EAPCC to announce a drop in profits after turbulent year

BY JOHN NJIRAINI

Cement manufacturer, East Africa Portland Cement Company (EAPCC) will announce its 2009/10 full year results this Thursday, on the backdrop of a turbulent year.

A source close to the company’s board told The Standard profitability dipped due to a nagging Japanese loan, competition, and boardroom squabbles that resulted in the resignation of former Managing Director, John Nyambok, in July.

"The results for this year are not as good as last year, because of a number of things, including the Japanese loan that continues to eat into our earnings," said the source on condition of anonymity because the results have not been officially released.

During the 2008/09 financial year, EAPCC posted an impressive 18 per cent increase in pre tax profit of Sh2.8 billion, from Sh1.1 billion the previous year. The surprise surge in profitability was attributed to maximisation of operation efficiencies, reduced production costs, streamlined procurement systems, and a wide range of cost saving measures the company had implemented.

But these measures seem to have been shortlived, particularly after the company recently sought the services of a forensic investigator to unearth the level of graft in its procurement department.

Moreover, differences between the board and management on the company’s strategic direction, and the subsequent resignation of Nyambok after only two years at the helm of a company that has witnessed high turnover of senior managers, seems to have hurt its performance.

It is, however, the strengthening of the Japanese yen and its effects on a $22.6 million loan that the company procured in 1996 that is expected to have the most significant impact on EAPCC’s earnings. The loan had ballooned to $53.4 million by 2008. According to the Central Bank of Kenya, Japanese yen has appreciated from 81 Japanese Yen against the shilling to 94 over the past three years. This has increased the annual average exchange rate from Sh55 to Sh87 for every 100 Japanese yen.

In effect, this has made EAPCC repayment of the loan an expensive affair. Last year the company announced plans to float a convertible bond to raise money to hedge the loan, but this move seems to have stalled.

"The yen-dominated loan poses perpetual foreign exchange risks to the company if the exchange rate shifts unfavourably," states the company 2008/09 financial report.