Overview of PPC. Framework

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2 Overview of PPC For well over a century, PPC has tracked the growth and development of South Africa and Zimbabwe, producing cement for many iconic landmarks, including the Union Buildings, Gariep Dam and Van Staden s River Bridge, Kariba Dam, the Gautrain, new Cape Town Stadium, Medupi power station and much of southern Africa s infrastructure. With the acquisition of Safika Cement and Pronto Readymix (including Ulula Ash), PPC now supplies from nine cement manufacturing factories, four milling plants, five blending facilities and nine readymix batching plants. These are in South Africa, Botswana, Zimbabwe and Rwanda, producing around eight million tonnes of cement products each year and half a million tonnes of fly ash. PPC also produces aggregates, metallurgical-grade lime, burnt dolomite and limestone. Our Mooiplaas aggregates quarry in Gauteng has the largest aggregate production capacity in South Africa. Our focus extends beyond our group to the broader industry. As a leader in this industry, PPC has actively invested in technology to reduce air emissions, minimise waste production, recycle and recover raw materials, enhance energy efficiency and conserve natural resources, while producing a reliable and affordable supply of building materials to support the economies of countries where we operate. PPC is a truly African success story a focused business that reflects the strengths of its people, products and services. As we expand into the rest of Africa, we will deploy our sustainable business model one built to last for all stakeholders. The following frameworks have been applied in preparing this report: Framework South African Code of Corporate Practice and Conduct as set out in the King III report Framework issued by the International Integrated Reporting Council (IIRC) Companies Act 71 of 2008 Global Reporting Initiative (GRI) JSE Limited (JSE) listings requirements International Financial Reporting Standards (IFRS)

3 2014 AT A GLANCE PERFORMANCE HIGHLIGHTS FINANCIAL Revenue R9 billion (2013: R8 billion) 4 projects under way in rest of Africa expansion strategy. Target 40% of revenue by 2017 Headline earnings per share 179 cents (2013: 179 cents) Over R4 billion in project finance secured for expansion projects PEOPLE SOCIAL R100 million value of shares vested in the hands of employees 91% of total procurement (R4,9 billion) spent with BBBEE suppliers Improved group safety performance 1 and 2 million lost-time injury-free hours for Bulawayo and Colleen Bawn, Zimbabwe R10 million on corporate social investment initiatives ENVIRONMENT 3 successful upgrades reduced dust emissions to below 2020 limits 2 amended waste licences received Riebeeck and De Hoek advancing our alternative energy initiatives 2 PPC Ltd Environmental Review 2014

