East African Cables banks on Sh20b sweetheart deal with Kenya Power
By Lee Mwiti | April 30th 2016
East African Cables has landed a lucrative Sh20.2 billion contract with Kenya Power to supply cables that will be used in the Last Mile Connectivity programme.
Kenya Power has been importing cables from Chinese and Indian manufacturers, spending billions of shillings a year to purchase copper transmission wires, which are required to connect electricity to households and industries.
As Kenya invests more in power generation and meets the demand for increased connectivity, the Nairobi Securities Exchange-listed company is well placed to profit. The firm, which exclusively manufactures electricity transmitting cables, has struggled to make money in the face of increasing competition from these Asian giants.
It is now banking on a share of these Kenya Power billions to appease shareholders who have gone without dividends for years.
Hope for dividends
In fact, the management led by board chairman Zeph Mbugua is so confident about the impact of this deal that it has assured investors that they would take home dividends this year. The company suffered a loss of Sh1.09 billion last year.
At its AGM on Thursday, Mr Mbugua said competition from Chinese and Indian products, as well as a fall in metal prices internationally affected the company’s performance in the last financial year.
He also blamed a long process of constructing a new aluminum plant which took two years, as well as time spent replacing old, worn-out equipment as the reason for the low production and therefore the losses posted.
The company’s run-down steel and aluminum plants at its industrial area headquarters in Nairobi could not satisfy the huge demand brought by a booming construction sector that grew by 14 per cent last year. Also, the cable-maker had sought to improve on modern cable-making techniques, which would lower the cost of production and attract big customers who had hitherto ignored it.
“We always knew the Chinese and Indians will come here. It’s an open market so we don’t complain. For the last two years, we have been putting up new technology which will produce better products than our competitors and hence, we are ready to take over the market again. We are also training our staff on the new technology,” Mbugua said.
He also said any company involved in a long process of replacing its machinery which is in form of heavy copper and aluminum equipment is bound to post losses.
Agitated shareholders were keen on measures the company was taking to revive itself, prompting CEO Peter Arina to assure them that the completion of the new aluminum plant and the Kenya Power deal would boost dividends.
The issue of East African Cables’ parent company Transcentury Ltd stood out saliently like a sore thumb. But Mbugua was quick to explain that the troubles bedeviling Transcentury had not reached at the subsidiary level.
“We have stood strong as a company. In fact, the parent company has lent us money as we seek recovery,” Mbugua said.
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