Lafarge Zimbabwe defies economic challenges

Published: 05 October 2019
ZIMBABWE Stock Exchange listed cement producer, Lafarge Zimbabwe Limited, swung to profitability in the six months to June this year against a loss in the prior comparative period thanks to good volumes despite the uncertainty and prevailing macroeconomic challenges.

Lafarge Cement Zimbabwe, a unit of dual-listed Swiss based Lafarge Holcim which trades its shares on the Euronext and Swiss stock exchanges, recorded a ZWL$2.9 million profit in the reviewed period from a ZWL$1.8 million loss in the same period last year.

Company board chairman, Kumbirai Katsande, said the leading cement maker in the country has turned around but appeared to suggest the profit fell short of expectations due to significant macro-economic challenges.

Katsande said the first half of the year was characterised by a number of significant macro-economic changes that redefined the operating environment for the business.

"The rapid escalation of the exchange rate has significantly impacted business performance in terms of cost structure and revenue. Unreliability of electrical power significantly compromised performance as a result of increased downtime due to over and under voltages experienced," Katsande said.

"This resulted in refractory failure and a decline in the kiln's operating efficiency. The shortage of fuel also affected production as diesel to fire the kiln as well as to run various mobile equipment was not readily available thereby resulting in lost productive time."

Consequently, Lafarge, invested in alternative power supply. Other financial metrics also showed improvements with gross profit sitting at ZWL$36.5 million, which represent 42 percent of sales against the prior comparative period's 33 percent.

The business, however, was hampered by an increase in operating costs resulting in a modest profit of ZWL$2.9 million.

 Revenue for Lafarge went up 169 percent to ZWL$87.5 million in the period under review from ZWL$32,5 million in the same period in 2018.

Assets grew 149 percent to ZWL$227,4 million from ZWL$91,2 million in the same period last year.

Katsande said the business had a significant quantum of foreign denominated expenses and these increased significantly following the liberalization of the exchange rate. Adjustments made to employment costs also affected administration expenses.

Financing costs of ZWL$3,9 million were incurred and the increase was driven by interest on the intercompany loan of ZWL$2,7 million and financial transaction costs of ZWL$0,9 million to the two percent intermediated money transfer tax, which was not there in the prior comparable period.

Local companies have been struggling to fund unsettled foreign debt burden-popularly known as legacy debts-after the central bank forced companies to transfer balances to the apex bank recently.

The move by the Reserve Bank of Zimbabwe to direct local firms to offload the long standing debts, which continue to hinder industry's recovery, to the central bank comes after the monetary authorities liberalised the foreign currency market and introduced an interbank market in February this year, with the exchange rate moving from the 1:1 parity against the United States dollar.

 The situation left companies with huge financial burden on their books. The company had US$28,5 million legacy debts on its books during the period under review.

Lafarge Zimbabwe obtained a long-term US$30 million facility from parent company to settle outstanding obligations.

This, Katsande said was repayable at the option of the borrower, within the remaining four years of its tenure.

This has, however, been registered by the RBZ as legacy debt. It's now awaiting approval, to enable it to cash cover the loan.
- zimpapers
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