Home » Industry » Lafarge Turnover Declines 11 Percent

LAFARGE Cement Zimbabwe’s gross turnover for the year ended December 31, 2014 declined by 11 percent to US$60,45 million following a seven percent reduction in local sales volumes.

The cement manufacturer’s volumes came off by 7,4 percent to 312 000 tonnes during the period under review, from 337 000 tonnes in the prior year. As a result, a 98 percent drop in profit was recorded mainly due to low sales revenue and high operating costs.

The decline in sales was attributed to a number of commercial and residential projects taking long to be completed due to persistent liquidity challenges.

Analysts said there was huge potential for the cement business given the housing and infrastructure backlog but in the interim, the company had to devise strategies to survive weak demand.

Lafarge’s group finance director, Farai Matanhire, said the overall domestic market for cement remained largely flat during the period under review.

“Lafarge’s core market for individual home building projects was affected by the liquidity issues so demand in that part of aggregate market was flat. The shift of market requirements towards high strength cement also affected the volumes as Lafarge was not able to offer this,” he said.

“We launched a new product called Supaset because we had realised that the market preferred high strength cement,” he said.

The company’s borrowings increased to US$4,8 million.

During the period under review, the company’s capital expenditure was at US$7,2 million, of which US$4,9 million was in limestone quarry development.

The group’s total assets improved to US$69,94 million against US$66,02 million recorded in the prior period. Basic earnings per share declined to 0,1c per share from 4,4c.

Market share dropped marginally from 34 percent to 31 percent in the year to December 2014. The company attributed the negative performance to weak demand due to low disposable income levels and a drop in cement prices.

Cash generated from operations decreased to US$5,7 million in 2014 compared to US$11,6 million recorded in 2013 and this was mainly as a result of lower EBITDA of US$6,1 million compared to US$13,6 million for 2013.

Some analysts questioned management’s decision to increase employment costs by US$1,1 million due to salary increments and a higher head count, when the company accrued retrenchment costs of US$3,5 million and US$1 million in 2012 and 2013 respectively. This also happened at a time when revenue was going down.

Lafarge’s managing director, Amal Tantawi, said the company would reduce use of sub-contractors to cut costs.

“We have been working a lot with sub-contractors but then we have seen that this adds an extra 25 percent cost on our limestone. So going forward we intend to reduce our dependency on sub-contractors,” she said.

The company generally maintained a low debt to equity ratio between 2009 and the year under review. The ratio declined significantly from 14 percent in 2011 to three percent in 2013, but rebounded to 12,8 percent in 2014 as short term borrowings increased.

Lafarge’s high cost structure resulted in earnings before interest and tax plunging down by 78 percent to US$1,3 million from US$5,8 million in 2013.

Lafarge had an average return on equity of 14,5 percent post dollarisation to 2012, which dropped to nine percent and to a record low of 0,23 percent in 2013 and 2014 respectively.

Given the difficult economic environment in Zimbabwe as well as ineffective cost management strategies by the company, it has become less efficient in utilising its equity base to give a lucrative return to its investors.

Source : Financial Gazette