Port­land ce­ment in a fi­nan­cial, oper­a­tion storm, now bank­ing on land sale pay­ment

The East African - - NEWS - By AL­LAN OLINGO The Eastafrican

EAST AFRICAN Port­land Ce­ment Com­pany (EAPCC), once the re­gion’s lead­ing ce­ment pro­ducer, is in trou­ble.

In the past two months, the firm ex­pe­ri­enced op­er­a­tional chal­lenges, which at some point saw its pro­duc­tion halted, salaries de­layed and ce­ment stock al­most run out.

It is now bank­ing on re­ceiv­ing $100 mil­lion, in the short term, from the Kenya gov­ern­ment through a land sale deal, to stay afloat.

Port­land ce­ment in Fe­bru­ary an­nounced that its net loss for the six months to De­cem­ber had wors­ened nearly four times to $9.6 mil­lion on lower rev­enues. The firm’s full year re­sults for the year end­ing June 2017 stood at a loss of $14.71 mil­lion from a profit of $41.45 mil­lion over a sim­i­lar pe­riod in 2016.

The Eastafrican has learnt that in March, the firm halted pro­duc­tion af­ter it failed to re­ceive key raw ma­te­rial. This led to a near­stock­out, deny­ing it the much needed rev­enue.

A source fa­mil­iar with the sit­u­a­tion told The Eastafrican that the firm’s out­put slowed down to 35,000 tonnes last year, from its break-even of more than 75,000 tonnes. “In the stores, we have less than 2,000 tonnes of ce­ment and this is now point­ing to a se­ri­ous prob­lem in the com­pany,” the source added.

While chief ex­ec­u­tive of­fi­cer Si­mon ole Nk­eri ad­mits to the pro­duc­tion chal­lenges, he blames in­ac­ces­si­bil­ity of some of the quar­ries, where the raw ma­te­rial is found.

“It is true that we didn’t have pro­duc­tion run­ning in some days in March be­cause the ac­ces­si­bil­ity to the lime­stone quar­ries were se­verely af­fected by the rains. This saw our pro­duc­tion thresh­old drop sig­nif­i­cantly. This af­fected us on the ce­ment stock end too but I am cer­tain that our seven de­pots around the coun­try had enough stocks,” Mr Ole Nk­eri said, adding that the firm is also strug­gling to ac­cess clinker and coal, whose im­por­ta­tion costs per tonne has risen to a high of $170.

The ce­ment maker also said it has man­aged to sort out the is­sue of raw ma­te­ri­als avail­abil­ity that will now see the fac­tory run smoothly but ad­mit­ted that it doesn’t have the fi­nan­cial mus­cle to mit­i­gate this stock out through ad­vanced ware­hous­ing of th­ese key raw ma­te­ri­als.

“We do not have the fi­nan­cial mus­cle to stock up th­ese raw ma­te­ri­als and mit­i­gate against pro­duc­tion hitches. How­ever, as we speak, we have man­aged to sort out the chal­lenges in ac­cess­ing lime­stone. We have enough stock to help us run to the next two weeks. We also have stock for the other in­gre­di­ents needed that could stretch for the next up to 45 days. The only chal­lenge we still face is ac­cess to coal and the high cost of elec­tric­ity,” said Mr Ole Nk­eri.

How­ever, The Eastafrican un­der­stands that the firm is yet to meet the mar­ket weekly de­mand of its prod­ucts as its pro­duc­tion still falls be­low tar­gets.

“The de­mand is higher than 4,000 tonnes a day yet we haven’t man­aged to sell 2, 000 tonnes a day be­cause of stocks is­sue. The prob­lem isn’t on sales but pro­duc­tion,” The Eastafrican was told.

Port­land also de­nies any de­lay or chal­lenges in pay­ing its staff salaries, de­spite the funds tak­ing al­most two weeks to get to em­ploy­ees ac­counts.

The firm said that the ‘two days’ de­lay in March was ex­pected mostly as a re­sult of the banks pro­cess­ing is­sues sur­round­ing the Easter hol­i­days. The firm’s staff costs has risen to $28.4 mil­lion an­nu­ally last year from $27.35 mil­lion, the pre­vi­ous year.

