Bamburi profits trapped

Bamburi profits trapped
26 July 2004

Despite reporting a 59 per cent increase in its after tax profits, Bamburi Cement Company is yet to muster the intricacies of public policy formulation in Kenya.  The firm had expected to report higher profit margins with increased use of cement in roads construction after the Government announced that it was looking for more economical options. Now, one year down the line, Bamburi is still waiting for this construction windfall with the result that the six month figures released last week represented only a small fraction of the company’s profits forecast.  Even though the results defied the many odds in the market, analysts say that Bamburi, just like other cement industry players could have done better with government projects.

"It has performed better than we expected in view of the slow rate of economic growth," one analyst at the Nairobi Stock Exchange said. "However, our fear is that in the medium term, things are not looking good because the appetite for Bamburi’s products are linked to the rate at which the economy will grow, and the latter does not appear to be in good shape," the analyst said.

The firm, which has over the years controlled close to 40 per cent of the regional market, however, appears to have shaken off effects of the decade-long stagnation of Kenya’s economy.  Its Profit After Tax before minority interest rose to Sh822 million above the previous period’s Sh516 million.

A government plan to provide 150,000 housing units in urban areas and 300,000 units in the rural areas annually is yet to be implemented. And Lands minister Amos Kimunya, who took up the housing portfolio in the wake of a recent Cabinet reshuffle, now says it may be take off at all. Instead, he called on the private sector to take up the challenge and provide the housing.  Market insiders say that even though the Bamburi Group turnover went up by 15 per cent to Sh5.5 billion, the firm’s future growth projections might be affected by lack of new large public construction investments.

Bamburi’s profitability ratios have also been hit by a price war between itself and the competition and the company is planning to cut down on operational costs by improving on competitiveness.  "We are faced with the challenges of high costs of coal and freight price challenges," Didier Tresarrieu, the managing Director, told investors last week.

Published under Cement News