East African Portland Cement posted a 15 per cent drop in pre-tax profits in the year ending June 2006.
The cement maker returned profits of Sh924 million, compared to Sh1 billion in the year ending June 2005, with a significant 54 per cent increase in expenses.
For the post-tax profits the drop was 32 per cent to Sh412 million compared to Sh608 million for the year ending June 2005.
Despite the lower profits, the board of directors is recommending a final dividend of Sh1.30 making a total of Sh2.60 per share compared to Sh2.50 per share given in the year ending June 2005.
However, turnover was 15 per cent up to Sh6.18 billion from Sh5.36 billion in June 2005. The increased turnover was a result of the resurgence in the building and construction sectors both locally and in the regional markets.
The firm said the decline in pre-tax profits was due to high energy costs which impacted negatively on production and distribution. The dividend will be paid on or around December 28 this year for those shareholders who will have been registered by December 8 this year. The company’s cash flow, however, looked healthy, with Sh2.56 billion compared to Sh2.29 billion by the end of the same period last year.
On its future outlook, the company noted that the volatility of the foreign currency exchange rate, transport, power and fuel oil costs poses the biggest threats to the company’s operations in the coming year.
To position itself in the regional market, the firm is set to expand capacity.
It should benefit from the continued growth of the building and construction sector. Government reports said construction grew in 2005, with cement consumption increasing by 10.9 per cent from 1,418,300 metric tonnes in 2004 to 1,572,500t in 2005.
Cement consumption in January to May 2006 increased by 8.1 per cent to 654,56t from 605,57t over a similar period in 2005.
There has also been increased budgetary allocation to road sub-sector and tax incentives contained in the fiscal year 2006/07 budget, such as, making cost of constructing selected buildings income tax deductible and industrial building allowance of 10 per cent for educational buildings.