[2008-09-24]  East African Portland Pre-Tax Profit Dips to Sh715 Million

East African Portland Cement has announced a 36 per cent drop in its pre-tax profit for the year ending June 2008 as exposure to a foreign currency loan took a toll on its books.
The listed cement manufacturer recorded a pre-tax profit of Sh715 million against Sh1.1 billion recorded in the year to June 30, 2007.
The reversal in profit came despite the company recording a 48 per cent increase in its operating profit for the year to June 2008 - Sh1.1 billion against Sh757 million recorded in 2007.
By holding a Japanese yen-denominated loan, the Athi River-based cement firm recorded a Sh345 million unrealised foreign exchange loss against a gain of Sh517 million recorded in the year to June 2007.
The loss was as result of the Kenya shilling weakening against the Japanese yen, with the translation of the loan balance increasing the amount of loan payable in local currency.
The company obtained a Sh1.7 billion yen-dominated loan in 1996 to expand its production capacity, but due to strengthening of the yen over the Kenya shilling, the loan snowballed to stand at Sh4 billion by 2005.
The company's long-term loan currently stands at Sh3.8 billion.
The company has for the last one decade unsuccessfully been trying to retire the loan to mitigate the losses.
However, being a government-to-government arranged loan, possibility of earlier retirement of the loan has been elusive.
The fall in profitability is despite the company recording a 13 per cent increase in sales, partly driven by the increase in cement price.
"Price adjustments were however not sufficient to offset inflationary cost increases in fuel, input prices and distribution cost," the management said in a press statement released on Tuesday.
The company is set to commission its new clinker expected to increase its production to meet rising demand for cement locally and regionally.
The construction of the new clinker was initiated last year in a project initiated last at a cost of Sh1.8 billion.
The additional cement milling capacity will be commissioned in December this year while the coal conversion plant will replace furnace oil in due course," the statement added.
With the fund used to finance the project coming from internal sources, the company director noted that they will not be proposing any dividend.
Going forward the directors projected that the current high inflationary pressure will likely dampen its profitability for the current year to June 2009.

Source: Allafrica