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
3 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
Construction economic drivers
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
4 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
Construction economic drivers
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
5 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 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
6 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
7 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
Construction economic drivers
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
2
3
4
% C
hang
e
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%
RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 201910
▪ 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
10
0
10
2
10
2
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
10
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
11 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
▪ 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
12 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
13 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
15 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
16 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
17 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 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%
18 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
19 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
21 RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 2019
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
RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 201922
▪ 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
RMB OFF PISTE INVESTOR CONFERENCE 18 SEPTEMBER 201923
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”,
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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