Tax credit pushes Portland Cement back to profit zone

Tax credit pushes Portland Cement back to profit zone
Published: 28 October 2011

A tax credit has seen Kenyan cement maker East African Portland Cement Company (EAPCC) return to the profit zone despite the weakening of the local shilling against the Japanese yen having eaten deep into its earnings.

The firm reported a net profit of KES561m (US$5.7m) in the year to June compared to a loss of KES284m as its sales grew eight per cent to KES10.1bn.

The return to profit was attributed to a KES680m tax credit that wiped a pre-tax loss of KES119m under a government initiative which rewards firms that install energy conserving equipment.

This allowed the firm to offer a dividend of KES0.50 a share in what is a boon to its shareholders who have seen the share shed 59.4 per cent over the past year to trade at KES55. It did not pay a dividend last year.

“A tax credit of KES680m arose from reduction in deferred tax liability following the commissioning of the coal—firing plant,” said the firm in a statement to the Nairobi Securities Exchange (NSE)
EAPCC hopes the coal plant—which cut its energy costs by 35 per cent in the second half – will reduce its energy costs by half in the year to June 2012 and help improve its profits.

Portland Cement earnings have been hurt in recent years by the depreciation of the Kenyan shilling against the Japanese yen, which pushed up the cost of repayment of a yen-denominated loan.

The company took the loan of KES1.7bn in 1990 at a concessional rate of 2.5 per cent, but despite servicing it since 2000, it still has KES3bn to settle. EAPCC has hedged 25 per cent of the loan and is seeking to swap the remaining yen loans with either shilling or dollar-dominated this year to reduce exchange losses.