Lafarge Cement Zimbabwe – HY22 inflation adjusted revenue down 23% to ZWL6.6 billion

Lafarge Cement Zimbabwe (LACZ.zw)

CHAIRMAN’S STATEMENT

INTRODUCTION
I hereby present the business performance update for Lafarge Cement Zimbabwe Limited (the Company) for the six months period covering January to June 2022.

TRADING ENVIRONMENT
The operating environment for the 6-months period was characterised by an acceleration of annual inflation from 60.6% in January 2022 to 191.6 % in June 2022 (Source: Zimbabwe National Statistics). The environment, therefore, remained hyper inflationary with significant increases in the price of fuel and other basic commodities.

The ongoing Government-driven infrastructure projects have presented business growth opportunities. Global supply chain disruptions and attendant costs were worsened by the Russia/Ukraine war during the period, resulting in escalation of costs of raw materials, fertilisers and some agricultural commodities such as wheat.

Further relaxation of Covid-19 induced restrictions were instituted by the government, making way for full resumption of normal business activity across the country. The Company, however, continues to observe the Covid-19 protocols with a focus on creating an enabling workplace adjusted to the changes necessitated by prolonged periods of remote working.

STRATEGIC AGENDA
We continue to pursue our business targets in line with the Holcim 2025 Vision – Accelerating Green Growth. Focus has been streamlined on five key strategic pillars of health and safety, industrial performance, commercial growth, financial growth and people development.

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.

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.

No fatalities or serious injuries were recorded at any of the Company’s operations or projects during the period 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
The volume of cement sold declined by 56% versus the same period last year. This was necessary, as per the first half budget, to decommission one of the existing cement ball mills to make way for the installation of the new Vertical Cement Mill (VCM), effectively doubling Lafarge Cement Zimbabwe (LCZ) capacity. The new VCM is anticipated to be fully operational by Q4 2022.

As cement productivity is the main contributor for Dry Mortar Operations (DMO), the volumes from the dry mortar units reduced by 26% versus prior year. Despite start up challenges associated with the newly commissioned VCM, the Company has already noted an improvement in cement availability since the end of June 2022 and is confident that volumes will continue to grow in the second half of the year in line with our strategic objectives.

The decommissioning of cement mill 1 to make way for the VCM, the mill house roof collapse in Q4 2021 and the commissioning phase of the VCM adversely affected cement volumes. This resulted in the Company’s inflation adjusted revenue reducing by 23% to ZWL 6.6 billion (2021, ZWL 8.5 billion). The gross profit margin fell by 21% to 37.1% (2021:58.1%) as the Company resorted to selling clinker, an intermediary product for sustenance. For the period under review, the combination of the reduction in sales revenue, squeezed gross margins, increased operating costs and an increase in foreign exchange losses resulted in the Company posting an operating loss of ZWL 7.8 billion compared to a profit of ZWL 1.4 billion for the same period in 2021. However, the EBITDA performance for H1 2022 of ZWL 0.47 billion remains above the half year budget for 2022. In light of the local currency depreciation over the six months period, there has been significant increase in Other Gains and Losses to ZWL 6.8 bn (2021, ZWL 226 mn) driven by exchange losses due to the company’s net foreign currency exposure. This is mainly linked to the Holcim Group loan to LCZ representing 72% of the exchange losses. The operating loss was offset by a net monetary gain of ZWL 4.7 bn (2021,ZWL 323 mn) which diluted the loss before tax to ZWL 3.6 bn (2021, ZWL1.3 bn prot).

CAPITAL EXPENDITURE
The business continues with the implementation of the previously announced US$25 million capital expansion programme. Following the successful installation of alternative power infrastructure in 2020 and the successful completion of the automated Dry Mortars (DMO) Plant in 2021, the new Vertical Cement Mill (VCM) commissioning started in Q2 2022. Additionally, there is the refurbishment of silos which will help to increase the storage capacity of cement and to solve the dispatch bottle necks. These investments are expected to double the Company’s cement production capacity and improve raw material availability to the new DMO plant.

SIGNIFICANT TRANSACTION UPDATE
As of the 27th of June 2022, shareholders and members of the investing public were advised that Associated International Cement Limited, a member of the Holcim Group, had entered into a binding agreement for the sale of its 76.45% stake in Lafarge Cement Zimbabwe Limited to Fossil Mines (Private) Limited. As advised on the 7th of October 2022, the parties are still working towards consummation of the Sale and Purchase Agreement. Accordingly, shareholders and members of the investing public are advised
to exercise caution when dealing in the Company securities until further notice.

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 an interim dividend.

OUTLOOK
The commissioning process of the new VCM started in Q2 2022. The Company will essentially double its cement production capacity and improve raw material availability to the new DMO plant. The launch of the new VCM will reposition the Company on a growth path into the future. This will have a positive effect on the Company’s revenue generation and profitability.

Binastore and Aggregates as with Dry Motors are anticipated to post good growth in H2. The overall market demand continues to grow driven by the individual home builders’ segment as well as the ongoing major Government infrastructure development projects. The Company is hopeful that continued collaborative dialogue between government and industry will continue in order to safeguard business confidence, preserve value and macro-economic stability.

APPRECIATION
I would like to take this opportunity to thank our valued stakeholders for their continued support as the business has been concerned with gradual recovery from the impact of the loss of business following the roof collapse in October 2021. The business looks forward to a profitable future and all stakeholders – employees, customers, suppliers, communities and the government are pivotal in building this business into the future.

By Order of the Board

K. C. Katsande

Chairman of the Board of Directors
27 October 2022
By order of the Board,

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