Lafarge Cement: The dog that didn’t bark

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Diamond and Dogs
Companies do themselves great disservice when they all pile up their results on the last two days of the reporting period. Or perhaps the intention is to do the last minute rush so that they are fewer questions on the performance. Nonetheless, we introduce a new column where we commend the performers (Diamonds) and call out the sluggards (Dogs).

Apart from approximately three counters that have not yet reported their year-end results for the December 2017 financial period, we can safely say the earnings’ season is over. It’s also safe to say that most of the results were generally pleasing and within expectations.

But there was one dog that certainly didn’t bark and — that is Lafarge Cement. National Foods might have recorded the biggest decline in revenue of 10,8 percent, but it’s something that was expected given the good agricultural season the country had last year. It’s a well-known trend that NatFood’s maize milling business does not push as much when the country has had a good agricultural season. It was also not NatFoods year end.

Lafarge, however, does not have the luxury of such an excuse. The cement maker was one of the few listed entities that recorded a decline in revenue.

Management blamed the 4 percent decline in sales revenue to a reduction in volumes with the decline being blamed on heavy rainfall that apparently affected stocking patterns.

Said the company; “Heavy rainfall adversely affected cement stocking patterns and partially contributed to low sales in the early part of 2017 – seriously. This, in our view, is something which can be managed and cannot be used as an excuse.

But the half year comment had said something else; despite growth in gross profit on normalisation of costs, operating and net profits in H1 were weak due to increase in operating costs. Management highlighted a growth in distribution costs. We are guessing Lafarge is trying to reach a broader market to make their product accessible, but unfortunately the volumes are not coming through and the increased costs only widen losses rather than improve the profitability position.

This is at a time – in Lafarge’s own words – the housing construction segment witnessed incremental sales. Rival cement manufacturer seemingly capitalized and saw its sales increase by between 30 to 40 percent for the nine months to December 31, 2017 giving testimony that the market was not that bad.

We put down Lafarge’s dismal performance to losing out to competition. There are more players in the cement game and Lafarge is not up to the task. PPC established a plant in Msasa and entered the Harare market where Lafarge also services. The main worry for Lafarge should be the new machinery at PPC which makes the latter more efficient. Lafarge has an old plant which is only being refurbished in piecemeal when necessary. It would be hard to compete with competition that has a young and modern technology which is more efficient and that can ride on that to be more price competitive.

Diamond

There are many contenders to the “excellent set of results tag”, especially if we are to throw in turnaround stories such as Zimplow and NMB. Innscor and CBZ also did well, profitably, registering growth rates above 20 percent.

Edgars, however, released a set of results that we can safely say were above expectations. Revenue for the clothing retailer was up 20.5 percent while profit after tax was up a staggering 648 percent. What was however more pleasing about the Edgars results is that it managed to grow revenue without necessarily pushing up prices.

Unit sales for both the Edgars Chain and Jet Chain went up by 11,8 percent and 19 percent respectively. The clothing retailer also managed to increase sales without burdening its debtors book which decreased by 2,82 percent.

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