Portland eyes cash injection to return to profitability

**Simon Peter Ole Nkeri managing director East Africa Portland Cement. Photo: Wilberforce Okwiri/Standard)**

East African Portland Cement Company (EAPCC) is staring at an uncertain future as the State-owned cement maker seeks to raise billions to remain afloat.

The woes of the State-controlled cement maker are compounded by decades-long court cases that the firm says had been instigated by private developers eying the firm’s Sh17 billion prime land.

Today, Simon Peter Ole Nkeri, the new CEO of EAPCC is placing his bets on an ambitious turn-around strategy to raise fresh capital, but the success of it is dependent on the Government making good on its long-overdue pledge to reduce its controlling stake in the firm.

Forensic audit

“The board and management contracted independent auditors EY to carryout forensic audit and the report has been submitted to the board for implementation,” he explained.

Ole Nkeri further explained that the audit identified key areas where the company’s finances were mismanaged in the last five years and that prosecutions could be on the way for employees implicated in the fraud.

Late last year, Auditor General Edward Ouko flagged the firm’s financial returns that carried Sh1.5billion in operating loss, the amount is thrice the Sh608 million recorded in a similar period the previous year. “The Group’s current liabilities during the year ended June 30th, 2016 exceeded its current assets by Sh2.8 billion,” he explained in a letter accompanying his audit statement. He later gave an unqualified opinion on the accounts. Late last month, EAPCC’s annual general meeting aborted at the very last minute after the company’s auditors failed to turn up. The following week, the board sought to calm the shareholders, outlining the path the company is taking towards recovery.

“We had a lot of legacy debt owed to our suppliers and as at June 30th , last year, this stood at Sh1.6 billion,” explained Ole Nkeri. “We have since brought this down to Sh1.1 billion without having to borrow from commercial banks, which shows our liquidity is robust.”

A bigger cause of worry (or potentially the solution) for the troubled cement firm is unlocking Sh17 billion in prime land in Athi River, Kibini and Bissel areas of Kajiado.

The firm claims that individuals have already caused the firm to lose Sh2 billion worth of value of the prime land and are using the courts to prolong their occupation.

“The fair value of the two properties located in Athi River without any restrictions on use arising from the invasion of squatters would have been Sh17.2 billion but as a result of this invasion its revaluation gives an estimate of Sh15.7 billion,” states the firm in its latest annual report. In 2015 EAPCC’s board of directors gave the go-ahead for the sale of the firm’s 1,300 acres of land in Athi River. The move was however thwarted by the Government that holds majority shareholding.

Early this month, Nairobi Senator Mike Sonko once again called on the Government to resettle Mavoko squatters on the EAPCC land in Athi River claiming ancestral rights.

EAPCC has gone to court seeking orders to begin evictions and the firm has ruled out ceding the land and instead stated that the Government will explore alternative options for using the land without necessarily selling it. “The board is not going to sell the land to individuals,” Ole Nkeri explained. “We have made the proposal to the National Treasury and the Government can identify investors who can lease the land.”

Economists and shareholders have continually asked the Government to reduce its shareholding in the firm in order to unlock its competitiveness.

Analysis from AIB Capital into the country’s cement industry released last year indicates that East Africa is a leading frontier for cement demand. Oxford consulting group reckons that there is immense opportunity in Kenya’s cement industry.

PROJECTIONS

“The growth in construction activity has been a boon for producers, but the scope for further increases in the near term is sizeable, given that Kenya’s per-capita consumption remains well below that of other major economies on the continent,” explained the think tank in its recent report.

Annual per-capita demand for cement averages 100 kg in Kenya compared with 506kg in Egypt and 230kg in South Africa, countries with relatively developed infrastructure networks. This means that Kenya has the potential to broaden the local cement manufacturing capacity and create enough opportunity for both local players and new market entrants.

This might be a long time in coming as it is hinged on the Government reducing its shareholding as part of long-delayed efforts to privatise the loss-making parastatals.

“The board has not yet made thought about reorganising the existing shareholding and if this were to happen it would be as a last resort,” Ole Nkeri explained.

“But in case we have a rights issue and the Government decides not to take up its share then automatically the shareholding will change.”

Mr Solomon Kitungu, executive director of the country’s privatisation commission however explains that the privatisation of EAPCC, as well as other parastatals, is not imminent.