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

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.

The final investment project under the investment plan is the installation of the Vertical Cement Mill (VCM), earmarked to double cement milling capacity. The project is nearing completion with cement production expected to commence from May 2022.

BOARD AND MANAGEMENT

Precious Murena resigned from the Company on 9 September 2021 to pursue personal interests. Amr Elmowafy Aly Mowafy, the Chief Financial Officer, served as the interim Chief Executive Officer until Geoffrey Ndugwa was substantively appointed as the Chief Executive Officer on 16 December 2021. Gratitude is extended to Precious Murena for the work that she did during her tenure as the Chief Executive Officer of the Company and to Amr Elmowafy Aly Mowafy for holding the fort until Geoffrey Ndugwa was appointed as the substantive Chief Executive Officer. The Board is confident that he will lead the business effectively to deliver shareholder value.

David Leslie Cruttenden, an Independent Non-Executive Director, resigned from the Board on 31 December 2021. I would like to thank him for his dedicated service to the Company during his tenure.

Virginie Darbo stepped down from the Board and was replaced by John William Stull who was appointed Non-Executive Director, to the Board, with effect from 10 June 2021. John William Stull brings to the Board a wealth of experience and knowledge from the Holcim group. Virginie Darbo, who is also with the Holcim Group, was appointed as an alternate Non-Executive Director with effect from 10 June 2021.

We welcome John William Stull to the Board and would like to thank Virginie Darbo for all her valuable contribution to the Board.

DIVIDEND

Due to the uncertainties that prevail in the economic environment and the desire to ensure that adequate working capital is maintained in the business, the Directors have not declared a dividend.

APPRECIATION

I would like to extend a very special word of gratitude to our customers, suppliers and various stakeholders who have contributed to the success of the business, to all the employees for facing up to the challenges, and for trusting and co-operating with the leadership direction to manage the various headwinds in the year.

OUTLOOK

The Covid-19 situation seems to be improving and could reach an endemic phase in the shorter horizon. The emergence of the Omicron variant has seen increased infections but with less severe cases of illness. The high infection rates and the vaccination efforts could improve the overall immunity in the community and hopefully lead to a return to normalcy. Nevertheless, the Company will continue to adapt its business strategy so as to thrive in the ever-changing environment.

During the first quarter of 2022, human tragedy unfolded across eastern Europe. This may introduce uncertainties in the short-term horizon should the hostilities persist. Disruptions in supply chains coupled with sanctions on Russian fuel could see global increases in energy costs and potential shortages of raw materials. There was however a noted increase in commodity prices due to the war, which could be beneficial to the wider economy’s exports.

The Company is optimistic about the opportunities in the infrastructure sector as the Government continues with its strategy for infrastructure development. However, the global economic trends due to the war in Ukraine could weigh down any meaningful growth in the country.

By Order of the Board

K. C. Katsande
Chairman of the Board of Directors

26 April 2022

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