ronel, over to you, please.

Thank you, Roland. Thank you, everyone, for joining us for this results presentation for the 6 months ended 30 September 2020. I will start by taking you through revenue. We are showing you a bridge showing the robust recovery in the second quarter after the COVID restrictions were lifted. In September 2019, we reported ZAR 4.9 billion in revenue. As Roland mentioned, revenue was impacted negatively in South Africa and Botswana for at least 1.5 months due to the COVID-19 lockdowns, but we benefited in Zimbabwe, Rwanda and the DRC, where we saw an uplift in revenue. We also benefited from currency, which had a ZAR 319 million impact, and we finished in September 2020 on just over ZAR 5 billion worth of turnover for the 6 months. If we then move on to EBITDA. In September 2019, we reported ZAR 868 million EBITDA, which included restructuring costs of ZAR 83 million, very similar pattern as revenue where South Africa cement materials and lime see the impact of the COVID lockdowns to the tune of ZAR 36 million, ZAR 41 million and ZAR 28 million each. We see an uplift in EBITDA from Zimbabwe, Rwanda and the DRC. In particular, Zimbabwe showing ZAR 74 million uplift with the currency movements contributing ZAR 111 million. So we closed on ZAR 996 million EBITDA in September 2020, which includes restructuring costs of ZAR 64 million. On our profit and loss, a few key items, noncash items that we would like to point out. The fair value and foreign exchange losses of ZAR 366 million mainly consists of the ForEx loss on translation of foreign currency-denominated items that came to ZAR 347 million. In Zimbabwe, the financial asset increased in intrinsic value by ZAR 202 million, and we maintained the 50% credit risk fair value adjustment resulting then in a loss relating thereto of ZAR 63 million, netting the fair value gain then on ZAR 139 million. The blocked funds moved in value by ZAR 10 million, which is split between a decrease in the intrinsic value of ZAR 19 million and a reduction in the credit risk fair value adjustment of ZAR 9 million. The impact of hyperinflation accounting in Zimbabwe is a net monetary gain of ZAR 326 million. From a cash flow point of view, in operating cash flows before movements in working capital amounted to just more than ZAR 1 billion, which is compared to the prior year at ZAR 845 million. Working capital movements is an absorption of ZAR 21 million worth ZAR 139 million worth of net finance costs paid. Tax paid amounted to ZAR 73 million with a cash outflow from investing activities, i.e., additions to property, plant and equipment, software, et cetera, is ZAR 171 million, which gives us a free cash flow of ZAR 598 million, which compares very well to the prior year's ZAR 24 million. We then see net outflow from financing activities of ZAR 326 million. I will give you more detail on that a few slides on, with us ending on net movement in cash and cash equivalents of a positive ZAR 272 million compared to a negative ZAR 10 million in the prior year. The cash position improved over the period with cash and cash equivalents at the beginning of the period on ZAR 398 million. We then have the positive ZAR 272 million in cash movement in cash and cash equivalent with some exchange rate impact, and we end on ZAR 705 million in cash at 30 September. From a capital expenditure point of view, I find this slide very telling and interesting. We have reduced our capital expenditure for the period by 26% from ZAR 225 million last year to ZAR 166 million this year. Our guidance remains between ZAR 500 million and ZAR 550 million for this financial year. We had to delay some maintenance due to the high demand experienced the past few months. If we look over to debt, the debt has reduced from ZAR 5.8 billion at March 2020 to ZAR 5.2 billion in September. The main movements relate to a reduction in the general banking facilities in South Africa of ZAR 225 million. We also saw a repayment of our legacy debt in Zimbabwe of ZAR 80 million, which is quite good news that the Reserve Bank has been able to honor that payment back in June. In Rwanda, as part of the restructuring agreement, we capitalized interest of just less than ZAR 50 million. And the currency movements had a negative -- well, I suppose, positive when you look at debt impact of ZAR 304 million. To summarize, in South Africa, the gross debt decreased from ZAR 2 billion to ZAR 1.7 billion and international from ZAR 3.8 billion to ZAR 3.5 billion. Recourse, as Roland previously mentioned, international debt with recourse to South Africa was ZAR 2.7 billion in March 2020 and is now ZAR 2.5 billion. On a net debt point -- from a net debt point of view, the net debt decreased from ZAR 5.4 billion to ZAR 4.5 billion over the 6-month period. In summary, we've seen improved cash generation in the group as well as well-managed capital expenditure. The South African degearing is progressing well. And with regard to the control environment, in particular, around financial reporting, we can provide feedback in the sense of a new suitably qualified team is now in place, some of them still very green as they start at the beginning of this month. But we are confident that we will -- we have the team in place that we were aiming for. Various improvement projects are underway and making good progress. And for the next 3 to 4 months, we are really focusing on financial reporting, internal control improvements. Thank you very much, and I'll hand back to Roland to continue the presentation.