4 SUSTAINABILITY ENVIRONMENTAL REVIEW Highlights Successful upgrades at De Hoek kiln 5 and Lime Acres kiln 6, replacing electrostatic precipitators with bag house filters which improved particulate matter emissions to below the 2020 minimum emission standards PPC provided industry-focused air-quality training to the Limpopo Department of Economic Development, Environment and Tourism to enhance officials understanding of kiln emissions All PPC operations with listed activities were issued with atmospheric emission licences After focused engagements with waste authorities in the Department of Environmental Affairs (DEA), we received amended waste licences for our Riebeeck and De Hoek operations that now reflect the nature and scale of waste activities on site Agreement finalised to source waste tyres as alternative fuel PPC De Hoek was granted authorisation for the Vondeling quarry expansion, unlocking an additional 15 years of limestone reserves PPC Zimbabwe was granted positive authorisation to construct a milling facility outside Harare. This facility will comply with international emission standards A comprehensive environmental and social impact assessment process has been initiated in Democratic Republic of the Congo to construct a 1mtpa cement plant Lowlights Given concerns on the performance of four emission points, we applied to postpone compliance timeframes for Dwaalboom kiln 1, PE kiln 4, De Hoek finishing mill 6 and Slurry kiln 7 Delays in issuing water-use licences and various regulatory amendments remain a challenge. PPC continues to engage with government officials to ensure successful outcomes Carbon tax has been delayed to the 2016 financial year. It is still uncertain whether the carbon budget approach being implemented by the Department of Environmental Affairs will align with the carbon tax being developed by National Treasury We have been unable to achieve our goals in implementing energy management systems aligned to ISO 50001, due to resource constraints PPC environmental vision and policy PPC is committed to integrating environmental and sustainability issues into the overall business strategy. To reflect this commitment, top management and the board review the group environmental policy annually. The policy commitments include: Establishing clear accountability for environmental performance Continual environmental improvement Complying with environmental legislation and other requirements Pollution prevention Managing natural resources Effective and transparent communication for our stakeholders Building capacity among our stakeholders to identify, report and act on opportunities to minimise environmental impacts Managing our land through concurrent rehabilitation and maintaining biodiversity. Long-term focus on environmental issues We aim to minimise the impact of PPC s environmental footprint and create more positive outcomes in the long term. We recognise that the impacts of climate change, managing water resources and energy security are among the greatest challenges facing society and sustainable development. The strategic steps we have taken in reducing our environmental footprint will allow us, as a company, to create more positive outcomes in the long term. Energy policy Our group-wide energy policy acknowledges that ours is an energyintensive business. The policy commits PPC to developing energy and carbon management programmes throughout the organisation, considering lifecycle costs in procurement and design, and sets specific energy-efficiency targets. PPC aims to source 10% of its energy requirements from renewable or alternative sources by Interactions with communities PPC is committed to empowering communities where we operate through transparent dialogue and building capacity on key environmental aspects of our activities. Biannual environmental stakeholder meetings continue at all our sites. PPC s model of communicating and educating stakeholders has been implemented in both Rwanda and Democratic Republic of the Congo (DRC). PPC continues to engage authorities through various forums including the Association of Cementitious Material Producers (ACMP), focused at national level, and provincial authorities through site-specific interaction. The focus of ACMP is mainstreaming issues that are critical to the cement industry, including: Air quality management and minimum emission standards Waste management and facilitating co-processing programmes Carbon tax and desired emission reduction outcomes Ensuring regulatory certainty for the cement industry by participating in legislative reform processes. PPC continues to build capacity with authorities. For example, the air-quality licensing unit of the Limpopo Department of Economic Development, Environment and Tourism attended a two-day training session, delivered by independent technical experts, on cement production and kiln emissions to provide industry-specific knowledge during licensing processes. In addition, the Department of Mineral Resources (DMR) was engaged extensively in support of the one environmental system. PPC demonstrated its commitment by offering on-the-ground training to DMR officials who will be taking over the environmental responsibility as per the National Environmental Management Laws Amendment Act PPC Ltd Environmental Review 2014

5 Material environmental issues Based on stakeholder engagement, internal and external factors that affect the company as well as legal obligations, PPC identified its material environmental issues for The material issues identified in the prior financial year are effectively unchanged, but a number of new challenges have been identified that require management attention, as follows: Material issue Status Response Compliance Challenging and changing environmental framework. The one environmental system offers new challenges in maintaining regulatory compliance and obtaining authorisation for new activities. The current interpretation separates mining and manufacturing, which implies PPC still has two separate competent authorities in terms of authorisation. Additionally, relationships developed with existing competent authorities will need to be rebuilt. In addition to PPC s existing programmes, we are engaging with the DMR to demonstrate our commitment to sound environmental management and building capacity. In addition, we are actively participating in law reform processes to ensure sound legal frameworks are developed. Given ongoing regulatory uncertainty on the Waste Act, waste classification and implementation challenges remain. Operational energy consumption and carbon emissions Energy consumption (electricity, coal, diesel). The cement industry requires significant thermal and electrical energy. The price, quality, sustainable supply and usage optimisation of both energy types are key to successful operation. PPC is an energy- and carbon-intensive business. As such, significant effort has been devoted to engaging with regulatory authorities (DEA and National Treasury). There is still uncertainty on the alignment between carbon tax and desired emission-reduction outcomes or DERO processes and the consideration of inherent cement emission (some 50%) in these processes. We continue to work on PPC s energy-efficiency programme with a number of trials on advanced energy monitoring and management systems. PPC continues to source alternative raw materials that will replace coal. We are conducting a detailed study into carbonemission reduction opportunities. This will inform our response to the DEA s carbon budgeting process. We have concluded an agreement with REDISA (Recycling and Development Initiative of South Africa) to source waste tyres in the Western Cape. Our alternative fuels programme will be rolled out at De Hoek, initially focused on introducing waste tyres. Advanced monitoring and reporting systems have been completed at most Cement South Africa sites, as well as Zimbabwe s Colleen Bawn operation. Water scarcity Water management. The national Department of Water and Sanitation has launched a water conservation and demand management programme, aimed at evaluating and encouraging sectoral water benchmarking and water-use efficiency. We continue to focus on ensuring that licences are obtained in good time for all operations and that these are appropriate, based on the scale and nature of operations to ensure compliance. Legal compliance management In line with our environmental policy, PPC is committed to environmental compliance across the group, using a combination of targeted internal audits, legal registers, external legal auditing and external permit compliance audits. The foundation of legal compliance management at PPC s large South African operations is still certified ISO management systems. The speed of change of environmental legislation remains a challenge and is included as one of our material issues. The one environmental system presents new challenges in maintaining regulatory compliance and authorisation of new activities. Extensive engagement with the newly mandated competent authority will be required to ensure a sound understanding of PPC s activities and challenges. The ACMP still plays a pivotal role in the engagement process and ensures that cement industry issues are addressed through law-reform processes. Environmental compliance directives We are proud to report that there were no environmental compliance directives in South Africa in the past year, however, in Zimbabwe we had fines: one received in Colleen Bawn and two in Bulawayo. PPC Ltd Environmental Review

