• A 38% increase in cement volumes and 34% rise in net sales in 2023
• The performance marked a turnaround from dismal 2022 results impacted by machine breakdowns, leadership changes, and higher maintenance costs
• Lingering issues like kiln problems pose concerns going forward

Harare- Cement producer Khayah Cement, formerly known as Lafarge Cement Zimbabwe, has rebounded to production growth following a dismal 2022 performance. In the just-concluded 2023 fiscal year, the group recorded a 38% increase in cement volumes, largely owing to the installation of a Vertical Cement Mill (VCM) in the third quarter of 2022.

This resulted in a 34% increase in net sales, generating revenue of ZWL240 billion compared to ZWL117 billion in 2022.

The company had recorded a poor performance in 2022 after a takeover by Fossil Contracting, largely due to machine breakdowns, controversial new leadership structures with connections to the US sanctions list, and increased costs from plant maintenance.

As a result, volumes were down, sales were down, profit margins narrowed, and a loss was incurred.

However, with the completion of the VCM project in Q3, production ramped up starting in 2023, which helped offset poor growth through increased sales.

It is also key to note that this performance was despite a decision to shut down its kiln, which suffered "frequent and costly breakdowns" and was 3 years overdue for maintenance. The company now outsources clinker, a key ingredient in cement making, while it repairs its kiln.

By installing the VCM, Khayah Cement was able to increase its cement production volumes through improved productivity, energy efficiency, and grinding efficiency.

Vertical mills are more compact, require less energy, and use a more effective grinding mechanism compared to traditional ball mills, leading to higher cement output and quality.

Additionally, vertical mills have fewer moving parts, resulting in reduced maintenance requirements and longer equipment lifespan, further enhancing the company's operational efficiency and competitiveness.

Bulk cement production increased from 1% in the comparative year to 4% this year, despite being negatively affected by power quality challenges and machine breakdowns, particularly at the kiln.

Consequently, aggregate sales volumes were 164% up during the period, boosted by penetration into new Concrete Products Manufacturers and contractor markets. This positive trajectory is expected to continue in the short to medium term.

Our View

The overall performance by Khayah Cement in the 2023 fiscal year was commendable, reflecting a significant turnaround from the dismal 2022 results. The 38% increase in cement volumes and 34% rise in net sales demonstrate the company's ability to leverage the installation of the new Vertical Cement Mill to drive operational efficiency and boost production.

Despite the challenges posed by the kiln shutdown and the need to outsource clinker, Khayah Cement showed agility in adapting its production processes. The successful implementation of the VCM technology allowed the company to offset these disruptions and return to growth, which is a positive indicator of the management's strategic decision-making and operational adaptability.

While the current year's performance exceeded the previous year's results, it is important to note that the company's financial and operational metrics are still to be released. initial.

Also, the lingering issues with power quality and machine breakdowns, particularly at the kiln, pose a concern and could undermine the company's ability to sustain the current level of performance.

Additionally, the prolonged shutdown of the kiln and the need for clinker outsourcing will put pressure on the company's working capital and cash flow management resulting in a potential weakening of the current ratio.

To build on the positive momentum and ensure a more consistent and reliable performance, Khayah Cement should prioritize addressing the remaining operational challenges, such as the kiln issues and power quality problems. Investing in advanced process control systems and data analytics to optimize the VCM's performance could also help the company unlock additional efficiency gains and strengthen its competitive position.

Overall, the 2023 fiscal year marked a clear turnaround for Khayah Cement, and the company's ability to navigate the operational challenges and leverage the VCM technology is commendable. However, to fully realize its growth potential and meet our expectations, the company will need to address the remaining operational and financial concerns to achieve a more sustainable and robust performance in the coming fiscal year.

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