Thank you very much, Ronel. In the next slides, I will unpack the revenues and the EBITDA for the different parts of our operations of the group. If you can go to the next slides, you will see the revenues broken down by country, and in case of South Africa, broken down by business segment. The volumes in cement for South Africa and Botswana, as I said, had reduced in the first half of the year by 5% to 10%. This translates in a revenue decrease of 8%. There has been price increases on the cement products. However, that price increase is not visible back in the revenues because we sold a different type of product in this first half year compared to the last half year. We've sold more retail products that generally have a lower price per ton because it's a higher extended product, and therefore, it has lower cost as well. Materials, more significantly impacted by the lockdowns; and lime, mostly impacted by the reduction of the steel compared to last year with the closure of Saldanha impacting both the EBITDA on the next slide as well as the revenues on this slide. Zimbabwe's numbers, I've always said, let's take that with a little bit of caution because of hyperinflation accounting. But if you look at the underlying volume increase in Zimbabwe, the volume increase has been plus 5% to plus 10% in that range with good price control, and therefore, the revenue increase in Zimbabwe is real. And we were also very pleased that over the last months we've seen an increased sales in hard currency in Zimbabwe, which allowed PPC Zimbabwe as well to declare a dividend, which was reported upon in our SENS announcement. It has yielded $4.4 million back to PPC Limited. Rwanda has benefited from very good sales throughout the period. They were just slightly down in the first quarter. And they were 15% to 20% up in the second quarter, given the total increase of also close to 10% on the back of some large projects that we were supporting the government with in terms of the rollout of the schooling and educational system, a lot of new schools being built throughout Rwanda, where proudly Cimerwa was supplying the cement into. DRC has also managed well throughout the lockdown. They had certain logistics constraint in place around Kinshasa, but our plant has remained in operation. Total volume increase is about 5% to 10%. And on the back of price increases and some currency generations impact, you'll see a revenue increase of 33% in the DRC. And that explains the total revenue being slightly up to flat. You will also see on this slide on the right-hand side that due to the fact that our international operations were less impacted by the lockdowns compared to South Africa, that the relative importance of the revenue out of the international operations has grown compared to September 2020. If we look on the next slide, you will see the same breakdown in EBITDA. I think it is important there to highlight an 8% decline in South Africa and Botswana. And you recall on the previous slide that revenues also declined 8%, which basically means that thanks to the actions taken, which I will unpack in a minute, we have managed to keep the EBITDA movement the same as the revenue movement, which basically means that we have the fixed cost completely neutralized. Unfortunately, materials and lime, that has not been the case. In materials, it is probably relevant to remark that the September 2019 numbers included a very profitable project that we were able to do out of our aggregates business in Botswana, which was clearly a nonrecurring event. And if you look at the international operations, you will see that the EBITDA growth in Zimbabwe and Rwanda is largely in line with what you saw in the previous slide in revenue growth. And the DRC has done particularly well, although I do make the footnote that there are some inventory movements impacting EBITDA as we do not run that plant continuously as you well know. If you look at the right-hand slide, it's even more visible that the relative impact of the EBITDA growth in international versus South Africa is further balancing the overall EBITDA generation from the group from international versus South Africa. The next slide gives us a very nice picture, in my opinion, of the actions taken. It shows you the EBITDA margins from our different operations. As a group, I indicated to you before that we are currently running at a 20% EBITDA margin. South Africa and cement are stable, which I think is a tremendous performance of Njombo and his team in South Africa and Botswana, given the fact that they haven't sold a single ton in April and very, very little in May. So we'll see that you will expect a further improvement in the second quarter of this year. If we look at our international business, Zimbabwe continues to do very well at 40% to 41% EBITDA margin. And we are particularly pleased that also Rwanda and DRC are now both above the 30% mark. So these are operations where we are clearly from a purely operational perspective doing well and benefiting from good route to market and good cost control. On the next slide, I will unpack to some extent the restructuring -- operational restructuring activities that have taken place and the benefits that flow out of there. We go straight into the details here on the next slide. So you will see here that we come up with a total cost saving annualized of ZAR 279 million, broken in variable as well as fixed cost. The main portion comes out of South Africa and Botswana. And you might recall on the very first slide that a very large portion comes from contributions from our employees. During the lockdown, everybody in the organization has taken leave and