Block By Block Analysis – 2018 Performance Lafarge Zambia Plc
Lafarge, Manufacturing

Company overview

Lafarge is a multinational French industrial company specializing in three major products: cement, construction aggregates, and concrete. In July 2015 Lafarge merged with Holcim, a Swiss cement company and a new company was officially launched around the globe name of LafargeHolcim, creating a new leader in the building materials sector. According to the annual report (2017) Lafarge Zambia’s sustainability strategy is driven by the vision of transformation in creating shared value with society aimed at contributing to the attainment of the 2030 social contract plan with society. This is being realized by capitalizing on LafargeHolcim’s worldwide presence to provide solutions towards meeting these stakeholder, environment and social challenges. Lafarge Zambia has translated this vision into tangible measurable commitments in four different fields of action namely circular economy, climate, water & nature, people & communities. It is important to note that the above mentioned fields are pivotal in achieving a major objective of ensuring a more sustainable construction sector in the country.

Financial Performance

In January 2018, the Zambian cement market underwent a strong recovery which saw most contractors carrying on with their work without much disruption in the first quarter a period when most construction firm undergo industrial break. According to the 2018 abridged financial statements the cement makers recorded K1,142 million in their sales revenue which represented a 13% increase as a result of a strong market growth of approximately 30%. The cement domestic volumes in 2018 increased by 10% while the export volumes decreased by 25% this was as a result of an increase in the energy costs and limited export markets that adversely affected the production capacity but was mitigated by strong cost saving initiatives. The profit before tax in 2018 stood at K104 million compared to K57 million in 2017 hence representing an 82% increase. Moreover, the Company’s Earnings per Share stood at K0.97 including exceptional tax credit of K121million compared to K0.09 for 2017 while on the other hand the normalized earnings per share excluding the tax credit stood at K0.37 which represented 311% growth. Overall, the financial structure for 2018 remained solid with no long term debts or overdrafts as at 31st December 2018 and Jimmy Khan, Chief Executive Officer of Lafarge Zambia, said:

The Company continued to focus intensively on commercial transformation and sustainability for continued growth. Sales volume performance for the year was favorable thanks to the Binastore retail channel rollout and other innovations from our teams such as Supablock. The plants’ strong cost management initiatives mitigated the impact of production cost increases with Margins remaining the same as 2018. I am pleased with the improved results”.

Internal and External Analysis

Block making is a flourishing industry in Zambia as it provides various employment opportunities for several Zambia’s. However, in the past few years the industry has been face by several challenges when it comes to conforming to standards and consistency in quality. In order, to mitigate these challenges Lafarge Zambia recently launched a new franchise network specifically for block makers called SupaBlock. This franchise has enabled approved block makers to partner with Lafarge Zambia to produce certified concrete blocks that conform to the set standards by the Zambia Bureau of Standards (ZABS) ZS007 (Annual Report, 2017). Moreover, this partnership has allowed the block markers have access to world-class quality control through the Lafarge Zambia concrete laboratory, ensuring the production of blocks that are of superior strength and that is consistent in size and shape. The SupaBlock franchisees are constantly supported by Lafarge with technical support, sales, marketing and have the chance to tap into the wide network of Binastore retail shops to sell their blocks (Annual Report, 2017).

It is important to note that with SupaBlock everyone wins including but not limited to block makers who can grow their businesses, builders who can buy quality blocks they know and trust and Lafarge Zambia who can improve their market share in the long run. Like any other business Lafarge is equally impacted by the various macro environment factors in the construction market in which it operates. It is evident that the Zambian market conditions continue to be challenging for Lafarge in terms of the price of cement. For instance, with the coming in of Dangote Cement in the past 4 years has constantly impacted on the price of cement since Dangote has overtime off-loaded cheaper priced cement on to the market. Moving forward, the Company  posted  positive  results,  ensuring  shareholders  continue  to  earn  a  return  through vigor dividends and sustained share price growth. Therefore, the Board of Directors has proposed a final dividend of K0.25/share for shareholder approval at the Annual General Meeting that will be held at Taj Pamodzi Hotel on Wednesday 3rd April 2019 at 09:00hrs.

Stock Performance

In 2018, the Lafarge security has outperformed the LuSE All Share index. However, in December, the share price began a downward trajectory that has seen the stock loss more that 50% of its value moving to K2 per share in March 2019. The stock was highest at K6 in April last year.

Source: Bloomberg Terminal

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