All factory kilns and mills ran at very high utilisation levels, resulting in the need for increased maintenance costs as a result of both equipment age and higher stress on machinery. The logistics associated with the movement of product around the country increased costs, which in many instances was further exacerbated by having to resort to road transport due to a shortage of rail capacity.

Rail and coal energy cost increases also continued substantially above PPI inflation with pithead prices on some coal contracts increasing dramatically.

Electricity costs are also expected to rise significantly as Eskom embarks on its capital-intensive drive to add much needed capacity.

Growing international energy demand will continue to put pressure on the availability of the appropriate coal quality for cement manufacture. The spiralling international fossil fuel prices and the concerns over the consequent upward pressure on global cement prices are being voiced internationally.

Operating conditions remain difficult.

There are an increasing number of power cuts by the electricity provider, ZESA, impacting on operations, whilst ongoing supply constraints on raw materials, particularly coal, make regular running of kilns and related equipment very demanding.

The deteriorating economic situation in Zimbabwe is such that many skilled workers are leaving the country in search of a better future in the neighbouring countries, particularly South Africa, and the ability to retain staff has become a key focus.

The current cement demand forecast will necessitate the continued high utilisation of older equipment until it can be replaced by new, more efficient plant, and will require increased maintenance cost and capital expenditure to achieve operating efficiencies. Production shortfalls will be supplemented with imported Surebuild cement at little or no margin.

Whilst the incremental manufactured volume from the Batsweledi project as it comes on stream in the second half of 2008 will result in a lower cash cost of production, this benefit is only expected to be realised when regular plant operation is achieved sometime after commissioning. In addition, increased energy, operating and logistics cost in other parts of the business is likely to prevent further widening of the operating margin in the coming year.

The Lime and Aggregate businesses are expected to continue to maintain margins and report improved performance.

Positive market conditions and continued growth in cement volumes should enable the company to report improved performance and operating cash flows for the ensuing year.