Portland predicts 25pc profit drop

May 18, 2009
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, NAIROBI, Kenya, May 18 – East African Portland Cement Company (EAPCC) warned on Monday that its annual profit may fall by more than 25 percent, compared to last year’s, as a result of higher fuel and energy costs in the country.

EAPCC Chairman Mark Ole Karbolo said that the price of oil used in the company’s furnaces had almost doubled, while electricity costs have surged 82 percent to Sh11.99 kWh.

“The global rise in fuel prices experienced in the latter part of 2008, meant that the average cost of furnace oil this financial year was Sh50,696 per metric tonne compared to Sh34,344 in the previous year, which represents a 48 percent increment,” the chairman said in a statement to the Nairobi Stock Exchange (NSE).

The company pre-tax profit for the year ended June 2008 plunged by 35 percent from Sh1.1 billion in 2007 to Sh715 million, which was attributed to foreign exchange losses due to a depreciating Kenyan shilling.

He said that the combined impact of these increases cost the company an additional Sh426 million by the end of March this year.

Mr Karbolo said that although cement production and revenues were up three percent and 10 percent respectively on the previous year\’s, the impact of high costs had eroded those gains.

Further, the cement manufacturer, which is the second largest producer in the country, is faced with high repayment rates of their Yen-denominated loan occasioned by the strong Japanese currency.

Between July 2008 and March 2009, the Yen had appreciated 34 percent to close at 0.8213 thus resulting in the unrealised exchange loss of Sh896 million.

Borrowed in 1996, the loan was Sh1.7 billion but due to the fluctuations in the currencies, it has soared to over Sh4 billion.

“Repayments of this loan are on schedule and the company sees no difficulty in maintaining this,” Mr Karbolo assured of the debt, which as at March this year stood at Sh4 billion.

EAPCC recently invested Sh1.8 billion in a plant expansion project that is expected to boost production capacity.

The cement manufacturer is one of the companies that have been earmarked for a second phase of privatisation. The Government is planning to offload its 25 percent stake in the company through the NSE. Lafarge and the National Social Security Fund hold another 42 and 27 percent respectively. Only six percent trades at the bourse.

The divestiture programme has however not been drawn up yet.

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