Rising from the ashes, cement maker paints a rosy picture

Rising from the ashes, cement maker paints a rosy picture
Published: 13 September 2005

Three years ago, the fortunes of East African Portland Cement (EAPC) were at such a low ebb that many thought the firm was headed for receivership.

It made a loss of Sh269m in the year ending June 2003, and its shares performed dismally on the Nairobi Stock Exchange, hitting a record low of Sh8 in October 2002.

But when Zakayo ole Mapelu, the company’s Managing Director, announced on Wednesday that EAPC had made a profit of Sh1bn, industry players noticed.

The phenomenal story of EAPC’s change from a net loser to a profitable company is yet another example of how sound management can turn around a business.

Mr Boniface Kamau, the General Manager in charge of finance, laughs when he is reminded of their dismal state three years ago.

"Before last year we were doing badly but a dramatic rise in sales and an overall reduction in costs ensured that the firm returned to profitability," he says.

The giant cement maker, Kamau says, had performed badly for a decade due to a combination of factors. Key among them was poor management.

He says it reached a point when double invoicing and inflated cost of raw materials was the norm at the EAPC, adding that expenditure escalated against falling revenues.

Today, the cement maker has made steady progress in nearly all areas of its operations from mining to upping its distribution network, changing its financial state from a loss of Sh391 for the year ending June 2004, to a gross profit of Sh1.6bn.

Kamau says EAPC has emerged as "one of the most innovative players in the cement industry going by last year’s results."

During the period, the company increased its sales from 586,000t to 640,003t, representing a rise of 19 per cent.

Over the same period, the company’s sales grew by 29 per cent to Sh5.3bn from Sh4.1bn, representing the first time Kenya’s second largest cement manufacturer has surpassed the Sh5bn-mark. At the same time it reduced overhead costs by about Sh242m.

On the back of its robust growth in profits, its share price at the Nairobi Stock Exchange rallied from a record low of Sh8 in October 2002 to Sh107 at the close of trading on Wednesday.

Kamau says that the good run enjoyed by the company did not come on a silver platter.

"The impressive results were achieved through staff motivation and better financial controls."

As part of the strategy to became competitive in a sector fraught with stiff competition, EAPC has been working round the clock to reduce excessive fat from its operations. This is intended to counter the vicious price war that obtains in the industry.

"Over the past year we have compressed our costs which has enhanced our return on capital," observes Kamau. "We are getting more output with less input."

For instance, to cushion itself against soaring oil prices, which take 40 per cent of its costs, the company has hedged oil purchases against an agreed fixed rate, saving Sh160 billion.

Another major step in the turnaround was to motivate labour as staff morale had been fallen, according to Kamau.

"Senior managers have made it a routine to visit workers in their stations to uplift their spirits," he says.

"The result is reflected on the firms fortunes." This, Kamau adds, enabled EAPC to increase its daily output from 1500t to 3200t with the same machinery and personnel.