therewith we have an impact from the leave reduction. We have not implemented any salary increase, although it was planned and agreed, and we're grateful to our employees that they have contributed through that as well. And we had a temporary reduction in our pension fund contributions, which in the meantime have been restored. Also the teams have taken the time during the lockdown to go through all our sourcing agreements and find ways how to improve. At the same time, I'm very proud to say that we have worked very closely, both with customers and suppliers, during these difficult days in the first quarter of our financial year to make sure that we together come through these dark times. However, coming out of it, we have seen the impact of better sourcing, better logistics, and we do see the impact of the total number of employees being less than a year ago. And I've been asked about this. Obviously, we would like to see our employees grow. And at the same time, we also have to be competitive, and we are making an appeal again to the government to support the [ TCI ] application to reduce or ban the imports, especially the dumping that we see happening out of Asia. Local manufacturing is a very important driver for employment in South Africa. Network optimization in South Africa has continued. For example, we have reduced 1 grinding station in our network as we see that the current volumes can be supplied out of our plants in Dwaalboom, Slurry and Hercules. And the bottom one may be a little bit technical for most of the audience, but clinker factor optimization, the reduction of clinker factor has a major impact on our costs. It's the largest cost factor in cement. It is also a positive impact on the environment as cement with less clinker is less intensive in terms of CO2 production. On the next slide, we move from one restructure to the other. This time, it's the capital restructure. Also here, if we dive directly into the situation where we stand with our various lending partners in South Africa, we have now signed all the facility agreements in line with what we communicated to you last time when they were not yet signed. We're very grateful for the fact that we have continued support from our lenders in South Africa. We do have to finalize still some documentation related to the provision of a security pool, which is not unusual given the circumstances where we're in. And also our working capital facilities are in place. So with that continued support, we feel very comfortable that we can focus our attention on the situation in the DRC, where we have debt with recourse to the group, which we consider unsustainable. We have, by now, signed a formal standstill with our lenders in the DRC, which we are thankful for because it gives us the space to engage actively with them in the restructuring plans, which is currently ongoing. Anthony Ball, he is our Executive Director. He is looking after the restructure together with me. He's not with us today as he is actually, as we speak, doing part of the discussions with our lenders in the DRC. On our lime sales on the next slide, just a few words. We've made an announcement as part of the disclosures that we made around our year-end results that we would sell lime. We do not consider it a strategic asset. We consider it a good asset that is probably even doing better in the hands of somebody else. When we made that announcement, we received numerous unsolicited approaches, and therefore, we made the decision to appoint an adviser and accelerate the sale as we see a lot of interest, and we target to have deal certainty at the end of the first quarter in 2021. That wraps up my presentation. On the summary slide, I would just like to highlight the main points. We go to -- and one slide more, please? So you do see that we have, of course, benefited from an upswing in cement demand across all the markets. All our markets have seen a market upswing in the second quarter of our financial year. I think we can easily say that we are in the best position in South Africa to benefit from this sustained upswing. We have the spare capacity, and it has shown its benefit over the last months. We will continue our efforts to reposition the business, improve our cost competitiveness, finalize our restructure plan so that we are back on our feet for growth, and we'll continue to focus on strengthening our internal processes and controls. Before I'll hand back to Kwame to take us to the Q&A, I would like to take also a moment to say a large and well-meant thank you to Ronel as she stepped into the CFO job under tremendous difficult circumstances, and she then managed us and helped us manage through a difficult audit, a COVID situation. And I wish her the very best in doing some things that she's always wanted to do is spend a little bit of time outside of PPC as, trust me, in the last 14 months, she probably hasn't spent a minute, not even in our dreams without PPC. She will continue to be with us until the end of March as CFO. Afterwards, she will continue to be with us to support Brenda Berlin, our new CFO, and to go through the audit. We're also thankful for that. With Brenda, we have a person that I think will fit very well into our culture in PPC. We'll continue with the aligned Exco that we have build over the last 12 months, and I look very much forward to the next 12 months where hopefully, we will see a South Africa local manufacturing benefiting from the infrastructure program and our international business continuing to do well under the leadership of respectively, Njombo and Mokate. With that, I hand over to you, Kwame, to take us through the Q&A, please.