6 CO CO SUSTAINABILITY ENVIRONMENTAL REVIEW continued Carbon tax and desired emission-reduction outcomes The regulatory environment on mitigating climate change is evolving in South Africa. Government is developing a carbon tax, allocating carbon budgets and implementing other measures in an attempt to transition to a low-carbon economy. A process is under way to allocate appropriate carbon budgets for companies above an emissions threshold, and these companies will be expected to develop a mitigation plan to meet that budget. The carbon budget approach being implemented by the Department of Environmental Affairs is expected to align with the carbon tax being developed by National Treasury. CO 2 emissions The implications are potentially significant to PPC and the economy. We have therefore initiated a process to prepare for these requirements and engage proactively to ensure the most appropriate outcome. A study is under way to assess short-, medium- and longterm greenhouse gas mitigation potential options and their associated costs across our South African operations. The information generated will be used to engage proactively with government and then to inform the company s mitigation plan /t clinker 2 /t cement Carbon footprint and Global Reporting Initiative PPC continues to monitor and manage its carbon footprint through a comprehensive data-collection and assessment process, including external assurance of absolute carbon emissions and energy consumption. The gross energy consumption for PPC s South African operations for the last three financial years is presented below: Energy consumption (South Africa operations) GJ Direct Indirect CO 2 emissions Total Direct Indirect Cement, lime and dolomite SA Cement SA (only) Cement Zimbabwe The performance of PPC s SA cement operations showed a further 1,7% improvement in specific carbon intensity and 3,6% improvement from our 2010 baseline. This reflects the prioritisation of our most efficient plants in our three mega plant strategy. Water resource management The water-use licensing process is complex, onerous and slow and, to date, PPC has not received all integrated water-use licences. While we continue to engage with the Department of Water and Sanitation on various integrated water-use licences and amendments, we remain committed to managing water efficiently. We also continue to identify opportunities to improve water use in all our operations, as reflected in the current upgrades which generated further process water savings. Municipal water consumption m m m 3 PPC municipal water consumption is effectively flat year on year. Most of our facilities rely on natural water resources for operational needs. Waste management During the year, we received amended waste licences for PPC De Hoek and Riebeeck. PPC De Hoek s amended licence will allow for co-processing alternative material such as tyres and biomass. PPC continues to implement recycling programmes across our South African operations. The effectiveness of these programmes is shown below. 5 PPC Ltd Environmental Review 2014

