LafargeHolcim weathers the pandemic with profits in Q2

Multinational cement manufacturer LafargeHolcim Bangladesh has survived the fallout of the Covid-19 pandemic and made a profit in the second quarter of this year when all of its competitors have incurred losses.

Its own raw material and strong distribution channels have helped the company post a profit of Tk32 crore in the April-June quarter despite suffering a 41 percent drop in sales due to the 66-day countrywide general holiday.

Its competitor HeidelbergCement Bangladesh Limited has failed to make a profit in this tough period.

The German-based multinational cement manufacturer has experienced a 31 percent drop in sales and incurred a loss of Tk18.70 crore.

How have local companies fared in this period?

Md Shahidullah, vice-president of the Bangladesh Cement Manufacturers Association (BCMA) and managing director of Metrocem Cement Limited, told The Business Standard, "The industry needs to run at least at 60 percent capacity to reach break-even. But during the pandemic, most of the companies were running at 40-50 percent capacity."

On Lafarge's making profit during the pandemic, Md Shahidullah said the company produces cement raw material clinkers by itself in India. And it has invested a lot in this backward linkage. So its expenses on raw materials are much lower.

"On the other hand, domestic companies have to import raw materials and pay advance income tax at the import stage. This greatly pushes up their cost of production. Moreover, the import of raw material has been largely affected by the pandemic," he added.

Rajesh Surana, chief executive officer of LafargeHolcim Bangladesh, said in a press release, "The Covid-19 situation is an unprecedented health challenge which has impacted our operations."

"Lafarge was one of the first to move to a remote working concept, protecting our employees and partners. The company has been able to generate online orders even during the lockdown thanks to our investment in digital platforms. We have also been successful in quickly acting on several initiatives towards cost reduction and efficiency improvement projects," he added.

Apart from Lafarge, the lone state-run company Chhatak Cement in the country produces clinkers.

"However, local companies are not capable of making such investments in other countries which have limestone mines," said Md Shahidullah.

The cement industry suffered up to a 46 percent year-on-year decline in sales in the second quarter due to the shutdown, according to the BCMA.

The industry fears that in the coming months, and even throughout the year, the drop in sales will be significant because the economy will take time to revive amid a decline in remittances and people's income.

The pandemic has forced the already-struggling industry, burdened by taxes on raw material imports amid stiff competition, to incur steep losses as it has been paying around Tk100 crore in monthly wages and salaries despite the difficult times it is going through. 

To stay afloat, the BCMA has requested the National Board of Revenue chairman to take proper measures to refund the cement industry's accumulated adjustable advance income taxes totaling more than Tk750 crore. 

Currently, the annual demand for cement is 33 million tonnes, while the industry's installed capacity is 78 million tonnes with another 11 million tonnes expected to be added in the next three years, according to the BCMA. 

That has led to intense competition and a price war amid an escalation in raw material costs and utility bills. 

Many top cement manufacturers–including Crown Cement, Shah Cement, Bashundhara Cement, Premier Cement and Fresh Cement–faced losses in the April-June period, said officials at the companies.

Infrastructure investments from both public and private sectors had helped the cement industry grow at a double-digit rate until 2018. However, in 2019, the industry only grew by 6.38 percent. 

The epidemic as well as the floods have put the industry in further crisis, said Md Shahidullah.

The novel coronavirus shutdown has already caused an estimated Tk3,000 crore loss for the industry as it has all the fixed costs, including salaries and wages of staff. 

The industry needs at least two years to recover from the losses, and it will take more time if the situation does not improve soon, according to the BCMA.