AFRICA: Portland Cement returns Sh292m full year loss

East Africa Portland Cement (EAPCC) has moved back to the loss-making territory citing rising production and administration costs as the main reason for the outcome.

The firm said it had made a Sh292 million loss in the year to June, compared to a profit of Sh1.8 billion in the same period a year earlier despite growing its revenues by Sh1.3 billion to Sh9.4 billion.

The gains were offset by additional costs of Sh2.2 billion—a signal that costs are running ahead of sales for the cement maker.

“The cost of sales went up 33 per cent mainly due to the increase in the prices of energy, raw materials and maintenance,” said EAPCC in a statement in reference to the losses.

Its rivals— Athi River Mining (ARM) and Bamburi Cement—managed to keep the costs in single digit over the period—putting the efficiency of EAPCC in the spotlight.

EAPCC announced a profit before tax of Sh434 million in the six months to December, 2009, compared to a loss of Sh489 million a year earlier—signalling that the performance of the second half contributed to the losses.

Former managing director John Nyambok left in June, with EAPCC chairman Mark ole Karbolo saying his exit was due to his failure to meet performance targets.

But Mr Nyambok said he resigned because the board failed to approve some of his strategies.

Analysts at African Alliance reckon that EAPCC’s cost per unit is higher than that of its rivals as it uses the more expensive fuel oil to drive its machines as opposed to coal—which is cheaper and less prone to erratic price fluctuations. Bamburi Cement and ARM use coal.

“Portland’s production system is inefficient compared to its rivals, especially on the energy component,” said Mr Francis Mwangi, an analyst at African Alliance, adding that energy costs accounts for about 45 per cent of EAPCC’s production expenditure, with rival firms spending less than 35 per cent on energy costs.

Oil executives say the price of fuel oil has risen by about 20 per cent when comparing the year ended June , 2009 ,and the year ended June 2010.

Coal prices—which are lower than crude—have remained almost the same over the period, according to ARM.

This means that EAPCC earned thin margins in a market that has seen the price of 50kg bag of cement fall 10 per cent this year following a price war.

EAPCC managed to grow sales on low prices but sacrificed margins unlike Bamburi, which lost market share and revenues as it was reluctant to cut prices by huge margins.

Bamburi Cement saw its sales drop to Sh13 billion from Sh16.2 billion in the six months to June—leading to a 23 per cent drop in profits.