East African Portland Cement (EAPC) will slash its dividend payout in future to boost its cash reserves for financing expansion, managing director Kepha Tande has said.
Shareholders of the cement manufacturer will earn a dividend of Sh0.50 per share this year, after going without any payout last year.
Mr Tande said EAPC has lined up capital-intensive projects in the medium term which will take up most of the listed firm’s cash reserves.
The projects, Mr Tande said, include construction of a new multi-million shilling grinding plant in Kitui County.
EAPC, which is ranked as the second largest cement maker by market share, spent Sh1.4 billion to install a coal-powered kiln this year, which it hopes will cut its reliance on costlier fossil fuels.
“We have a focus on slashing our dividend payout moving forward to help us finance new capital projects that would be critical to enable the company gain market share and a competitive edge,” said Mr Tande.
EAPC paid a dividend of Sh1.30 per share in 2009, which was half the amount paid in 2007 after going 2008 without any payout.
Mr Tande said the dividend payout in the subsequent reporting periods would “certainly be lower.”
Portland Cement is facing stiff competition especially from newer entrants. It is betting on its newly-acquired status as a public limited company to increase its competitiveness and profitability. The cement maker joins other listed companies that have recently put shareholders on notice for lower dividend pay, as corporations turn to internally generated funds to finance its expansion in the face of growing uncertainty in the financial markets.
CFC Stanbic Bank, Standard Chartered and Cooperative Bank, have all announced plans to retain most of their earnings to boost their capital ratios as set by industry regulator, the Central Bank of Kenya.
Lucas Otieno, an executive director at Faida Investment Bank said a more conservative dividend payout policy reveals a cautious attitude by executives in view of the rising cost of funds in the financial markets going into the election year.
“The main concern for most companies is the cost of funds which is likely to be higher next year,” said Mr Otieno.
“The State is likely to continue raising funds from the capital markets to fund infrastructural projects, the General Election and the devolved governance system—meaning higher cost of funds,” he said.
CFC Stanbic Bank will retain at least half of its net profits this year to boost its capital base even as it plans to raise fresh funds through a rights issue expected in the second quarter of next year.
Co-operative Bank has said it will hold its dividend pay-out at last year’s level to finance growth and boost its capital ratios until 2013, when it intends to do a rights issue.
Standard Chartered Kenya’s management has said it is looking at a combination of profit retention, rights issue and, or, a subordinated debt to raise its capital base next year.
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