Cement manufacturing company, Lafarge Zambia Plc has recorded a loss after tax of K12.339 million for the financial year 2019 due to a 3% reduction in sales revenue, according to financial statements published by the company.
“Sales Revenue for the period was recorded at K1, 110 million for the year down by 3% compared to 2018 due to market contraction and difficult pricing environment”, according to published results for the year ended December 2019 made available on 23 March 2020. According to the company, “Cement Volumes were down by 11% in 2019 compared to 2018”.
The reasons extended by the company for the weaker performance included power supply issues, accelerating inflation and contraction of the construction industry. “The Zambian cement market underwent contraction, drastic decline in the construction sector and devaluation of the kwacha in 2019 leading to reduction in volumes by 11% and revenue by 3%”, further read the statement. “The business experienced instability in power supply especially in the second half of the year due to load management by power utility company thereby increasing cost of production”.
According to the company, “Domestic cement market is estimated at approximately 2 million tons of cement in 2019 against an estimated 5 million capacity”. Lafarge is not the only player in the cement market. Their industry comprises of competitors in Dangote, Zambezi Portland, Simona, and Amaka cement companies and these are the reason why the company echoes a “difficult pricing environment”. It is this same competition that has been the reason behind the contraction of Lafarge Zambia’s market share over the last 5 years when player Dangote introduced a ‘price war’ that lead to the company’s lowest turnover in previous decade of K890 million (see chart insert from 2018 annual report). Needless to say, Dangote got what they wanted. Market share grew at the expense of Lafarge in a zero-sum game.
On energy, the Lafarge Group has been working closely with its research and development teams to come up with a solution that will see the company going green using what they call the Geocycle initiative. “Energy cost increases adversely impacted production cost but was mitigated by strong cost-saving initiatives from our Geocycle division”.
The Geocycle initiative is something the Lafarge Holcim Group has been working on for some time. “Since the 1970s, LafargeHolcim has pioneered the co-processing of waste materials, and for decades developed innovative and tailored industrial and municipal waste management services for a wide range of customers”, according to the company’s Geocycle website. The company applies the proven technology of ‘co-processing’ and utilize existing facilities in the cement industry to resolve waste challenges sustainably which then enables it to recover energy and recycle materials from waste. The economics of diversity.
CEO Jimmy Khan ‘swears’ by Geocycle as the silver bullet to cooling increasing energy prices. “Despite the challenges the business faced, it had made drastic changes that impacted the business positively” read a statement from the CEO in the published SENS announcement. “Geocycle remains a core business priority in not only impacting our environment but also reducing our cost of energy. The company can now legally and safely dispose of a wide range of waste”. Despite a reduction in the value of property, plant and equipment on the balance sheet from 2018 to 2019, the company’s cash flow statement indicates that there was an increase in net cash used for investing activities to K55.3 million from K51.6 million in the previous year. Jimmy appears to be putting his money where his mouth is.
With a financial performance that saw a loss before tax at K24 Million versus profit of K104 million in 2018, the decrease of over 100% has no doubt eroded shareholder value. The Company’s Earnings per Share is subsequently lower at negative K0.06 compared to K0.37 in 2018.
However, the company will pride itself for remaining solvent in these difficult times. “The financial position and Cash Flows remained solid and the Company had no debt.” No debt is an example of an extant player that now grows organically.
With Zambia’s growth now firmly in the 2% region, Jimmy Khan will be targeting the export market to fend off a run-away currency. “The focus on export markets will continue as Zambia’s growth projection for 2020 still remains relatively low at 2% to 3%”.
Further, “new export markets continue to be developed in the region to utilize this excess capacity”, affirming the company regional strategy as countries such as Congo continue to seek expansionary agendas.