Khaya Cement faces going concern uncertainties
Khaya Cement, formerly Lafarge Cement Zimbabwe, finds itself navigating a precarious financial situation, raising concerns about its ability to continue operations as a going concern.
This uncertainty stems from significant accumulated losses, negative cash flow, and a large hard currency loan with mounting exchange losses.
The company reported a net comprehensive loss of $265 million for the period ending June 2023, compared to a net income of $49 million in the previous year. Additionally, current liabilities exceed current assets by $45 million, indicating potential difficulties in meeting short-term obligations.
A major contributor to the company’s woes is a sizable $268 million hard currency loan, translating to US$49 million. This loan, coupled with significant depreciation of the Zimbabwean dollar, has resulted in substantial exchange losses exceeding $372 million.
The Company struggles to generate enough cash flow to service its loan obligations and sustain operations. This creates a vicious cycle, jeopardizing its ability to meet future liabilities and potentially casting doubt on its long-term viability.
Recognising the urgency, the company has undertaken several mitigation measures including increased production capacity. A new Vertical Cement Mill aims to double production and potentially generate higher-value cement and boost revenue.
A moratorium on principal repayments for the shareholder loan provides temporary relief, allowing the company to prioritize settling third-party obligations.
Further, a US$5 million facility from the major shareholder provides immediate working capital and capex support.
The company is also implementing strategies to reduce costs and improve operational efficiency aiming to conserve cash and enhance profitability.
However, going-concern uncertainties remain. The directors acknowledge the existence of a “material uncertainty” regarding Khaya Cement’s ability to operate as a going concern.
The financial statements are prepared assuming normal business continuity, but this hinges on successfully executing the mitigation plans and achieving sustainable profitability.
Business Weekly’s analysts believe Khaya Cement’s future remains uncertain.
“While the implemented measures offer hope for improvement, successfully navigating the challenging economic landscape and managing the sizable debt burden will be crucial for long-term stability.
“Investors and stakeholders will closely monitor developments to assess the company’s ability to overcome these obstacles and secure its future as a viable player in the Zimbabwean cement industry.”
While Khaya Cement faces significant financial uncertainties, the company recently reported positive developments in core operational areas during the period ending June 2023.
This mixed picture highlights the multifaceted challenges the company confronts and raises questions about its ability to translate operational progress into long-term financial sustainability.
Inflation-adjusted revenue witnessed a remarkable 210 percent increase to $99.8 billion, demonstrating successful business stabilization efforts.
Cement volumes surged by 117 percent with the restoration of a collapsed mill roof and the commissioning of a new Vertical Cement Mill. Similar increases were observed in aggregates and Dry Motor volumes
Approximately 89 percent of revenue came from foreign currency sources, reflecting a 100 percent year-on-year rise.
Sales, general, and administration expenses as a percentage of revenue decreased to 41 percent from 54 percent, indicating successful cost optimization efforts.
Business Weekly analysts say: “Investors and stakeholders will likely view these mixed results with cautious optimism. They will closely monitor Khaya Cement’s progress in managing its debt, controlling costs, and capitalizing on its operational improvements to achieve financial stability. The company’s future hinges on its ability to navigate these challenges and secure a sustainable path forward.”-ebusinessweekly
