Lafarge Cement Zimbabwe – FY2021 inflation adjusted revenue plummets 35% to ZWL 7.2 billion

By Published On: May 3rd, 2022Categories: Corporate announcement, Earnings

Lafarge Cement Zimbabwe (LACZ.zw) 2021 Abridged Report

CHAIRMAN’S STATEMENT

The operating environment for the financial year under review continued to be affected by Covid-19, with lockdown restrictions in place throughout the period. 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. In spite of the Company operating during these lockdowns, as its operations were designated as “essential services’’, the lockdown measures negatively impacted business through general business slowdown and reduced disposable incomes for consumers. Furthermore, the Company suffered a significant business interruption when the roof over both cement mills collapsed, which resulted in stoppage of cement production from the 10th of October 2021 up until mid-February 2022. The combination of the Covid-19 induced slowdown and the roof collapse resulted in volumes declining for the year by 21% from the prior year.

The country’s overall economic performance has been positive, with an annual growth of 5.1% in 2021, against an estimate of 3.9%.In addition, inflation slowed down during the period under review to close at a year-on-year inflation rate of 60.74% (2020: 348.59%).

On behalf of the Board of Directors, I hereby present the financial results for the year ended 31 December 2021.

STRATEGIC AGENDA

The Company continued to face challenges such as curtailment of normal work routines, social structures and disruption of supply chains and operations. However, in line with the Holcim 2025 Vision “Accelerating Green Growth”, the Company continued to focus on the key strategic pillars of Accelerating Growth, Expanding Solutions and Products, Leading in Innovation and Sustainability and Delivering Superior Performance. The Company will continue with this strategic agenda going forward.

HEALTH, SAFETY AND ENVIRONMENT

The Company continues to uphold the highest standards of health and safety through a robust cocktail of policies and programs tailored to achieve zero harm in its operations. In the context of the Covid-19 pandemic, the Company implemented a business resilience program, prioritising employee wellness and business continuity. This program 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 Holcim Group global commitment. There is no letting up on continuous improvement to reduce dust emissions and other environmental impacts.
The Board and Management take safety very seriously. It is pleasing to report that no fatalities or serious injuries were recorded at any of the Company’s operations or projects during the year under review.
The Company has a zero-tolerance attitude towards injuries in the workplace. Health, safety, environment and quality systems are continually being upgraded and improved, in line with the Holcim Group standards, to enhance performance in accordance with the Company’s Zero Harm policy.

INFLATION ADJUSTED FINANCIAL PERFORMANCE

As a result of the poor industrial performance which was mainly attributable to the roof collapse incident, the Company’s revenue declined by 35.5% to ZWL 7.2 billion (2020: ZWL 11.1 billion). Following the aforementioned incident, the Company resorted to selling clinker, an intermediary product, for sustenance. This business sustenance plan meant that the overall gross margins were squeezed, resulting in a decline in gross profit margins to 49.6% compared to 60.5% in the prior year.

In spite of the decline in the revenue and volumes during the year, the Company managed to maintain tight control over its expenditure as total expenses fell by 4.9%. Distribution expenses declined by 33.2% compared to the prior year, reflecting the decline in cement volumes alluded to earlier. The Company instituted various measures to contain structural administrative costs, under a difficult period, resulting in a marginal 4.4% increase compared to the prior year.

However, despite the cost containment efforts, the poor industrial performance and the ensuing decline in volumes weighed down the overall performance of the Company to a loss before tax of ZWL 364 million compared to a profit before tax of ZWL3.2 billion in 2020.

The Dry Mortars business realized some growth despite the significant impact of the cement roof collapse, which negatively affected availability of the majority of the Company’s products which are cement based. Increased demand and capacity, following the commissioning of the new automated plant, saw the Dry Mortar business volumes grow by 19% compared to the prior year. This was also spurred by the introduction of WaterShield cement, and the scaling up of the SupaFix range of products in the first quarter of the year.

BORROWINGS

The Company has gross long term borrowings of ZWL 3.6 billion for the year under review.

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 (IFRSs) are required to comply with International Accounting Standard (IAS) 29 ‘Financial Reporting in Hyperinflationary Economies’. The business therefore continues to present hyperinflation adjusted financial statements, on which the commentary is based. Historical information has been presented as unaudited supplementary information.

CAPITAL EXPENDITURE

The business continues with the implementation of the previously announced USD 25 million capital expansion program. This three-pronged investment plan is now in its final phase of implementation, following the successful installation of alternative power infrastructure in 2020 and the successful completion and commissioning of the automated Dry Mortars plant in 2021.