7 General waste 34% 66% Disposed Recycled Hazardous waste 19% De Hoek kiln 5 Disposed Recycled 81% Rest of Africa As part of its rest of Africa strategy, PPC is currently implementing measures to address environmental and sustainability issues. Having acquired in-country authorisation for our new projects, we are developing environmental and social impact assessments (ESIA) to align to the funding requirements for each project. We continue to strive to implement best practice in managing associated environmental impacts. In our Rwanda operations, implementation of the ESIA is well under way. Upgrade projects The Western Cape modernisation project is almost complete, pending the planned upgrade of finishing mill 6 at PPC De Hoek. In addition, PPC De Hoek s kiln 5 bag house filter upgrade was recently completed with dust emissions reduced to below 10mg/Nm 3. The upgrade is also expected to deliver significant savings in water consumption, similar to those achieved by the kiln 6 upgrade. PPC Slurry initiated a process for authorisation of its new kiln line. The delivery of kiln 9 will enable us to decommission the ageing kilns 5 and 6. The result will be a net increase in clinker production capacity that fully complies with the most stringent atmospheric emission limits, well before the 2020 timeframe. Once kiln 9 is operational, and as necessary, PPC will be able to address the emissions of kiln 7 (currently subject to the postponement application). PPC Slurry also completed its air-quality upgrade of finishing mills 1 and 2, reducing dust emissions significantly to below 2020 limits. PPC Lime has successfully upgraded kiln 6 to comply with 2020 emission limits. The kiln was restarted in July 2014 and is currently operating below 10mg/Nm 3. The total cost of these upgrades was R91 million. Systems approach: commitment to certified environmental management systems PPC s commitment to continually improving our compliance is demonstrated by the fact that all South African cement and lime production facilities are ISO certified. Our mature environmental management systems are audited by independent certification body SABS and DEKRA annually to verify conformance against the standard and we have retained our certifications since PPC identifies its impacts and aspects and sets objectives and targets at different operational levels. These are managed through environmental management systems. Air (point source) emissions Emission licences have now been issued for all PPC s listed activities. Given the age of some of our plants, not all point sources will meet minimum emission standards by the regulated deadline of 1 April We have therefore applied to the national air quality officer to postpone our compliance timeframes for point sources at the following operations: PPC Slurry kiln 7, PPC Dwaalboom kiln 1, PPC De Hoek finishing mill 6 and PE kiln 4. Once postponement is granted, we will finalise and implement major plans for the Slurry kiln 9 and PE kiln 4 upgrade projects. Dwaalboom kiln 1 and De Hoek finishing mill 6 are scheduled for upgrade during 2017 and 2015, respectively. PPC Ltd Environmental Review

8 SUSTAINABILITY ENVIRONMENTAL REVIEW continued The performance of the South African cement kilns was again monitored in line with our programme to comply with minimum emission standards. The kiln performance is as follows: Oxides of nitrogen Sulphur dioxide Dust Financial year Tonnes Mine rehabilitation/biodiversity We recognise our responsibility for proactive land and resource stewardship. Most of our mines are in non-sensitive environments, ranging from wheat farming to peri-urban areas. Rehabilitation is concurrent with mining operations and rehabilitated land is leased in exchange for farming land required for ongoing mining. PPC leased portions of its Grassridge quarry to Innowind to develop renewable energy from wind. The wind farm is well on the way to being completed and will be commissioned by March PPC concurrent rehabilitation performance (%) PPC actual Concurrent backlog objective As the annual mining survey is conducted at year end, rehabilitation data always lags one year. Energy Carbon SPL use at Dwaalboom Carbonaceous spent pot liner (cspl), a waste stream from the aluminium smelting industry, was identified as a potential coal replacement in Dwaalboom kiln 2. A feed system was designed and commissioned to introduce cspl into the kiln system. This will result in combined consumption between the existing system on kiln 1 and new feed system on kiln 2 of some tonnes per annum and a net reduction in the use of non-renewable fuel sources of tonnes per annum. In addition, replacing coal with cspl will reduce PPC s net specific carbon footprint. Dwaalboom waste heat recovery project The feasibility study on a waste heat recovery system at our Dwaalboom factory is under way. We are also obtaining environmental authorisation for this project and intend to present it in the co-generation round of the renewable energy procurement programme facilitated by the Department of Energy. The project has the ability to generate 19,9MW of electricity, which could supply a significant portion of the energy requirement of the cement plant. The energy is recovered from waste heat that would otherwise be released into the atmosphere and is therefore considered a carbon-neutral source. This will effectively offset PPC s scope 2 emissions, ie the emissions associated with electricity generated by Eskom. Aligned to the PPC group energy policy, we will continue to investigate opportunities in renewable energy sources, including wind and solar. Integrated demand management projects at Slurry and Dwaalboom PPC has developed and implemented further load-shifting programmes using available Eskom funding. Covering five of our largest sites, these projects are aimed at shifting peak loads to contribute to national energy security and avoid periods when peak rates apply. This was achieved by optimising production and stock, and may generate savings of 9% of the total electricity cost. 7 PPC Ltd Environmental Review 2014

