Material issues

Evaluating our strategic objectives, stakeholder engagement and comprehensive risk assessments, we have identified the material issues our stakeholders need to consider.

Evaluating our strategic objectives, stakeholder engagement and comprehensive risk assessments, we have identified the material issues our stakeholders need to consider.

Determining materiality is a comprehensive process that combines risk identification and assessment with strategic objectives, stakeholder feedback, market conditions and our own performance to prioritise issues that are key to our sustainability now and in the near future. Refer to page 2.

A continuous cycle of inputs, evaluation and prioritisation from divisional, operational, executive and board assessments is used in determining our most material issues. See our risk report on page 84.

In reading the table below, please refer to our accompanying risk ranking tables. The tables, using the symbol linked to the specific material issue, visually depict where that particular material issue sits within our risk matrix; using likelihood of event and impact/consequence of that event as the key axis. In this year’s integrated report, we have moved beyond only reflecting the inherent risk* ranking but have also included the residual risk ranking. The residual risk** ranking takes into account our perception of the effectiveness of our strategic interventions at reducing the impact of the associated material issue. By their very nature, business risks are dynamic and ever changing. The tables below reflect the board’s assessment of the risks and their potential impact on the business as at the end of the financial year and confirmed at its meeting on 27 March 2017.

Our strategic interventions are aligned to the five pillars of our strategy. More information on the strategic pillars is available on page 6.

  Risk ranking    
 
  Material issues         Potential impact on value creation         Strategic pillar and strategic response
     
 
  Declining profit margins and volumes

Intense competitor activity due to new entrants and imports leading to falling selling prices and volumes in existing markets

Inherent risk ranking: Almost certain, critical

        Inability to maintain profit margins in most operating regions due to falling selling prices threatens the sustainability of the organisation while achieving lower volumes in some regions leads to a reduced ability to absorb fixed costs         Excellence in all that we do; innovation
  • Continue efforts to reduce cost to serve through combining optimal sourcing and increased capacity utilisation of our most thermally efficient plants and equipment
  • Intensify focus on customer service and innovative technical solutions
  • Continue efforts to effectively monitor import activity and strengthen government liaison to minimise dumping activity

Residual risk ranking: Likely, critical

     
 
  New projects not achieving forecast volume, prices and market share

Macro-economic and geopolitical changes on the African continent, as well as capacity increases in some regions have led to reduced prices and demand of cement

Inherent risk ranking: Almost certain, critical

        New projects have been financed with a combination of debt and equity. Inability to achieve forecast volumes and prices reduces the ability of the new projects to meet their financing obligations which could put a strain on the group balance sheet         Taking a strategic approach
  • Continuous assessment of sales, marketing and route to market strategies and increase agility to adapt to any changes in the environment
  • Offer customers a compelling value offering to encourage
  • Maintain good relationships with lenders in order to facilitate relaxation of covenant agreements or financing obligations where required
  • Ensuring costs are kept low but ensuring businesses remain sustainable to protect margins notwithstanding lower prices and volumes

Residual risk ranking: Likely, critical

     
 
  A major investment not achieving expected business case returns

Investments into the rest of the African continent carry sovereign, operational and financial risks

Inherent risk ranking: Almost certain, serious
        Commercial feasibility studies that were initially done on the African expansion projects were inaccurate or negatively affected by changes in the operating environment leading to the risk of major investments not meeting expected business case returns. This could lead to impairments of these investments         Taking a strategic approach
  • Regular risk assessments and reviews to mitigate forecast risks, impairment of assets and any challenges with repatriating of funds
  • Effective use of board and management structures to review risks, including investment committee reviews, project risk committee assessments and quarterly business reviews
  • Continue to strengthen relationships with relevant government authorities as well as with our in-country equity partners

Residual risk ranking: Moderate, serious

     
 
  Group capital structure not effectively managed

Balance sheet weakness due to project debt concurrent with falling profit margins in existing operations

