- Net loss widened to 17 billion
- Revenue marginally decreased too
- This was due to a busload of challenges
Harare- Khaya Cement, formerly Lafarge Cement Zimbabwe, has incurred a significant after-tax loss of ZWL17 billion for the full year ended 31 December 2022.
The reduced profitability was attributed to depressed volumes during the period, primarily due to forex deficit, huge exchange losses and electricity challenges. The company also bemoaned raw material bottlenecks, machinery collapse and an influx of imported cement through porous Zimbabwean borders.
During the year, the Foreign Exchange Auction market governed by the RBZ experienced a huge backlog, taking up to 9 weeks to pay companies.
Cement industry relies heavily on imports of raw materials, equipment, and spare parts. Most raw materials are not found locally and where they were found, suppliers quoted the black-market rate inflating exchange losses for the companies. As a result of raw materials scarcity from within, companies need to import these supplies from other countries, which requires foreign currency.
Shortages of foreign currency led to production delays and disruptions. This resulted in reduced production volumes, which had a negative impact on the company's revenue and profitability. In some cases, cement companies are forced to suspend operations temporarily or permanently, leading to job losses and reduced economic activity.
Another significant reason laid out by the company was exchange losses. Exchange losses widened by 490% hugely widening losses. Exchange losses posed a significant challenge to Khayah Cement which operate in a country with a volatile currency, exchange rate and rely heavily on imports. When Khayah imported raw materials, equipment, or spare parts, it paid for these supplies in a foreign currency.
Thus, exchange losses negatively impacted Khayah’s profitability in several ways. Firstly, they increase the cost of imported supplies, leading to higher production costs. This reduced the company's profit margins, making it more difficult to compete with other cement companies in the market.
During the period under review, the Zimbabwe dollar depreciated by 84% on formal market, enjoying a premium of over 100% on the black market as government overvalued the Zimbabwe dollar.
Revenue marginally decreased to ZWL 24.4 billion from ZWL24.6 billion over the comparative period.
“Cement production volumes decreased by 15% as a result following of the cement mill roof collapsed incident, production ramp up after the commissioning of the VCM was also slow as tests had to be conducted before the mill could perform at optimal levels,” said the Company’s chairperson Kumbirai Katsande.
Due to depressed volumes, Sales volumes decreased by 19% in line with the trend in production volumes.
Katsande further reiterated the Company witnessed increased costs as a result of increased third party and plant maintenance costs.
This narrowed margins to 32.5% compared to 49.6% in the prior year but the company managed to maintain a tight control over its operating expenditure as total expenses fell by 7.6%.
Distribution expenses further declined by 77.1% whilst administrative costs remained fairly constant over the comparative period.
During the second half of the year, the Company successfully commissioned the Vertical Cement Mill (VCM) and subsequently decommissioned Mill 1 which had the least capacity.
The VCM doubled the Company’s milling capacity to 1 million tons per annum and bolstered its ability to supply high strength cement of improved quality and, at the same time, reduced the production costs.
“We welcome and support efforts by Government and regulatory agencies to stabilise the macro-economic environment and maintain the viability of the cement industry.
“The need to regulate cement imports, bring inflation under control, address the shortages of electricity supply and an improvement in the state of the global economy are likely to be dominant factors in the Company’s performance for the year 2023,” said Katsande.
“The change of the Company’s name from Lafarge Cement Zimbabwe Limited to Khayah Cement Limited will be dealt with at the forthcoming EGM scheduled for 7 July, 2023. This will pave way for resumption of trading of the Company’s shares on the Zimbabwe Stock Exchange.”
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