Lafarge Cement Zimbabwe on track towards growing a USD25m EBIT business by 2023

Lafarge Cement has continued to be on the path to accelerate progress towards its ambition to grow to a USD25m earnings before interest and taxes (EBIT) business by 2023, the company’s Chief Executive Officer, Precious Nyika said at its 67th Annual General Meeting held today, 6 August 2021.

OVERVIEW

The year 2021 began on the backdrop of a remarkable business performance achieved in the year 2020 which was accomplished in spite of the ongoing global battle against the COVID19 pandemic. Having achieved a 3.1billion inflation-adjusted net profit, and 13.8% EBIT margin in 2020, the business is confident that its business resilience strategy operationalized under the action plan Health, Cash and Cost is yielding results. With this action plan in place, coupled with the strategic agenda premised on four main pillars being, Winning at the Customer, Restoring Profitability, Improving Sustainable Industrial Performance, and Building Winning teams, the business has continued on the path to accelerate progress towards its Ambition 2023: To grow to a USD25m EBIT business by 2023.

TRADING ENVIRONMENT

This year the country has experienced two separate waves of the COVID-19 pandemic as the year began with an escalation of recorded COVID-19 cases followed by a resurgence at the onset of the winter season. This necessitated the re-introduction of restrictions on movement and limits on business operating hours as part of nationwide mitigation measures.

Meanwhile, the successful agriculture and agro-marketing season opened up new market opportunities, particularly in the constantly growing Individual Home Builder Segments. The business thus leveraged the growing demand from this segment, while also contributing significant product volumes to the government-driven major infrastructure rehabilitation and development programmes. As highlighted in the Mid-term National Budget and Economic Review by the Finance and Economic Development Minister, Honourable Mthuli Ncube, the government has invested ZWL10,7billion in various road rehabilitation and expansion projects since January 2021.

On the macro-economic front, relative stability in the currency exchange rate has maintained throughout the year so far with the USD/ZW$ exchange rate currently sitting at ZWL85.64, up from the 1st of January 2021 exchange rate of ZWL 81.77. This has enabled a slowing down of price increases on most commodities. However, the introduction of SI127 of 2021 in May 2021 resulted in an unexpected increase in inflation in US Dollar-denominated commodities. The SI also introduced uncertainty in pricing and significantly curtailed the Company’s ability to collect US dollar sales.

In April, the Government promulgated SI 55 of 2021 which enforced controls on listed commodities’ import and export. Cement is listed among the import and export-controlled commodities.

BUSINESS PERFORMANCE

Cement volumes for the first six months of the year grew 19% compared to the prior year in spite of the COVID-19 national lockdown instituted in the first quarter of the year and reinstated in the middle of the second quarter. In the same period, Dry Mortar products volumes grew by 96% while the Binastore retail franchise recorded a remarkable 382% growth in volumes compared to the same period in the prior year. This growth in the retail franchise business has been strengthened by the growth in purchases made on the Binastore e-commerce site facilitating business continuity during lockdown periods and serving customers in the diaspora who are investing back home. The business continues to improve its digital customer service platforms in order to ensure sustained service delivery in the context of the “new normal” where face-to-face transactions are now limited. To date, the company has achieved 99% adoption of its digital sales platform called LeadRetail. This puts the business in a viable market position to operate in the context of limited face-to-face interactions.

The installation of the new USD 2.2million automated Dry Mortars (DMO) plant was completed and commissioned in April 2021. With this new plant, the Dry Mortars production capacity increased from 7000t per annum to 100000t per annum, giving the business latitude to expand in product mix and explore export markets. Meanwhile, the installation works for the new Vertical Cement Mill commenced in March this year and is expected to be commissioned in March 2022, assuming that there are no fundamental delays encountered in the arrival of the plant consignment which is currently en route from China and Germany. This project is the last of the three recapitalization projects lined up in the business expansion plan announced in 2019.

INNOVATION AND NEW PRODUCT DEVELOPMENT

Following extensive product research and design undertaken in 2020 as part of the company‘s progressive product innovation and expansion drive, the company has since launched 2 new products on the market within the first six months of the year. The first product launched this year was the country’s first waterproof cement under the brand WaterShield. This product, made with hydro-defence technology, is manufactured from the new DMO line and is the first of a series of new products set to be delivered from the added capacity in the DMO business.

More recently, the company launched yet another innovative offering; a high-end dry mortars range of products under the name Tector which consists of plastering mortar (TectorPlast) and Tile Adhesives (TectorCeram) designed to give a superior finish to construction works. This product range sets a new standard for construction finishes, offering the market a high-end product alternative.

Later in the year, the company will be undertaking the pilot for 3D printing construction technology in the country at the ongoing affordable housing construction project at Knockmalloch in Norton. These trials will introduce to the local construction sector a cost-effective, time efficient and resource optimised construction alternative as we lead in establishing sustainable construction alternatives. Through its new Dry Mortars plant, Lafarge will be a partner with companies that may invest in this technology as the producer and supplier of the requisite special 3D concrete ink.

ENVIRONMENTAL MANAGEMENT

The company continues to take progressive actions towards environmentally sustainable business practices. The business is currently focused on strengthening its environmental impact management and monitoring systems. Through an action plan that includes ongoing system and process adjustments, the business achieved a 42% reduction in dust emissions from January 2021 to June 2021.

MITIGATION OF THE IMPACT OF COVID-19

While the COVID-19 pandemic continues to evolve with new waves and variants coming up across the world, the company continues to build its resilience with a focus on upholding employee and stakeholder health while ensuring business continuity beyond the pandemic. The Company maintains strict covid-19 screening, testing, and prevention protocols which include regular blitz testing, decongesting of the worksite through remote working arrangements, rotational working on-site and creation of safety bubbles in industrial. A robust case management system has been put in place and this has seen the company managing infections significantly below the country’s prevalence rates. The Company coordinated an onsite vaccination programme which saw a vaccination uptake of 78% amongst employees by June 2021. The vaccination sensitization programme continues as the company strives to achieve 100% uptake.

Meanwhile, the business remains sensitive to the inevitable and possibly far-reaching impact of the pandemic on the business as a going concern. As such focus remains fixed on expenditure discipline across the board, reinforcement of internal controls and upholding of compliance procedures. The cost optimization culture and tightening of controls continue to be leveraged in the organization as a key lever for business resilience and a driver for growth into the future.

OUTLOOK FOR THE REMAINDER OF THE YEAR

While the current wave of the COVID-19 pandemic has somewhat slowed down business activity across the country, the lockdown measures currently in place are allowing for some continued economic activity. As the world makes strides in vaccine rollout and adoption, and as the country pushes further towards herd immunity, prospects for a full return to business in the near future are certain. The Company also remains optimistic for stability in commodity prices as well as exchange rates to ensure a positive finish to the year.

Meanwhile, the company remains on track to achieve its long-term goals through the strategic agenda by focusing on the core internal strengths and building on the capabilities of a strong willed and highly skilled workforce.