Thank you, Roland. And thank you for a very good and clear presentation. Louise and the team have collated the questions so they're going to be reading it and directed to the responsible executive to answer. [Operator Instructions] Louise, over to you.

The first question comes from Rowan Goeller of Chronux Research. Please, can you run through current capacity utilization levels in your plants in the different regions?

Yes, we certainly can. I'll ask Njombo to do South Africa first, and then Mokate to talk us through the international plans. Njombo, over to you, please. And the most used words this year, please unmute yourself.

Thank you. Thank you, Roland. Yes, basically, in terms of our capacity utilization, we normally talk of active capacity, which is about -- currently, we're running about 75% of our kit in terms of active capacity. And we are trailing around 90%, just over 90% of capacity utilization.

And on your side, Mokate?

Thanks, Roland. Yes, in different regions, in Zimbabwe, we're running between 45% and 55% capacity utilization. In Rwanda, slightly on the higher side, 75% to 80% capacity utilization. And in the DRC, we're still hovering around the 30% capacity utilization.

The next question is also from Rowan Goeller of Chronux Research. Do the revised debt terms in South Africa still include the requirement for a capital raise?

So right now, I'll take the question, Louise. Right now, our focus is purely on the DRC to resolve that part of the equation. As we've said in our announcement, any potential rights issue in the -- in South Africa is dependent on the outcome of DRC. So we'll solve that first, and then we'll have an eye back on the degearing commitments that we have made to the South African banks, step-by-step.

Actually, we do have a few more questions related to the capital restructure project. I'm going to try and address those now. So one of them comes from -- well, 2 related to the lime business. One comes from Rajay Ambekar of Excelsia Capital and the other from Charles Boles of Titanium Capital. The first one, what is the book value of the lime business? How does it compare to the expressions of interest in the business? That's the first one. The second one, is this an appropriate time to sell the lime business given the market conditions? Is this an involuntary sale due to agreement with banks?

So let me take the first one -- the last one first. This is a voluntary -- involuntary sales. I do not think that PPC lime fits the strategic position of a cement company. And this is not just my view, you have seen many cement companies separate their lime business out. So from my perspective, this is a sale that would have happened sooner or later, at least I would have recommended it. Is this the right time to sell it? Obviously, we're just coming out of a decline in the steel industry. And we are still having to see the impact of some of the actions that our management has put in place, especially on the replacement of the revenue generation side. On the other hand, I must also say that the degearing of the -- the degearing commitments that we have made to the South African banks are there. Otherwise, we wouldn't be talking about the rights issue. So we believe that the interest that we have received in PPC lime warrants that we have a very good look at it right now. We still believe that this is a business that has shown through the cycle a strong cash generation. It is the best asset that there is in South Africa in many terms. And if you don't mind, I will not mention specific values nor book values as we are in the midst of initiating a process, and I don't think that commercial information should be published at this stage.