9 MINING CHARTER SCORECARD 2014 * Element Description Measure Reporting Reporting level of compliance with charter for calendar year Documentary proof of receipt from DMR Compliance target 2014 Progress Annual Employment equity and social and labour plans submitted Ownership Minimum target for effective HDSA ownership Meaningful economic participation 26% Second phase of PPC s BBBEE transaction increased black ownership of South African operations to effective 26%, in line with mining charter requirements Full shareholder rights 26% R30 million in dividends paid to employee shareholders in 2014 (2013: R33 million) Housing and living conditions Converting and upgrading hostels to attain occupancy rate of one person per room Percentage reduction of occupancy rate towards 2014 target 100% Company housing is provided at most remote locations. PPC also promotes home ownership by facilitating opportunities for employees to secure housing loans. After an extensive survey in the prior year to address housing requirements for staff, to date, 22 employees have moved into a new home, upgraded an existing home or are awaiting title deeds before moving into a home. Over the next few years, some 300 employees will be supported with financial and technical assistance in exercising the option to own their own home. We view this as a key project and will continue to partner with employees to ensure they benefit. Converting and upgrading hostels into family units Percentage conversion of hostels into family accommodation 100% Only Lime Acres has a hostel, and upgrading is under way. Procurement and enterprise development Procurement spend from BEE entity 70% PPC has consistently met the dti s compliance target of 70%. In 2014, 91% (R4,9 billion) of discretionary spending was with BEE companies Target 2014 Actual 2014 Capital goods 40% 40% 43% Services 70% 70% 70% Consumable goods 50% 50% 61% Multinational suppliers contribution to social fund Annual spend on procurement from multinational suppliers 0,5% of procurement value The DMR is formulating a model to implement this contribution to social development. Employment equity Diversification of workplace to reflect the country s demographics to attain competitiveness Top management (board) Senior management (exco) Middle management 40% 100% 40% 55% 40% 44% Junior management 40% 65% Core skills 40% 87% PPC Ltd Environmental Review

10 SUSTAINABILITY MINING CHARTER SCORECARD 2014 * continued Element Description Measure Human resources development (detailed table on page 105) Mine community development Sustainable development and growth Beneficiation Health and safety Develop requisite skills, including support for South Africa-based R&D initiatives intended to develop solutions in exploration, mining, processing, technology efficiency (energy and water use in mining), beneficiation, environmental conservation and rehabilitation Conduct ethnographic community consultative and collaborative processes to delineate community needs analysis Improvement of industry s environmental management Improvement of industry s mine health and safety performance Use of South Africabased research facilities for analysing samples across mining value chain Contribution towards beneficiation (effective from 2012) Implementation of culture transformation framework Percentage of employees embarking on occupational health and safety training Percentage of leading practices from MHSC investigated for implementation Percentage of research findings from MOSH learning hub investigated for implementation Health: percentage of mandatory occupational health reports submitted Health: adherence to HIV/AIDS and TB guidelines HRD expenditure as percentage of total annual payroll (*excluding mandatory skills development levy) Implement approved community projects Implementation of approved EMPs Implementation of tripartite action plan on health and safety Percentage of samples in SA facilities Added production volume contributory to local value addition beyond the baseline Percentage versus gap analysis Compliance target 2014 Progress 5% 4,2% spent on skills development (R38,1 million) Up-to-date project implementation Section 26 of MRPDA (percentage above baseline) In line with our social and labour plans for 2014 to 2018, R9,9 million was spent on projects in 2014 financial year on the relevant communities 100% All plants have approved EMPs 100% Dedicated group safety and health manager. External company training safety and health representatives 100% 100% of samples are processed in South African facilities No detail on how to measure but raw limestone is beneficiated into cement and lime products in South Africa Aggregates are fully beneficiated in South Africa 100% 90% (ahead of target) 2% per annum 8% 8% (on target) All investigated for 100% All investigated for 100% Four required for 100% 100% 100% 100% 100% 100% 100% Yes/no Yes On target 9 PPC Ltd Environmental Review 2014

