East African Portland Cement Announces Full Year Results

E.A. Portland Cement Limited announced results for the full year ended 30th June 2015 with the following highlights:

The cement manufacturer posted a 7% decline in turnover levels to KES 8.42Bn, which was largely attributable to the prolonged plant shutdown undertaken between October-December 2014, resulting in waning of the cement production. The shutdown was mainly to facilitate installation of a new dust management plant and upgrading of the plant which could help reduce on inefficiency of equipment, occasioned by frequent breakdowns.

Gross profits were down; 24% to KES 1.83Bn, on the back of overreliance on expensively purchased clinker during the shutdown period. Approximately KES 1.1Bn was spent on purchased clinker which elevated the cost of sales. This resulted in a deterioration in the GP margin from 26% in 2014 to 22% in 2015.

Impressively, the firm slashed its administrative and selling expenses by 6%; a resultant effect of the tight cost management adopted during the period. This did not however cushion the firm from incurring an operating loss of KES 577Mn; a 521% rise from KES 92Mn (2014)

Finance costs soared by 16% to KES 369Mn, propelled by the use of additional debt capital to finance the development projects for the new packing and feeding lines for the cement mills. This resulted in a loss before tax of KES 768Mn without accounting for the fair value gain on investment property. This translated to a weakening of the LBT margin to -9.1% (2015) from -4.1% (2014).

The firm’s financials were not fully reflective of profitability from normal operations, as the good performance was majorly boosted by a KES 174Mn forex gain, a KES 836Mn realised gain on disposal of a piece of land compulsorily acquired for the SGR project and a KES 7.2Bn revaluation gain on investment property.

Outlook:

Increased competition in the cement industry is set to see protraction of price wars among the key players, thus maintaining low prices in the foreseeable future. Focus on increased value chain improvements such as installation of a new clinker cooler for the kiln expected in Q1 2016 will help stabilize clinker production. In addition, we anticipate that this will spur cost reduction and increase efficiencies in production and manufacturing processes, resulting in improved margins. Better-quality margins will give the cement manufacturer a competitive edge against other players, in an industry succumbing to price wars.