We do have another related question, and I mean, it may have been mainly addressed. But to the extent you want to add anything to it, the question comes from [ Broad from DBI. ] How are you planning to reduce debt? And how long will it take? And what will the lime sale bring?

So we are planning to reduce the debt in multiple ways. Number one is the sale of the assets. We have a few smaller items that we are divesting from as well. Think about some land -- properties that we don't use. But the lime sales is, of course, the biggest ticket item. On the international side, there are various scenarios that we are considering. It's probably a bit too early to go into the details as we are discussing all these options with the lenders. How much does the lime sale bring? I will tell you in March.

We have a question from Steven Hurwitz of 36ONE Asset Management. Is the rights issue still necessary given the improved EBITDA performance, good cash generation, lower CapEx requirements going forward as well as the disposal of PPC lime and minority stakes in African operations? The net debt to EBITDA does not seem stretched.

Yes. Thanks a lot, Steven. As I said, we are currently really focused on the DRC negotiations as they are all conditional. When it comes back to the discussions after we have resolved debt in the South African situations, I read your question here on the screen. I think you're 100% right. Maybe I should invite you in the next round of discussions with the South African banks. We'll see where we end up. We've made certain degearing commitments. We need to see where we stand in cash generation going forward. There's a lot of uncertainty, coronavirus second wave, et cetera, et cetera. So I don't want to rush ahead too much. But clearly, our focus is on cash generation, cost competitiveness. And then we'll see what it means for the financial situation of the South African business.

There are 2 more related to the capital restructuring project. How many potential buyers is PPC in talks with regards to the potential sale of the lime business? That's from Peter Cromberge of Mergermarket. He also asked when does it plan to select a preferred bidder? I think you have addressed it somewhat, but just for completeness sake.

So we have been in contact, to my understanding, between 5 and 10 parties, actually more. But you also have to look at credibility of some of the requests that were made. We are about to send out the information memorandum. We would like to see coming back some indicative pricing in January. As I said, by March, we would like to have a binding commitment from a buyer.

And then the last one. So far on the capital restructuring project, why is the operation not raised capital through floating additional shares? I mean, it relates to the rights too, somewhat, but maybe you can address that as well.

I think we -- I have said last year around this time that for me, floating additional shares is a last resort, and I didn't think it was necessary last year in December. Some of you might recall that. That was obviously pre-COVID. COVID made quite a big change on our financial position. And I don't think that without resolving the DRC situation where you have a recourse back to the group, we can go to our shareholders in the moment and ask them to resolve that situation. That situation, we need to resolve ourselves. And as I said to you before, the PPC lime business for me is not a part of our strategic assets. You can argue around the timing of the process, but I think that today is as good as it will be a year from now.

We have a couple of questions around demand and supply dynamics and also related to imports. I'm going to try and address those now. The first question comes from Chris Reddy of Mazi Capital. Please can we get your views regarding demand and supply dynamics? How much excess supply do you have currently? What are the current levels of imports and your views on blended cement? Do you want me to just read the others out as well?

Okay. Go for it, Louise, read them all out.

All right. Would you expect the increase in imports, blender volumes coming back and other producers reinstating production to lead to lower volumes or pricing? Let's do those 2 first, then we can address some more after that?

Okay. I'll hand over to Njombo because I see that they're South African related. Some of it was answered with the capacity utilization question earlier. And Njombo, you want to speak around -- not whether you want to, can you please speak about the imports and blenders in your view going forward?