11 Human resource development 2014 A C I W Description Measures Category M F M F M F M F Total Develop requisite HRD expenditure as Learnerships and skills, including support for SA-based R&D initiatives intended to develop solutions in mining, processing and exploration technology efficiency (energy and water use in mining), beneficiation, environmental conservation and rehabilitation percentage of total annual payroll (excluding mandatory skills development levy) bursaries (of core and critical skills) Artisans ABET training (level I, II, III, IV and NQF 1) Other training (school support and postmatric programmes) Support for SA-based R&D initiatives employees are being assisted with post-matric qualifications 12 students on graduate development programme 100% of R&D expenditure directed at SA-based companies dti BBBEE status* PPC s broad-based black economic empowerment status as at September 2014 was audited and verified by rating agency EmpowerLogic. In terms of the dti codes of good practice, PPC is classified as a level 2 BBBEE contributor with a procurement recognition of 125%. This enables our customers to claim back 125% of their spending with our group for their own preferential procurement points. BBBEE status verified level Points Elements obtained Equity ownership 22 Management composition 11 Employment equity 5,05 Skills development 8,34 Preferential procurement 19,54 Enterprise development 15 Socio-economic development 5 Black ownership 32,68% black ownership 10,72% black women ownership Value-adding vendor Yes BEE procurement recognition 125% * Due to the nature of cement manufacture, PPC s empowerment credentials are measured against both the South African mining charter scorecard and the South African dti s revised codes of good practice. PPC reports on both in this section. PPC Ltd Environmental Review

12 Corporate information PPC Ltd (Incorporated in the Republic of South Africa) Company registration number: 1892/000667/06 JSE code: PPC JSE ISIN code: ZAE ZSE code: PPC Auditors Deloitte & Touche Deloitte Place The Woodlands Woodlands Drive Woodmead, Sandton Private Bag X6 Gallo Manor, 2052, South Africa Telephone Telefax Secretary and registered office JHDLR Snyman 148 Katherine Street, Sandton, South Africa PO Box Sandton, 2146, South Africa Telephone Telefax Sponsor: South Africa Merrill Lynch SA (Pty) Limited 138 West Street Sandown, Sandton PO Box Benmore, 2010, South Africa Telephone Telefax Transfer secretaries: South Africa Link Market Services (Pty) Limited 13th Floor, Rennies House, 19 Ameshoff Street, Braamfontein, South Africa PO Box 4844 Johannesburg, 2000, South Africa Telephone Telefax Transfer secretaries: Zimbabwe Corpserve (Pvt) Limited 4th Floor, Intermarket Centre Corner First Street and Kwame Nkrumah Avenue Harare, Zimbabwe PO Box 2208 Harare, Zimbabwe Telephone / Telefax Sponsor: Zimbabwe Imara Edwards Securities (Pvt) Limited Block 2, Tendeseka Office Park Samora Machel Avenue Harare, Zimbabwe PO Box 1475 Harare, Zimbabwe Telephone Telefax PPC Ltd Environmental Review 2014

13 Forward-looking statements This report, including statements on the demand outlook, PPC s expansion projects and its capital resources and expenditure, contains certain forward-looking views. By their nature, forward-looking statements involve risk and uncertainty and although PPC believes the expectations reflected in these statements are reasonable, no assurance can be given that these expectations will prove correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment, other government action and business and operational risk management. While PPC takes reasonable care to ensure the accuracy of information presented, we accept no responsibility for any damages be they consequential, indirect, special or incidental, whether foreseeable or unforeseeable based on claims arising out of misrepresentation or negligence in connection with a forward-looking statement. This document is not intended to contain any profit forecasts or profit estimates, and some information in this document may be unaudited. BASTION GRAPHICS

14 PPC IR 2014 FOR WEB ONLY_PROOF 4 9 DECEMBER