KENYA: Cement firm sinks into huge net loss

East African Portland Cement has reported a massive Sh386.6 million net loss for the year ended June 30, a steep slide from a Sh1.78 billion net profit in the previous financial year.

The NSE-listed cement maker, which is majority owned by the State, blames poor show on a “difficult trading environment characterised by price competition, high staff costs and a weakening shilling”.

EAPCC said stellar performance in 2012/13 included Sh730 million in fair value gain on its property investments and an additional Sh594 million in foreign exchange gains, hence the stark dip in 2013/14.

Sales declined slightly in the period to Sh9.06 billion from Sh9.21 billion a year earlier on reported price undercutting in the increasingly competitive market. This was despite a two per cent growth in sales and production volumes.

“Turnover decreased by two per cent over prior year due to price reductions,” the firm said in a statement late Friday.

Pricing of cement has been under focus, with the competition watchdog – the Competition Authority of Kenya –opening an inquiry into influence of Lafarge Group on the market in May.

The French conglomerate owns a 58.9 per cent stake in Bamburi cement, the largest player in Kenya by market share, and 42 per cent in EAPCC.

The state controls a majority 52 per cent stake in EAPCC – 25 per cent directly through the National Treasury and 27 per cent indirectly through the National Social Security Fund.

Industrialisation Principal Secretary Wilson Songa argued last February that Larfarge's cross-shareholding in Bamburi and EAPCC bordered on “monopolistic” influences in the cement industry. The case is pending before the High court.

Bamburi reported a 28.1 per cent drop in net profit for the half-year period to June 2014 to Sh1.6 billion, but sales revenue was up by 8.9 per cent to Sh17.2 billion, nearly double EAPCC's full year’s Sh9.06 billion.

Although EAPCC's cost of sales contracted by a slim 3.3 per cent to Sh6.88 billion on “successful cost management and increasing efficiency”, administrative expenses edged higher by 33.5 per cent to Sh2.79 billion eating into profit.

It blamed the spike on Sh400 million spent on management and staff restructuring following a job evaluation, and Sh200 million paid to disputed contracts that went through arbitration in the focus year.

The cement maker however forecasts that its fortunes will rebound from this year on heavy infrastructural spending by the government and large scale real estate developments by the private sector.

“...the industry has attracted large investments by new and existing players hoping to cash in on the boom. The company has not been left behind and is aggressively investing in new machinery and equipment to improve efficiency and capacity,” EAPCC said.

EAPCC hopes to increase annual production capacity by 400,000 tonnes from this year, leveraging on a new pre-cast plant, packaging line, cement mill feeding system, among other new capital investments, at a cost Sh2.5 billion.

The bitter shareholder dispute pitting the government and Larfage, which started in 2012 with the latter insisting the state should dilute its shareholding, remains unresolved.

The two parties differed over Lafarge's nominee to the board, Didier Tresarrieu, during a heated general meeting last December which led to the ouster of former chairman Mark ole Karbolo last February. President Uhuru appointed former CMC chief executive Bill Lay to the position.