Tanga Cement
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Chairman's Statement
 

Introduction
It is with pleasure that the audited trading results of Tanga Cement Public Limited Company for the year ended 31st December 2016 are presented.

We are proud of the significant role Tanga Cement PLC continues to play in Tanzania to ensure sustainable economic growth and development through the pillars enshrined in our strategic narrative of “STRENGTH WITHIN”. Our commitment to our stakeholders through its premier Simba Cement brand continues to be clear as we uphold and honour the strength within our people for what we have and will still achieve.

Macro-Economic Overview
Our growth in business continues to be anchored on the economic progress of Tanzania. The Tanzanian Shilling maintained its stability against the dollar throughout 2016, due to improved performance recorded in the export values of travel, manufactured goods and gold whilst traditional exports declined. Tanzania also experienced a year of political stability following the election of President Magafuli. The annual headline inflation rate decreased to five point zero percent (5.0%) in 2016 from six point eight percent (6.8%) recorded in 2015, as a result of strict fiscal and monetary policies.

In the year under review, Tanzania’s GDP grew by an estimated six point eight percent (6.8%) compared to seven percent (7%) in 2015. This was supported by growth in various economic sectors mainly: Mining, Construction, Telecommunications and Agriculture.

The construction sector is estimated to have expanded by seven point three percent (7.3%) in 2016, at a slower rate compared to 2015 due to stalled public infrastructure projects rollout and rapid policy changes which precipitated uncertainty for businesses. Nonetheless, projected

infrastructure development and anticipated sector growth attracted new entrants into the cement industry keen to earn returns from increased demand, as well as the influx of cheap imported cement by middlemen during 2015 and early 2016. To address the issue of cheap imports, cement companies in Tanzania through the Tanzania Chapter of East African Cement Producers Association (EACPA), engaged the Government which imposed an additional ten percent (10%) excise duty up to thirty five percent (35%) on imported cement for a year

We remain optimistic of the ambitious infrastructure development plans under the Government’s Development Vision 2025 programme and expect the projects to pick up momentum in the second quarter of 2017. Tanga Cement PLC has capacity to meet a large share of the cement demand in the country and remains committed to production of superior cement products.

Financial and Operational Overview
In the year 2016, our business focus was on profitability driven by operational efficiency and overall business effectiveness in order to remain competitive in challenging market conditions.

During the year, the company commissioned the second integrated cement production line with a new kiln at its Tanga plant, eliminating the need to purchase clinker and delivering additional revenue from the sale of excess clinker. As a result, our clinker production capacity increased to One million two hundred fifty thousand tonnes per annum (1.25 mio tons/yr) in 2016. The company made its first clinker sales in the year under review, following the commissioning of the second kiln.

Market headwinds during the year under review negatively impacted Tanga Cement’s sales revenue by twenty percent (20%) year-on-year from Tanzania Shillings two hundred and nine billion (TZS 209 bn) in 2015 to Tanzania Shillings one hundred sixty seven billion (Tzs167 bn) for the year under review due to continued competitive market pressure and lower infrastructure project spending from Government.

The company’s focus to improve operational efficiencies and cost management initiatives, was one of the main drivers of the sixteen percent (16%) growth in Gross Profit to Tanzania Shillings fifty four billion (Tzs54 bn) year-on-year. We managed to keep operating costs low and will continue to monitor and control costs to identify areas of saving without compromising on product quality.

The reduced manufacturing cost base positively impacted Operating EBITDA by thirty one percent (31%) to Tanzania Shillings thirty eight billion (Tzs38 bn) over Tanzania Shillings twenty nine billion (Tzs29 bn) achieved in 2015.

Operating Profit is down zero point five percent (0.5%) to Tanzania Shillings nineteen point eight billion (Tzs19.8 bn) compared to Tanzania Shillings nineteen point nine billion (Tzs19.9 bn) in 2015 mostly due to the anticipated One hundred ninenty eight percent (198%) increase in depreciation resulting from the extensive capital expansion of the new integrated production line that was commissioned in early 2016.

Profit before tax declined to Tanzania Shillings five point seven billion (Tzs5.7 bn) from Tanzania Shillings eight point seven billion (Tzs8.7 bn) in the prior year as a result of the increased financing cost of the senior debt which financed the expansion of our production capacity.

The Group recorded a net profit after tax of Tanzania Shillings four point three billion (Tzs4.3 bn) which is down from the Tanzania Shillings eight point two billion (8.2 bn) of 2015 impacted by the tax charge for the year

Cash flows from normal trading activities improved by fifteen percent (15%) to Tanzania Shillings thirty five point nine billion (Tzs35.9 bn) in 2016 underlining the positive performance of the Group in a very competitive cement market.

The company utilised a significant portion of available free cash to settle capital expansion costs instead of utilising the full available loan facilities. This initiative will significantly benefit the company’s financing costs expenditure in the long term. Accordingly cash on hand at 31 December 2016 decreased to Tanzania Shillings two point five billion (Tzs2.5 bn) from Tanzania Shillings eighteen point three billion (Tzs18.3 bn) in the prior year.

Tanga Cement PLC remains committed to its sales and cost optimisation initiatives as it continually seeks to enhance value for its stakeholders. The company remains positive about 2017 despite the competitive landscape. Government initiatives to spur economic growth through infrastructure development and promotion of local industries, will boost local cement output and consumption while reducing the influx of cheap cement imports.

Dividend
Subsequent to year-end, the Board proposed a final dividend for 2016 totalling Tanzania shillings one point five nine two billion (Tzs1.592 bn) (2015: Tzs1.592 bn) being Tzs25 per share (2015: Tzs25 per share). The total dividend proposed for the year amounts to Tanzania shillings five point zero nine four billion (Tzs5.094 bn) (Tzs80 per share) [2015: Tanzania shillings five point zero nine four billion (Tzs 5.094 bn) (TZS 80 per share)] which will be recommended to shareholders at the upcoming annual general meeting in May 2017.

Conclusion
Tanga Cement PLC remains grateful to its staff for their passion and dedication to the company and to its customers for their belief in the Simba Cement brand, as the company works to achieve its short-term and long-term goals.

With Tanzania being the second-largest construction market in East Africa, cement output is anticipated to increase and Tanga Cement is well positioned to take advantage of the growth opportunities in the market. We look forward to reaching greater heights together in 2017 in co-operation with all our stakeholders.

Advocate Lau Masha
Chairperson of the Board

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