Thanks, Roland. I think with regards to the imports, obviously, we're hoping that sense will prevail and the ITAC application that we have put in will start being activated. We have submitted everything that's required, and we're expecting the government to react to that. So far, imports are still coming into the country. If you compare year-on-year same period with imports are impacted, obviously, by COVID, and we are about 15% down on what is coming in on our estimate. But they are still coming in, and we expect that obviously to be taken care of with our application with the ITAC. In terms of the blender, yes, from a producer point of view, there is an effort to ensure that we bring capacity back as the demand increases. We did the same, and some of our competitors did that. But so far, the market has been able to absorb the volume that we bring back and no serious impact on the pricing because we do have the capacity. With regards to how the blender is going to react in terms of the pricing, I think it's all dependent on the quality of the product. If they are making the right quality product at the correct pricing at the moment, we do not expect that to impact the price as much. I hope I've answered all the questions. If I missed anyone, please remind me.

No. Thanks, Njombo. I think you have answered. I'd just like to add one particular point, and that has to do with what does import do to the long-term viability of the manufacturing base that we have in South Africa. There are, as many of you know, spare capacity, both within PPC as with our competitors. All the local manufacturers would have to make certain investments to bring that capacity back online. And under the uncertainty, without having a clear answer from the government where the local manufacturing is truly important, those investments will be difficult to justify. And that is the concern that I see for South Africa that it becomes dependent on imports. You have seen it in steel, you'll start to see it in cement. That means, a, that prices will go up and down, depending whether there is volume available in the world market. You might have shortages at critical moments. We've seen some of that in other countries in Africa. So it is just once we make clear that this local manufacturing is a partnership. If we look -- I was last week on the road, visited our colleagues in Port Elizabeth. They are competing with an importer. And they told me, why are we as PPC not importing? Because it would actually be cheaper because the rail connection from Slurry down to Port Elizabeth is not functioning well. We have a cost advantage with our locally produced clinker if the rail connection works properly. It doesn't, so we have to bring goods by road. We have spent almost ZAR 12 million on additional transportation costs that's more than 50% of the trains that were committed by the TFR did simply not arrive. Now these are elements where we need to work together hand-in-hand through partnership. It is not just the industry. It is much broader than that, and it is of critical importance.

We have a couple more questions related to the South African market. I'll address those as well since we are on that currently. You have indicated continued good volume growth in SA post September. Please give us some indication of post-September volume growth from the international -- sorry, that's for the International division. I thought that was for local. We can address international first?

Mokate?

Thanks, Roland. I think related to this question, if I take quarter 3, we don't expect to have similar growth as what we had in the first half. We expect anything between 2% and 7% growth going forward in terms of volumes. I don't think the similar increase will materialize in the second quarter -- second half.

As for South Africa, David, one thing that you have to bear in mind, so October and November have been continuously strong. In December, where we expect a normal tapering off, if you compare it to last year December, last year in December, we had terrible rains in the first part of December. You might recall, and there with our volumes last year were actually artificially low. So you can expect this year, even if it goes back to more or less normal, that it will be significantly above December last year.

We have a question from [ Milton at Top Flight. ] There is a lot of talk of the long touted infrastructure rollout in South Africa. You mentioned you're starting to see the fruits of this. I imagine this can have a very large impact on growing South African revenue over the next 18 months.

Njombo, you want to take that?

Yes, Roland. And I think I missed the last part of the previous question around the price mix and the change in the price mix. I think it is relevant to say that the biggest spike that we see is on the retail sector, which means we are actually selling more of the extended products. The question goes further to say how is the new products impacting this? I think basically, from a positioning point of view for PPC, it's actually positioned us quite well because then we are able to serve that retail sector, which has got different requirements for the product purposes. And in terms of the projects, infrastructure projects, yes, we have seen a lot of water treatment projects that have come through. We've got one in [indiscernible] that we're busy supplying. We've got quite a few road projects that SANRAL is busy with and rolling out. We've got some wind farms in the coastal region, which are -- all these projects that will have an impact on our industrial sector. There's quite a lot of residential projects that are also being spoken about, but one that comes into mind is the Waterkloof, quite a few evolving projects in the Gauteng area. And then Gauteng -- both Gauteng and Mpumalanga, there's a few RDP and low-cost housing projects that are on the go. And this is what gives us confidence in the sense that the infrastructure projects are starting to kick in. We continuously involve Dr. Ramafoko and his team in terms of the projects that the President has set out.

