LIVINGSTONE MARUFU
Lafarge Cement Zimbabwe Limited profit for the full year which ended December 31 2019 grew by 2,056% to ZWL$178.2m from ZWL$8.26m due to agile pricing and disciplined cost management across the business.
The development comes at a time when most companies are adjusting prices according to inflation to cushion themselves from run-away
cost of business. Lafarge chairman Kumbirai Katsande said the business maintained its volumes flat in the prior year at 323,000 tonnes.
“Inflation adjusted revenues for the company grew to ZWL$919m
in 2019 from ZWL$449m in 2018, with the Individual Home Builder
(IHB) category continuing to contribute significantly to the business’
top line,” Katsande.
“The business achieved improved margins as gross profit was ZWL$496m in 2019 versus ZWL$141m in 2018. Finance costs were ZWL$48m compared
to ZWL$7m in 2018 and this was largely attributable to full year interest costs on the US dollar denominated group loan advanced to the business in 2018.”
The business revalued its property, plant and equipment and the outcome of the valuation resulted in a net after tax revaluation gain of ZWL$310m.
Subsequently, full year comprehensive income was ZWL$488m compared to ZWL$8m in 2018.
Katsande said the business did not have any new borrowings during the year under review and subsequent to December 31 2019, the Reserve Bank of Zimbabwe issued confirmation that it had ringfenced part of the group loan as legacy debt.
The company is currently working with the RBZ to issue a financial instrument to secure the legacy debt.
The business began to implement the previously announced US$25m
capital expansion programme.
The major projects that the business will invest in are set to improve
cement milling capacity, automate the Dry Mortar Mix (DMX) plant
and improve production of agricultural lime and other key projects to
improve power supply and cement storage.
The manufacturing of the US$2m DMX equipment was completed and installation of the equipment on site is set to be completed in the second half of 2020.
The company has an outstanding shareholder loan of US$30m in
principal, with an interest rate of six months Libor plus 5%.
Lafarge obtained this unsecured loan facility from the LafargeHolcim Group, through a subsidiary Cemasco B.V., amounting to US$30m, to finance foreign currency denominated long outstanding payables and working capital requirements.
The loan is repayable at the option of the borrower, but must be settled in full by at least August 1 Although the loan has a redemption date and contractual interest rate, the company has considered the loan as a quasi-equity arrangement with owners and accounted for it as an item of equity.
The company said US$15m of the loan and the related outstanding
interest were submitted for registration as legacy debt with RBZ subsequent to December 31 2019.
The cement manufacturer is optimistic that these investments will elevate the business’ manufacturing platform and allow it to boost its productive capacity.
The impact of the Covid-19 pandemic on the economy is yet to be fully quantified, but is projected to further influence the slowing down of economic activity.
Demand will inevitably decline in response to the new fundamentals that come with the impact of Covid-19. However, new opportunities are likely to be present in the coming year as the economy continues to evolve.
He said with a dynamic strategic agenda in place and the capital investment to support it, this should go a long way to mitigate the negative effects of a difficult economic environment.