eBusiness Weekly
Kumbirai Tarusarira
Lafarge Cement Zimbabwe Limited (LACZ) says it recorded a 19 percent decline in volumes for its third quarter to September 2019 as business continue to fall prey to challenging economic environment.
Varied reasons like foreign currency shortages, hyperinflation coupled with erosion of disposable income were all attributed to Lafarge’s third quarter constricted performance, as demand from individual customers diminished.
Critically, the situation was exacerbated by spiking cost of mortgages whose lending rates soared to an
average of 30 percent discouraging home builders’ appetite for getting loans.
However, the cement making firm witnessed growth in volumes for Dry Mortar Mix products except for agricultural lime, which they, however, expect to grow when Government-assisted “Smart Agriculture” reaches full throttle.
On the operational side lack of foreign currency weighed down the cement manufacturers execution of projects.
“The business environment remained volatile weighed down by cost inflation, foreign currency exchange rate and the increased cost of borrowing.
“As a result, demand from individual home builders decreased necessitated by mortgage financing cost increase driven by an escalation in average lending rates to over 30 percent.
“This affected the execution of a number of construction projects as well as delays in investment into new projects.
“In addition, the business experienced forex constraints on which Lafarge relies on for critical spares and capex projects,” said Lafarge in a statement accompanying the third quarter trading update.
Lafarge’s volumes decline corroborated with Government’s projection of a 6,5 percent contraction in Zimbabwe’s 2019 Gross Domestic Product (GDP).
In its forecast, Lafarge is pinning its fourth quarter performance hopes on the diaspora’s market spending in the imminent festive season.
According to the cement concern demand for their product normally heightens during the festive season resultant of diasporans spending directed mainly towards houses construction despite low demand presented by rain season.
Overall, the company expects a contraction in volumes uptake given the expected perpetuation of turbulent macroeconomic environment.
In the meantime, Lafarge says it has also resolved to maintain viability by introducing some cost cutting measures going forward.
“The onset of the rainy season usually heralds a tapering off in cement demand. We expect 4th quarter to remain relatively flat compared to last year with demand sustained by inflows from the diaspora during the festive season.
“We expect a continuation of the constrained macro conditions in the short term with improvements in the broader operating environment anticipated thereafter.
“Our focus will therefore remain on driving for operational improvements, seeking to improve cash generation and managing our costs,” said Lafarge.
In its half year results ending June 30, 2019 cement manufacturer Lafarge highlighted that the scarcity of foreign currency has led to the adjournment of capex projects and routine plant upkeep piling on the already restricted operational environment.
“The current mechanism is yet to yield adequate forex for the company’s requirements as the company’s requirements on foreign currency availability through formal channels remains grim.
“This has resulted in key plant maintenance and Capex projects being delayed,” said Lafarge.
Lafarge indicated that following the suspension of the publication of official year-on-year inflation data in July 2019, the published Zimbabwe National Statistical Agency (Zimstats) month-on-month inflation rates indicated an implied year-on-year inflation rate in excess of 350 percent as at September 2019.
