Displaying items by tag: Zimbabwe
Update on Zimbabwe, January 2023
04 January 2023Lafarge Cement Zimbabwe (LCZ) received an unwelcome present before Christmas when the US Office of Foreign Asset Control (OFAC) placed the company buying it on its economic sanctions list. OFAC made its announcement on 12 December 2022. However, the cement producer said that its parent company, Associated International Cement, had concluded its sale of a 76% stake in LCZ to Fossil Mines on 6 December 2022. Local press reports that the Zimbabwe Stock Exchange halted trading in the cement company on 23 December 2022. Then, LCZ said on 29 December 2022 that the OFAC sanctions had “impacted some processes” within it. It added that it was considering various courses of action to protect the business and the interests of all stakeholders.
OFAC took action against Fossil Agro, Fossil Contracting and the group’s chief executive officer, Obey Chimuka, due to alleged links to a previously sanctioned individual, Kudakwashe Tagwirei, and his company, Sakunda Holdings. OFAC said that Tagwirei had “materially assisted, sponsored, or provided financial, material, logistical, or technical support for, or goods or services in support of, the Government of Zimbabwe.” It accused him of using his relationships with government officials to gain state contracts, to receive access to currencies, including the US Dollar, and of supplying luxury items such as cars to ministers. It added that Chimuka was a “longtime business partner” of Tagwirei. Fossil Agro was also linked to a mismanaged agricultural subsidy scheme.
When a company says it has concluded a divestment or acquisition the expectation is that everything has finished. However, LCZ has admitted that the OFAC action has caused it some problems. We’ll have to wait for more information to be released to appreciate the full extent of these ‘problems.’ However, it is worth noting that government capital controls caused delays for the handover of a new vertical cement mill ordered from China-based CBMI to LCZ in mid-2022. At the time it was reported that the cement producer still owed the supplier around US$5m but was unable to make the payment due to economic measures the government had taken to avoid depreciation of the local currency. Other potential issues could also lie in any continuing services or materials that Associated International Cement and its parent company Holcim might have agreed to supply to Fossil Mines in the future as part of the divestment deal.
Looking at LCZ’s business more generally, in its third quarter trading update it said that revenue was down by 43% year-on-year due to suppressed cement and mortar sales volumes. Yet, this was due, in part, to a roof collapse at the company’s plant in late 2021 and the commissioning and ramp-up of that new mill in the fourth quarter of 2022. So the company expects ‘significant’ recovery in its sales volumes in 2023. In a sobering aside illustrating the realities of doing business in Zimbabwe, it also mentioned that the local interest rate jumped to above 200% in July 2022! Despite all of this though, it noted that both residential and government-based infrastructure markets were driving market demand.
South Africa’s PPC reported a fall in its cement sales volumes from its subsidiary PPC Zimbabwe in the six months to September 2022 with knock-on declines to revenue and earnings. It blamed this on a planned kiln shutdown, noted the negative role of hyperinflation and forecast that volumes would improve subsequently due to ‘robust’ cement demand. It pointed out that its earnings were hit during the maintenance period because it had to import clinker from South Africa and Zambia and that this was more expensive than locally manufactured clinker. The other thing that both LCZ and PPC raised were power cuts, although LCZ reported that unscheduled outages had decreased in the third quarter of 2022.
The growing demand for cement in Zimbabwe as reported by both LCZ and PPC helps to explain how Holcim was able to finalise a deal to sell its local subsidiary in 2022. Operational and financial hurdles such as coping with hyperinflation and power cuts show the problems these companies have also faced running a business in the country. Merger and acquisition deals in the cement sector often face travails as they are proposed, negotiated, made public and then put to the scrutiny of regulators. It seems unusual though for a divestment deal to run into problems after it has seemingly been closed.
Lafarge Zimbabwe divestment stalled by US sanctions
02 January 2023Zimbabwe: A deal by Fossil Mines to buy a 76% stake in Lafarge Zimbabwe has been stalled by the introduction of economic sanctions by the US Office of Foreign Asset Control (OFAC). In mid-December 2022 OFAC added Fossil Agro, Fossil Contracting and the group’s chief executive officer, Obey Chimuka, to its Specially Designated Nationals (SDN) list due to alleged links to a previously sanctioned individual, Kudakwashe Tagwirei, and his company, Sakunda Holdings.
OFAC said that Tagwirei had “materially assisted, sponsored, or provided financial, material, logistical, or technical support for, or goods or services in support of, the Government of Zimbabwe.” It accused him of using his relationships with government officials to gain state contracts, to receive access to currencies including the US Dollar and of supplying luxury items such as cars to ministers. It added that Chimuka was a “longtime business partner” of Tagwirei. Fossil Agro was also linked to a mismanaged agricultural subsidy scheme.
In a statement Lafarge Zimbabwe said that it was “considering various courses of action with a view to protecting the business and the interests of all stakeholders.” The deal to sell a majority stake in the subsidiary of Switzerland-based Holcim was originally finalised in early December 2022.