Inherent risk ranking: Moderate, catastrophic
        Recent rights issue process has increased capital on the balance sheet, however, adverse outcomes in particular the DRC could cause some weakness in the group capital structure         Doubling our business every 10 years
  • Refinancing of residual debt on the PPC SA balance sheet under way to lengthen the term of that debt
  • Intensify covenant compliance and proactive engagement with lenders on potential covenant breaches
  • Maintain committed facilities
  • Engage with lenders on the DRC capital repayments

Residual risk ranking: Unlikely, catastrophic

     
 
  New imports into the PPC markets

Cement imports continue to trade in South Africa, Rwanda, Zimbabwe and the DRC

Inherent risk ranking: Almost certain, serious
        The influx of imports into operating geographies reduces the ability to maintain profit margins due to the pressure on selling prices and volumes         Taking a strategic approach; innovation
  • Monitor incoming imports and ensure regulatory compliance is adhered to
  • Continue to engage with various government entities regarding anti-dumping duties
  • Continue to ensure that PPC delivers high quality, value-for-money products

Residual risk ranking: Moderate, marginal

          Non-compliance with legislative requirements

The company strives to comply with all relevant mining charter and BBBEE requirements in South Africa

Inherent risk ranking: Likely, critical
        Inability to meet legislative requirements impairs the ability of the company to tender for business and may lead to revocation of mining rights         Taking a strategic approach
  • The company achieved a level 4 BBBEE empowerment rating in accordance with the revised codes of good practice in December 2016
  • In order to maintain and improve this outcome, the company has embarked on a new empowerment plan (BBBEE III) which will be implemented during the 2017 calendar year

Residual risk ranking: Unlikely, marginal

          Stagnant SADC economy and political uncertainty in our operating regions

Slowing regional SADC growth in the face of increased cement capacity

Inherent risk ranking: Likely, serious
        Economic and political uncertainty leads to sub-optimal trading outcomes that adversely affect profit margins and ability to service financing obligations         Excellence in all that we do
  • Continuous assessment of sales, marketing and route to market strategies and increase agility to adapt to any changes in the environment
  • Offer customers a compelling value offering to encourage brand loyalty
  • Maintain good relationships with lenders in order to facilitate relaxation of covenant agreements or financing obligations where required

Residual risk ranking: Moderate, serious

          Undervalued share price

Inherent value of PPC not reflected in current valuations, hindering the ability to fund growth and execute strategy

Inherent risk ranking: Likely, serious
        An undervalued share price erodes shareholder value and confidence in the board and management of the company         Excellence in all that we do
  • Continue to ensure comprehensive reporting of progress with strategy
  • Effective delivery of projects to demonstrate ability to execute complex and multi-dimensional projects and bring the associated earnings into the income statement
  • Improve transparency of information to enhance ability to conduct valuations on PPC

Residual risk ranking: Likely, serious

          Risk of administrative and/or control deficiencies in new business environments

Increased complexity due to operating in number of diverse geographies

Inherent risk ranking: Moderate, critical
        A compromised control environment can lead to inaccurate reporting thereby undermining confidence in the board and management of the company         Excellence in all that we do People and culture
  • Ensure appointment of appropriate personnel across all jurisdictions
  • Implement PPC standards and procedures for all projects at inception
  • Introduce sound system integration processes
  • Monitor and understand changes in legal, accounting and taxation regimes

Residual risk ranking: Unlikely, critical

          Lack of required local skills in some jurisdictions to effectively support our strategic and operational needs

Lack of required cement industry experience in some geographies coupled with challenges in recruiting for remote rural locations

Inherent risk ranking: Almost certain, serious
        Inability to recruit and retain the appropriately skilled level of staff can compromise the sustainability of operations in some geographies         People and culture
  • Training facilities and programmes to develop local skills
  • Group mentoring and coaching of team members
  • Effective recruitment and retention policies and practices
  • Talent management and development of talent pipelines to focus on critical and scarce skills
  • Strengthen PPC group’s internal talent pool

Residual risk ranking: Unlikely, serious


Inherent and residual risking