The cement manufacturer issued a profit warning last week citing oversupply of cement due to cheap imported clinker and increased competition in the market. Tanga Cement Chairman Lau Masha said that operating earnings before interest, tax, depreciation and amortisation (EBITDA) decreased by 71.8 per cent to 5.1bn/- on the back of lower cement prices.
“The competitive environment persisted in the period under review leading to lower prices of cement in the market,” he said in statement.
To curb the trend, the firm came up with strategy that saw “significant increase in sales volumes and our market share has improved,”the chairman said. In the period under review the cost of sales ballooned from 50.8bn/- to 64.8bn/-year on year in line with higher sales volumes.
The increasing cost of sale led to a gross profit margin of 17.7 per cent in this year down from a gross margin of 34.1 per cent last year. The revenue grew by 2.1 per cent year on year to 78.8bn/- from 77.2bn/-, driven by higher sales volumes.
“Despite challenging market conditions in the first half of 2017, management remains positive for the medium term outlook with our highly focused sales strategy and improvement in market share.
“Market competition is expected to remain high and management is actively engaged in innovative sales initiatives to maximise sales volumes and prices to improve margins,” Mr Masha said.
Zan Securities Chief Executive Officer, Raphael Masumbuko said this was the first time the firm made such a huge loss but the future of cement industry is still positive. “This I believe is a short term issue.
The issue here is [cheap] imported clinker. Once this is solved Tanga Cement future is promising,” Mr Masumbuko told the 'Daily News' yesterday. The broker and market analyst said Simba share price would not plunge further due to construction sector promising future.
“Long term investors expected to hold their investment since the current construction trend shows positive future ahead,” Mr Masumbuko said.
Bank of Tanzania quarterly report showed slightly increase shares of commercial banks’ credit to building and construction sector to 4.7 per cent in June from 4.5 per cent June last year to total outstanding credit.
On other hand credit annual growth rate of the sector was 5.5 per cent of total loans in the market down from 10 per cent at end of June last year.
According to Tanzania Securities analysis, Simba share plunged 25 per cent to 1,200/- from 1,600/- since January. The share plunge trend was also observed on another cement firm Twiga which since the beginning of this year plummeted 33.62 per cent to 1,520/- from 2,290/-.
Tanzania’s construction industry is projected to have a positive growth trajectory informed by a steady population growth and a younger profile that increases demand for infrastructure, housing and commercial buildings, emerging middle-class, increased consumer activity and access to financial services—banking, mortgages and commercial credit.
SOURCE: DAILY NEWS
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