Innocent Zulu Chikwata appointed as acting head of Lafarge Zimbabwe
14 December 2022Zimbabwe: Fossils Mines has appointed Innocent Zulu Chikwata as the acting chief executive officer (CEO) of Lafarge Zimbabwe. Willcort Dzuda has become the acting chief finance officer (CFO), according to the Business Times newspaper. The appointments follow the departure of Geoffrey Ndugwa and Amry El Moufay, as CEO and CFO respectively, following the acquisition of a majority stake in the cement producer by Fossils Mines in December 2022.
Chikwata worked previously as the sales manager and then the commercial director of Lafarge Zimbabwe since joining the company in 2017. He holds over 15 years of experience in the construction materials and consumer packaged goods sectors. Dzuda is a chartered accountant and registered public auditor. He holds 25 years of experience in auditing, consultancy and financial management.
Zimbabwe: Lafarge Zimbabwe has finalised a deal to sell a 76% stake in the company to Fossil Mines. The transaction is now set to conclude once the shares are transferred in exchange for the agreed price. The divestment by the subsidiary of Switzerland-based Holcim was first announced in June 2022. No amount for the transaction has been disclosed publicly.
PPC’s earnings fall by 12% to US$42m in first half
16 November 2022South Africa: PPC’s earnings fell by 12% year-on-year to US$42m in the six months to September 2022, excluding its subsidiary in Zimbabwe due to hyperinflation. In South Africa and Botswana the group reported higher sales in coastal regions due to less imports but tougher conditions inland that led to a 2.6% fall in cement sales volumes. Despite this, it raised its revenue through price rises. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 29% to US$29.9m. Performance was better in Rwanda where its Cimerwa subsidiary increased its sales volumes by 11% and its EBITDA by 63% to US$14.5m. PPC Zimbabwe’s sales volumes declined by 13% due to a planned kiln shutdown in the first quarter and margins were negatively affected by the use of imported clinker primarily from PPC South Africa and increased maintenance costs. However, sales volumes improved in the second quarter. EBITDA fell by 48% to US$8.59m.
Roland van Wijnen, the chief executive officer PPC, said, “The PPC group continues to deliver sound cash generation and deleverage the balance sheet despite difficult trading conditions in its core South African and Botswana cement market, offset by positive trading conditions in its Zimbabwe and Rwanda operations. To maintain volumes in the South African and Botswana cement markets, sales price increases were limited to 5% in the period under review. Key input costs, especially those related to fuel and energy, increased at double-digits in percentage terms.”
Chinese cement producer imports Zimbabwean coal
03 November 2022China/Zimbabwe: A cement producer in China has imported 20,000t of coal from Zimbabwe. The Zimbabwean Coal Producers Association said that the Port of Beira, Mozambique, despatched the order. Mining News has reported that the shipment is a trial, with other orders also anticipated.
Court fines Lafarge Cement Zimbabwe
02 November 2022Zimbabwe: A court has ordered Lafarge Cement Zimbabwe to pay US$321,000 to supplier Rubtech Machinery and Spares, in addition to costs. The Standard newspaper has reported that the producer incurred a debt to Rubtech Machinery and Spares for its services in November 2020. Fossil Mines since acquired Lafarge Cement Zimbabwe from Switzerland-based Holcim in June 2022.
Capital controls delay handover of new cement mill to Lafarge Zimbabwe
14 September 2022Zimbabwe: Government capital controls are delaying the handover of a new vertical cement mill ordered from China-based CBMI to Lafarge Zimbabwe. The cement producer still owes the supplier US$5.2m but has been unable to make the payment due to economic measures the government has taken to avoid depreciation of the local currency, according to the The Insider newspaper. The subsidiary of Switzerland-based Holcim is unable to obtain a certificate of completion from the supplier until the transaction has been completed. CBMI handled the order and Germany-based Gebr. Pfeiffer supplied the mill. The outstanding debt to CBMI may also delay Holcim’s deal to sell Lafarge Zimbabwe to Fossil Mining, which was announced in June 2022.
Lafarge Zimbabwe to increase cement capacity
13 September 2022Zimbabwe: Part of Lafarge Zimbabwe’s approved US$25m capital expenditure investments will go towards further expanding the company’s cement capacity in order to meet local demand. The company also plans to establish a new dry mortars plant. Lafarge Zimbabwe is on track to commission a new vertical roller mill at its Manresa grinding plant in early 2023. Lafarge Zimbabwe’s chief executive officer Geoffrey Ndugwa said, “The overall market demand continues to grow, driven by the segment of individual home builders as well as the ongoing major government infrastructure development projects. The company is confident that volumes will recover and grow as the availability of cement stabilises.”
South Africa: PPC’s full-year consolidated sales were US$624m in the 2022 financial year, which ended on 31 March 2022, up by 11% year-on-year from US$561m in the 2021 financial year. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 6.9% to US$94.5m from US$101m. During the year, the group reduced its debt by 55% to US$63m from US$139m.
The group noted high cement demand across its markets in the 2022 financial year, including a sales volumes increase of 28% year-on-year in Zimbabwe. It also noted a 19% year-on-year increase in South African cement imports, mainly from Vietnam, which constituted 10% of sales in the 2022 financial year. PPC said that it will ‘immediately make additional capacity available’ to capture the increased demand through the rest of 2023 financial year.