We have one more on the RSA market from Jackson at Laurium. Can you provide more details on the cost savings in RSA, example, staff cuts, mass pooling of operations, et cetera? What is the annualized savings you expect?

Njombo, you want to take that one as well?

Yes. I think we've gone into detail on your Slide 20 on the presentation with regards to the various savings. Obviously, some of them might be fixed cost related to the employees and all the contributions that Roland has spoken about. But I think the biggest is mostly on the variable cost that we have actually seen. And in terms of RSA business, we're estimating in excess of about ZAR 150 million.

We have a question from Andrew Moses of MIBFA. Can you please speak to price increases taken over the last 6 months and any announced for the next 6?

Yes. Pleasantly so we've seen slight increase in pricing. We've had a price increase in July, which was basically our delayed annual -- biannual increase, which was supposed to happen in June. Unfortunately, with the COVID, we had that one delayed coming through. And we also had a subsequent small increase in various areas, mostly to recover the costs in terms of logistics and also internal PPI that has gone much higher than the pricing in the market. We had an increase in October. And starting next year, we're looking at our biannual increase again January and June.

We have another question from Rowan Goeller of Chronux Research. Is demand actually exceeding supply in SA at present? Retailers talk of allocations and long lead times for cement.

No. Actually, capacity still exceeds demand by a long shot. We estimate in terms of the installed capacity in South Africa an excess of about 5 million tons. I just would like to explain what would have happened in the last few months. Roland touched on it a little bit. The impact of the TFR, we all know how the railway systems in South Africa has been affected by the lockdown and all vandalism that has happened. That has had a huge impact in terms of transportation of raw materials as well as the processed materials into the market. But the industry has obviously brought in more capacity as the demand increased. However, it was immediately followed by a transport strike, which affected mostly the bulk transport systems. And actually, the bulk system does not only affect the transportation of cement from factory to the end user, it also affects the extenders, which is mainly your slag and your fly ash from the ESCOM to the sites and also to the blending units. So that has had a huge impact. So we've got our silos full, but we couldn't get the product out. The situation is normalizing since in the last few weeks when government intervened with the issue around the transport. So in summary, no, capacity has not been exceeded by demand at this stage.

There's a question related to depreciation, which I'll address next. And then after that, we'll go into some questions around Zimbabwe. The question around depreciation comes from Mark Narramore at Excelsia Capital. He's asked, depreciation decreased quite a lot in the first half. Can you give us guidance on the full year number?

Louise, I'll take that one. Mark, depreciation decreased as a direct result of the impairments as well as the movement in the assets in Zimbabwe. And for full year, for the next half, you can expect similar levels to the first subject, of course, to exchange impact.

So on to the questions related to Zimbabwe. David Fraser from Peregrine Capital has asked, it is very positive that you have been able to secure U.S. dollars in your Zimbabwe operations for both debt repayments and dividends. Do you see the situation continuing? And the second question comes from Chris Reddy of Mazi Capital. Please, can we get an update on the initiatives to get trapped cash out of Zimbabwe? What is the current value of that cash now? And there is a third question related somewhat. That's from Richard, he's a private investor. He has asked if 2/3 of EBITDA comes from African operations, what is your 5-year view on the ability to repatriate these profits to South Africa?

Let's break it in pieces. Ronel, what is the current value of the cash trapped in Zim?

Roland, we provided a 85% credit fair value adjustment against the blocked funds. So we can basically say that we regard any cash in Zimbabwe, and we value it as 15% of face value.

In the face value of the credit cash?

I will tell you in a minute. ZAR 57 million is after the impairment. So if I -- for the fair value adjustment, sorry, ZAR 380 million of PPC Ltd. money in Zim.

Mokate, how do we get that money out?

