Simba cement share rally despite losses
Tanga Cement shares have appreciated by 3.95 per cent last week despite its losses growing by 153 per cent in the second quarter.
The Tanga-based cement manufacturer closed the week at 1,580/- with outstanding offers and bids at 1,620/- and 1,520/- respectively.
According to the firm’s financial statement, revenue grew by 50 per cent on a quarterly basis while operating profit went up five times, nevertheless, losses grew by 153per cent–equaled to 2.4bn/- in the second quarter compared to the loss before tax of 0.78bn/- in the first quarter.
Alpha Capital Head, Research and Financial Analytics, Imani Muhingo said yesterday the increased losses were a result of a 24 per cent rise in interest expenses from US dollar loan facilities for Tanga Cement which is pegged to a six-month LIBOR plus premiums of 3.9per cent and 45per cent.
“As developed economies raise interest rates to curb the growing inflation, the Libor rises along with the interest charged on Tanga Cement loan facilities.
The Libor (London Interbank Offer Rate) is the global reference for interbank rates and is usually used as a global benchmark for floating/variable interest rates.
Tanga Cement secured US dollars denominated loan facilities back in 2015 to build a new kiln to increase the company’s annual clinker production capacity by 750,000 tonnes.
The financials showed sales revenue increased by 50 per cent, to 58.2bn/- from 38.7bn/- achieved in the first quarter to March.
Gross profit also increased by 9.0 per cent to 11.2bn/- from 10.3bn/- achieved. The gross margin, however, decreased by 8.0 per cent from 27per cent to 19 per cent in March.
During the same year, the shilling depreciated by 25per cent following a tight election. Consequently, the loan grew by the same.
Loan service ate up profits during the following periods until the company fell into losses in 2017, and despite the company making operating profits for the next three years, significant financial costs led to net losses.
Last year the company recovered to a net profit of 3.5bn/- which was a profit growth of 167 per cent. And despite an operating profit of 1.16bn/- during the first six months of this year, finance costs led to a loss of 2.73bn/-.
Mr Muhingo said another reason for increased losses during the most recent quarter was increased fuel prices, logistics expenses, and frequent power cuts which rose the cost of sales by 66 per cent leading to gross margins tightening by 740bps to 19per cent.
“Power cuts are expected to be a more serious setback in the third quarter since the company reported about 80per cent drop of both, clinker and cement, caused by a significant shortage of electricity supplied to its factory since the beginning of July,” Mr Muhingo said adding:
“Shortage of power not only limits production but adds to expenses since the company is forced to switch to the use of fuel, of which prices have significantly grown in the last year.”
The just released inflation report by the NBS shows the inflation for energy, fuel, and utility index stood at 9.6 per cent for the year ending August while the general headline inflation was 4.6per cent.
Early this month, Simba Cement issued a cautionary statement concerning the acquisition of 68.33percent of its shares by HeidelbergCement Ag, from Afrisam.
The cautionary statement was about the extension of the longstop date from 31st August to 30th September 2022, as the FCC is still deliberating on the deal.