“In my 20 months at the helm, we haven’t had any de­lay in the pay­ment of salaries. This was some­thing that used to hap­pen in the past, mostly be­cause the firm re­lied on debts and over­drafts fa­cil­i­ties for its re­cur­rent bud­get but we have since cor­rected that,” Mr Ole Nk­eri said.

In the six months to De­cem­ber last year, Port­land saw its rev­enue de­cline by 18 per cent, which it blamed on slow mar­ket up­take on ac­count of pro­longed elec­tion pe­riod. It also said the knock on ef­fects of in­ter­est rates cap­ping had a neg­a­tive im­pact on its rev­enues. The fi­nan­cially strug­gling ce­ment maker saw its rev­enue drop by $6.5 mil­lion in the six months to De­cem­ber last year to $30.1 mil­lion, with man­age­ment at­tribut­ing this drop to pol­i­tics dur­ing the elec­tions last year. Its cost of sales dropped by five per cent to $28.8 mil­lion, but man­age­ment says th­ese ex­penses would have been even less were it not for an in­crease in price of coal and elec­tric­ity.

“Our out­look is pos­i­tive as long as we are able to sort our legacy is­sues and mostly the debt. We be­lieve that the gov­ern­ment’s push for af­ford­able hous­ing and a re­vamped man­u­fac­tur­ing sec­tor un­der its Agenda Four ini­tia­tive will ben­e­fit us. In the short term we need around $100 mil­lion to steady the ship but for us to go back to our glory days and take back the lead­er­ship in the mar­ket, we will need around $450 mil­lion,” Mr Ole Nk­eri said.

The Eastafrican un­der­stands that the ce­ment firms is at an ad­vanced stages over dis­cus­sions to sell more than 14,000 acres of land to gov­ern­ment, which will be trans­ferred to the newly es­tab­lished Spe­cial Econ­omy Zones Au­thor­ity funds that will boost its bot­tom-line. The firm’s board is said to have re­ceived Cab­i­net ap­proval last year for the sale.

“The val­u­a­tion of the land has been done and the firm will be meet­ing with its par­ent min­istry and the Na­tional Trea­sury in the com­ing weeks as it seeks to un­lock th­ese funds,” The Eastafrican was told.

Mr Ole Nk­eri de­clined to dis­cuss this trans­ac­tion, in­stead say­ing that the in­jec­tion of funds from its share­holder, the Kenyan gov­ern­ment and La­farge, could be the way to go to sort out its short term needs.

“If th­ese funds do not come, then the share­hold­ers and the board will de­ter­mine where they want the firm to go,” he said, adding that if they re­ceive the short term fund­ing, then they’ll be de­ployed to re­pay debt and in­vest in new plants and up­grade the ex­ist­ing fac­tory,” said Mr Ole Nk­eri “As it is we have an out­dated kiln, whose re­fur­bish­ment or mod­erni­sa­tion will cost around $20 mil­lion.”

The firm is cur­rently be­dev­illed by debt with fi­nance cost for the year to June 2017 ris­ing to $6.17 mil­lion, with in­ter­est charged on its over­drafts and loans tak­ing a bulk of this at $5.01 mil­lion.

Its to­tal debt for 2017 stood at $26.34 mil­lion, with $8.9 mil­lion of this ex­pected to be paid be­fore the end of June. Out of its to­tal loans, $10.54 mil­lion is owed to the Over­seas Eco­nomic Co-oper­a­tion Fund of Ja­pan. This is guar­an­teed by Kenya and is re­payable in 41 half yearly in­stal­ments by 20 March 2020 with in­ter­est ac­cru­ing at 2.5 per cent an­nu­ally.

In its full year re­port for 2017, Port­land said that the fund in­jec­tion from its share­hold­ers would sup­port cap­i­tal­i­sa­tion of the busi­ness, mod­erni­sa­tion of the age­ing plant and en­hance­ment of the cur­rent work­ing cap­i­tal fa­cil­i­ties for im­por­ta­tion of bulk raw ma­te­ri­als to en­able op­ti­mi­sa­tion of the cur­rent in­stalled ce­ment milling and pack­ing ca­pac­ity.

In the short term we need around $100 mil­lion to steady the ship but for us to go back to our glory days we will need around $450 mil­lion.” Si­mon ole Nk­eri, CEO Port­land ce­ment

Pic­ture: File

East African Port­land Ce­ment Com­pany stand at a hous­ing expo in Nairobi.

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