Thanks, Roland. Very good question. But I think in terms of -- your question is what are we doing to get the money out? We've done extensive loading with the authorities. Last week, we actually met -- Roland and I, we made the President of Zimbabwe, where this issue was also put on the table as a key issue from an investor point of view. And we received a resounding positive feedback from the President saying your problems are solved, so we're still waiting to see if our problems will be solved. So that's really where we are at this stage.

We still need to address the question around whether you expect the situation in Zimbabwe to continue in terms of being able to secure the U.S. dollars?

Okay. I'll take that one. I think the question, I'll split it into 2 because the issue of debt repayment is part of the money that we've registered as part of the legacy debt. That money was paid already to the Reserve Bank of Zimbabwe, and the Reserve Bank of Zimbabwe and effect the payment to your lenders on a 6 monthly basis. In the last 3 payments, the Reserve Bank of Zimbabwe has honored all the payments to our lenders, and we expect actually the December payment to also be honored by RBZ. In terms of the dividends declared, the dividends were declared out of ForEx generated in country by the business. And the money that was paid to PPC did not have to go through the Reserve Bank. So it was the money -- own money that was used to declare the dividends and paid to PPC. Whether that's going to continue, what we've seen in the last 6 months, the bulk of our sales were in ForEx, close to just slightly more than 50%. We're seeing a slight decrease in the last -- this month -- or last month. But we still expect the sales to be partly in ForEx, perhaps close to 50% of the sales to be in ForEx. And if that continues, then it is possible to actually declare dividends and externalize the money unless there is a policy change by the Reserve Bank.

We have another question related to imports. It's from [ Noel Williams ] of [indiscernible]. He has asked, who is testing the imported cement to check that the quality of the final concrete used for construction is satisfactory.

Okay. So in terms of the imports, basically, the NRCS, which is the regulator, should be in conjunction with the SABS that ensures the quality standard should be doing those tests. Unfortunately, this is the risk that South Africa runs because that product gets taken from the port and gone into the market, and there is no tracing of it because it's sold in the open market. And with cement, you should actually be testing it, and then 28 days later, you get your strength to see if it confirms. But by the time we get the 28-day strength, that product is already being used. And well, that's the risk that the country runs. Currently, the testing of the imported product is very limited, and that's due to the resources of the NRCS and the SABS. As a [ TCI, ] we have offered to our system some way, but unfortunately that is still under discussion.

Roland, did you want to address that question further?

No, thanks.

All right. Then just on a closing note, David Fraser from Peregrine says since there is still cement capacity in SA, please, can you deliver few pellets to builders [indiscernible] They have not had any product for the last 3 weeks.

Yes. For you to note, Njombo, potential customer are there.

Yes. It's a potential customer. We will give them a call.

We have another question from Chris Reddy of Mazi Capital. We note the good growth in DRC. Please, can you comment on imports in DRC and Dangote for example?

Thank you, Louise. I'll take that one. Yes, there is still -- we're still getting some imports from Congo-Brazzaville, specifically Dangote, primarily in the interior market. At this stage, it's not significant volumes, but it's the volume that may increase in the future. And hence, as an association, we are continuously lobbying government to have effective ban on imports.

We have no further questions.

If there are no further questions, I would like to take this opportunity to thank you very much for attending the webcam (sic) [ webcast. ] From our side, we continue to focus on the elements that we consider relevant. That is operating our facilities safely in line with COVID, but in general, in line with all the health and safety requirements to satisfy the needs of our customers, including David's request, which has been duly noted. And to keep a focus on controlling our costs, both variable and fixed and our cash through net working capital and capital expenditures. On that note, I will hand back to you, Kwame, for closure.

Okay. Once again, to everybody online and via the webcast, thank you very much for joining us. There are some of you that we're going to meet in one-on-one interviews. We'll be able to address more of your questions. And if any of you out there who have questions that we haven't been able to answer or if you have further questions, kindly address it to the team, and we'll sort them out. Thank you, and enjoy the rest of your day.