Lafarge Cement Zimbabwe (LACZ.zw) 2020 Abridged Report
The COVID19 pandemic was an unanticipated experience which tested the agility, resilience and tenacity of the Company. The operating environment in the first half of the year was characterised by a slowdown in economic activity caused by the work restrictions arising from the nationwide COVID-19 response initiatives instituted by government. The second half, however, saw a gradual improvement in business activity owing to the phased re-opening of the economy, albeit under strict public health protocols as COVID-19 lock down conditions were relaxed. The Company moved swiftly to define and implement measures to protect the business and strengthen the Company’s resilience. Priorities for the year became focused on managing the health of employees, cash and costs.
A number of monetary policy adjustments were noted during the year and these included easing of trading currency restrictions to allow multicurrency transactions and the introduction of the foreign currency auction system. These policy changes improved the ease of doing business for the period under review.
It is pleasing to report that notwithstanding the COVID-19 pandemic impact and the challenging operating environment, the Company achieved a significant growth in profit for the year 2020 compared to prior year.
On behalf of the Board of Directors, I hereby present the financial results for the year ended 31 December 2020.
Like other businesses in the country, the Company faced challenges as normal work routines, social structures, supply chains and operations were disrupted. However, in line with the LafargeHolcim 2022 Vision – Building for Growth, the Company maintained focus on the key strategic pillars of Winning at the customer, Creating sustainable industrial performance, Building winning teams and Restoring profitability. The targets set for the year for these pillars were successfully met through focused implementation underpinned by the Company’s core values of performance, agility and proactiveness, collaboration and fairness.
HEALTH, SAFETY AND ENVIRONMENT
The Company continues to uphold the highest standards of Health and Safety through a robust cocktail of policies and programmes tailored to achieve zero harm in the Company’s operations. In the context of the COVID-19 pandemic, the Company implemented a business resilience programme prioritising employee wellness and business continuity. This programme saw the Company carry out rigorous infection prevention mechanisms complemented by robust COVID-19 case management protocols and support systems.
In addition to health and safety, the Company is committed to sustainable environmental practices and subscribes to the Net Zero Pledge to reduce carbon emissions by 2030 as part of the LafargeHolcim Group global commitment. There is no letting up on continuous improvement to reduce dust emissions and other environmental impacts.
INFLATION ADJUSTED FINANCIAL PERFORMANCE
The business posted a much-improved financial performance for the year in spite of the COVID-19 induced operational challenges. Revenue for the year grew by 68.5% to ZW$6.9 billion (ZW$4.1 billion). This is attributed to significant volume growth in the Dry Mortars business and a market shift towards high strength cement which influenced a significant change in the cement product mix.
Despite losing a full month of production and sales in April 2020 due to the COVID-19 induced national lockdown the cement volumes recovered in subsequent months, with particularly strong performance in the third quarter closing at full year cement volume performance at 6% below prior year. Whilst demand was strong, volume growth was limited by capacity constraints owing to the loss of production during the April 2020 lockdown.
In the Dry Mortars business, volumes grew by a remarkable 115% compared to the prior year. This is attributed to the relaunch of the Supagrow and SupaFix range backed by active market sensitisation of the products which has led to wider product adoption. The gross profit margins grew by 12.4% to 60.6% (53.9%: 2019). The recognition and realisation of the RBZ instruments improved the Company’s overall operating costs through reduction of foreign currency exchange losses ZW$336 million (2019: ZW$3.5 billion).
The combination of the revenue growth, reduced costs and reduction in foreign exchange losses resulted in the Company turning an operating profit of ZW$1.9 billion compared to prior year loss of ZW$2.7 billion. The Company’s net monetary position during the period remained favourable in inflation terms which resulted in an increase in the net monetary gain to ZW$406 million (2019:
ZW$759 million) culminating in a profit for the year of ZW$3.1 billion (2019: loss ZW$3.5 billion)
HYPERINFLATION AND REGULATORY ENVIRONMENT
As previously reported, the Public Accountants and Auditors Board (PAAB), declared that Zimbabwe met the conditions for financial reporting of an economy in hyperinflation with effect from 1 July 2019. Consequently, all entities reporting under International Financial Reporting Standards (IFRS) are required to comply with IAS 29 ‘Financial Reporting in Hyperinflationary Economies’.
Consequently, the business continues to present hyperinflation adjusted financial statements on which the commentary is based. Historical information has been presented as unaudited supplementary information.
Lafarge Cement Zimbabwe Limited (“Lafarge” or “the Company”) is currently assisting authorities with investigations pertaining to allegations of transactions suspected to have been made in contravention of the Exchange Control Regulations. These investigations began on 25 August 2020 and the Company initiated an internal investigation in order to determine whether or not there had been any breaches of Exchange Control Regulations or internal controls. Company internal investigations showed non-compliance in company internal control procedures and breaches of the company Code of Conduct. The necessary corrective actions have been taken in line with the Lafarge Cement Zimbabwe Code of Conduct.
These breaches in regulations and internal controls during the year resulted in a consequential weakening of the general internal control environment. The Company made a number of bold and significant changes in the finance and internal control team. A seasoned Chief Finance Officer was added to the team among other senior staff c